Michigan bill could effectively end state energy deregulation

Energy deregulation is a relatively cut-and-dry issue - either state lawmakers provide an alternative retail energy market for its residents or the public relies exclusively on regulated utilities.

But a few states have begun developing hybrid programs merging regulation and deregulation in differing measures based on the needs of their energy customers and state energy interests. Michigan is one such state, and over the next month, legislators will need to reach an agreement over measures that would adjust the state's infamous "choice law," a 10 percent cap on the number of state residents permitted to switch from utilities to retail energy suppliers based on the utility in question's "weather adjusted retail sales" from the previous year, according to the Michigan Agency for Energy.

The question is, will Michigan relinquish the cap or impose new laws to strengthen it? If recent developments come to fruition, it appears as though deregulation in Michigan could be done for.

Slowing down the switch
House Bill 4298 would arguably be the largest change to Michigan energy policy since legislators imposed the 10 percent customer cap on retail energy in 2008. According to the language of the bill, should Michigan's energy choice law be amended, energy customers could be forced to remain with their providers, be they utility or retail, for long swaths of time without the ability to switch again. For example, the proposed bill states if an energy customer signs up to switch from a utility to a retail energy provider and, for whatever reason, backs out while on the list, the new amendment would bind them to their utility for 20 years.

Another section prevents customers from moving back and forth between regulated and deregulated markets. Should an energy customer start at a utility, move to an alternate supplier and then back to the utility, he or she would have to wait 15 years before being allowed to return to the retail market.

Removing the soul of energy deregulation
While it is understandable why Michigan lawmakers want to limit complexity by curtailing energy market "puddle jumping" while it hashes out the details, opponents believe this law could be the final nail in the coffin for an already stifled statewide deregulation program.

Rate volatility is the foremost reason why deregulated energy exists. The cost of energy should be subject to as many cost-cutting measures as benefit both residential and commercial markets, as well as those which spur innovation. Free market competition can be one of those catalysts for positive, cost-efficient change, but restricting an energy customer's movement between providers for periods of over a decade arguably cripples retail energy to perform at its peak.

This content is property of ESCO Advisors and all reproductions must reference and link back to the ESCO Advisors website.