Only 10% of Passengers Allowed to Uber in Michigan
Imagine reading that headline as you land in Detroit Metro an hour before a big meeting in Ann Arbor. Your heart sinks knowing you might need to wait in line for a taxi and likely be late for your meeting. Why would Michigan decide to limit your access to an innovation that you’ve become universally accustomed to using every time you arrive in any airport around the country?
Imagine reading that headline as you land in Detroit Metro an hour before a big meeting in Ann Arbor. Your heart sinks knowing you might need to wait in line for a taxi and likely be late for your meeting. Why would Michigan decide to limit your access to an innovation that you’ve become universally accustomed to using every time you arrive in any airport around the country? Ridesharing saves significant time and money and gives you peace of mind that travel will go smoothly, without having to experience the universally terrible service of the outdated taxi. And how the heck are they supposed to enforce the 10% cap fairly?!?
You would be understandably gobsmacked if you experienced this hypothetical situation. Yet, that’s exactly what the Michigan Public Service Commission (MPSC) has decided is right for its customers . . . whoops, I mean ratepayers . . . as it relates to one of the most innovative energy sources lying fallow in Michigan, namely demand response, a resource that would save Michigan customers more than $260 million per year immediately. The same 10% cap that the MPSC has imposed on customers choosing an alternative energy supplier is arbitrarily imposed on those who would like to deliver to Michigan the very local resource that the MPSC has stated is desperately needed to address Michigan’s electricity needs. Demand response offers the promise to deliver more than 2,700 MWs of Michigan’s local resource requirement to meet peak electricity demand. These MWs are the least expensive, most reliable on-peak, and undeniably cleanest local resource available to Michigan today.
Let’s look at the dollars and sense:
- Michigan currently pays an MPSC-approved, weighted average of $105,241 per MW per year for capacity to its regulated utilities. Michigan peak demand is approximately 20,828 MWs of which 90% is delivered through regulated utilities. Again, the MPSC allows 10% of customers to choose an alternative energy supplier that offers competitive prices for capacity which have historically been far less expensive than the cost of regulated utility capacity.
- Yet, Michigan has chosen to be part of a federally-regulated wholesale electricity market called MISO (the Midcontinent Independent System Operator) that delivers the shared economic and reliability benefits of an interconnected transmission system serving 15 states. This was a very wise choice by the MPSC because it provides Michigan with access to some of the least expensive and most reliable power in the world. Unfortunately, Michigan isn’t taking full advantage of it because of the limitations the MPSC imposes on access to innovations like demand response.
- The Michigan zone of MISO attracts capacity into its market at a rate of $8,870 per MW per year. That’s a savings of nearly $100,000 per MW per year, or nearly $2 billion per year in total, for Michigan customers if Michigan were to rely on MISO entirely for its capacity. Opponents of this viewpoint will interject here and say, “Wait, the auction run by MISO is a residual market, so if Michigan relied entirely on MISO to meet its capacity needs then that price would be much higher,” to which we would retort . . . you’re right. But there’s 2,700 MWs of local capacity in the form of demand response that Michigan can and should allow to meet its capacity needs and the immediate savings unlocked from doing this would equate to 2,700 MWs x ($105,241 – $8,870) = $260 million per year in savings to customers or $68.73 per Michigan household.
- What’s more, the Michigan commercial and industrial customers who would deliver the 2,700 MWs of on-peak capacity, locally, would receive those payments, further stoking the fire of the Michigan economy. In fact, every Michigan competitive choice customer can and should take advantage of this opportunity right now, but 90% of Michigan customers cannot. So, who wouldn’t want these benefits?
Michigan utilities say no to these benefits and the MPSC goes right along with them. Michigan regulated utilities oppose demand response being fully unlocked in the state of Michigan unless they’re the ones being paid for it. The most galling part of this ruse is that the utilities are paid the MPSC-regulated rate for capacity for their demand response MWs while paying a fraction of it to their customers. In the case of Consumers Energy their demand response program pays $25,000 per MW per year to their customers (while passing through unnecessarily onerous penalties and operational requirements) . . . and the MPSC allows them to pocket the difference. Perhaps most stunning of all is that when Michigan regulated utility demand response is asked to actually deliver its capacity it performs at about 60% (put differently, the regulated price of capacity being paid to utility demand response is actually $105,241/60% = $175,402, which is the highest price paid by a state for capacity in the country).
Yet, to its credit the MPSC has taken up the challenge of unlocking the benefits of demand response. It has made progress. But the progress is slow and bogged down in politics while Michigan customers await their taxi in a long line, likely missing the meeting that they came to Michigan for in the first place. The MPSC can and should immediately lift the 10% cap on demand response, treating it differently than competitive retail supply, and deliver $260 million in annual savings to customers. Dozens of other states have done just that while unlocking billions of dollars in proven annual savings to customers, improving grid reliability, and ensuring a cleaner energy future for their communities.
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