The Michigan Public Service Commission (MPSC) on Thursday cut about two-thirds or $98 million out of Consumers Energy Co.’s requested revenue increase, leaving the Jackson-based combination utility subsidiary of CMS Energy with an increase of about $58.1 million.

The increase will be in the form of a surcharge that will be implemented through use of an equal percentage increase on customers by rate class over the next two years.

“The rate increase approved today recognizes Consumers Energy’s safety, pension, and health care expenses,” noted MPSC Chair J. Peter Lark. “It provides the company with the funds for natural gas storage to meet the heating needs of Michigan citizens this winter. Preserving gas storage will also allow the utility to take advantage of cheaper gas supplies if they become available.”

Consumers spokesman Dan Bishop noted the order falls well short of what the utility requested. However, he said Consumers officials were still in the process of reviewing the order and had no immediate response.

Consumers filed the application for the revenue increase in March 2003. It sought to increase its rates for gas transportation, storage and distribution by a total of $156 million. On Dec. 18, 2003, the MPSC granted the company interim rate relief of $19.3 million.

The order on Thursday grants further rate increases for safety-related purposes ($19.3 million), pension expenses ($3.8 million), employee and retiree health expenses ($7.7 million), and gas storage expenses ($27.4 million). After two years the company must file a rate case for a review of the appropriate level of revenues and expenses for the company.

The MPSC conditioned the increase on the utility and its parent company agreeing to meet certain requirements, including following through on their stated financial plan of achieving a common equity level of at least $2.3 billion by the end of 2005 and proposing a plan to improve the common equity level after that until the company’s target capital structure is reached. The MPSC will review the company’s common equity at the end of 2005 and if the $2.3 billion common equity level has not been reached, the MPSC may reexamine the surcharge.

In the event that the rate of return on common equity exceeds the company’s authorized rate of return on common equity of 11.4%, the company will be required to return all excess revenues to ratepayers either through a reduction in the surcharge amount for the following 12 months or, if the surcharge has ended, through a refund.

Each year the company must file a report with the MPSC stating how the surcharge revenues were used and providing other financial information. Consumers Energy provides electric and natural gas service to more than six million customers.

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