Q: What is electric deregulation?
Electric deregulation – also referred to as “electric restructuring” or “electric choice,” is a model under which some or all customers can opt out of having their electricity provided by their local utility. Instead, these customers receive electricity provided by a retail energy marketer – but the local utility is still responsible for delivering this power and servicing the customer.
Today, Michigan allows 10 percent of the state’s electric usage to be served by deregulated energy marketers. Statewide, 99.7 percent of Michigan’s families and businesses are paying $350 million more every year to properly maintain the state’s electric system so that the other 0.3 percent of customers can purchase deregulated power.
Q: Would further or full deregulation affect the reliability of my power?
Reliable power drives Michigan’s prosperity. Because electricity is so important to Michigan families and businesses, a regulated market ensures there is enough electric generating capacity to meet peak demand under even the most extreme conditions.
In some states that have experimented with deregulation – for example, Texas, New Jersey, and Maryland – brownouts and rolling blackouts are a concern. States are having to interfere to manage the electric markets and ensure reliability. Deregulated energy providers have demonstrated that they cannot be counted on to build sufficient generation to ensure reliable electric supply.
Unreliable power costs us all. In the wake of 2003’s blackout that affected more than 50 million electricity consumers from Michigan to the East Coast, the Berkeley National Laboratory conducted a study to quantify the impact of power interruptions. The study estimated that power outages cost the U.S. upwards of $79 billion per year. The study also found that commercial and industrial customers bear the vast majority of these costs.
Q: Why do advocates of deregulation promise lower electric rates?
Retail energy marketers – the people trying to deregulate Michigan’s electrical system – claim to be able to save families and businesses money on their electric bills. This is just not true, for multiple reasons.
First, under Michigan’s partially deregulated market, retail energy marketers are able to pick and choose which customers they want to serve. Because of this, energy marketers can “cherry pick” just the best customers with good credit ratings and payment histories instead of being required to provide service to all customers – like regulated utilities are required to. This cherry picking costs the remaining customers who are left to pay for fixed costs such as power plants.
Moreover, in deregulated states, rates are on average 25 percent higher than in regulated states, and they have grown at the same pace.
Deregulation has also led to extreme price spikes and rate volatility in states that have experimented with deregulation. Clearly, deregulation has not lowered rates.
Q: Would deregulating Michigan’s electricity market help our economy?
No credible evidence exists that deregulated electric markets lead to economic growth. However, Michigan is experiencing economic growth under the current electric market structure: