Michigan law says I have a right to choose my electricity provider. So how do I choose?
In Michigan, the right to choose is a right in name only. Only 10% of the electricity market is open to competition and that portion is fully subscribed. Customers must apply to be added to the wait list and rely on electricity service from one of the monopoly utilities until another school or business goes out of business or chooses to exit the choice program.
Why would I want to enter the choice market?
The main reason that customers have entered the choice program is that they are able to obtain electricity or other desired services at a lower cost, with service that is just as reliable as that provided by monopoly utilities. For example, the Michigan Schools Energy Cooperative reports that they provide competitive electricity service to more than “160 member districts and community colleges.” Through 2016, they had helped Michigan school districts save over $121.4 million by enrolling them in the electricity choice program.
To put the numbers in another, easily understood format, Ohioans have the option to choose their electricity provider and enjoy much lower electricity rates. If Michigan residents paid the same electricity rates as Ohioans, they could save about $260 on their electricity bills each year, on average — almost enough to cover one monthly car payment each year.
Are the monopoly utilities more expensive? Do customers really need a choice?
The electric rates and reliability reports suggest Michiganders pay more than they need to for electricity. Great Lakes states with electricity choice programs — Illinois, Ohio and Pennsylvania — paid an average total — residential, commercial and industrial — retail electricity rate of about 9.5 cents per kWh in 2020. In contrast, Michigan’s mostly regulated electricity markets charge about 30% more — an average total retail rate of 12.4 cents per kWh.
At the same time, the most recent version of the Eaton Blackout Tracker report ranked Michigan as the fourth worst states for total electricity outages from 2008 to 2017.
There’s no getting around the fact that Michigan’s electricity system provides less reliable electricity at rates that are nearly one-third higher than the rates of neighboring Great Lakes states that allow for more market competition.
If monopoly utilities were offering Michigan residents competitive rates and more reliable service, customers would have no reason to switch. But the Michigan Public Service Commission reports that there’s more customers on the waiting list for electricity choice rates than there are currently signed up. The MPSC also reports that, depending on the service area, between 10% and 25% of electricity customers would sign up for the choice market if they were able to do so.
But a single, large, utility can provide services across a wide operating area more efficiently than smaller competing firms, can’t they?
If monopoly utilities and their supporters actually believed this statement were true, they would immediately demand legislation that forced all but one of the state’s existing monopoly utilities to cease operations.
This legislation could then grant the single remaining utility the legal right to serve all Michigan residents. But, which of Michigan’s utilities actually possesses the courage of their convictions? Which utilities will volunteer to close their doors and cede their operating territories to one, single — ostensibly more efficient — utility?
It’s clear that none of our monopoly utilities actually believe this to be true, and Michigan’s experience over the past three decades demonstrates just the opposite.
When Michigan residents had access to electricity choice, the state’s rates were lower than those in neighboring states around the Great Lakes. They were also lower than the national average. But since market competition was restricted, Michigan rates climbed above the pack, and now Michiganders pay more than their Midwestern neighbors and the national average.
In 1999, the year before Michigan passed the law that opened electricity services up to choice, the state’s electricity rates were 7.2% higher than the national average and 7.9% higher than the other Great Lakes states.
In 2002, market competition was allowed. By 2005, Michigan’s rates had dropped to 11.2% below the national average (an 18 percentage point swing) and to 8.5% below the Great Lakes states averages (a 16.5 percentage point swing).
But, in 2008, Michigan’s Legislature repealed the broad electricity choice program and re-regulated much of the electricity system, giving 90% of retail sales back to the monopoly utilities. Michigan’s electricity rates immediately began to climb.
From 2008 to 2020, average total electricity prices for the total electricity industry in Michigan rose from 8.93 to 12.37 cents per kWh — a 39% increase. Over the same period, total electricity prices in the Great Lakes states only rose 15% and nationally rates increased by just 9%.
In 2020, Michigan had the highest residential retail electricity rates among Great Lakes states. Our total electricity rates were 13% higher than all the other Great Lakes states, about 30% higher than Great Lakes states with electricity choice and 16% percent higher than the national average.
The evidence suggests that competitive pressures brought on by market choices in electricity generation and distribution from 2002 to 2008 forced utilities to offer their customers lower rates. But by imposing an arbitrary cap on the choice market, Michigan’s Legislature hampered competition, increased costs and restricted customer options.
It is well past time to remove the cap on the choice markets and return choice to Michigan residents.
Won’t a more deregulated system threaten the environment?
Making electricity providers compete and giving customers a choice does not interfere with regulations aimed at protecting the environment. Although the term “deregulated” is used to describe these energy markets, that term only applies to pricing of supply.
Both the federal and the state governments still have the authority to regulate electricity providers and to require that they limit their environmental impact.
Additionally, market pressures are a very effective means of pushing the private sector to offer customers clean energy options. Businesses may see purchasing lower emission generation options, such as natural gas and nuclear, as providing a competitive advantage over their peers. Many utilities across the country today base their marketing efforts on the notion that they are transitioning to green energy sources, like wind and solar. They do this because a portion of their customer base is demanding these options. Reintroducing market competition in electricity would promote diversity in the options customers can choose from.
Didn’t a “deregulated market” cause the blackouts and instability in Texas in February 2020?
Texas provides a valuable example for any state that is considering transitioning their electricity system over to rely heavily on renewable energy technologies like wind and solar. It wasn’t “deregulation” that caused Texas’ grid instability — it was a mix of poor planning and preparation on the part of Texas regulators and utilities. That lack of planning ran headlong into an unusually period of cold weather, which was compounded by more than a decade of choices that caused the state to rely heavily on “reliably unreliable” renewable energy.
Texas has spent the past decade transitioning their electric grid away from coal and over to wind generation. In fact, federal government data indicates that, in 2020, wind overtook coal as Texas’ second largest source of electricity. At the same time as Texas has closed more than 6 GW of coal plants, they have built over 25 gigawatts of wind and five gigawatts of solar.
But Texas’ choice to focus their spending on building wind and new related transmission lines, rather than maintaining reliable energy sources and preparing their grid to handle extreme weather is a primary reason the state suffered rolling blackouts during the extreme cold temperatures they faced in February 2021. As we noted in a USA Today article on the Texas blackouts, “Renewable’s defenders retort that Texas’ wind resource is ‘reliably unreliable.’”
But that simply means renewables can’t be trusted when they are needed the most. And that is exactly the case in a growing number of situations: Texas’ blackouts in February 2021, California’s blackouts in the summers of 2019 and 2020, and Michigan’s energy restrictions during the January 2019 Polar Vortex event.
During the extreme cold that impacted Michigan and much of the Midwest in January 2019, wind and solar generation resources produced only trace amounts of electricity, despite the fact that they were outfitted to run in cold weather. During the extreme cold, there was insufficient wind to drive the turbines and, at times wind generation dropped to less than 1% of the regions electricity supply. But even when the wind speeds increased, temperatures below -20°F forced much of the wind generation offline because operating it at those low temperatures could have damaged them.
In November 2019, a similar story was reported out of Washington state. Low winds speeds across the region meant that wind generation could not supply more than 2% of the Bonneville Power Administration’s supply.
Whether wind turbines or solar panels are equipped to operate during extreme weather events doesn’t matter if the wind stops blowing or the sun isn’t shining.
Will electricity choice increase the risk of blackouts and other reliability issues?
There is no evidence that states using competitive markets to deliver electricity experience more blackouts than states that tightly restrict competition.
In fact, despite having 90% of our electricity supplied by regulated monopoly utilities, the Eaton “Blackout Tracker: United States Annual Report 2018” ranked Michigan as the state with the fourth highest number of reported electricity outages between 2008 and 2017. That period was one in which Michigan relied almost completely on monopoly utilities to provide electricity.
Relying on regulated electricity markets and monopoly utilities to provide electricity is no guarantee that customers will have reliable electricity.
Can market competition work in the transmission market too?
The argument that is typically advanced to limit competitive bidding for the construction, operation, and maintenance of high voltage transmission lines sounds something like, “Transmissions lines are a natural monopoly. Having a single company that must submit to government oversight is the most efficient means of operating a resilient and reliable electricity grid.”
We described a “natural monopoly” in “Electricity in Michigan: A Primer.”
The theory of natural monopoly…presumes that building competing electricity infrastructure would be too costly for a second electricity supplier to afford. The customer base and price of electricity supposedly are insufficient to recover the capital investment required to construct competing facilities. Consequently, the state bestowed regional monopoly status on select utilities and imposed price controls and other regulations to temper their monopoly market power.
But that concept is only correctly applied if various companies all build separate, competing infrastructure. It is still possible to reduce costs and increase efficiencies by having companies compete for the right to work on part of the state’s grid system. That is, more than one company can compete for the right to build portions of the grid that powers a state or region. This is the same sort of competition that occurs with construction firms competing for contracts to build highways or contracts to build public schools.
Additionally, ITC Holdings, the company that benefits from their monopoly status in Michigan, regularly takes part in competitive bidding processes in other states. Their parent company, Fortis, Inc., builds, maintains and operates high-voltage transmission projects in Canada and Belize. ITC and Fortis do not limit their business activities to a single natural monopoly operating area in the state of Michigan.
A Brattle Group report further indicates that the type of competitive bidding project that ITC and its parent company take part in in other jurisdictions has a beneficial effect on the overall price of new transmission line projects. Based on their findings from competitive bidding projects across North America, Brattle estimates expanding competitive bidding could save customers as much as 25% or $8 billion over a five-year period.