The Michigan PSC’s plan

MJC’s nine recommendations were provided to Governor John Engler, who in turn passed them along to the Michigan Public Service Commission with the mandate to "work to refine and act upon the . . . blueprint for competition in a timely manner." Eleven months later, on December 19, 1996, the Michigan Public Service Commission released its "Staff Report on Electric Industry Restructuring" (MPSC Staff Report). 18 Although the MPSC Staff Report discusses all nine recommendations contained in the Michigan Jobs Commission blueprint, the Staff Report proposed that the entire electricity reform effort should be driven by two fundamental principles:

(1) all customers should be eligible to participate in the emerging competitive market;

(2) rates should not be increased for any customers and should be reduced where possible.

Although seemingly simplistic, the MPSC’s guiding principles advanced two additional recommendations not contained in initial MJC blueprint. First, all electricity customers, not merely industrial and commercial users, are to be granted choice in who provides them with electric service. This means residential customers must be given the ability to switch providers as they desire on the same timetable as industrial and commercial customers.

This recommendation represents a genuine improvement over the initial MJC report, which ignored the residential consumer sector of Michigan’s economy. (The MJC has since publicly embraced choice for residential electricity consumers.) Clearly, no class of customers can be ignored if a coalition for reform of Michigan’s electricity market is to develop. Although the state’s business sector is right to complain that its electricity costs are too high, residential consumers can also rightly claim their monthly utility bills place too great a burden on them and their families. Therefore, the MPSC is to be commended for ensuring residential consumers are treated on equal terms in the deregulatory process.

The second major MPSC recommendation sounds even better than the first, but may present some problems as deregulation unfolds. By arguing that rates should not be increased for any customers, and that they should be reduced where possible, the MPSC appears to have made a fairly noncontroversial recommendation. After all, with rates being so much higher for Michigan consumers, it is unlikely rates could go up for anyone in any customer class in the competitive future. However, by taking a hard-line stance against any rate increases, it begs the question about what the MPSC will do if a small handful of customers experience small rate increases in the future, for one reason or another. Is the MPSC saying it will not allow the free fluctuation of rates in the competitive future? If so, such price control efforts may actually distort beneficial pricing signals and distort competitive entry decision making.

The 46-page MPSC Staff Report goes into much greater detail on several key issues involved in the restructuring and deregulation of the electricity sector, each of which is worth examining in detail.

MPSC Key Issues
  • Retail customer choice schedule

  • Price/rate controls

  • Stranded costs & securitization

  • Transmission operation & regulation

  • Environmental concerns

  • Universal Service