Office Address:
S-132 Capitol Building

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Senator Mike Nofs
P.O. Box 30036
Lansing, MI 48909-7536

By Phone: (517) 373-2426

Toll Free: (888) 962-6275

By Fax: (517) 373-2964

By Email:
SenMNofs@senate.michigan.gov
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Nofs unleashes his energy reform proposal; critics and supporters weigh in

On July 1, Sen. Mike Nofs, R-Battle Creek, chairman of the Michigan Senate Energy and Technology Committee, finally introduced his long-awaited energy package.

The proposal, which I am hearing is in line with what Gov. Rick Snyder now wants, has generated both support and questions from business groups and criticism from environmentalists and some renewable energy and efficiency supporters.

What did Nofs come up with?

Well, there is not much similarity with Nofs' bills and the groundbreaking 2008 energy package contained in Public Act 295 that mandated renewable energy development and energy efficiency programs.

Nofs, a former state police commander, voted for the Clean, Renewable and Efficiency Energy Act when he was a state representative during Gov. Jennifer Granholm's tenure.

The renewable energy portfolio standard in PA 295 mandated that utilities generate 10 percent of energy from renewable sources by 2015. By last year, more than 1,500 megawatts of electricity are being generated, said the Michigan Public Service Commission. That is enough to power more than 1.25 million homes.

PA 286 of 2008 -- the Customer Choice and Reliability Act -- also mandated that 10 percent of utility customers be given a choice of electricity company to lower their costs. They have saved money, and there are more than 10,000 customers waiting their turn.

Nofs' Senate Bill 437 and the companion bill, SB 438, which is actually sponsored by Sen. John Proos, R-St. Joseph, seek to roll back required utility energy standards and replace those with an energy planning process that judges programs based on their relative costs to consumers.

Essentially, Nofs' bills, much like the House legislation introduced earlier this year, does away with the mandates that led Michigan to investing in hundreds of millions of dollars in renewable energy programs, primarily in wind and solar farms, and generating more than $3 billion in savings from energy efficiency programs.

But Nofs told me in a recent interview that he believes the state's utility companies, led by DTE Energy Co. and Consumers Energy Co., will voluntarily continue those programs and the savings will go on.

Others, including some business interests and Michigan Democratic leaders, are not so sure.

Opponents of both the Senate and House Republican bills say other states continue to mandate renewable energy, far above Michigan's 10 percent minimum standard, which utilities will meet long before Dec. 31 as the law required.

They say Michigan jobs will be lost and consumers subject to higher utility bills.

They say voluntary energy efficiency programs wither on the vine because investor-owned energy companies have little incentive to sell less energy and reap less profit.

On the other hand, large, deep-pocketed companies that have financial incentives to invest in energy efficiency programs will continue their efforts to reduce operating costs.

But one of the keys to Nofs bill -- one that he hopes will silence his critics, lower utility prices and ensure steady energy capacity -- is reliance on an energy planning tool called "integrated resource planning," a system that Snyder apparently supports.

An IRP is a statewide planning process -- filed by utilities and overseen by the Public Service Commission -- that would include the consideration of renewable energy generation and energy efficiency savings.

Michigan’s IRP process would assess the full range of energy generation and savings options, including renewable energy and energy efficiency programs, based on an evaluation of “least-cost” resources to meet expected capacity needs.

But Sam Gomberg, lead Midwest energy analyst with the Union of Concerned Scientists, said the use of an integrated resource planning approach is less effective than mandated standards.

“While an IRP process can be a strong complement to renewable energy and energy efficiency standards, it is not an adequate substitute,” Gomberg said in a statement.

“An IRP process simply would not provide the certainty that Michiganders deserve when it comes to spurring investment in affordable, low-risk and environmentally sustainable energy resources like wind, solar, and energy efficiency, he said.

I will discuss more on IRP later, and have written a more in-depth story on this topic for the July 13 issue.

For now, here is a review of other key elements of Nofs’ bill.

Ends the state's 10% renewable energy portfolio standard

Nofs bill repeals the state’s renewable energy portfolio standard (RPS) that  required utility companies to generate 10 percent of electricity production from renewable energy sources.

While sources are telling me Snyder supports repeal, previous speeches given by the Republican governor have hinted otherwise.

In late 2013, a 90-page Public Service Commission report concluded the renewable energy standard could be increased to as much as 30 percent of electricity production in the state by 2035.

Snyder gave an energy speech shortly afterward in December that seemed to hint he might be in favor of doubling the state's 10 percent renewable energy standard to generate more than 20 percent of renewable energy by 2025.

But in an energy speech earlier this year, Snyder appears to be supporting a voluntary approach espoused by DTE and Consumers and the IRP planning process to get to the higher renewable energy level.

Rebecca Stanfield, deputy director for policy of the Midwest program for the Natural Resources Defense Council, said repealing Michigan’s successful renewable energy and energy efficiency standards is a big gamble.

“The legislation introduced today offers a disappointing reversal of clean energy policies that put Michigan on the map as a state committed to lower electric bills, more jobs, less pollution and healthier people,” Stanfield said in a statement.

“The goal of this legislation is bare minimum compliance with federal environmental regulations, rather than maximizing the benefits of clean energy for Michigan’s citizens and economy."

Stanfield said that during the first three months, Michigan announced 616 clean energy jobs, according to a new report by Environmental Entrepreneurs.

“Unfortunately, the bills in their current form would turn the clock backward,” she said.

House Democratic Leader Tim Greimel, D-Auburn Hills, told me a few weeks ago that the Democrats’ bill would increase the renewable portfolio standard to 30 percent by 2022.

“This is something broadly considered to be realistic, attainable and affordable,” Greimel said. “Utilities would not be allowed to impose a surcharge to reach that standard.”

However, if more affordable energy alternatives present themselves, the Michigan Public Service Commission would be empowered to “pause” the standard until a consensus is reached.

“We don’t want to impose a standard that increases costs to ratepayers,” he said.

Ends energy efficiency program by 2019

Nofs' bill also continues for one year, through 2016, the state’s successful energy efficiency program, which he has renamed the “energy waste reduction” program.

The PSC has characterized the energy efficiency program as a success, saving customers nearly $1 billion in 2014 and reducing the need for building new power plants.

However, Nofs would cut funding for the program in half for the next two years, through 2018, and eliminate the program entirely by 2019.

Nofs said he is not ending energy efficiency. He said he would use the IRP process to determine how much utilities should offer in terms of energy efficiency programs.

Michigan’s clean energy development would be determined through IRP plans designed by the utilities and approved by the Public Service Commission, he said.

But utilities must show the state the most prudent way of meeting the state’s capacity needs, Nofs said.

Toughens customer choice program for alternative energy suppliers

Nofs' bill allows the 10 percent customer choice energy market to continue -- but under different rules. It requires greater oversight of the alternative suppliers as they sell to approved customers to ensure they have enough capacity to meet peak demand.

His bill, however, differs from legislation introduced in March by Aric Nesbitt, R-Lawton, chairman of the House energy policy committee, which eliminates the choice market completely.

Kelly Rossman-McKinney, a spokesman for Citizens for Michigan's Energy Future, said Nofs has crafted a comprehensive energy plan to allow Michigan to take control of its energy future. The group is mostly funded by Consumers and DTE.

"The bill package introduced today is a positive step toward assuring that every person using the electric grid is paying their fair share of costs," Rossman-McKinney said in a statement. "This plan puts Michigan first and ensures that we determine our energy future.

Nine coal plants that serve 1 million people are expected to be retired in Michigan in the next year due to old age and environmental standards.

Some believe the shutdowns could lead to an energy capacity shortfall in Michigan by 2016. A report last year funded by DTE and Consumers predicted more than a 2,000 megawatt shortfall in "electric power reserve margin."

Others say those claims are scare tactics and that the Midcontent Independent System Operator, or MISO, has now recalculated the data and now shows a surplus for several years.

"The latest results of the survey show a 1.7 gigawatt surplus for 2016, primarily due to an increase in resources committed to serving MISO load and a decrease in load forecasts," said MISO in a June report. "The 2014 OMS-MISO Survey had projected that the region faced a 2.3 gigawatt shortfall starting in 2016."

Setting aside the shortfall controversy, at least two large business groups have concerns about Nofs' efforts to change the customer choice program.

Rod Williamson, chair of the Association of Businesses Advocating Tariff Equity, or ABATE, said the business group supports the IRP process.

"However, it still lacks a critical requirement of using a competitive bid RFP process for meeting the new generation needs," Williamson said in a statement.

Although Nofs' bill does not eliminate the choice program, Williamson said "ABATE believes that the legislation establishes unreasonable requirements for alternate energy suppliers that will essentially shut down retail choice.”

Wayne Kuipers, executive director of Energy Choice Now, a coalition that advocates expanding the choice program, was more direct in his opposition. He said Nofs' bill in its current form will effectively end customer choice of utility companies.

Kuipers cited recent U.S. Energy Information Agency data that shows Michigan families, schools and employers who purchase electricity from alternative energy suppliers under the 10 percent program saved $400 million in 2009.

In a fully competitive market, Kuipers said, 11,000 Michigan electricity consumers currently on waiting lists would save an additional $235 million each year in a fully competitive marketplace.

Greimel said Democrats want to eliminate energy choice and return to a fully regulated market, a position the utility companies have been espousing for years.

“The 10 percent market for deregulation allows some ratepayers to obtain less expensive rates while others pay higher rates to pay stranded infrastructure costs,” he said.

But Greimel said allowances have been made for choice customers who can demonstrate jobs would be lost if they were not allowed to continue receiving the lower electricity rates.

“They would be allowed to continue in the choice program,” he said.

Phases out net metering

Nofs' SB 437 also sets new rules for the PA 295 requirement that utilities offer net metering options for their customers for at least 10 years.

The current law, which expires Dec. 31, requires utilities to install meters on homes and businesses with rooftop solar panels. They are required to give these customers a credit, usually a reduction in their monthly bills, for the solar power they generate.

But Nofs' bill "institutes a very low, generation-only bill credit for exports and prohibits distributed generation (solar) customers from receiving credit for transmission and distribution charges," said a spokesman for Solar City, a San Mateo, Calif.-based solar manufacturing company.

Nofs' bill reduces the full retail bill credit to about 3 cents per kilowatt hour from 12 cents/kwh, Solar City said.

Crain's will be writing more about Nofs' net metering provisions in a future issue.

Since 2009, however, DTE has installed solar plants that generate about 22 megawatts of solar power, which includes 15 megawatts from utility-owned plants and 7 megawatts from customer-owned projects (like rooftop solar). This is only a small fraction of the 1,500 MW of renewable energy generation, mostly from wind, but it is a major development.

Experts say gutting net metering under PA 295 will effectively end incentives for Michiganders to install solar panels on their rooftops or small business operations.

Allows utility 'revenue decoupling'

The one major step forward everyone I talked with seemed to agree on is that Nofs' legislation would allow the Public Service Commission to legally approve revenue decoupling for electric utilities, which could pave the way for more energy efficiency programs.

The commission’s previous orders approving decoupling in 2012 for electric utilities were invalidated by the Michigan Court of Appeals, which held that the Commission lacked clear legislative authority to issue those orders.

What is "revenue decoupling?" I had to look that one up.

According to Wikipedia, public utility decoupling "refers to the disassociation of a utility's profits from its sales of the energy commodity."

In other words, the PSC could approve utility profit margins by adjusting electric or natural gas rates to meet revenue targets.

"This makes the utility indifferent to selling less product and improves the ability of energy efficiency and distributed generation to operate within the utility environment," Wikipedia said.

Still, according to Jack Schmitt, deputy director of the Michigan League of Conservation Voters, Nofs’ energy plans will cut jobs, increase utility rates and create more pollution.

“It redefines ‘clean energy’ to include burning coal, tires and other hazardous waste that will increase toxic pollution in the air we breathe and the water we drink, undermining the success of our state’s clean energy sector and putting our health at risk,” Schmitt said in a statement.

“It will make Michigan a laughingstock compared to so many other states that are successfully investing in clean, renewable energy.”

What is not known is whether this will reduce electricity or natural gas rates for Michigan consumers. Michigan's rates are the highest in the Midwest, and have been increasing even further the past two years.

Maybe hearings in the House and Senate will explore these issues. Maybe Snyder will show some leadership to ensure Michigan stays on the right energy course.

Time will tell.