More than a dozen bills are pending in the Michigan Legislature to expand regulation of the electricity industry and to impose new environmental requirements on energy production and sales. As a group, these legislative proposals assume the necessity of government intervention in the production and distribution of energy. This report details the drawbacks for consumers and the economy of substituting political forces for market forces in electricity service.
Energy policy is critically important to Michigan households and businesses, which collectively spent nearly $8.8 billion dollars in 2006 on electricity. Electricity rates in the state typically have exceeded both regional and national averages, raising the state’s business costs and residents’ cost of living.
It is important to note that the current policy debate is driven largely by special interests, not consumer interests. DTE Energy and Consumers Power Co., the state’s two largest utilities, are seeking to regain much of their state-sanctioned monopoly status after eight years of Michigan’s limited experiment with competition in energy supply. As this report details, competition produced cost savings for both commercial and industrial firms, and attracted investment in new electric generating capacity to the state.
Gov. Jennifer Granholm is pursuing expanded tax breaks and subsidies for wind power and other "renewable" energy sources as the remedy for Michigan’s moribund economy. In her 2008 State of the State address, for example, she pledged to make Michigan "the alternative energy epicenter of America," making her one of several governors to covet that title for their states. But as we explain below, Michigan taxpayers will not benefit if forced to subsidize energy firms that cannot attract private capital or compete on the merits of their products.
Many of the legislative proposals go well beyond the conventional regulatory framework. For decades, energy policy has focused on maintaining a reliable and affordable supply of electricity. In contrast, many of the pending bills focus on energy policy as a means of job creation, economic development or state promotion of a favored industry. As documented elsewhere by the Mackinac Center, such schemes are speculative and usually counterproductive.
Energy affordability and innovation are crucial to Michigan’s future. Lawmakers and voters alike would do well to recognize that a vibrant energy market requires less government involvement — not more. As noted by renowned economist Alfred E. Kahn: "Policy makers confronting pressures to undo the restructuring of the electricity industry would be well advised to base their decisions on the longer-term benefits that will flow from properly implementing competitive markets."