Energy Efficiency Standards
The Clean and Renewable Energy and Energy Waste Reduction Act (PA 295 of 2008) created a mandatory energy efficiency portfolio standard (known as the Energy Optimization Standard) for Michigan's electric and natural gas utilities-- IOUs, municipal and co-op utilities. Effective April 20, 2017, PA 342 (2016) builds upon the PA 295 framework and changes the Energy Optimization program label to Energy Waste Reduction (EWR) programs.
The original 2008 standard set annual electric and natural gas savings targets for utilities. Utilities began their programs in 2009, and ramped up to reach a goal of 1.0% of electricity and 0.75% of natural gas by 2012. Effective April 20, 2017, the annual electric savings requirement of 1% is extended through 2021 and the annual natural gas savings requirement remains intact. Beginning in 2021 and every two years thereafter, the Michigan Public Service Commission (MPSC) must review rate-regulated electric providers’ energy savings requirement and has the discretion to adjust the requirement above or below the 1% annual level. The MPSC will review natural gas providers’ standards beginning in 2021, but only if the natural gas providers first demonstrate they cannot achieve the annual 0.75% energy waste reduction standard.
The existing 2% spending cap in place for natural gas and electric utilities has been eliminated effective April 20, 2017.
Utilities that do not wish to run their own energy efficiency programs can make an Alternate Compliance Payment to a third-party administrator approved by the commission.
Resource Planning
Michigan has two distinct integrated resource planning (IRP) processes.
The first is triggered when utilities seek a Certificate of Necessity (CON) for a new power plant, transmission project or major power purchase contract. When pursuing a CON, the utility must show that they have established the need for that capacity through an approved integrated resource plan. The criteria for a CON apply to utilities developing projects over $100 million in size. The MPSC is authorized to establish CON IRP standards, including projected energy efficiency and demand response savings.
Under the second IRP process, utilities must submit periodic IRPs to the MPSC according to various criteria, with 5-, 10- and 15-year load forecasts. The MPSC is required to provide the utilities with baseline modeling assumptions and scenarios to be used for future IRP filings. In their IRPs, utilities are required to demonstrate plans meet energy waste reduction requirements, to evaluate all supply-size and demand-side resources and to estimate the various rate impacts.
- Statute: MCL § 460.6s (1939 PA 3)
- Statute: MCL § 460.6t (1939 PA 3)
Rate Structures & Incentives
Cost-Recovery
Utilities that provide energy efficiency can recover the cost of implementing approved plans. Costs that exceed those specified in the approved plan are not recoverable, unless they are prudently made and meet cost-effectiveness testing. Costs are recovered by a volumetric charge for residential customers and natural gas customers, and a per-meter charge for all other customers. A utility can also seek to capitalize program costs for its Energy Waste Reduction programs, unless it made an alternate compliance payment.
Lost Revenue Recovery and Revenue Decoupling
Natural gas utilities can request a symmetrical revenue decoupling mechanism for the recovery of lost revenues, as long as they are spending at least 0.5% of total revenues on energy efficiency programs.
Previously, pilot decoupling mechanisms were approved on a case-by-case basis for both natural gas and electric utilities in Michigan. The Michigan Court of Appeals struck down the electric decoupling pilots in 2012 after a determination that the MPSC lacked the legislative authority to approve them.
However, effective April 20, 2017, electric utilities with less than 200,000 customers in the state can request a revenue decoupling mechanism that adjusts for decreases in actual sales compared to the projected levels used in that utility’s most recent rate case that are the result of implemented energy waste reduction, conservation, demand-side programs, and other waste reduction measures if the utility first demonstrates statutory criteria.
Utility Incentives
Effective April 20, 2017, utilities can receive financial incentives for achieving certain energy waste reduction under either the PA 341 integrated resource planning process or the PA 342 energy waste reduction requirements.
Each provision provides for tiered incentives for an electric utility that achieves annual electric energy savings of 1% to over 1.5% of its total annual weather-adjusted retail sales in megawatt hours in the previous calendar year.
Noncompliance Penalties
Michigan’s standard does not specify penalties for noncompliance, though it does specify that after its September 2015 compliance report, the commission can suspend programs of a utility that does not meet cost-effectiveness requirements and require it to maintain current energy efficiency levels without new cost-recovery.
The Attorney General or a member of a cooperative utility can bring civil action against a utility for non-compliance with the Energy Waste Reduction Standard.
Stakeholder Collaboration
The Michigan Energy Waste Reduction Collaborative was established by the Commission orders approving the initial EWR Plans for Consumers Energy and DTE. The collaborative, facilitated by PSC staff, includes all the utilities that are subject to PA 295, as well as energy efficiency experts, program implementers and other interested stakeholders. Its duties include recommending improvements to EWR plans, providing program evaluation support, developing or re-designing energy efficiency programs, updating the Michigan Energy Measures Database and promoting economic development and job creation through energy efficiency.
Program Evaluation
Cost-effectiveness Testing
The portfolio must pass the Utility System Resource Cost Test (USRCT; better known as the Program Administrator Cost Test), though individual programs need not pass that test. EWR Plan filings should include USRCT, Total Resource Cost Test (TRC), Rate Impact Measure Test (RIM) and Participant Cost Tests (PCT).
Net vs. Gross
The Energy Optimization Plan guidelines specify that evaluation plans must include the verification of annual incremental gross energy savings. On December 20, 2012, the MPSC ruled that Detroit-Edison could use a fixed 0.9 net-to-gross ratio for its program planning and evaluation purposes for 2012-2015 and recommended that the Michigan EM&V Collaborative continue to discuss net-to-gross ratios and updating the MEMD.
Technical Resource Manual
The Energy Waste Reduction Collaborative developed the Michigan Energy Measures Database (MEMD), which serves as the technical resource manual for energy program development and evaluation in the state of Michigan.
State Energy Plan or Vision
The Michigan Department of Environment, Great Lakes and Energy released the state's MI Healthy Climate Plan in April 2022, as directed by Governor Whitmer's Executive Directive 2020-1-. EGLE worked in conjunction with the Council on Climate Solutions to create a roadmap that would help Michigan commit to environmental justice and pursue a just transition, clean the electric grid, electrify vehicles and increase public transit, repair and decarbonize homes and businesses, drive clean innovation in industry and protect Michigan's land and water.
Energy efficiency is highlighted throughout the Plan, including strategies like adopting the newest building energy codes, achieving at least 2% annual energy efficiency savings for electric utilities and 1.5% for natural gas utilities, restoring the energy waste reduction standard for munis and coops and expanding energy efficiency financing options.
State Agency Energy Reduction Requirement
Michigan has a goal of 25% reduction of grid-based energy use by the state government by 2015. State departments are required to establish energy reduction coordinators to work with the state energy office and the state budget office to reduce energy use and train state employees in energy conservation.
EE in New State Buildings
The MI Healthy Climate Plan commits the state to leading by example when it comes to reducing energy. The Whitmer administration has pledged to reduce energy usage in state-owned facilities by 40% by 2040, committed to carbon neutrality in state-owned buildings by 2040 and established a $5 million Energy Efficiency and Green Revolving Fund to expand renewable energy and energy efficiency projects at state facilities.