You could be forgiven for thinking that having an “electricity choice market” in Michigan would mean you would be able to choose your electric utility or the pricing and service options that you prefer. That’s what having a choice means when it comes to your internet, television and phone services. But, when it comes to electricity, Michigan residents do not get a real choice anymore.
In 2000, a state law allowed all retail electricity customers to choose their energy supplier, beginning in January 2002. Ostensibly that meant that if customers were unhappy with the service or rates their utility provided, they could shop around for other options.
But, only a few years later, the state Legislature amended that law and took away your right to choose.
In 2008, legislators repealed access to choice and gave two regulated public utilities — DTE and Consumers Energy — a monopoly over 90% of the retail electricity market in the Lower Peninsula. The Upper Peninsula Power Company, or UPPCO, and Upper Michigan Energy Resources, or UMERC, currently have similar monopoly rights for the Upper Peninsula.
Today, only 10% of retail electricity customers in Michigan are legally allowed to choose their service provider. But since the 10% cap was quickly met, there is no choice allowed for 90% of Michigan’s ratepayers or for anyone signing up for new electricity service today.
But it’s clear that Michigan residents want choice. Electric choice programs across the state are fully subscribed, with more than 5,700 customers enrolled and over 6,400 customers on the waiting list to join the program if an opening ever becomes available. State government estimates indicate that if the cap was removed, 25% of customers in Consumers Energy’s operating area would opt for the choice program. About 18% would opt for choice in DTE’s service area, 14% in UPPCO’s service area and 17% in UMERC’s service area, too.
Continuing demand for electricity choice is due, at least in part, to Michigan’s high electricity rates.
For more than a decade — beginning just two years after Michigan’s 2008 decision to abandon full electricity choice — Michigan’s rates have consistently exceeded both the U.S. average and the average rate paid by the other Great Lakes states for retail electricity. Today, Michigan’s rates are 13% higher than the average rate paid by the other Great Lakes states and 16% higher than the national average.
Michigan’s 2020 average total retail electricity rate, which averages residential, commercial and industrial rates, was 12.37 cents per kilowatt hour. In comparison, Illinois’ average 2020 rate was 9.56 cents per kWh. Indiana’s was 9.75 cents, Ohio’s 9.28 cents and Pennsylvania’s was 9.69 cents. Minnesota and Wisconsin both have electricity rates closer to Michigan’s at 10.84 and 11.22 cents per kWh, respectively. The national average was 10.66 cents per kWh in 2020.
Unfortunately for ratepayers, Michigan’s electricity rates are expected to continue increasing rapidly for the foreseeable future. Michigan’s Public Service Commission, the state regulatory body responsible for overseeing and approving rates for regulated utilities, approved a $188 million rate increase for DTE in May 2020. In December 2020, the MPSC approved a $100 million rate increase for Consumers Energy. On top of those rate increases, the MPSC has approved utility plans to spend multiple billions on transitioning the state to renewable energy sources and achieving net-zero greenhouse gas emissions by 2040 and 2050.
Opening up electricity markets in generation and transmission would inject competition into this sector, creating incentives for utilities and transmission operators to offer lower prices and better, or different, services to their customers. Other states have made use of competitive markets to help drive down electricity rates for customers, all while maintaining reliability and promoting new investment and innovation in energy infrastructure.
The Michigan Legislature should remove the 10% cap on Michigan’s electricity choice markets and open up competition in both generation and the construction and maintenance of transmission lines. With Michigan’s electricity rates continually higher than the national average and highest in the region, Michigan’s monopoly-based, tightly regulated system appears to be failing at providing Michigan consumers with reasonable rates.