DTE Energy just notified all their large customers that they're switching to time-of-use delivery rates starting in June. This affects both bundled and choice customers. The new rate structure has peak delivery charges from 2-7 PM weekdays at $0.12/kWh vs off-peak at $0.04/kWh. For manufacturing clients with daytime operations, this is going to be brutal. Anyone else in Michigan getting these notices? Wondering if Consumers Energy is doing something similar.
Michigan - DTE switching to time-of-use delivery rates
Tina, we've been seeing similar moves toward time-of-use delivery rates across the Midwest. Here in Wisconsin, WE Energies implemented TOU delivery rates for large customers last year. The theory is that it better reflects the actual cost of providing service during peak periods. But you're right that it hits manufacturing customers hard, especially those that can't easily shift their production schedules. Have you run the numbers on what this means for your clients?
Glen's right about the cost-based justification, but the problem is these TOU delivery rates often penalize customers who can't shift load. A hospital or data center can't just shut down during peak hours. In Tennessee, TVA has been pushing time-of-use rates but at least they grandfathered existing customers for a transition period. Tina, did DTE provide any options for customers to opt out or delay implementation?
Randy, DTE is offering a one-year delay for customers who can demonstrate "operational hardship" but the criteria are pretty vague. Glen, I ran preliminary numbers for three manufacturing clients and they're looking at 25-40% increases in their delivery charges. The peak period from 2-7 PM captures most of their production hours. One client is considering installing battery storage just to avoid the peak delivery charges, which seems backwards from a grid efficiency standpoint.
Tina, the battery storage angle is interesting but probably not cost-effective just for delivery charge avoidance. The economics only work if you can also capture demand charge savings and maybe some ancillary revenue streams. Here in North Carolina, Duke Energy has been talking about TOU delivery rates but hasn't pulled the trigger yet. The manufacturing lobby has been pushing back pretty hard. Did Michigan manufacturing associations oppose DTE's proposal?
Wayne raises a good point about the manufacturing lobby. Here in West Virginia, our manufacturers have a lot of political influence and utilities think twice before making changes that hurt industrial customers. Michigan's economy depends heavily on manufacturing so I'm surprised DTE was able to push this through. Tina, was this approved through a traditional rate case or did they use some kind of expedited process?
Wanda, it went through the Michigan Public Service Commission but DTE framed it as a "grid modernization initiative" rather than a rate increase. The MPSC bought the argument that TOU rates would encourage more efficient use of the grid and reduce overall system costs. The manufacturing association did oppose it but DTE had support from environmental groups and some large commercial customers who think they can benefit from load shifting.
This is a classic case of utilities socializing costs and privatizing benefits. DTE gets to smooth out their peak demand and reduce infrastructure investment while manufacturing customers bear the cost burden. Here in Oklahoma we're still mostly regulated but I've seen similar tactics from other utilities. The "grid modernization" label makes it sound progressive but it's really just cost shifting to customers who can't easily respond to price signals.
Ed makes a good point about cost shifting. In New Jersey, PSEG tried something similar a few years ago but backed down after customer pushback. The problem with TOU delivery rates is they assume all customers have the same ability to shift load, which isn't realistic. A steel mill can't easily move production to off-peak hours like a commercial office building can. Tina, are any of your clients considering switching back to DTE's bundled service to avoid the TOU delivery charges?
Tony, that's an interesting question about switching back to bundled service. DTE's bundled rates also have the TOU delivery component, so there's no escape that way. But some clients are looking at switching suppliers to get better generation rates that might offset some of the delivery cost increases. The problem is finding suppliers willing to offer long-term contracts when delivery costs are becoming so unpredictable.
Tina, that's a smart approach looking for generation savings to offset delivery increases. The challenge is that most suppliers are getting more cautious about long-term pricing given all the volatility in power markets. You might have better luck with shorter-term contracts that you can renegotiate as market conditions change. Also worth exploring whether any of your manufacturing clients qualify for interruptible service programs that might provide some relief from peak delivery charges.
Randy's suggestion about interruptible programs is good. Here in Tennessee, TVA offers several demand response programs that can help offset peak period costs. The key is finding programs that match your clients' operational flexibility. Manufacturing customers often have more options than they realize - things like shifting maintenance schedules, adjusting production sequencing, or using backup generation during peak periods. It takes planning but can be worth significant savings under TOU rate structures.
Ed brings up a good point about operational flexibility. The utilities love to talk about how TOU rates will drive "behavioral change" but they rarely acknowledge that many customers simply don't have the flexibility to change their operations around utility rate structures. A hospital can't postpone surgery until off-peak hours. Tina, it might be worth organizing the affected customers to petition MPSC for a review of the TOU implementation. Sometimes regulators will modify programs if there's evidence of unintended consequences.
Dale's suggestion about petitioning MPSC is worth pursuing. Here in Arizona we've had success getting utility commissions to modify rate designs when customers can demonstrate real hardship. The key is presenting data showing how the new rates affect different customer classes and whether the impacts align with the stated policy goals. If DTE's TOU delivery rates are mostly hitting manufacturers while providing minimal grid benefits, that's a strong argument for modification.