Electric choice works for big business but could hurt homeowners, experts say

By Tarryl Jackson | tjackso1@mlive.com 
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on April 24, 2014 at 6:50 AM, updated April 24, 2014 at 1:47 PM

JACKSON, MI – Shopping around for the cheapest energy provider often works well for big companies, but for homeowners, some experts say it’s more like a scam.

Electric choice, which allows customers to choose their own supplier in an open market, is a hotly debated topic among in Michigan lawmakers, utility companies, residents and business owners.

State lawmakers are currently considering a bill that would deregulate the electric market, resulting in more competition for existing utilities, like Michigan-based Consumers Energy and DTE Energy.

Electric choice often is best for large corporations, which have the people and resources to bargain for the best price, said Bill Booth, senior energy advisor for the U.S. Energy Administration. Big companies often pay more in energy costs than an average person, making electric choice an added incentive when deciding where to open a business.

This is not the case for homeowners, who often do not get the information needed from outside energy marketers to make an educated choice, he said.

“It’s on the edge of scamming, in a sense,” Booth said. “The way that it’s marketed is very suspect. When the market gets bad, the competitive suppliers run away and drop their customers.”

Legislation for electric choice is in the early stages in Michigan, with proponents saying it opens the market to full competition, giving customers a better bang for their buck.

Opponents say it could lead to out-of-state competitors manipulating prices and making the market volatile and unreliable for customers. Jackson-based Consumers Energy — which has more than 6 million electric customers statewide — has been a vocal opponent of energy choice.

Across the country, 15 states, including Texas and Illinois, have some form of electric retail choice, according to the EIA. The District of Columbia also has electric choice. Seven other states implemented deregulation programs, but later suspended them.

“Each state is different, so it’s hard to draw conclusions,” Booth said.

Michigan’s electric market today picks winners and losers, and prevents companies from competing globally, state Rep. Mike Shirkey, R-Clark Lake said.

Shirkey is pushing for full electric competition. A bill he proposed would remove the 10 percent cap on electric choice, allowing all customers to be able to shop elsewhere. Current law limits alternative suppliers to 10 percent of the market, a cap that was met by the end of 2009.

Shirkey and Consumers Energy officials have different opinions of how energy choice would play out in Michigan.

For example, Consumers officials say customers could switch to a cheaper provider on a whim, making it hard for large utility companies to plan long-term investments, and shifting costs to customers who stay. Shirkey disputes this, saying it is just a scare tactic by large utilities against electric choice.

“I want to ensure, the best we can, that people living in Michigan have the best opportunities for jobs and prosperity,” Shirkey said. “Energy is quickly becoming a top factor in where businesses choose to invest and create jobs.”

Many states have tried deregulation and are dealing with unstable prices and lack of energy reliability, said David Mengebier, senior vice president and chief compliance officer at Consumers Energy. “I think in the end, customers want fair rates, but they also want to have good service and they want to have reliable power.”

How electric choice currently works in Michigan

In June 2000, the state Legislature signed into law the Customer and Electric Reliability Act, which allowed anyone – but mainly schools and businesses took advantage – to purchase power from cheaper providers.

In 2008, that changed when lawmakers approved restricting competition to 10 percent of the sales of the state’s two largest utilities, Consumers Energy and DTE Energy.

The 6,600 customers in Michigan who use electric choice can switch to another provider and get a contracted rate, terms and conditions, according to the Michigan Public Service Commission.

Electric choice customers still get a traditional utility bill from their current utilities, which includes a customer charge, distribution and electric supply charges, fees and taxes. An alternative provider can either add its energy supply charge to that bill or send a separate bill.

Residential electric-choice customers have three to 14 days to cancel before the switch-over is finalized. They are required to give a written notice to their incumbent utility if they decide to come back for full service, and stay with that utility for a minimum of 12 months.

Is the market too volatile for choice?

Electricity is the most volatile commodity because it has to be used instantaneously, Mengebier said.

“It can’t be stored, (and) the second it’s produced, it travels at the speed of light,” he said. “The only way you can mitigate the volatile nature of electricity prices is by making long term investments in power plants. In a deregulated market, prices can fluctuate up and down.”

Booth, however, said that volatility does not flow down to customers because state rate-making tends to protect customers from instability in the wholesale market.

Under Shirkey’s proposed electric choice bill, rates still would need to be approved by the state.

Why are Michigan’s electric rates the highest in the Midwest?

Electric choice supporters say the fact that Michigan has the highest electric rates in the Midwest shows the current model needs tweaking. Opponents say Michigan’s rates are impacted by current investments, some mandated by the government.

Michigan had the highest average retail electricity price for Midwest states at 11.05 cents per kilowatt hour, according to EIA statistics from January, the latest figures available.

“How is this representative of effective regulation?” Shirkey said.

Consumers officials say Michigan’s prices have been higher, in part, because of clean-air and renewable-energy investments utilities are making.

Other Midwest states have to make similar investments, but have a longer period of time to comply, Mengebier said.

“We have forced more cost into our rates over a shorter period of time,” Mengebier said. “These states are going have to start spending a lot money on more expensive renewable energy. That is going to impact their rates, too.”

What is the solution, if not deregulation?

Going back to a fully regulated market would be the best choice for Michigan, Consumers Energy officials say.

But to accommodate companies that use large amounts of energy, the state could create a special economic development program to give them a special rate, Mengebier said.

“What Shirkey is proposing is to throw the baby out with the bath water,” Mengebier said. “Let’s not throw the entire regulated system out the window when what we’re really trying to do is just focus on those customers where electricity is a big competitive factor for them.”

Shirkey admits electric choice is a complex issue that often takes years to pass through.

“This is a good thing because we want it to be robustly debated and vetted,” Shirkey said. “But every worthwhile, complex legislative change has to start somewhere.”

 

ELECTRIC CHOICE IN MICHIGAN

• Editorial: Electric deregulation not the answer for Michigan
• Consumers Energy: Jobs, price stability at risk if electric-choice bill passes
• Electric choice works for big business but could hurt homeowners, experts say
• Live chat recap: Readers get answers about State Rep. Mike Shirkey's electric competition bill
• Rep. Shirkey touting new report showing $37 billion in energy savings through Illinois' electric-choice system