Energy utilities in Michigan reaped increased earnings during the COVID-19 pandemic because their customers are using more energy at home than usual. Increased revenue from residential customers has more than offset commercial and industrial revenue reductions because residential rates are higher than commercial and industrial rates. DTE Energy estimated it would realize $30 million in gross margin attributed to changes in energy usage patterns related to COVID-19 in 2020.  Consumers Energy earned $28 million more than expected ($16 million electric and $12 million gas). Both utilities committed to voluntary refunds of these windfall earnings.

At the same time as household energy use and costs increased, many residential customers struggled to pay their bills owing to increased unemployment and other COVID-related impacts. Ratepayer relief is badly needed.

This brief argues that windfall COVID-related revenues that utilities have realized, and continue to realize, should be refunded as promptly and directly as feasible to residential customers, targeting the support to those most impacted by the COVID crisis. Both emergency assistance and rate relief could be targeted to those most in need, relatively quickly. In contrast, both DTE and Consumers have proposed to apply their windfall earning to system improvements, rather than returning the money directly to ratepayers.

Refunds of Windfall Revenue are Voluntary

As long as utilities charge their approved rates, they are generally allowed to make more – or less- money than originally projected. The MPSC cannot compel utilities to refund earnings higher than expected, or to pay for specific needs with those funds. The utilities’ intention to return windfall earnings to ratepayers is commendable, and stakeholders should take an active role in helping the utilities identify the best use of those funds.

DTE and Consumers Do Not Prioritize Assisting Vulnerable Customers With Their Voluntary Refunds

In its December 2020 filing with the MPSC, DTE Energy stated its intention to apply its $30 million gross margin to reliability investments in its electric distribution system. This proposal, appropriately, would benefit most the residential ratepayers who generated the gross margin. However, it would not provide immediate or direct relief from financial stresses that the COVID pandemic has placed on residential customers. Nor does this proposal represent a commonly understood use of the term “refund”: there is no suggestion of putting money back in the pockets of the ratepayers who provided the extra revenue. Furthermore, by increasing DTE’s assets, these investments would actually lead to future rate increases – essentially transforming extra money collected from customers during a time of hardship into even more money billed to customers in the future.

Consumers Energy filed a proposal on February 26, 2021 with the MPSC detailing proposed allocation of its voluntary refund. Out of a total of $28 million, only $3 million is specifically targeted at vulnerable ratepayers. $1 million is targeted to cover administrative costs of the Company’s Percentage of Income pilot program. $2 million is targeted to support public communication to help more vulnerable ratepayers learn about and access Cold Weather Assistance. The remaining $25 million of the refund is earmarked for programs that do not focus on low-income or vulnerable customers. None of the $28 million “refund” would promptly or directly put money back in the pockets of the customers the money came from, consistent with the commonly understood meaning of the term “refund.”

Local Governments Have a Stake in How COVID-Related Gross Margins are Allocated

Local governments serve their residents and businesses and know best who needs what kind of help and how best to deliver it. They should take an active role in advising the utilities and the MPSC in design and implementation of COVID-19 response efforts.

Local Governments Should Engage Utilities in Dialog About COVID-related Ratepayer Refunds

There are several reasonable ways that the utilities could apply the refunds to help ratepayers struggling during the COVID crisis. The most important message local governments can give utilities is that their voluntary COVID refunds should help struggling residential ratepayers as promptly and directly as possible. We suggest dialog advancing this general principle because the refunds are voluntary to begin with and a collaborative approach seems more likely to elicit a creative and positive response than more prescriptive requests. In addition, local needs and preferences may vary across the state and local governments are well positioned to understand and represent those differences.

Refunds Could Support Vulnerable Customers Through Increased Emergency Assistance

A rising number of utility customers are falling behind on their bills and potentially facing shutoffs. Probably the easiest emergency assistance program for utilities to provide supplementary funding for is MEAP (Michigan Energy Assistance Program) because it is a ratepayer-funded program. LIHEAP (Low Income Home Energy Assistance Program) and Home Heating Credit (HHC) programs are also valuable programs that need more support now, but are federally funded and would be trickier for utilities to supplement with voluntary refund money.

Percentage-of-Income-Payment Program (PIPP) Pilots Would be a Timely Use of Refunds

Both DTE Energy and Consumers Energy are piloting PIPPs, which reduce energy poverty by making sure that customers do not pay a higher percentage of their income for energy than is sustainable. PIPPs have administrative and rate-subsidy costs that utilities recoup by increasing tariffs paid by better-off customers. Rather than passing PIPP costs on to other customers via higher rates in these difficult times, utilities could instead use COVID-19 related gross margins already collected from those ratepayers.

PIPP pilots will be fleshed out in both DTE and Consumers’ upcoming rate cases. Because they do not yet have funding sources baked into rates, they would be a timely and relevant way to apply the COVID refunds. In contrast, the emergency assistance programs mentioned above already have funding sources – though they can always use more, especially now.

In sum, we recommend that local governments engage with utilities to advocate direct and prompt assistance targeted at the neediest utility customers, rather than making investments in assets that may deliver long-term reliability or other benefits to customers but don’t help with financial stress now. Provided that utilities agree to some form of emergency assistance or rate relief, more specific uses of the funds should be discussed with reference to local needs and conditions, and utility preferences.