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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