The following is a summary of Public Act 341 and 342, that was called Senate Bill 437 and 438 as passed by the Michigan Legislature. These bills are complex and they address multiple areas of the energy industry.
The key takeaways are the following:
- The Renewable Portfolio Standard is increased to 15% by 2021, with an interim increase of 12.5% by 2019. A goal is also enshrined into law that by 2025, 35% of energy shall be provided by renewable energy or by energy efficiency.
- Net metering remains the same under current law until the Public Service Commission (PSC) approves the first general rate revision for a utility after June 1, 2018. This effectively extends current net metering until April 1, 2019. Thereafter, a tariff will be imposed on distributed generation by the PSC based on a study to be done by the PSC by early 2018.
- For energy efficiency, the current standard (electricity savings at 1% annually and for natural gas .75% annually) continues indefinitely and the standard for municipal and cooperative utilities terminates at the end of 2021. The standard for regulated utilities may be changed up or down by the PSC after 2021 by a showing that a new standard is the most reasonable and prudent, but otherwise continues at the previous level. For both natural gas and electric utilities, the program spending cap is removed. Additionally, the new program increases financial incentives available to utilities, which achieve over 1.25% and 1.5% annually.
GLREA’s efforts focused primarily on preserving net metering and increasing the renewable portfolio standard. Considering the content of the bills when first introduced and the final version (seven to eight versions later) enacted, the Coalition of organizations and business that support the expansion of renewable energy (that GLREA was a part of) did a remarkable job of educating legislators and applying respectful but firm pressure to get the necessary changes in language.
But the work continues. In order to expand the market for renewable energy in Michigan we need to further develop a public policy framework that encourages and supports this growth. Our goal in 2017 is to continue this work of developing a supportive public policy framework by engaging the Public Service Commission regarding the net metering tariff, engaging other government units that impact renewable energy as well and educating the general public on the benefits of adopting renewable energy.
Renewable Generation
The current law prior to these bills being enacted provided for a Renewable Portfolio Standard of 10% to be obtained by 2015 and thereafter. This standard was achieved by 2015 and was done cost-effectively by all Michigan electricity providers.
When first introduced, Senate Bill 437 and 438 would have repealed this Renewable Portfolio Standard. As enacted into law, these bills not only retain the current Renewable Portfolio Standard with minimal changes but increase it to 12.5% for renewables by 2019 and 15% renewables by 2021.
The only significant change from the current law is that large utilities are no longer required to obtain at least 50% of renewable generation through power purchase agreements and can now own all of the renewable generation required for compliance. Bonus credits were also removed for solar generation. They were viewed as not necessary because of the decline in solar costs and could have undermined achieving a real 15% renewables portfolio.
The definition of renewable resources was somewhat modified to still allow new municipal solid waste incineration, advance pyrolysis of certain industrial wastes, geothermal heating, and useful steam from renewable sources. Other proposed inclusions were defeated including petroleum coke waste and woody biomass from sources other than sustainably managed forests.
SB 437 and 438 require electric utilities to offer voluntary renewable energy programs to their customers.
The new law mandates the Michigan Public Service Commission (PSC) to adjudicate avoided costs pursuant to the Public Utilities Regulatory Policy Act (PURPA), which utilities are then mandated to pay qualified cogeneration and renewable generators. The background on this is that PURPA requires electric utilities to enter power purchase agreements with qualifying facilities at mutually agreeable rates up to “avoided cost”. The determination of “avoided costs” is the responsibility of the PSC. But the Public Service Commission has not been doing this. Therefore language was enacted that requires the PSC to hold PURPA avoided cost cases at least every five years so that they will be less likely to neglect this responsibility.
GLREA has been active in monitoring PURPA cases and how future decisions impacts renewable energy development.
Energy Efficiency
Current law prior to these bills provided for an energy efficiency resource standard of 0.75% annual increment in first-year savings for natural gas utilities and 1% annual increment in first-year savings for electric utilities, limited by an energy efficiency program spending cap of 2% of annual revenue. As introduced, these bills would have terminated the requirement for electric utilities. As passed, the current standard for natural gas utilities continues indefinitely, the electric utility standard for municipal and cooperative utilities terminates at the end of 2021, and the standard for regulated utilities may be changed up or down by the Public Service Commission after 2021 by a showing that a new standard is the most reasonable and prudent, but otherwise continues at the previous level. For both natural gas and electric utilities, the program spending cap is removed.
The new bills provide a reconciliation process for energy efficiency programs that will enable a utility that overspends its approved program reasonably and prudently to recover these costs, which should end a pattern in which utilities have been suspending programs mid-year because funding has been used up.
Incentives for energy efficiency programs by regulated utilities were modified such that a tiered system provides increasing incentives with greater program performance. These incentives are likely strong enough that most electric utilities will choose to operate in excess of 1.5% per year and most natural gas utilities will choose to operate in excess of 1% per year.
The new bills provide authorization for regulated utilities to offer ‘on-bill repayment programs’ for residential energy efficiency retrofits, focused on building shell and major system improvements.
Load Management and Demand Response
The bills direct the Public Service Commission to promote load management and demand response programs and authorizes utility cost recovery for these programs. Examples might include programs that pay owners of emergency generators for the option of allowing the utilities to turn them on at times of peak demand. It also allows utilities to pay owners for turning off energy using equipment like water heaters, air-conditioning or any large electric using equipment. Local governments, hospitals and school systems can benefit from this.
For utilities that are have advanced metering, the bills require that they offer customers time-of-use and dynamic rates on an opt-in basis.
Net Metering
Current law allows true net metering with systems less than 20 kW until these systems produce 0.5% of a utility’s sales and modified net metering for larger systems until those produce 0.5% of a utility’s sales. The bills as introduced would have required homeowners and businesses that installed renewable energy systems to sell 100% of the energy produced to the utility at wholesale prices (about 4 cents/kWh) and then buy it back at retail prices (about 15 cents/kWh).
As enacted into law, we successfully retained net metering under current law for each utility until the Public Service Commission approves the first general rate revision for that utility that is requested by the utility after June 1, 2018. This effectively extends current net metering until April 1, 2019. Thereafter, distributed generation will be under a tariff to be established by the Public Service Commission based on a study to be done by early 2018. GLREA will be an active participant in the Public Service Commission process to determine the appropriate level of the renewable energy tariff.
Integrated Resource Planning
These bills require each regulated utility to file by the end of 2018 and every five years thereafter an integrated resource plan. The Public Service Commission approval standard for an integrated resource plan, is that it must be the most reasonable and prudent alternative, including a plan to eliminate energy waste (which we think should be interpreted as including all cost-effective energy efficiency) and consideration of demand response. This could be a positive development but will require active participation in the process to assure renewable energy gets an important role in future planning.
Clean Energy Goal
These specific policies in the bills, described above, are backstopped by a clean energy goal that renewable generation and accumulated energy efficiency reach 35% of electricity sales by 2025.
Consumer Representation
These bills increased funding and broadened the scope of the State’s Utility Customer Participation Fund, to provide grants for representation of residential customers in Public Utility Commission proceedings.
These bills also establish an energy ombudsman in the Michigan Agency for Energy, partly to represent interests of small businesses.
SB 437 (S-7) amends the economic regulation of energy utilities.
Major provisions are summarized below.
Sec 6a is amended to:
- Add steam utilities to those that are regulated by the Public Service Commission (‘Commission’).
- Give the Commission authority to manage the scheduling of cases so as to even out its workload.
- Allow natural gas utilities with less than 1 million customers to request partial and immediate rate relief.
- Eliminate self-implementation of pending rate increases before approval by the Commission, for applications filed after effective date of SB 437.
- Shortens the Commission’s processing of rate cases from 12 months to 10 months.
- Allows the Commission to approve revenue decoupling for electric utilities with less than 200,000 customers in Michigan to recover sales losses due to energy waste reduction programs and load management programs.
- Preserves existing net metering in the service territory of each utility until the first general rate case that is filed by that utility after June 1, 2018. Rate cases take a year, so for most utilities, net metering is continued until at least 2020. Commission to study within one year how to consider distributed generation is setting tariffs and in rate cases filed after June 1, 2018 must treat customers with distributed generation as discrete subclass and establish an appropriate tariff to recover cost of service.
Section 6j is amended to:
- Require an electric utility that does not have firm pipeline reservations for natural gas supply to power plants to justify this to the Commission.
- End the Commission’s annual review of 5-year forecasts and plans of electric utilities after December 31, 2018.
Section 6l is amended to:
- Allow the utility consumer participation board to fund representation of residential customer interests in proceedings under the new section 6t and in general rate cases under section 6A and certificate of necessity cases under 6s.
- Increase the annual funding levels of the utility customer participation fund and of the attorney general for participation in Commission proceedings by approximately $150,000 and $350,00, respectively.
Section 6s is amended to:
- Reduce the threshold investment for which a utility may request a certificate of necessity from $500 million to $100 million.
- Require a utility to seek a certificate of necessity for new capacity exceeding 225 MW.
- Allow the Commission to consolidate a certificate of necessity proceeding with an integrated resource plan proceeding (established under new section 6t).
- Authorize the Commission to grant a financial incentive to a utility, up to the utility’s weighed average cost of capital, for purchasing power instead of constructing and operating utility-owned capacity.
- Grants standing to an entity that owns at least 200 MW generating capacity within a utility’s independent system operator zone to propose alternative generation in a certificate of necessity proceeding and allows the Commission to grant standing to any other party who wants to propose an alternative.
- Commission to approve certificate of necessity only for the most reasonable and prudent alternative relative to other options, including energy efficiency, transmission, and alternative generation proposals from other suppliers.
Section 6T is added, providing that:
- Each regulated utility is to submit an Integrated Resource Plan to the Commission by the end of 2018 and every five years thereafter.
- The Commission to hold an initial proceeding in 2017 to establish assumptions to be used and scenarios to be evaluated by each utility in its following Integrated Resource Plan. This proceeding includes an assessment by the Commission of the potential for energy waste reduction and demand response, regional infrastructure limitations, requirements for capacity, transmission, and environmental controls, and other pertinent considerations.
- Prescribes that an Integrated Resource Plan shall project at least 20 years and propose actions for the next three years, with various information and analyses to be provided to the Commission in the utility’s filing.
- Authorizes the Commission to approve or make recommended changes to a utility’s integrated resource plan. A utility may amend its filing to adopt Commission recommendations. Thereafter, the Commission either approves or disapproves the integrated resource plan.
- The Commission shall approve the integrated resource plan if it is the most reasonable and prudent plant to balance the utility’s various regulatory obligations, costs, and risks.
- A utility operating under and within an approved integrated resource plan is assured of recovery of prudent costs to implement the plan and may recover financing costs for approved investments before those investments are used and useful.
Section 6u is added, providing that:
- The Commission shall study and report to the legislature on performance-based regulation.
Section 6v is added, providing that:
- The Commission shall conduct proceedings at least every 5 years to satisfy its obligations under the federal Public Utility Regulatory Policies Act (PURPA) to establish rates for the purchase of power by utilities from cogeneration and small renewable generation facilities and for the sale of supplemental and standby power to customers having self-service generation.
Section 6w is added, providing that:
- If an Independent System Operator with approval of the Federal Energy Regulatory Commission allows the use of a State Prevailing Compensation Mechanism in lieu of utility participation in a forward capacity auction to satisfy capacity requirements of the Independent System Operator, the Commission may adopt the Prevailing State Compensation Mechanism after a contested case.
- If a forward auction is established by an Independent System Operator but Prevailing State Compensation Mechanism is not available to the State, then the Commission may institute a comparable resource adequacy mechanism.
- If an Independent System Operator does not provide a forward auction for resource adequacy, then the Commission shall institute a resource adequacy mechanism, which may include a forward resource auction.
- The price of capacity established by the Commission for sales of capacity between electricity providers in Michigan pursuant to a Prevailing State Compensation Mechanism shall be determined as the average embedded cost of capacity of the selling electricity provider.
- The Commission is to make an annual determination that each electricity provider has adequate capacity to serve its project load with the required reserve margin.
- An alternative supplier may demonstrate that has adequate capacity to serve its customers through ownership or bilateral contracts for capacity. An alternative supplier may also demonstrate that it has sufficient capacity by charging its customers a generation capacity charge and paying that charge to the customer’s default utility. The amount of that payment is the same as the price established by the Commission under the Prevailing State Compensation Mechanism.
- The Commission is to monitor whether any electricity provider engages in market manipulation.
Section 6x is added, providing that:
- By January 2021, the Commission shall authorize regulated electric utilities to receive through rates financial incentives for achieving energy waste reduction in excess of 1% per year. Incentives are tiered as a percentage of energy waste reduction program expenditures with 15% incentives for annual savings up to 1.25%, 17.5% incentives for annual savings from 1.25% to 1.5%, and 20% incentives for annual savings above 1.5%.
Section 6z is added, providing that:
- A utility may not abandon a service territory without approval from the Commission.
- A utility that files with an Independent System Operator to retire a plant must submit that application in full to the Commission.
- A utility that requests NERC to modify a balancing authority must also submit that to the Commission.
Section 10a is amended, providing that:
- If less than 10% of load in a utility’s service territory is being served by alternative suppliers, then the Commission shall lower the cap to the whole percentage above the level that is being served by alternative suppliers, for a period of six years.
- An existing customer of an alternative electricity supplier may increase their purchases from that supplier at the site or adjacent site that is already served by the alternative electric supplier.
- Customers in enrollment queue for service from an alternative supplier may continue in the queue and new enrollments will be accepted.
Section 10dd is added, providing that:
- Certain appropriations are made to the Michigan Agency for Energy, Public Service Commission, Attorney General, Administrative Hearings System, and Department of Environmental Quality for implementation of this act.
Section 10ee is added, providing:
- The Commission to establish a code of conduct permitting regulated utilities to engage in certain unregulated “value-added” activities subject to Commission review to assure that these are in the public interest and do not unduly restrain trade or competition.
Section 10ff is added, providing:
- An energy ombudsman within the Michigan Agency for Energy, with responsibility for monitoring and advising on the value-added programs, dispute handling, and monitoring the Commission on behalf of small business and individual interests.
Section 11 is amended, providing:
- The Commission shall ensure rates match cost of service but may phase-in adjustments
- Allocation of generation plant costs shall by 75% based on peak demand and 25% on annual energy sales, by customer class, unless the Commission finds that another method more accurately reflects cost of service.
- Provisions of 2014 PA 169 are removed.
SB 438 (S-7) amends 2008 PA 295, the Clean, Renewable, and Efficient Energy Act.
Major provisions are as follows.
Section 1 is amended, providing:
- A goal that 35% of electricity in 2025 be provided by either energy efficiency or renewable energy, cumulatively.
Section 7 and 9 are amended, providing:
- Integrated pyrolysis and incineration of various wastes to be considered as renewable resources. Pet coke, coal waste, scrap tires, and hazardous waste are excluded.
- Anthropogenic as well as biogenic portions of municipal solid waste to be considered as renewable.
- Thermal energy from a geothermal heat pump to count as renewable energy.
- Previous restrictions that incinerator capacity be considered as a renewable resource only if in operation in 2008 are removed.
- Useful steam generated from renewable resources counts toward the renewable energy standard at its kWh equivalent.
Section 28 replaces former Section 27 and provides:
- A renewable portfolio standard of 15% by 2021 with an interim standard of 12.5% by 2019.
Section 39 is amended, providing:
- Bonus credits for solar generation not already approved by the Commission are removed.
Subpart B is added, providing:
- A regulated utility is required to offer a voluntary renewable energy program to its customers at rates to be determined by the Commission.
Subpart C is amended, providing:
- Energy optimization is generally renamed as energy waste reduction.
- Current energy waste reduction standards for natural gas utilities continue indefinitely, energy waste reduction standards of municipal and cooperative utilities terminate on December 31, 2021, and standards for regulated utilities continue until December 31, 2021. Thereafter the standards for large regulated utilities and small regulated utilities whose rates are above average may be increased or decreased by the Commission through biennial review of energy waste reduction plans.
- Reconciliation of energy waste reduction program expenditures provides for recovery if reasonable costs exceed what was approved in the plan.
- Incentives for exceeding energy waste reduction standards are tiered as a percentage of energy waste reduction program expenditures with 15% incentives for annual savings up to 1.25%, 17.5% incentives for annual savings from 1.25% to 1.5%, and 20% incentives for annual savings above 1.5% are increased to 25% of program expenditures.
- Directs the Commission to promote demand response programs and authorizes cost recovery for such programs. Demand response programs include time-of-use and dynamic rates and offering such rates is mandatory for electric utilities who are authorized cost recovery for advanced meters.
- Transfers responsibility for promoting energy efficiency from the Commission to the Michigan Agency for Energy.
- Provides that enforcement of energy waste reduction standards for municipal and cooperative utilities shall by civil suit filed by the Attorney General or a customer of the utility.
Subpart E is amended, providing:
- Repurposing of most provisions that applied to net metering as applying to distributed generation.
- Allows the Commission to update interconnection technical standards (to allow advanced inverters).
Subpart 7 is added, providing:
- Authorization for regulated utilities to provide on-bill financing of residential energy improvements.
- Repayment obligation for such on-bill financing to run with the meter, not the customer or property owner.
SOURCE: Great Lakes Renewable Energy Association
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