At the request of Michigan Governor Gretchen Whitmer, the state's Public Service Commission in July released a set of recommendations aimed at addressing energy affordability concerns, with the top proposal calling for multi-year rate plans with performance-based ratemaking — a shift that would require changing state law. Performance-based ratemaking, known as PBR, ties a utility's allowed profit to specific outcomes rather than capital expenditures, and has gained momentum as electricity prices outpace inflation and public frustration with utility profits intensifies. Commission Chair Dan Scripps told the governor that a well-designed multi-year rate plan could deliver meaningful affordability improvements while providing utilities the capital needed for reliability upgrades customers expect.
Michigan's residential electricity rates jumped 10.42% between June 2025 and June 2026, climbing from 20.82 cents per kilowatt-hour to 22.99 cents, according to U.S. Energy Information Administration data cited in the commission's letter. During the same stretch, the national average for residential electricity rates increased just 4.98%, rising from 17.47 cents per kWh to 18.34 cents per kWh. Energy affordability has become a major issue in Michigan's election season, with open races for the governor's office, all 38 Senate seats, and all 110 House seats. Scripps said one goal of the letter is to turn affordability from a political talking point into something actionable.
The commission's proposal centers on passing Senate Bill 768, which would stretch the mandatory period between rate cases from one year to three years. Scripps explained that allowing utilities to file for rate increases every 12 months has led to annual rate cases, leaving customers and stakeholders frustrated and worn out from what the letter calls "seemingly endless" litigation over rates. Under a multi-year rate plan, revenue and cost projections are indexed to factors like average customer growth or inflation but otherwise not adjusted, allowing utilities to retain or share with customers excess earnings from performance incentive mechanisms, according to Pacific Economics Group President Mark Newton Lowry, an early PBR pioneer. Consumers Energy, which serves about 1.8 million electric customers in the state, voiced concerns that some commission recommendations could unintentionally undermine affordability efforts, and the utility has said SB 768 presents a potential risk to customer affordability and reliability.
The report highlights that critics of PBR implementation point to regulatory loopholes that emerge when utilities warn about threats to rates, reliability, or safety. Wired Group President Paul Alvarez, a frequent expert witness in PBR proceedings, said utilities in Hawaii, Massachusetts, and other states have convinced commissions they needed cost recovery for spending beyond the plan's framework, and that's where PBR falls apart. Illinois offers a potential model for success: a 2021 state law linked utility performance to customer outcomes, and Exelon has proposed borrowing features from its Illinois subsidiary Commonwealth Edison's multi-year plan for its New Jersey subsidiary. Scripps acknowledged that change may not happen this year because it's an election year, emphasizing that the details are important because there's no secret sauce, and it will take significant work on both the legislative side and when it comes to the commission for implementation.