Attorney General Nessels' plea helps reduce I&M's electricity rate increase request by 50%

LANSING – Earlier this week, the Michigan Public Utilities Commission (MPSC) approved only 50% of the electric rate increase requested by Indiana Michigan Power Company (I&M), reducing the increase by more than $16 million after testimony from Michigan Attorney General Dana Nessel. Last fall, the company filed a request for a $34 million rate increase, or a 9.9% increase, for residential customers. In addition, I&M sought to increase monthly service charges for residential customers by 59% and monthly service charges for small commercial customers by nearly 90%. The company also sought the highest return on equity in the state at 10.5%.

Nessel filed testimony opposing the request, arguing for a $4.3 million rate decrease for I&M customers, with no increase in monthly service charges and a 9.8% return on equity. His testimony argued that I&M had failed to properly account for many of its expenses and sought increases for cancellations. projectsfailed to disclose the amount of incentive compensation included in its application and designed the incentive compensation to create shareholder value rather than customer benefits. In addition, the Attorney General testified that the company brazenly capitalized incentive costs that the Commission had explicitly disallowed in a prior rate case, thereby continuing to recover costs that should never have been included in the rates.

Although an interim order determined that I&M should receive only $6.6 million, the Commission ultimately approved $17.3 million, or 50 percent less than the company’s initial application. The Commission also limited the monthly service charge for residential customers to less than 1 percent and approved only a 9.86 percent return on equity. The Commission reprimanded the company for attempting to include cancelled projects, failing to submit a complete record with its direct evidence, and ordered I&M, in its next rate case, to demonstrate how the benefits to customers flow from its incentive compensation plan relative to the costs of the plan. The Commission noted that “…[d]despite the Commission's decision of 12 April [2018] “In the Order, I&M chose to shift unauthorized incentive compensation into the rate base, which has been improperly recovered from taxpayers since 2018…”

MPSC Chairman Dan Scripps expressed disappointment with the rate increase request that again attempts to include previously unauthorized expenses, saying at this week's meeting: “You would think that message would have been received, but you would be wrong.” Scripps added: “Instead… I&M reclassified, or what I would call, an accounting gimmick, to change the way this incentive compensation was treated from an operating and maintenance expense to a capitalized investment and hoped we wouldn't notice.“

Scripps then spoke about the interaction between the Commission and the regulated utility and warned at the meeting that “When the utilitarian mindset turns into a question: “What can we do without problems?” dark days await us.“

“Our review of I&M’s rate increases revealed significant problems,” Nessel said. “Demand was inflated by unjustified costs and funding for canceled projects. I&M also attempted to pass along incentive compensation costs that overwhelmingly benefited its shareholders at the expense of its customers, even attempting to circumvent prior Commission orders that disallowed many of these costs. That’s why my office is closely examining these cases to protect utility customers who seek to take advantage of the regulatory system.”

I&M serves approximately 129,000 retail electric customers in the state with a service area located in southwest Michigan, consisting of Allegan, Berrien, Cass, Kalamazoo, St. Joseph and Van Buren counties. The Commission's order can be found here (PDF).

Since taking office, Attorney General Nessel has saved utility customers more than $3.2 billion.

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