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MiPSC - History of Electric Customer Choice
 

Michigan Electric Customer Choice (and Restructuring): A Chronology of Events

Highlights and Table of Contents

See also Orders page for history of MPSC orders on Electric Customer Choice/Restructuring.


April 2002: Open Access Metering and Stranded Costs

Gongwer News Service articles about electric utility restructuring: "PSC CLARIFIES ELECTRIC OPEN ACCESS METERING" and "CONSUMERS SEEKING STRANDED COSTS"


January 2002: Full Open Access Commences

Full open access began on January 1, 2002. There was slow but steady growth in customers taking advantage of the ability to choose to receive electricity from competitive suppliers. By the end of 2002, Consumers Energy had over 550 customers and just shy of 475 MW on electric choice and Detroit Edison had nearly 5200 customers and over 1100 MW. The annual rate of growth in the program for 2002 was 71% for the number of customers in Consumers Energy's service territory, and 159% for Detroit Edison. By MW, the annual growth rate was 109% for Consumers and 132% for Edison. For more details, see annual and quarterly Program Status reports.


December 2001: New Retail Access Tariffs for Consumers Energy and Detroit Edison

Just prior to the end of 2001, the Commission issued orders approving new retail access tariffs for Consumers Energy (Case No. U-12488) and Detroit Edison (Case No. U-12489). The tariffs were revised in order to accommodate changes necessary to comply with 2000 PA 141 and to remedy problems that customers had experienced with the previous tariffs. Some changes were made so that the two companies' tariffs would be more consistent, and some clarifications were made, too. These tariffs were further modified by orders on rehearing, in April 2002.

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March 25, 2001: Chairman Chappelle's March 25, 2001 Lansing State Journal Article entitled "Michigan's Sure And Steady Approach To Deregulation"

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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June 19, 2000 - Implementation Plans

In its Order in Case No. U-12464, issued on June 19, 2000, the Commission required that Each investor owned electric utility, other than Consumers Energy Company and The Detroit Edison Company, shall file, no later than October 2, 2000, a restructuring plan in compliance with 2000 PA 141.

See implementation plans of other utilities.

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June 9, 2000

Michigan Court of Appeals Decision On June 9, 2000 the Court of Appeals issued a decision reversing those portions of the Commission's Orders that mandate retail wheeling, but held that , PSCR suspension and stranded cost recovery, can be applied to voluntarily programs.

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June 2000: Michigan's "Customer Choice and Electricity Reliability Act" (2000 Public Act 141)

Michigan's "Customer Choice and Electricity Reliability Act" was signed by Governor John Engler and took effect on June 5, 2000. This legislation effectively affirmed the Commission's authority to oversee the restructuring of the electric utility industry. Importantly, the new law affirmed that the restructuring orders issued by the Commission prior to passage of this act were in compliance with the act and enforceable by the Commission. That put to rest any question about the previous Michigan Supreme Court decision on the Commission's jurisdiction on these matters.

The new law allowed and encouraged the Commission "to foster competition in this state in the provision of electric supply...". At the same time, however, it maintained "regulation of electric supply for customers who continue to choose supply from incumbent electric utilities" (Section 10(2)b). It provided for the licensing of alternative energy suppliers, and conferred upon the Michigan Public Service Commission the licensing authority, and allowed securitization of utility stranded costs. The new law also directed the Commission to establish a code of conduct to apply to all electric utilities.

2000 PA 141 also extended electric customer choice to all customers of Michigan investor owned utilities by January 1, 2002, and all customers of cooperative (that is, member owned) electric utilities by January 1, 2005. The new law also established a timetable for municipally owned utilities to determine whether to permit retail electric customer choice. Municipal utilities are not regulated by the Michigan Public Service Commission.

Between June 2000 and December 2001, the Commission issued more than three dozen orders regarding the implementation of 2000 PA 141.

  • New retail open access tariffs were established for 7 investor-owned utilities (IOUs) and 6 cooperatives regulated by the MPSC. Starting January 1, 2002, all customers of the IOUs and large (1 MW or more) customers of the cooperatives can participate in electric customer choice.

  • A Code of Conduct was adopted for Michigan's electric markets. The Code covers both regulated electric utilities and alternative electric suppliers. It addresses relationships between a utility's regulated and unregulated services and includes measures to prevent cross-subsidization, information sharing, and preferential treatment.

  • Standards were adopted to protect electric customers from "slamming and cramming" (that is, being switched to another supplier without consent, or being billed for unwanted services).

  • A statewide customer and supplier education program was approved. The program will help customers understand what new choices may mean to them, and educate them to be smart shoppers for electric services. Similarly, suppliers will be educated about the details of -- and how to be responsible participants in -- Michigan's program.

  • The Commission approved administrative mechanisms to establish the state's Low-Income and Energy Efficiency (LI&EE) Fund, and invited proposals for providing assistance to low-income customers during the current heating season.

  • Standards were adopted for the disclosure of information by electric service providers, including how consumers will be informed about the environmental characteristics of electricity products.

  • A methodology was established for calculating net stranded costs, and as a result of applying that methodology stranded cost transition charges for 2002 were set at zero.

  • Ten specific service quality and reliability standards were identified, for Michigan electric distribution companies. The standards cover such things as service outages, repairs and maintenance, response to service requests, operational reliability, and public and worker safety. A rulemaking proceeding was initiated to establish final rules, and the regulated utilities were directed to begin collecting and submitting data regarding their performance with respect to the proposed standards.

  • Generation and transmission capacity operating procedures were reviewed, to assure reliability for summer 2001. Despite record peak loads being set several times during the hottest days of the year, there were no supply shortages or activations of emergency procedures by Michigan utilities. See Reliablity Plans.

  • A new distributed generation rider was approved for Detroit Edison customers, facilitating customers' ability to install small on-site generators (up to 100 kW), interconnect and exchange power with the utility.

  • A new Green Power Pilot Program was approved for Consumers Energy customers, giving customers the option of purchasing all or a portion of their energy from new, in-state, zero-emissions supplies. The first two large wind generators (0.9 MW each) were installed by early December, and enough customers had already subscribed to purchase their entire output.

  • Together, all of these changes made Michigan an especially attractive location for competitors. In the 18 months after the passage of PA 141, construction started on almost 6,000 MW of new generating plants by companies that are not affiliated with any Michigan utility and construction starts by affiliates of Michigan utilities during this period was less than 1000 MW.

Retail choice was already underway in Michigan in 2000 and 2001, prior to the beginning of full open access on January 1, 2002. By the end of 2000, Consumers Energy company had about 50 customers, representing about 75 MW, participating in its electric choice programs. Detroit Edison had over 900 customers, about 175 MW, participating in its programs. There was slow but steady growth in program participation through 2001. By the end of that year, Consumers had over 300 customers and 225 MW participating, and Edison over 2000 customers and 500 MW. For more detailed information on the growth of electric customer choice in Michigan, please see the annual reports from the Public Service Commission to the governor and legislature, "Status of Electric Competition in Michigan."

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September 1999 through June 2000: Continuing Implementation of Voluntary Customer Choice Program

During this time period, the Commission issued eight additional orders on various aspects of electric utility restructuring. Orders were issued regarding codes of conduct between utilities and their affiliates, establishing a customer education program regarding electric choice, and approving modifications to the bid process for the phase-in of electric choice.

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September 1999: Voluntary Implementation

On September 1, 1999, both Consumers Energy and Detroit Edison agreed to voluntary implementation of the customer choice program. The documents indicating their agreements are available on the MPSC Web site in the Electronic Case Filings for Case No. U-11290. Please see documents number 0046 for Consumers Energy Company and 0047 for the Detroit Edison Company. See also implementation plans.

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June 1999: Michigan Supreme Court Decision

Michigan Supreme Court Decision On June 29, 1999 the Supreme Court issued a decision on the MPSC authority to order an experimental "retail wheeling" program. In a four to three vote, the Court held that the MPSC lacked statutory authority to order a utility to transmit a third-party provider's electricity through its system to a customer. Thus, it lacked the statutory authority to implement the experimental retail wheeling program. You can access the Michigan Supreme Court Decision from the MPSC Web Site, at /mpsc/orders/courts/.

In response to the Supreme Court Decision, the Commission issued a June 30, 1999 Order in Case Nos. U-11290 et al., asking interested parties to file briefs concerning the effect of the Supreme Court’s decision on the Commission’s prior orders regarding electric utility restructuring. The Commission ordered briefs to be filed by July 28, 1999 and reply briefs by August 11, 1999.

The Commission's August 17, 1999 Order in Cases Nos. U-11290 et al. reported on the outcome of that briefing process. Briefs had been filed by more than two dozen interested parties, and nearly a dozen reply briefs were filed. In reviewing the Supreme Court decision and the briefs and reply briefs it received, the Commission found that it did have the "jurisdiction to approve rates, terms, and conditions for retail wheeling service if a utility chooses to offer that service." That is, there would be an important distinction between a voluntary program versus one mandated by the Commission. The Commission concluded this order with separate requests to Consumers and Edison, that their Chief Executive Officers should file statements by September 1, 1999, indicating that the companies would choose "to implement the customer choice program contained in
the orders of June 5, 1997, October 29, 1997, January 14, 1998, February 11, 1998, March 8, 1999, and August 17, 1999" (Order, p. 33).

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March 1999

The Commission issued several electric utility restructuring orders on March 8, 1999. Together, these orders took the final steps necessary to allow Michigan electric customers to choose an alternative electric supplier if they wished to do so.

  • The Detroit Edison Company must develop application forms by March 22, to permit some customers to choose an alternative supplier before the peak summer season. The purpose of this program was to assist Detroit Edison in meeting its electric capacity needs for the summer.

  • The Commission adopted implementation plans for Consumers Energy Company and Detroit Edison that will allow other customers of those utilities to choose alternative suppliers beginning September 20, 1999.

  • The Commission also began a proceeding in Case No. U-11915 to examine alternative licensing options for electric suppliers.

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July through December 1998

On July 13, 1998, the Commission issued an Order requesting public comments on the implementation plans filed by Consumers Energy and Detroit Edison on June 30, 1998.   Comments were received in August from 19 different parties. The Commission has not yet issued rulings on the implementation plans.

Electric utility restructuring legislation was introduced in the state senate in December, but it did not pass before the legislature adjourned for the year. Electric utility restructuring legislation died in the state House of Representatives on December 11, 1998 when the house recessed without taking up Senate Bill 1340. The files below are copies of the Senate Bills, as they had passed the Senate in early December, 1998.

The bills drew much press and legislative interest in Michigan. This legislative initiative showed that significant differences about how to restructure the industry remained, between key customer groups and the utilities. Legislative efforts about electric utility restructuring were revived in 1999, but the time frame for action remained uncertain.

As 1998 drew to a close, the Commission issued an order directing Consumers and Edison to file reports on the status of FERC proceedings regarding implementation of customer choice. The order said,

"These reports should be filed no later than January 8, 1999. The Commission will accept comments on the reports by January 22, 1999. After reviewing the reports and comments, the Commission will determine whether any additional actions are appropriate at this time." 

The utility reports and comments are available for viewing on the MPSC web site, at /mpsc/electric/restruct/implemnt/cedeimp.htm.

Also, in response to one of the recommendations in the Staff Market Power Discussion Paper, MPSC Staff filed an electricity supplier Codes of Conduct Paper in December.

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February through June 1998

Implementation Plans -- On February 25, 1998, Consumers Energy Company and The Detroit Edison Company filed revised tariff sheets for retail direct access service, per the Commission directive in its February 11 order.

Staff set a schedule for public meetings to address implementation plans, to facilitate an amicable solution to problems related to details of implementation as directed by the Commission in its February 11 order in U-11290. Subsequently, utility draft plans were delivered to MPSC Staff by both utilities, and were then posted on the MPSC web site and mailed to interested parties.

Staff hosted a series of public meetings where Consumers Energy and Detroit Edison presented their draft plans and interested parties asked clarifying questions and made recommendations and requests for changes to the plans. Several parties provided written responses to utility proposals identifying key areas of concern.

Consumers Energy and Detroit Edison revised their implementation plans based on those discussions with interested parties and Staff comments, which were filed on May 15. The utilities filed updated implementation plans on June 30, 1998.

Staff Market Power Discussion Paper -- On June 5, 1998, Staff filed its Market Power Discussion Paper to the Commission. The report is intended as an initial effort to frame market power issues and identify potential mitigation strategies. Staff finds that the current Michigan market is so highly concentrated and the advantages of incumbent utility companies are so pervasive that proactive measures are imperative. Staff concludes that implementation of a proactive strategy to address market power is crucial to the establishment of a vibrant competitive market for the sale of electricity in Michigan.

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February 1998

On February 11, 1998 Commission's issued its U-11290 clarification order covering issues in Cases Nos. U-11290, U-11449, U-11451, U-11452, U-11453, U-11454, and U-11456. The order addresses power purchase agreements, the true-up of stranded costs and transition charges, stranded costs, rate freezes, municipalization, implementation issues, and reciprocity. The Commission directed Consumers Energy and Detroit Edison to file revised tariff sheets consistent with this and prior orders in these dockets.

Consumers and Edison had both requested to freeze the fuel supply portion of the current customer rates. In this order, the Commission adopted the Consumers proposal since it resulted in a rate decrease. The Edison proposal would result in a rate increase, and the Commission indicated that it could only adopt a proposal from Edison which would decrease rates. Any proposal to freeze the fuel cost portion of rates at a higher level would have to be fully reviewed in a contested case.

The Commission clarified the accounting for stranded and transition costs.   All stranded and transition costs will be collected in a single stranded cost surcharge. In the future, if any amount is securitized (which would require legislative action), then this surcharge might be split into two portions, one for securitization and the other for all other stranded and transition costs.

Finally, the order directed Commission Staff to "to initiate informal discussions with interested parties to identify and amicably resolve...implementation issues." The Commission said, "If there are issues that can not be resolved informally, then they should be brought to the Commission in formal proceedings."

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January 20, 1998

Michigan Court of Appeals Opinion affirms experimental retail wheeling programs for Consumers Energy & Detroit Edison, finding that "the PSC has statutory authority to authorize an experimental retail wheeling program."

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January 1998

On January 14, 1998, the Commission issued three orders which complete action on the basic framework for Michigan's electric industry restructuring. A clarification order was issued on February 11, 1998. The orders were approved by 2-1 votes. Commissioner John Shea dissented on all orders, questioning the Commission's legal authority.

Determines Allocation of Facilities to Distribution

Detroit Edison (U-11337)and Consumers Energy (U-11283) requested the Commission to determine what facilities should be allocated to the transmission system or the distribution system. For Detroit Edison, the Commission determined that all 120 KV (kilovolt) radial lines to specific customers, and all lines below 120 kV are classified as distribution. For Consumers Energy, the Commission determined that all 138 kV radial lines, and all lines below 138 kV are classified as distribution.

The Commission also approved the utilities' requests to reclassify from transmission to generation all step-up transformers and lines which are used to connect power plants to the transmission system. These facilities are necessary connections from generating plants to transmission, and do not facilitate system power interchanges.   According to the Commission, with the transmission system being unbundled by Federal Energy Regulatory Commission (FERC), it makes sense to allocate the facilities according to function. This reclassification is supported by FERC Staff for federal open access, although FERC has not yet ruled on this classification.

On July 29, 1998, in Consumers Energy Docket No. EL98-21, the FERC issued a letter order in which it deferred to the Commission's classification of certain facilities as Commission-jurisdictional local distribution facilities and other facilities as FERC-jurisdictional transmission facilities. This FERC action did not constitute approval of any particular rate methodology with regard to how distribution-related facility costs will be reflected in wholesale transmission rates. Again, the reclassification from transmission to generation of step-up transformers and lines to connect power plants to the transmission system is supported by FERC Staff for federal open access, but FERC has not yet ruled on it. (FERC transmission tariffs are discussed in the Comments of the Michigan Public Service Commission Staff on Implementation Plans filed by Consumers Energy and Detroit Edison, on June 30, 1998, starting at page 22 [p. 26 in the PDF file].)

Sets Direct Access (DA) Schedule and Clarifies Key Issues in U-11290

On January 14, 1998 the Commission closed a series restructuring cases in Order U-11290.   On October 29, 1997 the Commission suspended implementation of the direct access (DA) program until a number of issues were decided. At the time, the Commission set the following schedule for direct access for Consumers Energy and Detroit Edison customers:

  • March 31, 1998, but not sooner than 30 days after any final approvals by the FERC which are required to implement the open access program, is the final day to accept bids for the first 2.5% block for DA. Winning bids may commence open access as soon as practical thereafter.
  • June 30, 1998, but not sooner than 90 days after any necessary FERC approval is the final day for bids for the 2nd 2.5% block.
  • November 20, 1998, but not sooner than 150 days after any necessary FERC approval is final day for bids for the 3rd 2.5% block. DA may commence not sooner than 1/1/99.

Note: None of those three events scheduled for completion in 1998 had happened by January 1999. Keep reading for more details of the schedule and to learn how subsequent events reshaped the implementation schedule.

  • November 20, 1999 and 2000 is the final day for bids for 4th and 5th blocks, respectively. Service commences January 1 of the following year.
  • January 1, 2002. All customers have DA option.

The blocks are 150 MW for Consumers and 225 MW for Detroit Edison, approximately 2.5% of the peak demand for these companies.

Direct Access will begin with Consumers Energy and Detroit Edison - The Commission reconfirms that statewide uniform timing is not necessary for DA, and the current schedule will be for customers of Consumers Energy and Detroit Edison (approximately 85 percent of total Michigan sales). No schedules have been set for other utilities.

Sets initial estimate of stranded costs, but will true-up annually - The Commission set an initial estimate of stranded costs along with the first year transition charge for DA customers for Consumers and Edison.   The Commission cautions that these are only preliminary estimates, and cautions use of the figures given the uncertainty of the estimates. The annual true-up cases will determine the ultimate amount stranded costs to be collected.

Initial Estimates of Stranded Costs and Transition Charges by MPSC

Consumers Detroit Edison
Nuclear Plant $231 million $1,950 million
Regulatory Assets $68 million $424 million
Qualifying Facilities $1,461 million $109 million
Stranded Cost (total of above) $1,755 million $2,483 million
Transition Charge 1.20 ˘/kWh 1.25 ˘/kWh

These initial estimates of stranded costs are based on a 1998 market price of power of 2.9 cents per kilowatt-hour. The Commission points out that the amount of stranded costs is very sensitive to different assumptions about the market price of power and the number of customers choosing DA service. This uncertainty is the basis for the true-up mechanism established by the Commission.

As detailed in the October 29, 1997 Order, an annual true-up mechanism will be used to insure stranded cost revenues match actual stranded costs. Minor clarifications on the true-up mechanism are made in the current order. Actual market prices, direct access sales, and total utility sales will be used up to insure that the amount of moneys collected for stranded costs does not exceed actual costs stranded.   Two key points in the Order relate to the true-up:

1. For the purpose of establishing these rough estimates of stranded costs, the Commission utilized estimated stranded costs based on sales volumes proposed by Consumers and Detroit Edison. To the extent that the actual volumes, either for open access customers or for those who remain full-service customers, vary from those used in the estimate, stranded costs will be recalculated using the actual volumes in place of the estimates.

2. The stranded cost estimates were based on a market price of 2.9 cents/kWh in 1998, escalated thereafter by inflation rates used by the utilities. To the extent that the actual market price varies from that used in the estimate, the stranded costs will be adjusted up or down by the product of multiplying the actual open access volumes for that year by the difference between the estimated market price and the actual market price.

Generally, the Michigan Commission approach allows 100 percent recovery of actual stranded costs. The allowed stranded costs include all remaining capital costs of nuclear plant assets and capacity costs from Qualifying Facilities which exceed the market price of capacity. Securitization, which requires legislative approval, or any other means of lowering customer costs is supported by the Commission.

DA customers will pay a single transition surcharge, to cover stranded costs and implementation costs. In the 1998-2001 period, the surcharge amount will be the amount bid by the DA customer in the DA bidding process. After 2001, the surcharge will be identical for all DA customers, will be set at an amount to allow recovery of these costs, and is subject to the annual true-up mechanism. Full-service customers will continue to pay in current and future rates their portion of costs associated with existing assets included in the Commission's stranded cost category.

Power Supply Cost Recovery Surcharge Suspension - The Commission had previously approved suspension of the Consumers Energy and Detroit Edison power supply cost recovery (PSCR) clauses, but set no date for implementation.   The Commission now approves suspension beginning with the first billing cycle in the month after open access load reaches 150 MW for Consumers and 225 MW for Detroit Edison. For each company, the Commission must determine the appropriate level of fuel charges to put in base rates, and this will be done in case U-11528 for Edison. Finally, the Commission will address the need to change performance standards for Detroit Edison's Fermi 2 nuclear plant in U-11528.

Modifications to DA tariffs - The Commission made minor modifications to the direct access tariffs approved on October 29, and directed both Detroit Edison and Consumers Energy to file the revised tariffs by February 25, 1998. The DA tariffs may need approval by FERC, and so the Commission directed both companies to make timely filings with FERC for any necessary approvals to implement the DA program.

Modifies Minimum Bid - The Commission had set a minimum bid of 0.5 cents per kilowatt hour for customers desiring DA service. The Commission modified this slightly. The minimum bid will remain at 0.5 cents, but now Detroit Edison and Consumers Energy can set a lower minimum bid amount. A DA customer's bid amount will be that customer's transition surcharge (combined stranded costs and implementation costs) for the 1998-2001 period. Subsequent to 2001, all DA customers will have a uniform transition surcharge, based on the total stranded and implementation costs to be paid by DA customers, and this surcharge will be subject to the true-up mechanism.

Standby Rates -- The Commission made a slight adjustment to its October 29 ruling on standby rates. Previously, the Commission ruled that if the utility is not the direct cause for the need for standby, then the standby rate shall be at the lower of the customer's costs or the utility's top incremental cost. Now the Commission finds that this should be at the higher of the customer's costs or the utility's top incremental cost. This will insure that utilities do not have to sell standby at less than the cost of providing it in situations where the utility is not the direct cause of the problem.

Performance Based Rate making -- In U-11456, Consumers Power had requested to implement performance-based rate making for non-generation costs. The Commission indicated that further hearings were necessary before adopting a specific plan. Consumers requested the Commission reconsider, and allow Consumers to implement its plan, but on January 9, 1998, Consumers withdrew its request for performance-based rate making. The Commission supports the concept of performance based rate making as a component of electric restructuring, but now has no proposals from any party.

On January 21, 1998 the Commission set a schedule in Case U-11290 for the filing of motions for clarification and responses for a number of related cases. Because these cases (U-11290, U-11459, U-11451, U-11452, U-11453, U-11454, & U-11456) resolve interrelated matters related to restructuring the electric industry in Michigan, the Commission concluded that all motions for clarification should be considered together.

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November 1997

Numerous parties filed requests for rehearing of the October 29, 1997 Orders.   They asked for clarification on several issues and the reconsideration of several other matters ruled on by the Commission.

The Commission announces in a press release that "Retail Electric Competition Emerges In Michigan As Electricity Flows To Customers Participating In The Consumers Energy Direct Access Program"

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Direct Access Tariffs -- the U-11451 and U-11452 orders deal respectively with Consumers Energy and Detroit Edison requests for approval of a direct access tariff. The tariff outlines conditions for retail customers obtaining electricity generation directly from alternate suppliers and sets the rates for delivering the electricity through the customer's local utility. The Commission adjusted both Consumers Energy's and Detroit Edison's filed tariffs to eliminate conflicts with the Commission's June 5, 1997 Order and Federal Energy Regulatory Commission requirements for open access electric transmission. The approved tariffs cannot be applied until after the retail direct access bid solicitation, which was suspended until further notice. For the direct access tariffs:

  • The Commission scheduled additional hearings on the rates for standby service.   In the interim, the Commission adopted the utilities' proposed standby rates when the need for standby arises due to the fault of the customer or its power supplier. In instances when the customer or supplier is not at fault, the Commission adopted the standby rates proposed by the Association of Businesses Advocating Tariff Equity.
  • For direct access customers, the transition surcharge will be the rate the customer bid in the allocation bidding. The minimum bid is 0.5 cents per kilowatt-hour.
  • The Commission determined that reciprocity is necessary. The Commission required that both in-state and out-of-state utilities and affiliates that supply direct access customers in the Consumers and Edison service territories must consent to open a comparable amount of retail load in their service territories to competition. Eligible power suppliers not affiliated with utilities must provide a "reasonable level of reciprocity." After the year 2001, power marketers must ensure through contract provisions that the companies supplying them offer reciprocity.
  • All preconditions to implementing direct access that were requested by Consumers and Edison must be excluded from the open access tariffs. These include rate reduction bond securitization legislation, performance based regulation, and suspension of Michigan's annual power supply cost recovery (PSCR) cases.

True-up Mechanism for Stranded Costs -- The U-11454 order deals with approval of a true-up mechanism associated with the recovery of stranded costs for Consumers Energy and Detroit Edison. The Commission's June 5, 1997 order determined that an annual true-up mechanism would be used to adjust stranded costs for variations in the market price of power.

In this case, Detroit Edison proposed that the market price of power would initially be set at the Michigan Electric Coordinated System lambda plus 0.5 cents/kWh At some point in the future, a regional price index would be used. Consumers Energy proposed using an annual auction of a portion of its capacity under its existing power purchase agreements to determine the market price. The Commission rejected these approaches. Rather, the Commission determined that the stranded costs should be trued-up annually using the actual contract prices that direct access customers pay for power.  

If the current estimates of stranded costs are too low, the transition surcharge will be adjusted higher, to make up for the under-collection of the stranded costs. Conversely, if the current estimates are too high, the transition surcharge will be adjusted lower, and could become a negative surcharge (i.e. refund) in some instances. For the transition charge and associated future true-up cases:

  • The transition surcharge will collect the prudently incurred transition costs. This will be adjusted by the difference between: (1) the actual surcharge collected for recovery of stranded costs; and (2) the actual annual calculation of stranded costs.
  • The Commission adopted Consumers Energy's proposal that the true-up mechanism be adjusted for actual sales volumes experienced by the utilities rather than Detroit Edison's proposal to rely on sales estimates.
  • The initial transition charge is the amount bid by each customer in the direct access bidding process and will true-up annually thereafter. The Commission set a minimum bid of 0.5 cents per kWh The true-up mechanism will include an adjustment for revenues collected to insure utilities do not over- or under-collect transition costs.
  • Finally, the Commission made no final determination on the level of stranded costs.

Performance-Based Ratemaking -- Consumers Energy asked in U-11456 to implement performance-based ratemaking for the distribution component of customer rates. Consumers Energy recommended adjusting the price annually by the change in the Consumer Price Index less 1 percent (CPI-1) and that each year the application of the index will be dependent on meeting three specific performance measures. The Commission Staff recommended an alternative index based on changes in the producer price indices for capital investment, electrical equipment, and compensation for utility employees, and recommended other performance measures.

The Commission adopted one performance measure, the 125 maximum average outage minutes per customer per year proposed by Commission Staff. The Commission concluded that additional hearings were necessary to precisely define the index and to review any additional performance measures. The Commission set a prehearing, November 20, 1997, to set a case schedule. Further, the index is to be implemented only after 5 percent of the utility's customer load is taking service under retail direct access from non-affiliated suppliers.

Suspension of the Power Supply Cost Recovery -- In U-11449 and U-11453, respectively for Detroit Edison and Consumers Energy, the Commission decided to allow suspension of the Power Supply Cost Recovery (PSCR) process. However, in both of these cases the Commission delayed suspension until a minimum of 5 percent of each Consumer's and Edison's loads are being served by nonaffiliated power suppliers to retail direct access customers. When the 5 percent threshold is reached, each utility must file a single-issue case using its most recent financial data to support a level of fuel and purchased power costs to be included in base rates, to be fixed until January 1, 2002.

The PSCR process provides for an annual review of each utility's fuel and power purchase costs and practices. The companies asked that the PSCR surcharge or credit be included in base rates, and to suspend both the PSCR plan and reconciliation cases. The PSCR process would be replaced by a fixed charge for fuel and purchased power through the year 2001, the last year of the DA phase-in transition period.

Detroit Edison also requested the Commission approve modification of its Fermi 2 nuclear plant's performance standard adjustment , which was established in a 1988 settlement agreement approved by the Commission. Opposition parties in the case insisted an approved settlement is tantamount to a contract or consent judgment and cannot be revised without approval of all parties to the settlement agreement. The Commission rejected these arguments and found that revisions to the Fermi 2 performance adjustment mechanism are necessary, given the fact that parties to the settlement agreement must have presumed future continuation of the PSCR. However, the Commission will address the merits of changes to the settlement agreement performance adjustment in the single-issue rate case which will set the fixed fuel and power supply costs to be put in rates until January 1, 2002.


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October 1997

Commission's October 29th Orders

The Michigan Public Service Commission issued six orders on October 29, 1997 that continue the process of introducing competition into the Michigan electric market. These orders are the result of the cases the Commission initiated on July 14, 1997. The Commission approved the orders by a 2-1 vote. Commissioner John Shea dissented on all orders, questioning the authority of the Commission to issue the orders. The October 29th orders move toward determination of the rates and conditions of service for those customers choosing direct access.

Suspends the Direct Access bidding Schedule -- The Order in U-11290 suspends the bid schedule for customers seeking direct access, to allow utilities and customers time to evaluate and implement the associated orders issued on the 29th. The Commission will issue a subsequent order setting a new schedule for submitting bids, although the date for this is not stated.

The June 5, 1997 Order in U-11290 had originally established November 1 to 20, 1997 as the period for submitting bids for the allocation of the capacity for the first year of retail direct access, where customers purchase electric generation directly from suppliers and not from the local utility. Customers, or groups of customers, or customer aggregators are to bid in an auction to obtain the right to purchase electrical generation directly from the new competitive market suppliers.

The implementation schedule for direct access set forth in the Commission's June 5 Order was to open direct access service for 150 MW of Consumers Energy's load and 225 MW of Detroit Edison's load in each year, 1997 through 2001. On January 1, 2002 all customers will be eligible for direct access. The 150 and 225 MW figures represent approximately 2.5 percent of each company's summer peak demand. It was apparent that the original schedule for the phase-in of direct access service could not be met so the Commission decided to bid both 1997 and 1998 (5 percent) in the initial bid allocation. The amount to be made available each year is shown in Figure 1. To give some perspective to these amounts, Figure 2 shows the amount to be opened for direct access in relationship to total loads for Detroit Edison and Consumers Energy.

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October 1997

Customer Focus Issues Report and Recommendations -- On July 15, 1997 Staff conducted a public meeting in Lansing on Customer Focus Issues. The Customer Focus Issues Report and Recommendations was filed by the Michigan Public Service Commission Staff n October 13, 1997, in response to the Commission's directive in the June 5, 1997 Order.

The report contains a discussion of customer protection recommendations, including: supplier and aggregator licensing; rights of privacy; protection for low-income customers; and universal service. It proposes one consolidated set of billing and service quality rules for the electric industry, which would apply as appropriate to all residential, commercial and industrial customers. The report includes a proposed Electric Consumer Bill of Rights to be used as a foundation for guaranteeing consumer protections for all electric customers.

The report supports the need for new legislation addressing supplier and aggregator licensing to protect Michigan consumers while avoiding lengthy or complicated application processes for suppliers and aggregators.   The report concludes with recommendations for a proposed consumer education and information program developed in response to numerous public requests for the Commission to coordinate a public outreach program.

Market Power -- Customers demonstrated great concern about market power issues. Various parties stressed the need for an Independent Systems Operator (ISO) as an essential element in any direct access program. Other commentors suggest the need for additional measures, such as transmission expansion or divestiture of generation. The basic facts regarding market power are as follows:

  • Consumers Energy and Detroit Edison alone control approximately 90 percent of the generation in the state of Michigan.
  • Transmission into Michigan is severely constrained.
  • Consumers Energy and Detroit Edison now own, control, and operate most of the transmission system in Michigan's Lower Peninsula.

The Commission said that market power is an essential issue that must be addressed and directed Commission staff to conduct a series of public meetings and prepare a final report by June 5, 1998 relating to the development of a methodology for implementing an ISO and to explore other methods of addressing market power issues.

On July 14, 1997 Staff conducted a public meeting in Lansing on market power. On October 20, 1997, the Staff issued to interested parties an invitation to comment on a Draft Interim Discussion Paper on Market Power. Comments were received from a total of 17 interested persons.

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July 1997

Based on the June 5 Commission Order, Consumers Energy and Detroit Edison filed on June 19, 1997, proposals for implementing customer choice. Consumers Energy filed its proposed true-up mechanism on July 7, 1997 and Detroit Edison filed on July 9, 1997. Detroit Edison and Consumers Energy also filed applications to suspend the PSCR.

In the Order of July 14, 1997 (U-11290), the Commission commenced the following contested case proceedings:

  • In Case No. U-11451 the Commission would consider Consumers Energy's retail open access tariff.
  • In Case No. U-11452 the Commission would consider Detroit Edison's direct access tariff.
  • In Case No. U-11449 the Commission would consider Detroit Edison's request to suspend its power supply cost recovery clause (and related relief).
  • In Case No. U-11453 the Commission would consider Consumers Energy's request to suspend its power supply cost recovery clause (and related relief).
  • In Case No. U-11454, the Commission would consider issues related to a true-up mechanism in connection with the recovery of stranded costs by Consumers Energy and Detroit Edison.
  • In Case No. U-11456, the Commission would consider Consumers Energy's request for approval of a performance-based ratemaking (PBR) mechanism and changes to its standby rates for all customers taking that service.

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June 1997

The June 5, 1997 Commission Order (U-11290) set forth the Commission's framework for electric industry restructuring n Michigan (reference MPSC Orders page, U-11290 order, Press Releases page, and Press Release) . The Commission approved the order by a 2-1 vote. Commissioner John Shea dissented, questioning the Commission's authority to issue the Order. The order was based on the December 1996 Staff Report, information resented at the public hearings, and the utility filings of March 1997. The framework includes:

1. Retail Direct Access Phase-in Schedule

  • In each year 1997 through 2001, 225 MW of Detroit Edison load and 150 MW of Consumers Energy load should become eligible for retail customer direct access choice. This is approximately 2.5 percent of these utilities' load in each year. Equivalent amounts should be made available by other utilities. This is the same level recommended in the Staff Report.
  • During this period, direct access will be allocated based upon the amount that customers bid to pay for direct access.
  • In 2002, all remaining customers would have the option of choosing an alternative supplier for power generation.
  • Customers not electing direct access could retain total service from their host utility for the indefinite future.

2. Stranded Costs -- The Commission agreed with the Staff report on the five categories of costs that should be included as part of the stranded costs. The Commission noted that the first three categories (regulatory assets, capital costs of nuclear plants, and contract capacity costs) are already included in existing rates and should be included in stranded costs to ensure that customers who remain with the existing utility do not experience rate increases. The final two categories are implementation costs that would not occur absent direct access and thus should be included in stranded costs.  

The Commission concluded that an annual stranded cost true-up mechanism was necessary to provide for annual adjustments, up or down, to stranded costs to reflect changes in the market price of power used in the stranded cost calculation. Utilities were directed to file proposals for the true-up mechanism.

No final decision was made on the amount of the stranded costs. However, in the March 7, 1997 utility filing, Detroit Edison proposed to recover more than $3 billion in stranded cost charges. This consists of $1.95 billion in Fermi 2 nuclear plant physical assets, $424 million in regulatory assets, and $394 million in purchase power contract capacity charges, all of which the utility proposes to recover through securitization, and $447 million transition costs that it proposes to collect through a transition surcharge. Detroit Edison proposed a securitization charge of 0.9˘ per kWh and a transition charge of 0.4˘/kWh Prior to securitization, it proposed a pre-securitization asset charge of 1.4˘/kWh in addition to the transition charge of 0.4˘/kWh

Consumers Energy proposed to recover close to $2 billion in stranded costs consisting of $70.3 million for nuclear facilities, $220.1 million for regulatory assets, $16.2 million for the Ludington Pumped Storage Facility and various hydroelectric plants, $1.459 billion for contract capacity costs associated with power purchase agreements, $50 million for employee-related costs, and $150 million for other implementation costs. It proposed a total transition and implementation charge of 1.45˘/kWh without securitization and 1.26˘/kWh with securitization.

3. Securitization -- Securitization may result in net rate reductions for customers because higher cost financing through equity and bonds is replaced by lower cost financing with securitized bonds and in some instances the repayment period can also be extended when assets are securitized. The Commission concluded that securitization appears to be a potential tool for reducing electric rates, however, it was premature to make a decision regarding securitization because:

  • State legislation is required before securitization can be implemented and there are unresolved questions regarding federal tax treatment.
  • If those concerns are satisfied and if securitization reduces customer rates on a net present value basis over the life of the assets, securitization would be a viable approach.

4. Functional Unbundling of Services

Transmission and Distribution would remain regulated. The Commission indicated its interest in considering specific Performance Based Ratemaking (PBR) proposals for handling transmission and distribution pricing and a willingness to move forward on some sort of PBR mechanism, if acceptable proposals are developed and presented. Regarding generation plant and services:

  • Utilities would not have to sell generating plants (no divestiture).
  • The "obligation to serve" would remain for the indefinite future for local distribution customers who wish to remain full service customers.
  • Direct access customers would obtain power through contracts, at a negotiated, market-based price.

Prior to the start of each year during the transition period (1997-2001), customers who want to participate in Direct Access would submit bids indicating the amount they are willing to pay for stranded cost. The highest bids would be selected until the eligible capacity is filled. During the transition period, the customer would pay its bid price for the transition surcharge. Once all customers would be eligible to receive direct access service (starting with January 1, 2002), all customers receiving direct access service would pay the same transition surcharge.

5. Power Supply Cost Recovery (PSCR) -- The Staff Report recommended suspending Michigan's existing PSCR procedures during the transition period to "protect non-participants from increases in the price of fuels of purchased power." The PSCR allows recovery of prudently incurred fuel and purchased power costs by utilities, and includes an annual reconciliation of actual costs versus the amount collected in rates. Suspending the PSCR procedure would mean selecting a fuel and purchase power charge based on a contested hearing, and then leaving the charge at that level as long as the suspension lasts. Under this proposal, there would be no annual hearings to establish surcharges or credits, and no annual reconciliation hearings to determine over- or under-collections. The utility would bear the risk of increased fuel and purchased power costs. Various parties opposed suspending the PSCR because they anticipate reductions, not increases, in costs. The Commission indicated that it would consider suspension of a utility's PSCR if and when it is asked to do so in a contested hearing.

6. Tariffs For Direct Access Service -- The Commission directed Consumers Energy and Detroit Edison to file, on or before June 19, 1997, all tariffs necessary to implement retail customer direct access service in a manner consistent with the June 5 Order. Other parties could file comments on these tariffs. The Commission would approve the tariffs on an interim basis if they are consistent with the Order.

7. Standby -- Consumers Energy and Detroit Edison proposed tariffs for direct access customers to obtain back-up power if their supplier could not provide service. Various parties expressed objections to these standby proposals. As a result, the Commission set additional hearings regarding tariff filings to give interested parties an opportunity to fully develop this issue.

8. Reciprocity -- is the requirement that any power supplier (other than the existing utility) who wishes to sell power to a direct access customer must allow the utility to sell to the power supplier's customers. The Commission said that the reciprocity issue requires a careful balancing of the interests of the utilities and their customers.  

In Case No. U-10685, the Commission set reciprocity requirements for open access participation under Consumers Energy's Rate DA. This required reciprocity from all utilities that wished to supply power directly or through an affiliate, but did not require reciprocity for unaffiliated marketers or brokers. In addition, municipal utilities and municipal power agencies who provide primary power supply or backup service to customers outside their service territory were required to offer reciprocity for the same type and a comparable amount of service. The Commission determined these same reciprocity conditions should be applied to direct access providers during the phase-in to competition. After January 1, 2002, the Commission would require reciprocity from all suppliers (including marketers and brokers) seeking new or additional direct access customers in Michigan.

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Spring 1997

The utilities' informational filings were made on March 7, 1997. The Commission conducted additional public hearings in March and April where 38 witnesses commented on the utilities' filings. Fifty written comments were received.

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January 1997

In January 1997, the Commission held public hearings on the Staff Report in Detroit, Grand Rapids, and Lansing. The Commission received statements from 78 interested persons and written comments from 86 individuals.

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February 1997

The Commission decided that additional information from Detroit Edison and Consumers Energy was needed. On February 5, 1997 the Commission ordered both companies to file, by March 7, 1997, information on nine specific issues (reference MPSC Orders page, U-11290 order). Other electric utilities in Michigan were allowed to make informational filings if they wished.

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December 1996

A Michigan Public Service Commission Staff Report on Electric Utility Restructuring dated December 19, 1996, was completed and filed with the Commission. The Staff proposed implementing a system in which retail customers would be given the opportunity to select the power supplier of their choice, commonly referred to as open or direct access. This arrangement would permit customers to purchase power from a supplier of their choice, and then pay the local utility a fee to deliver the electricity. The Staff Report included four major sets of recommendations:

1. A phase-in of retail Direct Access (DA) based on two principles:

  • All customers should be eligible to choose their supplier and participate in the competitive markets.
  • Rates should not increase for any customers and should be reduced where possible. The Staff Report indicated that the combination of customer choice and securitization could result in immediate electricity cost savings for Michigan customers and possible additional savings in subsequent years.

2. Begin Retail Direct Access Phase-in Schedule in 1997

  • All customers would be eligible to participate, but the number would be limited to approximately 2.5 percent of each utility's customer load in 1997, 5 percent in 1998, 7.5 percent in 1999, and 10 percent in 2000.
  • In 2001, all commercial and industrial customers served at primary voltage would become eligible to purchase generation from power providers at market prices.
  • In 2004, all remaining customers would become eligible.

3. Stranded Costs -- are those costs already incurred by utilities under current regulation which might not be recovered in a competitive market.

  • The Staff Report recommended that stranded costs include the following five categories: (1) regulatory assets, (2) capital costs of nuclear plants, (3) contract capacity costs arising from power purchase agreements, (4) employee retraining costs, and (5) costs related to implementing restructuring.
  • Stranded costs should only be recovered from those customers exercising retail choice, to avoid subsidization.
  • Securitization could be used to refinance stranded costs and reduce rates. Under this approach, utilities would sell bonds to be paid for by a surcharge. Customers are paying for these costs in current rates and would have the costs removed from the rate base and replaced with the securitization surcharge, resulting in a net rate reduction for customers.  

4. Functional Unbundling of Services

Transmission and distribution would remain regulated.   Prices for these services should be adjusted using a Performance Based Ratemaking (PBR) mechanism. Rates for generation would continue to be regulated for customers who prefer not to go on direct access. Customers on direct access would pay for generation as specified in their contracts with suppliers.

The Staff report also supported establishment of an Independent System Operator (ISO) to assure the power is delivered and a Michigan power exchange as a means to create a spot market for electricity prices.

On December 20, 1996, the Michigan Public Service Commission issued an order (reference MPSC Orders page, U-11290 order, Press Releases page, and 12/20/96 Press Release) establishing a process to allow parties to address the Staff proposals and scheduled public hearings on the Staff Report.

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Summer 1996

In July and August of 1996, the Commission held hearings across the state to provide the public with an opportunity to express their views on electric industry restructuring (reference MPSC Press Releases page, and 7/16/96 Press Release). The Commission received statements from 95 individuals at the hearings and also received numerous written comments.

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January 1996

On January 8, 1996 Governor John Engler forwarded to the Commission recommendations from the Michigan Jobs Commission report entitled "A Framework for Electric and Gas Utility Reform." This report suggested:

  • moving the electric industry in Michigan to competitive markets for the power supply component of electricity service. Transmission and distribution would remain the function of a regulated utility monopoly; and
  • allowing new commercial and industrial loads to purchase electrical generation from anyone willing to supply this service.

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Experimental Retail Wheeling Programs (August 1992 through June 2004)

On August 20, 1992, the Association of Businesses Advocating Tariff Equity (ABATE) filed an application to the Michigan Public Service Commission (Commission), asking for approval of an experimental retail wheeling tariff for Consumers Energy Company. The Commission issued an order on September 11, 1992, commencing a contested case proceeding to consider experimental retail wheeling programs for both Consumers and the Detroit Edison Company (Detroit Edison). That order invited ABATE and other interested persons to submit proposed tariffs for an experimental program.

On April 11, 1994, the Commission issued its Opinion and Interim Order" in Cases Nos. U-10143 (Consumers) and U-10176 (Edison). In that order, the Commission adopted terms and conditions to govern experimental retail wheeling programs for the two utilities, and remanded the case to the Administrative Law Judge (ALJ) "for the limited purpose of determining appropriate rates and charges for an experimental retail delivery service..." (Order, p. 57). Also, the Commission directed that experimental programs would be coordinated with capacity solicitation procedures which had already been established for Consumers and Edison (Order, pp.54-56). The Commission noted that such coordination "should help to mitigate" concerns about the potential for retail wheeling to "strand investment [the utilities] made to serve existing customers" (Order, p. 33). Coordinating with capacity solicitations meant each utility's experimental program would begin at a time when the utility needed new capacity. The Commission limited the experimental program to 60 MW for Consumers and 90 MW for Edison, which was approximately 1 percent of each utility's peak load at the time, and limited each participating customer to 2-10 MW of delivery capacity at each location to be served under the experimental tariff (Order, p.33).

On June 19, 1995, the Commission issued its "Opinion and Order After Remand" in Cases Nos. U-10143 and U-10176. That order established rates and charges for retail delivery service, for a five-year retail wheeling experiment.

Consumers' retail wheeling experiment was initiated after November 14, 1996, when the Commission approved with modifications, and Consumers subsequently accepted, a settlement agreement in Cases Nos. U-10685, U-10754 and U-10787. The first few customers began taking service under Consumers' experimental rate, called Rate DA (for "direct access"), in November, 1997 (see the Commission's press release). Consumers' experimental program was discontinued in early 2002, after customer choice became available to all customers in Consumers' territory. The closure of Consumers' Rate DA was discussed in the Commission's December 20, 2001 Order in Case No. U-12488 (p. 4).

Detroit Edison's retail wheeling experiment was triggered by the Commission's April 14, 1998 Order in Case No. U-10840. In that Order, the Commission determined that Edison had a need for new capacity and approved Edison's experimental retail access service tariff (ERAST). In a March 8, 1999 Order in Case U-10840, the Commission approved some modifications to Edison's ERAST, and directed Edison to "develop an application form along with a proposal to expeditiously allocate the available capacity pursuant to the terms of the tariff...within 14 days" (Order, p. 8). Edison filed the tariff sheets on March 22, 1999. The first customers started taking service under Edison's ERAST on December 6, 1999. Edison's ERAST is now slated to expire on June 30, 2004, as approved in the Commission's March 8, 1999 Order in Case No. U-10840.

For an update on the status of the experimental retail wheeling programs, see the annual and quarterly Program Status reports.


Summary

Electric Customer Choice (and related utility restructuring) involves many complex issues. Actions by the Federal Energy Regulatory Commission (FERC) and U.S. Congress are continuing to influence the nature of these emerging markets. This issue is in a continuing state of change. Followers of this debate need to be aware of this shifting landscape. The final outcome of the restructuring of electricity markets is yet to be determined, but it does seem clear that the final resolution of these issues will have significant effects on the costs of electricity in Michigan.

Electric Customer Choice is intended to permit new market structures to emerge that will allow competition to price electricity more effectively and at a lower costs than the current regulatory mechanisms. In addition, customers should recognize that for the foreseeable future they will not be required, under the Commission's current direction and Michigan's Customer Choice and Electricity Reliability Act, to select a new supplier or change the nature of their electricity service. Those who wish to remain full service customers of their existing utility may continue to do so under regulated rates, as they are today.

As the Commission pointed out in its June 5, 1997 Order U-11290 (pg. 6) "Finally, the customer choice model for the electric market is relatively untried in this country and has not always been successfully implemented in other countries. Care must be taken to ensure that customer choice in Michigan is carried out in a manner that produces a workable program for providing real savings to utility customers."

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