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Original article URL: http://bridgemi.com/2016/11/business-groups-split-on-state-senate-energy-bills/

Business Bridge

Business groups split on state Senate energy bills

Michigan Sen. Mike Nofs, R-Battle Creek, has worked for two years on bills that would update state energy policy. They recently passed the Senate and now await action in the state House.

Michigan Sen. Mike Nofs, R-Battle Creek, has worked for two years on bills that would update state energy policy. They recently passed the Senate and now await action in the state House.

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.”

Lindsay VanHulle covers business and Lansing for both Bridge and Crain's Detroit Business.

21 comments from Bridge readers.Add mine!

  1. Jim Fletcher

    Truly free markets are always better for all consumers. That is the way Michigan’s Choice program needs to continue to move. The Michigan Senate legislation appears to be welfare for DTE and a few others feeding at the regulated money trough.

    This quote sums the Senate legislation perfectly “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.”

    Sponsor Sen. Mike Nofs, R-Battle Creek, should be ashamed for the language in Senate Bill 437 attempts to codify that proposal into state law to “… allow the Michigan Public Service Commission to impose a new capacity charge, including on alternative energy suppliers.” The last thing we need to do is get more regulation from the Obama Administration.

    Free market not subsidized distorted markets that fleece electric rate payers – big or small.

    1. Bob Balwinski

      Jim, I am missing something here with your comment. When did the Michigan Public Service Commission become a Federal agency run by Obama?

      1. Jim Fletcher

        Bob –
        It is where the “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.” Unfortunately, the Federal Energy Regulatory Commission (FERC) does not foster free electric markets and competition. Of course, for all we know the Feds will be no different under Trump.

        It’s not an Obama Administration specific attribute since FERC has never been in favor of serious competition in electric markets. What is so troubling about this MI Senate legislation is that it is taking a step backwards to subsidize the likes of DTE versus lower electric cost for Michigan businesses to expand our economy and also ultimately consumers.

        The example of 123.Net Inc. in the article tells the bottom-line, where they have “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 …”

        1. Bob Balwinski

          MISO made a proposal to FERC. If FERC says it approves this proposal, all that does is “allow” the Michigan Public Service Commission to act. Any final decision on charges or no charges or anything else comes down to the MPSC regardless of what FERC does or does not do.

          You have no faith in FERC but the real energy, if you pardon the pun, should be made in addressing MPSC about your concerns and the boss of the state, Governor Snyder. Ultimately, the gov and the MI legislature will have final say over what MPSC does or doesn’t do.

          1. Jim Fletcher

            I agree Bob. At this point, the ultimate decision now rest with the Michigan House and the Governor.

  2. Kevin Grand

    “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. “

    It’s bills like this that just add more ammunition to the argument that Michigan needs a part-Time Legislature, along with the prohibition of considering legislation after an election.

    The “electricity reliability” issue would’ve been moot had the government not stepped into this matter in the first place and slapped onerous restrictions on the current major source of energy generation, something that it does not have any authority to do.

    Creating a problem only to step in and fix it later…not an efficient use of the Legislature’s time.

    Since this has passed the Michigan Senate, any Representative who is termed out will more than likely be receiving daily contact from the Lobbyists (strangely, whom our elected officials are more willing to acknowledge than their own constituents), before the House declares sine die.

    Unless you want to pay more on your utility bills, I’d recommend that we (and there are more of us) do the same.

    1. Jim Fletcher

      Excellent point Kevin. But is that also a case against term limits? Just asking.

      1. Kevin Grand

        Mr. Fletcher,

        I’m not following your argument on how that would be against term limits?

  3. William C Plumpe

    Just because one alternative is considerably less expensive doesn’t necessarily make it better.
    We don’t know the details of Constellation’s service contract so we really don’t know.
    There could be hidden costs, problems with quality and who is responsible for repairs and maintenance?
    In the end Constellation may not be such a good idea but we really don’t have all the info
    needed to make an informed decision.

    1. Lola Johnson

      When one enters a contract with a company, is one committed for life?? Of course not. If the service doesn’t satisfy, one can opt back into some other provider. The free market itself will encourage each company to deliver the best service it can, or it will go out of business. That is, if Lansing can keep its sticky fingers out of it.

      1. Jim Fletcher

        Bingo Lola !!

      2. Mary MacMaster

        I agree with you Lola. Besides … each and every one of these Electric Energy Bills which are now before the MI House should wait and not even be considered or voted on until the President Elect Donald Trump has been inaugurated as President of the U.S.
        All of these bills should be delayed or tossed until we all see what actions President Donald Trump plans to take and address on all of the Energy issues.

      3. BJ

        What you all fail to recognize, is the reason that your bill keeps going up is the failure of the ‘choice’ providers to consistently provide the power they are selling to their customers. The slack needs to be picked up by the other providers on the grid, to keep the grid operational. The only way that happens is through increased generating capacity by the providers who actually produce electricity and are not just in it for a quick profit from something they did nothing to provide. The cost of that increased capacity gets passed on to the customers who don’t have large enough accounts to interest the the ‘choice’ providers. If you don’t mind subsidizing the electrical needs of the large corporations that call Michigan home, then by all means contact your representative and tell them to vote against this bill.

  4. zeke

    So we know now that the DTE and the Consumers Power intended monopoly each who charges Double will cost Michigan Jobs.

    So Do DTE and Consumer Power who already charge DOUBLE care about the LOSS of Michigan JOBS? OBVIOUSLY NOT !

    Do the Republican lawmakers in Lansing care about the LOSS of Michigan JOB caused by a doubling of energy costs? OBVIOUSLY NOT !

    Wait a minute ! Aren’t these the same Republican lawmakers who Snyder said the Republicans primary thrust when his Republican people are in office will be to create more Michigan JOBS !

    Does Trump know Snyder’s plan is to create a MONOPOLY to cut Michigan jobs?

    Why doesn’t anybody in Lansing care about LOSING Michigan JOBS?

    Oh yes ! As a footnote to this intended MONOPOLY creation Michigan tax payers will soon face an increase in school millage costs or loss of teachers because Michigan Schools will be paying twice as much for their electricity !

    So do the intended DTE and Consumers Power MONOPOLY care about Michigan children and Michigan citizens ? Not a whit as long as they can MONOPOLIZE ENERGY availability and DOUBLE the profits of their energy business.

    Of course as a MONOPOLY DTE and CONSUMERS POWER will have no competition and can charge whatever they want in the future. How sweet for them and sad for Michigan Businesses and Michigan Citizens. All because our lawmakers in Lansing don’t have a soul.

    So now its hard to understand why a DTE and Consumers Power Monopoly charging DOUBLE the energy cost for electricity in any way helps retain or create Michigan JOBS

  5. Bob

    What’s that saying? History doesn’t repeat itself but it rhymes a lot! It does if you don’t remember history.

    Back up to the late 90’s when DTE and Consumers said: give us competition in exchange for being able to write off a couple billion (with a “B”) of stranded costs. They actually supported it back then for that very reason. Both companies had sunk money into failed infrastructure that got halted (nuclear, etc.). No one is remembering this bit of history in claiming competition is unfair to our two primary utility companies. I say more competition or pay the billions back to ratepayers. You can’t have it both ways…oh…maybe you can if you are DTE and Consumers Energy.

  6. Dave

    This is not a Bill to help you and me, the little guys. I’ve leaned left most of my life; and now I know why. Just when the little guy looks like he’s getting a break, big money knocks on Nofs door to stop it. Don’t Republicans tend to deregulate? I think, NOT, if your in the pockets of reps like Senator Nofs. By the way, how much has DTE and Consumers Power donated to Senator Nofs little click in Lansing? Has anybody checked? Nofs is obviously getting even with Teacher’s Unions, steel workers and others after the last gubernatorial election and wants this Bill passed before Snyder is replaced by a potential Democrat. Senator Nofs, please cancel this bill and let the open market flourish. I’m sure President-elect, Donald Trump would agree on lower energy bills where he owns BIG property. Imagine, doubling the cost of energy just for the Trump Tower.

  7. Swan77

    While not the emphasis of this article, there is another reason to oppose this legislation. SB 438 would kill new small-scale solar installations in Michigan by imposing limits on the rates an owner gets for the energy they make – well below the retail rates Consumers and DTE charge their customers. This pushes the payback for an owners’ investment so far out that few if any will partake. Why is this important? Solar and wind today collectively employ more people than all the fossil fuel providers. This legislation, if passed, will make Michigan one of the 3 worst states in the nation for the renewable industry. We will lose all jobs that come from the solar sector – manufacturing, installation, etc. The economics of solar and wind are simply better (cheaper) than those of gas, oil and coal and will continue to improve. While the rest of the nation gets on board this economic driver, Michigan will go backward with this legislation. So sad.

  8. Barry Visel

    A couple questions:

    1. Aren’t DTE and Consumers required to have backup power available to Choice customers if their marketer fails to provide power? And do they get paid for this now, or are the rest of us on the hook for that service?

    2. What is the typical cost of power for the typical Choice customer as a percentage of their total operating budget? (I know, any savings is good, but I think you will find electricity to be a very small overall cost for the average customer).

    PS, I wish someone was as concerned with the cost of cable TV and cell phones…neither of which provide anywhere near the daily life enhancing needs as does electricity.

    1. Anna

      Barry, taking your questions in order:

      1. DTE and Consumers are required by the laws of physics to have backup power available if a choice marketer fails to provide power to the level of their customers’ demand, in order to keep from having to blackout all customers. They do not currently get paid for this service, which is a less serious issue while we still have a reasonable buffer of excess electric generation capacity. Starting in 2017, coal-fired power plants in Michigan will be shutting down due to the Clean Power Plan’s more stringent limits on carbon dioxide emissions. We will have less spare capacity as more and more coal plants close. DTE and Consumers want the capacity charge to help pay for the generating capacity (solar, wind, and natural gas) that will be needed to guarantee service to all Michigan electricity customers.

      2. At Ann Arbor Public Schools, total spending on energy (heating oil, natural gas, and electricity) is less than 2% of their non-payroll budget, which is only 12% of their total budget. Because AAPS has primarily oil-fired boilers for space heating but replaced many school building light fixtures with energy efficient ones using their sinking fund revenue, electricity is the smallest component of their total cost of energy, which is approximately 20% of the Operations and Maintenace budget shown here: https://drive.google.com/file/d/0B3fC0iVi7Y5YeDV5SHlzODRXbmN5bzFkWGE3T3Zqbk1waDJr/view Note that AAPS is NOT a Choice Customer of DTE. In theory, if choice customers are getting the better deal the power marketers claim, the portion of their total budget spent on electricity by the schools that are Choice Customers should be even lower. A steel mill using electric furnaces would have a very different budget profile. There, the cost of electricity might make up 10-15% of the total cost of the finished product. Given the global overcapacity in steelmaking, energy costs might make or break a steelmaking operation.

  9. Warren Cook

    Barry, Always pithy comments.

    1. Barry Visel

      Thanks Warren, I’ll take that as a compliment. You will note that Anna filled in with information what my questions were getting at. I for one am not interested in subsidizing Choice through my electric bills.

      Also, thanks for using your full name…I think everyone responding here should:-).

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