Commentary: It’s time for energy deregulation in Michigan

alexgoldstein

Alexander Goldstein is the CEO of Eligo Energy, an alternative energy provider operating in Michigan.

In the old model of city life, most people only had one choice for utility providers. Whether it was the phone company or the electricity provider, one company had a monopoly. While this removed the requirement to research different providers, it also meant that there was little room for individual choice. If your local utility company offered poor service or high prices, there was little that could be done about it.

Today, energy deregulation varies by state. The majority of states, like Indiana, have completely regulated markets, which means there is only one energy provider. Texas is an example of a deregulated state with a completely open market that allows utility customers to choose from a variety of energy providers.

Michigan is an outlier in that it has a hybrid deregulated system: up to 10 percent of load, which equals 0.5 percent of customers, can choose alternate power providers and that cap has already been reached. The legacy utility companies do not want to allow more consumer choices because they would likely lose a substantial percentage of their customer base. However, consumers are tired of not having choices and many want a different option than the legacy utility companies, whose current oversight by the state often allows for billing abuses and poorly maintained lines. Here’s why removing the 10 percent cap and allowing customers more options is an idea whose time has come.

Economic relief

Michigan has faced its share of economic troubles in the past several decades, although there have been brief periods of relief. Still, no one could say that the state as a whole is at maximum levels of productivity and prosperity. One of the most important issues Michigan faces in the future is attracting new businesses who want to invest in the state and its economy.

Consumers aren’t the only ones who are affected by high electricity costs. Businesses are also impacted by electricity costs, which are rolled into the price of goods and services and therefore indirectly affect consumers again. The Mackinac Center for Public Policy estimates that $700 of the sticker price of a new General Motors vehicle is for electricity costs in production, and quotes the Food Marketing Institute as saying that four percent of grocery store costs are for electricity as well.

Competitive advantage

Competition in electricity prices is likely to result in fairer prices. In a regulated utility market with few available providers, there is little incentive for companies to keep their service costs down. When more companies enter the market, it has a positive effect on pricing.

While it seems logical that larger corporations would benefit most from lower utility costs, small businesses are likely to see greater benefits. A regulated utility market favors those who have the most means to pay, which puts small business at a disadvantage. Deregulating utilities makes them more affordable, which levels the playing field. In a state like Michigan, where the economy needs to rebound from previous difficulty, encouraging small business is an important step toward recovery.

Benefits

Many utility providers that are allowed to enter a deregulated market state their environmental benefits, such as energy that is partially provided by alternative sources like wind or solar power. Among Michigan’s greatest assets are its natural resources, including the Great Lakes and farm land. Protecting the environment is a cause that many Michiganders care about a lot and many would choose electricity providers that contributed to that goal.

When there’s limited competition in the utility markets, consumers and businesses have little choice but to accept unreliable service and frequent outages. However, in a deregulated energy industry, competition drives providers to invest in equipment upgrades and new technology to ensure that service quality is never a reason to lose customers.

Energy deregulation will result in improved service, greater innovation, and more affordable utilities. It is a smart idea whose time has come.

2 thoughts on “Commentary: It’s time for energy deregulation in Michigan

  1. This “opinion” piece is just that. I don’t see one shred of data or hard evidence showing that deregulation has led to lower bills for the majority of consumers where full deregulation has taken place. As a matter of fact, numerous studies show little to no benefit and in many cases significant financial harm by moving to deregulation. Important to understand the writers motivation. Just like utilities have motivation to protect their interest, independent power producers are very interested in increasing their profits, unfortunately under the guise of “free markets” that will produce reduced costs, despite case study after case study of that not occurring.

    • Illinois and Ohio have much cheaper electricity prices than Michigan, and both are deregulated.