Governor Snyder: Michigan Should Double Down on Energy Efficiency

Today is the deadline to  offer Michigan’s governor advice on the state’s energy future and the record shows that energy efficiency – our cheapest, cleanest energy resource – already has saved Michigan electricity customers millions and should be expanded.

When the Michigan Legislature adopted energy optimization (EO) standards in 2008, it recognized that by investing in cost-effective energy efficiency resources, Michigan utilities can substantially lower the cost of providing energy services by avoiding the significantly higher costs of generating, transmitting and distributing power. 

The state recently launched a website to assist Governor Rick Snyder's efforts to develop a new energy policy for Michigan.  The Governor is seeking to define the course of Michigan’s energy future, which could and should include increasing the state’s commitment to clean, efficiency and renewable energy technologies.  The state asked more than 100 questions – 23 of them about energy efficiency.   I have been involved with implementation of the energy efficiency policy for the past five years before the Michigan Public Service Commission, and therefore had access to a lot of the data needed to answer these questions.  Here is a link to our full set of responses NRDC, Building on Michigan's Energy Efficiency Accomplishments.pdf, and here are the highlights:

First, the current energy efficiency standards have been a tremendous success:

  • Energy efficiency programs administered by Michigan’s electric utilities produced $1.2 billion in benefits to customers with costs of about $400 million over the first three years combined.
  • The electric utilities exceeded their energy savings targets by amounts ranging from 16% to 49% in 2009, 2010 and 2011 -- and the 2011 savings exceeded even the 2012 savings target. 
  • Similarly, the gas utilities collectively exceeded their annual target by 43% in 2009-10 and by 34% in 2011.
  • Both Consumers Energy and Detroit Edison project that they will significantly exceed their savings targets for the 2012-2015 timeframe, as well. 
  • The lifetime savings from the first three years of programs for Consumers Energy alone will avoid the need for 7.7 million MWh of electricity --  roughly the amount of power used by 900,000 Michigan homes in a year. 
  • The utilities have saved electricity at a cost of $10-$20 per megawatt-hour (MWh), which is between one-eleventh and one-third the cost of the levelized cost of building and operating a new coal or gas power plant. Notably, the cost of saved electricity has been less even than the average cost of generation from existing plants.  Moreover, the electric utilities are projecting similarly low costs of $22/MWh for 2012-13.
  • For the gas utilities, Consumers’ gas portfolio produced savings at $2.11/thousand cubic feet (Mcf), significantly lower than the average price for delivered natural gas, which ranged from $9.17 to $15.06 per thousand cubic feet.
  • The Michigan Energy Optimization Collaborative, and the parties who participate in that collaborative and in the formal plan filings, have worked together to address problems that have arisen in the program implementation. For example, they’ve ensured that the programs prioritize peak savings, and that the higher value of long-lived measures is valued in the evaluation and performance incentive process.

These accomplishments, while impressive, have only scratched the surface of the available, cost-effective potential for energy efficiency. Michigan has much more to gain by deepening the commitment to capturing this potential: 

  • Doubling the electric savings goal from 1% of sales per year to 2% would increase the total annual net benefits of the programs (i.e. after accounting for the costs of achieving the savings) to more than $1.6 billion.
  • We estimate that the current value of the energy efficiency programs in deferring transmission and distribution upgrades is roughly $65 million annually.  Doubling the amount of energy efficiency (assuming the same proportion of savings occurs at times of peak demand) would increase these benefits to $114 million per year.
  • Michigan has commissioned a study to develop detailed estimates of the potential for energy savings throughout the economy. That study should consider input from Michigan experts and individuals who are involved in the Energy Optimization collaborative, and any new policy proposals should seek to capture all of the cost-effective potential identified.
  • Michigan utilities will be able to benefit from the experience of utilities in other states that are already -- or have approved plans for-- meeting targets at or above 2% of sales. These strategies include greater emphasis on the commercial and industrial sectors, non-lighting measures and cutting-edge technologies as detailed in the full report.

To ensure Michigan utility customers reap the full benefits that energy efficiency offers, Governor Snyder should propose new policies that would do the following: 

1.      Raise the annual savings targets such that they ramp up from 1% of sales in 2015 to 2% of sales by 2020;

2.      Ensure the utility business model and financial incentives are aligned with the goal of capturing all cost-effective efficiency potential, by decoupling utility revenues from sales volumes.  This should include clarifying that the MPSC should apply a symmetrical revenue decoupling true-up mechanism to electric utilities as well as natural gas utilities.

3.      Eliminate the artificial spending cap placed on Energy Optimization programs.  Although considered a ratepayer protection when Energy Optimization was an untested concept, the cap now poses an illogical barrier to securing Michigan’s lowest-cost energy resource of efficiency, when there is no cap on what utilities can spend on other higher-cost energy resources.

4.      Develop additional incentives to ensure utility efficiency portfolios seek to maximize peak savings and long-lived measures.

5.      Adopt a requirement for least-cost planning of transmission and distribution investments to identify and capture opportunities to defer transmission and distribution costs using less expensive demand-side investments. Implement and test enhanced energy efficiency programs on a  geographically targeted basis

6.      Adopt rules requiring more frequent and more comprehensive resource planning for utilities to ensure t all supply and demand side resource choices are evaluated and the basis of their total costs and benefits to utility customers.

ACEEE's Dr. Martin Kushler spoke at one of the Governor's energy forums in Traverse City Michigan, reinforcing our findings and in particualry dispelling the myth that an increase in "fracking" for natural gas would render the natural gas programs cost-ineffective.  You can view his presentation here:  ACEEE, Traverse City Presentation on Michgian EE.pdf

I appreciate the opportunity to weigh in as Governor Snyder develops his energy policy agenda.  I hope this is the beginning of a dialogue that will lead to a full-steam-ahead approach to capturing the benefits of energy efficiency for Michigan's economy and environment.