Michigan Gov. Cites "Challenges" to Generation Investment from Retail Choice (Arizona, Now Michigan Choice Efforts Toppled by Texas Resource Adequacy Narrative)

In outlining several long-term energy goals for the state, Michigan Governor Rick Snyder expressed concern with retail choice, noting the "challenges" presented to investment decisions from a lack of stability.

In discussing the policy goals, which as noted below stress resource adequacy, Snyder cited the long-term investment horizon for capacity, and the inability to store electricity and the requirement to balance supply and demand in real-time.

"Choice creates a lot of challenges and problems, so I wouldn't jump to say increasing choice is the answer," Snyder said.

Snyder instead emphasized providing more competitive rates for industrial customers in a way that does not burden other ratepayers, but choice was not his immediate solution to this goal.

Snyder also expressed concern with customers using choice to "arbitrage" short-term market developments, and bouncing back and forth between utility supply and competitive supply.

The energy goals laid out by the governor include:

"Reliability. Michigan should become a leader in reliability in both reducing the average number of outages and their length. Additionally, ensure that our state never experiences massive outages due to lack of supply. (emphasis added)

Opponents of electric choice have said that resource adequacy would be negatively impacted by expansion of electric choice.

While competitive market supporters have attempted to rebut this claim, their cause is undercut by some of their peers in Texas, which have explicitly linked retail electricity choice with a lack of generation development.

Specifically, NRG Energy said to the Public Utility Commission of Texas earlier this year that:

"The success of retail competition in ERCOT results in relatively short-duration products (mostly less than two years). This creates an absence of natural buyers in the long-term bilateral market needed to support long-term market fundamentals and the corresponding forward price valuations required to enable investment in generation assets with a multi-decade life ... The inability to execute hedges at forward prices reflective of long-term supply and demand removes the economic support for operation of existing generation capacity and interferes with the process to obtain financing for the construction of new generation capacity." (NRG Energy Inc. comments in PUCT Project 40000, May 31, 2013)

The solution to this problem created by retail choice, NRG and others have said, is more regulation, in the form of a capacity mandate (of course, capacity prices wouldn't be regulated, only the mandated demand).

Concerns abut resource adequacy in a retail choice environment -- apparently justified if you believe the incendiary comments from NRG and other Texas capacity market supporters whose hyperbole and dire warnings have irrevocably damaged the Texas brand as a retail choice success story and have set back the cause of customer choice -- brought Arizona's proceeding regarding the introduction of retail electric choice to a screeching halt, and Snyder is adopting some of the same concerns expressed by Arizona stakeholders, emphasizing concepts like "reliability," "stability," and the need to avoid "outages due to lack of supply."