Around five years ago I talked to the Economic Club of Detroit about fundamental changes underway in the energy industry. Then, electric utilities across the country were dealing with the unintended consequences of a patchwork of deregulation efforts. Electric utilities, the classic “widows and orphans” investment, became as volatile as the trading pit at a commodities exchange. It seemed the electric industry was making headlines daily.
Unfortunately, the headlines were rarely positive. Most dealt with power shortages, soaring prices, trading disasters and the swift consolidation of our industry. At the extremes, we saw one of the 10 largest corporations in America, Enron, disappear in a blitz of scandals. Pacific Gas & Electric, one of the most respected names in our industry, was forced into bankruptcy by a regulatory scheme created by California that was positively insane. Two other California utilities teetered on the brink, and ultimately the fiasco cost Gov. Gray Davis his job.
I wish I could tell you that all of this ended with California. But other states created new regulatory rules based on market rates but then enacted multi-year transition periods. Those transitions are now coming to an end and we’re seeing another wave of silliness.
In Maryland, Constellation Energy’s Baltimore Gas & Electric subsidiary announced a 72 percent rate increase for residential customers to bring it in line with the market. The legislature promptly tried to fire the Public Service Commission, the Maryland Supreme Court denounced the legislators’ actions as unconstitutional, and just two weeks ago, as the new governor was trying to clean up the mess, the Commission chairman resigned.
In Illinois a similar story is unfolding. Illinois’ utilities were forced to sell most of their power plants and required to buy electricity from the marketplace. After a five-year transition, companies like Exelon went out for bids and came home with sticker shock. Then, to shield residents and businesses from unstable and much higher market rates, the state told the utilities that they’d have to eat the difference – meaning utilities would lose money on every kilowatt of electricity they sold. Exelon’s Commonwealth Edison unit has said that will lead to certain bankruptcy if a deal is not cut. But that’s another story, for another time. It does, however, drive home the point that electric markets can be exceedingly volatile if not handled carefully.
When I addressed this group in 2002, my comments about nuclear energy were brief and pretty discouraging. I predicted that while most nuclear power plants would have their licenses renewed, no new nuclear power plants would be built in the U.S. to accommodate growing demand.
Today I’m here to tell you that I was dead wrong. Despite the condition of our economy, within the next decade, Michigan – and the rest of our country for that matter – will need more electricity . . . a lot more. And pollution free nuclear power has to be an important part of the mix.
Today I am pleased to announce that DTE Energy has started work on preparing a license application for a new nuclear plant at our existing Fermi site near Monroe. This is the first step to providing clean, reliable and affordable energy for the better part of the rest of this century. And with it we will provide thousands of highly paid jobs to highly skilled Michigan workers. But despite my enthusiasm, let me be clear that we have not yet made a final decision to build. Rather we are preserving our option to build at some point in the future by beginning the long and complex licensing process now.
Given the four-to-five-year timeframe for the federal licensing process, and the five-to-six-year construction period, we need to take this s