It is a debate that rages to this day: whether rate-based regulation (government) or electric competition (marketplace) is a more effective model for the utilities industry and world economies....
Michigan is a curious case study for market deregulation, a complicated tangle of caveats and countermeasures. The state unbundled T&D, but left generation tied to retail operations. A 2008 law allowed alternative energy suppliers into the retail market, but capped their participation at 10 percent of the market (see “ Changing the Game ,” February 2010) .
The cap was reached more than a year ago, and has only intensified the debate over retail competition in Michigan. On one side of the argument are the state’s principal IOUs, Detroit Edison and Consumers Energy, who lobbied hard for the cap. On the other, competitive retailers and large utility customers say the cap has only whetted the state’s appetite for competition.
Fortnightly spoke recently with former FERC Commissioner Bill Massey, who is now a partner at the law firm Covington & Burling. Massey is counsel to the COMPETE Coalition, an association of more than 500 companies, predominately large utility customers, and is a staunch advocate of retail market competition.
Fortnightly: Describe the COMPETE Coalition and its position on the Michigan market.
Massey: We are keenly interested in Michigan. This coalition organized around the principle that electricity competition is good for consumers, good for our nation, brings efficiency and is good for the environment. Without a market-based approach, we can’t possibly hope as a nation to see the kind of innovation in this industry that we will need moving forward. The innovators are sort of like the barbarians at the gate, banging on the door and saying, “Let us into the marketplace. Just give us a level platform and let us offer our services.” Markets are essential to deal with the risk associated with new investment. Investors ought to bear that risk, rather than ratepayers. And it’s essential for the innovators. We’ve also seen a lot of interest from the renewable providers in a market-based approach. So we’re quite concerned about the 10 percent cap in Michigan.
Fortnightly: The cap was reached quite quickly. What does that say about competition in Michigan?
Massey: There’s a good deal of interest in increasing the cap among the companies that talk to the COMPETE Coalition and that are members. There was legislation pending in the last general assembly that was not enacted but that would’ve increased the cap. My hunch is that if that were passed, the new cap would soon be reached, because there’s just a large degree of interest right now in the value of competitive markets.
Fortnightly: The IOUs argue that because Michigan is not a completely decoupled market—because they’re still responsible for the generation as well as retail—that they need that cap to provide stability and invest in a market that’s not experiencing a lot of economic growth. How do you respond to that?
Massey: I was at FERC for over 10 years, from 1993 to 2003, and was actively involved in crafting Order 888. Those are