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Chairman Laura Chappelle's March 25, 2001 |
Much has been written recently about the upheaval in the California energy markets. California customers have been subjected to rolling blackouts and utilities have been faced with dramatic increases in the price of wholesale power which they were unable to pass on to customers, driving them to the brink of bankruptcy. One California utility, no longer subject to a price cap, raised residential rates to track the spikes in the wholesale market, resulting in a doubling and tripling of customer bills. Natural gas rates for some California customers have also dramatically increased. Since joining the Public Service Commission in January, I have been asked repeatedly by legislators and citizens alike “Can this happen in Michigan?” I am confident it won’t.
I believe that a fully functioning energy market can send the correct price signals to customers and ultimately drive down energy prices. However, moving to such a market takes time and should be done in a steady and considered fashion. Although Michigan and California both began their efforts to restructure their electric industries at about the same time (1994), Michigan has been testing and retesting its policies through pilot programs since that time. California’s 1996 legislation included a short time period to open the market for generation to customer choice and a requirement for the major utilities in the State to sell at least 50% of their in-State power plants. We have no such requirement in Michigan. Instead, the utilities in this state are permitted to keep their existing plants and other “merchants” are encouraged to build new plants to diversify the supply of electricity. Since Michigan’s new law was passed in June of last year, two major merchant plants have broken ground and at least 5 other have begun the planning process.
Michigan's new electric restructuring law allows the Public Service Commission to gradually loosen the regulations on utilities and provides incentives to the utilities to get out from under the rate cap imposed by the law. This rate cap, like the one the Commission instituted 3 years ago for natural gas prices, is one that recognizes the need to protect customers who may not be ready for a customer choice program, while at the same time recognizing the needs of the utilities to respond to market conditions. In contrast, California’s rate cap has been vitiated because California’s electric utilities were required to buy power on the spot market and were unable to control their supply portfolios. Michigan’s gas and electric utilities are able to purchase power or natural gas through long-term contracts in order to hedge against dramatic increases in market prices.
In sum, Michigan is moving in a deliberate manner to a fully competitive energy market. We have learned from our pilot programs and are ready to institute full customer choice in both gas and electricity. However, during the transition to a fully competitive market, the Commission will continue to use the tools the Legislature has given us to ensure that the sudden and dramatic changes in energy service in California will not occur here.
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