Michigan's regulators just named the mechanism: end annual rate cases, tie profit to performance

The Michigan Public Service Commission has done something rare: it named the mechanism that drains ratepayer wallets and how to fix it. ^[1] In a letter to Gov. Gretchen Whitmer this summer, the three-person commission told state lawmakers that Michigan's regulatory model pays utilities a return on what they build, which pushes them toward expensive capital projects and away from cheaper options like tree trimming, maintenance, or better use of existing infrastructure. That is not an accident. It is how rate-of-return regulation works.

DTE Electric and Consumers Energy have filed for rate increases every 12 months, and Michigan law lets them do it. ^[1] In 2026 alone, DTE won a $242.4 million increase in February and filed for a $474 million increase in April (a 9.7% hike for residential customers), while Consumers Energy collected a $276.6 million increase in March and filed again. ^[2][5][7] Each filing is a rate case, each one brief and each one approved. The pattern is not a bug; it is a feature of a system that treats utilities like a vending machine: feed in capital spending and turn the crank to collect the return. The commission's insight is that this structure has no built-in brake on capex bias.

The MPSC's core recommendation: ban annual rate cases and replace them with multiyear rate plans tied to performance on reliability and affordability metrics. ^[1] That is performance-based regulation (PBR) by another name. Under a multiyear plan, the utility's revenue is fixed for (say) three or five years, which means it keeps the savings it earns by cutting costs or deferring capex instead of filing again to recover them. The incentive flips: capital becomes optional, not mandatory. The commission also called for utilities to show they are extracting more from existing transmission and distribution lines (advanced conductors, grid-enhancing technologies) before building new ones. ^[1] A Brattle Group study cited by the MPSC found that a 10% increase in grid utilization could cut rates 3.4% nationally. ^[1] In Michigan's case, that translates to hundreds of millions of dollars that stay in ratepayers' pockets instead of funding new plants.

The commission is also targeting the hidden incentives buried in cost recovery. One example: utilities collect a bonus for buying power on the wholesale market, a carry-over from deregulation logic that no longer applies when a utility owns generation. ^[1] Another is the rate-case expense itself: utilities recover the cost of their legal and engineering team that argues for the rate increase, meaning ratepayers fund the case against themselves. ^[1] These are not large individually, but they are systemic: they reward complexity, litigation, and capital intensity instead of efficiency and restraint.

What the MPSC cannot do alone is fix the statute. Michigan law sets the rules; the commission administers them. The regulator's letter is a cry from inside the system: we see the problem and we are bound by the law that created it. Chair Dan Scripps said it plainly: "sometimes in a system where they earn more based on how much they spend and invest in the system, you get results that aren't necessarily tied to affordability as a priority." ^[8] That is the diagnosis. The prescription is statutory: multiyear rate plans with performance incentive mechanisms (PIMs), earnings tests that cap returns and flow excess profits back to ratepayers, and a ban on annual rate-increase filings.

Hawaii implemented a version of this in 2020, fixing the utility's revenue for a five-year control period and tying returns to targets on affordability, reliability, and emissions. ^[3] The United Kingdom's RIIO (Revenue = Incentives + Innovation + Outputs) framework has operated similar structures since 2015. Michigan has the blueprint. What it lacks is legislative will to confront DTE and Consumers Energy, which together have filed 19 rate cases in the state in recent years and fund a robust lobbying presence in Lansing.