Power problems

Deregulation must proceed carefully

In the past few weeks, utility companies in California have been forced to institute occasional rolling blackouts as they scrambled to find enough electrical power to meet demand. Although the power problems in California have a number of causes, the recent deregulation of California utilities has almost certainly contributed to the power problems. Although a direct comparison cannot be made between California and Michigan, the recent events there should indicate the risks involved in power deregulation. In light of complications in California and elsewhere, a number of states have either frozen or canceled deregulation plans. Last spring, the Michigan state legislature passed a bill instituting power regulation in our state. Although the Michigan plan is unique, deregulation should only proceed with caution.

In California, a number of factors have exacerbated the power problem: Explosive growth in the power-hungry high-tech sector, more homes and commercial developments and the high price of natural gas. The major power companies have taken heavy losses because of the wholesale power price regulations put into place through the 1996 deregulation law.

Correctly implemented, power deregulation has the possibility of reducing power costs, however, deregulation should proceed cautiously: California and other states have shown that it often results in increased costs for small consumers, while only industry and bulk electricity dealers can save substantially.

In Michigan, the three-year agreement to set natural gas prices has had the opposite effect desired: Natural gas companies are finding it difficult to enter the market if forced to undersell their gas. Consumers Energy began a program allowing 100,000 of its customers to buy natural gas from other providers, but part of this program was a freeze in the price they could charge, meant to encourage other companies to court these consumers.

Because natural gas prices have skyrocketed in recent years, Consumers Energy has taken huge losses, partially compensated by the state through a $45 million tax write-off. The company is behind in its schedule to offer choice to all 1.6 million customers in Michigan.

Michigan has two traditional producers of power: Detroit Edison and Consumers Energy. Because both rely mostly on coal-fired power plants, they are expected to remain immune to the high natural gas prices that have wrought havoc in California. Also, the deregulation plan in Michigan allows the utility companies to own their own power generation plants, unlike plans elsewhere that differentiate between power producing companies and power distributors.

The May 2000 deal allows the state regulating body - the Public Service Commission - to allow power companies to add surcharges to power bills to offset the costs of deregulation. Often, these charges are felt the most by small consumers, as large industries often have special deals with utility companies, accepting occasional power interruptions in exchange for a flat rate. California has illustrated the results of a poorly planned power deregulation process. Deregulation in Michigan should proceed with an eye toward problems in other states and a concern for the prices average consumers must pay.