Michigan schools shouldn’t pay the monopoly price for energy

Of course, it makes sense that energy transmission and distribution is a regulated monopoly utility. It would be crazy to have multiple competing sets of power lines.

But energy generation is a different thing entirely. Thanks to new inventions and discoveries, more and more companies, and now even private citizens, are able to generate and sell energy.

As these trends continue, energy generation is transforming from an essential monopoly into a normal, vibrant market.

This change is a blessing. Competition among many companies is better for prices and better for stability than a monopoly that everyone depends upon.

It should come as no surprise that a study of energy costs in all 50 states found that average electric prices in the 35 states that still have monopolies rose nearly 15 percent between 2008 and 2016, while the states that have competitive energy markets saw prices drop by an average of 8 percent.

It’s also worth pointing out that having many companies making energy is probably better than relying on one company to make it all. Especially when considering the insidious — but very creative — arguments the monopoly utilities made to oppose my legislation to allow Michigan schools to save money by purchasing energy from someone other than themselves.

Michigan guarantees the electric utilities a 90 percent monopoly on all energy in their geographical markets, and so while some school districts are enjoy hundreds of thousands of dollars in savings buying their energy from someone else, other schools are on a waiting list, backed up indefinitely, for access to these savings. My bill, HB4708, would specify that like iron mines, K-12 schools, public and private alike are exempt from the monopoly and may buy energy from whomever they choose.

From the schools’ perspective, this is a no-brainer, since it simply allows them to save money.

But in a December hearing the utilities made an interesting argument for maintaining their monopoly: if these schools were allowed to escape, that they would have no choice but to raise prices for their customers to make up the difference.

In other words, according to the monopolies, the residential customers would have to pay more if schools got to pay less.

Let’s first of all observe that as taxpayers, we all pay for schools, so we all enjoy a part of these savings. If the monopolies want to make the class warfare argument, let’s recognize that savings for schools are savings for the general public.

But more importantly, in a competitive market, a normal business cannot simply raise its prices because a fraction of its customers would leave them, given the opportunity. In fact the opposite happens: they must find a way to lower their prices to win them back.

The utilities also claim that they must offer full capacity in the event that every customer on choice was to return to the utilities overnight. Therefore, they say, they need to supply the capacity whether they have customers or not.

This is an obscene distortion, because the reason we have this absurd law for this ridiculous scenario is that the utilities lobbied for it for their own profit.

The utilities get a guaranteed profit margin, “return on investment,” which actually incentivizes them to have higher costs. So they were happy to be ordered to provide extra capacity that nobody needs. Higher prices are caused by the laws protecting the monopolies, not by freedom and choice.

The utilities fear that allowing schools electric choice would be a slippery slope toward full competition. But that slope was already slipped when we gave iron mines the same exemption, and even if my legislation opens the door to full competition and choice in energy, that only means energy consumers might see their bills go down in the future, instead of up.

That sounds fine to me.

John Reilly is a state representative serving northeast Oakland County. He is a member of the House Energy Policy Committee.