Business groups protest Michigan power decision

Michigan is continuing its march towards electric deregulation and consumers who should be happy about it aren�t. A consortium of consumer and small business groups described their concerns Wednesday at a press conference after the Michigan Public Service Commission agreed to throw out more than $100 million in refunds customers had expected to receive from utilities.


Ann Rouffignac
OGJ Online


Michigan is continuing its march towards electric deregulation and consumers who should be happy about it aren�t.

A consortium of consumer and small business groups described their concerns Wednesday at a press conference after the Michigan Public Service Commission agreed to throw out more than $100 million in refunds customers had expected to receive from utilities.

Michigan Atty. Gen. Jennifer Granholm promised she would appeal in the courts the commission's intentions to withhold the promised refunds.

This spring state lawmakers passed legislation that essentially codified into law what the commission had already approved to deregulate the industry. One of the commission�s first actions was the dismissal of two pending rate cases for the state�s two largest utilities Detroit Edison Co. and Consumers Energy Corp. The two rate cases could have saved customers about $280 million annually.

The commission took the stand that once competition begins in 2001 consumers will be able to choose the cheapest electricity supplier, and therefore the refunds are not necessary.

The Association of Businesses Advocating Tariff Equity (ABATE), an association of businesses concerned about deregulation, asked the commission to reconsider the dismissal of the two rate cases.

�So far, the commission has granted about $118 million in rate cuts to residential customers under the new law,� said Pete Mehra, a vice-president of Ford Motor Land Services Co. and a member of ABATE. �But it has tossed out more than $300 million in additional savings that customers deserve, saying it was forced to do so under the new law.�

Other consumer groups joining in the complaints against the commission are the Michigan Consumer Federation, the Small Business Association of Michigan, Associated Petroleum Industries-Michigan, and the Michigan Retailers Association.

These groups don�t want the utilities to get windfall funds from the approval of securitization of their stranded costs. Securitization is a process that utilities use to issue new bonds at a lower interest rate backed by the state to pay off all the debts associated with physical plants that might not be competitive or other regulatory assets that can�t make a profit in a competitive environment.

Securitization gives the utilities an immediate cash infusion. The bonds are then paid off and serviced by all electrical consumers through extra charges attached to the transmission of electricity.

The commission is now faced with whether to allow the utilities to issue bonds for all $2.3 billion they want to securitize. Customers would be forced to pay off the principal and interest through fees (transition charges) charged to all consumers who buy power, even from companies other than the incumbents when competition starts.

Observers fear that these charges will be so high that no competitors will be able to sell electricity to end users in the market and still make a profit. These fees could choke off competition before it even starts, leaving consumers with high electric bills and few choices in electric providers.

�We don�t even know what the [transition] charges look like after 2001,� says one power marketer familiar with Michigan market. �They could be 3 mil or .3�/kw-hr or even 1�/kw-hr.�

While deregulation usually promises to bring lower prices to consumers, the outlook in Michigan is still unclear. Despite a 5 % rate cut to residential customers as part of the deregulation law, Michigan consumers pay the highest electric rates in the Midwest, says Mehra.

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