Written by Amy Bandyk, executive director of the Citizens Utility Board of Michigan, for The Detroit News.
As we get deeper into winter, the soaring costs of home heating are going to be more and more of a drain on the wallets of Michigan residents already hit by general inflation. This year, the price of natural gas has gone up dramatically due to the war in Ukraine and other factors.
But the average household’s monthly gas utility bills do not tell the whole story of just how much worse energy costs are going to get for the average Michigan household. The cost of gas used to generate electricity is also going up and, as a result, you can expect your electric bill to be much higher in 2023.
In the short term, vulnerable households that are already struggling need more utility bill payment assistance to safely get through this winter. But if we want to avoid falling into this precarious position in the future, we can't stop there. Policymakers need to reduce our reliance on gas in the long-term so that this cycle does not repeat.
Replacing gas with electric heating systems and clean technologies like energy efficiency, renewable energy, battery storage and more can reduce our exposure to volatile price spikes like those we are seeing now, while improving our environment and health at the same time.
Residential electric rates are poised to go up by around 10% or more in 2023, the Citizens Utility Board of Michigan has determined by analyzing regulatory filings from Michigan utilities like Consumers Energy and DTE. Utilities buy gas to fuel power plants, and then pass those costs onto customers in the form of power supply charges that appear on customer electric bills.
Those charges are based on the utilities' annual forecasts of how much they expect power to cost in the year ahead. If power ends up being more expensive than was forecast, then the charge will go up next year so the utilities can make up the shortfall.
The unexpected and dramatic rise in gas prices this year is triggering massive shortfalls. Based on their current estimates, the customers of Michigan’s investor-owned utilities will pay over $700 million more for electricity in 2023 than they did in 2022. That translates into a nearly 7% increase in the electric rate for DTE customers and about a 14% increase for Consumers Energy customers.
Gas is not the only factor that goes into these power supply costs — it also includes other fuels like coal — but since gas generates around 40% of the state's electricity, more than any other source, it is the biggest factor.
While customers and utilities may have become accustomed to low gas prices over the past decade, these periods of volatility have occurred many times in the past. Commodities like fossil fuels will always be volatile, and the only way to eliminate that risk is to transition away from fossil fuels.
Fortunately, alternatives to gas are here and, in most cases, they are actually cheaper than gas power plants. Wind and solar power have no fuel costs and so the price of their power is not subject to these volatile swings we are seeing with gas-fired power. Sources to back-up renewable energy on days of low wind, cloudy days and at night, like batteries, have been getting cheaper and cheaper. States that mostly use gas to heat homes, such as Michigan, can take advantage of the billions of dollars of grants and tax credits found in this summer's Inflation Reduction Act and the earlier Infrastructure Investment and Jobs Act (IIJA) that will pay for replacing gas-burning furnaces with electric heat pumps.
Michigan utilities, however, continue to emphasize gas over alternative sources. DTE's recently-released integrated resource plan, for example, proposes converting coal plants to run on gas for years to come and leaves the door open to building new gas plants. This is precisely the kind of plan that customers, regulators and policymakers should work together to fix.
Energy is a basic necessity that can make or break household budgets. If utilities, whose job it is to forecast energy volatility, can be caught off-guard by skyrocketing gas costs, how can an average consumer expect to be prepared? The price spikes we are experiencing will be repeated in many winters to come unless policymakers and regulators help to ease the transition to cleaner and, in the long run, cheaper energy sources.
This article first appeared in The Detroit News.