PSC Study: Michigan's Electric Utilities Should Return To Regulated Market Structure
Lansing, MI - A report released recently by Public Sector Consultants Inc. of Lansing (PSC) concludes that Michigan should return to a regulated market structure for electricity if the policy goals and initiatives of the 21st Century Energy Plan are to be realized.
"Michigan's 21st Century Electric Energy Plan," released earlier this year by then Michigan Public Service Commission Chairman Peter Lark, concluded that Michigan needs additional electric supply. The plan proposed to meet this need by establishing an energy efficiency program, creating a mandatory renewable portfolio standard, and ensuring that a new base load coal plant is operational no later than 2015.
The study, "Market Structures and the 21st Century Energy Plan," was written by PSC Senior Vice President Jeff Williams and Senior Policy Fellow Ken Sikkema, former Senate Majority Leader.
The PSC study — commissioned by the Michigan Municipal Electric Association (MMEA) and Protect Michigan — focuses on the market structure for electricity in Michigan and answers the question: If Michigan's 21st Century Energy Plan accurately portrays the goals toward which Michigan's electric industry should be moving, what type of market structure would enable the stakeholders to best reach those goals? The issue is significant because since passage of PA 141 of 2000, Michigan has operated with a part regulated and part unregulated market for electricity — a so-called "hybrid" market structure, in which customers are free to move back and forth between regulated utilities and independent, unregulated electricity producers.
"The primary problem presented by Michigan's current hybrid market structure is the uncertainty of the customer base. Given the multiyear, capital-intensive nature of a new base load coal plant envisioned by the 21st Century Energy Plan, it is highly unlikely that anyone would commit to such a project in this environment," said Williams.
"The states that deregulated electricity markets are struggling with the prospect of high electric rates and the difficulty of building new base load generating capacity. Our examination of both regulated and deregulated states leads us to the conclusion that a regulatory model has the best chance of stabilizing Michigan's electricity market and reducing risks to both producers and consumers," said Sikkema.
"Without moving to a regulated structure that provides a reasonable level of certainty to prospective owners of new base load plants, Michigan will simply become more dependent upon a wholesale market that promises to become more volatile and expensive in the future," said Jim B. Weeks, Executive Director, Michigan Municipal Electric Association.
"Even with aggressive efforts in the areas of renewable energy and energy efficiency, the state faces the need for additional base load capacity. Michigan must decide whether to have those plants built in Michigan or instead to import electricity from elsewhere. From an economic development and jobs perspective, it is best to build those plants in Michigan with Michigan workers," said Patrick Devlin, Secretary/Treasurer, Michigan State Building Trades Council, and Treasurer of Protect Michigan.
Public Sector Consultants Inc. is a private Michigan corporation providing policy research in the areas of health, education, economics, the environment, and technology; survey research; program evaluation; and strategic planning.
The Michigan Municipal Electric Association is Michigan's trade group representing 39 municipally owned electric utilities. As units of local government, the municipal electric systems are nonprofit, community owned and operated, and regulated directly by the city and customers they serve.
Protect Michigan is a 100,000-member strong coalition of labor organization members, business leaders, and energy industry experts, formed during the 1990s to educate Michigan citizens about electric utility deregulation.
For an executive summary and full report, go to www.pscinc.com.
SOURCE: Public Sector Consultants Inc.