Power on

In a recent report, the Michigan Public Services Commission pointed out several key distinctions between the way deregulation was handled in California and the path being pursued here. By every account, the California experience has been an unmitigated disaster.

“The unique electric restructuring program created in California is universally regarded as a failure,” the MPSC reported in February. “Wholesale prices of power in California have increased approximately tenfold since last spring. In the last three weeks, the state has been on an almost continuous energy emergency alert and has experienced several rolling blackouts, even though winter is the off-peak period for demand in California. The two largest California utilities are $12 billion in debt and are on the verge of bankruptcy.”

“It is important to note,” the commission adds reassuringly, “that Michigan is not expected to repeat the California experience.”

The report goes on to list four major errors that it says were not made in Michigan. According to the report:

- Utilities in California were required to sell off at least 50 percent of their electric generating plants and there were provisions encouraging them to sell more. “The three investor-owned California utilities sold all of their fossil-fueled generating plants to other suppliers.” In Michigan, on the other hand, utilities were allowed to keep the generating plants needed to serve existing customers plus retain a reasonable reserve margin. “Thus, in Michigan, there is no artificial requirement that utilities sell power plants that they need to serve their customers.”

- Utilities in California were prohibited from obtaining long-term contracts; instead, they were required to purchase all power through a centralized “power exchange” on a day-to-day basis. Michigan utilities retained the ability to enter into long-term contracts. “There are no artificial restrictions on the ability to purchase power from the best available supplier.”

- Because of stringent environmental regulations, local restrictions and licensing procedures in California, no large-scale plants received authorization to be built there during the 1990s. “In contrast, the Michigan statute was designed to encourage the development of major new merchant plants. Since the act was passed, two new generating plants have broken ground, a third is expected to do so shortly, and several more are under consideration.”

- Instead of participating in a broad, multistate system to coordinate power supplies, California opted for a single-state Independent System Operator. The goal in Michigan is to have utilities participate in what’s known as a Regional Transfer Organization, which, if it works as promised by supporters of deregulation, will facilitate oversight of the power grid covering a multistate area to ensure existing utilities don’t squeeze out smaller competitors.