Commentary: In Michigan, customers benefit from a competitive energy market

U.S. Air Force

Laura Sherman is the president of the Michigan Energy Innovation Business Council.

The advanced energy industry in Michigan is growing by leaps and bounds. The Environmental Law & Policy Center recently counted over 300 Michigan companies, many of whom are members of the Michigan Energy Innovation Business Council (Michigan EIBC), involved in many stages of the renewable energy supply chain, from installing solar panels, to servicing wind farms, to manufacturing components used in clean energy projects and more. Over the last seven years, membership in Michigan EIBC has grown from 13 member companies to 117 member companies.

The sheer number of firms working to advance energy in this state is a sign of a healthy, competitive market due to innovation, technological advancements, supportive policies and cooperation between third-party developers and utilities.

For example, in 2016, the legislature created new incentives for Michigan’s utilities to contract with independent power producers. But even as those power purchase agreements flourish, the state’s investor-owned utilities continue to own many wind farms, solar projects and other distributed resources directly. Many of those projects were developed by independent companies and then sold to the utility. Which arrangement makes the most sense for ratepayers varies from project to project, so energy policy in Michigan should aim to keep all options on the table when utilities and developers are planning new generation resources.

Policies to foster competition in energy are important especially in states like Michigan with regulated electricity markets. In Michigan, regulated investor-owned utilities are the only providers of electricity in the service territories in which they operate. While they can and do buy energy from third parties to serve their customers, utilities earn a guaranteed rate of return on capital investments, which gives them an incentive to build more power generation infrastructure themselves, rather than contract with other parties.

But customers — residents, businesses and industrial customers alike — often benefit when utilities procure energy on a competitive basis. For example, as part of their requirements to procure renewable energy under Michigan’s standard created by the legislature in 2008, Consumers Energy and DTE Energy have signed many purchase power agreements with third-party-owned wind and solar projects, and have also met the standard through projects they directly own. A report from the Michigan Public Service Commission (MPSC) found that, in each year that the utilities signed power purchase agreements and also launched their own projects, the weighted average cost of the energy from the power purchase agreements was cheaper than that of the energy from the company-owned projects. And that ultimately translates to lower costs for businesses and residents.

Michigan’s experience with the renewable energy standard shows the measurable economic benefit of competition. Recognizing those benefits, in 2019, the state’s second-largest utility, Consumers Energy, took advantage of the incentives created by the 2016 Michigan energy law. As part of a settlement agreement in the utility’s integrated resource plan (IRP) case, Consumers Energy agreed to procure new power generation capacity, including 1,200 MW of solar through 2021, through an annual competitive bidding process administered by an independent third party, with the restriction that the utility can own only up to half of this capacity.

But DTE’s IRP proposes no such process. The failure to issue a request for proposals for new power resources prior to filing the IRP is not in line with state law, an administrative law judge (ALJ) recently found in a proposal for decision. DTE is the largest utility in the state and intends to pursue up to 1,400 MW of wind and solar power capacity through 2024. That would be a major expansion of renewable power for Michigan, which currently has around 1,900 MW of wind and 167 MW of solar.

If DTE is the sole owner of these projects, which include wind, solar and battery storage, many of the companies that have been powering Michigan’s robust energy sector will be cut out, and customers will suffer when they pay prices for energy that are unnecessarily high because they have not been bid down by competition.

In the proposal for decision, the ALJ agreed with the argument from several intervening groups, including Michigan EIBC, that there should be a stakeholder process to evaluate the best practices for RFPs and competitive procurement and that DTE should not necessarily own all of its generation resources.

It’s important to ensure that any competitive procurement process is fair, transparent, and open. Best practices include:

  • Hold competitive bidding processes that are open to not only a range of technologies, but a range of economic arrangements including not only power purchase agreements with projects owned by third-party companies, but also utility ownership arrangements, such as “turnkey” projects in which an outside developer builds the project and then sells it to the utility.
  • Independent evaluator: The bidding process should be administered by an independent third party. A utility-administered request for proposals process risks the utility choosing winning bids based on factors that might be beneficial to the company but not necessarily its customers.
  • Do not force participants to publicly disclose sensitive information. It should be a goal to have as much participation in possible so that the most efficient source of power is found. Potential bidders should not be deterred from participating for fear of having to disclose information that helps its competitors.

Businesses involved with renewable energy, energy efficiency, energy storage and electric vehicles have been among the highest job creators and biggest expansion opportunities in Michigan’s economy recently. The Clean Energy Trust’s recent Clean Jobs America report ranked Michigan fifth in the nation among the 50 states for clean energy jobs. It’s important that we continue to foster and support Michigan’s innovative advanced energy economy, while finding the most cost-effective solutions for customers.

Dr. Laura Sherman is the president of the Michigan Energy Innovation Business Council, a trade organization of more than 120 advanced energy companies focused on improving the policy landscape for the advanced energy industry in Michigan.

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