Michigan

Summary Michigan had a history of fairly aggressive energy efficiency programs until 1995, when “demand-side management” and “integrated resource planning” were abandoned during the move toward electric restructuring.  Michigan has had essentially no energy efficiency programs since 1996. New legislation in October 2008, Public Act 295 of 2008 (enrolled SB 213), required all electric providers (other than alternative electric suppliers) and all rate-regulated natural gas utilities to file energy optimization (efficiency) programs with the Michigan Public Service Commission (MPSC). The MPSC has the authority to approve or reject the plans. An explicit objective of the “energy optimization” legislation was to reduce long-term costs to utility ratepayers, particularly by delaying the need for additional power plants. Public Act 295 offers multiple options for providers of energy efficiency program administration, including administration by the provider, joint administration with other providers, administration by a state agency, or administration by a competitively-selected nonprofit organization. As of the summer of 2009, several companies had begun implementing their programs. Public Act 295 requires the utilities to set annual energy savings targets (an "energy efficiency resource standard"). Utilities will not be penalized for not achieving the goals, but can receive incentives upon exceeding them. Natural gas utilities are allowed to request revenue decoupling if they are spending at least 0.5% of their total revenues on energy efficiency programs. Decoupling reduces the financial disincentive for utilities to support energy efficiency by separating utilities’ profits from their levels of sales.

New legislation passed in October 2008, Public Act 295, reestablished utility energy efficiency programs in Michigan. The state's previous programs were discontinued in 1996. 

Public Act 295 gave the Michigan Public Service Commission the authority to approve or reject efficiency plan proposals. To approve a plan, the Commission must determine that the plan meets the utility system resource cost test and is reasonable and prudent.

In December 2008, the MPSC issued a Temporary Order in Case No. U-15800 that addressed filing requirements for the energy efficiency plans. The following month, the Commission issued an Order and Clarification in the case directing the utilities to file their plans by April 3, 2009.

Utilities must offer programs to customers in all sectors (residential, low-income, commercial, and industrial). Eligible large electric customers can design and implement an energy efficiency plan for their own facilities and, if approved by their utilities, be exempt from paying the per-meter surcharge. The utilities may administer the programs themselves, administer the programs jointly with other providers, select a nonprofit to administer the programs, or opt to work with the MPSC-selected program administrator (the Independent Energy Optimization Program Administrator).

As of the summer of 2009, all of the utilities have either filed their plans or plan to use the Independent Energy Optimization Program Administrator. Several companies have begun implementing their programs.

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Energy efficiency programs are supported by customer rates via a volumetric charge for residential customers and monthly "per meter" charges for commercial and industrial customers.  (Volumetric charges are assessed on a per kWh or per therm basis. "Per meter" charges are based on the number of meters rather than the customer's energy consumption.) Each utility specifies these charges in plans that are filed with the MPSC.  To the extent feasible, the utilities must use the charges collected from each customer rate class to fund efficiency programs for that rate class. Utilities use customer rate classes to attribute costs to different categories of customers based on how those customers cause costs to be incurred.

Spending for each utility is limited to 0.75% of total sales revenues in 2009, 1.0% in 2010, 1.5% in 2011, and 2.0% in 2012 and each year thereafter.  (1.0% of total electric revenues in Michigan would currently be approximately $80 million per year.)  This is a rapid and significant change, since there were essentially no utility energy efficiency programs in Michigan in 2007.

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SB213 establishes an energy efficiency resource standard (known as an “energy optimization savings standard”) for utilities. Electric utilities must achieve 0.3% savings in 2009; 0.5% in 2010; 0.75% in 2011; and 1.0% in 2012 and each year thereafter. Natural gas utilities must achieve 0.1% savings in 2009; 0.25% in 2010; 0.5% in 2011; and 0.75% in 2012 and each year thereafter. There is no penalty for failing to achieve the savings amounts, but there are incentives for exceeding the targets.

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SB 213 allows natural gas utilities to request a symmetrical revenue decoupling mechanism as long as they are spending at least 0.5% of total revenues (including natural gas commodity costs) on energy efficiency programs. The legislation does not mention electric utilities but there is an expectation that there will be decoupling proposals from at least one in 2009.

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PA 295 (2008) contains two provisions whereby utilities can receive an economic incentive for implementing energy efficiency programs. First, they are allowed to request that energy efficiency program costs be capitalized and earn a normal rate of return. Second, they are allowed to request a performance incentive for shareholders if the utilities exceed the annual energy savings target. Performance incentives cannot exceed 15% of the total cost of the energy efficiency programs.

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Under SB213, an objective of the “energy optimization” programs is to reduce long-term costs to utility ratepayers — in particular, by delaying the need for additional power plants. A companion bill that passed at the same time (HB5524) incorporates energy efficiency into the "integrated resource planning" process.

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• SB213 (Public Act 295) legislation
  • ACEEE News Advisory regarding SB213
• Michigan’s 21st Century Electric Energy Plan
• Michigan Public Service Commission (MPSC) Web site
• Michigan State Incentives for Renewables and Efficiency

Last Updated 08/20/2009

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