DTE Energy is a principal architect of the campaign to alter Michigan’s electric choice program. The company and its allies have organized as the “CLEAR Coalition” (Citizens for Long-term Energy Affordability and Reliability). Officials of Consumers Energy also back reform, but prefer action by the Public Service Commission to that of the Legislature. Reopening the state’s controlling statute could invite more extensive revisions as well as intensify political risks.
Some of the rhetoric employed by CLEAR is clearly misleading. For example, CLEAR claims that Michigan is heading toward an energy crisis as occured in California. But the collapse of California’s energy market two years ago was largely a consequence of too much government interference rather than too little regulation, and few, if any, of the same contributing factors exist in Michigan.
In the case of California, regulators forced utilities to divest all generating capacity, and required them to purchase all power from wholesale suppliers and brokers such as Enron. Regulators also prohibited California utilities from negotiating long-term contracts that would ensure a stable supply of electricity at lower, fixed rates. Compounding the problem were price controls that forced utilities to sell power at retail rates far below the prices paid for the electricity on the wholesale market.
It was, in short, a recipe for market collapse.
But Michigan runs no such risk. Indeed, Mr. Earley assured shareholders in 2001 that Michigan was well protected against a California-type crisis. “I don’t anticipate California-like problems here,” the DTE chairman said. “The drafters of our legislation paid attention to the early warning signs in California and established safeguards that will provide for an orderly transition to competition.”
The incentive of incumbent utilities to alter Michigan’s utility restructuring is rather basic: Incumbent utilities prefer to eliminate competition through regulation rather than have to fight in the marketplace to retain customers.
According to DTE officials, the company has lost to competitors some 12 percent of its market share in the past year. The company is forecasting continued erosion of market share by year’s end — down by 18 percent of last year’s load.
In a series of ominous public ads, the CLEAR Coalition is warning that “plummeting” revenues could undermine power plant maintenance and thus “lead to more outages, reduced ability to restore customers after storms and other reliability issues.”
But such assertions are questionable. There is no evidence that overall market demand for power has dropped. On the contrary, economic growth increases demand for electricity. Incumbent utilities, therefore, can maintain market share by improving efficiency, which would translate into more competitive rates with which to lure customers.
Detroit Edison’s sales were indeed $120 million lower in 2003 as compared to 2002. But the difference cannot be attributed solely to the advent of competition. The summer of 2003 was unusually cool, which cut deeply into electricity demand for air conditioners. Significant sales also were lost during the blackout in August 2003, which was unrelated to utility restructuring — notwithstanding claims to the contrary by critics of an open energy market.
By market standards, DTE Energy remains strong. The price of company stock has risen more than 30 percent since January 2000. Moreover, DTE’s earnings have increased from 92 cents per share in the first quarter of 2003 to $1.09 per share in the first quarter of 2004. Shareholders also have enjoyed strong dividends this year.
To the extent that unnecessary regulation undermines the utility’s competitiveness, reform is needed. But the company can still use excess capacity to generate power for sale on the spot market, or to supply privately negotiated contracts.
The regulatory bailout initially advocated by CLEAR would have restricted choice to large industrial and commercial customers, and forced small and medium-sized firms as well as Michigan families to once again become captives of a utility monopoly.
Such action, however, is unwarranted.