New group wants higher cap on electricity choice

August 30, 2010
| By Pete Daly |
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A new statewide coalition including several West Michigan businesses is supporting two West Michigan legislators who have sponsored bills that could increase the amount of electricity sold on the state grid by suppliers other than the state’s two major utility companies.

A spokesman for one of the utilities, Consumers Energy, said “out-of-state power brokers” are driven by “short-term market conditions” to sell surplus energy in Michigan at prices lower than those charged by the in-state utilities.

Last week State Rep. Roy Schmidt, D-Grand Rapids, along with businesses from across Michigan, announced the launch of a new coalition, Electric Competition for Michigan Now, to support an increase in the current 10 percent cap on electric choice in Michigan to 25 percent. The organization’s incorporation papers were submitted by the Dickinson Wright law firm in Ann Arbor, according to state records.

In late 2008, Gov. Jennifer Granholm signed into law an energy package that included a 10 percent cap on the amount of electricity that could be sold over the grid independent of DTE and Consumers Energy. From 2000 to 2008, there was no limit to the amount of electricity that could be delivered over the grid in Michigan by independent power companies. The large package of energy-related legislation also allowed rate increases.

An announcement from Electric Competition for Michigan Now states that since October 2008, “electric rates have skyrocketed. For Consumers Energy customers, rates have spiked from 20 percent for the average residential customer to the upper 20s to upper 30s percentages for businesses.”

“The crisis is real, the time is now, the need is urgent,” Schmidt is quoted as saying in the coalition announcement. “Michigan’s businesses, especially our small businesses, have been caught in an economic recession for many years — longer than most states. To now have to absorb 30 to 40 percent price hikes on their utility rates over the course of just 22 months is inordinately handicapping Michigan business. We need to start looking out for all of our business community, not just our two largest utilities.”

With increased competition, Schmidt said, the market would experience the full benefits of greater price options, new technologies and cleaner, renewable energy innovations that promote efficiency and help customers control energy costs. Increased competition, he said, would also give a much-needed boost to Michigan’s economy by greatly improving job retention and job creation.

“Competition drives innovation, efficiencies and customer service,” said Chuck Soet, president of Kent Quality Foods in Grand Rapids. “Through our coalition, Electric Competition for Michigan Now, we want to help Michigan’s consumers who are trying to seek relief from high electric rates. Everyone realizes that those  (who are) saving on their electricity costs can use those savings to avoid layoffs, hire more workers, or increase worker benefits.”

Earlier this year, both Schmidt and Sen. Wayne Kuipers, R-Holland, introduced legislation (HB 6127 and SB 1317, respectively) that would increase the cap on competitive energy suppliers from the current 10 percent to 25 percent. The bills are now in committee.

The 10 percent cap on outside supply of electricity was reached within one year after the 2008 legislation was enacted.

The Business Journal was unable to reach Schmidt before deadline for additional comment on his legislation and the new coalition.

Other members of the coalition from West Michigan include Campbell Grinder Co. in Muskegon, Nu-Wool Inc. in Jenison and Haworth Inc.

Another member is Constellation NewEnergy, a subsidiary of Constellation Energy, a competing supplier of electricity based in Baltimore, Md. David I. Fein, a vice president at Constellation, is listed as one of several spokespersons for Electric Competition for Michigan Now.

Constellation Energy is a major supplier to wholesale and retail electric and natural gas companies, with generating plants in the United States and Canada totaling approximately 9,000 megawatts of generating capacity. Constellation had revenues of $15.6 billion in 2009.

A spokesperson for Consumers Energy, Jeff Holyfield, said its rate increases for industrial and other large users of electricity since the new energy laws were enacted range from 9 to 16 percent, and for commercial entities that use less energy, 13 to 15 percent.

Judy Palnau, a spokesperson for the Michigan Public Service Commission, said that since the energy bill was enacted in 2008, electricity rates have increased as follows: residential, from 10.49 cents per kWh to 12.60 cents; large commercial users, from 8.99 cents per kWh to 11.96 cents; and industrial users, from 6.82 cents per kWh to 9.38 cents.

The 2008 energy legislation also “de-skews” rates, which Palnau said means “commercial and industrial customers will stop subsidizing residential customers. Within five years, all rates will be based on ‘cost of service.’”

Holyfield said, “These folks are focusing on the cap, but what they’re not acknowledging is, there are a lot of very broad public policy decisions that were made and included in that law.” The law included a requirement that, by 2015, the major utilities would be purchasing at least 10 percent of their electricity supply from renewable sources, such as wind and solar generation.

That type of electricity, however, costs more to produce than electricity from conventional coal-fired power plants, and Holyfield noted that the Michigan Public Service Commission allows rate increases to absorb the extra cost incurred by Consumers Energy and DTE.

The energy legislation of 2008 also requires the major utilities to implement programs to help its customers reduce their use of electricity by 5 percent by 2015. Holyfield said those programs include incentives for businesses to reduce their electrical use — and the cost of those programs are also to be covered by rate increases approved by the MPSC.

As for increasing the cap on customers’ ability to choose their electricity supplier, Holyfield noted that Michigan had no cap at all on customer choice from 2000 to 2008, and yet only 3 percent of the supply on the grid in 2008 was coming from other electricity providers.

Holyfield said that during that period, the competing suppliers “never went after a single residential customer in our system.” He said the competitors were “always after the very high-end” large-volume users, such as industrial companies.

“So they basically want to come in and cherry pick during this short-term market condition” of surplus electrical supply, added Holyfield.

The percentage of customers choosing other suppliers rose quickly after the energy law was passed in 2008, because the onset of the recession at that time resulted in a drop in electricity consumption in Michigan, due in no small part to factory closings.

“Power prices have taken a dip because demand is down,” said Holyfield, which means now there is “surplus generation.”

Holyfield said that in 2008, “after two years of discussion and analysis and research in Lansing, they decided (no cap on customer choice) was the proper approach for Michigan. The 10 percent cap was set after a lot of research and analysis, and it’s designed to allow competition in the marketplace, yet give utilities the certainty (in incoming revenues) they need to invest in Michigan and create jobs.”

Holyfield said Consumers Energy has 7,700 employees in Michigan and about 2,500 contractors.

“We’re making investments in the state, creating jobs. These out-of-state power brokers come in and they have no commitment to the state,” said Holyfield. “Short-term market conditions shouldn’t be used as an excuse to re-open a comprehensive energy law that is not even two years old and took two years to develop.”

Electric Competition for Michigan Now also has launched a social media campaign on Facebook and Twitter. Its website is www.competition4mi.com. On Twitter, see competition4mi. On Facebook, see Electric Competition for Michigan Now!

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