Every weekday at 6 a.m., the Federal Register arrives in my inbox compliments of the National Archives and the U.S.

Government Printing Office. The Register is a compendium of administrative actions, presidential documents and new regulations issued by executive branch agencies. I examine each days table of contents to keep current on regulatory trends and to uncover particularly egregious rules. Those I highlight in my Tales of the Red Tape series. They have included: A Department of Justice requirement that hotels, restaurants and airlines accommodate miniature horses as guide animals for the disabled. Precise temperature, moisture, and chemical standards for manure set by the U.S. Department of Agriculture. And, the USDAs edict on affirmative action for vegetables That is, no more than one cup per week of lima beans, peas, corn, or potatoes permitted each student because Washington wants our children to try different vegetables.

I have a surefire method for spotting a Tale It will elicit from me the following: Seriously? And thats precisely how I regard Michigans quota on competition in the generation of electricity. Seriously? We are a country for which competition has delivered spectacular advances in every aspect of our livesthe envy of the world, in fact. And the competition of ideas is fundamental to our liberty. . Of course, there are those who don't exactly cotton to competition because it requires effort. It requires innovation. It requires efficiency. But why should we be captive to their lethargy? All of which is to say, we shouldnt have to be here. Energy is far too important to the Michigan economy to be governed by political forces rather than market forces. Households and businesses collectively spend nearly $9.5 billion on electricity annually. But 90 percent of the revenue is collected by Detroit Edison and Consumers Power. This government-sanctioned market dominance of electricity generation is all the more maddening considering that both companies were lavishly compensated for a very shortlived open market in generation. Evidence abounds that the Michigan power market is unduly constrained.

The number of customer accounts on a waiting list to receive electricity from an alternative supplier has topped 10,000. In the absence of the current 10 percent cap on competition, participation in the choice program would immediately exceed 20 percent in the service territories of both Consumers Energy and Detroit Edison. In comparison to the 10 largest states, Michigan has the fourth highest average retail electricity rates for residential customers; the third highest for commercial customers; and the fifth highest for industrial customers. Thats not a recipe for economic recovery. There are 23 alternative electricity suppliers licensed in the state, but just 11 are actively serving customers.

We know competition would make a significant difference. We know because it is flourishing in other states. We know because of the successful deregulation of other industries. We know because even limited competition in energy supply delivered benefits to Michigan in the past. Competition produced cost savings for both commercial and industrial firms, and attracted investment in new electric generating capacity to this statebefore Jennifer Granholm and the incumbents joined forces to take it away. And speaking of the former Michigan governor, who promised to make Michigan the epicenter of green energy, allow me a few words on the so-called 25 in 25 idea. Advocates claim that a Renewable Portfolio Standard of 25 percent by 2025 would create jobs and result in only minimal rate increases. Isnt that what we were told with regard to the 10 percent quota? However, that is not the experience here or in other states where the dictate has been enacted, or among the various European countries that aggressively pursued higher mandates. As my colleague Jack Spencer has documented, recent headlines overseas have referred to these mandates as destroying the economy and a real horror story. There is certainly nothing wrong with individuals, entrepreneurs or interest groups pursuing development of renewable energies and finding ways to make them economically viable. But it is not the proper role of government to force Michigan citizens to subsidize energy companies who otherwise cant compete on price or reliability. Such a tax will hinder, not enhance, economic growth and the well-being of Michigan citizens. ***

Rudyard Kipling once cautioned us, Never look backwards or you'll fall down the stairs. But in this instance, it is instructive to review the benefits that accrued from even the limited deregulation in electricity supply enacted by the Michigan Legislature in 2000, with passage of Public Acts 141 and 142. In the late 1990s, Michigan was burdened with historically high electricity rates and dismal customer service. This prompted lawmakers to restructure the industry. The new law unbundled the three elements of electricity service generation, transmission and distribution. It also established a schedule by which competitive suppliers could market electricity to residential, commercial and industrial customers. Public Act 141 also cut by 5 percent the residential rates charged by the incumbent utilities, and froze them at that level for five years. Thus, customers had less incentive to seek service alternatives. Two other elements of Public Act 141 undermined prospects for a truly competitive market. First, the incumbent utilities were required to maintain at all times enough generating capacity to serve the peak demand of all customers in their regions. This required the utility to maintain infrastructure for which it had no demand. Second, the incumbents were required to restore service at a regulated rate to any customer who left a competing supplier. Although modest, the reforms yielded some progress. Between 2000 and 2004, nonincumbent suppliers captured well over 20 percent of Michigans industrial and commercial retail customers by volume in the combined Detroit Edison and Consumers Power service areas. In the same period, industrial and commercial electricity rates fell by approximately 3 percent and 4 percent respectively in Michigan, while rising by about 13 percent and 10 percent nationwide. The states average rates for all customers displayed a similar trend. In fact, Michigans total electricity prices across all sectors dropped by about 2 percent, while the nations total electricity prices rose by about 12 percent. You dont need to memorize the numbers. The takeaway is that competition, although limited, benefited families and businesses. Also telling, Michigans electricity prices, which were typically higher than those of Illinois, Indiana, Ohio and Wisconsin, fell enough to diminish the gap and make the state more competitive with its neighbors. There was less change in the states residential sector. The incumbent utilities residential rates during this period were regulated at an artificially low level. This reduced the potential for profit and rendered the residential sector less attractive to new suppliers.

Alas, these trends ended after 2004, when state government bestowed a generous subsidy upon Detroit Edison and Consumers Energy in the form of a $2.2 billion state loan guarantee, which was backed by a surcharge on their own and their competitors customers. But the utilities, for decades, had been guaranteed profits from their captive customer base irrespective of efficiency or economic discipline. Indeed, under rate-of-return regulation, the utilitys income rose with every dollar the utility spent. The state loan guarantees provided the incumbent utilities with a marked competitive advantage over prospective competitors in both better access to capital and lower debt costs. Moreover, the surcharge imposed on competitors customers narrowed the price differences between new, more efficient electricity suppliers and the incumbents. Simply put, customers of competing suppliers were effectively subsidizing the former monopolies. Stranded-cost recovery also undermined the rate discipline that partial deregulation had stimulated. The average price of electricity for industrial customers in Michigan jumped 23.0 percent between 2004 and 2006, while industrial rates rose 17.3 percent for the nation as a whole. The states commercial rates fared a bit better, rising 12.4 percent, compared to 15.8 percent nationwide. Thus, after 2004, the states electricity rates were no longer rising less than the national average. The infusion of cash, intended to indemnify the incumbents against possible losses from competition, and to compensate the companies for the cost of regulatory mandates, undercut the price advantage of alternative suppliers. The non-incumbents market share, which had been skyrocketing, plummeted, and Michigans electricity prices were on the rise. The premise of stranded costs was belied by the incumbent utilities ownership of valuable power plants, for which there continued to be market demand. And to the extent competition might have diminished the incumbents market share, they could sell surplus electricity on the spot market (allowing them to export electricity elsewhere) or by private contract as long as the energy was produced at competitive prices. Moreover, utility investors had enjoyed the considerable fruits of monopoly status for decades; covering stranded costs prolonged that advantage. There was no such bailout of incumbents in the deregulation of other industries. *** Consumers Energys residential customers have reportedly suffered a 47 percent increase in their electric rates over the past four years. Large commercial customers have been hit with 40 percent rate increases, and small commercial customers experienced 30 percent rate hikes. Detroit Edison has also issued double-digit rate hikes on their customersall with regulators blessing.

While Consumers and Detroit Edisons rates have soared, wholesale generation rates in the competitive wholesale electric market in which these two utilities operate, have decreased by an average of 45 percent. Despite a growing body of evidence, too many Michigan legislators and regulators persist in treating electricity generation as a so-called natural monopoly. Doing so perpetuates their influence and power. But 20 years of experience elsewhere undermines that antiquated notion. The postwar technological trend in the United States toward building larger generating plants ended in the mid-1960s. Most important, regions could support enough generating plants to permit extensive competition if the plants were under separate ownership and had equal access to transmission and distribution. Only sunk costs and regulatory insulation give an existing firm the cost advantage necessary to thwart competition. But absent significant sunk costs, competition undermines monopoly pricing; natural monopoly is not sustainable. Competitive generation drives efficiency and innovation. Producers must scrutinize their cost structure at every margin. This produces cost savings as opposed to monopolistic and bureaucratic self-interest. But even absent a price differential, competition is always preferable to government-sanctioned monopoly. What we have in Michigan today, with monopoly-sanctioned utilities guaranteed cost recovery, is scant incentive to innovate or maximize efficiency. This subjects the utilities customers to the financial risk of undisciplined decisions and performance. Lower electricity costs are not the only benefit of a competitive marketplace. Competition creates new and better servicesa dynamic thats wholly absent under the current regulatory structure. Competition also improves reliability. Supply is more secure when spread among a larger number of sources. The incumbents resistance to competition is understandableparticularly in light of the looming costs of the Obama Administrations war on coal. They face potentially crippling emissions control costs unless Congress reins in the U.S. Environmental Protection Agency. But foisting ever-higher regulatory costs on Michigan families and businesses is not the solution to their problem. If nothing else, shifting the costs to consumers will weaken corporate resolve for political change. *** The way forward is clear: We must stop providing incumbent utilities with large subsidies that have undermined competition. We must eliminate capacity mandates that unnecessarily burden incumbent utilities and reduce their competitiveness. And, we must terminate regulatory cross-subsidies that favor residential customers, discourage residential energy conservation and reduce competition in the residential marketplace.

Competition elsewhere has lowered prices, improved customer service, and improved resource efficiency. Theres every reason to believe that the impact will be similar here once the constraints on competition are lifted. With unemployment exceeding 9 percent, with per capita income lagging the national average, with public schools in disturbing decline, with infrastructure everywhere eroding, and with all the other challenges facing this state, we shouldnt have to be devoting time and attention to breaking a legislated stranglehold on competition in electricity generation. Its time to get this done. Seriously.