The deregulation and restructuring of the electric utility industry is occurring in many areas of the United States. Deregulation (also known as “restructuring”, “customer choice”, “open access” and “retail competition”) means that residents and businesses can choose the supplier of their electricity, similar to signing up for a long-distance telephone provider. In theory, alternative electric suppliers will compete with one another to supply electricity to customers. The local utility will still deliver the electricity, maintain electric lines and restore service after an outage.
In Michigan, deregulation began on January 1, 2002, for customers of some investor-owned utilities and electric cooperatives. Municipal utilities, like the Grand Haven BLP, will make local decisions about “if and when” to participate in deregulation.
The Michigan Legislature gave the local option to municipal electric utilities like ours for good reason. We have always been locally controlled and successful in providing reasonable electric rates and community value. Our locally-elected Board of Directors is in the best position to decide if or when the BLP will participate in deregulation.
The BLP has not made a decision at this time to participate in Michigan’s utility restructuring effort. Deregulation efforts in other states have not demonstrated that these programs lead to lower prices, benefit all customers equally, or are worth the cost of implementing. On the contrary, some deregulation efforts have resulted in higher electric prices and in reduced service reliability.
The BLP will continue to monitor and evaluate electric restructuring in Michigan and can choose to get involved in deregulation when the benefits of such involvement are clear.
The following questions and answers have been prepared to help customers better understand Michigan's new electric restructuring law - Public Act 141.
Q. What is electric deregulation, restructuring, or choice and when will it begin?
A. Historically, an electric utility generated or purchased electricity (electric supply), provided related services, and delivered the electricity to your home or business. Public Act 141 allows all customers of investor-owned utilities (IOUs) and large customers of rural electric cooperatives (Co-ops) to purchase their electric supply from an alternative electric supplier (AES) beginning January 1, 2002. Beginning January 1, 2005 all customers of Co-ops will have the opportunity to choose an alternative electric supplier. The incumbent electric utility will continue to provide delivery service using the existing electric lines. The governing body of a municipal electric utility, comprised of locally elected and/or appointed members, will determine on a local level whether to implement a plan to allow their customers to purchase electric supply from an AES.
Q. What is the difference between IOUs, Co-ops, and municipal utilities?
A. An IOU is a shareholder-owned utility that provides public utility services to customers for a profit (i.e. American Electric Power, Consumers Energy, Detroit Edison, Wisconsin Electric). A Co-op is a member-owned utility that provides utility services to customers on a not-for-profit basis (i.e. Alger Delta, Cherryland, Great Lakes Energy, Midwest Energy, Thumb). The Michigan Public Service Commission regulates both IOUs and Co-ops. A municipal utility is a not-for-profit community-owned utility that is regulated by its local governing body. In Michigan, there are 41 municipal utilities that serve roughly 8% of the state's electric needs in both rural and urban areas.
Q. Why doesn't Public Act 141 require municipal governing bodies to implement a customer choice program?
A. The Michigan Legislature has long recognized the importance of local control for municipally-owned utilities and their customers. Under Public Act 141, decisions affecting the operation of a municipally-owned utility will continue to be made locally by the governing body with input from the community it serves.
Q. If I am a customer of a municipal utility that does not implement a customer choice program, may another utility provide my delivery service?
A. If one of the following three conditions is met, you may petition the Michigan Public Service Commission to allow you to connect to a different utility's distribution system:
- You began taking service from the municipal utility after June 5, 2000 and you are located outside the boundaries of the municipality that operates the utility, or another utility has a franchise to serve inside the municipal boundaries.
- The governing body determines not to implement a customer choice program by January 1, 2008, and you are located outside of the boundaries of the municipality that operates the utility, or another utility has a franchise to serve inside the municipal boundaries.
- The governing body of the municipal utility gives written consent for you to connect to a different utility's distribution system.
If none of these conditions apply, the municipal utility will remain your exclusive full-service provider. An alternative electric supplier will not be able to serve locally, and the municipal utility will not be able to sell at retail outside its current service territory.
Q. Under a choice program would I pay less for my electricity?
A. That depends. In addition to generation or electric supply, the cost components in your bill today reflect charges to cover delivery (distribution and transmission) and ancillary services. These charges are now "bundled" together on your bill. Before the start of a choice program, utilities will separate or "unbundle" the charges associated with each of these major components. Under such a program, if the sum of your electric supply from an alternative electric supplier, delivery service charges, ancillary service charges, and stranded and implementation costs are less than the "bundled" rate charged by your municipal utility, you would be able to realize a savings.
Experience to date suggests that residential customers would not benefit from a choice program. A few larger customers may be able to benefit depending on the unbundled charges and costs and the market price of electric supply, if available.
Q. Can you further explain the charges associated with the components of electricity service?
A. Generally, delivery service is made up of both distribution and transmission services. The transmission service charge is the cost associated with the high-voltage, long-distance wires and equipment used to conduct electricity from large distant generators to a local utility distribution system. The distribution service charge is the cost associated with the lower-voltage, shorter-distance wires and equipment that conduct electricity from the transmission system to the customer's point of delivery. Ancillary charges may cover costs that the utility incurs to provide reserves, scheduling and dispatching, and other technical services.
Q. What are stranded or transition and implementation costs?
A. Historically, electric utilities have had an obligation to provide full electric service to all customers. As a result, they have invested in generation and/or entered into long-term contracts to make sure that a reliable source of electricity was available for their customers. If a customer chooses to have an alternative electricity supplier provide for their electric supply, the customer may still be required to pay for the percentage of their load that represents the utility's investment and/or other liabilities incurred to serve that customer prior to the start of customer choice. This charge is known as a transition or stranded cost charge. Implementation costs represent the utility's expenses incurred to facilitate the implementation of an electric choice program.
Q. How will the unbundled rates, terms and conditions of access, and other charges be determined?
A. For customers of municipal utilities, these determinations will be the result of decisions made by the local governing body. For customers of IOUs and Co-ops state regulators in Lansing will make these decisions.
Q. What results has deregulation/restructuring produced in other states?
A. Restructuring laws in other states have yet to prove themselves. In California, rates were reduced by 10% when deregulation began in 1996. However, shortly thereafter rates rose dramatically in the retail and wholesale markets. As a result, California utilities have returned to providing full electric service with regulated rates. During the California deregulation effort, Los Angeles Water and Power, a municipally-owned utility, decided not to opt-in to a choice program and provided its customers with rates that were among the lowest in the state. Nationwide, on average, only about 2% of customers have chosen an alternative electric supplier when given the opportunity. Of those 2%, almost none are residential customers.
Q. If a utility has to expend resources to implement a utility choice program that few, if any, will benefit from, why do it?
A. The governing bodies of municipally-owned utilities have the opportunity to proceed cautiously and analyze the success and failures of choice programs both here in Michigan and across the country. If there is no benefit to all classes of customers, the governing body may decide not to implement a choice program. However, should choice programs prove to be beneficial to customers, the governing body could then make a decision to implement such a program. |
