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State Energy Efficiency Policy Database

Michigan

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Summary

Michigan had a history of fairly aggressive energy efficiency programs until 1995, when demand-side management and integrated resource planning were discontinued during the move toward electric restructuring.  Michigan had essentially no utility-sector energy efficiency programs from 1996 until 2008.

Public Act 295 of 2008 (enrolled SB 213) brought energy efficiency programs back to Michigan in the form of an EERS that requires 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 or Commission.  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.

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

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November 8, 2013


Customer Energy Efficiency Programs

Legislation passed in October 2008, Public Act 295, reestablished utility energy efficiency programs in Michigan. The state's previous programs had been discontinued in 1996.  Public Act 295 gave the Michigan Public Service Commission (MPSC) the authority to approve or reject efficiency plan proposals. To approve a plan, the MPSC must determine that the plan meets the utility system resource cost test and is reasonable and prudent.  

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).

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.  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 incur costs.

Spending for each utility ramped up from 0.75% of total sales revenues in 2009, 1.0% in 2010, 1.5% in 2011, and to 2.0% in 2012 and each year thereafter.  This is a rapid and significant change, since there were essentially no utility energy efficiency programs in Michigan in 2007.

Michigan's self-direct program requires that large consumers develop and implement their own energy efficiency savings plans consistent with the energy savings goals required of electric utilities as part of the state's EERS.  All but the absolute largest self-direct customers must secure the assistance of an "energy optimization service company" to help assess current energy use and develop the energy savings plan.  Currently customers with annual demands of 1 MW or an aggregated demand among multiple facilities of 5 MW may participate, though over the next few years these requirements will be reduced.  Self-direct customers do not fully pay the cost-recovery mechanism (CRM) fees but do pay a portion to cover administration.  Customers submit their plans for review and approval by their utility, which reports aggregated program data to the MPSC. 

The most recent budgets for energy efficiency programs and electricity and natural gas savings can be found in the State Spending and Savings Tables on the left.

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November 8, 2013


Energy Efficiency Resource Standards

Summary: Electric: 0.3% annual savings in 2009, ramping up to 1% in 2012 and thereafter.  Natural Gas: 0.10% annual savings in 2009, ramping up to 0.75% in 2012 and thereafter.

Michigan adopted an EERS in October 2008, when the Clean, Renewable, and Efficient Energy Act was signed into law, requiring all electric and natural gas utilities to provide “energy optimization (EO) programs.” Michigan’s EERS requires electric utilities to achieve 0.3% savings in 2009; 0.5% in 2010; 0.75% in 2011; and 1.0% in each year from 2012 to 2015. Targets shall continue thereafter at 1% annual electricity savings subject to commission approval. Percentages are savings relative to the prior year’s total retail electricity sales.

Natural gas utilities must achieve 0.1% savings in 2009; 0.25% in 2010; 0.5% in 2011; and 0.75% in each year from 2012 to 2015.  Percentages are of the prior year’s total annual retail natural gas sales in decatherms or equivalent MCFs.  Savings goals after 2015 are to be based on a recommendation from the Public Service Commission to the Michigan legislature.

Each MWh of savings achieved by a utility in a given year qualifies for one energy optimization credit.  Excess credits can be "banked", i.e., can be used to meet up to one-third of the required energy savings in the year following the year in which they were achieved.  Excess credits cannot be banked if a utility has opted to receive incentive payments for exceeding its savings targets in a particular year.

Regulated investor-owned utilities are responsible for 88.9 percent of the statewide electric savings targets; municipal utilities represent 7.8 percent of savings; and electric cooperatives, 3.4 percent. Most efficiency programs are administered by the utilities, although some have opted to fund a state-selected program administrator, Efficiency United, through an alternative compliance payment mechanism specified in Act 295. Although Efficiency United program services are not subject to the statutory savings targets, equivalent contractual targets were imposed by the Commission. Large electric customers, as determined by their peak use, may administer their own programs.

Utilities that choose to administer their own programs must submit energy optimization plans to the Michigan Public Service Commission. There are limits to how much each utility may spend on energy efficiency programs each year. In 2011, spending is capped at 1.5% of total retail sales revenues for 2009. In 2012 and thereafter, the spending cap is 2.0% of the total retail sales revenues for the two years preceding. In 2012, 20 of Michigan's 66 utilities chose to pay an alternative compliance payment and have their programs administered by the State Energy Optimization Plan Administrator.


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January 23, 2014


Alternative Business Models

Act 295 mandated that the Commission consider decoupling mechanisms proposed by the state's electric utilities. Consumers Energy and Detroit Edison had decoupling in place (U-15768 and U-15751), but Commission orders on electric utilities were overturned in court on basis of lack of statutory authority (See Michigan Court of Appeals Association of Businesses Advocating Tariff Equity v. Michigan Public Service Commission….April 10, 2012). In light of the Court’s determination, the Commission dismissed all pending cases involving electric revenue decoupling. 

Act 295 also authorized natural gas decoupling, which has been implemented in a series of Commission orders. The Commission has approved natural gas decoupling for Michigan Consolidated Gas Company (Docket No. U-15985), Consumers Energy (Docket No. U-15986),and Michigan Gas Utilities (U-15990). Natural gas decoupling was not overturned in the 2012 court case above.

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August 9, 2013


Reward Structures for Successful Energy Efficiency Programs

The Commission has approved performance incentives for Detroit Edison Company (U-15806). 

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. In 2009 the Commission authorized a financial incentive mechanism for Detroit Edison (U-15806), MichCon (U-15890) and Consumers Energy (U-15805 & U-15889) that encourages utilities to pursue cost effective energy efficiency programs that significantly exceed the statutory minimum targets. In the Detroit Edison Case No. U-16671, the Commission found that the financial incentive mechanism should be reevaluated. The Commission therefore directed the Energy Optimization (EO) Evaluation Collaborative to assess the current financial incentive mechanism and consider incorporating additional factors. Detroit Edison and Michigan Consolidated Gas Company filed amended EO plans which considered financial incentive mechanisms and included factors to not only motivate the companies to exceed the legislated energy savings targets, but to also encourage the companies to incorporate specific program design elements focused on deep energy savings. Consumers Energy also filed an amended EO plan requesting approval of a financial incentive mechanism that includes factors to widen the range of opportunities for comprehensive energy savings.


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August 9, 2013


Energy Efficiency as a Resource

Under Act 295, 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. The MPSC has the authority to approve or reject the plans. Any utility seeking a “certificate of necessity” for a new power plant, transmission project or major power purchase must have demonstrated the need for the capacity addition through an approved integrated resource plan.


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August 12, 2013


Evaluation, Measurement & Verification
  • Cost-effectiveness test(s) used: UCT, TRC, PCT, SCT, RIM
  • Uses a deemed savings database: yes (MEMD)

The evaluation of ratepayer-funded energy efficiency programs in Michigan relies on legislative mandates (PA 295). Evaluations are administered by the utilities, and Michigan has established formal rules and procedures for evaluation. Michigan uses all of the five classic benefit-cost tests identified in the  California Standard Practice Manual. These are the Total Resource Cost (TRC), Utility/Programs Administrator (UCT), Participant (PCT), Social Cost (SCT), and Ratepayer Impact Measure (RIM). The rules for benefit-cost tests are stated in PA 295. Michigan specifies the UCT to be its primary cost-effectiveness test. These benefit-cost tests are required for overall portfolio screening.


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August 13, 2013