In the late 1990s, several states, including Michigan, began deregulating their electric utility markets in the hopes that competition in the gen-eration and sale of electricity would drive down consumer prices. The enthusiasm for deregulation had waned in Michigan, but discussions around electric market choice are regaining momentum. Legislation currently under discussion in the Michigan House and Senate explores modification to the state’s retail open-access policies.
In 2013, Public Sector Consultants Inc. (PSC) was hired to review the experiences of other states that deregulated their markets and identify lessons or issues that might be relevant to the current discussion of Michigan’s energy policy. The report is available at http://bit.ly/ElectricIndustryDeregulationCaseStudies. During its research, PSC conducted case studies of Texas, Illinois, Montana, and New Jersey—four states representing a range of geographies, political leadership, deregulatory approaches, and policy frameworks. PSC found that while there were some limited benefits of electric market competition in these states, broad success for deregulation has either not materialized or has come with other regulatory and financial costs. Specifically, the case studies of these five states found that:
- Ensuring electric capacity and reliability can be a substantial challenge
- Rates are sometimes more volatile under deregulation, and there is little evidence that deregulation reduces rates
- Deregulation can reduce a state’s control of its energy policy because of the stronger roles regional transmission organizations and the
federal government play
- New forms of market/government intervention to address market failures have often been necessary
- There are significant challenges with pricing default electric service—the service provided to residential customers who do not opt for, or cannot obtain, competitive electric service
- Flexible rate stabilization mechanisms (such as Texas’ “price to beat”) during the transition period worked better than traditional price caps for attracting alternative providers
In 2016, PSC again researched developments related to electric deregulation starting with these four states and looking at other jurisdic-tions where electric deregulation had been implemented. After reviewing the original four states’ experiences, PSC determined that there were not enough new developments to warrant updating the case studies; however, one state in particular stood out based on ongoing discussions related to its electric market—Ohio.
A copy of the full report is available below.