REVISE THE CLEAN, RENEWABLE,

AND EFFICIENT ENERGY ACT

House Bill 4297 (reported from committee as H-3)

Sponsor:  Rep. Aric Nesbitt

Committee:  Energy Policy

Updated as of 12-10-15

REVISED SUMMARY:

Briefly, the bill would amend the Clean, Renewable, and Efficient Energy Act to:

·         Revise the purpose of the act by eliminating a reference to "energy optimization" and "energy efficiency" and add as one of the goals "to remove unnecessary burdens on the appropriate use of solid waste as a clean energy source."

·         Repeal references and provisions pertaining to energy optimization as of January 1, 2019, or January 1, 2020.

·         Allow fuel manufactured from municipal solid waste, among other waste sources, to be a "renewable energy resource" and revise the definition of the term.  The term would not include fuel derived from pet coke, hazardous waste, coal waste, or scrap tires.  The term would still apply to a resource that naturally replenishes over a human time frame and that is ultimately derived from solar power, water power, or wind power.

·         Create Part 7 to allow electric and natural gas providers to establish programs by which customers may obtain loans for energy projects and repay the loan monthly on their utility bill. If recorded with the county register of deeds, the loan would run with the property and new owners would be obligated to repay the loan.

·         Allow for the use of pyrolysis technologies in the generation of renewable energy. ("Pyrolysis" is not defined in the bill but generally refers to a high-temperature, oxygen-free process to make biofuels from a wide range of agricultural, industrial, and municipal solid waste.)

·         Revise and add several definitions.

Unless otherwise indicated, the provisions would take effect 90 days after the bill is enacted.

DETAILED SUMMARY:

House Bill 4297 would amend the Clean, Renewable, and Efficient Energy Act (MCL 460.1001 et al.).  A section-by-section description of the bill follows, with the effective dates of the amendments and repealers listed with each section.

TITLE

The title would be amended to include, as a purpose of the act, to authorize the establishment of energy improvement programs by providers of electric or natural gas service for energy customers.

PART 1:  General Provisions

Section 1:  Purpose of act

The bill eliminates from the stated purpose of the act references to energy optimization and a clean, efficient standard. Instead, the stated purpose would be "to promote the development of clean energy and renewable energy through the implementation of a renewable energy standard that will cost-effectively do all" of several listed goals.  One of the current goals requires the act to encourage private investment in renewable energy and energy efficiency; the highlight text would be deleted.

The bill would also add, as a goal of the act, the removal of unnecessary burdens on the appropriate use of solid waste as a clean energy source. 

Definitions

The following definitions would be revised, added, or eliminated:

Section 3: 

"Biomass" currently includes, among other things, trees and wood, but only if derived from sustainably managed forests or procurement systems, as defined in Section 261e of the Management and Budget Act.  The underlined portion would be deleted.

"Carbon dioxide emissions benefits" would be revised to include the carbon dioxide emissions per megawatt hour of electricity generated by an integrated pyrolysis combined cycle facility that are 70 percent less than the average carbon dioxide emissions per megawatt hour of electricity generated from all coal-fired electric generating facilities operating in Michigan on January 1, 2008.

Section 5:

The definition of "electric provider" is defined to mean any person or entity that is regulated by the MPSC for the purpose of selling electricity to retail customers in the state, a municipally-owned utility, or a cooperative electric utility in the state.  Under the bill, beginning 180 days after the bill is enacted, neither a municipally-owned nor a cooperative electric utility would apply to the term "electric provider" or "provider" as used in Sections 71-87 of the act.  Section 5 will be repealed January 1, 2020.

Section 5a:

This new section, which will take effect January 1, 2020, enacts all the same definitions as currently contained in Section 5 with the exception of terms pertaining to energy optimization.  Definitions of "energy optimization," "energy optimization credit," "energy optimization plan" or "EO plan," and "energy optimization standard" will be eliminated.  Also eliminated will be a provision that energy optimization does not include electric provider infrastructure projects approved for cost recovery by the Michigan Public Service Commission other than as provided in the act.

Section 7:

"Integrated pyrolysis combined cycle facility" would be defined to mean a pyrolysis facility that uses exhaust heat to generate electricity.

"Megawatt," "megawatt hour," or "megawatt hour of electricity" would be defined to include, unless the context implies otherwise, the steam equivalent of a megawatt or megawatt hour of electricity.

Section 9:

"Pet coke" would be defined to mean a solid carbonaceous residue produced from a coker after cracking and distillation from petroleum refining operations.

"Pyrolysis facility" would be defined to mean a facility that effects thermochemical decomposition at elevated temperatures without the participation of oxygen, from carbon-based feedstocks including, but not limited to, coal, wood, biomass, industrial waste, or solid waste, but not including pet coke, hazardous waste, coal waste, or scrap tires.  The term would include the transmission lines, gas transportation lines and facilities, and associated property and equipment specifically attributable to the facility.  It would also include, but not be limited to, an integrated pyrolysis combined cycle facility.

Section 11:

"Renewable energy" would be revised to mean electricity or steam generated using a renewable energy system.

The definition of "renewable energy resources" would be revised.  Currently, the term means a resource that naturally replenishes over a human, not a geological, time frame and that is ultimately derived from solar power, water power, or wind power.  Renewable energy resource does not include petroleum, nuclear, natural gas, or coal.  A renewable energy resource comes from the sun or from thermal inertia of the earth and minimizes the output of toxic material in the conversion of the energy and includes, but is not limited to, all of the following listed sources (new provisions are underlined):

·         Biomass.

·         Solar and solar thermal energy.

·         Wind energy.

·         Kinetic energy of moving water, including waves, tides, or currents or water released through a dam.

·         Geothermal energy.

·         Thermal energy produced from a geothermal heat pump.  

·         Any of the following cleaner energy resources:

o   Municipal solid waste.

o   Landfill gas produced by municipal solid waste.

o   Fuel that has been manufactured in whole or significant part from waste, including, but not limited to, municipal solid waste.  Fuel that meets the requirements would include, but not be limited to, material listed under 40 CFR 241.3(b) or 241(a) or for which a non-waste determination is made by the U.S. Environmental Protection Agency pursuant to 40 CFR 241.3(c).  Pet coke, hazardous waste, coal waste, or scrap tires are not fuel that meets the requirements of this provision. 

 "Renewable energy system" is defined as a facility using renewable energy resources to generate electricity; the term would be revised to include steam, as well.  Currently, a hydroelectric facility that uses a dam constructed after the October 6, 2008, effective date of the Clean, Renewable, and Efficient Energy Act is not included as a "renewable energy system" unless it is a repair or replacement of a dam that was in existence on the act's effective date.  The bill would delete this provision, thus allowing a hydroelectric facility to constitute a renewable energy system.   

Similarly, an incinerator is not included as a renewable energy system unless it is a municipal solid waste incinerator as defined in Section 11504 of NREPA that was brought into service before the effective date of the Clean, Renewable, and Efficient Energy Act.  The bill would delete the highlighted text as well as a list of several examples of incinerators.  A renewable energy system would therefore include all municipal solid waste incinerators that meet the NREPA definition. 

Section 13:

The definition for "utility system resources cost test" would be eliminated effective January 1, 2020.

Part 2:  Energy Standards

Subpart A:  Renewable Energy

Section 21:  Proposed renewable energy plan

The bill makes several changes of a technical nature that take effect January 1, 2019.

Section 27:  Substitution of energy optimization credits

The bill would require that, when an energy optimization credit is substituted for a renewable energy credit, the energy optimization credit expires.  The Michigan Public Service Commission would have to ensure that each energy optimization credit substituted for a renewable energy credit was properly accounted for.  Any energy optimization credits outstanding on January 1, 2017, would expire on that date.  The amendment takes effect January 1, 2019.

Section 29:  Renewable energy system location 

Section 29, which pertains to the location requirements of a renewable energy system that is the source of renewable energy credits, will be repealed 90 days after the bill takes effect.

Section 39: Renewable energy credit

Currently, except as provided in Section 35(1) of the act, one renewable energy credit is granted to the owner of a renewable energy system for each megawatt hour of electricity generated from the system, subject to certain conditions.  The bill would eliminate a provision that does not allow a renewable energy credit for renewable energy generated from a municipal solid waste incinerator to the extent the renewable energy was generated by operating the incinerator in excess of the incinerator's nameplate capacity rating as of January 1, 2008, or, if the incinerator had been expanded, the nameplate capacity rating required to accommodate the expansion, whichever is greater. 

Currently, if a renewable energy system uses both a renewable energy resource and a nonrenewable one to generate electricity, the number of renewable energy credits granted is based on the percentage of the electricity generated from the renewable energy resource. The bill would include the generation of steam, in addition to electricity, when calculating the number of renewable energy credits to grant.

Further, provisions granting Michigan Incentive Renewable Energy Credits for electricity generated from a renewable energy system constructed using Michigan-made equipment or using a Michigan-based workforce would be eliminated.

Section 43:  Advanced cleaner energy credit

The bill eliminates a reference to an energy optimization credit under Section 77 (which will be repealed January 1, 2019).  The amendment takes effect January 1, 2019.

Section 45:  Charges for electric provider's tariffs that permit recovery of incremental costs of compliance

A provision requiring a regulated utility to include in a customer's billing statement certain charges and savings pertaining to the energy optimization program would be eliminated.  The amendment takes effect January 1, 2020.

Subpart B:  Energy Optimization

Section 77:  Energy savings

Section 77 pertains to the minimum energy savings of a provider's energy optimization program.  Currently, for the years 2012-2015 and, subject to Section 97, each year thereafter, the annual incremental energy savings must be equivalent to 1 percent of the total annual retail electricity sales in megawatt hours in the preceding year.  The bill adds that for a municipally-owned or cooperative electric utility, the 1 percent energy optimization standard must be prorated for the partial final calendar year of the energy optimization program under the act.  The energy optimization program for an affected utility ends 180 days after the bill takes effect.  Further, the minimum energy savings requirement would not apply to an electric provider for which an integrated resource plan that includes energy optimization requirements has been approved under Section 6t of Public Act 3 of 1939.

The bill would also subject the minimum energy optimization standards using energy efficiency programs by a natural gas provider to the sales revenue expenditure limits in Section 89.

Section 77 will be repealed effective January 1, 2019.

Sections 71-75, 79-83: Energy optimization plans and credits, location of advanced cleaner energy systems

Sections 71-83 will be repealed effective January 1, 2019.

Sections 85 and 87:  EO credit not transferable; EO certification and tracking program

Sections 85 and 87 will be repealed January 1, 2020.

Section 89:  Recovery of costs

Section 89 will be repealed January 1, 2020.  Currently, the MPSC allows a gas or electric provider whose rates are regulated by the commission to recover the actual costs of implementing its approved energy optimization plan.  The bill would apply the provision to costs incurred before January 1, 2019.  Further, the MPSC would have to allow a cooperative electric utility whose rates are regulated to recover such costs only if incurred before 180 days after the bill's effective date.  Existing caps on the cost recovery for certain customer classes of electric providers and natural gas providers would be limited to the period for which costs are being recovered.

In addition, the act currently places a cap of two percent of total utility retail sales revenues for 2012 and thereafter that may be spent to comply with the energy optimization performance standard; the bill applies the cap only through 2018.  However, the bill specifies that for a municipally-owned or a cooperative electric utility, the 2 percent spending cap would be prorated for the partial final calendar year of its energy optimization program.

Section 91:  Payment to an independent energy optimization program administrator

Similarly to the above, the cap in place for 2012 and thereafter would be in place through 2018 instead.  For a municipally-owned or a cooperative electric utility, the two percent spending cap would be prorated for the partial final calendar year of its energy optimization program.

 The provision would take effect 90 days after the bill's effective date; Section 91 will be repealed January 1, 2020.

Section 93:  Self-directed energy optimization plan

The exemption from certain costs for electric customers who file and implement a self-directed energy optimization plan would only apply to plans filed and implemented through December 31, 2018.  However, to be exempt from those charges, the customer of a municipally-owned electric or cooperative utility must implement its self-directed energy optimization plan until 180 days after the bill's effective date.  Section 93 is repealed January 1, 2019.

Section 95:  MPSC duties

The provision allowing a provider whose rates are regulated by the MPSC to recover reasonable and prudent costs for load management undertaken under an energy optimization plan through base rates would be revised to apply only to load management undertaken before January 1, 2019.  However, the MPSC may allow a cooperative electric utility whose rates are regulated to recover costs for load management undertaken before 180 days after the bill's effective date.

Further, following an integrated resource plan proceeding, and as part of a rate-making process, the act does not limit the MPSC from allowing a provider whose rates are regulated by the commission to recover for additional prudent energy efficiency and energy conservation measures not included in the provider's energy optimization plan if the provider has met the requirements of the energy optimization program.  The bill eliminates the underlined portion.

Section 97:  Compliance with energy optimization standards; reports

The section will be repealed January 1, 2020.

PART 7:  Customer Energy Improvements

The bill adds Part 7, which allows providers to establish a program for their customers by which a property owner could finance or refinance qualifying energy projects and pay for the improvements through installment payments added to the customer's monthly utility bill.  The new Part 7 takes effect 90 days after the bill's enactment.

Section 201:  Definitions

"Clean energy resource" would mean an electric generation technology that meets all current state and federal air emissions regulations or qualifies under U.S. Environmental Protection Agency regulations as being carbon neutral.  The term includes, but is not limited to, a fossil fuel generation technology in which at least 85 percent of the carbon dioxide emissions are captured and permanently sequestered or used for other commercial or industrial purposes that do not result in the release of carbon dioxide into the atmosphere.

Other defined terms include "clean energy system,", "customer energy projects program," "energy audit," "energy project," "record owner," and "energy waste reduction improvement."

Section 203:  Financing of energy projects

The bill allows a provider to establish a program under which a property owner may obtain financing or refinancing of an energy project on the property from a commercial lender or other legal entity, including an independent subsidiary of the provider.  The loan would be repaid through itemized charges on the provider's utility bill for that property.  The itemized charges could cover the cost of materials and labor, energy audit costs, permit and inspection fees, application and administrative fees, bank fees, and other fees incurred by the property owner for the installation on a specific or pro rata basis, as determined by the provider.

Section 205:  MPSC approval of customer energy projects program

The bill requires a customer energy projects program to be established and implemented pursuant to a plan approved by the MPSC.  Providers seeking to establish a program must file a proposed plan with the MPSC and include information as required by the bill, such as the estimated costs of administration of the program, whether the program will be administered by a third party, eligibility requirements for a property owner to participate, and provisions for billing the customer any fees owed and the customer's monthly installment payments as a per-meter charge on the bill for electric or natural gas services.  A plan would have to be reasonable and prudent for the MPSC to approve it, and if a plan is rejected the MPSC must explain in writing the reasons for the determination.  The MPSC would have to review an approved plan every four years after the initial approval.

Section 207:  Baseline energy audit; shut off for nonpayment

Before an energy project is undertaken, a baseline energy audit must be conducted.  Upon completion of the project, the provider must obtain verification that the energy project was properly installed and is operating as intended.

Electric or natural gas service could be shut off for nonpayment of the per-meter charge described in Section 205 in the same manner and under the same procedures used to enforce nonpayment of the provider's other charges for electric or natural gas service.  If notice of a loan under the program is recorded with the county register of deeds, the obligation to repay the per-meter charge will run with the land and be binding on future customers contracting for electric or natural gas service, as applicable, to the property.

Section 209:  Term of repayment

The term of a loan paid through a customer energy projects program could not exceed the anticipated useful life of the energy project or 180 months, whichever is less.  The loan must be repaid in monthly installments.

A lender must comply with all state and federal laws applicable to the extension of credit for the improvements.  If a nonprofit corporation makes loans to owners to be repaid under a customer energy projects program, interest would be charged on the unpaid balance at a rate of not more than the adjusted prime rate as determined under Section 23 of the Revenue Act, plus four percent.

Section 211:  Rule promulgation

The MPSC would have to promulgate rules to implement Part 7 within one year after Section 211's effective date.  Every five years thereafter, the MPSC must submit to the standing committees of the Senate and House of Representatives with primary responsibility for energy issues a report on the implementation of Part 7 and any recommendations for legislation to amend it.  The report may be combined with the annual report required under Section 5a of Public Act 3 of 1939, the MPSC enabling act.

FISCAL IMPACT:

House Bill 4297 (H-3), as reported from committee, would likely engender an overall reduction in expenditures made by the Public Service Commission (PSC) to the extent that the PSC would no longer hold biennial proceedings to consider energy optimization plans filed by cooperatively- and municipally- and, beginning in 2019, investor-owned electric and natural gas utilities and, beginning in 2020, would no longer hold annual proceedings to consider cost recovery surcharges associated with energy optimization programs implemented by rate-regulated utilities.[1]  The most recent annual report provided by the PSC concerning energy optimization programs indicated that 65 utilities (14 investor-owned, 10 cooperatives, and 41 municipal) filed biennial energy optimization plans during 2013. According to the PSC, it expends between $700,000 and $800,000 annually and employs approximately 5.0 full-time equated staff to administer and adjudicate statutory and regulatory requirements pertaining to energy optimization plans and programs. [2]

The bill would also reduce expenditures by an indeterminate amount for municipally-owned electric utilities that, under current law, are required to file biennial energy optimization plans with the PSC and implement (or contract for the implementation of) energy optimization programs. According to information submitted by utilities, expenditures made by municipally-owned electric utilities to implement energy optimization programs totaled $9.85 million in 2013 and the average energy optimization surcharge on residential customers was $0.84 per month and $0.00186 per kilowatt-hour.[3]

Finally, the bill would create indeterminate, yet likely nominal, administrative costs for the PSC to the extent that the PSC would initially, and quadrennially thereafter, evaluate and approve or reject proposed Customer Energy Project Plans submitted by providers of electrical and natural gas service.

DISCUSSION OF ISSUES:

Arguments offered in support of the bill

The bill will in time replace the current Energy Optimization Standard with an integrated resource planning process that will be coupled with incentives designed to encourage utilities to offer energy efficiency programs.  The current EOS has been so successful, some believe that the time has come to end artificial mandates and instead incentivize utilities to continue to do the right thing in regards to energy efficiency programs.  Eliminating mandates also provides greater flexibility to gas and electric providers to design programs that best fit their customer base so as to maximize reliability and affordability.  Other reasons given for supporting the bill follow:

·         Some see the bill as a reasonable compromise in developing a regulatory approach to address capacity needs going forward.

·         The bill makes several changes to the renewable energy provisions that could provide affordable alternatives to fossil fuels and therefore generate more renewable energy-related industries.

·          The bill would allow fuel made from waste materials for which a non-waste determination is made under federal regulations to count as a renewable energy source, as well as allow any trees or woods to count as biomass (instead of only wood and trees from sustainably managed forests as is required under current law).  Expanding the types of fuel made from waste products could likewise expand the sources of affordable non-fossil fuel sources of energy–further reducing Michigan's reliance on fossil fuels. 

·         The bill as reported from committee would not include burning scrap tires, coal waste, or hazardous waste in the definition of a renewable energy resource.

·         Including thermal energy produced from a geothermal heat pump as a renewable energy resource will enable projects using such pumps to be considered on their individual merits, including cost-effectiveness.

·         Due to the uncertainties in the near future brought about by closures of baseload coal plants and other federal environmental policy measures that are still in flux, it is appropriate not to increase the 10 percent cap for a renewable energy portfolio.  The bill instead provides greater flexibility in meeting the demands of a changing energy market.

·         The bill would allow gas and electric providers to establish programs under which a customer who owns the property could obtain a loan from the provider (or its vendor) and pay off the loan in monthly installments added to the gas or electric bill.  If the customer sold the property before the loan was paid off, the new homeowner or business owner would take over the remainder of the payments.  In this way, property owners could undertake energy efficiency improvements such as window replacements, insulation, new heating or cooling systems, or solar panels that they couldn't otherwise afford under traditional home improvement loans.  The difference from lower utility bills could be used toward paying off the loan.  The property owner (and any future owners) would benefit from the comfort and efficiencies of the improvements and energy use would be reduced-a benefit for the environment, ratepayers, and providers alike.

Arguments offered against the bill

A crux of opposition to House Bill 4297 is that the bill will repeal the Energy Optimization Standard (EOS) at the end of the decade.  Created by PA 295 of 2008, the EOS requires gas and electric utilities in the state to implement programs that will reduce overall energy usage to meet specified targets.  By doing so, the future cost of service to utility customers is reduced.  Savings are realized by avoiding capital costs associated with increasing utility generation or purchasing power (e.g., buying power generated in other states).

According to written testimony offered by various stakeholders, energy savings programs under the EOS have exceeded yearly goals and should be expanded, not repealed in the near future as the bill in its current form will do.  The following benefits of the EOS have been noted:

·         According to annual MPSC reports on the EOS, energy savings programs create about $4 in economic benefits for each $1 spent.

·         Indirect benefits of the EOS that result in additional savings include environmental and health benefits.  For example, reducing reliance on fossil fuels results in fewer pollutants being released, which in turn reduces illnesses linked to air-borne pollutants such as childhood asthma, heart disease, lung disease, and premature death.  By some estimates, health-related damages associated with emissions from the nine coal-fired power plants in the state considered to be the "dirtiest" are about $1.5 billion annually.    

·         Without the EOS, such direct and indirect costs as described above would be passed on to customers.

·         Costing less than three times that of other options, energy efficiency programs are the lowest-cost energy resources available.

·         All customers of a utility benefit from EO programs, even ones that do not make energy efficiency improvements through a utility efficiency program.

·         Utility companies have successfully complied with EOS targets specified in PA 295.  For that and other reasons, many believe the target should be raised, not repealed and replaced with a different process as the bill would do.

Other arguments to the bill put forth by opponents include the following:

o   The bill relies on utilities voluntarily doing the "right thing", which could result in fewer cost-effective benefits to ratepayers.  Some have cited Indiana as an example; after that state repealed its EOS, investment in energy efficient programs declined significantly, resulting in reduced cost-effectiveness of energy efficiency programs in the state.  This in turn results in lower energy savings, a loss of jobs, and a loss in related economic development.

o   Instead of repealing the 1.0 percent EO target (the percent of an electric provider's annual retail electricity sales that must, at a minimum, be achieved in energy savings), some feel it should be increased to 1.5-2.0 percent (even 3 percent could be achievable) and be incorporated into the framework of the integrated resource planning process.  Doing so could ensure a consistent structure to support cost-effective energy efficiency programs.  Many feel a higher target could readily be achieved by 2030, including the MPSC and new Michigan Energy Office.

o   Though the bill as reported excludes the burning of hazardous waste, pet coke, and scrap tires as a source of renewable energy, the bill still increases the types of waste that may be incinerated as renewable energy.  Incineration is known to increase the pollutants released into the environment that lead to detrimental effects on health, impacts on wildlife, and climate changes.  Therefore, the energy captured through incineration should not be considered as a "renewable" resource for energy production.

o   The customer energy improvements portion of the bill may be problematic.  Some states that have adopted a similar program have found that when the property owner sells the property, prospective buyers have had trouble with mortgage companies approving the loan because another loan is attached to the property. 

o   Regarding a customer energy improvement loan, a property owner who can afford to pay the utility use portion of a monthly bill could still face shutoffs if the energy improvement portion of the monthly bill is not paid.  Further, it is not clear if an arrearage on the loan would subject the property to some type of foreclosure action common with nonpayment of mortgage payments or tax assessments.

POSITIONS:

The following have confirmed support for the bill in its current form:

Consumers Energy

Michigan Chapter National Electrical Contractors Association

DTE Energy

Michigan Electric Cooperative Association

Michigan Electric and Gas Association (MEGA) support in principle

Greenwood Fuels

The following have confirmed their opposition to the bill in its current form:

American Council for an Energy Efficient Economy

Americans for Prosperity

Ecology Center

General Motors

Michigan Energy Innovation Business Council (MiEIBC)

Michigan Forest Products Council

Michigan League of Conservation Voters

Noble American Energy Solutions

Sierra Club

Union of Concerned Scientists

The following have confirmed their neutrality on the bill in its current form:

Direct Energy

Midwest Energy Efficiency Alliance

Independent Power Producers Coalition of Michigan

                                                                                        Legislative Analyst:   Susan Stutzky

                                                                                                Fiscal Analyst:   Paul B.A. Holland

■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.

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