3/21/2012 MWEA MWEA Meeting Meeting March 14, 2012 March 14, 2012 CONTACT INFORMATION CONTACT INFORMATION RODERICK S. “Rick” COY RODERICK S. “Rick” COY CLARK HILL PLC CLARK HILL PLC 212 EAST GRAND RIVER AVE 212 EAST GRAND RIVER AVE 212 EAST GRAND RIVER AVE 212 EAST GRAND RIVER AVE LANSING, MI 48906 LANSING, MI 48906 PHONE: (517) 318 PHONE: (517) 318- -3028 3028 FAX: (517) 318 FAX: (517) 318- -3099 3099 Email: rcoy@clarkhill.com Email: rcoy@clarkhill.com Electricity Rates Electricity Rates Charged to Municipals Charged to Municipals Unreasonable and getting worse! Unreasonable and getting worse! 1
3/21/2012 Lack of Competition Raises Costs Lack of Competition Raises Costs � We had competition from 2000 We had competition from 2000 – – 2008 2008 � It reduced rates for those who chose alternative It reduced rates for those who chose alternative suppliers suppliers � It kept rates down for those who stayed with the It kept rates down for those who stayed with the I k I k d d f f h h h h d d i h h i h h incumbent utility companies incumbent utility companies � But, then the legislature re But, then the legislature re- -monopolized the monopolized the electric utility industry in Michgan in 2008 electric utility industry in Michgan in 2008 Competition works Competition works � Airlines Airlines � Trucking Trucking � Telecommunications Telecommunications � Natural gas Natural gas 5 It worked in Michigan from 2000 It worked in Michigan from 2000- -2008 2008 � Michigan electric markets opened in 2000 Michigan electric markets opened in 2000 � Our electric rates were way higher than regional Our electric rates were way higher than regional averages averages � Gov. John Gov. John Engler Engler identified it as a key business identified it as a key business disincentive in the disincentive in the 1990’s 1990’s; every study since ; every study since continues to identify high utility rates as a continues to identify high utility rates as a disadvantage to locating in Michigan disadvantage to locating in Michigan � North Star Steel Plant located in Ohio, not Michigan North Star Steel Plant located in Ohio, not Michigan � Last major auto plant in Michigan in Lansing, where Last major auto plant in Michigan in Lansing, where muni rates lower muni rates lower 6 2
3/21/2012 Closing the gap, 2000 Closing the gap, 2000- -2008 2008 Michigan rates compared to national average Michigan rates were 0.53 0.49 0.46 above national average – 0.41 0.36 until competition started 0.29 0.24 in 2000 0.22 0.19 0.19 0.16 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -0.11 -0.32 -0.58 -0.60 -0.67 -0.76 -0.80 -0.91 7 New generation under 2000 law New generation under 2000 law � From 2000 From 2000- -2008, independent power producers 2008, independent power producers built 4,000 megawatts of new power built 4,000 megawatts of new power � Plants in Dearborn, Zeeland, Covert, Carson City Plants in Dearborn, Zeeland, Covert, Carson City and Jackson built at shareholder expense and risk and Jackson built at shareholder expense and risk and Jackson built at shareholder expense and risk and Jackson built at shareholder expense and risk � Increased reliability in Michigan Increased reliability in Michigan � Proof that new generation can be built under Proof that new generation can be built under competition – competition – without mandates that customers pay without mandates that customers pay for utility mistakes for utility mistakes 8 New Laws 2008 New Laws 2008 � New Laws New Laws � Act 286 of 2008 Act 286 of 2008 � Act 295 of 2008 Act 295 of 2008 3
3/21/2012 New Laws Effective October 2008 New Laws Effective October 2008 � Utilities hailed passage Utilities hailed passage � Said cleared way for new plants Said cleared way for new plants � Said would lower rates for factories Said would lower rates for factories � S id � Said would provide greater “predictability” Said would provide greater “predictability” S id ld pr ld pr id id r r t r “pr di t bilit ” t r “pr di t bilit ” � Reality Reality � No new plants No new plants – – none needed! none needed! � Industrial rates increase despite demand reduction Industrial rates increase despite demand reduction � Twice a year, predictably, they raise their rates. Twice a year, predictably, they raise their rates. 10 Act 286 Act 286 - - Subjects Subjects � Future, not actual costs Future, not actual costs � Automatic Rate Increases Automatic Rate Increases � Choice restricted to 10% Ch i Choice restricted to 10% Ch i t i t d t 10% t i t d t 10% � MPSC approval of mergers MPSC approval of mergers � Cert. of Need (CON) Cert. of Need (CON) � Cost based rates?!? Cost based rates?!? What’s happened since 2008? What’s happened since 2008? 12 4
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3/21/2012 What’s happened to Consumers Energy rates What’s happened to Consumers Energy rates since 2008 since 2008 CE electric case CE electric case Date of increase Date of increase Amount Amount U- -15245 15245 6/10/2008 6/10/2008 $27,468,600 $27,468,600 U- -15645 15645 11/2/2009 11/2/2009 $139,411,000 $139,411,000 U- -16191 16191 11/4/2010 11/4/2010 $145,749,000 $145,749,000 U- -16794 16794 12/11/2011* 12/11/2011* $165,475,000 $165,475,000 Total higher electric cost Total higher electric cost $478,103,600 $478,103,600 *Date of automatic increase per 2008 PA 286 CE gas case CE gas case Date of Increase Date of Increase Amount Amount U- -15506 15506 12/23/2008 12/23/2008 $22,400,000 settlement $22,400,000 settlement U- -15986 15986 5/12/2010 5/12/2010 $65,893,000 $65,893,000 U- -16418 16418 5/2011 5/2011 $31,364,000 settlement $31,364,000 settlement Total higher gas cost Total higher gas cost $119,657,000 $119,657,000 19 What’s happened to Consumers Energy rates What’s happened to Consumers Energy rates since 2008 since 2008 Increase Increase % increase % increase in mills in mills over 10/08 1 over 10/08 Rate cases Rate cases 1. 1. a. U- a. U -15645 general rate case 15645 general rate case Interim 5/09: $179 million Interim 5/09: $179 million i. i. Final 11/09: $134.3 million Final 11/09: $134.3 million 4 mills 4 mills ii. ii. b. U b. U- -16191 general rate case 16191 general rate case i. Final 11/10: $146 million i. Final 11/10: $146 million 4.4 mills 4.4 mills Total new rate increases Total new rate increases 8.4 mills 8.4 mills 8.9 % 8.9 % 2. PSCR 2. PSCR a. U a. U- -15415 (2008) PSCR av. 47.46 mills 15415 (2008) PSCR av. 47.46 mills b. U b. U- -16045 (2010) PSCR av 53.33 mills 16045 (2010) PSCR av 53.33 mills 4.9 mills 4.9 mills c. U c. U- -16432 (2011) PSCR 16432 (2011) PSCR 2.6 mills 2.6 mills Total PSCR increases Total PSCR increases 7.5 mills 7.5 mills 7.9 % 7.9 % 3. Other increases, 10/08 3. Other increases, 10/08- -1/11 1/11 Nuclear decommission credits expire; stranded cost, electric restructuring, Nuclear decommission credits expire; stranded cost, electric restructuring, securitization bond and tax, UETM, E securitization bond and tax, UETM, E- -1 discount, RPS, energy optimization, 1 discount, RPS, energy optimization, electric choice incentive electric choice incentive 7.9 mills 7.9 mills 8.3% 8.3% Total rate case, PSCR, new charges Total rate case, PSCR, new charges 23.8 mills 23.8 mills 25% 25% 20 Results since implementation in October 2008 Results since implementation in October 2008 Michigan overall electric rate increases, Dec. 2008 to May 2011 (understates DTE/Consumers increases) 15.47% 10.58% 10.33% 5.67% 3.29% 3.13% East North Illinois Indiana Michigan Ohio Wisconsin U.S. Central -4.18% All sector increases, comparing cents per kWh 21 Source: US Energy Information Agency 7
3/21/2012 Results since implementation in October 2008 Results since implementation in October 2008 Midwest industrial rates, May 2011 8 7.73 7.5 7.22 7 6.46 6.5 6.23 6.1 6 5.87 5.5 5 4.5 4 3.5 3 East North Central Illinois Indiana Michigan Ohio Wisconsin In cents/kWh 22 Source: US Energy Information Agency Michigan rates compared to national average 0.53 Once competition killed, 0.49 0.46 0.41 Michigan electric rates 0.37 0.36 0.29 increase above national rates 0.24 0.22 0.19 0.19 0.16 0.15 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -0.11 -0.32 -0.42 -0.58 -0.60 -0.67 -0.76 -0.80 -0.91 23 Results since October 2008 � Gap between Michigan and other states grows Gap between Michigan and other states grows � Especially Illinois and Ohio, who have used Especially Illinois and Ohio, who have used competition to lower rates competition to lower rates � Michigan rates now above national average Michigan rates now above national average g g g g � Utilities decide they don’t need additional Utilities decide they don’t need additional power, drop plans for new plants power, drop plans for new plants 24 8
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