Power Deregulation To Impact Municipal Suppliers

June 12, 2002
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As Michigan prepares for electric deregulation that will enable residents and businesses to choose their power company, municipal utilities across the state are beginning to debate whether they want to join a competitive marketplace.

Municipally owned utilities that serve more than 288,000 customers statewide are exempt from the Customer Choice and Electric Reliability Act of 2000. The act requires large power companies like Consumers Energy Co., Detroit Edison and American Electric Power — firms serving a large majority of the state’s residents and businesses — to open up their exclusive service territories to competition as of Jan. 1.

The law, however, does allow municipal utilities to join a competitive market voluntarily.

Choosing to participate in deregulation would not only require municipal utilities to open up their exclusive territories for competition, but allow them to go after customers now served by other utilities. Coaxing them to participate in a competitive market is a provision in the law that will enable customers outside of the boundaries of a municipal utility to choose their electric supplier beginning Dec. 31, 2007.

With six years to think about it, municipal utilities that have long portrayed themselves as the locally owned and controlled alternative to industry giants are paying close attention. But James Weeks, executive director of the Michigan Municipal Electric Association, says most of them generally take a wait-and-see approach toward competition.

Weeks said that before jumping into the fray, the 41 municipal power utilities in Michigan act as though they first want to gauge the effectiveness of electric deregulation — which is designed to generate lower electricity prices for consumers — and the resulting demands of their own customers.

“We’re just going to wait and see how all this shakes out,” Weeks said.

“We’re going to start taking notes. A lot of it is going to depend on what the customers are saying two to three years from now.”

Much of what municipal utilities decide will also largely depend on their own situation, such as how their customer base is dispersed and whether they generate their own power or buy it from another supplier, Weeks said.

The Holland Board of Public Works, for instance, generates its own electricity. About 30 percent of its electric sales are to customers outside of the Holland city limits, in the townships where virtually all of the area’s growth is occurring.

With that many customers having the option to eventually choose another electric utility, the Holland BPW is taking a serious look at whether to participate in competition and develop a customer choice program, General Manager Tim Morawski said.

“The legislation was carefully crafted to put certain pressures on us,” Morawski said. “There’s another element in it for us. It puts an additional burden on us to open up.”

The Holland BPW serves about 21,000 residential and 4,000 commercial and industrial customers in the city of Holland and four surrounding townships. Morawski expects that the BPW Board will take a position on customer choice within a year.

With rates that are competitive with large utilities, the Holland BPW may have a hard time opting against competition, he said.

“From my perspective, it may be very difficult to say we’re not going to participate in a competitive environment and allow our customers to choose their electric supplier,” Morawski said.

The view for now is different in Grand Haven, where the city’s Board of Light and Power serves 12,400 residential and commercial customers in the area.

The Grand Haven BLP presently doesn’t see any benefit in joining a competitive marketplace, Administrative Services Manager Jon Hoffman said.

The utility — which also boasts competitive rates when compared to Consumers Energy Co. and others — isn’t interested in signing up customers anywhere else in Michigan, Hoffman said.

“If deregulation would benefit all of our customers, we would obviously pursue it. That has not been shown to be the case,” Hoffman said.

Municipal utilities, unlike giants such as Consumers Energy and Detroit Edison, are unique because they were formed to serve only their communities, Hoffman said. The Grand Haven BLP will consider whether to participate in a deregulated market once it sees a “mandate” from customers, Hoffman said.

“We were created to serve our community. If the community feels it wants its local utility to be a statewide marketer of electricity, then we’ll do that for them. But generally speaking, local utilities are more concerned about themselves than customers across the state, and therefore the focus is on their local utility,” he said.

The Zeeland Board of Public Works shares the wait-and-see view of many other municipal utilities.

The utility, with 4,800 residential, commercial and industrial customers, buys about 95 percent of the electricity it sells from other generators and, when asked, allows its largest customers to search for a lower price elsewhere, General Manager Dave Walters said.

The Zeeland BPW would not feel any significant affects of deregulation and a competitive market, Walters said. While the utility isn’t planning to move into customer choice for all, it will head in that direction if customers demand it, he said.

“We really don’t have anything to lose by allowing customer choice,” Walters said. “If our customers want choice, I imagine our board would eventually develop a program.”

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