NCPA - National Center for Policy Analysis


November 22, 2004

The Michigan Legislature is considering Public Act 141, a repeal of a 2000 law which allows competition in retail power supplies. If the repeal is successful, Michigan consumers will face higher prices and fewer choices, says the Mackinac Center for Public Policy.

Before the 2000 reform, only two electricity companies, Detroit Edison and Consumers Energy, supplied 90 percent of the state's market, with electricity rates that were higher than the Midwest average. Since the reform:

  • Alternative power suppliers now make up about 20 percent of commercial sales and 16 percent of industrial sales in the Detroit Edison service area.
  • Alternative power suppliers make up about 7 percent of commercial sales and 16 percent of industrial sales.
  • Investment in new energy has increased as well; currently, 15 new facilities are under construction or in the planning phase, which are expected to add 12,000 megawatts of power in the state.

Some rhetoric employed by advocates of new regulation is false, says Mackinac. Michigan is not heading toward an energy crisis of catastrophic proportions, as California did, because:

  • In the case of California, regulators forced utilities to divest all generating capacity and required them to purchase all power from wholesale suppliers and brokers, such as Enron.
  • Regulators also prohibited California utilities from negotiating long-term contracts that would ensure a stable supply of electricity at lower, fixed rates.
  • Compounding the problem were price controls that forced utilities to sell power at retail rates far below the prices paid for the electricity on the wholesale market.

Public Act 141 is not without fault. Indeed, supporters of a competitive energy market note that the Act's price controls require energy companies to keep rates at 5 percent below 2000 levels until 2006, which reduces consumers' incentives to shop for alternatives and keeps returns on investments artificially low. If anything, Public Act 141 should simply be amended, not dismantled, says Mackinac.

Source: Theodore Bolema, "Re-regulating Electricity Could Shock Michigan's Economy," Mackinac Center for Public Policy, August 16, 2004.

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