Energy Expert: Michigan Should Eliminate Its Utility Monopoly For Lower Prices

LANSING — If Michigan wants lower electricity rates it should eliminate its utility monopoly as it had in the past and as has been done by other nearby states successfully, an energy expert said Wednesday.

Ted Bolema, an adjunct scholar for the Mackinac Center for Public Policy and a senior policy editor with the Mercatus Center at George Mason University, talked about the benefits of electricity competition in Michigan. Legislators are currently debating energy policy and are considering keeping the system as is, opening up more sales of electricity generation by allowing more choice, or eliminating the current competition with full regulation.

Michigan has a cap of 10 percent for alternative energy suppliers. That is, 90 percent of the market share of energy at the generation level is guaranteed to the major utilities — Consumers Energy and DTE Energy, in their territories. The major utilities continue to have a 100 percent monopoly in distribution of electricity, and charge alternative suppliers for providing distribution over their regulated distribution networks.

From 2002-2008, Michigan had energy choice, meaning customers were free to choose their energy providers. In 2008, a bill was passed that established the cap along with a 10 percent renewable energy mandate. The 10 percent cap was reached in 2009, and now customers who want to buy electricity from another supplier go on a waiting list until space opens up under the cap.

More than 10,000 Michigan customers have chosen to switch suppliers, and more than 12,000 are on the waiting list. If all 12,000 customers on the waiting list switched, the large utilities would still have market shares in generation of over 75 percent, along with their current 100 percent market shares in distribution.

Bolema said Michigan has the highest electricity prices among the Great Lakes states. The state also has the highest energy rates of any state that gets more than half of its energy from coal.

The Great Lakes states include Michigan, Ohio, Indiana, Illinois and Wisconsin. Indiana and Wisconsin have no choice, Ohio and Illinois allow choice fully, and Michigan has a hybrid market. Energy prices have been increasing more rapidly in states with less competition.

Illinois has had energy choice for the longest period of time. The Illinois rates were about the same as in Michigan until Michigan imposed its cap. Now rates in Illinois are 30 percent lower.

Bolema said removing the cap and allowing more competition does not mean deregulation.

"Electricity is still going to be regulated and no one is proposing allowing competition in the distribution of electricity,” Bolema said, noting that the recent blackouts in Michigan were all at the distribution stage.

Bolema took on a few of the popular arguments against getting rid of the electricity monopoly:

Energy choice will lead to higher prices.

"The track record on this shows just the opposite," Bolema said, pointing to prices increasing slower with choice states.

It will lead to wild rate fluctuations.

Bolema said prices were more stable in Michigan during choice and less so under the cap.

It has failed everywhere it has been tried.

Bolema concedes that some states have made a mess with energy restructuring, but he said most states that have instituted it well have kept it, along with lower rates.

"Most states that have introduced choice have done so because they had the highest energy rates," Bolema said. "They’ve had lower [rate] increases since then."

It will lead to mass outages.

The distribution of electricity is still regulated, Bolema said. Reserve margins and investment both increased during Michigan's energy choice era.

"And, of course, we have outages now with the cap," he said. 

Average monthly residential bills are below the national average in Michigan.

This is true, Bolema said, but that’s due to climate.

"Michigan residents will still benefit from lower monthly bills," Bolema said. "And they will likely be even lower with competition."

To read Bolema's full report, click here.