The Michigan Public Service Commission (PSC) has directed Consumers Power Co. to scale back any residential rate subsidies. The order appeared during a review of a proposed settlement in a series of applications to increase rates, revise depreciation methods, and offer discounts to industrial customers.
The PSC added, however, that the company should not try to eliminate the entire subsidy in a single step. (The PSC noted that nearly 70 percent of the overall increase was allocated to residential customers in the utility's last rate case.)
In the current case, the PSC calculated a revenue deficiency based on a cost of equity of 12.25 percent. Under the partial final order issued by the PSC, residential rates will increase by an average of 3.9 percent immediately, and by another 3.9 percent later in the year. Further orders are expected as the PSC continues to review various settlement offers.
The PSC said that rates above cost of service may encourage industrial customers to seek "societally noneconomic alternative electric supplies." It rejected a suggestion by the state's Attorney General that industrial customers enjoyed cost-based rates and that, if such rates caused some to leave the system, other ratepayers would benefit because the need for new capacity would be reduced. Re Consumers Pwr. Co., Case No. U-10685, Feb. 5, 1996 (Mi.P.S.C.).
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