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Your Questions Answered: Why Electric Deregulation is a Disaster

Americans know that competition is—usually—a good thing. It can help drive prices down and service up.

So why doesn’t competition work for electricity?

Understanding Electricity

To begin with, electricity isn’t something that can be pre-packaged and stored. It has to be produced and transmitted when it’s needed, in real time, which makes it dramatically different from things like T-shirts or lawnmowers or cars.

Like water, sewage, and other utilities, electricity is not so much a commodity as a necessity—one that requires an enormous amount of money and technical know-how to handle. The process of delivering electricity efficiently, to everyone, at any time of the day or night requires complex infrastructure and constant monitoring.

Competition in Context

In energy parlance, “competition” and “deregulation” are often used interchangeably. This is because when an electricity market is deregulated, companies other than local utilities “compete” to provide energy for customers. In most commercial markets, this kind of competition pushes prices down and drives innovation.

When it comes to electricity, however, this approach creates significant imbalances that threaten the energy supply, leading to price volatility and the potential for major reliability issues.

Deregulation’s (Well-Deserved) Bad Reputation

Deregulation is a failed experiment. Rates in deregulated states are on average 25% higher than in regulated states. And, no state has tried to put new deregulation in place in more than 15 years—for good reason:

California: Deregulation in the Golden State led to a full-blown energy crisis, caused in part by Enron’s manipulation of California’s energy market (which would have been impossible under a regulated utility system). Not only did it end up costing consumers billions, but it also led to rolling blackouts. In a single two-day period in March 2001, 1.5 million people experienced rolling blackouts across the state.
Texas: Between 2002 and 2012, the average Texas energy consumer paid a staggering $3,000 in extra costs as a result of electric deregulation. Texans also faced an increasing number of blackouts because of the state’s deregulatory experiment.
Illinois: Instead of delivering on promised rate cuts, consumers in Illinois have seen their electricity bills double and even triple because of deregulation. Just as in California, collusion and price manipulation played a part. And hundreds of workers have lost their jobs.

These are just three of the highest-profile examples of electric deregulation’s path of destruction. Other states, like New Jersey,Connecticut, New York, Pennsylvania, Montana, Maryland—and Michigan—have experienced similar, negative impacts.

Michigan’s Energy Future

As our elected officials continue to debate new legislation to shape Michigan energy future, AMP is advocating for responsible regulation of our state’s electric market. Michigan must address our looming electric capacity shortfall with new energy infrastructure, and only smart regulation of our electric sector will facilitate the kinds of investments it will take to achieve that goal. Deregulation simply doesn’t provide the stability or infrastructure investments necessary to secure our energy future.

In the end, a well-regulated market is the only smart energy choice—for Michigan and for other states as well.

We want to hear from you! Let us know your thoughts and questions about Michigan’s energy issues today!