Mich. utility giants, firms clash on energy policy

Gary Heinlein
The Detroit News

Lansing — DTE and Consumers Energy clashed Monday with schools and such major firms as Dow Chemical Co. and Amway Corp. over state House legislation that would return Michigan to a full, state-regulated electrical monopoly.

Michigan energy rules passed in 2008 ended eight years of competition and re-established DTE and Consumers’ monopoly control over 90 percent of the energy used in their market areas, but allowed 10 percent to be bought from competitors.

While manufacturers urged the House Energy Policy Committee to keep Michigan's limited energy competition mandate, the two utility giants warned it could lead to electricity shortfalls as new federal environmental rules start shuttering coal-fired Midwest power plants in the next several years.

"This committee already has heard extensive testimony on the power shortages the Lower Peninsula could be facing as early as next year," said Consumers Energy Senior Vice President David Mengebier. "This is an urgent and serious challenge for our state, and one that is exacerbated by Michigan's one-of-a-kind hybrid market."

But Ray Telman, secretary treasurer of the Michigan Schools Energy Cooperative, said 275 school districts with 541,000 students saved $15 million, or $30 per pupil, buying power from Consumers' and DTE's competitors in 2014. He said the utilities are presenting a "doomsday scenario."

"Please consider the needs of the local school districts as you debate the fate of what you legislate," added Kalamazoo Public Schools Superintendent Michael Rice, who described the proposed reversion to a full energy monopoly as "a solution in search of a problem."

The daylong hearing was on a key bill in the package of proposals from House Energy Policy Committee Chairman Arik Nesbitt, R-Lawton, to revise state energy policies. Nesbitt's plan would end energy competition and give the two utility firms full control of their market areas.

Michigan energy rules passed in 2008 ended eight years of competition and re-established DTE and Consumers' monopoly control over 90 percent of the energy used in their market areas, but allowed 10 percent to be bought from competitors. About 11,000 firms that want to shop for cheaper rates now are on a waiting list, energy competition advocates say. Interest groups are pushing to expand competition. Illinois and Ohio have used competition — allowing more firms into the energy market — to lower electricity rates, they say.

But the power companies argue more competition would give them less of an incentive to build power plants they say are needed because of the threatened closing of the state's coal-fired plants. While Michigan generates more than half of its energy from coal-fired plants now, Gov. Rick Snyder forecasts that will drop to 34 percent in the next decade.

The state has reached a watershed moment under which pending federal rules and changing market conditions call for new state energy polices that give the state more control over its own destiny, according to Snyder, who laid out the principles of his own energy plan last month in Warren.

His plan — heavily based on energy efficiency, renewable sources such as wind and a switch from coal to cleaner-burning natural gas for new conventional power plants — would allow the 10-percent competition mandate to remain. But Snyder says competitors should be required to prove they have generating capacity to meet the needs of their Michigan customers for at least the next five years.

Nine coal-fired power plants serving a million residents will shut down in Michigan alone, owing to age and proposed new EPA rules with which the state will have to comply as early as a year from now, industry experts say. DTE President and Chief Operating Officer Steven Kurmas said closings would start in 2018 and continue over a five- to six-year period.

"We'll have to build new generation. That generation will be primarily natural gas" Kurmas said. He said the new power plants "will have to either be built in Michigan or we'll have to have a significant transmission extension to reach Michigan because we've pretty much maxed-out our import capacity on the existing transmission lines."

DTE and Consumers argue that Michigan's hybrid system creates uncertainty that discourages investment in the necessary new generation plants. They said their customers, through their energy bills, already are covering $1.6 billion in fixed costs for generating capacity not used by former customers who skipped to competitors.

But Keith Kenebrew, associate commercial director at Dow Chemical, said the state's current hybrid energy setup provides businesses with flexibility to lower costs and remain competitive. And Bryan Harrison, senior policy adviser at Ada-based Amway, said his company saved $7 million because of "the ability to negotiate freely" its electric rates under the current Michigan rules.

Republican Sen. Mike Nofs of Battle Creek, chairman of the Senate Energy and Technology Committee, also is working on a comprehensive plan for energy policy revisions. He said recently that he favors retaining the 10-percent competition mandate but he doesn't think renewable energy requirements are necessary any longer.