MAMA Annual Meeting October 4, 2011 CONTACT INFORMATION RODERICK - PowerPoint PPT Presentation

MAMA Annual Meeting October 4, 2011

CONTACT INFORMATION RODERICK S. “Rick” COY CLARK HILL PLC 212 EAST GRAND RIVER AVE LANSING, MI 48906 PHONE: (517) 318-3028 FAX: (517) 318-3099 Email: rcoy@clarkhill.com

Electricity Rates Charged to Municipals Unreasonable and getting worse!

Lack of Competition Raises Costs  We had competition from 2000 – 2008  It reduced rates for those who chose alternative suppliers  It kept rates down for those who stayed with the incumbent utility companies  But, then the legislature re-monopolized the electric utility industry in Michgan in 2008

Competition works  Airlines  Trucking  Telecommunications  Natural gas 5

It worked in Michigan from 2000-2008  Michigan electric markets opened in 2000  Our electric rates were way higher than regional averages  Gov. John Engler identified it as a key business disincentive in the 1990’s  North Star Steel Plant located in Ohio, not Michigan  Last major auto plant in Michigan in Lansing, where muni rates lower 6

Closing the gap, 2000-2008 Michigan rates compared to national average Michigan rates were 0.53 0.49 0.46 above national average – 0.41 0.36 until competition started 0.29 0.24 in 2000 0.22 0.19 0.19 0.16 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 -0.11 -0.32 -0.58 -0.60 -0.67 -0.76 -0.80 -0.91 7

New generation under 2000 law  From 2000-2008, independent power producers built 4,000 megawatts of new power  Plants in Dearborn, Zeeland, Covert, Carson City and Jackson built at shareholder expense and risk  Increased reliability in Michigan  Proof that new generation can be built under competition – without mandates that customers pay for utility mistakes 8

New Laws 2008  New Laws  Act 286 of 2008  Act 295 of 2008

New Laws Effective October 2008  Utilities hailed passage  Said cleared way for new plants  Said would lower rates for factories  Said would provide greater “predictability”  Reality  No new plants – none needed!  Industrial rates increase despite demand reduction  Twice a year, predictably, they raise their rates. 10

Act 286 - Subjects  Future, not actual costs  Automatic Rate Increases  Choice restricted to 10%  MPSC approval of mergers  Cert. of Need (CON)  Cost based rates?!?

What’s happened since 2008? 12

What’s happened to Consumers Energy rates since 2008 CE electric case Date of increase Amount U-15245 6/10/2008 $27,468,600 U-15645 11/2/2009 $139,411,000 U-16191 11/4/2010 $145,749,000 U-16794 12/11/2011* $165,475,000 Total higher electric cost $478,103,600 *Date of automatic increase per 2008 PA 286 CE gas case Date of Increase Amount U-15506 12/23/2008 $22,400,000 settlement U-15986 5/12/2010 $65,893,000 U-16418 5/2011 $31,364,000 settlement Total higher gas cost $119,657,000 19

What’s happened to Consumers Energy rates since 2008 Increase % increase in mills over 10/08 1 Rate cases 1. a. U-15645 general rate case Interim 5/09: $179 million i. Final 11/09: $134.3 million 4 mills ii. b. U-16191 general rate case i. Final 11/10: $146 million 4.4 mills Total new rate increases 8.4 mills 8.9 % 2. PSCR a. U-15415 (2008) PSCR av. 47.46 mills b. U-16045 (2010) PSCR av 53.33 mills 4.9 mills c. U-16432 (2011) PSCR 2.6 mills Total PSCR increases 7.5 mills 7.9 % 3. Other increases, 10/08-1/11 Nuclear decommission credits expire; stranded cost, electric restructuring, securitization bond and tax, UETM, E-1 discount, RPS, energy optimization, electric choice incentive 7.9 mills 8.3% Total rate case, PSCR, new charges 23.8 mills 25% 20

Results since implementation in October 2008 Michigan overall electric rate increases, Dec. 2008 to May 2011 (understates DTE/Consumers increases) 15.47% 10.58% 10.33% 5.67% 3.29% 3.13% East North Illinois Indiana Michigan Ohio Wisconsin U.S. Central -4.18% All sector increases, comparing cents per kWh 21 Source: US Energy Information Agency

Results since implementation in October 2008 Midwest industrial rates, May 2011 8 7.73 7.5 7.22 7 6.46 6.5 6.23 6.1 5.87 6 5.5 5 4.5 4 3.5 3 East North Central Illinois Indiana Michigan Ohio Wisconsin In cents/kWh 22 Source: US Energy Information Agency

Michigan rates compared to national average 0.53 Once competition killed, 0.49 0.46 0.41 Michigan electric rates 0.37 0.36 0.29 increase above national rates 0.24 0.22 0.19 0.19 0.16 0.15 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -0.11 -0.32 -0.42 -0.58 -0.60 -0.67 -0.76 -0.80 -0.91 23

Results since October 2008  Gap between Michigan and other states grows  Especially Illinois and Ohio, who have used competition to lower rates  Michigan rates now above national average  Utilities decide they don’t need additional power, drop plans for new plants 24

Results since October 2008  One year from passage of new law, 10 percent competition cap hit  Those able to escape utilities get lower rates  Now 5,000 companies on waiting list to get out  Government is picking winners – those who were lucky enough to leave utilities – and losers – those forced to stay 25

RELEVANT BACKGROUND 2008 Rate Case U-15245 CE Proposed  Rate Shock to Munis: 25% - 35%  Elimination of “Muni” class of service  Grouping with commercial and industrials  Munis intervened and  Staff proposed permanent pumping credit  Learned Munis paying 125% of COS

OVERALL GOALS of Muni Coalition  Save Munis money now on power costs  Lower your future costs  Retain pumping credit as long as possible  Get solid cost of service information so not subsidizing other classes  Re-establish municipal “class of service”

3 Prior CE Cases  2007 Case U-15245  5%-40% proposed increase  Saved Munis approximately $1,400,000 annually  Savings about 18 times investment  2008 Case U-15645  10% - 25% proposed increase  Saved Munis approximately $1,000,000 annually  Savings about 7 times investment

3 Prior CE Cases  2010 Case U-16191  5%-8% proposed increase  Saved Munis approximately $900,000 annually  Savings about 6 times investment  NEW 2011 Case U-16794  2% - 6% proposed increase  Savings TBD

What to do to reduce rates?

Supplemental Advocacy  Legislative  Insist that Munis be their own class of service like schools  Ask to have the 10% cap on competitive choice be lifted  Legal & Public Relations  Consider creating/expanding your own electric utility  Consider leaving CE

It’s time to lower electric bills!  We need electric competition more today than ever  Business leaders for Michigan benchmark: Michigan’s electric rates higher than competitor states  MMA survey: Electric rates third in importance in business costs in Michigan, behind only health care and labor costs  Electric rates only one of those three set by government! 32

It’s time to lower electric bills! August statewide phone poll 800 likely voters: Would you favor a change in state law that would allow all customers to purchase their electric service from any supplier that is able to provide reliable electric service to their area and compete for customers by offering electric service at a lower price? 74% TOTAL FAVOR 18% TOTAL OPPOSE 8% Undecided/Refused Do you think that having competition among companies that provide electric service, like it has been done in the natural gas and telecommunications industries, is a good way or a bad way to control energy costs? 75% TOTAL GOOD 13% TOTAL BAD 12% Undecided/Refused  33

Conclusions & Recommendations  Even though regulators have not been helping much recently, stay the course and put some heat on the New Commission in this case and beyond  Complain to legislators and seek legislative changes  Secure own customer class of service  Consider every option to leave CE  Refuse to just be the passive customer of a near monopoly.

CONTACT INFORMATION RODERICK S. “Rick” COY CLARK HILL PLC 212 EAST GRAND RIVER AVE LANSING, MI 48906 PHONE: (517) 318-3028 FAX: (517) 318-3099 Email: rcoy@clarkhill.com