News Story

Sen. Nofs: Bills Won't Eliminate 'Electric Choice'

But opponents say bills place unfair burdens on competitors

Sen. Mike Nofs, R-Battle Creek, insists that his proposal to overhaul state utility regulations would preserve the small slice of Michigan’s electricity market that remains competitive. Meanwhile, people who want more choice in the state's electricity market insist the legislation would ultimately eliminate it.

In 2000, then-Gov. John Engler signed a bill to replace regulated-utility monopolies in Michigan's electricity market with a new regime that would allow customers to buy power from alternative providers. The companies that had been operating as monopolies would still own the lines that transmit power, and would charge for that service.

The state's two largest electric utilities, Consumers Energy and Detroit Edison, immediately began lobbying to get their monopolies back, and in 2008 won a 90 percent victory when the bill mandating "renewables" (aka windmills) was attached to another one limiting electric provider choice to just 10 percent of the market.

The Nofs plan is embodied in Senate bills 437 and 438, sponsored by Nofs and Sen. John Proos, R-St. Joseph. It features a broad range of provisions. While the proposal retains customer choice, it imposes additional limitations on electric choice customers and adds new conditions that alternative electricity suppliers must meet. Choice supporters argue these provisions would eventually make electric choice a dead letter.

According to Nofs, that would not be the result.

"Under my bill, those who are currently on electric choice can stay on it forever,” said Nofs, who is chair of the Senate Energy and Technology Committee. "It doesn’t ever make anyone come back to the utilities. However, once a customer does leave electric choice, they wouldn’t be able to return. I made a commitment in 2008 about the 10 percent portion of the market that has choice. I said I wouldn’t ever allow that to be eliminated, and I won’t."

Nofs was asked if customers that choose to leave the 10 percent electric choice group to return to the regulated market of the utilities would be replaced by new customers coming into the electric choice group.

“Yes, there would still be the queue of 11,000 customers, or whatever it is, and the next in line would be able to go in next, the same as now,” Nofs said. “So I don’t see what all the squawking is about.”

But Tony Daunt, director of operations with the Michigan Freedom Fund, asserts that the proposed changes would eventually strangle customer choice by causing the queue of customers waiting to get into the 10-percent group to dwindle down to nothing by attrition.

“Current choice customers and those in the queue are forced to remain so or return to utility service. Thereafter, a returning customer must provide an irrevocable three-year notice or else pay additional costs at the utility’s discretion.” Daunt said. “A returned customer may never again choose retail electric choice.”

Daunt describes the new requirements the legislation would impose on alternative suppliers as discriminatory burdens.

“Unfair capacity obligations are placed on suppliers who are forced to obtain, for each contracted load, physical capacity for three years or contract term, whichever is longer,” Daunt said. “Capacity from the MISO auction is limited to 5 percent of suppliers’ requirements. Together these unfair and unnecessary burdens make alternative supply uneconomical for Michigan businesses because utilities are not subject to the same requirements.”

MISO, the Midcontinent Independent System Operator, is the regional transmission organization that provides open-access transmission service and monitors the high-voltage transmission system throughout the Midwest.

Nofs defended the increased requirements that alternative energy providers would have to meet under his bills.

“Typically, utilities are required to have a certain amount of reserve capacity,” he said. “MISO has capacity requirements, which include what’s in reserve, both locally and regionally and the utilities have to demonstrate they are meeting those requirements. What my bill does is change the law to require the alternative energy suppliers to have their own reserve capacity also. If it is supposed to be a competitive market, they should have to meet the same standards.”

“Our utilities are going to be shutting down coal plants because of EPA policy,” Nofs continued. “So we will no longer be able to rely on those plants for capacity. Some people argue that it will never reach a point where capacity is a problem; maybe they’re right, but what if they’re not? Under my bill the alternative suppliers need to demonstrate that they have enough reserve capacity so it won’t just be up to the utilities to provide it if it does turn out that there’s a shortage.”

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.