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Lansing — Businesses and schools are fighting a utility-backed plan to overhaul Michigan’s energy policy because of newly proposed restrictions on out-of-state suppliers, a fight that pits potential customer rate increases against worries of energy shortages or blackouts.

Coal plant retirements and the prospect of new federal environmental regulations have spurred a push to change the existing electric choice program, which allows alternative and out-of-state suppliers to provide 10 percent of Michigan’s electricity at unregulated and typically less expensive rates.

A recently unveiled Senate plan would maintain that 10 percent cap, but critics argue new restrictions would effectively kill electric choice. They entail requiring alternative suppliers to prove they could generate or buy enough energy in the future and imposing a new electric generation service charge on customers who move into the choice market.

“Adding a punitive new capacity charge will all but thwart electric choice,” said Laura Chappelle of the Energy Michigan trade association, a former member of the Michigan Public Service Commission, which helped write the original electric choice law in 2000, which did not include a cap until modifications in 2008.

DTE Energy of Detroit and Consumers Energy of Jackson both support the Senate legislation and its focus on reliability. As utilities retire coal-fired power plants — 10 Michigan facilities closed this year — there is less excess energy capacity into which alternative suppliers can tap.

“The electric grid is like an intricate spider web, if you will,” said Dan Bishop, director of media relations for Consumers. “If (alternative suppliers) are short, we’re all short. If they have not arranged for power to serve all their customers, and there’s a shortage, then we’re all at risk.”

Michigan is unlikely to face shortage-fueled outages in the coming year, according to a recent report by the Public Service Commission, but there remains uncertainty about the near future. The Midcontinent Independent System Operator, a regional 15-state electricity transmission group, told legislators this month that peak demand could outweigh supply by 2020.

Large Michigan employers such as Dow Corning, the U.S. Steel Corp. and Amway have opposed the Senate package because of the proposed electric choice changes, which would make Michigan an even more regulated market.

U.S. Steel, a Pittsburgh-based company with about 2,400 workers in Michigan, is a choice customer and said that losing access to a viable competitive market for its electric supply would raise production costs and make it difficult for the company to continue operations here.

“The timing could not be worse for our company, considering the current onslaught of imported steel products into the U.S. market,” governmental affairs general manager Chris Masciantonio said in Senate Energy and Technology Committee testimony.

About 200 public school districts are also electric choice customers that worry rising costs could hurt students, said Ray Telman of the Michigan Schools Energy Cooperative, a group that includes roughly 170 of those districts and works with Constellation Energy of Baltimore, one of the largest alternative suppliers in Michigan.

Schools in the cooperative have saved more than $100 million in combined energy costs since 2000, Telman said. Energy is the second biggest expense for schools, he said, and saving $35 per-pupil in recent years means districts can keep more money in the classroom or use the savings to meet other needs.

“Schools know it’s taxpayer dollars. They know the Legislature is asking them to be good fiscal stewards,” Telman said. “It’s been tough for everybody, including schools, to make ends meet, so they’ve been working diligently to look at their costs.”

As of December, there were about 6,140 customers in the electric choice program, according to the Public Service Commission. There were roughly 11,000 other would-be customers waiting in line, indicating the popularity of the capped program.

Choice customers are almost all large industrial manufacturers and mid-sized commercial entities, including school districts, stores, restaurants and health care facilities.

Utilities argue that residents and other traditional customers are effectively subsidizing the electric choice program, which relies on DTE and Consumers to invest in the electric grid that alternative suppliers also end up using to transmit power.

“The way the system is set up now is that alternative suppliers don’t have any firm capacity in the game, essentially,” said DTE communications manager John Austerberry. “Their customers who rely on that capacity for reliability aren’t paying for it.”

The Senate bills would require alternative energy suppliers to prove their ability to meet projected capacity projections. They could generate their own power, purchase capacity at auction or contract directly with utilities for excess power.

DTE and Consumers are investing $800 million to upgrade the Ludington Pumped Storage Facility, but the utilities do not have lots of other firm plans for construction at this time, Austerberry said.

“We don’t think it’s fair we should have to build for the 10 percent of the load served by AESes and essentially require our customers to pay for that,” he said about the alternative energy suppliers, “but we will be building a combination of combined-cycle natural gas plants which provide that really important base load power all day every day.”

The subsidy argument is “a red herring, a straw man,” according to state Sen. Mike Shirkey, R-Clarklake.

Michigan utilities were compensated for certain costs and “securitization” charges to ease the transition to deregulation in 2000 even though electric choice was capped at 10 percent in 2008, Shirkey said.

Sponsoring Sen. Mike Nofs, R-Battle Creek, disputes the suggestion the package would kill electric choice, but he said the changes are necessary to ensure Michigan has reliable energy into the future.

“There’s differing viewpoints and different opinions, and we as legislators have to listen to those viewpoints and decide what’s the right way to go,” said Nofs, who chairs Energy and Technology Committee considering the bills. “We’ll do that soon.”

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