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Will Republican State Reps Renew Attack on Efficiency Mandate?

State, utilities, Snyder see ‘energy optimization’ saving money, jobs

Efficiency | November 21, 2012 | By Jim Dulzo

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Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at jimdulzo@mlui.org.

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With Gov. Rick Snyder set to deliver his Special Message on Energy on Nov. 28, several Republican state representatives are declining to say whether they will renew their attack on Michigan’s “energy optimization” law, which saves residents money by requiring utilities to help customers use less power and natural gas.

Their main rationale is that government doesn’t need to be involved.

But if, as rumored, the lawmakers renew their attack, they likely will encounter the same fierce opposition they met last May when they introduced HB 5586. The bill would eliminate efficiency requirements for the state’s smaller electric and natural gas utilities.

That resistance, which some observers say included quiet pressure from the Snyder administration to drop the bill until the governor released his special message, prompted removal of the proposal from the House Energy and Technology calendar.

But some clean energy advocates fear it could be revived in the post-election “lame duck” session, particularly if its sponsors don’t like the governor’s message.

Neither lead sponsor Rep. Ray Franz nor co-sponsor, House Energy and Technology chair Kenneth Horn, responded to repeated inquiries from the Michigan Land Use Institute about their plans for the proposal.

The lawmakers introduced HB 5586 last spring despite state studies showing that optimization is cutting utilities’ operating costs and generating jobs, and highly positive testimony from utility officials, efficiency installers, and clean energy advocates at a state Senate committee hearing last November.

Although Reps. Franz and Horn won’t talk, a Democrat on Mr. Horn’s committee was happy to speak up.

“I couldn’t be much more opposed to rolling back energy optimization,” said state Rep. Jeff Irwin, of Ann Arbor. “These guys are just whacky with their disinterest in saving money and not wasting energy. It puts people to work, saves money, and puts us on a path to energy independence. Every aspect of it is working well and it’s foolish to get rid of it.”

Two recent Michigan Public Service Commission studies support Mr. Irwin. The reports found that EO measures already implemented would result in significant cost savings while exerting downward pressure on electricity and natural gas rates.

“The Commission views the state’s utility EO programs as a resounding success” according to the 2011 Report on the Implementation of P.A. 295 Utility Optimization Programs issued last November.

But the pro-rollback representatives say that the free market, not government, could best deliver efficiency investments, EO’s reporting requirements and efficiency goals were too difficult for smaller utilities to meet; and that EO’s potential is sharply limited.

"Once you've given out all the curly-cue light bulbs and bought up all the old refrigerators out of garages it's exceedingly hard to meet those energy optimization requirements,” Mr. Franz told MIRS, a Lansing news agency.

However, interviews with efficiency providers—who install energy-saving measures in homes and businesses—and with Gov. Snyder’s top energy policy advisor confirm that the program has strong support because it is working so well.

They agreed that government participation is needed for widespread efficiency gains, while university research indicates that Michigan’s building stock is unusually inefficient—indicating that optimization work could last for decades.

And MPSC files indicate that last spring the agency agreed with dozens of small municipal electric utilities, munis and co-ops that work together, and co-ops that work on their own to revise EO reporting and goal-making requirements to solve problems the companies had, in fact, complained about.

Success Stories

The state’s EO law passed with bipartisan support in October 2008 as part of Public Act 295, which also mandates utility renewable energy goals.

The Act’s EO section requires electricity and natural gas utilities to help customers cut overall energy demand a little each year, building to annual reductions of 1 percent for electricity and 0.75-percent for natural gas this year—and each year after.

MPSC found that, in 2010, the first full year of EO, most electric and gas companies exceeded their goals, often by about 50 percent. It also found that each dollar utilities spent helping customers with efficiency—ranging from free compact fluorescent light bulbs to rebates on high-efficiency furnaces—cuts current and future utility and customer costs by about $4.88.

The agency said the $113 million DTE Energy and Consumers Energy spent on optimization incentives—paid for by a small charge on monthly bills—helped customers take energy-saving steps that will cut the companies’ operating costs by $554 million over the coming years. That’s close to a five-to-one payoff.

“Over the five-year period from 2011-2015, the cumulative benefits to customers are expected to be in excess of $2.5 billion,” the report said.

This February, DTE Energy announced its 2011 optimization programs saved participating customers more than $50 million on their utility bills that year—and will save them another $700 million in coming years.

DTE outfitted more than 76,000 apartments with efficiency measures; recycled more than 23,000 appliances; provided more than 50,000 home-energy consultations, 4.5 million discounted CFLs, and 22,000 home efficiency kits; and worked with 7,000 businesses.

"Customer response to our energy efficiency programs continues to be overwhelmingly positive," Trevor Lauer, a DTE Energy vice president, said in a press release. "More than 200,000 of our customers took control of their energy use … and saved millions of dollars."

MPSC’s second optimization report also found EO is a good deal. The electricity saved via EO costs 88 percent less than electricity generated by a new, coal-fired power plant: $16 per megawatt-hour instead of $133 per megawatt-hour.

Jobs, Jobs, Jobs

MPSC is preparing a larger study that is expected to look at the jobs EO measures have created. It’s due for release within days of the governor’s special message.

Sam Flannery, head of Building Science Energy Services in Grand Rapids, testified about EO’s job-building power last November at a Senate committee hearing at the request of several utilities. His company trains and assists building energy analysts, and is working with DTE on a pilot program seeking less-expensive ways to administer EO projects.

He said the EO law is boosting employment.

“The group of eight companies I brought to the hearing represented more than 400 jobs created in the last few years,” said Mr. Flannery. “When the new homes business went down, we were in a depression.

“Energy optimization actually drove demand for energy efficiency products and services and helped those companies recover,” he said. “There are so many positive effects I can’t imagine anyone trying to stop that. And the program really is in its infancy.”

Gov. Snyder also sees economic potential in widespread efficiency measures.

Last spring, in a visit to Traverse City, he inspected a 100-year-old home that received extensive efficiency retrofits through a local program, TC Saves, that combines EO-inspired utility incentives with low-interest financing from Michigan Saves. The former state agency is now a nonprofit that facilitates financing and contractor expertise for residential, commercial, and public sector efficiency and renewable energy projects.

The governor strongly endorsed the program, noting “it creates jobs.”

Last week his top energy advisor, Valerie Brader, said her boss takes energy efficiency seriously.

“We think energy efficiency is a key aspect of any energy future in Michigan,” she said. “We need to be looking for ways to have more energy efficiency efforts and make sure they become self-sustaining.”

She indicated that strong utility efficiency programs “and public/private partnerships to make sure people have the information and resources” are essential.

“A lot of people want to do the right thing and want to save money on their power bills,” she added, but that requires “low-interest loans, expertise in efficiency work, business networks that know what they are doing. Lacking any one of those, projects don’t go forward.”

Who Needs a Mandate?

Efficiency advocates question claims by Reps. Franz and Horn that government involvement in efficiency is unnecessary because of energy service companies (ESCOs), which profit from the energy savings their building retrofits produce.

MIRS quoted Rep. Horn asking, “Do you really need to mandate it if it’s already happening out here?”

But Donald Gilligan, president of the National Association of Energy Service Companies, notes that while ESCOs do well, utility mandates are necessary for residential customers.

“In general, it’s bad for consumers to repeal efficiency mandates,” he said. “It steers a smaller utility away from the most reliable and least expensive supply resource, energy efficiency, into more expensive resources [such as new power plants].

“History is clear,” he said. “Utilities do not optimize their use of efficiency [on their own]. That’s why these laws arose.”

Mr. Gilligan said ESCOs rarely work with homes or small businesses, because they lack the economy of scale.

“ESCOs have a certain overhead attached, and you can’t make it work for all buildings, especially homes, where you can’t guarantee savings because there’s too much variability in terms of how the homeowner uses energy. About 85 percent of U.S. ESCO business is in public buildings, schools, and hospitals.”

The state’s residential and commercial efficiency markets are unusually large, according to two Michigan State University studies. Most homes have under-insulated crawl spaces or basements, almost half lack water and heat-saving devices in their plumbing systems, and one quarter still have single-pane windows, inefficient water heaters, second refrigerators, or incandescent light bulbs.

The numbers are worse for commercial buildings.

Marty Kushler, of the American Council for an Energy Efficiency Economy, said all of that wasted energy sends huge amounts of money to other states.

“The economic benefits of efficiency for Michigan are particularly strong because of our overwhelming dependence on imported fuels,” he said. “We import all of our coal and uranium, 98 percent of our oil and petroleum products, and about three-fourths of our natural gas, for a total annual ‘dollar drain’ of about $25 billion from the state economy.”

Jim Dulzo is the Michigan Land Use Institute’s senior energy policy specialist. Reach him at jimdulzo@mlui.org


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