UNITED STATES HOUSE OF REPRESENTATIVES
Committee on Commerce
Subcommittee on Energy and Power
Washington, D.C.

Testimony as Presented by David A. Svanda, Commissioner
Michigan Public Service Commission
on
Electricity Competition: State and Local Issues
July 1, 1999

I am pleased to appear before you today to discuss the importance of competition in the electricity industry, explain the status of industry restructuring in Michigan, and to encourage you to create a national vision for the electricity markets of the future.

Michigan likes competition. When the Detroit Red Wings won the Stanley Cup in 1997 and 1998, we were proud. Not because it was the Wings turn to win the Cup, but because they fought hard against tough competition, continually improved, and ultimately delivered a superior product. When our auto companies were "up against the wall" in the 1970's and early 1980's, facing stiff foreign competition, we were extremely proud of how labor, management, and government responded -- not by erecting barriers to imports but by beating the quality, price, and performance of the competition. They competed and we all won. The same philosophy underlies Michigan's initiatives in the trucking, telecommunications, natural gas, and, now, electricity industries.

During the past several years, the Michigan Commission has focused attention on bringing competition to the electricity industry, a move which parallels the changes we have made in those other industries that were formerly insulated from market forces. The first step occurred five years ago when the Commission issued an order initiating a retail wheeling experiment for large industrial customers of Consumers Energy and Detroit Edison. Together, these companies serve approximately 90% of the retail electric customers in the state. At that time, competition in retail generation was a new concept. Since then, we have held public meetings and comment periods, hearing from hundreds of stakeholders. Based on these comments, we have issued a series of orders culminating with an order in March. In this issuance, the Commission took the final steps necessary to phase-in customer choice and allow customers of Consumers Energy and Detroit Edison to select the generation suppliers and services that best meet their needs. The chosen electrons have begun flowing and the participating customers have begun to realize savings.

I must tell you though that since I prepared my testimony, the national map of electricity competition referred to by Chairman Bliley has changed. On Tuesday, in response to an appeal by our two largest electric utilities, the Michigan Supreme Court vacated the Commission orders that established our retail access program. While Michigan considers the ramifications of the Supreme Court action, it indicates a need for further legislation both state and federal, before electricity competition is firmly established.

If we are to overcome these types of developments and create an environment in which competition can flourish, we must have a national vision unconstrained by artificial state boundary market barriers. Several factors have led me to this conclusion.

First of all, the electric industry is no longer focused on serving only those customers within a limited geographic area. The industry now has a national, even international scope. The market, like the electrons it is based on, do not know state boundaries.

Second, regulated prices are inconsistent from utility to utility, and in many cases, well above those found in the market. Economic regulation and government protection have not been successful in keeping electricity prices low. Some states with lower prices have achieved them in part due to the availability of inexpensive public power sources; an economic boost for them and a disadvantage to those unable to access it.

Third, electric generation companies, whether utilities or non-utility generators, across the country are functioning in limbo. They are reluctant to build new generation resources until they have a clearer understanding as to how the industry will develop. As a result, reserve margins are shrinking and system reliability may be threatened.

• If a state chooses not to offer its citizens choice, it should not limit the development of the market for those states seeking competition. Utilities and other generators located in states without a competitive initiative should not be prohibited by those states from participating in the market in states permitting competition.



• Multi-state companies stand to achieve the greatest gains from competition if they can include all of their facilities in their purchase agreements, whether or not those facilities are located in states offering choice. Without this opportunity, these companies will be weakened in their competitive efforts.



• An effective market depends on a transmission system capable of transporting power between the customer and the seller.

Perhaps the most important point I want to make to you today is this: whenever you come to a fork in the road, take the path marked "competition." I urge you not to introduce or expand regulation when there is the opportunity for the market to achieve a stated goal. Resist the impulse to protect special interests. For example, the use of renewable resources may be a worthy objective. However, this objective can best be reached in the market place rather than through government mandates. Universal service and other public benefit programs likewise will be better served by allowing the market to work, as opposed to buildingfunding requirements into legislation. Fuel cells and micro turbines are technologies that hold promise for electricity users to gain independence from the electric grid, and should be allowed to find their niche in the electricity marketplace without restrictive regulations or surcharges. Throughout history, free markets have been shown time and time again to work more effectively than any regulatory structure. If markets are to work, competition must supersede protection of special interests. I ask you to set forth the framework in which markets are allowed to do their work.