Government, Manufacturing, and Sustainability

Energy Choice Now disputes latest state reports

Business group that includes Herman Miller fights to buy electricity on open market.

November 29, 2013
| By Pete Daly |
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Energy Choice Now, a group formed in 2010 to fight for restoration of the right to buy electricity on the grid from other than state-specified utilities, is attacking a series of reports jointly issued in November by the director of the Michigan Energy Office and chairman of the Michigan Public Service Commission.

The statewide Energy Choice Now group, which includes businesses such as Herman Miller in Zeeland, also has announced the formation of its new Leadership Council, described as a steering committee to “work with Gov. Rick Snyder and lawmakers in Lansing to end Michigan’s monopoly-style electric market.”

“We’re hoping to get his ear,” said Michael Ramirez, a senior vice president at Herman Miller.

Ramirez said Michigan has the highest energy rates in the Midwest. “That is a major constraint to employers’ ability to invest in their communities and grow their businesses.”

He said the plan is to “encourage Gov. Snyder and the legislature to take a serious look at the state’s monopoly-style energy system, consider the merits of an alternative, market-based model, and embrace the kind of competition that will mean lower prices, more investment in the state’s economy and job growth for our citizens.”

Legislation passed in 2008 put a 10 percent limit on the amount of electricity that could be sold over the Michigan grid by other than six specified utilities — including the two biggest: Consumers Energy and DTE. From 2000 to 2008, Michigan had allowed all electricity users to choose their own supplier of power with no limits on how much that could total.

After his Special Message on Energy and the Environment one year ago, Snyder asked MPSC Chairman John D. Quackenbush and Steve Bakkal, director of the Michigan Energy Office, to hold public forums around the state in 2013, collecting input on the major energy issues for the governor and Michigan Legislature to consider as they discuss next steps for the state’s energy future. Their final reports were due to Snyder in November and are now accessible to the public at michigan.gov/energy.

Choice participation is primarily by commercial and industrial customers, served by Consumers, DTE and four smaller electricity-generating companies in Michigan. The executive summary of the final report notes there is one exception to Michigan’s 10 percent cap on electricity from alternative suppliers: Iron ore mining or processing facilities are allowed to buy as much electricity as they want from alternative suppliers.

The report states that choice participation was virtually nonexistent in the Upper Peninsula until 2012, but by November 2013, there were about 100 customers taking choice service there. Two are mining facilities in the Wisconsin Electric Power Co. service territory, and that switch to alternative suppliers eliminated about 85 percent of the WEPCO generating load.

Consequently, WEPCO has filed an application to suspend generation at its Presque Isle Power Plant in Marquette in 2014. However, MISO — Midcontinent Independent System Operators, which regulates the flow of electricity on the grid in Michigan and adjoining states — has replied that the Marquette plant must continue operating “to maintain reliability of the power system on Michigan’s Upper Peninsula,” according to the state report.

The state’s report defines “stranded cost” as the drop in asset value of a power plant due to a regulatory change or market change.

“When there are fewer customers or no customers ‘guaranteed’ to an incumbent utility, they may have stranded costs due to a now ‘oversized’ system that they were required to maintain,” states the report, and all states that went from a regulated to deregulated electricity supply try to estimate and recover stranded costs so that utilities don’t go out of business, according to the report.

“A change in electric choice policy may or may not result in stranded costs,” according to the report, but “stranded cost considerations become greater as Michigan moves toward full deregulation and lessen as Michigan maintains current policy or moves toward full regulation.”

WEPCO, according to the report, is currently in discussions with MISO regarding compensation to keep the plant operating.

In late November, Wayne Kuipers, executive director of Energy Choice Now, released a statement critical of the final version of one of the reports, “Readying Michigan to Make Good Energy Decisions: Additional Areas.”

“It is not a good thing for Michigan that the governor is being given a report that puts the interests of the utilities ahead of the interests of residents and job providers. This report simply repeats utility talking points and continues to present flawed explanations and contradictory reasons for Michigan’s high electric rates,” he said.

“When the draft report on ‘additional areas’ was released, ECN found multiple false assertions in the report in key statements on electric system reliability and rates,” said Kuipers, adding that ECN then provided “data-driven corrections, backed by solid economic research and analysis, in order to correct the report. It’s imperative that fair and balanced — not biased — analysis be used by policymakers as they debate much-needed reforms to the state’s energy policy.”

Kuipers said it was “very troubling that almost all of our corrections were ignored in the final report.”

ECN said it provided data supporting its position that reliability is unaffected by electric competition. Its responses to the reports submitted to Snyder are on its website: ecnmichigan.com.

“It is simply untrue that restructured wholesale markets do not provide enough certainty regarding future revenues for resources to be financed. Moreover, retail electric competition has nothing whatsoever to do with maintaining the reliability of either the bulk power system or the distribution system,” said Kuipers.

As evidence, ECN points to new power plants being built in states with electricity choice. ECN maintains Michigan’s current energy law inhibits the development of competitive generation, and that “the majority of the increase in rates for all customers is the result of Michigan’s regulatory process, continued utility ownership of generating resources, and the gutting of meaningful retail competition in 2008.”

ECN says “one of the most egregious errors … is its acceptance of the ‘zero-sum’ argument put forth by the utilities, a falsehood that also simply repeats the utility argument that retail competition dumps costs onto remaining customers. The report fails to analyze, or even mention, the counterarguments put forward by proponents of retail choice. … Competition can only be a zero-sum game if regulators allow it to be so, by protecting utilities from the discipline of the competitive market.”

“Electric competition does not hinder construction of new plants when needed, and there is no need for rates to increase for those who do not select a competitive provider,” states ECN.

Economist Jonathan Lesser, the author of ECN’s response to the state report, said “making electricity unaffordable will not grow Michigan’s economy; it will hasten an exodus of businesses and jobs. Nor will offering subsidies to a select few businesses, while forcing all other businesses and residential customers to pay more, grow Michigan’s economy. It is simply impossible to subsidize one’s way to greater long-run economic growth.”

“Despite its documented benefits, utility resistance to retail electric competition remains strong,” said Lesser. “Michigan’s artificial restrictions on retail electric competition, and the desire by some to eliminate even that small competitive market, will continue to stifle innovation and drive retail electric rates ever higher.”

In addition to Herman Miller, other companies that are members of Energy Choice Now include Brann’s Steakhouse and Sports Grilles and Cadillac Casting in Cadillac. The organization also includes members representing the alternative energy suppliers now blocked from selling electricity on the Michigan grid.

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