How Rates Are Set

 

LineWorker2What You Need to Know About Rates

Consumers Energy is a regulated utility, meaning that the Michigan Public Service Commission (MPSC) approves all rates for electric and natural gas service provided to customers.

Rates are primarily established in two basic regulatory proceedings that address:

  1. The base costs of utility service that incorporate the pipes and wires through which service is delivered and the costs of owning and operating power plants, and
  2. The costs for fuel and purchased power for electric service (power supply) or gas commodity costs. Utility costs that are approved for recovery by the MPSC are then established in electric and gas tariffs, reflected in the company’s Rate Book for Electric Service or Rate Book for Natural Gas Service

When the costs of doing business change, Consumers Energy files a request with the MPSC to obtain approval for rates that recover the costs necessary to operate the system. For changes in base costs, the proceeding is referred to as a general rate case.  Items affecting costs may include new investments that address environmental compliance, system reliability and customer service, as well as operating costs such as gasoline and taxes.

The utility must show the change is necessary to maintain an appropriate level of responsiveness and reliability for customers. The request for the increase is reviewed through the regulatory proceeding during which the utility presents evidence to demonstrate the costs are necessary and reasonable. 
 
The MPSC may take up to 12 months to review general rate case requests. During this time, it seeks input from the MPSC staff, Attorney General, industry groups, consumer advocates and customers. 

The average daily cost for electricity or natural gas is about $3 a day over the course of a year for residential customers. That’s less than the daily cost of cable TV, a combo meal or a specialty coffee!  And we deliver 24/7.

Consumers Energy offers a variety of rates depending on the type of customer and the service provided. Rate schedules are established for each type of customer and service level provided based on the costs necessary to serve each type of customer. Visit www.consumersenergy.com/rates for information about our different residential and nonresidential rates.

GasWorkerWhat is Included in Rates
Types of Charges on your Monthly Electric and Gas Bill
Electricity Charges
Natural Gas Charges
What Consumers Energy is Doing to Control Costs
What You Can do to Control Costs

What is Included in Rates 

The rates cover the major capital investments, such as infrastructure (poles, wires and pipelines), as well as the environmental upgrades at power plants and other facilities necessary to comply with state and federal standards. Rates also include day-to-day costs such as maintenance and repairs, service calls, meter reading and billing.

Rates also may include charges for special programs, such as energy efficiency and renewable energy projects. Often these charges will be itemized separately on the electric or gas monthly bill.

Types of Charges on your Monthly Electric and Gas Bill 

Charges for electric and gas service are broken into various components. These charges will reflect the latest authorized charges approved by the MPSC as reflected in Consumers Energy’s Electric and Natural Gas Rate Books. For a description of all energy charges on the bill, see Explanation of Electric Charges for Residential Customers and  Explanation of Natural Gas Charges for Residential Customers.

Electricity Charges 

There are generally two types of charges for electricity on a Consumers Energy residential customer bill.

  • Power supply charges include generation and transmission costs based on the amount of kilowatt-hours (kWh) used. Different rates are charged depending on the time of year and the amount of energy used. For example, energy used by customers served under the Residential Rate RS reflects a higher rate for energy use greater than 600 kWhs during the summer season. During the months June through September, “Energy First 600 kWh” refers to the first 600 kWh of energy used. “Energy Over 600 kWh” refers to any use above 600 kWh. The tiered pricing structure reflects the higher price to buy and produce electricity during the summer. This is primarily because of the increase in customer demand (load on the system) associated with air conditioning. The two levels also help encourage residential customers to conserve energy, which lowers the utility’s cost, saves fuel and benefits all customers. Winter electric rates (October through May), are lower and not based on a tiered rate structure. Consumers Energy does not make a profit on the cost of fuel or purchased power.
  • Delivery service charges include both customer-related and distribution services that are provided by the company. These include a monthly system access charge, distribution charge, energy optimization charge and securitization charges.
    • System access charge recovers the costs of metering, meter reading, billings and other customer-related operating costs, exclusive of demand and energy use. The fixed charge is $7 per month.
    • Distribution charge is based upon the kWhs used by the customer. This charge recovers costs related to the equipment used for delivering electric energy from the transmission system to the customer, including operating and maintenance expenses of the distribution plant.
    • Energy optimization charge is a monthly per kWh surcharge that helps recover costs associated with the company’s Energy Efficiency Programs required by the 2008 energy law.
    • Renewable energy plan charge is a monthly per meter charge to recover the incremental cost of compliance to meet renewable energy standards.
    • Other surcharges vary from month to month and are identified on the bill. You will be able to find more specific information about these charges either on bill messages at the top of your bill, or on the insert provided with your paper bill.

Natural Gas Charges 

The majority of natural gas charges result from the cost of the gas commodity.  Approximately 65 percent of a typical customer’s bill is for the cost of the gas. Consumers Energy does not make a profit on the cost of gas. Gas usage is measured per thousand cubic feet (Mcf).

Typically there are three charges for natural gas on a Consumers Energy residential customer bill.

  • Gas cost recovery covers the cost of the natural gas per Mcf. This charge may change each month to reflect current market prices. Under state law, Consumers Energy can’t make any profit on the natural gas, so it charges customers only what it pays for the gas. The utility buys most of the gas customers will need for the upcoming winter during the summer. This is because prices are generally lower. It is then stored in underground storage fields.
  • Distribution charge includes recovery of operations and maintenance expenses (i.e. maintaining pipelines, new pipelines, storage well reliability, etc.). The monthly charge, which varies by rate class, is about $2.50 per Mcf for most residential customers.
  • Customer charge includes recovery of customer-related activities (i.e. meter costs, customer accounting, customer billing, etc.). The fixed charge is $10.50 per month.

To view the current price that Consumers Energy pays for natural gas and passes along without a mark-up, see the
18-month history for gas cost recovery.

What Consumers Energy is Doing to Control Costs 

We’re working to keep your electric and natural gas rates affordable. Consumers Energy is among the nation’s leaders when it comes to holding down operations and maintenance costs while providing reliable service to customers.

Here are a few ways we control costs to help keep prices as low as possible for you and other customers:

  • We buy natural gas during the summer when it generally costs less and store it in our underground fields located throughout Michigan
  • We’re reducing power plant fuel costs by increasing the use of lower-priced Western coal from Wyoming and Montana
  • Comprehensive recycling and waste minimization programs help reduce hazardous waste shipments and lower electric generation costs. Consumers Energy recycles more than 20 major types of waste
  • A robust line-clearing maintenance program helps increase system reliability and reduce tree-related outages and restoration costs
  • We have a variety of electric generation facilities and run the most efficient units more often. We reserve our other units for times when customer demand is at its highest and buying power on the open market would be more expensive
  • In case of catastrophic storms (180,000 customers or more lose power), we work with the Great Lakes Mutual Assistance Group to get crews from other Midwest utilities. This helps lessen the impact, duration and cost of storm-related outages

What You Can do to Control Costs 

  • Choose the Best Rate. Make sure you are on the right rate and are taking advantage of any credits for which you may qualify. We offer credits for residential customers, including low-income, and senior credits.  Check your rate.
  • Save Energy and Money with Energy Efficiency. Reduce your demand for electricity and natural gas with  energy efficiency products and services. We offer rates and incentives for electric and natural gas customers.
  • Manage Your Bill. Save time and money when you receive and pay your bill online using our convenient options such as eBill, Direct Pay and  Recurring Card Payments, with bills automatically charged to your Visa® or MasterCard® each month. You also can better manage your household budget with our Budget Plan program that offers equal monthly payments.