Bill Package Includes Elimination of Energy Choice

A legislative package sponsored by House Majority Floor Leader Aric Nesbitt, R-Lawton, would bring significant changes to Michigan’s electricity market.

The provision drawing the most attention repeals the only remaining piece of a 2000 reform led by then-Gov. John Engler, which ended the monopoly status of Michigan's largest electric utilities. Under that reform, known as “Energy Choice,” customers could buy their power from an alternative generator, while the power lines through which the juice flows remained a regulated monopoly.

Not surprisingly, the state’s two large utilities, Consumers Energy and Detroit Edison, were not pleased, and never stopped pressuring lawmakers to undo the reform. In 2008, as part of the same legislative package that imposed a 10-percent renewable energy mandate on utilities, the former monopolies won a 90-percent victory: In addition to causing industrial scale windmills to sprout across the Michigan landscape, the package limited electricity generation competition to just 10 percent of the market.

Nesbitt, who chairs the House Energy Policy Committee, explained the reasoning behind his support for ending Energy Choice in Michigan.

Nesbitt: “It’s an eight-bill package (House bills 4297 – 4304) that includes things that I think a lot of people are probably going to like. It keeps the RPS (Renewable Portfolio Standard) at the current level of 10 percent and allows alternative energy to be purchased from out of state (ending the in-state requirement on the mandate) and it allows us to get out of the high fees charged to ratepayers through the energy optimization program. Yes, it would also put an end to what’s been called deregulation (Energy Choice), under which 10 percent of ratepayers can purchase energy from alternative suppliers adding costs to other ratepayers.”

“The whole idea that allowing those alternative suppliers to sell energy in the market is deregulation is a misnomer. What it is really creating is an artificial market within a regulated industry. The utilities have to maintain enough capacity to cover that 10 percent of customers if the users decide to switch back to them. So, what happens is the 10 percent who are purchasing from the alternative suppliers are being subsidized by the other 90 percent that aren’t.”

“Having those alternative suppliers selling here does nothing to help address the issue of building generation for reliability. Making a few rate comparisons doesn’t really cover the whole issue. It leaves out the question of reliability and capacity. It also doesn’t address all the regulations we have to deal with that come down from Washington.”

“But even with that said, nationally rates are lower in what are called regulated states. The deregulated state Michigan is often compared with is Illinois, which fluctuates with Indiana, a regulated state, for having the lowest rates in the region. But the Illinois legislature has just introduced a new $2 [per month] surcharge to open nuclear plants and that’s going to change the picture. And you also have to look at other regulated neighbor states like Iowa and Missouri that have lower rates than Illinois has.”

Energy Choice Now Executive Director Wayne Kuipers disagrees with Nesbitt on this issue.

Kuipers: “Representative Nesbitt has said the utilities are subsidizing the customers who are on Electric Choice. It’s not true. All suppliers, both monopoly utilities and competitive suppliers, are required to meet the same standard of power reserves. Monopoly utilities do not provide reserves for competitive suppliers. There is no subsidy. Representatives of the utilities have said this as well. They are also mistaken.”

“I would like to point out that first Consumers and DTE said that they need capacity in case customers return, and that costs money now. Then they said that if customers return, Consumers and DTE won’t have capacity to serve the additional load, and that reduces reliability. Then Nesbitt says that returning customers will result in a 4-5 percent rate decrease. Then the utilities say that the extra capacity for returning customers will cost more, and therefore rates for existing customers will increase. It sure appears that they will say whatever it takes until something sticks.”

“Electric Choice is a competitive supply of power, where prices are set by competition, not regulation. Over 100 billion kilowatt-hours have been supplied in Michigan under competitive electric choice rates, saving customers over $1 billion. The current level of electric choice supply is enough to supply 1.2 million residential customers, with a population of 3 million people. Procedural rules for electric choice are not ‘regulation.’”

“Competitive, or alternative, suppliers of energy must provide the same capacity as regulated utilities. Since Electric Choice began in 2000, new plants totaling 4,000 MW have been built in Michigan. None of these plants was built by a regulated utility.”

“Opponents of electric competition say that prices are higher in competitive states and the trends in prices are unfavorable for customers compared to traditional states. That is not true: Prices in competitive states between 1997-2013 rose less than in traditional states and were negative versus inflation. They say that investment in generation has been and will be inadequate in competitive states and only traditional regulation can provide the certainty necessary for such long-term financial commitments. The truth is that competitive and traditional states have both added substantial capacity in line with relative load growth, with competitive states increasing the ratio of production to consumption.”

“We understand why opponents of customer choice don’t like Michigan being compared to Illinois. It is because Illinois, as a fully competitive state, is such a raging success for Illinois customers. No one involved in energy will compare states that have nothing in common and are therefore not meaningful. You have to compare similar states. Michigan, Illinois, Indiana, Ohio, and Wisconsin are all heavily industrialized, have large cities, and similar climates. A question that legislators and regulators should ask is: Why are Michigan’s rates so much higher than Wisconsin’s are? Wisconsin has built and is now operating three brand-new baseload power plants. Michigan has one of the oldest fleets in the country. Surely our costs should be lower.”

“When Michigan switched to being a competitive-supply state, our rates went from being above the national average to below the national average. Since 2008, when Michigan switched back to monopoly control, our rates exploded, jumping 30 percent above the national average, 20 percent above the regional average. This happened while national wholesale prices went down 45 percent and rates increased nationally by just 2.7 percent.”

The Wind Energy Part

As Nesbitt stated, his package of bills includes language that covers wind energy. Kevon Martis, director of the Interstate Informed Citizens Coalition, a nonprofit organization concerned about the construction of wind turbines in the region, said that he is very supportive of that aspect of the package.

“From the perspective of the thousands of Michigan residents whose townships have been ‘blown away’ by Gov. Granholm's 50-story-tall wind turbine mandate, Nesbitt's proposed freeze of our 10-percent renewable energy mandate is truly welcome news,” Martis said. “The rural supporters of the IICC know better than most that it isn't easy standing up to the enviro-profiteers who hijacked our energy policy in 2008. We intend to stand shoulder to shoulder with the Legislature in this fight for sound energy policy. Common sense has prevailed in Ohio and it is time for Michigan to follow their example and roll back the mandates.”