Michigan's ratemaking push puts capex compounding on the table

Gov. Gretchen Whitmer asked the Michigan Public Service Commission for energy affordability recommendations, and the first item on the July list it sent to the legislature paired multi-year rate plans with performance-based ratemaking, a reform that would require changing state law before it exists. In most states, Michigan included, a utility's allowed profit is tied to its capital expenditures; performance-based ratemaking links earnings to specific outcomes instead. The idea dates to the 1980s, and what is newer is the politics around it, as electricity prices outrun inflation and public anger over utility profits builds.

The arithmetic behind that anger is specific to Michigan. Residential customers there paid an average 22.99 cents per kilowatt-hour in June 2026, up 10.42% from 20.82 cents a year earlier, according to the U.S. Energy Information Administration, while the national average rose 4.98% over the same period to 18.34 cents, leaving Michigan roughly a quarter above the country. Chair Dan Scripps told Utility Dive that an open governor's race and open races for all 38 Senate and 110 House seats have made energy affordability a major issue, and he frames his letter to the governor as an attempt to turn it from a political talking point into something actionable.

Scripps argues that a well-designed version could "deliver meaningful affordability improvements" while preserving for utilities "the capital needed to make the reliability improvements customers need and expect." Veterans of past PBR efforts fix on that qualifier — everything turns on well-designed — and Michigan's investor-owned utilities say some of the proposals could produce the opposite of their intended effect. Scripps concedes the sequencing, too: linking earnings to performance can improve reliability and affordability, he says, but not "by using today's regulatory processes and hoping for a different result." His first ask is procedural: Senate Bill 768 would extend the mandatory interval between rate cases from one year to three.

For infrastructure investors, those two halves pull in opposite directions, and the longer filing calendar is the popular one. Three years between rate cases shrinks the lag between spending capital and earning a return on it, the certainty that rate-base growth stories are sold on. Outcome-linked earnings are a harder trade, because capex-driven compounding is what made regulated utilities a fixture of infrastructure portfolios, a return attached to steel in the ground rather than to metrics a commission writes down. The metric list, not the filing calendar, decides what these utilities are worth, and it is the part of the Michigan exercise the coverage leaves undefined. The same logic is moving elsewhere: California's reopened general rate case plan folds performance-linked compensation into the docket where returns are set, and Pennsylvania's cost-of-capital docket sits alongside a curtailment rewrite that will decide which PJM load gets financed. Michigan's legislature has a filing interval and a set of unwritten metrics in front of it, and only the second one moves the multiples.