The Mackinac Center for Public Policy is a nonpartisan research and educational institute dedicated to improving the quality of life for all Michigan citizens by promoting sound solutions to state and local policy questions. The Mackinac Center assists policy makers, scholars, business people, the media and the public by providing objective analysis of Michigan issues. The goal of all Center reports, commentaries and educational programs is to equip Michigan citizens and other decision makers to better evaluate policy options.

This comment is in response to the report issued on Oct. 15, 2013, by the Michigan Public Service Commission titled "Readying Michigan to Make Good Energy Decisions: Electric Choice," (the "Draft Report") written by Chairman John Quackenbush and Michigan Energy Office Director Steve Bakkal.

The MPSC's current interest in electricity choice policies is timely and welcome. Michigan's last major change to policies regarding electricity choice was in 2008, so substantial information is now available to examine the results from two distinct periods. The first period is between 2000 and 2008, when new suppliers were allowed to start entering the Michigan market and competing with incumbent utilities, and the second is between 2008 and 2012, when competition was restricted to guarantee a 90 percent market share for the largest utilities.[1]

Michigan once had a very successful electricity choice program. It had its flaws, but on balance Michigan's electricity choice program led to lower electricity rates for Michigan households, small businesses, schools and employers than they would have had otherwise. Before competition was introduced, Michigan's electricity rates were well above both the national average and the regional average among Great Lakes States. By 2004, or only two years after competition was introduced, Michigan rates were below the national average, and were narrowing the gap with nearby states. After the 10 percent cap and other restrictions on competition were imposed in 2008, rates rose much faster than the national average, and by the end of 2012  rates across all categories of customers in Michigan were 18 percent above the national average and 23 percent above the regional average. Furthermore, while electricity rates on average in the United States had declined between 2008 and 2012, rates in Michigan on average were about 27 percent higher than they were when the 10 percent cap was imposed.

Graphic 1: Average Price of Retail Electricity
in Michigan, 2000-2012

Graphic 1: Average Price of Retail Electricity<br /> in Michigan, 2000-2012 - click to enlarge

Source: U.S. Energy Information Administration, Form EIA-861
and Form EIA-826. Data for “2012” is for December of 2012.

Graphic 2: Change in Michigan Electricity Rates, 2000-2012

Region

2000-2008

2008-2012

Michigan

25.7%

27.2%

Great Lakes

33.4%

8.1%

U.S.

43.0%

-0.9%

Source: Energy Information Administration, Form EIA-861.

The analysis of these two periods suggests that market competition tends to bring innovation and lower prices to Michigan electricity consumers, while monopolistic policies tend to raise prices. Further, the Draft Report can be improved to better describe the regulatory problem it is intended to address, the possible solutions, and the evidence that is available for evaluating these proposed solutions.


*  Some language contained in this report also appears in a previously published work by the Mackinac Center. Theodore Bolema, “With Competition Diminished, Michigan Citizens Paying High Price For Electricity,” Michigan Capitol Confidential (Mackinac Center for Public Policy, Oct. 18, 2013), accessed Oct. 29, 2013, http://goo.gl/vDJiyw.


[1]  The Mackinac Center has published three studies assessing electricity choice legislation and policies. Adam D Thierer, “Energizing Michigan’s Electricity Market” (Mackinac Center for Public Policy, 1997), accessed Oct. 28, 2013, http://goo.gl/B8lx8e; Theodore R. Bolema, “Assessing Electric Choice in Michigan” (Mackinac Center for Public Policy, 2004), accessed Oct. 29, 2013, http://goo.gl/0aixCb; Diane S. Katz and Theodore R. Bolema, “Proposals to Further Regulate Michigan’s Electricity Market: An Assessment” (Mackinac Center for Public Policy, 2008), accessed Oct. 29, 2013, http://goo.gl/CKqEhn.