Michigan Gov. John Engler has signed into law an electricderegulation utility package which mandates an immediate 5% ratecut for residential customers and gives the state’s Public ServiceCommission (PSC) additional authority to ensure competition existsfor electric services.

Heavy advertising and lobbying on both sides marked the pushtoward the final package, which provides “choice for those who wantit and protection for those who need it,” said Engler. The Michigangovernor said the final bill, which combined two Senate bills (SB937 and SB 1253), ensures the state will obtain new generatingcapacity, a critical issue for growth in the state. His sentimentswere echoed by Consumers Energy Sr. Vice President John Clark.

“Michigan has long needed the certainty of law to support thedevelopment of new power supplies for our homes and businesses,”Clark said. “It will serve the state very well.”

Rate cuts by Michigan’s major utilities, Consumers Energy andDetroit Edison, were expected to take effect last week, accordingto officials. The rate cut is based on charges as of May 1, andwill continue for at least two years under the legislation. Ratesfor large industrial and commercial customers also were capped fortwo years. Rates for small businesses were capped for three years,and residents will not see a rate increase before 2006. In fact,PSC said that unless there is competition, rates could be frozenuntil 2013.

Although the legislation is not as wide-ranging as in some otherstates, it will authorize refinancing of electric facilitiesthrough bonding to enable further rate reductions. Compensatingutilities for power plants that were built when the utilities had aguaranteed customer base had been a major hurdle. But “stranded”cost recovery was inserted in the legislation, enabling theutilities to throw their full support toward the bills.

Customers will be able to choose an alternative supplier by2002, and the PSC also will be allowed to issue orders to preventslamming to protect against unauthorized switching from electricproviders. Also, the legislation creates a $40 million low incomeand energy efficiency fund.

One problem with passage had been over the issue of aggregation.This allows virtually any group the right to create cooperatives.The cooperatives pool or aggregate their power needs and thennegotiate the sale of the aggregated power demands to any supplier.Large corporations and small business groups aggregate power, butin Michigan, a dispute arose between Michigan’s House and Senateover franchise fees for school districts that also wanted toparticipate. In the end, a compromise was reached exempting theschools from the fees.

Enactment of electric restructuring in the state will be apositive for the utilities involved because it removes the “majorfinancial uncertainties” said CMS Energy Chairman and CEO WilliamT. McCormick Jr. Consumers is the principal subsidiary of CMSEnergy Corp., and Michigan’s largest utility, providing natural gasand electricity to more than 6 million residents.

“Legislative action on electric restructuring sweeps awaysubstantial regulatory uncertainty that had been facing ConsumersEnergy since this debate began four and one-half years ago, in late1995,” McCormick said.

Under the enacted legislation, the utilities will be able tomake a full recovery of their stranded costs and havesecuritization benefits to offset the 5% rate cut. A market powertest in the legislation also will allow the utilities to buildadditional needed generating capacity in the state, and it alsodoes not require divestiture of power generation assets.

The state actually began retail electric competition lastNovember. Georgia-Pacific Corp., Keebler Co., Keeler Brass Co.,Lakehead Pipeline Co. and Martin Marietta Magnesia Specialties Inc.were among the first customers in the state to take delivery oftheir electric power from a supplier other than their localutility, participating in Consumers’ Direct Access Program, acustomer choice initiative approved by the PSC. Nordic Electric, anindependent power company, was selected as the energy supplier.

The Direct Access Program was the first in Michigan to allowcustomers to buy power from an alternative provider. According toPSC, nearly 130 applications, representing approximately 1000 MW ofcapacity, were submitted for consideration in the initial program.Since initial participation was limited to 100 MW, a lottery wasused to allocate capacity.

Carolyn Davis, Houston

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