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A new day is dawning in the electric power business. Deregulation, competition and technology are combining to transform an industry, promising in the process to save money on electricity bills and reduce the price of manufactured goods. "Wheeling" is here.
Wheeling is the term used to describe the free movement of electricity along interconnected transmission lines. Technology is available today to transport or "wheel" electricity generated in one part of the country to a customer in another part of the country. Utilities buy and sell electricity to one another every day, but until now, legal barriers have prevented retail customers such as homeowners and businesses from purchasing electricity from anyone but their local utilities. All that is changing, and much is at stake: total revenue from the sale of electricity in Michigan in 1994 was over $6 billion.
The Michigan Public Service Commission (MPSC) is acting on a plan prepared by the Michigan Jobs Commission which would phase in wheeling over five years. Customers could bypass their local utility to purchase electricity from the supplier of their choice, much like we individually choose our long distance telephone carrier.
Michigan customers, who on average pay 7 cents per kilowatt-hour (kWh), might choose to buy their electricity from a generator in Indiana, at an average price of about 5 cents per kWh. Customers might also choose their power producer based on factors other than price. Some may wish to purchase from a company that uses environmentally cleaner fuel, for instance.
The first retail wheeling agreement was approved in January of this year. Wisconsin Electric Power Company will provide electricity to the Copper Range Company over the Upper Peninsula Power Company's lines. Wisconsin Power will pay a transmission fee for use of UP Power lines.
Masco Corporation is asking the MPSC to require Detroit Edison to wheel electricity that has been generated by another supplier through Edison lines. Detroit Edison is resisting, arguing that the MPSC has no authority under current state or federal law to issue such an order. Masco has threatened to locate a new operation in Ohio instead of Michigan if the MPSC denies its application because Michigan's electricity rates are as much as 15 percent higher than those in surrounding states.
The MPSC is holding discussions with the various stakeholders to work out the details of the Jobs Commission plan. And as we all know, the devil is in the details. In moving from a regulated monopoly to a competitive market, there are winners and there are losers. So everybody wants to be there when the deal is cut.
Government intervention in the electricity market has created serious market distortions, and it will take some doing to sort it all out. The way utilities are regulated now is silly and inefficient, even creating disincentives for efficiency and cost savings. Under the current regulatory system, if utility costs increase, they are simply passed on to the customer. Utilities have too little incentive to be cost efficient, and customers have no chance to shop for more economical sources of electricity. Wheeling will change that.
According to C. Wayne Crews of the Competitive Enterprise Institute, Americans would save billions in energy costs if regulators eliminate the monopoly power that electric utilities enjoy. A one cent per kilowatt-hour drop in price could result in a national savings of up to $28 billion annually. Prices plummeted when markets opened up in other regulated industries such as telecommunications, trucking, gas, airlines, and railroads. When the natural gas industry was deregulated, prices fell by 34 percent and service improved.
The Jobs Commission plan moves us in the right direction, but it does not go far enough. The plan permits customer choice only for new and expanding business and industry. But eventually, the plan should allow choice for all customers, including residential. That can be done in ways that allow for an orderly transition, so that existing utilities can prepare for the inevitable competition.
By opening up the electricity market early, ahead of most other states, Michigan will have a competitive advantage. That could pay off in an influx of new industry and a reduction in consumer energy costs. Wheeling is not just a town in West Virginia; it's our ticket to cheaper and more efficient power.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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