Residents and businesses in Michigan are wrestling with the highest electric rates in the region — and with the best way to fix that situation.
As is often the case in Michigan, a more competitive market versus a monopoly market is central to the debate, as is mandating an increase in the amount of renewable energy the state uses.
According to the U.S. Energy Information Administration, Michigan's electric rates at the beginning of the year were 10 percent above the national average and had increased 8 percent over the previous year.
With this reality as a backdrop, the state's energy policy is a hot button issue.
As a petition drive to put the "25/25" proposal on the ballot moves forward, wind and solar power will likely dominate Michigan's 2012 energy policy debate. The 25/25 proposal would mandate that 25 percent of the state's electricity be provided by renewable sources such as wind or solar power by 2025.
Another focus of the debate is competition. Rep. Mike Shirkey, R-Clark, has introduced House Bill 5503, which would let the current 10 percent cap on electric competition increase in response to market demand.
“I don't believe anyone should set a certain percentage on competition,” Rep. Shirkey said. “We need a process to allow demand to do that. If the requests for a choice reaches higher levels, the Michigan Public Service Commission should be allowed to incrementally increase the competition.”
According to supporters of Shirkey's legislation, there are currently 3,740 Detroit Edison customers awaiting an opening to switch to a competing electricity provider. Consumers Energy reportedly has a larger waiting list at 4,841.
CMS spokesman Jeff Holyfield said that the companies that want a greater share of the market aren't really competing in a true sense of the word.
“These other ... they're just coming in on a short-term basis,” Hollyfield said. “They come into the state and get customers when the costs, such as for natural gas, are low, and then when costs go higher they can leave. Meanwhile, we're required to back them up when customers want to return to us.
“That adds to the cost for the rest of our customers. About a third of our cost increase comes from having to meet the latest environmental standards. We also have recovery costs from the low income programs. These are things the so-called competing companies don't have to deal with.”
When asked why Michigan's rates were high, DTE spokesman Alejandro Bodipo-Memba said the shifting market contributed.
“A few years ago the rates were steady and in line with most of the rest of the country. But now they are up considerably due to market conditions," he said. "We're trying to sort through how to respond to those changes.”
Bodipo-Memba said he didn't think that warranted opening up the market to more competition.
Michigan's current energy policy was established in October of 2008 when former Gov. Jennifer Granholm signed the “Clean, Renewable, and Efficient Energy Act.”
That Act established a renewable energy quota, called a Renewable Portfolio Standard, which mandated that 10 percent of Michigan's energy be produced by renewable sources by 2015. In 2015, the RPS is supposed to be reviewed.
If enacted, the 25/25 proposal would constitutionally mandate a 25 percent quota by 2025. Michigan's two quasi-monopolistic utilities, DTE and CMS oppose the 25/25, and so does Rep. Shirkey. However, they disagree over the issue of competition.
In addition to the renewable quota, the 2008 Act also established the 10 percent cap on competition, assuring DTE and CMS 90 percent of the market.
Holyfield said the 2008 Act was a compromise.
“If DTE and Consumers Energy had been in charge, the final legislation would have looked very different,” Holyfield said. “Everybody was at the table and there was a spirit of compromise. We worked to put a policy in place that wouldn't have too big of an impact on our customers' bills.”
But what about Michigan's comparatively high electric rates?
“They (electric choice proponents) are hung up on percentages,” Holyfield said. “When you look at the EIA information, there's a lot of data to choose from. In some cases we could be talking about differences that are as little as a half a cent or a couple cents per kilowatt hour. They can look impressive in terms of percentages but don't amount to much in raw numbers.”
Holyfield said eliminating competition would lower rates.
Obviously, Rep. Shirkey isn't a supporter of that idea.
“Then we'll trust DTE and Consumers Energy to resist the temptation to increase their profits for their shareholders?” Shirkey said. “What doesn't seem right about that equation?”
Meanwhile, House Energy and Technology Committee Chair Rep. Ken Horn, R-Frankenmuth, is expected to introduce a bill that would do exactly what Holyfield alluded to. It would eliminate all consumer choice and return Michigan to a regulated market.
According to Rep. Horn's office the bill is being drafted just to “put it on the table” as part of the debate.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.