Michigan's Electricity Market

Historically, the provision of electricity in Michigan was considered to be a "natural monopoly." The theory of natural monopoly, now largely questioned, 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.

According to the Michigan Public Service Commission, "As of December 31, 2007, about 4,835 commercial and industrial customers were participating in Michigan’s electric choice programs. This represented over four percent or 311,310 megawatt-hours (MWh) of the total [average monthly] sales in energy usage of the combined Detroit Edison and Consumers Energy service territories (down from about six percent in 2006)."[*][3] The remaining customer base is served by smaller utilities, electricity cooperatives or municipal systems.

Graphic 1 - click to enlarge

Source: U.S. Energy Information Administration.[4]

Coal-fired power plants dominate electricity generation in Michigan, fueling about 60 percent of the nearly 113 million megawatt-hours produced in the state in 2006, the latest year for which figures are available.[5] Most of the coal is transported by rail from Wyoming and Montana and distributed by ships to power plants largely located along the Great Lakes shores. Some coal is obtained from West Virginia, Kentucky and Pennsylvania as well.

Nuclear power from three plants provides about 26 percent of the electricity generated in Michigan, while natural gas accounts for about 10 percent.[6] At present, three utility-scale wind turbines also operate in Michigan, generating a small fraction of the state’s electricity.

Graphic 2 - click to enlarge

Source: Energy Information Administration.[7]
(Note: A miscellaneous category, amounting to 0.5 percent of the total, is omitted above. The percentages in the graphic total more than 100 because they do not include small losses attributed to pumped storage.)

[*] This sentence has been altered since the original Web posting of this study. The words “average monthly” have been inserted to remove an ambiguity in the MPSC’s original quote.