Have you ever been unpleasantly surprised by an electricity bill? Like most Americans, your answer was probably yes. If you’re a Michigander your answer was an absolute yes. Unfortunately, electricity prices have been on the rise for the past 25 + years in the continental United States; annually rising 4-6% on average. But why is this? What causes this phenomenon of increasing electricity prices and how as a home-owner can you guard yourself against price inflation year after year? These are some of the questions we seek to unpack and bring into the light.
First, let’s examine the most basic reason that rates go up – investor-owned utilities. In Michigan, the largest two utilities, DTE & Consumers Energy are investor-owned meaning they are publicly traded and pay dividends to their stock-holders. It also is true that investor-owned utilities are guaranteed by law a 10% return on capital investments. So in the most basic sense every time one of these utilities spends capital dollars – whether on new electricity generation, transmission, distribution, or upkeep in any of these three areas – they are guaranteed a profit. So, annually the utility submits a rate case to the Public Service Commission governing them, and they ask for an increase for reason x,y and z which they often get because of their guaranteed return. Because of DTE’s investor-owned model, customers pay an average of $13 additional dollars on each month’s bill that will go directly to shareholders.
Let’s examine some alternative reasons why electricity rate hikes will not be leaving society any time soon:
1. Electrification of the Grid
More than ever we are using electricity; whether it is a new home built with 2 – 200amp main service panels, your new electric car, on-demand water heater or electric fleet at work – the world around us is electrifying. This increased load to the grid will require significant investment to maintain our current systems – any utility will need to pay to improve their infrastructure to maintain their level of service
2. Volatility in Natural Gas prices
Currently the most common energy generation asset in a utility’s portfolio is the natural gas generation plant, in fact, it is all they are building because it is the cheapest fossil fuel out there. However, this is a dangerous game because Natural Gas prices have been at an extremely low price for the past 15 years due to fracking. As fracking becomes more and more politically unstable prices will become volatile, and guess what – you, the ratepayer pays for the input to your electricity output, so if input price goes up you better bet output price goes up!
3. Behind-the-Meter Solar Penetration
What am I talking about here? Behind-the-meter solar is what you see on private homes and businesses that have made an investment in clean energy. This affects ratepayers because the more homes and businesses go solar the more the burden is laid on other ratepayers to fund that 10% guaranteed return to the utility company. The fewer people the utility company can raise rates on the more each of the ratepayers will pay. This is likely still out into the future here in Michigan, but places with higher levels of solar adoption like California are seeing this already.
4. Utility-Scale Renewable Energy Projects
As more solar and wind generation projects come online the more there will be a need to shift energy generation to other parts of the day: ex. Midnight when there is no sun shining. This will call for the use of batteries in a variety of capacities, which will need to be funded by, you guessed it! Ratepayers! Here is a shortlist of examples:
- For the U.S. as a whole, electricity prices rose 7 percent while electricity from solar and wind grew from two to eight percent from 2009 to 2017
- In North Dakota, electricity prices rose 40 percent while electricity from solar and wind grew from nine to 27 percent between 2009 and 2017.
- In South Dakota, electricity prices rose 34 percent while electricity from solar and wind grew from five to 30 percent between 2009 and 2017.
- In Kansas, electricity prices rose 33 percent while electricity from solar and wind grew from six to 36 percent between 2009 and 2017.
- In Iowa, electricity prices rose 21 percent while electricity from solar and wind grew from 14 to 37 percent between 2009 and 2017.
How have rates in Michigan been? What is the status of rate hikes?
Depending on your utility company in Michigan your utility rates have risen between 41-52% in the past 10 years alone. Consumers Energy currently has a rate case being examined by the Michigan Public Service Commission that would increase rates by 14%! DTE was denied their 9+% ask earlier this year during the early months of Covid-19 and granted only 4.7% due to the looming pandemic
What is the answer to the issue of ever-increasing rates?
I’m glad you asked! The solution to ever-increasing electricity costs from the utilities is to own your own power. The most reliable method: solar. When you go solar you pay a set price for your system that will produce x amount of energy. Every unit of energy that comes from your solar asset has the same per-unit price, meaning: the rate will never increase! This is the best, most effective way to immediately shield your pocketbook from rising electricity costs and find a return where there previously was no return.
In summary; rates will never decrease and are on an exponential uptick that ratepayers can do nothing but hope and pray their utility company is allocating funds accurately and in an economic fashion. For many reasons aside from guaranteed profit on capital investment rates will continue to increase as technology grows our society. The best way to hedge against the risk of rate increases is by going solar today!
If you or another business is interested in having an undeniable impact on your triple bottom line give us a call for a free consultation to see if solar is right for you! Call (248) 923-3456 or request a Free Online Solar Analysis for Your Business.
Michigan Solar Solutions is a commercial and residential solar installer and electrical contractor that has served the lower peninsula of Michigan since 2007. We have installed thousands of panels and have a happy customer near you, check out what our customers think of us Guild Quality.