Energy Choice Divisive Issue In Michigan House Committee

LANSING – Both sides of the debate on whether to keep, increase or eliminate the state’s 10 percent cap on electric choice were out in full force at a House Energy Policy Committee hearing on Monday, with opponents of choice arguing they’ve accrued billions of dollars in additional costs to maintain the state’s electric capacity and proponents attempting to debunk those figures.

One of the biggest points of contention early on was a statement by Steve Kurmas, president and COO at DTE Energy, estimating that since November 2008, utility customers of DTE Energy and Consumers Energy have paid nearly $1.6 billion in additional electric costs due in part to the current electric choice option.

“This is simply unfair for our customers and not a sustainable model for Michigan’s energy future,” Kurmas told committee members.

One of the most vocal skeptical committee members was Rep. Ed McBroom (R-Vulcan), who not only questioned how that number was determined but pressed Kurmas on how much new baseload electric generation it has actually invested in Michigan in recent years.

To that end, Kurmas said his company is in the process of expanding baseload at several facilities and has dabbled in a “hodgepodge of small projects,” though no new baseload generation has been built among Michigan’s nine regulated utilities. Still, DTE has made a total investment of about $4 billion in generation since 2008, he said.

Although some argued that rates have gone up since 2008, Kurmas said his company’s rates have actually fallen 6 percent in the last two years.

But he attributed rate increases that did occur to three factors: the collapse of the financial and industrial markets in 2008 and losing a lot of industrial loads; the significant spend in environmental compliance; and the “cost-shifting directly attributable to $1.6 billion in subsidies,” he said.

Kurmas’ testimony was just one portion of a marathon Energy Policy meeting that began at 9:30 and was still going past 7 p.m. as members heard from a variety of groups and asked dozens of questions.

There was some dispute between DTE and Consumers over whether the companies are actually planning for the return of choice customers, as Dave Mengebier, senior vice president of governmental and public affairs for Consumers Energy, asserted his company is not planning for the return of those customers. But he said he is optimistic those customers will soon want to return.

“We believe it’s likely (those) customers will want to return because as coal plants are shut down, that means market prices will go up,” he said.

And if choice were eliminated, Kurmas said he estimated that every customer would save in excess of 4 percent on their bill. Mengebier agreed with this assessment.

“The projected capacity shortfall in the Midwest and in Michigan, as forecasted by the Midcontinent Independent System Operator, is not just a problem in 2016,” Kurmas told the committee. “It worsens considerably over time. If no action is taken, this will result in a fully depleted reserve margin and an inability to meet forecasted demands by 2021.”

But McBroom still questioned whether incumbent utilities have a requirement to provide the reserve capacity of alternative energy suppliers, to which Kurmas said that incumbent utilities are still obligated to maintain grid reliability and that is part of having capacity, regardless of whether it is baseload or reserve.

And Rep. Gary Glenn (R-Midland) expressed uncertainty as to whether the federal Environmental Protection Agency regulations in question regarding coal would immediately take place or be delayed due to court battles.

He added, “I see a disparity in this doomsday scenario while across the border in Ohio they’re constructing more coal plants.”

But Mengebier said it was not in Consumers’ interest to threaten reliability problems.

“We have an obligation … to provide electricity, and that’s what we’re doing,” he said.

And he said market certainty would be beneficial for economic development.

“States that have deregulated their markets continue to experience great difficulties attracting new generation investment because of the uncertainty their energy providers face in recovering their investments as customers come and go,” he said. “Not only is this presenting major reliability challenges for these states, it is contributing to very high electricity prices – on average 25 percent higher than in regulated states.”

CHOICE PROPONENTS: The arguments by the utilities were met with heavy criticism from proponents of choice, including the Ray Telman, executive director of the Middle Cities Education Association and a member of the Michigan Schools Energy Cooperative, whose members are heavily invested in the electric choice market. He said members of the MSEC have saved $120 million since it first started in 2000.

Michael Rice, superintendent of Kalamazoo Public Schools, said being able to be on electric choice has helped as state funds for school operations have decreased over the years. And he said it would be hypocritical for lawmakers to support some choice but not others.

“It is charitably inconsistent to support schools of choice but to support the elimination of choice in the electric market,” he said. “This legislation (HB 4298 ) represents a likely reduction in the savings upon which we’ve relied in our energy consortium over the past few decades.”

And an official with Van Buren Public Schools in Wayne County estimated her district saved more than $146,000 by being enrolled in electric choice. She said the district has worked hard to get up to nearly a 9 percent fund balance, and the district would have to start making cuts immediately if this bill were to be enacted into law.

But given that the 10 percent choice market is full, other schools cannot reap the rewards of choice because they’ll be sitting in the queue, Telman said.

“Our perspective is, based on what we’ve experienced there is a place for choice,” he said.

They were joined in support for choice – at least for the current 10 percent provision – by Mike Johnston of the Michigan Manufacturers Association (though he noted there was no consensus among his members about this position as some use electric choice and others do not).

“The current system is working and will continue to work with some changes to address certainty and reliability,” he said, suggesting that uncertainty be addressed by requiring all suppliers to prove firm capacity that they can commit to their customers, as well as adequate capacity.

Keith Kenebrew, associate energy director for Dow Chemical, agreed with Johnston’s point. He said his company is actually a part of virtually every electric market, as its facility in Auburn Hills is under a regulated utility, Midland is self-serve, Hillsdale receives services from a municipal market and Harbor Beach uses electric choice.

“Safe, reliable and cost-efficient energy is vital. It enables the ability to adjust to global competition, to uncertain national policy, and to growing and shifting regional demand,” Kenebrew said. “The regulatory framework should continue to allow for mix of regulated service, electricity choice service, municipal service and self-service.”

Executives with Amway and the U.S. Steel Corporation were also supportive of the state’s current 10 percent standard so long as there were some reforms – a provision which Governor Rick Snyder has called for in his special message on energy in March.

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