Eggshells and Deregulation

In February, we sent a boom truck over to Benzie to assist in a school science project. Students had been assigned the task of taking a fresh egg and then designing protection of some sort. The student was lifted in the air by the CEC boom truck and his project subsequently tossed over the side. Surrounding by unique protection systems, many eggs survived the fall and for others the protection was not adequate.

This manufacturing of protection reminded me of past attempts to protect the electric marketplace while also claiming that it was “open” to competition. We all know that deregulation was passed in Michigan in 2000. In my opinion, while the state did not make many of the California mistakes, they did make a couple that are evidenced by recent events in 2004. Residential rates were frozen and transition charges were not allowed. This protected the small users at least until 2006 and let the big users leave their incumbent utilities with no responsibility for paying for the investment to serve them in all the prior years even though they would continue to use the same poles and wires as they purchased energy elsewhere. Wrapped in this protection, the deregulation “egg” was laid and Michigan was declared open for competition.

On February 20, 2004, the MPSC removed some of the wrapping from the egg by granting Detroit Edison a transition charge. Large users who had left for lower prices would now have to begin paying a fee to use the lines and transformers necessary to flow the electricity. While this is still shaking out across the state, general industry consensus is that deregulation will come to a standstill because the margins in a choice environment are not enough to make a profit when transition charges must be paid. Basically, the deregulation egg is flying through the air unprotected soon to land on the hard ground of the real world. A soft pair of hands could rescue it before it lands but it’s not likely.

This move by the MPSC is timely protection for the small residential users. While cooperative members have been relatively protected and much work is being done to keep it that way, customers of investor-owned utilities were looking at large increases when the rate freeze came off in 2006. Leaking from losses in the industrial markets, the IOUs would have no recourse but to recoup the losses from the small users who are not attractive to the alternate energy suppliers. Awarding the transition costs, plugs the leak and should help offset future increases.

What does this mean at your electric cooperative? It means some sense is being restored to our industry. Currently, we are still on a deregulation schedule. This recent order could change the whole process. While it was for one utility, cooperatives are analyzing its long term affects and all the possibilities it holds for making changes to the schedule if not totally stopping the process. Cooperatives are crafting strategies politically and functionally as we look at the best way to serve our members in the future. A few months ago, our plan and system to protect our membership eggs was in place and in motion. Now, we have the same old eggs but the protection possibilities have changed.

Ever since California tossed all their eggs over the side with an elaborate system of protection schemes, other states have thought they could get the egg on the ground in a better fashion. I have always wondered why the heck we wanted to raise the egg and toss it over. We have a good electrical system that has worked well for decades. Maybe we have learned our lesson? If a chicken doesn’t lay eggs high in a tree, should we force it to just to see what happens to the egg when it hits the ground?