In a landmark development echoing through municipal corridors and utility billing departments alike, the city of East Lansing has agreed to pay $7.8 million to settle a lawsuit accusing it of illegally imposing a hidden tax on electric bills. The decision comes months after the Michigan Supreme Court determined the so-called “energy franchise fee” was unconstitutional.
The proposed settlement—filed in Ingham County Circuit Court—would establish a reimbursement fund for local electricity customers, pending judicial approval. The move is a direct response to a 4-1 ruling from the state’s highest court, which found the city violated the Michigan Constitution by failing to secure voter approval before implementing what it disguised as a utility fee.
The Hidden Charge That Sparked a Legal Storm
At the heart of the legal battle was a 5% franchise fee added to East Lansing residents’ electric bills. Collected by the Lansing Board of Water and Light (BWL) and remitted to the city, the fee was long considered by officials as a standard cost of doing business—until attorney and city resident James Heos challenged it in 2020.
Heos alleged the fee functioned as an unlawful general revenue generator, not tied to the actual provision of electric services. The Supreme Court agreed, writing that the pass-through nature of the fee did not shield it from constitutional scrutiny.
“Even if routed through another party, the fee still operated as a tax,” the court stated, calling it a “disguised levy” that sidestepped democratic oversight.
