Michigan regulators say lack of transmission access hurts retail market

In a situation that parallels California's transmission deficiencies, Michigan regulators say the state electric transmission system is physically inadequate to support a vibrant competitive market, while federal regulators 'preoccupation' with California is hampering transmission reform. Michigan regulators blame lack of access to transmission, in part, for the modest amount retail choice available in the state.


By the OGJ Online Staff

HOUSTON, Feb. 12�In a situation that parallels California's transmission deficiencies, Michigan regulators say the state electric transmission system is physically inadequate to support a vibrant competitive market, while federal regulators "preoccupation" with California is hampering transmission reform.

The state began restructuring the industry 5-6 years ago, culminating in passage of legislation in 2000. Presently, four programs are under way that permit electric customers to select competitive suppliers of generation services. The programs were designated trials in anticipation of a fully competitive market beginning Jan. 1, 2002.

In an assessment of the pilot programs, the Michigan Public Service Commission (PSC) says the programs demonstrate the importance of transmission to making customer choice effective. Without adequate transmission, new suppliers are unable to secure and deliver power to their customers.

But Federal Energy Regulatory Commission (FERC) procedures make it difficult for new suppliers to "meaningfully" participate in the process of obtaining adequate transmission, the commission says. "In our view, FERC's preoccupation with the California situation has caused it to neglect the need for an effective regional transmission organization in the Midwest."

On a peak day, the import capability of the transmission system surrounding Michigan is constrained, and physically capable of importing no more than 20% of Michigan demand, according to the PSC. In California, transmission constraints limit the ability to move power from the southern to northern regions of the state, heightening the danger of forced outages during peak demand periods.

FERC system faulty
The Michigan PSC complains the transmission reserve system set up by FERC allows entities with firm reservations to retain those entitlements under a right of first refusal. While the system permits Detroit Edison Co., a unit of DTE Energy Co., and Consumers Energy Co., a unit of CMS Energy Corp., to "maintain or expand" imports, new entrants operate at a "significant" disadvantage, the PSC says.

"The availability of transmission services needed to serve retail access customers in Michigan has been limited," it concludes. Michigan regulators blame lack of access to transmission, in part, for the modest amount retail choice available in the state. Presently, there are 10 licensed alternative energy suppliers in Michigan, but only two companies are actually serving retail customers.

While there is no solution to the problem this year and in 2002, the PSC says it is currently evaluating competing plans from American Electric Power Co. and Great Lakes Electric Cooperative to build 2,000 Mw worth of transmission upgrades.

In addition to transmission issues, companies have been affected by pricing and supply uncertainty. Many of Consumers Energy's direct access program customers have elected to return to bundled service from Consumers Energy, says the PSC. Just two customers representing 9.6 Mw of load remained on the program as of Jan. 1.

Nordic Electric LLC is expected to scale back its participation in the Detroit Edison retail choice pilot and has withdrawn from Consumers Energy's retail pilot because of difficulty in acquiring economical sources of firm generation, the PSC says.

Detroit Edison and Consumers Energy estimated more than 400 Mw of retail load would be served by alternative energy suppliers by the 2001 summer peak, "an assumption that appears doubtful at the present time," regulators says. The utilities also estimated they will need to buy 2,900 Mw of generation to maintain adequate reserves this summer.

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