Yet Another Regulatory Burden on Electricity Supply in Michigan

Michigan households, schools and businesses have long paid significantly more for electricity than those in neighboring states, primarily because of regulatory policies in the state. The Michigan Legislature is now considering adding another layer of unnecessary regulatory bureaucracy to Michigan electricity supply that is unlikely to benefit Michigan ratepayers in any way, but will certainly add costly regulatory burdens.

The bill in question is HB 6358 (https://www.legislature.mi.gov/documents/ 2005-2006/billintroduced/House/pdf/2006-hIB-6358.pdf), which would authorize the Michigan Public Service Commission to review mergers and acquisitions involving Michigan electricity and natural gas utilities. The PSC would be empowered to gather extensive documentations from utilities, and then review these and make advisory opinions favoring or opposing the mergers or acquisitions. The bill would give no unique powers or mandates to the PSC in reviewing such mergers, but rather would be entirely duplicative of merger review powers already held by the U.S. Department of Justice, the Federal Energy Regulatory Commission, the Federal Trade Commission, the U.S. Nuclear Regulatory Commission (if nuclear power plants are involved) and the Michigan Attorney General’s office.

HB 6358 would require utilities involved in mergers or acquisitions to submit to the PSC at least 180 days before a merger or acquisition "any books, records, accounts, documents, and other data and information that is necessary to effectively assess . . . the impact of the proposed acquisition." If the parties to the transaction object, the bill would place the burden on them to show that any information they do not provide is not relevant to any analysis the commission may want to do.

The passage above is a remarkably broad demand for information. In contrast, the federal antitrust agencies attempt to limit the information they demand from merging parties and focus only on specific categories of information. The 180 days notice is also far longer than the 30 days federal antitrust authorities receive under the Hart-Scott-Rodino pre-merger notification act.

According to the House sponsor of the legislation, the motivation for the bill was the repeal of the federal Public Utility Holding Company Act of 1935, which the sponsor claimed somehow reduced regulatory oversight of utility mergers. While the 2006 repeal of PUHCA did eliminate some regulatory restrictions on utility mergers, the 2005 Energy Policy Act substantially expanded the review powers of federal agencies, and in particular authorized the Federal Energy Regulatory Commission to collect information in ways that went well beyond what was authorized by PUHCA.

Mergers may have beneficial effects by allowing cost savings to be passed on to customers, or may have harmful effects to customers by increasing the market power of the merging parties. The federal antitrust agencies recognize the difference in their "Horizontal Merger Guidelines" as follows: "While challenging competitively harmful mergers, the Agency seeks to avoid unnecessary interference with the larger universe of mergers that are either competitively beneficial or neutral."

In stark contrast, HB 6358 makes no such distinction between mergers and acquisitions that are likely to be beneficial and those that are likely to raise costs to ratepayers. All mergers and acquisitions would be subject to the same onerous burden; even those that the PSC would quickly conclude raise no competitive concerns.

In short, HB 6358 is a regulators wish-list of powers to review mergers involving utilities at a leisurely pace, with all the documentation they might possibly want to review delivered to them months in advance. The PSC would not have to consider the cost imposed on utilities or the market factors behind any future mergers, and would have no confidentiality restrictions on how the PSC uses the information. Moreover, the opinions the PSC issues would be merely advisory, not binding, so the PSC would face little accountability for its actions.

It is perhaps understandable that the PSC would want to expand its regulatory powers with little regard for the burden imposed on utilities and their customers. But rather than cater to the desires and convenience of the regulators, the Michigan legislature should consider the costs imposed on Michigan utilities and predictably passed on to their customers.

At a time when Michigan electricity rates are significantly higher than those is surrounding states, it is unclear what benefits, if any, Michigan ratepayers would gain from giving the PSC authority to duplicate what other government agencies are already doing. What is more clear is that HB 6358 would impose substantial costs on Michigan utilities and probably deter restructuring changes that could bring Michigan electricity rates more in line with those in nearby states.

Theodore Bolema, an attorney and faculty member at the Central Michigan University College of Business Administration, is an adjunct scholar of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.