Staff of the Michigan Public Service Commission filed testimony supporting a $239.1 million rate increase for DTE Electric Co., half of what the utility is seeking. Staff's Aug. 26 testimony supports a continuation of DTE Electric's return on equity of 9.90%, versus the utility's requested 10.25%.

➤ Staff of the Michigan Public Service Commission (PSC) filed direct testimony recommending a $239.1 million rate increase for DTE Electric Co. (DTE-E), representing an approximate 50% reduction to the utility’s original $474.3 million request. The $235.2 million difference is primarily driven by net operating income adjustments ($114.3 million), staff's lower rate of return ($81.8 million), and rate base reductions ($39.1 million).

➤ Staff recommends maintaining DTE-E's existing authorized return on equity (ROE) at 9.90% (39.21% equity layer) and a 5.74% overall rate of return on a $25.40 billion rate base for the test year ending Feb. 29, 2028. While the recommended 9.90% ROE is slightly above the national average authorized electric ROE of 9.84% recorded across first half 2026, the company had requested an ROE increase to 10.25%.

➤ The Michigan regulatory climate is viewed as somewhat constructive but was downgraded in 2024 to average due to tighter outcomes in rate proceedings.

Staff's rate increase is premised upon a 9.90% return on equity (39.21% of regulatory capital structure) and a 5.74% overall return on a rate base of $25.40 billion and test year ending Feb. 29, 2028.

The recommended ROE is slightly above national average. According to calculations by RRA, the overall average authorized ROE for electric utilities was 9.84% in rate cases decided in the first half of 2026, equal to the average for full-year 2025. There were 25 electric ROE authorizations in the first half of 2026 versus 86 in full-year 2025.

RRA calculates that about $81.8 million of the approximately $235.2 million difference between the $474.3 million increase requested by DTE-E and the $239.1 million rate hike recommended by the staff is attributable to the staff's reliance on a lower rate of return. Staff's recommended adjustments to rate base reduced the revenue requirement by $39.1 million. The remaining difference ($114.3 million) is attributable to staff-recommended net operating income adjustments.

Staff projects an increase in net income of $88.0 million from the company's original filing, driven by higher projected operating revenues and lower operations and maintenance (O&M) expenses. Staff recommends an inflation increase of $47.3 million to O&M expenses, a $4.3 million reduction from the company's request, by using different inflation factors and rejecting the company's blended rate due to concerns about double-counting and rising utility prices driving inflation.

Staff also proposes significant reductions to employee benefit projections, including Voluntary Employees' Beneficiary Association benefits expense reductions by $1.3 million based on a five-year average annual growth rate of 1.44%; reductions in Employee Savings Plan expense of $1.6 million, using a five-year average annual growth rate of 2.89%; and reductions in active healthcare expense of $3.8 million due to increased spending on Wellness Plan expenses not yielding direct reductions.

Staff also recommends disallowing $2.1 million for the Walker Cisler Building Refresh and $3.6 million for the Old SOC Renovation, citing a lack of detailed scope and cost breakdown from DTE-E. These two projects were not expected to begin until 2027 or 2028.

Staff recommends that if the commission approves the DTE-E's proposed large-load transition mechanism (LLTM), the regulatory liability should accrue interest at the authorized overall cost of capital. Staff's primary recommendation is to approve the LLTM with modifications, including its continuation beyond the test period and the inclusion of Google sales, to ensure ratepayer benefits beyond the test period.

The LLTM is a proposed system designed to fairly manage the financial impact of very large new electricity customers, such as data centers, on DTE-E's rates and, ultimately, on its existing customers.

Staff further recommends no change to the current $8.50 residential customer charge, noting that its cost-of-service study results in a lower charge of $7.54 per month.

Rate case background

DTE-E is requesting the commission grant it a $474.3 million rate increase. The request outlines major investments in the utility's distribution and generation infrastructure to improve grid reliability, with the goals of reducing power outages by 30% and cutting outage time in half by 2029. The company is also advancing its clean energy transition through coal-to-gas conversions at Belle River Power Plant, new battery energy storage systems (including at Trenton Channel), and the decommissioning of older generation assets at River Rouge, St. Clair and Trenton Channel power plants.

DTE-E's rate increase request (U-22046) is based on an authorized 10.25% return on equity (40.39% of regulatory capital structure) and a 5.97% overall return on rate base valued at $25.87 billion and test year ending Feb. 29, 2028.

In an April 23 press release, DTE-E announced that it intends to forgo requesting rate increases for at least two years following this rate case filing with the commission.

"Now more than ever, we know affordability matters to our customers — and we're doing everything we can to keep energy bills as low as possible while also providing the reliable power they need," said Joi Harris, president and CEO of parent company DTE Energy Co. "As long as the first data center project we're supporting comes online as planned by the end of 2027 and we're able to receive other regulatory approvals, we will refrain from filing another rate request until at least 2028 — providing customers two years without an increase in rates after the current request is complete."

No costs related to data centers are included in the request, management said. When a new large customer is brought onto the electric system, fixed costs can be spread more widely, according to the company. DTE's two data center contracts, one approved and one awaiting PSC approval, will contribute nearly $9 billion to improving DTE's electric system through 2045, helping to reduce the total amount needed from other customers.

The company said the rate increase request is necessary due to increased investments in plant and associated depreciation and property tax increases, as well as the impact of inflation and other cost increases on DTE-E's O&M costs.

DTE-E is pursuing a multiyear plan to enhance safe, reliable and cleaner energy through significant investments in its distribution grid, including upgrades to meet reliability standards. The company is also converting the Belle River Power Plant from coal to natural gas, developing battery storage projects, and ensuring the continued safe operation of the Fermi 2 nuclear plant, which provides carbon-free power through at least 2045. Additionally, it is implementing a transportation electrification plan to promote electric vehicle use by 2026.

Additions to rate base account for $355 million of the company's revenue request. A higher return on equity accounts for $108 million, and increased O&M expense for $47 million. However, higher forecast sales revenue, improved margins and other items offset the revenue ask by $37 million, according to the application.

DTE-E is requesting to recover the costs of its employee bonus and incentive programs aimed at attracting and retaining skilled workers and maintaining competitive pay. However, it excludes recovery for short-term financial incentives, long-term incentive plans and compensation for its top five executives.

Regarding rate design, DTE-E is proposing to extend and expand the Infrastructure Recovery Mechanism (IRM), which focuses on certain distribution capital expenditures that address customer safety, customer reliability and the integration of increasing levels of electric vehicles and distributed energy resources. The company proposed IRM surcharge revenue requirements of $154.4 million for 2028, $227.8 million for 2029 and $318.1 million for 2030.

It is also seeking approval for certain accounting requests, including but not limited to regulatory asset treatment for certain vegetation management costs, regulatory liability treatment for the net liability related to excess sales margin of its large-load customer, and deferral treatment for unamortized investment tax credits.

To further address affordability, the company indicated that it has led initiatives at both state and federal levels to expand access to assistance, including its Low Income Self-Sufficiency Plan, Low-Income Assistance Credits and Payment Stability Plan. Additionally, it connects vulnerable customers with energy efficiency resources to help reduce their energy consumption and bills.

RRA's view of Mich. regulation

RRA views the regulatory climate in Michigan as somewhat constructive from an investor perspective. However, on July 31, 2024, RRA reduced its ranking of Michigan regulation to Average/1 from Above Average/3. The jurisdiction remains more constructive than average from an investor viewpoint.

RRA had placed the state on watch following a 2022 rate case decision in which the PSC authorized DTE-E an increase in rates that was less than 10% of the requested amount, but did not lower the ranking at that time. RRA viewed the decision as an anomaly, as a large part of the revenue requirement difference stemmed from reliance on a higher post-COVID-19 sales forecast than the utility had used in its revenue requirement calculations. Since then, DTE-E has had three rate cases decided, with generally more constructive outcomes.

The commission has several constructive practices in place, including a streamlined rate case process, a framework for using forecast test years to reduce regulatory lag and a framework that permits a cash return on certain construction work in progress, thereby reducing the uncertainty of cost recovery. Retail competition for electric generation is in place but is limited, and attempts to raise this limit have not been successful. Electric utilities have retained their generation assets, and customers who do not select a competitive supplier receive service on a regulated, traditional cost-of-service basis. Adjustment mechanisms are in place for fuel costs for customers served under bundled service.

For additional information concerning the regulatory climate in Michigan, refer to the Michigan Commission Profile.

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