It has been two years and seven substitutes, yet Senate Bills 437 and 438 still fail to deliver on the state’s desire to ensure a clean, affordable, reliable energy future. With multiple Michigan coal plants retiring, we need to plan long term how to meet future demand, but clean energy options such as energy efficiency and renewable energy can address much of the need, not simply natural gas builds. The decisions the Michigan legislature makes at the close of 2016 can either help or hinder us from reaching that clean energy vision.
As legislation stands, it is unacceptable. Three vital changes needed before even considering passing these bills include changes to the renewable portfolio standard (RPS), energy efficiency (energy waste reduction) standard, and integrated resource planning (IRP).
Renewable Portfolio Standard
Originally, the bills sought to kill the 10% renewables by 2015 RPS, but following a large bipartisan push supporting the standard we now have tentative language for 15% renewables by 2021. However, the details matter and without further work Michigan residents will not receive the true benefits that renewable energy can provide.
- That the standard rise to 12.5% by 2019 and 15% by 2021.
- That not less than 50% of the renewable energy is purchased from independent producers.
- Requirement that the facility contribute to meeting the local capacity requirements.
Why it matters:
States with RPS’s outperform those without. They are the most successful in driving renewable energy projects especially when coupled with the federal production tax credit which were renewed. Michigan knows this. Renewable energy has provided a number of benefits to Michigan’s residents including over $3 billion in economic development, cleaner air, lower bills, and greater bill stability due to the availability of long-term fixed costs. Those benefits are directly attributable to the renewable energy resources being built in response to the provisions set forth in the original 2008 RPS. The improvements outlined would help incent utilities to build in the state and not simply fulfill the standard with renewable energy credits from outside the state.
Energy Waste Reduction
Originally, the bills would have killed the standard, but now the language keeps the standard until 2021 and increases incentives for what utilities are already achieving and beyond.
- Increase incentives for energy providers which meet or exceed a reduction in demand of more than 1.5% per year.
- Continue the energy efficiency programs beyond 2021.
- Clarify the standard requires an energy provider to reduce energy demand by at least 1% for electricity and 0.75% for natural gas through the life of the programs.
- Commission shall authorize symmetrical decoupling.
Why it matters:
Energy waste reduction continues to be the least cost method of meeting energy demand. To date, Michigan utilities have been exceeding the current 1% standard, reducing demand by an average of about 1.3% per year, and other states like Illinois are pushing legislation for over 2% annually through 2025.
Regarding decoupling, traditional regulation linked utilities’ financial health directly to increases in electricity use. This proved counterproductive for both utilities and their customers as sales growth declined and energy efficiency opportunities increased. Decoupling removes this disincentive for energy efficiency, but a key feature is symmetry—it must go both ways. If a utility recovers less revenue than regulators authorized – whether due to energy efficiency or another reason – a decoupled utility recovers that lost revenue. But if the utility recovers more revenue than regulators authorized, the utility returns that “found revenue” to customers.
Integrated Resource Plan
Originally, the IRP was championed by Governor Snyder's administration as a robust long term planning process, but now it has been gutted so that it is even weaker than the existing certificate of necessity.
- Go back to IRP that analyzes alternative options including renewable energy and non-generation resources such as energy waste reduction, demand response, transmission, etc
- Require incorporation of all available cost-effective energy waste reduction.
Why it matters:
The mission of an IRP is to investigate least-cost, least-risk resource mix options to meet future energy needs. The analysis attempts to figure out what type of investment protects the system from expensive possible futures, without itself being overly expensive. That preferred type of power system is the one that the utility should work to support.
The Northwest Power and Conservation Council’s IRP is held up as a role model because it does precisely that. Previously their utility resource planning was based on a single forecast of the region’s most likely energy demand. Resources that took 10 to 15 years to build were planned and constructed to that singular, best guess. If the future turned out differently, the region faced the problem of either having underbuilt or overbuilt resources, and the cost of error on either side was enormous. Putting all our eggs in the natural gas basket could be equally costly. That is why maintaining and building off the existing IRP is crucial.
Senate Bills 437 and 438 should not be taken lightly. They touched many complicated topics, endured countless rushed edits, and when all is said and done will trigger immediate impacts. Without the outlined changes, the bill package will not put us in a good position to deliver on a clean, affordable, reliable energy future and should not be supported.