Part 1 – New Efficiency Requirements and Electrification.
By Chris Bzdok
Last November the Michigan Legislature passed a suite of clean energy laws intended to transform the generation and distribution of electricity in our state. One of these laws, Public Act 229 of 2023, requires all electric utilities – investor-owned, municipal, and cooperatives – to achieve higher energy efficiency savings standards starting in 2026. In Michigan, energy efficiency is referred to as energy waste reduction, or EWR.
PA 229 also places greater emphasis on low-income EWR programs and provides richer incentives to utilities for exceeding the new energy savings requirements. Last but not least, PA 229 authorizes electric utilities to offer programs to electrify heating and other appliances that would otherwise burn fossil fuels.
This article covers the new law’s general requirements for new EWR plans, electrification programs, and higher savings standards. Future articles will address low-income energy efficiency requirements, and energy waste reduction requirements for natural gas providers.
New Plans
PA 229 amends the existing Clean and Renewable Energy and Energy Waste Reduction Act. PA 229 makes three key changes to that law.
First, PA 229 expands the set of providers who are required to have energy efficiency programs. Under the old law, municipally owned electric utilities and member-regulated electric cooperatives had not been required to implement EWR programs since 2021. Under the new law, all electric providers – including investor-owned utilities with regulated rates as well as munis and co-ops – must adopt an EWR plan in 2025.
Investor-owned utilities must submit their plans to the Michigan Public Service Commission for approval, while munis and co-ops will submit their plans to their own governing boards. After their initial plans in 2025, investor-owned utilities must submit a plan no sooner than eight months after receiving a final order on their integrated resource plan, or IRP. Munis and co-ops are required to submit a plan every four years after 2025.
Electrification
A second key change in the new law is to authorize utilities to adopt programs to electrify heating and other appliances that typically burn fossil fuels, such as natural gas. Utilities will file their EWR plans as part of an overall energy optimization plan, which may also include a plan to offer and promote efficient electrification measures.
To qualify, efficient electrification measures must:
- Reduce total energy consumption at the premises where they are installed;
- Reduce greenhouse gas emissions due to energy use over the life of the electrification measure; and
- For customers who are interconnected at secondary voltage, provide annual average energy cost savings.
An electric provider can recover the costs of an efficient electrification measures program from its customers. However, such a plan cannot have the effect of increasing electric rates for customers that do not participate in the program. In an order just issued in Case No. U-21567, the MPSC determined that providers will recover the costs of an electrification program via a separate surcharge that will be added to the EWR surcharge on customer bills.
Higher Standards
The old law required investor-owned utilities to achieve incremental energy savings each year equal to 1.0% of total annual retail electricity sales the previous year. The new law increases this requirement to 1.5% for all providers and sets a goal of 2.0%. The law also requires investor-owned utilities to include the 2.0% savings goal in their IRP modeling scenarios.
An investor-owned utility cannot include electrification measures in the calculation of its energy savings to meet the EWR standard or count them towards meeting the metrics that will trigger financial incentives. By contrast, munis and co-ops can count any net reduction in energy consumption at a customer’s premises from the conversion of fossil fuel use to electric equipment as incremental energy savings toward meeting the 1.5% requirement. The law also details how any provider may calculate energy savings resulting from building envelope efficiency improvements associated with heat pump installations under the provider’s electrification program.
The law does allow providers to make an alternative compliance payment to an independent EWR program administrator selected by the MPSC instead of running their own EWR programs.
Next Steps
Investor-owned utilities are required to file their new plans in 2025. The MPSC will issue an order soon setting specific dates for those. In the meantime, the Commission issued an order in Case No. U-21567 seeking comments on a number of energy efficiency topics. These include how to define and calculate various parameters of electrification plans; how to allocate energy savings between an electric provider and a natural gas provider for measures and programs they implement jointly; and how to determine which heat pumps will qualify for electrification programs.
Comments are due by July 17, 2024, with reply comments due by August 9, 2024.