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Guest View: Michigan's energy efficiency policy worksPrint

Clean Energy | March 4, 2015 | By Martin Kushler

*This column originally appeared in the Lansing State Journal on Feb. 27, 2015

Martin Kushler

In 2008 the Michigan legislature, with strong bipartisan majorities, passed the "Clean, Renewable, and Efficient Energy Act" (PA 295). The legislation was a grand compromise which, among other things, required for the first time that Michigan utilities provide energy efficiency programs for their customers, to help them save energy and reduce their utility bills. (Examples include rebates and assistance in installing more efficient lighting, heating and cooling equipment, building insulation, etc.) The policy set annual savings targets, and provided that utilities could earn an incentive for meeting the targets. The legislation was necessary, because under the existing "voluntary" system, utilities in Michigan were providing absolutely no energy efficiency programs for their customers.

The energy efficiency policy created under PA 295 (called "Energy Optimization") has been a tremendous success. The most recent assessment by the Michigan Public Service Commission showed that Michigan's energy optimization programs saved ratepayers $3.75 for every dollar spent on the programs. Energy optimization programs save electricity at less than one-third the cost of building a new power plant to supply electricity. The MPSC has estimated that the EO programs from 2011 to 2015 alone will save ratepayers over $2.5 billion. Studies have shown that the energy efficiency standard could be increased to save even more.

Incredibly, there are politicians at the Capitol who are considering eliminating the Energy Optimization policy — not because it isn't working, but because they don't like the idea of government "mandates." This objection is misplaced in the case of utility companies, because utilities are not "free enterprise," they are regulated monopolies, guaranteed a monopoly service territory in exchange for being regulated in the public interest.

Utilities operate every day under all sorts of government "mandates," ranging from safety standards on their equipment, to pollution standards on their power plants, to minimum "reliability" standards on electric supply, to various requirements on customer billing, etc. A requirement to provide energy efficiency programs to customers — when it is by far the cheapest source of supply and saves customers money — seems like a reasonable part of utility regulation. In fact, over 25 states have passed similar regulations.

Gov. Rick Snyder has repeatedly called energy efficiency a crucial cornerstone of Michigan's energy policy, and called for "eliminating energy waste." Repealing the current Energy Optimization policy would instead be eliminating the most effective energy efficiency policy Michigan has ever had. Let us hope that the Governor shows leadership in defending the Energy Optimization programs.

It is rare when government enacts policies that are shown by the facts to be overwhelmingly successful. Hundreds of thousands of customers have participated in these energy efficiency programs, and ratepayers are saving billions of dollars. In the case of PA 295 and the Energy Optimization standard, our policymakers in 2008 hit a home run. Message to our current policymakers: don't screw it up.

Martin Kushler is a senior fellow at the American Council for an Energy-Efficient Economy. He directs numerous widely acclaimed national studies of utility sector energy efficiency policies and programs, and provides technical assistance to help advance energy efficiency policies in many states.