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Public Act 141, Michigan's electric restructuring law, allowed all customers of investor-owned utilities (IOUs) and large customers of rural electric cooperatives (Co-ops) to purchase their electric supply from an alternative electric supplier (AES) beginning Jan. 1, 2002. Beginning Jan. 1, 2005, all customers of Co-ops will have the opportunity to purchase electric supply from an AES. The incumbent electric utility will continue to provide delivery service using the existing electric lines. The governing body of a municipal electric utility, comprised of locally elected and/or appointed members, will determine on a local level whether to implement a plan to allow their customers to purchase electric supply from an AES.
FREQUENTLY ASKED QUESTIONS
The following questions and answers from the Michigan Municipal Electric Association are designed to help municipal utility customers better understand Public Act 141, Michigan's electric restructuring law:
Q: What is electric deregulation, restructuring, or choice and when will it begin?
A: Historically, an electric utility generated or purchased electricity, provided related services, and delivered the electricity to your home or business. Public Act 141 allowed all customers of investor-owned utilities (IOUs) and large customers of rural electric cooperatives (Co-ops) to purchase their electric supply from an alternative electric supplier (AES) beginning Jan. 1, 2002. Beginning Jan. 1, 2005, all customers of Co-ops will have the opportunity to purchase electric supply from an AES. The incumbent electric utility will continue to provide delivery service using the existing electric lines. The governing body of a municipal electric utility, comprised of locally elected and/or appointed members, will determine on a local level whether to implement a plan to allow their customers to purchase electric supply from an AES.
Q: What is the difference between IOUs, Co-ops, and municipal utilities?
A: An IOU is a shareholder-owned utility that provides public utility services to customers for a profit. A Co-op is a member-owned utility that provides utility services to customers on a not-for-profit basis. The Michigan Public Service Commission regulates both IOUs and Co-ops. A municipal utility is a not-for-profit municipally owned utility that is regulated by its governing body. In Michigan, there are 41 municipal utilities (including Traverse City Light & Power) that service roughly 8 percent of the state's electric needs in both rural and urban areas.
Q: Why doesn't Public Act 141 require municipal governing bodies to implement a customer choice program?
A: The Michigan Legislature has long recognized the importance of local control for municipally owned utilities and their customers. Under Public Act 141, decisions affecting the operation of a municipally owned utility will continue to be made locally by the governing body with input from the community it serves.
Q: May another utility provide my delivery service if I am a customer of a municipal utility whose governing body determines not to implement a customer choice program?
A: If one of the following three conditions is met, you may petition the Michigan Public Service Commission to allow you to connect to a different utility's delivery system:
You began taking service from the municipal utility after June 5, 2001, and you are located outside of the boundaries of the municipality that operates the utility or another utility has a franchise to serve inside the municipal boundaries; or
The governing body determines not to implement a customer choice program by Jan. 1, 2008, and you are located outside of the boundaries of the municipality that operates the utility or another utility has a franchise to serve inside the municipal boundaries; or
The governing body of the municipal utility gives its written consent.
If none of these conditions apply, the municipal utility will remain your exclusive full-service provider. An AES will not be able to serve locally and the municipal utility will not be able to sell at retail outside its current service territory.
Q: Under a choice program would I pay less for my electricity?
A: In addition to generation or electric supply, the cost components in your bill today reflect changes to cover delivery (distribution and transmission) and ancillary services. These charges are now "bundled" together on your bill. Before the start of a choice program, utilities will separate or "unbundle" the charges associated with each of these major components. Under such a program, if the sum of your electric supply from an AES, delivery service charges, ancillary service charges, and stranded and implementation costs are less than the "bundled" rate charged by your municipal utility, you would be able to realize a savings.
Experience to date suggests that residential customers would not benefit from a choice program. A few larger customers may be able to benefit, depending on the unbundled charges and costs and the market price of electric supply, if available.
Q: Can you further explain the charges associated with the major components of electricity service?
A: Generally, delivery service is made up of both distribution and transmission services. The transmission service charge is the cost associated with the high-voltage, long-distance wires and equipment used to conduct electricity from large distant generators to a local utility distribution system. The distribution service charge is the cost associated with the lower-voltage, shorter-distance wires and equipment that conducts electricity from the transmission system to the customer's point of delivery. Ancillary charges may cover costs that the utility incurs to provide reserves, scheduling and dispatching, and other technical services.
Q: What are stranded or transition and implementation costs?
A: Historically, electric utilities have had an obligation to provide full electric service to all customers. As a result, they have invested in generation and/or entered into long-term contracts to make sure that a reliable source of electricity was available. If a customer chooses to have an AES provide for their electric supply, they may still be required to pay for that percentage of their load that represents the utility's investment and/or other liabilities incurred to serve that customer prior to customer choice. This charge is known as a transition or stranded cost charge. Implementation costs represent the utility's expenses incurred to facilitate the implementation of an electric choice program.
Q: How will the unbundled rates, terms or conditions of access, and other charges be determined?
A: Again, for customers of municipal utilities, these determinations will be the result of of decisions made by the local governing body. For customers of IOUs and Co-ops, state regulators in Lansing will make this decision.
Q: What type of results has deregulation/restructuring produced in other states?
A: Restructuring laws in other states have yet been able to prove themselves. In California, rates were reduced by 10% when deregulation began in 1996. However, shortly thereafter rates soared dramatically in the retail and wholesale markets. As a result, California utilities have returned to providing full electric service with regulated rates. During deregulation, Los Angeles Water and Power, a municipally owned utility, decided not to opt-in to a choice program and provided their customers with rates that were among the lowest in the state. Nationwide, on average, only about 2% of customers have chosen an AES when given the opportunity. Of those 2%, almost none are residential customers.
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