Summary of Recommendations & Conclusion

Although the Michigan Public Service Commission is to be commended for advancing an electricity deregulation proposal before many other states have even considered a plan, the MPSC Staff Report is not without its flaws. Most of these difficulties can be corrected quite easily, but the Commission’s plan to bail out the potential future losses of the state’s utilities will need to be completely reworked if consumers are to be treated fairly. The major recommendations of this paper are as follows:

Recommended Action #1: Grant all consumers choice immediately.

Recommended Action #2: Eliminate transitional price controls on final retail prices.

Recommended Action #3: Establish a simple, transitional transmission access pricing rule that compensates holders of the lines only for the actual cost of using those lines. Sunset such transitional rules once competition takes hold and the market power of the current monopolists has dissipated.

Recommended Action #4: Disallow all stranded cost claims for compensation except in the rare cases where a utility can prove beyond doubt that the investment was forced upon them by the PSC or the legislature.

Recommended Action #5: Allow utilities to securitize their losses if they want, but do not guarantee them a revenue flow to pay back the bonds via additional transmission fees or charges on captive ratepayers.

Recommended Action #6: Do not preemptively mandate a single transmission system or structure on the industry. Allow market participants to voluntarily work together to establish an efficient regional transmission system.

Recommended Action #7: Work in conjunction with the FERC and federal policy makers to work out interstate reciprocity concerns. Allow for some federal role in this process to ensure the harmonious development of nationwide competition.

Recommended Action #8: Ensure that the pro-environmental benefits of competition manifest themselves by giving all customers the choice to shop for green power immediately, and by denying stranded cost recovery for inefficient utility investments.

Recommended Action #9: Do not impose any type of "carrier of last resort" requirements on any carriers.

Recommended Action #10: Any assistance that is deemed necessary should be targeted, means-tested and delivered through more pro-competitive voucher-like mechanisms that will not greatly distort market activity.

Other issues and recommendations not discussed in the MPSC Staff Report deserve discussion.

The Commission has ignored the issue of how municipal utilities or "MUNIs" fit in the competitive future. While the Commission argues it has no regulatory authority over such municipally owned utility monopolies, it does not follow that it cannot take action to encourage the MUNIs to come into the competitive fold. The Commission could "fence in" the municipalities if they do not allow other utilities access to the MUNIs’ captive customers. In other words, if a MUNI refuses to allow Consumers Energy, Detroit Edison, or any other power company to voluntarily interact with consumers within their municipal service territory, the MPSC could then disallow attempts by the MUNI to offer service outside their existing franchise territory. This would encourage consumers held captive to a MUNI’s territorial monopoly to demand that the municipality offer new competitors the chance to serve their homes and businesses.

Two other recommendations made by the Michigan Jobs Commission were seemingly ignored or forgotten by the MPSC. First, the MJC recommended that the state provide leeway for merger, alliance, acquisition, and joint venture activity to take place as deregulation unfolds. Since there has been a clear rise in the volume of merger and alliance activity nationwide over the past year, it would not be surprising if certain Michigan utilities soon began looking for partners as well. While some policy makers might fear such arrangements, they should allow these mergers and alliances to move forward and turn their attention to guaranteeing that all customers have the ability to shop around for service as soon as possible. This will allow beneficial mergers and alliances to develop while simultaneously keeping the overall market power of any one company in check.

The MPSC chose not to discuss another Jobs Commission recommendation—reform and restructuring of the MPSC itself. It is never easy for a regulatory body to voluntarily surrender authority or power to market forces as deregulation unfolds, but for the sake of a more competitive market, it will have to do so in the future. The MPSC should be willing to make good faith efforts to streamline its operations in the near term and prepare to make more substantial reforms in the long term. However, legislative action will probably be required to complete this task since the Commission will probably be reluctant to do so on its own.

The simplest step the legislature could require to advance this goal would be a 50 percent reduction of the Commission’s budget within five years. Eliminating redundant or obsolete regulatory functions would advance such an agenda—policy makers must learn to trust the regulatory forces of consumers and the market instead of regulators and their mandates, if a free market in electricity is ever to truly develop in Michigan. Taking such steps in conjunction with the other reforms outlined above will ensure that a brighter future lies ahead for all Michigan electricity consumers.