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Why Electric Deregulation Doesn't Work for Michigan

Electric deregulation is a system in which consumers can choose from a variety of energy providers, either in-state or out-of-state energy companies.
In theory, the competition such a structure creates seems like it would benefit consumers. But in practice, at least in the energy sector, deregulation doesn't work.

A Brief History of Deregulation in Michigan

Michigan tried full electric deregulation two decades ago, and the effects were disastrous. Higher energy costs overall, a lack of fairness for all consumers, and decreased investment in our energy infrastructure were just a few of the negative side effects from deregulating our electric system.

Michigan's 2008 energy law capped the number of consumers who could choose alternative energy providers at 10 percent, with the remaining 90 percent getting their power from local energy providers. However, even this partially deregulated electric system is creating significant problems on a number of fronts.

Local Energy Providers vs. Out-of-State Energy Companies

Michigan's local energy providers:

  • Invest in our state's electric infrastructure
  • Create and support local jobs
  • Contribute revenue and other support to local communities

Out-of-state electric companies:

  • Do not invest in our electric infrastructure
  • Take jobs and revenue out of our state
  • Don't support local communities

Capacity and Planning

What does electric deregulation mean for our state's energy future? A lot of uncertainty.

Michigan faces a capacity shortfall over the coming years—due to a combination of existing federal regulations and retiring coal-fired power plants. The EPA's 2015 Clean Power Plan only exacerbates the capacity issues we are facing as state. According to new estimates:

  • Nine Michigan power plants will close in 2016
  • 20 Michigan power plants will be forced to close by 2020
  • Another 100 plants will close across the Midwest in 2016, so Michigan will not be able to rely on energy from other states to supply our power needs

It's vitally important that we are able to plan for our future energy and capacity needs.

Because out-of-state electric companies currently don't have to worry about ensuring capacity, it is nearly impossible for local energy providers to adequately plan for and supply Michigan's energy future. That's why our leaders in Lansing must address the problems of our partially deregulated electric system, sooner rather than later.

Fairness for ALL Michiganders

Like many other states that have experimented with electric deregulation, Michigan has seen the negative side effects that come with this approach.

An Unfair Burden

  • Deregulated customers benefit from infrastructure investments without paying for them, leaving regulated customers to foot the bill. Since 2009, Michigan's regulated energy consumers have paid a total of $1.7 billion in subsidies to support electric deregulation.
  • A smaller group of consumers must bear the entire burden for maintaining Michigan's electric grid, which has led to higher energy rates overall.
  • Annually, 99.9% of Michigan's families and businesses are paying $300 million more to properly maintain Michigan's electric system so that 0.1% can pay less.

Making matters worse, electric deregulation unfairly disadvantages Michigan's low-income consumers.  Because out-of-state energy companies are likely to target higher-value consumers, the burden of maintaining our state's electric infrastructure shifts to those who can least afford it.

This is fundamentally unfair. Our state's energy policies should benefit everyone, not just a select few.

Economy and Jobs

Electric deregulation also hurts local job creation. Not only does this system result in fewer jobs being created here in Michigan, but it funnels money away from local communities to out-of-state energy companies.

One key negative consequence of this lack of investment in Michigan is the electric capacity crisis described above: Michigan has faced challenges building new generating capacity in part due to the economic ramifications of electric deregulation.

Even our partially deregulated electric system discourages new business growth in Michigan and drives revenue to companies in other states, which supports their communities rather than our own. 

The Alliance for Michigan Power (AMP) believes—and evidence from other states that have experimented with deregulation proves—that electric deregulation doesn't work.