Michigan's large utilities want out of deregulation

LANSING — - LANSING — Less than four years after Michigan deregulated its electricity market, the stateÂ’s largest utilities want a change.

Detroit Edison Co. and Jackson-based Consumers Energy Co. say theyÂ’ve lost thousands of industrial and commercial customers while being required to keep rates low for residential customers since 2000 when the state electric restructuring law took effect.

The intent of the law was to create competition that would push rates lower and to encourage the construction of new electric generating plants.

A handful of alternate providers is offering service to major businesses. But none are competing for residential customers, in part because they say they canÂ’t beat the deal those customers get under the 2000 law, which cut rates by 5 percent and capped them there until 2006.

Detroit Edison has lost between 6,000 and 8,000 of its commercial and industrial customers to alternate providers, said Scott Simons, spokesman for its parent company, DTE Energy Co.

Consumers Energy, a subsidiary of CMS Energy Corp., has lost 950 of its big business customers to other providers, spokesman Jeff Holyfield said.

The big utilities say theyÂ’re losing money as large users look elsewhere for electricity. They accuse alternate providers of ignoring residential customers while skimming off big-demand industrial and commercial customers who can get better deals from the alternate providers because those rates are not set by the state regulators who oversee the big utilitiesÂ’ rates.

So the large utilities are fighting back.

DTE Energy Co. is among the groups that are part of Citizens for Long-term Energy Affordability and Reliability, or CLEAR. The coalition is running television and radio ads across the state, urging viewers and listeners to call lawmakers and tell them to change the law.

DTE Energy officials say theyÂ’re worried that, without the changes, residential customers will see their monthly bills jump by as much as 30 percent when the cap is lifted in two years.

The increase would come as the utilities ask for rate hikes to offset losses caused by having to keep up their distribution network while losing industrial and commercial customers.

Consumers Energy agrees with DTE Energy and other groups that residential rates will spike in a couple of years without changes in the stateÂ’s deregulation law.

But it is looking to state regulators instead of lawmakers to make changes.

Bob Nelson, one of three Michigan Public Service Commission members, quickly dismisses any talk of a possible 30 percent rate hike. “The commission won’t allow it,” he said.

The commission expects residential rates to increase by 3.8 percent when the cap is lifted on Jan. 1, 2006.

When the cap on rates for small commercial customers comes off in January 2005, the commission expects those rates will increase 4.2 percent.

The commission didnÂ’t recommend any legislative changes for the stateÂ’s restructuring law in its report issued in February on the status of electric competition in the state.

However, regulators recently issued an order that increases rates for large commercial and industrial customers and sets up a transition fee for large businesses that leave Detroit Edison for an alternate supplier.

ItÂ’s intended to help Detroit Edison recover some of the revenue it has lost as industrial and commercial customers have left for other providers.

DTE Energy applauded the order as a step in the right direction, but large commercial and industrial energy users blasted it.

They said it would further hurt the stateÂ’s fragile manufacturing sector, where businesses are struggling to keep down costs.

Detroit Edison, however, notes that its own fiscal health is at stake without a change. More than twice as many customers left Detroit Edison and Consumers Energy for alternate providers in 2003 than 2002, according to a report released in February by the Public Service Commission.

“We have substantial competition now in the state and that’s what the law was intended to do,” Nelson said in a telephone interview.

However, state Sen. Bruce Patterson, a Canton Republican who has held a number of hearings on the stateÂ’s electric restructuring law, said it might be time for a change because big business customers without capped rates are subsidizing residential customers who do.

Republican Rep. Ken Bradstreet of Gaylord said the problem could be solved by reducing the gap in rates between residential and large business customers over five years.

HeÂ’s willing to introduce legislation to do that, but he questions whether thatÂ’s what the utilities want.

“I don’t think they’re interested in really solving the problem,” he said. “They’re just interested in taking advantage of the situation to try to get rid of the competition.”

Bradstreet noted the major utilities are having a hard time competing for commercial customers and theyÂ’re worried that, as they lose those customers, residential users are going to have to bear a larger share of the load.

“That’s a real problem,” Bradstreet said. “How we solve it is the $64,000 question.”

Alternate electricity providers and large businesses that have saved money by leaving the large utilities are asking lawmakers to keep the law as it is.

Attorney Eric Schneidewind of Energy Michigan, which represents alternate electricity providers, pointed out that the 2000 law was created to encourage existing utilities and competitors to build new electric generating plants.

At the time, the state had only 5 percent reserve capacity, making brownouts and electric outages likely during summer hot spells.

Michigan now has 15 percent reserve capacity, and Schneidewind says his members have invested $2.7 billion building new power plants in the state.

“This is not a bunch of out-of-state robber barons taking Michigan money out of the state,” Schneidewind said.

“My industry fulfilled their part of the bargain. Now we’re asking the Legislature to fulfill its part of the bargain.”

Large energy users say theyÂ’re going to alternate electricity providers to cut their costs.

Ray Telman of the Middle Cities Education Association, which represents largely urban school districts, said nearly one quarter of the stateÂ’s public and private schools expect to save $10 million this year by participating in electric choice programs that allow them to move to alternate providers.

“In these difficult times of major budget cuts for all governments, the electric restructuring law is an important tool state government has given us to hold down costs,” Telman said.

Mike Champley, DTE EnergyÂ’s senior vice president for regulatory affairs, said the utility only supported the law when it was signed by former Gov. John Engler because it was supposed to be a transition to a permanent solution.

The Detroit-based utility didnÂ’t expect industrial and commercial customers would be subsidizing residential rates, Champley said.

“We never signed on to PA (Public Act) 141 as a permanent structure. We never thought it would be implemented where some customers are subsidizing others,” he said. “We have an artificially competitive market and we envisioned a level playing field.”