Michigan Municipal Leaders Protest Rate Increase for LED Lights

Earlier this month, DTE Energy announced a rate hike for LED lights. The decision sparked anger in Michigan city officials involved in municipal streetlight conversions, who would see their financial incentives for energy conservation diminish. At the same time, DTE plans to lower its rates on sodium lighting, which can use up to three times more electricity than LED.

In 2014 Ypsilanti, best known as the home of Eastern Michigan University, converted all 1,100 of its streetlights to LED -- making it the first Michigan municipality to do so. City leaders worked with DTE Energy on the project and expected to see substantial annual energy savings. In the first year, the municipality's DTE energy bill was 29 percent lower, saving $176,000. Now, with DTE’s proposed rate increase, Ypsilanti’s city leaders are seeing their expected savings disappear.

To pay for the streetlight conversion, Ypsilanti required all homeowners to contribute $114 per parcel, a fee that was hard for residents to swallow, but the city was sure would result in future savings. Now, city leaders feel misled by DTE, saying the company never mentioned the rate increase during the conversion project.

"We worked with DTE Energy for more than a year on the switch to LED streetlights and at no point in the discussion did they warn us that LED lights would cost more than old high-pressure sodium lights. If this rate hike happens, we'll really feel like this was a bait and switch," Ypsilanti City Council Member Brian Robb told MLive.

Other officials and environmental leaders are dismayed because they believe the LED rate increase will discourage other Michigan municipalities from converting and saving energy. The rate proposal also includes a 3.2 percent increase for homeowners.

"Purely on financial grounds, no one is going to switch to LED. Instead, they're going to use twice to three times more electricity to light up the street," Rick Bunch, director of the streetlighting consortium for the Southeast Michigan Regional Energy Office that is working with metro Detroit communities to convert to LED, told MLive. "The municipalities would never make back their investment because sodium would absolutely be cheaper."

DTE supplied Bunch and other leaders with documents detailing the increases. Sixty-five-watt LED bulbs would see an increase of 10 percent, from $138 to $154. The 135-watt LED bulbs would go up 12 percent from $157 to $178.

At the same time, DTE is proposing to decrease the cost of running 100-watt sodium bulbs -- which require much more electricity -- by 20 percent, from $184 to $149 annually. And the 250-watt sodium bulb rate will go down 7 percent from $235 to $220. DTE plans to also raise costs for mercury vapor lamps, but by less than LED.

In Ypsilanti, the rate changes could effectively wipe out the future savings the city expected and mean that the residents spent $500,000 on streetlight conversion with no financial benefit, although of course they will still save energy.

DTE released a statement saying that the original LED rates were “experimental,” and now that the company has more experience working with LED technology, it is adjusting rates accordingly to cover costs. But Bunch and others cannot find a justification in the DTE documents they were given. And Bunch says that LED technology is traditionally not only more energy efficient, but also cheaper to install and maintain.

Why don’t the municipalities simply use another utility company if they don’t like the rates? Michigan has a utility monopoly preventing most consumers from choosing their own utility company.

“Michigan has a cap of 10 percent for alternative energy suppliers," Jarrett Skorup wrote in Michigan Capitol Confidential. "That is, 90 percent of the market share of energy at the generation level is guaranteed to the major utilities — Consumers Energy and DTE Energy, in their territories. The major utilities continue to have a 100 percent monopoly in distribution of electricity, and charge alternative suppliers for providing distribution over their regulated distribution networks.”

Michigan consumers could choose their energy providers from 2000 to 2008. But in 2008, a bill was passed putting the cap in place along with a 10 percent renewable energy mandate (an amendment to raise the renewable energy mandate to 25 percent failed in 2012). The state reached its 10 percent alternative supplier cap by 2009, and now customers who want a different supplier have to go on a waiting list until space opens up. To date, more than 10,000 customers have chosen an alternate supplier, and 12,000 remain on the waiting list which grows each year.

Ted Bolema, an adjunct scholar for the Mackinac Center for Public Policy and a senior policy editor with the Mercatus Center at George Mason University, told Michigan Capitol Confidential that Michigan has the highest electricity prices of all the Great Lakes states. It also has the highest energy rates of any state that gets more than half its energy from coal, Bolema said.

Energy prices have been rising more rapidly in states with less competition, like Michigan. Illinois consumers can choose their energy utility. When Michigan had free choice, the two states had comparable rates: Since Michigan imposed its cap limiting choice, Illinois rates are 30 percent lower. (Michigan’s energy rates increased 27.2 percent from 2008-2012.)

In December 2013, House Bill 5184 was introduced to repeal the energy monopoly, but there has been no resolution. Both Consumers Energy and DTE have opposed lifting the cap, saying it would lead to higher prices -- although a study by the Illinois Chamber of Commerce shows that Illinois consumers are spending $37 billion less since they were awarded free choice for energy suppliers.

DTE’s proposed LED price hike will be voted on by the Michigan Public Service Commission within a year. If no action is taken by July 1, DTE will implement the increase. If the rate increase is ultimately denied, DTE will have to refund the money it collected back to its customers. Individuals and organizations can submit their opposition to the increase to the Commission for review and the list of organizations opposing the rate proposal keeps growing. The outcome of the votes for the rate increase proposal and House Bill 5184 will have a big impact on energy rates, energy conservation and supplier choice in Michigan in the future.

image credit: Greg Goebel, Flickr creative commons license.