State Energy Efficiency Policy Database

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 (MPSC or 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.  

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).

In 2009, the first year of program implementation, Michigan utilities saved 375,652 MWh, or about 0.4% of retail sales. Reported budgets for energy efficiency programs for 2011, and electricity savings for 2010, are in the State Spending and Savings Tables.

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 Public Service Commission.  More information on large customer self-direct programs can be found in the ACEEE report, Follow the Leaders: Improving Large Customer Self-Direct Programs

Links:

• Public Law 295
• Report on the Implementation of P.A. 295 Utility Energy Optimization Programs
• Database of State Incentives for Renewables and Efficiency

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.  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.

The 66 utilities that 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.

Links:

• Authority: Act 295 of 2008

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.