The costs of an uncompetitive electric market

Michigan citizens and policy makers have come to realize just how serious the lack of competition in this market is for the future of the state. Michigan rates are among the highest in the Midwest. As a consequence, Michigan families are spending a large portion of their monthly earnings paying unnecessarily high electricity bills, meaning their overall standard of living suffers simply because they cannot choose among competing providers for service.

Equally as important is the toll exacted on Michigan’s commercial and industrial sector by unnecessarily high electricity rates. As the Michigan Jobs Commission has noted, "Michigan’s commercial and industrial electric rates are on average 15% higher than our competitor states." 1  And because electricity represents a sizable portion of the overhead costs associated with the production of many goods and services, high electricity costs unnecessarily raise the cost of doing business. In turn, the state’s overall business efficiency drops and prices are artificially forced up since the costs of higher commercial and industrial electricity are eventually passed on to consumers. This forces many businesses to ponder the relocation of their plants or facilities to states with more hospitable electricity rates and service. Of course, when such drastic actions are taken, job dislocations result as well.

It is ironic that such negative economic effects could result from price differences of a mere penny or two per kilowatt hour (kWh) in electricity prices. Yet, when tens of thousands to millions of kilowatt hours of power are being purchased, a penny or two can make all the difference in the world. Therefore, when examining Michigan’s rates relative to the rest of the Midwest region and to the nation as a whole, Michigan citizens and policy makers should be aware that the penny or two difference in per kWh prices is what causes their monthly bills to be so much higher than other states. As indicated by Chart 1, Michigan’s electricity rates are among the highest in the region and significantly higher than national averages for commercial and industrial users.

If this situation is not remedied, the results could be serious for Michigan citizens. As Governor John Engler has noted, "Given Michigan’s disproportionate share of energy intensive industries, actions to reduce energy costs must be undertaken to ensure our State’s future economic competitiveness." 2  If such actions are not pursued, all customer classes will continue to pay unnecessarily power prices and the economic and employment base of the state may be placed at risk.