DEREGULATION UPDATE

Michigan

Overview

On June 1997, the Michigan Public Service Commission (MPSC) adopted a program to implement full customer choice by 2002. Direct access is scheduled to begin March 31, 1998, when 2.5 percent of each electric utilityfs load will be opened to competition. An additional 2.5 percent of each utilityfs load will be opened to competition on June 30, 1998. The load will then be increased by 2.5 percent annually, until 2001, at which time 12.5 percent of each electric utilityfs load will be open to competition. Beginning 2002, all remaining customers will be allowed to choose their electricity supplier.

During the transition period, customers leaving their existing supplier would have to find an alternative supplier and submit their bidfs to the MPSC on how much they are willing to pay in exit fees. The MPSC will then select the highest bidders to participate in the competitive marketplace.

Minimum Bid for Direct Access Service

Originally, the commission had set a minimum bid of 0.5 cents per kilowatt-hour for customers desiring direct access service. The MPSC has since modified its recommendations. Now Detroit Edison and Consumers Energy, two investor-owned utilities, can set a lower minimum bid amount. A direct access bid will be the customers transition surcharge for the 1998-2001 period.

Subsequent to 2001, all direct access customers will have a uniform transition surcharge (based on the total stranded and implementation costs to be paid by direct access customers). This surcharge will be subject to the "true-up" approach.

The "True-Up" Approach

Utilities will be allowed to recover 100 percent of their stranded costs via transition charges. An annual true-up mechanism will be used to ensure stranded cost revenues match actual costs. Market prices, direct access sales and total utility sales will be calculated to ensure that the amount collected for stranded costs doesnft exceed actual costs.

Open Access Chronology

• March 31, 1998: Bid deadline for the first 2.5 percent of each utilityfs load. Once approved, winning bids may commence open access as soon as practical thereafter.
• June 30, 1998: Deadline for bids for the second 2.5 percent of each utilityfs load. Once approved, winning bids may commence open access.
• Nov. 20, 1998: Deadline for bids for the third 2.5 percent of each utilityfs load, with direct access commencing no sooner than Jan. 1, 1999.
• Nov. 20, 1999 and 2000: The final days for bids for the fourth and fifth 2.5 percent blocks. Direct access service commences no sooner than Jan. 1 of the following years.
• Jan. 1, 2002: All customers have direct access.

Standby Rates

The MPSC made a slight adjustment to its Oct. 29, 1997 ruling on standby rates (the rates for back-up power). The commission originally ruled that if the utility is not the direct cause for the need for standby power, then the standby rate would be the customerfs lowest cost or the utilityfs top incremental cost. The MPSC has since ruled that the standby rate should be the customerfs highest cost or the utilityfs top incremental cost. This will ensure utilities do not have to sell standby power at less than the cost of providing it in situations where the utility is not the direct cause of the problem.

A Framework in Flux

Michigan

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