This article has been corrected to reflect that General Motors Co. has expressed support for the energy bills.
LANSING — To explain the current fight over deregulated electricity in Michigan, Dan Irvin points to his wireless network company’s two data centers in Southfield, just north of Detroit.
Though they’re housed in adjacent buildings on Northwestern Highway, Irvin said his company, 123.Net Inc., has separate electric bills. One is powered by Detroit-based DTE Energy Co. The other, he said, participates in Michigan’s “choice” program, which allows 10 percent of the state’s electricity to be bought on the open market. Irvin says DTE’s rates are twice as much as what he gets from Constellation, an alternative electric supplier owned by Chicago-based Exelon Corp.
Concern about the fate of electric choice is the main reason why large industrial corporations and some Michigan school districts — who tend to be electric choice customers because of their large energy needs — have lined up against a pair of bills that would rewrite Michigan’s 8-year-old energy law. The legislation recently passed the Senate and is expected to be considered in the House once lawmakers resume their lame-duck session this week.
Pittsburgh-based U.S. Steel Corp., pharmaceutical giant Pfizer Inc. and the Association of Businesses Advocating Tariff Equity — known as ABATE, an advocacy group on behalf of large industrial power users — are among the notable opponents to the Senate's energy bills. (Though ABATE's individual members are not unanimous on this issue. General Motors Co. has expressed support for the bills) Opponents argue the legislation as written would set up the choice program to fail through arbitrary deadlines and expensive charges that ultimately would force most alternative electric suppliers that serve deregulated customers out of business.
DTE and Jackson-based Consumers Energy support the bills, as do the Michigan Chamber of Commerce, Detroit Regional Chamber, Small Business Association of Michigan and labor unions representing electrical and building trades. They believe the legislation makes necessary improvements to the state’s electric reliability and affordability and contend that it protects the existing choice market.
“We don’t see this as a zero-sum game,” where some electric customers are treated fairly while others are not, said Rich Studley, president and CEO of the state chamber, whose members include manufacturers and industrial customers, utilities and alternative energy suppliers. “That has always been our approach to this issue. We are certain that you can have fair and balanced energy policy that works for the entire state.”
The split among business could flare up again if the House decides to vote on the bills before they die at the end of the legislative term next month. The bills are headed to the House’s energy policy committee; its chairman, Rep. Aric Nesbitt, R-Lawton, could not be reached for comment, but a staffer in his office said Nesbitt’s goal is to pass energy legislation before the session ends.
Irvin and other opponents contend the measures are an attempt to end the choice program and return to a fully regulated electric market.
“I know it’s a great company,” Irvin said of DTE. “But our state Legislature and (the Michigan Public Service Commission) have allowed them to act like a monopoly. And if you get to play with monopoly money, you’re playing a different game.”
The debate stems from a proposal filed by the region’s grid operator — Midcontinent Independent System Operator, or MISO — to federal energy regulators that would create what is being called a prevailing state compensation mechanism. That would allow the Michigan Public Service Commission to impose a new capacity charge, including on alternative energy suppliers. That charge would be paid to utilities like DTE and Consumers if the state decides an alternative supplier has not shown it can cover the demand for electricity of its customers.
Language in Senate Bill 437, sponsored by Sen. Mike Nofs, R-Battle Creek, attempts to codify that proposal into state law, provided that the Federal Energy Regulatory Commission signs off on it by Oct. 1 of next year.
Choice proponents say the effect of MISO’s proposal would be that Michigan could choose to levy a capacity charge or allow electric providers to participate in a new auction run by MISO to buy power three years out — but not both.
The possibility that an auction would be taken off the table, coupled with fear that the state would set an expensive capacity charge, have choice advocates concerned that it will become too costly for alternative suppliers to provide electricity to their customers.
The version of the energy legislation that passed the Senate would require alternative suppliers to prove they have several years’ worth of electricity owned or under contract if federal regulators don’t sign off on MISO’s proposal by Oct. 1, a requirement that choice advocates previously have said would force suppliers to close. They argue the deadline is arbitrary and, depending on the speed of the federal government, might be too optimistic.
“It’s convoluted, and that’s by design,” said Maureen Saxton, a spokeswoman for Energy Choice Now, a coalition that advocates for electric choice.
Imposing a capacity charge “constrains market dynamics because it takes away an auction opportunity,” said Mike Johnston, government affairs vice president for the Lansing-based Michigan Manufacturers Association. He added that doing so would force choice electric providers into a market that would restrict power agreements in such a way that they would have no other option but to secure electricity from Michigan’s large utilities.
The group counts more than 2,000 members in a variety of industry sectors who get their electricity from both the choice program and from regulated utilities.
“We’re not saying choice at all costs,” Johnston said. “We think precluding that auction is a clear constraint on the market dynamics for the choice market.”
The Oct. 1 date is necessary because Michigan utilities need to start ensuring they can cover future demand for electricity, said Greg Moore, Nofs’ legislative director. He said the capacity charge was negotiated by Gov. Rick Snyder’s administration and guarantees adequate electricity in the future.
“They’re going to pay their share of the costs, just like everyone else pays. They will still most likely get a better deal on the energy that they buy,” Moore said. “We’re not trying to hurt them. We’re not trying to put them out of business. But we are trying to make sure our law is queued up and fair to everyone.”
Utility executives say recent MISO projections that suggest the region’s electricity reserves could dip below a recommended 15 percent in a couple of years makes reliability more important, particularly since it takes utilities at least four years, if not more, to build a new power plant.
Utilities want alternative electric suppliers, who buy their power on the market and sell it to choice customers, to guarantee that they will have enough electricity to meet future demand — particularly since many don’t generate it themselves.
“What I have been advocating is marketers can play their role. They’re going to need to go out there and do what they need to do to line up a couple years of supply so that we have some stability,” said Gerry Anderson, DTE’s chairman and CEO. “It isn’t only a problem for that 10 percent. It’s a problem for everybody because we’re all connected. You can’t pull the grid apart.”
A capacity charge would allow utilities to provide power to alternative suppliers should they fall short, Anderson said.
Dan Bishop, director of media relations at Consumers Energy, agreed that “electric reliability is essential” to Michigan’s growth. He also noted that the capacity charge would only kick in “if an energy marketer did not secure adequate supplies on its own – either from market purchases or by investing in its own power supply in Michigan.”
Yet the bill in its current form would “dramatically and unnecessarily raise electricity costs,” wrote Jim Gray, general manager of U.S. Steel’s Great Lakes Works facilities in Michigan, and Jim Allen, president of United Steelworkers Local 1299 in River Rouge, in a joint letter to lawmakers.
Affordable energy, they wrote, would help keep the company competitive amid other economic pressures. U.S. Steel employs roughly 2,500 Michigan residents in Ecorse, River Rouge, Dearborn and at an automotive center in Troy. The company’s Michigan facilities are in the choice market, a spokeswoman confirmed.
Pfizer, which has its largest global manufacturing operation near Kalamazoo, said in a letter that rates also are of importance. Pfizer’s Kalamazoo plant participates in electric choice.
“Those additional electric costs, if imposed by regulators or legislators, would have a significant effect on energy costs for Pfizer’s Michigan plant operations and expansion, employment opportunities and competitiveness in global markets,” the company wrote. The bill, “which purports to protect electric choice, puts in place onerous requirements that would make retail open access unaffordable and lead to the elimination of electric choice in Michigan.”