In the summer of 2016, the Mackinac Center received an email that exemplifies the confusion Michigan residents often have about the term “electricity choice.” The email said,
I have never understood anything about the “choice” question on electricity. What choice? I have lived in Michigan since 1996 and paid my electricity bill every month for the past 20 years. I’ve never had “choice.” I get a bill and it’s always Consumers Energy. I get that other people get Detroit Edison. But you don’t get a “choice.”
As the email indicates, electricity choice in Michigan does not mean the same thing as consumer choice in other markets. Michigan residents are not allowed to simply choose the company that provides their electricity. Instead, you apply to receive electric service from the monopoly utility in your area, they hook up your service, you receive a monthly bill, and if you want to keep the power on, you pay it. The end.
But there is more to the issue of choice in electricity.
As described in “Electricity in Michigan: A Primer,” the process of providing electricity for residential, commercial and industrial customers is broken up into three phases.
- Generation: This is how electricity is created and primarily involves combusting coal or natural gas or splitting uranium atoms to make heat and steam that drives large turbines and generators. Electricity is also generated by capturing geothermal energy and energy from the sun, wind or stored water.
- Transmission: This is how electricity is transferred from where it is produced to where it can be made ready for distribution to “end users,” namely homes and businesses.
- Distribution: This is the process of transporting electricity directly to residential or commercial customers for their individual use.
In Michigan, electricity choice currently relates only to the generation and distribution phases. It is possible, however, to open up competition in transmission as well, by allowing companies to compete for the contracts to build and maintain high-voltage transmission lines. A similar situation occurs when governments contract with private firms for the construction and maintenance of highways, roads and bridges.
When most Michigan residents and businesses sign up for electricity service the only choice they are legally allowed is between buying electricity from a single, regulated, monopoly utility company or having no electricity at all. Depending on where they live in the Lower Peninsula, most consumers will receive service from either DTE or Consumers Energy. In the Upper Peninsula, your utility service will be provided by the Upper Peninsula Power Company or Upper Michigan Energy Resources. However, there was a short period in Michigan when customers were not so restricted in their options.
The Customer Choice and Electricity Reliability Act, Public Act 141 of 2000, granted access to electricity choice for Michigan residents starting Jan. 1, 2002. That meant utility customers were free to sign up to receive electricity services from an alternative electricity supplier. This is the same access to choice that consumers have when picking phone, internet or television providers.
Unfortunately, Public Act 286 of 2008 amended the 2000 law and closed off the vast majority of Michigan’s electricity markets. This change guarantees 90% of the retail electricity distribution market to the monopoly utility companies: DTE, Consumers Energy, UPPCO and UMERC. That change meant alternative energy suppliers were now limited to providing no more than 10% of the retail electricity sold in the state.
The change did not coincide with a reduction in electricity rates in Michigan; in fact, just the opposite. Great Lakes states with choice markets have electricity rates that are, on average, about 23% lower than Michigan’s largely regulated electricity market. The 10% cap on choice has the effect of limiting customer access to lower-priced electricity rates and provides little incentive for the monopoly utilities to make their rates competitively priced.
Instead, electricity customers in uncompetitive markets have their rates set by monopoly utilities. These rates must be approved by the Michigan Public Service Commission, the government agency in charge of the state’s electricity regulations. But the MPSC continually approves higher than average rates, even though it is charged with “establish[ing] fair and reasonable rates for regulated services … for Michigan’s utility customers.”
Customers in the choice market pay rates that are established through market competition and are, as a result, consistently lower than the rates used by the monopoly utilities. It’s no wonder then that there is high demand for more market-based rates in Michigan.
The MPSC’s 2021 report, “Status of Electric Competition in Michigan,” shows that, in 2020, 5,700 Michigan businesses and public schools were enrolled in the choice market. But another 6,400 customers were on the waiting list to get these same rates. Plus, the report estimated that between 10% and 25% of electricity customers — depending on the service area — would opt for the electricity choice option if the cap was removed. Discussions with alternative electricity suppliers indicate that moving from the wait list to electricity choice is, at best, a hit or miss prospect. Customers must apply to be added to the wait list and then pause until another school or business closes or willingly chooses to give up the savings they enjoy as part of the choice program before a new customer can legally take part.