Report: Efficiency standard saves Michigan ratepayers billions

As state policymakers carry the legislative momentum to end Michigan’s renewable and efficiency standards, a new report by the Michigan Public Service Commission shows that mandated efficiency investments since 2010 will save ratepayers billions of dollars.

The MPSC report released last week says every dollar spent on efficiency in 2014 resulted in savings of $4.38. Over the life of the program, utilities have spent $1.1 billion, which is expected to create lifetime savings to all customers of $4.2 billion.

“The cheapest energy is the energy never used, and this has proven to be the case again with Michigan’s energy optimization programs in 2014,” MPSC Chairman John Quackenbush said in a statement. “Because they focus on reducing energy waste, energy efficiency programs benefit all utility customers.”

Clean-energy advocates are pointing to the report as evidence of the standard’s success.

“It puts an exclamation point on the importance of continuing and expanding the energy optimization standard in PA 295,” said Martin Kushler, senior fellow with the American Council for an Energy Efficient Economy. “This so-called mandate is saving $4.38 for every dollar spent on the program. It’s accomplishing things the utilities were not doing on their own. It looks to me like the policy is working pretty darn well.”

Michigan’s energy optimization standard requires utilities to set up programs that meet efficiency targets on an annual basis — 1 percent of retail sales for electric providers and .75 percent of retail sales for natural-gas providers.

According to the report, utilities hit 141 percent of their targets for electricity and 130 percent for natural gas. In 2014, the state saw electric savings of 1.4 million megawatt-hours, which the MPSC says is approximately 172,500 households’ annual electric usage. The average residential customer pays $1-$2 a month through an efficiency surcharge on their bill.

The report notes that hitting efficiency targets can be a hedge against building new generation.

“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 report says. “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.”

Ending mandates

Still, proposed legislation in the House and Senate — where Republicans hold a majority and supermajority, respectively — would repeal or phase out the efficiency standard and essentially replace them with an Integrated Resource Planning process.

SB 438 would phase out the energy efficiency standard by 2019, while House Republicans’ proposal would repeal it.

Gov. Rick Snyder has not advocated for expanding the efficiency standard, but efficiency does play a central role in his energy plan released in March.

Last month, the director of the Michigan Agency for Energy testified before the Senate Energy and Technology Committee saying that the administration supports an incentive-based system for utilities who are make efficiency investments, which could be part of the Integrated Resource Planning process.

However, Kushler noted that data taken from states across the country shows that clear standards are more effective at driving efficiency than an IRP on its own.

“We know from national experience that these types of standards save more than three times as much as states that don’t and rely on a voluntary process,” he said. “There’s just no substitute for good, effective policy like we have with energy optimization.”

Consumers Energy said it will continue to make efficiency investments regardless.

“The MPSC report validates Consumers Energy’s experience that our energy efficiency can deliver cost-effective value,” spokesman Brian Wheeler said. “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.”

Lawmakers hope to finish work on energy legislation this fall and have a proposal before Snyder by the end of the year. Advocates are hoping legislators consider the proven success of the standards adopted in 2008.

“How — in the face of this kind of consistent results — can policy makers be thinking about eliminating this policy?” Kushler said.

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