In the campaign to restrict competition in electricity supply, proponents have raised some legitimate issues that deserve consideration. None warrant new limits on competition, but some changes could improve Michigan’s power market.
A key complaint among the incumbent utilities is the requirement that they alone must act as the suppliers of last resort. Detroit Edison and Consumers Energy, for example, must reconnect customers at the regulated rate should they opt to leave a competing service provider. This requirement constitutes a competitive disadvantage because incumbent utilities must underwrite the costs of maintaining supply for phantom customers or purchasing more costly power that regulated rates would not cover.
Incumbent utilities should not be forced to provide service to every household or business at standard cost. The choice to live in a remote area involves trade-offs that ought not to be subsidized by DTE, Consumers Energy and their ratepayers. Demand for more affordable power supplies in remote locations would undoubtedly stimulate R&D in cost-effective options.
Incumbent utilities are also required to provide home heating assistance programs. But if electricity welfare is indeed a worthy social goal, the subsidies should be apportioned from the General Fund rather than imposed selectively. Nor is there a lack of assistance from public sources. Michigan receives some $97 million in federal funds for home heating assistance programs, and contributes an additional $27 million to such programs. The state offers a home heating tax credit, while the Family Independence Agency provides emergency heating assistance.
The one element of P.A. 141 that deserves repeal is the imposition of price caps that locked rates at 5 percent below 2000 levels until 2006. Price controls inhibit competition, innovation and efficiency by artificially limiting returns on investment. Absent price controls, competition exerts downward pressure on rates.
The campaign to alter Michigan’s utility restructuring has created uncertainty in the marketplace. Investors are understandably reluctant to risk their capital where the rules of engagement appear to be in flux. For this reason alone, the Legislature should only undertake reforms that stimulate competition and attract investment, and without delay. Considering the benefits to date of competition in power supply — and the promise of more to come — lawmakers would do well to summarily reject any bid for government protection from competition and focus instead on further de regulation of the electricity market. In the campaign to restrict competition in electricity supply, proponents have raised some legitimate issues that deserve consideration. None warrant new limits on competition, but some changes could improve Michigan’s power market.