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Cutting electric rates in Michigan

Conservation and CompetitionSeptember 2011

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Today’s agenda• Welcome

– Andy Johnston, Grand Rapids Chamber• Opening remarks

– Wayne Kuipers, ECN, and Jeff Clark, CCC• Smart energy conservation tactics

– Eric Van Dellen, Amway• Competition as a cost reduction tool

– Wayne Kuipers/Jeff Clark– Eric Schneidewind, Varnum

• Legislative update– Bill Lievense

• What next?– Wayne Kuipers

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How did we get here?

• Wayne Kuipers, ECN– Former state Senator– Choice supporter

• Jeff Clark, CCC– Summit Energy– Engaged advocate since 2005

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Why should free markets stop…

At the light switch?

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Competition works

• Airlines• Trucking• Telecommunications• Natural gas

How Power Moves Without Competition

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GeneratorMISO

Utility

Power Produced Power transmission

Power Procurement

Power distribution

Utility

How Power Moves With Competition

Utility

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Power Generators MISO

UtilitySupplier A

Supplier B

Pick One

Power Produced Power transmission

Power Procurement

Power distribution

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It worked in Michigan from 2000-2008

• Michigan electric markets opened in 2000– Our electric rates were way higher than

regional averages– Gov. John Engler identified it as a key

business disincentive– North Star Steel Plant located in Ohio, not

Michigan– Last major auto plant in Michigan in Lansing,

where muni rates lower

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Closing the gap, 2000-2008

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

0.530.46

0.41

0.22 0.19 0.160.24

0.19

0.36

0.49

0.29

-0.32

-0.11

-0.58

-0.67

-0.91

-0.76

-0.60

-0.80

Michigan rates compared to national averageMichigan rates were above national average – until competition started in 2000

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Closing the gap, 2000-2008• Utilities got smarter• Utilities improved customer service

– Companies received regular calls from representatives seeking improved relations

– It’s not all price…but without price, less incentive for utilities to care about customers

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2007-08: Utilities lobbied for remonopolization

• Major campaign by utilities• Spent millions (of your dollars) on ad

campaigns• Major campaign contributions• Raised specter of “dark Michigan”• Promised new (construction) jobs with new

plants

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2007-08: Utilities lobbied for remonopolization

• Created alliance with environmentalists– 10 percent renewable goal by 2015– Even though the legislation ended ability of

renewable entrepreneurs to sell power directly to customers

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2008 Electric Remonopolization Act

• Limited competition to just 10 percent of load• Instituted renewable mandate – but limited ability

for companies to buy from others• Reduced rate regulation on the companies

– MPSC has to approve almost all rate hikes– MPSC has only 180 days to approve a hike, or utility

can “self-implement”• Called for rate parity, aimed at reducing

manufacturer rates – and increasing residential

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What’s happened since 2008?

• Eric Schneidewind– Varnum – Energy Michigan

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New generation under 2000 law

• From 2000-2008, independent power producers built 4,000 megawatts of new power– Plants in Dearborn, Zeeland, Covert, Carson

City and Jackson built at shareholder expense and risk

– Increased reliability in Michigan– Proof that new generation can be built under

competition – without mandates that customers pay for utility mistakes

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Bill passed in June 2008

• Utilities hailed passage– Said cleared way for new plants– Said would lower rates for factories– Said would provide greater “predictability”

• Reality– No new plants – none needed!– Industrial rates increase despite demand

reduction– Twice a year, predictably, they raise their

rates.

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What’s happened to Consumers Energy rates since 2008

CE electric case Date of increase AmountU-15245 6/10/2008 $27,468,600

U-15645 11/2/2009 $139,411,000

U-16191 11/4/2010 $145,749,000

U-16794 12/11/2011* $165,475,000

Total higher electric cost $478,103,600

CE gas case Date of Increase Amount

U-15506 12/23/2008 $22,400,000 settlement

U-15986 5/12/2010 $65,893,000

U-16418 5/2011 $31,364,000 settlement

Total higher gas cost $119,657,000

*Date of automatic increase per 2008 PA 286

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What’s happened to Consumers Energy rates since 2008

Increase in mills

% increase over 10/081

1. Rate casesa. U-15645 general rate case

i. Interim 5/09: $179 millionii. Final 11/09: $134.3 million 4 mills

b. U-16191 general rate casei. Final 11/10: $146 million 4.4 mills

Total new rate increases 8.4 mills 8.9 %

2. PSCRa. U-15415 (2008) PSCR av. 47.46 millsb. U-16045 (2010) PSCR av 53.33 millsc. U-16432 (2011) PSCR

4.9 mills2.6 mills

Total PSCR increases 7.5 mills 7.9 %

3. Other increases, 10/08-1/11Nuclear decommission credits expire; stranded cost, electric restructuring, securitization bond and tax, UETM, E-1 discount, RPS, energy optimization, electric choice incentive 7.9 mills 8.3%

Total rate case, PSCR, new charges 23.8 mills 25%

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Results since implementation in October 2008

All sector increases, comparing cents per kWhSource: US Energy Information Agency

East North Central

Illinois Indiana Michigan Ohio Wisconsin U.S.

5.67%

-4.18%

10.58%

15.47%

3.29%

10.33%

3.13%

Michigan overall electric rate increases, Dec. 2008 to May 2011 (understates DTE/Consumers increases)

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Results since implementation in October 2008

In cents/kWhSource: US Energy Information Agency

East North Central Illinois Indiana Michigan Ohio Wisconsin3

3.5

4

4.5

5

5.5

6

6.5

7

7.5

8

6.46

6.16.23

7.73

5.87

7.22

Midwest industrial rates, May 2011

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.530.46

0.41

0.22 0.19 0.16

0.240.19

0.36

0.49

0.29

-0.32

-0.11

-0.58

-0.67

-0.91

-0.76

-0.60

-0.80

-0.42

0.15

0.37

Michigan rates compared to national average

Once competition killed, Michigan electric rates increase above national rates

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• Gap between Michigan and other states grows– Especially Illinois and Ohio, who have used

competition to lower rates• Michigan rates now above national

average• Utilities decide they don’t need additional

power, drop plans for new plants

Results since October 2008

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• One year from passage of new law, 10 percent competition cap hit

• Those able to escape utilities get lower rates

• Now 5,000 companies on waiting list to get out

• Government is picking winners – those who were lucky enough to leave utilities – and losers – those forced to stay

Results since October 2008

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Where do we go now?

• Bill Lievense, Capitol Group Governmental Consultants

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A new way forward

• Time to raise the competition cap• CCC, ECN working to raise cap

– Will encourage utilities to hold down rates– Will help bring rates to regional average– Will improve Michigan’s business

competiveness• Need legislative support

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Utilities don’t like competitionMyth: Those who leave will mean rate hikes

for those who stay

• Fact: When customers leave, utilities have to buy less power from outside of state, saving them

• Fact: When customers leave, utilities have a reason to tighten their belt, provide better service

• Fact: When customers leave, utilities have less reason to build expensive new plants

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It’s time to lower electric bills!• We need electric competition more today

than ever– Business leaders for Michigan benchmark:

Michigan’s electric rates higher than competitor states

– MMA survey: Electric rates third in importance in business costs in Michigan, behind only health care and labor costs• Electric rates only one of those three set by

government!

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It’s time to lower electric bills!August statewide phone poll 800 likely voters:

Would you favor a change in state law that would allow all customers to purchase their electric service from any supplier that is able to provide reliable electric service to their area and compete for customers by offering electric service at a lower price?

74% TOTAL FAVOR18% TOTAL OPPOSE

8% Undecided/Refused Do you think that having competition among companies that provide electric

service, like it has been done in the natural gas and telecommunications industries, is a good way or a bad way to control energy costs?

75% TOTAL GOOD13% TOTAL BAD

12% Undecided/Refused

•  

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Bottom line

Increasing the cap on electric competition will ultimately improve utility efficiencies and improve customer service

Just as competition does for every other Michigan business!

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What can you do?Wayne Kuipers• Get involved: Join Energy Choice Now or

Customer Choice Coalition• Learn more: Read up, visit the web pages

– Customerchoicecoalition.com– ECNmichigan.com

• Talk with other business groups– GR Chamber a leader– Others need to become supporters of free

markets, not government-set price controls

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What can you do?

• Talk to your lawmakers:– Tell them this is unfair.– No more government picking winners and

losers.– Competition and free markets work!

• Talk to Snyder administration– Write, call, talk to the governor– Let MEDC know you want lower rates through

competition

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It’s time to turn on the lights

and bring competition to electricity