Michigan Takes Big Step Forward on Energy Efficiency

Michigan utility regulators have set the stage for a major shift toward a clean energy future in Michigan.  They have moved to eliminate a major barrier to capturing the vast potential for energy savings, with multiple benefits to consumers, utilities, the economy and the environment.

Michigan utilities could save 15 million mwh of electricity every year by investing in energy efficiency, enough to cut total electric use by about 14 percent.  They would save their customers 2 dollars for every dollar they spent on programs to help people purchase energy saving measures like appliances, motors or insulation.  And they would simultaneously reduce global warming emissions by many millions of tons each year.

So, why haven't they already taken advantage of this clean, cheap and abundant resource?

Part of the reason is an obscure artifact of traditional utility rate regulation that rewards utilities financially when they make big capital investments, like building a power plant, and penalizes utilities with lower revenues if sales decline.  So, it's no wonder why utilities spend a lot of time trying to figure out how to get their sales to increase, and trying to build big, polluting power plants.

There are fairly easy ways to change this, and Michigan regulators took a big step in the right direction this week.  On Monday, the Michigan Public Service Commission approved a measure that would allow Consumers Energy, one of the two large electric utilities in the state, to "decouple" its revenues from its sales.  In other words, if they invest in energy efficiency as a priority resource, and sales go down, they will still be able to recover their costs to provide electric service and their shareholders won't take a hit. 

The regulators are allowing this decoupling measure on a pilot basis, and will make it more permanent only if the utilities respond by increasing their energy efficiency goals.  This creates critical alignment between the need to eliminate wasteful energy use and the utilities financial interests.  

Decoupling is a win-win for electric ratepayers.  First, they see lower electric bills because they need less power to light their homes and offices, or power their equipment.  Second, the utility is not allowed to "over-recover" its fixed costs, which happens under traditional ratemaking policy.  The Lawrence Berkeley National Lab has performed extensive analysis on the effect of decoupling on utility shareholders and ratepayers.  http://eetd.lbl.gov/ea/ems/reports/lbnl-1598e-ppt.pdf.

NRDC applauds the Michigan PSC for taking this step to make Michigan a clean energy leader.

Read more about Michigan's clean energy potential here:  http://docs.nrdc.org/energy/files/ene_09081101b.pdf