Michigan’s 2008 energy law may get some changes

April 4, 2011

Platts Electric Power Daily

By: Bob Matyi

Critics of Michigan’s 2008 energy law say new Governor Rick Snyder may be warming to the idea of changing some of its
key provisions, including a hard 10% cap on electric choice.

In addition to the limit on competition, the law allows electric utilities such as Detroit Edison and Consumers Energy, the
state’s largest, to “self-implement” new rates, subject to refund, if the Public Service Commission has failed to issue a
final rate case order within six months after an application is filed. On Friday, Detroit Ed, a DTE Energy subsidiary that
serves more than 2.1 million customers in southeastern Michigan, was preparing to do just that.

The choice issue is gaining more traction among competition advocates now that Detroit Ed and Consumers have hit the
10% mark. The Customer Choice Coalition says that means hundreds of businesses are effectively locked out of the
opportunity to switch to competitive suppliers in a state whose electric rates are among the highest in the North Central
region, according to the federal Energy Information Administration.

Snyder, a Republican and former businessman who took office in January, is seen as playing a crucial role in any
potential changes to the energy law this year. Publicly, the governor has not staked out a definitive position on the
choice cap or self-implementation issues.

But Barry Cargill, the choice coalition’s executive director, and David Fein, vice president, energy policy-Midwest/
director of energy policy for Constellation Energy Group, said in interviews late last week they are increasingly optimistic
Snyder may embrace, at least, bumping up the choice cap. Later this spring, a bill is expected to be introduced in the
Legislature to raise the cap to 25% or more. A similar measure died in the 2010 Legislature, and the November general
election resulted in substantial turnover in the state’s term-limited House of Representatives and Senate, both now
controlled by Republicans.

Backers of the bill are hoping for legislative debates either before lawmakers break for summer at the end of May or
when they return to the state capitol in Lansing next fall.

Although Detroit Ed and Consumers remain diehard opponents of increasing or lifting the cap, Cargill said his group has
been informing Snyder “about electric rate increases in the past few years” that choice supporters claim has a chilling
effect on economic growth. At the height of the recession in 2008, Michigan led the country with a 15% unemployment
rate.

However, the state’s jobless rate since has fallen below 11%.

Snyder, who is grappling with a forecasted $11 billion state budget deficit while he attempts to grow Michigan’s
economy, is “concerned about high energy costs affecting Michigan’s economic recovery,” Cargill said.
With those major items on his plate, the governor probably is not focusing for the moment on energy, both Cargill and
Fein acknowledged. But, “I think the vibes we’ve gotten are that he’s got an open mind on it,” Fein said about changing
the choice cap. “I’d like to think we’re optimistic that the Snyder administration will have some interest in the issue.”
Constellation, a major competitive supplier, is part of a newly formed coalition, Competition for Michigan Now!, that is
working with the choice coalition to effect changes in the law.

Fein added that while he does not know how much the cap should be raised, “the goal would be to have it at a sufficient
level so we don’t have to keep having this sort of annual or biennial discussion. If it’s so high that it will never be reached,
what’s the problem?”

Earlier this year, DTE president and CEO Gerard Anderson said he doubted Snyder would favor any cap changes during
the current legislative session. “The whole point of a cap is that commodity prices are volatile,” he said at the time. “I
think our regulators and policymakers understand that. I think one person in particular who understands it is our
governor.”

Sara Wurfel, the governor’s press secretary, did not return several phone calls by press time Friday.

Detroit Ed, meanwhile, continues to take advantage of the provision in the law by self-implementing an approximately
$230 million annual electric rate hike, about a 5% increase for residential customers. Len Singer, a company spokesman,
said the utility planned to file that intention with the PSC by the end of the day Friday. Detroit Ed originally filed for a
$253 million increase on October 1, but has reduced the amount by more than $20 million.

The latest self-implemented rates will take effect April 27.

Detroit Ed says it needs more money for environmental compliance and costs associated with the operation and
maintenance of its electric distribution system and generation plants, plus other costs related to employee pensions and
benefits, inflation, and capital costs “associated with the addition of plant, including advanced metering infrastructure,
safety and reliability” of its system.

Last week, DTE said it plans to install an additional 350,000 automated meters as part of a $168 million smart grid
program financed jointly by the company and the Department of Energy. It already has installed 250,000 such meters.

In July 2009, Detroit Ed self-implemented a $280 million annual increase. The amount ultimately was reduced by $25
million by the PSC, and the company was forced to refund that amount to customers.