Wolfram discusses incentive problems and legislative solutions

LANSING – Dr. Gary Wolfram, the director of economics at Hillsdale College, testified yesterday in front of the Michigan House Energy Policy Committee on the issues inherent in Michigan’s current electric utility industry structure and how changes in incentives and legislation could better promote innovation and drive economic growth.

Citing his white paper Improving Michigan’s Electric Utility Industry, commissioned by the Michigan Conservative Energy Forum (MCEF) in 2015, Dr. Wolfram pointed out flaws in misplaced incentives that lead to problems such as significant barriers to entry in the power generation industry, as well as the lack of incentives to allow a new generator of electricity into a utility market. There are also missed opportunities in aspects of energy efficiency, with little to no incentives for utilities to encourage customers to conserve electricity or avoid peak usage times. These misplaced incentives limit both innovations in Michigan’s energy industry as well as proper competition in the marketplace that keeps costs low for ratepayers, ensures efficiency, and responds to consumer demands.

“The problem is the incentives are misaligned with the best resource use, and dampen the innovative urge that has created such wealth in our market economy,” said Wolfram. “If Michigan can develop an electric utility industry that is a leader in cost efficiency and innovation, it will benefit all Michigan citizens as well as the out-of-state customers of our manufacturing and service sectors.”

Possible solutions to these issues, according to Dr. Wolfram, are expanding retail choice and competition, further structurally separating the electric industry by separating ownership of distribution and generation from a single utility company’s control, and enhancing consumers’ ability to purchase renewable energy.

MCEF issued the following statement today in response to Dr. Wolfram’s testimony:

“We appreciate Dr. Wolfram addressing these important concerns with the committee,” said Larry Ward, executive director of MCEF. “Some of the current incentives and policies in place are not driving innovation and growth in Michigan as they can - and should - be. While national and regional electricity prices are falling, Michigan rates continue to steadily climb. While we have made progress recently with the passage of Public Acts 341 and 342, which aim to address some of these problems outlined by Dr. Wolfram, Michigan still has a ways to go to become a national leader in energy. MCEF looks forward to continuing its work with policymakers, stakeholders, and the public to further improve our state’s energy and economic landscapes.”

###

About MCEF: The Michigan Conservative Energy Forum is an organization comprised of conservatives who believe that Michigan should adopt a true “All of the Above” energy policy that includes an increase in our commitment to renewable energy and energy efficiency.  MCEF believes encouraging diverse and local energy production and reduced energy waste will create jobs and stimulate Michigan’s economy, reduce our reliance on foreign energy, improve our national security, and protect our valuable natural resources. http://www.micef.org/

Comment