Michigan

Note: The Michigan Public Service Commission (MPSC) created a temporary order (U-15800) in December of 2008 to address implementation issues for renewable energy and energy optimization plans arising from the passage of PA 295. In March of 2010 the MPSC was granted informal approval of its RPS governing rules by the Michigan State Office of Administrative Hearings and Rules (SOAHR) and the Legislative Service Bureau (LSB). Per Docket U-15900, the draft administrative rules were submitted for public comment at a hearing in June of 2010, with the comment period closing in July of 2010. As of November 2011, the MPSC is in the process of finalizing the administrative rules governing the renewable energy and energy optimization standards.

In October 2008, Michigan enacted the Clean, Renewable, and Efficient Energy Act, Public Act 295, requiring the state's investor-owned utilities, alternative retail suppliers, electric cooperatives and municipal electric utilities to generate 10% of their retail electricity sales from renewable energy resources by 2015. In addition to renewables, the standard allows utilities to use energy optimization (energy efficiency) and advanced cleaner energy systems to meet a limited portion of the requirement. The state's two largest investor-owned utilities, Detroit Edison and Consumers Energy, have additional obligations beyond those of other utilities.

Eligible RPS Technologies

Renewables
Under the standard, eligible renewables include biomass, solar and solar thermal, wind, geothermal, municipal solid waste (MSW)*, landfill gas, existing traditional hydroelectric (i.e., water passed through a dam), tidal, wave, and water current (e.g., run of river hydroelectric) resources. Biomass is broadly defined as organic matter that is not derived from fossil fuels and which replenishes over a human time frame (see Public Act 295 for additional details). New hydroelectric facilities that require new dam construction are not considered an eligible resource, although repairs, replacements, and upgrades of existing dams may be counted towards compliance.

Energy Optimization and Efficiency
The definition of energy optimization is synonymous with what is generally defined as energy efficiency. In order to be counted under the standard, energy efficiency measures must reduce customer consumption of energy, electricity, or natural gas. This includes both changes in equipment and changes in customer behavior directly attributable to an energy efficiency program or energy optimization plan. It does not include utility infrastructure projects that are approved for cost recovery (e.g., transmission or generation facility upgrades). Advanced cleaner energy facilities are loosely defined as electric generating facilities using a technology that is not in commercial operation as of the date of the act's effective date, but gasification, industrial cogeneration, and coal-fired facilities that capture and sequester (CCS) 85% of carbon dioxide emissions are specifically identified as eligible technologies.

RPS Compliance

Annual Obligations
The compliance period for the standard begins in 2012. Each utility has a unique annual obligation based on its existing renewable energy portfolio, the amount of energy that would be required to meet the ultimate 10% target during a compliance year, and the applicable percentage obligation for that year. The annual benchmarks are as follows:

• 2012: Existing renewable energy baseline plus 20% of the gap between baseline and 10%
• 2013: Existing renewable energy baseline plus 33% of the gap between baseline and 10%
• 2014: Existing renewable energy baseline plus 50% of the gap between baseline and 10%
• 100% of total obligation in 2015

A utility is obligated to close the gap between the baseline and 10% according to an increasing percentage (e.g., 20% in 2012) of the ultimate 10% goal each year from 2012-2015.

The existing renewable energy portfolio is determined by the amount of qualifying electricity produced or obtained by an electric provider during the one-year period preceding the effective date of the act (October 6, 2008). The existing portfolio also includes certain renewable electricity production associated with PURPA qualifying facilities (QFs)** during the same time period. For the purpose of determining the 10% target for a given year, a utility may estimate total retail sales using average retail sales during the previous three years or using weather-normalized sales from the previous year.

Large Utilities
In addition to the percentage-based energy requirements, a utility with more than 1 million retail customers as of January 1, 2008, (i.e., Consumers Energy) must meet a renewable energy capacity standard of 200 MW by December 31, 2013, and 500 MW by December 31, 2015. A utility with more than 2 million retail customers as of January 1, 2008, (i.e., Detroit Edison) must meet a renewable energy capacity standard of 300 MW by December 31, 2013, and 600 MW by December 31, 2015. Energy production from these new renewable energy facilities can be counted towards the percentage-based component of the standard. An additional provision of the law places certain limitations on utility ownership of renewable energy facilities used to comply with the renewable energy standard.

Energy Credits
Compliance with the percentage standard can be met by purchasing renewable energy credits (RECs) with or without the associated renewable energy. Up to 50% of the standard may be met with RECs produced by utility-owned facilities. The Michigan Public Service Commission (PSC) was tasked with establishing a REC certification and tracking program, which was unveiled in August 2009 (Michigan Renewable Energy Certification System). Generally, RECs may be obtained from in state facilities or from out of state facilities located within the retail electric service territory of a utility (or subsequent expansions) as recognized by the PSC. Alternative electric suppliers are generally not permitted to meet the standard using out of state resources. However, a variety of exceptions exist to these general eligibility criteria, relating primarily to existing power purchase agreements with out of state facilities. A REC has a lifetime of three years from the end of the month it was generated. RECs generated within 120 days of the start of a calendar year may be used to satisfy the previous year's obligation.

Utilities may substitute energy optimization credits (EOCs) or advanced cleaner energy credits (ACECs) for renewable energy credits with approval of the PSC, although approval is not required for ACECs generated using industrial cogeneration. No more than 10% of a utility's obligation may be met using a combination of both types of credits, and no more than 70% of the 10% limit may be met using advanced energy systems in existence on or before January 1, 2008. EOCs may be substituted at a 1:1 ratio to RECs, while most ACECs are substituted at a ratio of 10 ACECs:1 REC. Exceptions to this are industrial cogeneration and plasma arc gasification, which are credited at a 1:1 ratio.

Bonus Credits
The standard also contains a series of bonus credits, termed Michigan incentive renewable energy credits, for each megawatt-hour (MWh) of electricity generated by certain types of systems. These credits act in addition to the single credit that a facility receives for producing 1 MWh of electricity from a qualified resource. Thus it is possible to earn multiple credit bonuses on a single MWh of electricity generation. The bonuses are described below.

• Electricity produced using solar power receives an additional 2 credits per MWh.
• Renewable electricity produced at peak demand times by technologies other than wind receives an additional 1/5 credit per MWh. Peak demand time was defined by the PSC in a December 2008 temporary order as weekdays between 6:00 AM and 10:00 PM, excepting certain holidays.
• Off-peak renewable electricity generation stored using advanced electric storage technology or hydroelectric pumped storage and used during peak demand times receives an additional 1/5 credit per MWh. The credit is calculated based on the initial amount of electricity used to charge the storage device, not the amount that is discharged.
• Renewable electricity produced using equipment manufactured within the state of Michigan receives an additional 1/10 credit per MWh. This add-on is only available for three years after the in-service date of the facility.
• Renewable electricity produced using a system which was constructed using an in-state workforce receives an additional 1/10 credit per MWh. This add-on is only available for three years after the in-service date of the facility.

Utilities and alternative suppliers are required to submit plans for complying with the standard to the PSC (details vary by utility type). They are permitted to recover their compliance costs through an itemized charge beginning 90 days after the PSC approves their renewable energy plan. Rate impact cost ceilings have been set at $3.00 per month for residential customers, $16.58 per month for secondary commercial customers and $187.50 per month for primary commercial and industrial customers. The program website has information on the plans filed by Michigan utilities.

Reporting
Public Act 295 also included annual reporting requirements for the PSC, including information on the status of renewable and clean energy in the state, the effects of the standard on electricity prices, the cost effectiveness of the standard, and the effect on employment in the standard. The reports are due annually by February 15. The 2012 report is available here.

Energy Efficiency Resource Standard
The law contains an energy optimization standard that applies to both natural gas and electric utilities. The electricity optimization standard requires incremental savings during 2008 and 2009 equivalent to 0.3% of 2007 retail sales, accelerating to 1.0% of previous year's retail sales in 2012 and thereafter, subject to certain exceptions. The gas optimization standard requires incremental savings during 2008 and 2009 of 0.1% of 2007 retail sales, accelerating to 0.75% of previous year's sales in 2012 and thereafter, subject to certain exceptions. As with the renewable energy standard, limited use of RECs and ACECs is permitted for compliance with the energy optimization standard. More information regarding this standard can be found here.

*In reviewing Detroit Edison's renewable energy plan, the PSC determined that scrap tires do not qualify as municipal solid waste, but that the utility could request ACECs for energy produced using scrap tires.

**The renewable energy standard addresses ownership rights of renewable energy credits (RECs) produced by PURPA QFs. In synopsis, the law upholds PURPA contracts that address REC ownership as they are written, while it specifies REC ownership in situations where REC ownership is addressed as part of a separate contract or is not addressed at all. The existing component of a utility's renewable portfolio includes RECs it would have had title to under the new law had it existed during the time period for which the existing renewable baseline is calculated.