News Story

As Michigan House Considers Electric Monopoly Bill, Observers Fear Price Spikes

'Political calculations are a risky substitute for a business plan based on actually meeting demand'

DTE Energy CEO Gerry Anderson recently announced that the state’s largest electric utility plans to phase out the use of coal to generate power in Michigan. But critics say this could increase costs for consumers due to volatile price movements in the primary alternative, natural gas.

Both DTE and the state’s other large utility, Consumers Energy, plan on transitioning entirely to natural gas and renewable energy sources. As of August 2016, coal plants generated 35.8 percent of Michigan’s electricity, according to the U.S. Energy Information Administration. Natural gas fueled 33.8 percent of the power generated, and 25.5 percent came from nuclear power plants.

For all of 2015, 46 percent of the state’s net electricity generation came from coal. “Net electricity generation” is the amount of energy an electric plant generates, less what it needs for its own operations.

DTE has already closed three coal-fired units and plans to shutter eight more by 2030, according to MLive. In April, Consumers Energy announced it was closing seven of its coal plants across the state.

But critics point to the volatile nature of natural gas prices, which could whipsaw both the utility companies and consumers if coal is eliminated from the state’s power mix. Over the past year there have been very large swings in wholesale natural gas prices. The fuel has gone from $2.37 per million BTU (MMBtu) in January of this year to $1.71/ MMBtu in March, according to NYMEX natural gas contract settlements. Wholesale prices were recently up to $3.23/MMBtu in December, an 89 percent increase in less than a year.

Thomas Ihrig, vice president of The Legacy Energy Group, an energy management firm in Frankenmuth, said that natural gas volatility would affect consumers.

“As we shift our electric generation away from coal to natural gas, we should be very careful of the volatility of natural gas trading versus that of coal,” he said. The volatility, he added, is passed directly to the final customer.

The Michigan Senate recently passed a bill to overhaul the way it regulates electric utilities. The proposal is now pending in the House. Sponsored by Sen. Mike Nofs, R-Battle Creek, the legislation would, among other things, change a mandate in a 2008 law, that utilities get at least 10 percent of their power from renewable sources, raising it to 15 percent by 2022. Commercial customers who currently benefit from a power generator choice provision in current law say the bill would effectively repeal it by imposing new fees on these companies.

The bill is also opposed by grass roots groups and residents in townships likely to be targeted by wind developers looking to cash in on the higher renewable mandate. Residents fear having hundreds of additional industrial wind turbines scattered across their rural landscapes.

William Yeatman, a senior fellow specializing in environmental policy and energy markets with the Competitive Enterprise Institute, is also skeptical. “The problem here is one of incentives,” he said. “There exist both political and regulatory pressures for these utilities to switch to gas and renewables from coal. At the same time, these utilities operate government-granted monopolies and what they charge ratepayers is subject to state approval.”

Utilities, he added, are concerned about the will of politicians. “The upshot,” he concluded, “is that it’s likely that mere politics, rather than business savvy, is the main driver of this decision. Of course, political calculations are a risky substitute for a business plan based on actually meeting demand. This is why unintended consequences — for example, price volatility and reliability constraints — often come hand-in-hand with political business decisions, of the sort that seem to be at play here.”

The Michigan Environmental Council and The Ecology Center in Ann Arbor did not return a request for comment.