January 16, 2014

Bill Would Open Up Competition In Michigan’s Electricity Market

A new bill would lift Michigan's cap on electric market choice.

Proponents of the bill say the current cap prevents most of Michigan customers from using competition to lower their electric rates, which are the highest in the region and well above the national average.

House Bill 5184 is sponsored by Rep. Mike Shirkey, R-Clarklake.

The state's current electric competition cap was established in 2008 when Public Act 295, the "Clean, Renewable and Efficient Energy Act," was signed into law. Under the act, Michigan's two largest electric utilities, Consumers Energy and Detroit Edition, were returned to a quasi-monopolistic status. It did this by restricting (or capping) the level of competition to 10 percent of the market.

The bill also mandated at least 10 percent of the state's energy come from renewable sources by the year 2015.

Backers of House Bill 5184 point out that there are roughly 11,000 Michigan electric customers on the waiting list to choose an alternative electric power provider. If these electric power customers were all able to exercise their choice, and did so, the electric providers competing with Consumers Energy and DTE would be selling to 20 percent of the current market.

"I believe many aspects of the 2008 energy legislation have been successful, but it is obvious that the attempt to have a hybrid energy choice policy, referred to as a cap, has completely failed to provide a competitive energy market," Rep. Shirkey said. "I don't know why anyone would be opposed to having this debate and this legislation should establish a good framework for that debate. In my opinion, my bill provides a sensible solution that would provide market based competition in Michigan."

Consumers and DTE oppose the legislation. Steven Transeth of the Michigan Jobs Energy Coalition responded on their behalf.

"Quite frankly, the bill is too simplistic, leaves too many questions unanswered, and puts thousands of residents at risk of even receiving basic electric service," Transeth said. "The bill is limited to providing open retail access based on a mistaken belief that a competitive market will ensure our electricity remains affordable and reliable. History has taught us a different story. Deregulation has proven to be a risky policy resulting in volatile rates that jeopardizes our ability to ensure sufficient generation in the years to come.

"There are too many unintended consequences of deregulation and we should not repeat the mistakes that have been made in other states across the country," Transeth continued. "For example, Arizona recently examined the issue and decided deregulation didn't make sense. Montana recently reversed its experiment with deregulation, with local newspapers calling it a 'debacle.' New York is considering re-regulating their electric markets. In Texas, the constant threat of rolling blackouts and brownouts has been traced to deficiencies in capacity and is considering public built and run generation facilities. New Jersey and Maryland had to resort to state-sponsored, guaranteed contracts in order to incentivize the building of new generation. And in Illinois, a protracted deregulation process lasted 10 years and led to more regulation to ensure sufficient capacity."

Previous Michigan legislation began opening up the energy market in 2000, which caused the state's average electricity rates to fall below the national average within a few years, said Ted Bolema, a senior policy editor with the Mercatus Center at George Mason University in Virginia and a member of the Mackinac Center for Public Poilcy's Board of Scholars. 

"After the cap and other restrictions on competition were imposed in 2008, rates increased much faster than the national average, and by the end of 2012, rates in Michigan were about 18 percent above the national average and 23 percent above the regional average," Bolema wrote in a Michigan Capitol Confidential article in October.

In addition to lifting the cap on completion in the electric market, House Bill 5184 would require the Michigan Public Service Commission to manage a divestiture process under which the large electric utilities would submit plans to either sell or move their generation assets into a related but unregulated affiliate. This would separate electricity generation from distribution.

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