Good news from the Midwest: Michigan emerges as energy efficiency powerhouse

Blog Post | August 07, 2018 - 9:45 am
By Martin Kushler, Senior Fellow

Despite recent challenges and setbacks for energy efficiency in the Midwest, promising advances are also taking place. Perhaps most notable is the story unfolding in Michigan, where smart policy decisions over the past decade have already led to utility efficiency programs that will reduce utility costs statewide by more than $9 billion, with even greater efforts committed earlier this spring. Then in June, one of the state’s two major utilities filed a resource plan that would double its rate of program savings over the next two decades.

Here’s a bit of the backstory:

The “modern era” of utility energy efficiency in Michigan began in 2008, after a decade of literally no utility EE programs. The enactment of legislation (PA 295) created an energy efficiency resource standard (EERS), increasing up to 1% savings per year by 2012. After eight years of successfully meeting those savings targets, new legislation (PA 342) passed in December 2016 made several critical improvements to Michigan’s policy framework, including the following:

  • Creating an enhanced performance incentive for utilities to hit 1.25% and 1.5% annual savings.
  • Eliminating the existing utility EE spending cap (which had been 2% of revenues).
  • Creating a new requirement for utilities to do integrated resource plans (IRPs) and laying out important guidelines and requirements for how the IRPs should be conducted.

In response to the 2016 legislation, both of the major utilities in Michigan (Consumers Energy and DTE) filed new energy efficiency plans intending to meet the 1.5% savings target. Their prompt response helps demonstrate yet again that and that addressing the utility is critically important.

Even more impressive is the integrated resource plan that Consumers Energy filed in June. It calls for ramping up EE program savings to 2.0% per year by 2021 and sustaining that through 2029, and then increasing further by 2030 to 2.25% per year for the next decade. This major energy efficiency commitment is a key factor (along with an expansion of demand response and 5,000 MW of solar) in the Consumers Energy plan, which calls for no additions of fossil-fueled generation over the 20-year planning period, earlier retirement of certain coal plants, and an 80% reduction in CO2 emissions (from 2005 levels) by 2040.

In reflecting on these developments, I suggest three big lessons from this Michigan story:

  1. Policies matter. Enacting strong policies (including an EERS, a practical cost-recovery mechanism, and a substantial utility performance incentive) enabled Michigan to move in one decade from a state with zero utility energy efficiency programs to one of the top states in the nation.
  2. Very positive energy efficiency policies can be achieved in a “red” state. When Michigan enacted its 2016 legislation, Republicans then (as now) controlled both chambers of the legislature and the governorship. These energy efficiency policies, sometimes decried as “liberal,” have proven very effective and popular in Michigan. Other Republican-led states should support these business- and customer-friendly policies. (Historically, state support for energy efficiency was very bipartisan. It would be nice to return to those days.)
  3. Utility leadership matters. Finally, one very important element in the Consumers Energy story has been the emergence of a strong leadership team that seems truly interested in moving toward clean energy resources. Keep an eye on Consumers Energy’s CEO Patti Poppe, who has been instrumental in the company’s emerging commitment to sustainability.

As someone who has worked on utility energy efficiency issues in Michigan for more than three decades, I find it very gratifying to see my home state become such a positive example. Congratulations! Keep up the momentum! [By happy coincidence, the July issue of Public Utilities Fortnightly had a full feature cover story on the Michigan Public Service Commission.]

I hope that Michigan’s success can be a positive inspiration to other Midwest states. Illinois is building on strong 2016 legislation, and Minnesota has a process that could lead to its own advancements. Looking ahead, there could be some interesting competition for leadership in the Midwest. While Ohio and Indiana have had setbacks in recent years, I hope they can see Michigan’s commitments, in a politically similar situation, as a helpful example. New England and the West Coast have tended to lead on energy efficiency for quite a while. Now it’s time to earn more recognition for successful energy efficiency policies out here in “flyover country.”