Michigan Energy Deregulation Facts

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Electric deregulation: fact vs. fiction

(The following letter was sent by Steve Transeth of the Michigan Jobs and Energy Coalitionv via email to the members of the House Energy and Technology Committee)

March 12, 2014

Dear Chairman Nesbitt and Committee members:

On March 4, 2014, Rep. Mike Shirkey sent you a letter sharing what he characterized as the three key points for your consideration in the debate surrounding HB 5184. In preparation for the upcoming hearings this month it is important we separate fact from fiction and the following is offered for that purpose:

1. Electric deregulation by any other name is still bad policy. Rep. Shirkey would like you to believe that this is not a dangerous dismantling of our current electric delivery system that will jeopardize the viability and health of two of our most important corporate partners in Michigan’s economic recovery. Rep. Shirkey claims HB 5184 merely promotes a “transition of generation” and that Consumers and Detroit Edison (DTE) will define the process – implying no harm, no foul.

· FACT: Divestiture of generation by incumbent utilities has been the single biggest mistake made by the states that have deregulated (i.e. the California debacle). Just ask the customers, employees and shareholders of TXU – the DTE of Texas. “It appears as if the former TXU, a major Texas utility, will become the 10th largest American bankruptcy soon, and the possibility that this was avoidable needs to be considered.” (Forbes – Feb. 21, 2014)

2. Those who cannot remember the past are condemned to repeat it. The only side that has been using “statements loaded with anecdotes and inferences to cause and effect” are those pushing for deregulation.

· FACT: Not a single state has deregulated in 14 years.

· FACT: Nine states have retracted, suspended or re-regulated since 2000.

· FACT: The average electric rates in the 14 deregulated states and the District of Columbia are 25 percent higher than in regulated states. (U.S. Dept. of Energy – Energy Information Administration)

· FACT: Consumer advocates from 10 states (including Illinois) have requested the federal government to investigate the historic price spikes of unregulated providers in January that tripled and quadrupled energy bills. A clear demonstration of the perils of the volatile deregulated markets.

· FACT: According to a recent independent analysis, Texas (a state with both regulated and deregulated markets) deregulation has cost Texans about $22 billion or $4,500 per household. (Texas Monthly)

3. Electric reliability. It is ridiculous to imply that the members of the Coalition (i.e. MI Chamber and Manufacturers) are not strong proponents of, or don’t understand, free markets. What we do understand is the complexity of this essential service and the critical role it plays in supporting our economy.

· FACT: States that have deregulated have faced reliability concerns and are confronting challenges in encouraging new baseload generation investment and keeping existing generation in service.

· FACT: Texas, with its emerging economy, has been hit particularly hard. This past summer and then again in January, the Electric Reliability Council of Texas announced rolling blackouts may be necessary because of a lack of sufficient capacity. (Associated Press – January 6)

In his letter, Rep. Shirkey also touted a recent report about Illinois. This report should be viewed with great skepticism.

· FACT: The claimed savings are grossly exaggerated and based on faulty projections.

· FACT: The report’s claims include the rate freeze that was imposed for 10 years.

· FACT: Every year since 2007, when deregulated rates were allowed to fully take effect, Illinois rates have been higher than they were before deregulation. Deregulation has not reduced Illinois’ rates.

· FACT: Illinois now is struggling to support the baseload generation that ensures reliability. Exelon has stated it may have to close three nuclear plants due to the failures of the deregulated market. Either ratepayers or taxpayers will pay the cost to keep these plants open. (Crain’s Chicago Business Report)

The decisions you are going to face regarding this issue will have an impact on Michigan’s economic recovery for decades to come. Let us make sure we make the right decision for our energy future.

Steven A. Transeth
Director of Energy Policy
Michigan Jobs and Energy Coalition

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