Michigan’s 2008 law requiring utility spending on energy efficiency programs continued to exceed targets in 2015, surpassing goals for cutting electric and natural gas use by roughly 20 percent and proving to be a good investment for ratepayers.
According to a state report released Wednesday, ratepayers will ultimately see $5.2 billion in savings since the program started. In 2015, utilities spent $262 million on various energy efficiency programs that will generate $1.08 billion in lifecycle savings for ratepayers. Or, for every dollar spent in 2015, customers are expected to see $4.35 in benefits.
Moreover, the savings were obtained at a cost of $13.55 per megawatt-hour, “significantly cheaper than supply-side options such as new natural gas combined cycle generation at $56.40/MWh,” the report says.
“When compared to building and operating power plants these programs are the smartest investment by far,” Sally Talberg, chair of the Michigan Public Service Commissions, said in a statement.
Utility plans vary across the 64 different electric and gas plans filed with the state. The state’s Energy Optimization program targets efficiency savings at 1 percent of retail sales for electric providers and .75 percent for gas. Those targets were surpassed in 2015 but are slightly lower than 2014 savings.
Utilities are able to recover efficiency costs through ratepayer surcharges, based on energy usage, approved by the MPSC. The average residential customer pays $1-$2 a month, the report says.
That investment translates to less fuel that needs to be purchased by utilities, which is ultimately reflected in customers’ bills. In the long term, the spending is meant to curtail the need for building new generation.
“Once again, energy efficiency is shown to be extremely cost-effective and by far our lowest-cost resource,” said Martin Kushler, a senior fellow with the American Council for an Energy Efficient Economy.
Legislative changes proposed
The percentage targets will remain in place unless and until the state legislature changes the 2008 law. Lawmakers have been formally debating an energy reform package for nearly two years.
While early efforts sought to eliminate the efficiency standard, the latest version of the bills — and which have made it the farthest — hold the efficiency program in place through 2020. The proposal also removes the 2 percent spending cap on utility revenue in place, a key aspect supported by the Snyder administration.
Kushler said the 2 percent spending cap was part of a “political compromise” to get the 2008 law passed, and is pleased to see it removed in the latest proposal.
“We knew at the time it was kind of silly to put a cap on the cheapest resource,” he said. “Now, energy efficiency has proven itself exceptionally well. It’s certainly high time to remove that spending cap.”
Beyond 2020, energy efficiency spending by utilities would be incentive-based, based on bills that passed the state Senate with bipartisan support on Nov. 10. According to the MPSC report, utilities Consumers Energy and DTE Energy are anticipated to receive more than $34 million in “performance incentives” under the existing program.
But going to an incentive-based program after 2020 is “essentially shifting the benefits of energy efficiency from consumers back to utilities,” according to the Union of Concerned Scientists.
“Incentives are not an adequate replacement for the state’s energy efficiency standard—they simply do not provide the certainty that benefits will flow to ratepayers, or that utilities will remain committed to this important resource,” Union of Concerned Scientists analyst Sam Gomberg wrote this week.
Given the success of the program, he added, “it makes far more sense for Michigan to maintain the one percent standard as a required level of efficiency investments, then use incentives to motivate utilities to go above and beyond.”