Economy, Enron slowed retail competition, Michigan regulators say

By the OGJ Online Staff

HOUSTON, Feb. 6, 2002 — Just 3,200 customers were participating in Michigan’s retail electric pilot program at yearend, regulators reported.

They blamed the weak economy, Enron’s collapse, and infrastructure problems for slowing electric competition in Michigan last year. But state regulators urged patience in 2002, the first year of full retail participation.

The economic slowdown and uncertainty after terrorists attacked New York’s World Trade Center and the Pentagon Sept. 11 reduced the incentives to switch suppliers, the Michigan Public Service Commission said in its annual report to Michigan legislators.

Seeing a well-known company such as Enron fail so quickly also could have led customers to question the prudence of switching suppliers, the PSC said. After Enron’s collapse, the PSC put in place special provisions to protect consumers if a licensed alternative energy supplier goes out of business. Customers can return to their former utility.

The PSC said the Federal Energy Regulatory Commission’s transmission rights bidding system also discouraged alternative suppliers. While the system helped the incumbent utilities’ ability to maintain or expand imports, newer nonutility market participants operated at a “distinct disadvantage,” the PSC said.

But following the summer peak period and the onset of the economic slowdown, regulators said more transmission and generation capacity became available to alternative suppliers and the number of retail participants began to rise.

In addition, Michigan utilities will have 2,000 Mw of new transmission capacity completed by June. Other utilities also are building additional capacity that could affect Michigan’s import and export capability. But the regulators said due to the FERC bidding process only about half of the new capacity will be available for use by Michigan utilities and alternative suppliers.

The commission said it is unclear how much of a planned 13,945 Mw of new generating capacity in Michigan will actually be constructed. About 3,645 Mw of new capacity is under construction, but the regulators noted many projects around the country have been canceled or deferred recently due to falling wholesale power prices and other issues.

While retail electric competition remained in its “infancy” in 2001, the commission said its goal still is to develop a robust competitive market. Market development in 2002 and 2003 should give lawmakers and regulators a better understanding of what’s necessary to achieve that goal, it said.

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