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Montana’s Experience Augments PSC Review of Electric Deregulation Results

LANSING, Mich.— A case study by Public Sector Consultants Inc. (PSC) of a fourth state that undertook deregulation of its electric market found widespread dissatisfaction in Montana with the consequences. The result could affect the course of debate over electric deregulation legislation pending at the Michigan State Capitol, said an author of the report.

“We found that Montana went in a big circle, policy-wise, since the late 1990s,” said Ken Sikkema, senior policy fellow at PSC and a former majority leader of the Michigan Senate. “The state dived into electric deregulation, even though it already had low rates for residential customers. The promised rush of alternative suppliers—and even lower prices—to the Montana market never materialized, though ownership of generation and distribution facilities shifted to out-of-state firms. Now policymakers there are re-creating what they had before: a Montana-based firm that owns the generation and distribution assets and is regulated by a public agency.”

Montana is the fourth state examined by PSC in the last year on the results of electric deregulation policies, along with New Jersey, Illinois, and Texas. Put together, results from the four show that electric deregulation is complex, offers no guarantees to residential customers for lower prices, and often has led to considerable business and policy turmoil.

In the report, Electric Industry Deregulation: A Look at the Experience of Four States, PSC researchers state: “In our analysis, PSC found that while there were some limited benefits of electric market competition in these states, broad success for deregulation has either not materialized, or has come with other regulatory and financial costs.”

Among concerns identified are:

  • Rates have sometimes been more volatile under deregulation
  • Electricity rates for industrial customers in one of the states declined in the early years of deregulation, but climbed again after initial power delivery contracts expired and wholesale prices increased
  • Electric capacity and reliability can be a substantial challenge
  • New forms of market/government intervention to address market failures often have been necessary

Sikkema will testify about the findings before the House Energy and Technology Committee on Tuesday morning. The House panel is considering House Bill 5184 by Rep. Mike Shirkey, which would broaden Michigan’s existing electric deregulation/choice program.

According to the state’s Public Service Commission, “Electric Choice was first introduced in Michigan by Public Act 141 in 2000. One goal of the Act was to have competition within the electric industry by offering Michigan customers the opportunity to purchase electric generation services from their incumbent utility or an Alternative Electric Supplier (AES). Public Act 141 was later amended by Public Act 286 of 2008, placing a limit on electric choice. The law provides that no more than 10 percent of an electric utility’s average weather-adjusted retail sales for the preceding calendar year may take service from an alternative electric supplier at any time.”

PSC has a long history of providing objective research and policy analysis on electric markets, issuing numerous reports over the years, including:

This PSC study was commissioned by DTE and Consumers Energy to help inform the discussion over electric market policies.

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Public Sector Consultants is Michigan’s most respected, connected, and dedicated research and program management firm, with specialties in governance and regulation, health care, education, energy, and environmental policy. PSC is committed to providing objective research and sound solutions to the public and private sector.

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