State Rep Gary Glenn Clarified Falsehoods on Electric Choice

Legislators could take action at any time on two bills that would essentially eliminate electric choice in Michigan by imposing onerous requirements on alternative electric suppliers (AES).

Though proponents of Senate Bill 437 claim the bill allows the 10 percent choice market to stand, the bill actually would raise costs to the point that electric choice would not be economically viable. Some of the customers currently on electric choice service include the state’s largest employers and nearly half of the state’s public schools. The plan under consideration in the House, House Bill 4298, mirrors Senate Bill 437 but includes even more heavy requirements on AES’s.

Michigan State Representative Gary Glenn, Vice Chairman of the Michigan House Energy Committee, urged energy customers and brokers to voice their concerns about the two bills in a recent webinar hosted by Constellation.

Rep. Glenn said utility companies have campaigned long and hard to persuade legislators that the production, distribution and sale of electricity are so complex that common-sense economic principles do not apply to them.

“They have failed to meet that burden of proof,” he said.

In the webinar, Rep. Glenn outlined some of the arguments Michigan utilities have been making to justify the need to heavily restrict electric choice and why he believes they are inaccurate.

Utilities Claim Alternative Energy Suppliers Are Getting ‘Sweetheart Deals’ That Hurt Michigan

Michigan’s major utility companies have been complaining that out-of-state alternative energy suppliers are getting significant advantages from the state at the expense of local suppliers, threatening the state economy.

In 2000, Michigan moved to a competitive market where customers were free to choose. That came to an end in 2008, when the major utilities in Michigan persuaded legislators that to build new electric generation plants in the state, they had to be given a substantial guarantee of the electricity marketplace. As a result, legislators agreed to pass a bill capping how much energy Michigan customers could buy from other utility providers at 10 percent of the market—essentially guaranteeing DTE Energy and Consumers Energy would retain 90 percent of the market.

“Nobody’s got a bigger, more glaring sweetheart deal than DTE, which has a guarantee of 90 percent of the marketplace,” Rep. Glenn said.

In the meantime, neither of the two major utilities have built a new plant in Michigan since 1985. In Ohio, which has a fully competitive electric market, six new gas-fired utility plants are being developed or are under construction. All six plants plan to be to open by 2019.

“Competition is what breeds investment,” Rep. Glenn said.

The Truth: Preserving Choice Saves Millions for Taxpayer-Funded Entities

Rep. Glenn argued that rather than helping Michigan’s economy, eliminating choice actually hurt it. The period between 2000 and 2008, when customers were free to choose their electricity supplier, was the only time when Michigan’s electric rates were below the national average.

Electric choice doesn’t only benefit customers; it also saves taxpayers millions of dollars. Further restricting or eliminating it will come at a cost.

When electric choice was capped at 10 percent of the market in 2008, about 40 percent of Michigan’s schools were smart enough and fast enough to get into the choice market, Rep. Glenn said. A representative from Clarkston Schools testified that their district saves $350,000 a year from being able to choose an energy supplier and, if the legislation passes to restrict that choice, they would have to lay off five teachers.

In addition, Saginaw Valley State University saves $200,000 a year from buying electric from Wolverine Power, a Michigan company.

Not just schools would benefit. Rep. Glenn argued the Michigan state prison system and Beaumont Hospital have both estimated they would save $3 million if they were permitted to access electric choice, while Detroit Public Schools would save an estimated $2 million.

That’s why Rep. Glenn has introduced legislation that would allow all public schools to access electric choice without it counting against the 10 percent cap. Meanwhile, Michigan State Rep. Lee Chatfield has proposed legislation that would allow all government entities to access choice, and Rep. Jim Runestad proposed similar legislation that would apply to hospitals.

“The one thing all these bills have in common is we’re giving this choice to entities funded by taxpayers that would be able to save 15 to 20 percent on electric bills, so what we’re really doing is saving taxpayers money,” Rep. Glenn said.

Utilities Claim Without Restricting Electric Choice, Reliability Will Suffer

Utility companies argue they need a monopoly on the market to be able to guarantee reliable capacity.

They often use the terms “shortfall” and “shortage” interchangeably when talking about capacity. The commercials that warn customers of dwindling electric supply tend to confuse the general public and lead them to believe a shortfall and a shortage are the same when in fact, they are not.

They lead people to believe that if the nine coal-fired plants the EPA has targeted for closure actually shut down, the lights will go out, Rep. Glenn said.

The Truth: Threats of an Electric Supply Shortage Are Largely Exaggerated

Federal regulations require 100 percent of the electricity capacity necessary to keep the lights on and the air conditioning running at the highest-demand day at any point in the year, plus a 15 percent reserve. If all nine of the utility owned, coal-fired, electric generation plants the EPA has threatened to shutter go down, the worst-case scenario is that the reserve will go down to 13 percent.

The distinction between a 15 percent reserve and a 13 percent reserve, Rep. Glenn said, is with a 15 percent reserve, you might expect one day 10 years from now, you’d flip on the switch and there would be no electricity. With a 13 percent reserve, you might expect that to happen four times in 10 years, if at all.

That scenario is not such a catastrophe that it would warrant giving these two utility companies a monopoly on the market, he said.

Furthermore, Michigan’s current hybrid system of regulation has increased electricity prices without enhancing reliability.

Rep. Glenn pointed to two recent studies that illustrate this:

• A recent study over a period of nearly two decades recently released by Compete, a coalition of electricity stakeholders, found that in the 14 jurisdictions where retail electricity competition is allowed, prices have gone up 40 percent. But, in the remaining monopoly states where retail choice is not allowed, rates have risen over 60 percent during this same period.
• Hillsdale College professor Gary Wolfrum recently published a study that found Michigan’s current hybrid electricity market is not only the most expensive in the Midwest, but the least reliable. The study promoted electric competition as a mechanism to bring more economic value to Michigan’s customers.

Rep. Glenn’s Efforts to Expand Electric Choice

In addition to a bill removing the restrictions on energy choice for schools, Rep. Glenn has introduced a bipartisan Michigan Energy Freedom package, which would create policies for net metering, fair value pricing and investment in community energy co-operatives by removing red tape to generating energy.

“It strikes me, as a Republican, that since we have a Republican governor and Republican control of both houses, somebody ought to introduce a package that’s based on free-market principles that we all claim to believe in, at least on the Republican side of the aisle,” Rep. Glenn said.

Even though utility companies spend millions to make the case for a utility monopoly, Rep. Glenn said, “We have the weight of the argument on our side for consumers because it makes such common sense to us.”

What Can You Do?

First, you can contact your Senator and House representatives. Let them know you want your business or organization to have continued access to competitive pricing.

You can also add your name to a growing list of Michigan businesses that oppose the policies in SB 437.

Finally, you can stay informed about this issue and others that could impact the way you purchase electricity and the prices you pay.

Follow Constellation’s upcoming webinars, emails and social media channels to stay informed. Listen to the full recording of the latest webinar on energy choice in Michigan.