The Good, the Bad, and the Ugly of Michigan’s Proposed Clean Energy Overhaul

November 22, 2016
Sam Gomberg
Senior Analyst

On November 10th the Michigan Senate passed legislation (Senate bills 437 and 438) to overhaul how the state’s utilities are regulated. It’s been more than two years in the making, and the legislation touches on a wide range of issues that will impact the role of clean energy in meeting Michigan’s energy future, including how to handle the growth in rooftop solar and updating the state’s renewable energy and energy efficiency standards.

Some of it is good, some bad, and some downright ugly. While it has improved significantly from where we started, more strengthening is needed as the discussion moves to the House.

The Michigan Senate has passed an overhaul to the state's energy legislation, but improvements are needed to ensure Michigan achieves a truly diverse, sustainable and affordable energy future. Photo: © Creative Commons/Brian Charles Watson (Wikimedia)

The Michigan Senate passed an overhaul to the state’s energy legislation, but improvements are needed to ensure a truly sustainable and affordable energy future. Photo: © Creative Commons/Brian Charles Watson (Wikimedia)

First off, kudos to the Michigan Senate for passing legislation with broad bipartisan support. In case you’ve forgotten, “bipartisan” means that both Republicans and Democrats voted in support of the bill. That both parties engaged in meaningful negotiations and ultimately came to a number of compromises is reassuring in today’s political climate. But that doesn’t mean what ultimately passed off the Senate floor is robust enough to put Michigan on a path towards a truly clean, affordable, and sustainable energy future.

A (very) modest increase to Michigan’s renewable energy standard

The Senate’s legislation increases Michigan’s renewable energy standard from its current requirement of 10 percent by 2015 to 15 percent by 2022 with an interim requirement of 12.5 percent by 2019.

Given the fact that Michigan has abundant wind and solar resources that could be developed at little to no cost to ratepayers compared to other resource options, the 15 percent requirement represents a very small incremental step. Yes, the longest journey starts with the smallest step. But if all the steps are small, it’s going to take you an awfully long time to get where you want to be.

Multiple analyses, including ours, have shown that Michigan can cost-effectively achieve 30 percent or more renewable energy by 2030 with in-state resources. The proposed 15 percent by 2022 standard should really be considered a floor for renewable energy that ensures a minimum level of diversity in Michigan’s energy supply. Given the economic, environmental, and public health benefits of renewable energy, Michigan should be thinking bigger.

Switching from standards to incentives for energy efficiency

The Senate’s legislation would repeal in 2020 the state’s highly successful energy efficiency standard that requires utilities to achieve annual energy savings equal to one percent of their demand. In its place, the Senate proposes multiple incentives to encourage utilities to ultimately go beyond one percent savings, essentially shifting the benefits of energy efficiency from consumers back to utilities.

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.

It is widely accepted that efficiency is the cheapest, most readily available, and cleanest resource we have to meet future energy demand. This holds true in Michigan where ratepayers are savings billions of dollars—more than $4 for every dollar invested—as a result of the current efficiency standard. Given this success, 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.

A heavy-handed attack on the emerging rooftop solar industry

Utilities and special interests are attacking the growing rooftop solar industry. Photo: NREL

By changing how rooftop solar owners are compensated for the energy they generate, utilities are hoping to put an end to a growing solar industry in Michigan. Photo: NREL

The ugliest part of the Senate’s legislation is the heavy handed attempt to disincentivize rooftop solar. Current law, known as net metering, allows a customer that generates its own electricity, through rooftop solar or otherwise, to be compensated at the going retail rate. If you pay 10 cents for using a kilowatt of electricity, then you get paid 10 cents for producing a kilowatt of electricity.

Utilities argue that this compensation method doesn’t account for the customer’s fair share of the grid and power plant investments they rely on when the sun isn’t shining. Customers argue it’s unfair to compensate a customer at a lower price just so the utility can sell it to a neighbor at the retail rate.

The Senate legislation kicks the debate to the Michigan Public Service Commission to supposedly determine a fair rate. But the way the language is worded, it all but predetermines the outcome that utilities will win and rooftop solar owners will lose. The language must be removed or reworded to ensure a fair valuation of rooftop solar resources, including consideration of the environmental, societal, and electric grid benefits that these resources bring. Rooftop solar isn’t going away and Michigan should be ready to take advantage of all the benefits it can bring to the state. Instead, the current proposal means Michigan will sit on the sidelines as the rooftop solar industry thrives in other states.

In all, the Senate legislation represents a significant improvement from where we started discussions more than two years ago, but does not go far enough to protect consumers and ensure Michigan continues its transition to a cleaner, more affordable and sustainable electricity future. We’re hopeful that as discussions continue in the House and the legislation makes its way to the governor, it is strengthened and ensures Michigan’s commitment to its clean energy future.