News Story

Former Energy Regulator Says Bill Would Establish Energy Monopoly

Previous chair of MPSC says energy choice would be ended under proposed law

According to a former chairwoman of the panel that regulates electric utility prices in Michigan, if the current version of House Bill 4298 is enacted electric choice will cease to exist in the state.

“There is no question that the new language in the bill will eliminate electric choice,’ said Laura Chappelle, who was a member of the Michigan Public Service Commission from 2001 to 2007, and chaired it from 2001 to 2003. “It looks like it is written to maintain electric choice, but it wouldn’t — at least not for the majority of alternative energy suppliers.”

Under current electric choice provisions, alternative electricity suppliers are allowed to compete with the state’s two big quasi-monopolistic utilities, Consumers Energy and Detroit Edison. The term “alternative electricity suppliers” in this case does not refer to purveyors of wind energy. It simply means power companies that want to compete with the big utilities that dominate most of Michigan’s electricity market.

The market was opened up to this competition under former Gov. John Engler in 2000. But in 2008, legislation was enacted that limited the portion of the electricity market subject to this competition to just 10 percent. As a result, ratepayers have to queue up and wait for a spot within that 10 percent to become available before they can participate in electric choice.

As initially introduced by House Energy Policy Committee Chair Aric Nesbitt on March 5, 2015, House Bill 4298 specified that it would end electric choice in Michigan. That version of the legislation went nowhere. In fact, polling showed that 75 percent of Michigan voters opposed the idea of eliminating choice, which would return the two large utilities to full monopoly status.

Nesbitt's proposal languished for months in the House Energy Policy Committee before undergoing a major face-lift earlier this month. It was passed by the committee on Nov. 10. According to supporters of the new version of the legislation, it would no longer eliminate electric choice. Instead, it would keep the 10 percent competitive market in place but make it operate under an array of new regulations.

Chappelle, who now represents Energy Michigan, disagrees. (Energy Michigan is a trade association for alternative and independent power supply cogeneration, advanced energy industries and customers in Michigan.) She argues that the new regulations in the bill would effectively strangle choice.

“Often with legislation like this nobody ever really drills down into the details,” Chappelle said. “This has about 27 pages of amendments (there is currently no updated version of the bill available online) and any one of them alone could potentially eliminate electric choice.”

Opponents of the legislation argue that it would make choice so costly and burdensome for ratepayers and alternative energy suppliers that it would eventually wither away. Wayne Kuipers, director of Energy Choice Now, an energy choice advocacy group, said it would do this in four ways.

First, it creates what is essentially a new tax (or fee) that customers who choose electric choice must pay for 15 years. Theoretically, it would reimburse the big utilities for stranded costs — the cost of the portion of the electricity they generate that they lose money on because of electric choice. The existing dominant utilities are required to maintain enough electric capacity that they could provide service to the electric choice customers should they return.

Advocates of electric choice argue that this would be like forcing customers to reimburse one grocery store chain for choosing to take their business to a competitor. In addition, they insist the fee is a double payment because Michigan already assures that the utilities are fully reimbursed for their stranded costs.

Second, Kuipers said, the legislation would not allow customers who leave the electric choice program to return to it for 20 years. Proponents of competition argue that if the big utilities don’t want customers to seek alternative suppliers, the best way to do that is provide service for lower costs. Between 2000 and 2008, when Michigan had complete electric choice, the state’s electricity rates were among the lowest in the region. After competition was limited to just 10 percent of the market in 2008, however, the rates began trending upward. Now Michigan has the highest rates in the region.

The third mechanism by which HB 4298 would affect electric choice, Kuipers said, would be through creating an artificial energy crisis. This refers to language in the bill that would allow the state to end electric choice if it determined that an energy shortfall was pending.

“The MPSC is not in the business of predicting shortfalls,” Chappelle said.

Finally, the proposed law, Kuipers said, would force alternative energy suppliers to purchase unneeded capacity. In conjunction with this, his group argues that the bill includes a slew of regulatory barriers and triggers that would endanger choice.

“No other state that has electric choice has anything like this,” Kuipers said. “For some alternative energy suppliers this won’t make it difficult to operate — it will make it impossible. If one of the other states where Detroit Edison and Consumers Energy sell electricity tried to pass legislation like this, they’d both be down there fighting it.”

Chappelle also said that she believes aspects of the legislation are probably unconstitutional because they treat suppliers that don’t generate their electricity in Michigan differently than suppliers that do. In other words, it would violate the commerce clause of the U.S. Constitution. But she acknowledged that challenging the legislation in court on these grounds would likely be expensive and time-consuming.

“You know how that works,” she said. “One side lines up its attorneys and other side lines up their attorneys.”

According to Ray Telman, secretary-treasurer of the Michigan Schools Energy Cooperative, which also opposes House Bill 4298, Michigan schools have saved more than $100 million due to energy competition.

“In 2013 and 2014 they saved roughly $15 million each year,” Telman said. “And it would be more if not for the [10 percent] cap. One hundred of the 110 [legislative] House districts have school districts that save money through electric choice. Of those, 84 have saved more than $1 million.”

The Legislature is currently on Thanksgiving break and Nesbitt could not be reached for comment.

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.