Change In Regulations On Electricity Markets Could Hit Schools

A law that lets one district save $40 per student on electricity costs could be undermined

Michigan schools will receive roughly $14.6 billion in federal and state funding this year. This money is meant to provide education for the children of Michigan, but next year, two government-protected corporations could walk away with millions of Michigan’s education dollars.

Under a practice known in the industry as “electricity choice,” Michigan law lets a small number of businesses buy power at a lower price from independent generators. Those generators pay a set amount to the big regulated utilities for the use of their power transmission lines.

Currently, Michigan mandates that 90 percent of all retail electricity sales in the state are supplied by either DTE or Consumers Energy. Their electricity rates are set by the Michigan Public Service Commission (MPSC). Alternative energy supplies (AES) provide electricity for the other 10 percent.

Thanks to electricity choice, schools and others can choose which companies provide their electricity, much like most Americans do with their cellphone or cable services. As these companies openly compete with one another to secure contracts, prices within that narrow part of the electricity market fall and reliability is improved.

In fact, the Michigan Schools Energy Cooperative (MISEC) reports that, through 2016, it has helped save Michigan school districts over $121.4 million by enrolling them in the electricity choice program. It argues that every dollar saved on electricity bills can be put to better use in Michigan’s classrooms.

But DTE and Consumers Energy seem convinced this free-market system should change, and the state agency that regulates electricity sales appears ready to agree. Section 6w of Public Act 341, which went into effect in April, requires that the MPSC ensure utilities meet a capacity demonstration requirement. That is, electricity providers must confirm that they have sufficient resources to meet their customer’s needs. In a June 25, 2017, order, the agency stated that, as part of that capacity demonstration, electricity providers in the choice market would have to meet a local clearing requirement (LCR), under which electricity providers in Michigan must get their electricity from generation facilities in the state.

DTE’s media relations office indicated its support for this view in an email comment: “The current law authorizes and directs the MPSC, a body of non-partisan regulators, to implement the law. The law authorizes the MPSC to establish resource adequacy requirements. With Michigan’s unique geography and the physical constraints of electricity, nearly 95 percent of Michigan’s electric supply must be generated within Lower Michigan, or MISO Zone 7. Holding all energy suppliers responsible for their own customers’ needs is fundamental to reliability and the 2016 energy law.”

Companies that serve customers in the electricity choice market argue they already meet their customer’s needs in the free market. They say they are concerned the in-state mandate will raise prices, keep them from competing against the monopoly utilities, and effectively kill their own market. That possibility also has some Michigan educators worried and pushing back.

Gene Pierce is president of the Michigan Schools Energy Cooperative, a coalition of 325 public school districts enrolled in Michigan’s electricity choice program. He says the agency is going around the Legislature’s intent and will harm Michigan public schools.

“Legislators voted to continue Michigan’s energy choice program without implementing a local clearing requirement. MPSC bureaucrats have no authority to disregard this legislative directive, implement the regulation and choke out energy choice. These decisions must be left to elected representatives who are accountable to the people and understand the negative impact this would have on Michigan schools,” he said.

Richard Terres, the superintendent of Howell Public Schools, said his district saves about $196,000 per year in the electricity choice market, or enough to pay three teacher’s salaries. He said, “One of the only [fiscal] bright spots we have had during this past decade has been the Electric Choice Program. Now is not the time to eliminate those savings and thus hurt Michigan kids.”

Clarkston Community Schools save over $280,000 per year, or $40 per student, in the electricity choice market. This represents an approximately 25 percent savings to the district’s budget. Mary Beth Rogers, the executive director of business services for Clarkston Community Schools, said, “Eliminating or restricting Electric Choice impacts students. … Further cuts will be staff. School budgets are over 80 percent personnel. Moving us away or restricting us from Choice Programs will affect the classroom.”

Based on the Public Service Commission’s 2016 report, “Status of Electric Competition in Michigan,” 6,060 customers currently take advantage of the electricity choice market. There also is a waiting list of over 7,800 schools and business that want to join the program. Moreover, a 2016 poll demonstrated that 66 percent of Michiganders support expanding access to that market. We have a constitutional mandate to provide education to every child in Michigan. Shouldn’t schools be able to do that in the most efficient and cost-effective manner possible?

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.