For every dollar spent on energy efficiency last year as part of a 2008 state mandate, Michigan ratepayers realized benefits of $4.38, according to a new report from the Michigan Public Service Commission.
Between 2010 and 2014, the overall cost of the state’s Energy Optimization (EO) program has been $1.1 billion, but it will result in lifetime savings to all ratepayers of $4.2 billion, according to the report. The EO program requires providers to spend 1 percent of their retail electric sales and 0.75 percent of retail natural gas sales to eliminate energy waste.
The savings created last year were the highest during the life of the program. The program has proven cost effective as it is in the crosshairs this year of Republican lawmakers who want to eventually see the standard eliminated.
“It puts an exclamation point on the importance of continuing and expanding the energy optimization standard,” Martin Kushler, senior fellow with the American Council for an Energy Efficient Economy, said of the report. “This so-called mandate is saving $4.38 for every dollar spent. It’s accomplishing things the utilities were not doing on their own. It looks to me like the policy is working pretty darn well.
“How — in the face of this kind of consistent results — can policymakers be thinking about eliminating this policy?”
The annual report on the effectiveness of Michigan’s renewable energy and efficiency standards showed that the two “continue to be cost-effective resources in the state of Michigan” as prices for renewable energy continue on a downward trend.
Collectively, electric providers have met a combined average of 141 percent of their efficiency targets and 130 percent of their natural gas targets. Last year, energy efficiency programs saved 1.4 million megawatt-hours statewide on the electric side, which is enough to supply 172,500 households’ annual electric usage, according to the MPSC.
Average residential customers pay roughly $1 to $2 a month on efficiency.
“The MPSC report validates Consumers Energy’s experience that our energy efficiency can deliver cost-effective value,” said Consumers Energy spokesperson Brian Wheeler. “Since 2009, our customers have experienced bill savings of more than $855 million through our energy-efficiency programs. They are also an effective way to help Michigan to attract and retain job creators that need to manage costs to stay competitive.
“Gov. Rick Snyder has identified the elimination of energy waste as a priority in Michigan’s next energy plan, and we expect to continue to offer energy-efficiency options in the future.”
Statewide levelized costs for energy efficiency resources are about one-third of the cost of new generation from a combined cycle natural gas plant on the supply side, according to the report.
Over time, spending on efficiency can be a hedge against the need to build costly new generation plants.
“The benefits of the EO program will flow through to customers over the mean lifecycle of all efficiency projects implemented by customers during the year,” the report says. “Over the long run, the cumulative reduction in customer demand for electricity is expected to result in the deferral or reduction in the need to build new electric generation plants. The avoided cost of the production or purchase of electricity, purchase of natural gas, and building new generation benefits all customers, whether or not they have directly participated in the EO program.”
James Clift, policy director with the Lansing-based Michigan Environmental Council, said the numbers in the latest report seem to “justify substantially more spending by utilities in that area.”
“The key is to always get to the point where you can retire power plants and not have to build a new one,” Clift said.
PHASING OUT THE STANDARD
Republican lawmakers in both chambers this year have shown an interest in eliminating Michigan’s renewable energy and energy efficiency standards, saying the policies “pick winners and losers” and have served their purpose in helping to bring down costs for renewables.
Gov. Snyder has said that energy efficiency will be a key factor in cutting carbon emissions statewide when combined with renewable energy generation.
While he has not advocated for extending the standard, Snyder believes policymakers should create an incentive-based program to encourage utilities to keep doing efficiency and to lift the “artificial” 1 percent spending cap.
Valerie Brader, director of the Michigan Agency for Energy, testified on Sept. 10 before the Senate Energy and Technology Committee that the administration would like to see a “financial reward” for utilities making long-term investments in efficiency.
Currently, Brader said, the spending cap limits the amount of savings that could be achieved on efficiency.
“The very simple solution is to remove the artificial cap,” Kushler said of the governor’s position. “It could be done in half a sentence in the legislation. You don’t need to kill the program because of an artificial spending cap.”
The Republican chairmen of the House and Senate energy committees said Michigan will have to comply with new federal rules on curbing carbon emissions in the Clean Power Plan anyway, which will drive utilities to make the investments. Additionally, those lawmakers are pushing for a new “Integrated Resource Planning” process that would require utilities to file detailed future energy plans with the MPSC and allow for outside stakeholders to provide input on them.
STANDARDS DRIVE RESULTS
However, Kushler said IRP processes are not shown to be as effective as clear standards.
“I think it’s true (utilities) would continue to do something. I think they’ve found their customers like it,” Kushler said. “But we know from national experience that states that have these types of standards save more than three times as much as states that don’t and rely on a voluntary approach. There’s just no substitute for a good, effective policy like we have with energy optimization.”
The report also notes that there is still opportunity for more savings.
“There remains significant achievable cost effective potential for electric and natural gas energy efficiency measures and programs in Michigan,” according to the report.
With “a little bit more focus, a little more investment,” Clift thinks utilities could “very easily” ramp up spending to 1.5 percent of their retail sales, which would put Michigan in a good position to comply with the federal Clean Power Plan.
He remains optimistic that policymakers will rethink their opposition to the renewable energy and energy efficiency standards, given the their proven success.
“These programs have been working pretty well and created a significant amount of economic development in the state,” Clift said. “And it’s predictable. You want to give direction to your public utilities of where you want them to go and you want to make sure they’re doing things in the best interest of ratepayers.”