Proposals to Suppress Competition in Electricity and Mandate Renewable Energy Use Would Raise Prices Without Improving Service or Environment

The state’s experience with partial deregulation indicates “more competition and less regulation would better serve the public”

For Immediate Release
Friday, May 16, 2008

Diane S. Katz
Adjunct Scholar
Theodore Bolema
Adjunct Scholar

MIDLAND — In a study released today, Mackinac Center adjunct scholars Diane S. Katz and Dr. Theodore Bolema examine the drawbacks of proposals in the Michigan Legislature to limit competition among electricity suppliers and mandate greater use of "renewable energy," such as solar, wind or hydroelectric power. The study finds that such regulation would significantly raise electricity rates without improving energy reliability or environmental quality. Katz and Bolema document the lower electricity prices that resulted from Michigan’s partial deregulation of electricity generation in 2000 and argue that the public would be better served if policymakers removed regulatory obstacles to a fully competitive energy market.

"Family budgets and the state economy would be hit hard if the Legislature revived utility monopolies," Katz said today. "A cap on competition would benefit the big utilities, but hurt consumers and restrict Michigan’s sources of electrical power. In fact, the track record of competition in Michigan and the rest of the nation shows that the real threat to affordable and reliable electricity is shielding utilities from market forces."

Katz also noted that the environmental benefits touted for renewable energy quotas are unlikely to materialize. "Under present state regulations, mandated use of renewable energy won’t scale back the current production of conventional energy, so carbon emissions won’t decline. Moreover, renewables have their own environmental impacts, and these won’t be addressed if renewable energy suppliers are guaranteed a market share. On top of this, the public would face rate hikes due to the higher cost of renewable energies."

Bolema, co-author of the study, noted that deregulation is a more promising policy reform: "The choice program that began in 2000 among electricity providers has yielded substantial cost savings for customers. Higher natural gas prices have reduced some of that savings recently, but the real roadblock to competition emerged after 2004, when the state placed large surcharges on competing suppliers’ customers to subsidize the big utilities. Policymakers should recognize that more competition and less regulation would better serve the public."

The Mackinac Center study, "Proposals to Further Regulate Michigan’s Electricity Market: An Assessment," is available at Katz is director of risk, environment and energy policy at the free-market Fraser Institute. Bolema is an attorney in the Finance and Law Department of Central Michigan University’s College of Business Administration.