Michigan Has The Power

June 5, 2002
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GRAND RAPIDS — Consumers Energy Senior Vice President John Russell said he was glad that Michigan lawmakers weren’t California dreaming when they restructured the state’s electric energy business.

Russell told members of the Grand Valley Metro Council last week that the state’s deregulation plan is the best in the country because legislators made a key decision that will roll out enough power for the state this summer instead of the rolling blackouts California is getting this spring.

“We’re much more secure than California this summer,” said Russell, who oversees electric transmission and distribution for Consumers. “We have enough generation to cover our load, and our rates are competitive.”

According to Russell, the key reason why Michigan is in better restructuring shape than California is that state lawmakers phased in deregulation while their counterparts on the West Coast didn’t. In California, there wasn’t a waiting period before consumers could switch utilities. Here, switching doesn’t start until next January.

“They really took the time to make sure that the Michigan model was working before all customers had choice,” said Russell.

Russell added that residential customers received a 5-percent, 5-year rate reduction from the state’s plan, while businesses got a rate freeze through 2003. When California started its restructuring plan, its rates were twice what neighboring states where paying, and the state’s utilities were under a rate freeze.

Another key difference between the two plans is that the state’s version has the utilities retaining generation rights. In California, generation was deregulated, which forced utilities there to buy power. Suppliers saw an opportunity to score a windfall from captive buyers, and they raised prices faster than investors bailed out of Nasdaq.

The result is California’s two largest electric-power providers have lost a total of $14 billion so far to the restructuring plan. Pacific Gas & Energy, the state’s largest provider, recently filed for bankruptcy with a debt of $9 billion. That loss stings even more knowing that California’s power demand grows by 6 percent annually, while Michigan’s growth rate is closer to 2.5 percent.

“We also have a much less volatile market than California. The bulk of our generation is coal-fired. It has a very stable price. We can also enter into long-term contracts, which we have and continue to do for buying power on the open market,” said Russell. “So we’re not captive to the day-to-day market that they were in California.”

In addition, Russell said more power is being generated in the state — 8,800 megawatts if all the proposed plants go online. That amount would give the state a reserve margin of nearly 40 percent. Most plants will pop up in southwest Michigan and will be “peak plants,” running from spring to early fall to cover the peak-use summer period and then go offline for the colder months.

“We’re in the process of expanding our transmission system by 2,000 megawatts. Currently we have 3,500 megawatts of import capacity. We’re expanding to 5,500 megawatts of import capacity,” said Russell, who also serves on The Right Place Program board.

“The good news about that is it allows more power to come into Michigan. That work will be completed by June of next year.”

As for more nuclear plants in Michigan, Russell said there are some real benefits to having power generated that way. But he also noted there was one major stumbling block to building one.

“Who wants it in their backyard?” he asked. “That’s the problem.”       

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