The issue of electric choice has been controversial in the state of Michigan over the past two decades. Policymakers have gone back and forth on whether or not Michigan’s electric utility industry should be regulated or deregulated. Both of these methods have had mixed results in the state.
In 1992, the U.S. Congress passed the Energy Policy Act of 1992. This created a new category of energy producers known as exempt wholesale generators (EWG) (“REPORT”). These independent energy producers were now exempt from the regulations of the Public Utility Holding Company Act of 1935 (“REPORT”), which essentially limited electric utilities’ “…geographic spread…” ("PUHCA for Dummies"). Additionally, the act gave the Federal Energy Regulatory Commission (FERC) the authority to make utilities provide transmission line access to “…any electric utility, federal power marketing agency, or any person generating electric energy in wholesale electricity markets” (“REPORT”).
The Energy Policy Act of 1992, along with FERC’s transmission line authority, helped to encourage the growth of EWGs. This growth, along with the openness of transmission lines, allowed states like Michigan to consider a more competitive model for electricity markets.
Customer Choice and Electricity Reliability Act (Public Act 141 of 2000)
Michigan’s first attempt with competitive electricity markets came with the passage of Public Act 141 of 2000, also known as Customer Choice & Electricity Reliability Act in 2000 (“MPSC”). Those who were in favor of this law believed that by giving Michigan citizens and businesses more choices through competition, electric rates would be driven down ("Bill Analysis- Senate Bills 937, 940, 941 and 1253"). However, those against the measure believe that competition would not have a great effect on rates. They believed that the AESs would not be able to adequately compete with the utilities because of the price cuts they would have to make in order to compete ("Bill Analysis- Senate Bills 937, 940, 941 and 1253"). Opponents of the law also felt that too many of the decisions about how electric choice would work in Michigan were left up the Michigan Public Service Commission (MPSC) ("Bill Analysis- Senate Bills 937, 940, 941 and 1253").
The final law included the following:
• The MPSC was required to issue orders “…establishing rates, terms, and conditions of service to allow retail electric utility customers to choose an alternative electric supplier” ("Bill Analysis- Senate Bills 937, 940, 941 and 1253").
• The MPSC was empowered to encourage competition with the market ("Bill Analysis- Senate Bills 937, 940, 941 and 1253").
• All AESs were required to get a permit from the MPSC to operate in the state of Michigan ("Bill Analysis- Senate Bills 937, 940, 941 and 1253").
Public Act 286 of 2008
In 2008, the Michigan legislature decided to update Michigan’s overall energy policy. Issues such as renewable energy generation, energy efficiency, and electric choice were addressed in a series of energy packages. After experiencing the complete deregulation of Michigan’s electricity market, legislators decided to roll back a significant portion of the electric policy. With the passage of the Public Act 286, the following measures were taken:
• Utilities would only be allowed to let 10% of their average retail electric sales come from AESs ("Bill Analysis- S.B. 213 & S.B. 1048, & H.B. 5524").
• Adjustments were to be made to the procedure for municipal utilities to receive electric generation from an AES ("Bill Analysis- S.B. 213 & S.B. 1048, & H.B. 5524").
• AES customers prior to Public Act 286 will be allowed standard tariff service from an electric utility ("Bill Analysis- S.B. 213 & S.B. 1048, & H.B. 5524").
• Electric utilities that offered electric choice are allowed to fully recover its restructuring and regulatory costs through rates over the next five years ("Bill Analysis- S.B. 213 & S.B. 1048, & H.B. 5524").
Electric Choice in Michigan Today
Today, Michigan still maintains a 10% cap on electric choice for Michigan customers. As of December 2015, there are 6,140 electric choice customers that have received 964 MW of electricity in the state of Michigan (“MPSC”). Because of the cap, there are 11,000 customers waiting to be allowed to become an electric choice customer (“MPSC”).
DTE Electric Company and Consumers Energy
The two charts below contain electric choice information about Michigan’s two largest investor owned utility companies: DTE Electric Company (DTE) and Consumers Energy (CE). As of 2015 DTE has 4,986 and CE has 1,030 participants. There are 5,181 customers waiting for customer choice (Queue) for DTE and 5,683 for CE for a total of 10,864 customers waiting to become choice customers in their queues.
Pending Energy Legislation
The Michigan legislature is currently in the process of drafting legislation that would, once again, overhaul Michigan’s energy industry. During a panel discussion at the Michigan State University Institute of Public Utilities’ Forum on Economic Regulatory Policy, Senator Mike Nofs and State Representative Aric Nesbitt, the chairs of the energy committees in the House and Senate, discussed, among other things, what electric choice will look like in the pending energy legislation. Senator Nofs stated that he would like to keep the 10% cap in place but would want to add additional requirements onto the AESs ("IPU Michigan Forum on Economic Regulatory Policy"). One of those new requirements would be for them to go through a resource adequacy planning process ("IPU Michigan Forum on Economic Regulatory Policy"). This is to make sure that they actually have enough generation to serve their customers.
National Results from Electric Choice
Just like Michigan, many other states in the late 1990s and early 2000s decided to implement electric choice. Since that time, some states have held onto their policy, some have eliminated them all together, and some have a hybrid system like Michigan. The Electric Markets Research Foundation’s chart below gives a status update on where states are with policies today:
Of the 23 states that originally deregulated their electric markets, eight have gone back to a fully regulated electric market.
Competition Effect on Electric Rates
One of the claims that advocates for electric choice make is that electricity rates will go down because of competition. Of the 19 states above the national residential retail price average, 13 of those states are deregulated or have a limited deregulated electric market. Of the 16 states above the national commercial retail price average, 9 of those states have a deregulated electricity market. Of the 26 states above the national industrial retail price average, 14 of those states are deregulated or have a limited deregulated electric market. While states that have a higher average electric rate for the three customer classes tend to have a deregulated market, many other factors ultimately play a role in this. Indeed, all of the deregulated states had much higher rates to begin with and this should be controlled for. In addition, outside the effect a deregulate market structure has on rates, other factors such as costs relating to reliability and environmental compliance exists. For example, in the Regulatory Assistance Project’s report, Incorporating Environmental Costs in Electric Rates, the average combined capital cost of environmental compliance devices in the Pennsylvania, Jersey, Maryland (PJM) Interconnection service territory was $1,302 per kw (Lazer). These costs and others should also be controlled for when evaluating the effects of a deregulated market on a state’s electric rates.
Maintaining a regulated electric industry appears to be the best way to assure affordable, reliable energy for Michigan electric customers. Michigan’s rates continue to be some of the highest rates in the country despite being partially deregulated.Michigan’s residential and commercial rates remain significantly higher than the national average (“MPSC”).In addition to not having lower rates, the current partially deregulated market exposes 10% of Michigan’s customer base to unforeseen market swings. This is not as much a concern in a regulated market.
References "Energy Transformation: National and State Policy Perspectives." IPU Michigan Forum on Economic Regulatory Policy. Kellogg Center, East Lansing. 27 Feb. 2016. Speech. Lazar, Jim, and David Farnsworth. Incorporating Environmental Costs in Electric Rates: Working to Ensure Affordable Compliance with Public Health and Environmental Regulations. Montpelier, VT: Regulatory Assistance Project, 2011. Web. 25 Apr. 2016. Lynn Hargis. PUHCA for Dummies. Lynn Hargis. Web. 27 Feb. 2016. Retail Choice in Electricity: What Have We Learned in 20 Years? Rep. Electric Markets Research Foundation, 24 Feb. 2016. Web. 26 Feb. 2016. USA. Department of Licensing and Regulatory Affairs. Michigan Public Service Commission. MPSC Reports on the Status of Electric Competition in Michigan. 1 Feb. 2016. Web. 27 Feb. 2016. USA. Federal Energy Regulatory Commission. REPORT TO CONGRESS ON COMPETITION IN THE WHOLESALE AND RETAIL MARKETS FOR ELECTRIC ENERGY. Print. USA. Michigan House of Representative. House Legislative Analysis Section. Bill Analysis- Senate Bills 937, 940, 941 and 1253. Public Act 141 of 2000. 26 Feb. 2016. Web. USA. Michigan Senate. Senate Fiscal Agency. Bill Analysis- S.B. 213 & S.B. 1048, & H.B. 5524. Print.