Business interests around the state are finding reasons to dislike energy policy reforms proposed recently by Senate Republicans, whether because they seek to tighten the electric choice market or because they eliminate renewable energy and efficiency mandates.
To be sure, the business community is not a monolithic opponent to the two-bill package introduced in early July by state Sens. Mike Nofs, R-Battle Creek, and John Proos, R-St. Joseph. Concerns vary by industry and specific policies.
For example, Steelcase Inc., the Grand Rapids-based office furniture company, has participated in the Retail Open Access market since 2009, purchasing power from an alternative energy supplier. A Steelcase representative said tightening the choice market as proposed will eliminate electric competition over time through attrition.
Smaller clean-energy manufacturers say the proposal to eliminate renewable energy and efficiency mandates will stunt the growth of the industry, which advocates say supports 20,500 jobs and $5 billion in economic activity statewide.
While businesses oppose the plan based on their own interests, a common perception is emerging that the bill package mostly benefits the large investor-owned utilities at the expense of their commercial, industrial and residential ratepayers.
“When you look at these bills and the only people giving it broad support are the utilities, that’s telling,” said Tim Lundgren, a partner at Varnum LLP, which represents the pro-choice trade association Energy Michigan and other independent power producers. “The provisions in here are going to lead to lessened regulation of utilities by the Michigan Public Service Commission in ways that are going to hurt ratepayers. It is reducing competition and reducing regulation.”
The Senate Energy and Technology Committee, which Nofs chairs, started debating the plan in mid-July. He hopes to work on amendments with various stakeholders through the summer and have a bill on Gov. Rick Snyder’s desk by the end of the year.
Meanwhile, since April, the House Energy Policy Committee has been debating a package of bills led by Rep. Aric Nesbitt, the Republican chair of that committee.
The House and Senate plans differ mainly on electric choice components, though both seek to rely more on detailed utility forecasting in lieu of mandates on generation and efficiency.
With both state chambers dominated by Republicans, it’s unlikely that Democrats’ proposal from earlier this year to double the renewable standard to 20 percent and increase efficiency measures will garner much attention.
Snyder has not made specific policy proposals, but he has said that the state can rely less on coal and more on natural gas, renewables and energy efficiency to diversify generation and reduce air emissions.
TAKING AIM AT CHOICE
For months, Nofs has said that his goal is to maintain the cap on the number of utility customers that can participate in choice. Since 2008, customers representing no more than 10 percent of a utility’s average retail sales can get service from an alternative electric supplier, or AES. At the beginning of the year, roughly 11,000 customers were in line waiting to start service with an AES. About 6,300 customers participate in choice between Consumers Energy and DTE Energy.
Supporters of choice, otherwise known as deregulation, say it helps control rates by allowing for competition for customers among power producers.
Under SB 437, existing customers can stay with their alternative supplier, but they would have to notify the utility that provides distribution whether they plan to stay with an AES or return to an incumbent utility at the end of their most recent contract. If a choice customer returns to the utility, the customer would not be allowed to go back to an AES again.
Moreover, the queue is cut off from allowing any more customers to join under the plan.
Lundgren said Nofs’ bill would eventually eliminate the choice program over time by attrition if no new businesses are allowed to join.
“If you’re intending to preserve that 10 percent going forward, you can’t cut off the supply and expect it to continue,” Lundgren said.
John DeAngelis, who leads Steelcase’s global sustainability initiatives, said the Senate provisions would have the same effect as eliminating choice all together, as has been proposed in the House.
“Some of the added requirements really kind of destroy the economics associated with choice,” DeAngelis said, referring to requirements of projecting future load needs. “One thing it does for a company like us is it penalizes us for planning for our electrical load into the future. It would actually force us to prepay for capacity for the length of our contract.”
KEEPING THE CAP
Electric choice opponents argue that those participating in choice avoid paying for measures that ensure the reliability of the grid that they depend on to get their electricity. Additionally, they say those costs then get shifted to other customers.
Nofs says his plan still allows customers exercising choice to “stay on it forever” if they want.
Jason Geer, director of energy and environmental policy for the Michigan Chamber of Commerce, said his organization is still studying the intricacies of the Senate plan and will have a formal public position on it in August.
But generally, the chamber supports continuing the program with a 10-percent cap, Geer said.
“The No. 1 priority in the chamber’s policy is defined as competitive rates,” he said. “In order for Michigan businesses to compete nationally, they need competitive rates. Whether that’s through regulation or deregulation, it doesn’t matter to
our members. Most don’t care how we get energy, just that it’s competitive.”
In written testimony provided to the House Energy Policy Committee in April, Kent Wood of the Northern Michigan Chamber Alliance said electric choice is “difficult” for local chambers to grapple with.
“While there are a number of small and medium-sized communities in our area, the Chamber Alliance encompasses a largely rural area where the typical business is a small business,” he said. “These small businesses are largely small energy users, and not attractive to alternative energy suppliers looking to compete with incumbent utilities. These small businesses are also likely to see their rates increase when larger users leave for an electric competitor.
“On the other hand, we also have a number of larger businesses or organizations who have seen the energy cost savings benefits of being part of the choice program. Many times, for these large businesses, the savings run into the hundreds of thousands of dollars.”
Given the political climate in Lansing, it’s unlikely that final legislation would go beyond the 10-percent cap. Nesbitt proposed a bill in March that would eliminate choice entirely, returning Michigan to a fully regulated market. Snyder has indicated support for a policy more aligned with Nofs’ proposal that maintains the 10-percent cap.
Whereas groups including the Michigan Chamber of Commerce and the Michigan Manufacturers Association are glad to see the Senate plan abandon renewable and efficiency mandates, others say it would put the brakes on the emerging clean-energy industry in Michigan.
The Senate plan calls for phasing out the state’s Energy Optimization program on efficiency as well as the mandate to reach 10 percent of renewable energy generation by the end of the year. In exchange, the plan relies on Integrated Resource Planning (IRP) to require utilities to file detailed load forecasts into the future that rely on least-cost options that meet minimum federal emissions requirements.
Clean-energy advocates say an IRP is not an effective replacement for standards, and it could particularly impact businesses doing work on wind, solar and efficiency projects.
Rebecca Stanfield, the Natural Resources Defense Council’s Midwest program deputy director of policy, said removing energy standards sends the wrong signal to the business community.
“I think it’s putting out a sign that says Michigan doesn’t really want to be a place where those kinds of businesses are growing their staff and doing more business,” she said. “Standards have basically been a magnet for economic development in Michigan.”
Small manufacturers are echoing that call.
“If Sen. Nofs’ plan were to proceed, it really would be a disaster for the state,” said Mark Cryderman, business development and education manager for The Green Panel Inc., a Brighton-based solar company with 30 employees.
STUNTING GREEN GROWTH
The solar industry has been slow to grow in Michigan due to what advocates say are comparatively unfavorable net-metering laws when it comes to incentivizing customers to install rooftop solar arrays. The Senate plan redesigns how net metering works in a way that customers buy electricity from utilities and then sell back to them what they generate at wholesale prices.
“It pretty much wipes out the industry,” Cryderman said. “Whatever power you produce, you have to pay them for it. That’s pretty bad. I just hope the general public sees this and understands it’s limiting their ability to produce their own power and (their) ability to have independence.”
Nofs disputes claims that his proposal would stifle the market because it lifts the cap on how much can currently be produced. He said his proposal is a compromise between what clean-energy groups and utilities wanted. Utilities here and throughout the Midwest are concerned that a growing number of rooftop solar customers will benefit from using the grid without paying as much as others.
Nofs is concerned that large businesses would become “small utilities for themselves.”
“Let’s say they produce all they need for themselves, which is fine,” Nofs said. “We’re saying you can’t go out and produce more than that and sell it without paying anything. There will be a better market for them to operate than there presently is.”
When it comes to phasing out renewable and efficiency standards, Nofs — who voted for establishing the mandates in 2008 — said the clean-energy sector should now be able to compete on its own with the rest of the market.
“For seven years, they’ve been saying that (renewables) are getting cost-effective,” Nofs said. “What we’re saying is: ‘It’s time to swim.’”
DTE spokesman Scott Simons said while mandates may go away, the utility “definitely sees energy efficiency and renewable energy as part of our generation portfolio going forward.”
CLAMPING DOWN ON PROVIDERS
In addition to the choice provisions, Lundgren of Varnum sees other aspects of the Senate plan that benefit utilities and hurt the private sector.
Namely, he cited that the plan would allow the Michigan Public Service Commission to approve decoupling mechanisms. Decoupling is in place for natural gas sales, while state courts have ruled that the process does not apply on the electric side. Supporters say decoupling incentivizes utilities to do energy efficiency because it does not directly tie revenues to how much energy is sold, removing a barrier to utilities’ interest in energy efficiency.
While Lundgren said decoupling is good in theory, he added that SB 437 is written in a way that forces the MPSC to “give deference” to a utility’s complex revenue models.
“You’re essentially tying the hands of the commission,” he said. “It essentially orders the commission to rubber stamp what a utility proposes as long as it’s not illegal.”
Lundgren points to another provision in SB 437 that he says could put “in jeopardy” the private businesses specializing in energy audits and efficiency.
Lundgren said the bill as written would allow utilities to use information from the regulated side of their businesses to make profits on their unregulated side, such as through home energy audits.
“Essentially, they’re encouraged to go into business and make unregulated money by competing with Michigan private businesses,” Lundgren said. “If I was operating one of those businesses, I’d be in a panic. The utilities will undercut the price that businesses currently on the market offer. It’s an opportunity for utilities to make more money, which is OK, except they’re able to do it in a way that’s unfair competition with existing Michigan businesses.”
Nofs said criticism that his plan is a giveaway to utilities is unfounded, particularly compared to the House plan, which eliminates electric choice entirely — a change the utilities have long sought.
“Typically in the political world, there is picking of winners and losers,” Nofs said. “I’m setting up a system where everyone can compete and let the best argument that’s demonstrated win.
“I don’t care if you’re a utility, in the private sector or an environmentalist: Everyone wants certainty. Why? Because it’s a lot easier. Now they have to earn money and not take for granted that it will be there.”