HB-5525, As Passed House, April 17, 2008

SUBSTITUTE FOR

HOUSE BILL NO. 5525

A bill to establish an energy efficiency program in this state

for electric and natural gas utilities; to promote load management;

to prescribe the powers and duties of certain state agencies and

officials; and to provide for sanctions.

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

Sec. 1. This act shall be known and may be cited as the

"energy efficient Michigan act".

Sec. 3. As used in this act:

(a) "Commission" means the Michigan public service commission

created in section 1 of 1939 PA 3, MCL 460.1.

(b) "Cost-effective" means that the program being evaluated

meets the utility system resource cost test.

corporation, association, or other legal entity whose transmission

or distribution of electricity the commission regulates under 1909

PA 106, MCL 460.551 to 460.559, or 1939 PA 3, MCL 460.1 to

460.10cc. Electric utility does not include a municipally owned

utility, a cooperative electric utility that has elected to become

member-regulated under the electric cooperative member-regulation

act, an affiliated transmission company, or an independent

transmission company.

(d) "Energy efficiency" means a decrease in the consumption of

electricity or natural gas achieved through measures or programs

that target customer behavior, equipment, devices, or materials

without reducing the quality of energy services. Energy efficiency

does not include load management.

(e) "Energy efficiency plan" means an energy efficiency plan

under section 5.

(f) "Large customer", with respect to a natural gas utility,

means a customer at a single premises with an annual natural gas

billing demand greater than 100,000 decatherms.

(g) "Large customer", with respect to an electric utility,

means either of the following:

(i) A customer at a single premises with an annual electric

billing demand greater than the following:

(A) 5 megawatts, until 3 years after the applicable utility

begins implementation of its energy efficiency plan.

(B) 2 megawatts, beginning 3 years after the applicable

utility begins implementation of its energy efficiency plan.

(ii) A customer with an aggregate annual electric billing

demand of at least 10 megawatts at all facilities within that

electric utility's service territory.

(h) "Load management" means measures or programs that decrease

peak electricity demand or shift demand from peak to off-peak

periods.

(i) "Natural gas utility" means an investor-owned business

engaged in the sale and distribution of natural gas within this

state whose rates are regulated by the commission.

(j) "Premises" means a contiguous site, regardless of the

number of meters at that site. A site that would be contiguous but

for the presence of a street, road, or highway shall be considered

to be contiguous for the purposes of this subdivision.

(k) "Utility", except as used in section 17, means an electric

utility or natural gas utility.

(l) "Utility system resource cost test" means a standard that

is met if, for an investment in energy efficiency, on a life-cycle

basis the total avoided supply-side costs to the utility, including

representative values for electricity or natural gas supply,

transmission, distribution, and other associated costs to the

utility, are greater than the total costs to the utility of

administering and delivering the energy efficiency program,

including any costs for incentives paid to customers.

Sec. 5. (1) Within 60 days after the effective date of this

act, the commission shall issue a temporary order specifying the

procedure for a utility to develop and submit an energy efficiency

plan to meet energy efficiency performance standards set forth in

section 7. Pursuant to the administrative procedures act of 1969,

1969 PA 306, MCL 24.201 to 24.328, the commission shall promulgate

rules specifying such a procedure. Within 120 days after the

effective date of this act and biennially thereafter, a utility

shall file an energy efficiency plan with the commission.

(2) An energy efficiency plan shall do all of the following:

(a) Propose a set of energy efficiency programs that include

offerings for each customer class, including low income

residential. The commission shall allow utilities flexibility to

tailor the relative amount of effort devoted to each customer class

based on the specific characteristics of their service territory.

(b) Specify necessary funding levels.

recovered from residential customers by volumetric charges, from

all other metered customers by per-meter charges, and from

unmetered customers by an appropriate charge.

(d) Demonstrate that the proposed energy efficiency programs

and funding are sufficient to ensure the achievement of applicable

energy efficiency performance standards under section 7.

(e) Demonstrate that the utility's energy efficiency programs,

excluding program offerings to low income residential customers,

will collectively be cost-effective.

(f) Include a plan for the practical and effective

administration of the proposed energy efficiency programs. The

commission shall allow utilities flexibility in designing their

energy efficiency programs and administrative approach. A utility's

energy efficiency programs may be administered by the utility,

alone or jointly with other utilities, by a state agency, or by an

appropriate experienced nonprofit organization selected after a

competitive bid process.

(g) Include a process for obtaining an independent expert

evaluation of the actual energy efficiency programs to verify the

incremental energy savings from each energy efficiency program for

purposes of section 7. All such evaluations shall be subject to

public review and commission oversight.

(h) Allow for the coordination of energy efficiency programs

with the energy efficiency programs of other utilities under the

direction of the commission pursuant to subsection (5).

(i) Provide funding equal to 1% of the utility's total program

spending each year to partially fund a rebate program under the

general sales tax act, 1933 PA 167, MCL 205.51 to 205.78, for

appliances that meet or exceed energy efficiency guidelines

developed by the United States environmental protection agency and

the United States department of energy. For the purposes of this

act, all utility expenditures under this subdivision shall be

considered reasonable, shall be recovered by the utility, and shall

be considered to save energy cost effectively and in the amount of

1% of the applicable energy efficiency performance standard under

section 7.

(3) An energy efficiency plan may provide for the utility to

facilitate third-party loans to customers to finance energy

efficiency measures.

(4) Within 120 days of receiving an energy efficiency plan

from a utility and after an opportunity for public comment, the

commission shall approve, approve with changes consented to by the

utility, or reject the plan. If the commission rejects the plan,

the commission shall state the reasons for its action. Within 30

days after the commission rejects a plan, the utility shall submit

a revised plan that addresses the reasons for rejection cited by

the commission. Within 30 days after receiving a revised plan and

after an opportunity for public comment, the commission shall

approve, approve with changes consented to by the utility, or

reject the revised plan. If the commission rejects the revised

plan, the commission shall state the reasons for the rejection. The

procedure for rejected plans shall be repeated until a revised plan

is approved or approved with changes consented to by the utility.

The commission's action under this subsection does not affect the

applicability of the requirements of section 7.

(5) The commission shall coordinate energy efficiency programs

among consenting utilities to maximize energy savings on a

statewide basis. However, money spent by a utility to comply with

this act shall only be used to fund energy efficiency programs in

that utility's service territory.

Sec. 7. (1) Except as provided in section 9, an electric

utility's energy efficiency programs shall collectively meet the

following minimum energy efficiency performance standards:

(a) Biennial incremental energy savings in 2008-2009

equivalent to 0.3% of total annual weather-normalized retail

electricity sales in kilowatt hours in 2007.

(b) Annual incremental energy savings in 2010 equivalent to

0.5% of total annual weather-normalized retail electricity sales in

kilowatt hours in 2009.

0.75% of total annual weather-normalized retail electricity sales

in kilowatt hours in 2010.

(d) Annual incremental energy savings in 2012 and each year

thereafter equivalent to 1.0% of total annual weather-normalized

retail electricity sales in kilowatt hours in the preceding year.

(2) A natural gas utility shall meet the following minimum

energy efficiency performance standards using energy efficiency

programs:

(a) Biennial incremental energy savings in 2008-2009

equivalent to 0.1% of total annual weather-normalized retail

natural gas sales in therms in 2007.

(b) Annual incremental energy savings in 2010 equivalent to

0.25% of total annual weather-normalized retail natural gas sales

in therms in 2009.

0.5% of total annual weather-normalized retail natural gas sales in

therms in 2010.

(d) Annual incremental energy savings in 2012 and each year

thereafter equivalent to 0.75% of total annual weather-normalized

retail natural gas sales in therms in the preceding year.

(3) If a utility's incremental energy savings in the 2008-2009

biennium or any year thereafter exceed the applicable energy

efficiency performance standard in subsection (1) or (2), those

savings may be carried forward and credited to the next year's

standard. However, both of the following apply:

(a) The amount of those savings carried forward shall not

exceed 1/3 of the next year's standard.

(b) Savings shall not be carried forward if, for its

performance during the same biennium or year, the utility accepts a

financial incentive under section 11(5).

(4) Incremental energy savings under subsection (1) or (2) for

the 2008-2009 biennium or any year thereafter shall be determined

for a utility by adding the energy savings expected to be achieved

during a 1-year period by energy efficiency measures installed

during the 2008-2009 biennium or year thereafter under any energy

efficiency programs consistent with the utility's energy efficiency

plan.

Sec. 9. (1) This section applies to electric utilities that

meet both of the following requirements:

(a) Serve not more than 200,000 customers in this state.

(b) Had average electric rates for residential customers using

1,000 kilowatt-hours per month that are less than 75% of the

average electric rates for residential customers using 1,000

kilowatt-hours per month for all electric utilities in this state,

according to the January 1, 2007, "comparison of average rates for

MPSC-regulated electric utilities in Michigan" compiled by the

commission.

(2) Beginning 2 years after a utility described in subsection

(1) begins implementation of its energy efficiency plan, the

utility may petition the commission to establish alternative energy

efficiency performance standards. The petition shall identify the

efforts taken by the utility to meet the energy efficiency

performance standards under section 7(1) and demonstrate why the

performance standards cannot reasonably be met with energy

efficiency programs that are collectively cost-effective. If the

commission finds that the petition meets the requirements of this

subsection, the commission shall revise the energy efficiency

performance standards in section 7(1) to a level that can

reasonably be met with energy efficiency programs that are

collectively cost-effective.

Sec. 11. (1) The commission shall allow a utility that

undertakes approved energy efficiency programs to recover the

actual costs of implementing the programs. However, costs exceeding

the overall funding levels specified in the energy efficiency plan

are not recoverable unless those costs are prudent and reasonable.

Costs shall be recovered from all gas customers and from

residential electric customers by volumetric charges, from all

other metered electric customers by per-meter charges, and from

unmetered electric customers by an appropriate charge, applied to

utility bills. For the electric primary customer rate class

customers of electric utilities and large customers of natural gas

utilities, the cost recovery shall not exceed 1.7% of utility

revenue.

(2) Upon petition by a utility and after an opportunity for

public comment, the commission may authorize the utility to

capitalize certain costs of implementing approved energy efficiency

programs. To the extent feasible, charges collected from a

particular customer rate class shall be devoted to energy

efficiency programs and services for that rate class. However, the

established funding level for section 5(2)(i) and low income

residential programs shall be provided from each customer rate

class in proportion to that customer rate class's funding of the

utility's total energy efficiency programs. Charges shall be

applied to distribution customers regardless of the source of their

electricity or natural gas supply.

(3) A natural gas utility that spends a minimum of 0.5% of

total natural gas revenues, including natural gas commodity costs,

per year on commission approved energy efficiency programs shall be

allowed to implement a symmetrical revenue decoupling true-up

mechanism that adjusts for sales volumes that are above or below

forecasted levels.

(4) A natural gas utility or an electric utility shall not

spend more than the following percentage of total utility sales

revenues, including electricity or natural gas commodity costs, in

any year on energy efficiency programs without specific approval

from the commission:

(a) In 2009, 0.75% of total utility sales revenues for 2007.

(b) In 2010, 1.0% of total utility sales revenues for 2008.

(d) In 2012 and each year thereafter, 2.0% of total utility

sales revenues for the preceding year.

(5) If a utility exceeds the energy performance standards

under section 7 or alternative standards under section 9(2) during

the 2008-2009 biennium or any year thereafter, as documented

through a commission-approved program evaluation, the commission

upon application and after a hearing may allow the utility to

receive a financial incentive for that performance. The incentive

mechanism shall be proposed in the utility’s energy efficiency plan

and may include a methodology whereby the utility incentive is

calculated as a percentage of the net savings customers receive

from the energy efficiency programs. As a general principle, the

highest incentives should be associated with success that

demonstrates extraordinary benefits to customers. Any financial

incentive under this subsection shall be in an amount up to 15% of

the utility's actual energy efficiency program expenditures for

that year.

(6) If a utility implements an energy efficiency plan using

products or services of companies headquartered in this state, as

documented through a commission-approved program evaluation, the

commission, upon application and after a hearing, may allow the

utility to receive a financial incentive. The financial incentive

under this subsection shall be in an amount up to 2% of the

utility's actual energy efficiency program expenditures for that

year.

(7) If approved, a financial incentive shall be added to the

total energy efficiency program costs to be recovered by the

utility. A financial incentive is subject to the requirement that

the utility's energy efficiency programs, excluding program

offerings to low income residential customers, collectively be

cost-effective.

Sec. 13. (1) Sections 5 to 11 do not apply to a utility that

pays the following minimum percentage of total utility sales

revenues, including electricity or natural gas commodity costs,

each year to an independent energy efficiency program administrator

selected by the commission:

(a) In 2009, 0.75% of total utility sales revenues for 2007.

(b) In 2010, 1.0% of total utility sales revenues for 2008.

(d) In 2012 and each year thereafter, 2.0% of total utility

sales revenues for the preceding year.

(2) Money received from a utility by the energy efficiency

program administrator under subsection (1) shall be used to

administer energy efficiency programs for the utility. Money

unspent in any given year shall be carried forward to be spent in

the subsequent year.

(3) The commission shall allow a utility that complies with

subsection (1) to recover the amount of money transferred. This

cost shall be recovered from residential customers by volumetric

charges, from all other metered customers by per-meter charges, and

from unmetered customers by an appropriate charge, applied to

utility bills.

(4) Money paid by a utility to the energy efficiency program

administrator under subsection (1) shall only be used to fund

energy efficiency programs in that utility's service territory. To

the extent feasible, charges collected from a particular customer

rate class and paid to the energy efficiency program administrator

under subsection (1) shall be devoted to energy efficiency programs

and services for that rate class.

(5) Money paid to the energy efficiency program administrator

and not spent by the administrator that year shall remain available

for expenditure the following year, subject to the requirements of

subsection (4).

(6) The commission shall select a qualified nonprofit

organization to serve as energy efficiency program administrator

under this section, through a competitive bid process.

(7) The commission shall arrange for a biennial independent

audit of the energy efficiency program administrator.

Sec. 15. (1) The commission shall monitor utility performance

to ensure compliance with the requirements of this act.

(2) If a utility violates this act, the commission shall

investigate the reasons for the violation. If the commission

determines that the violation is a result of a lack of good faith

effort by the utility, the commission shall impose regulatory

sanctions on the utility. Such sanctions may include a reduction in

the authorized rate of return.

(3) If a utility fails to meet the applicable energy

efficiency performance standard under section 7 or 9, as

applicable, in any particular year, the utility shall achieve

additional energy savings, equal to the shortfall, within the

following 2 years, and the additional energy savings shall be added

to the energy efficiency performance standards that apply in those

years. However, upon petition of the utility, the commission shall

waive or reduce the requirement to achieve additional energy

savings under this subsection if the commission determines that the

performance standards could not reasonably be met with energy

efficiency programs that are collectively cost-effective.

Sec. 17. (1) A municipally owned utility or a cooperative

electric utility that has elected to become member-regulated under

the electric cooperative member-regulation act shall comply with

the requirements of section 5(1). The commission may recommend

changes to the energy efficiency plan of the municipally owned

utility or the cooperative electric utility that has elected to

become member-regulated under the electric cooperative member-

regulation act.

(2) A municipally owned utility or a cooperative electric

utility that has elected to become member-regulated under the

electric cooperative member-regulation act shall comply with the

requirements of at least 1 of the following:

(a) Section 7 or, if applicable, section 15(3).

(b) Section 13.

(3) The attorney general or any customer of a municipally

owned utility or member of a cooperative electric utility that has

elected to become member-regulated under the electric cooperative

member-regulation act may commence a civil action for injunctive

relief against the municipally owned utility or cooperative

electric utility, respectively, if it fails to meet the

requirements of subsection (2).

(4) An action under subsection (3) shall be commenced in the

circuit court for the circuit in which the alleged violation

occurred. An action shall not be filed under subsection (3) unless

the plaintiff has given the governing body of the prospective

defendant and the commission at least 60 days' written notice of

the plaintiff's intent to sue, the basis for the suit, and the

relief sought. Within 30 days after the governing body of the

prospective defendant receives written notice of the plaintiff's

intent to sue, the governing body and the plaintiff shall meet and

make a good faith attempt to determine if a credible basis for such

action exists. If both parties agree that a basis for the action is

credible, the municipally owned utility or cooperative electric

utility that has elected to become member-regulated under the

electric cooperative member-regulation act must take all reasonable

steps necessary to comply with applicable requirements of this act

within 90 days of the meeting.

(5) In issuing a final order in an action brought under

subsection (3), the court may award costs of litigation, including

reasonable attorney and expert witness fees, to the prevailing or

substantially prevailing party.

(6) By 1 year after the effective date of this act, and every

2 years thereafter, a municipally owned utility or cooperative

electric utility that has elected to become member-regulated under

the electric cooperative member-regulation act shall report to its

customers or members, the commission, and the governing body of the

municipality or cooperative electric utility the expenditures of

the municipally owned utility or cooperative electric utility on

energy efficiency programs during the preceding calendar year,

details of each program, and the overall effectiveness of each

program.

Sec. 19. (1) A large customer may submit to the commission a

plan for a self-directed energy efficiency program. If the large

customer plan meets the requirements of this section, the

commission shall approve the large customer plan. After the plan is

approved, the large customer is exempt from charges the large

customer would otherwise incur under section 11 or 13 as long as

the plan's goals are achieved, the plan has not expired and is

still being implemented, or the plan has been succeeded by a new

approved plan.

(2) All of the following apply to a large customer plan:

(a) The plan shall be an annual or multiyear plan for an

ongoing energy efficiency program.

(b) If the large customer wishes, the plan may document that

the company achieved over the previous years the equivalent of the

energy efficiency goals in this act. The plan shall use the

definition of energy efficiency as set forth in this act. Energy

efficiency shall be calculated based on weather-normalized retail

sales.

and its subsidiaries in the relevant utility's service territory.

(3) All owned premises in the large customer plan shall be

grouped by the serving utility.

(4) If the aggregate energy efficiency reductions of the plan

meet or exceed the goals of this act, then all premises covered by

the plan shall be exempt from the energy efficiency program

charges.

(5) A large customer shall submit to the commission every 2

years verification of the completion of the large customer plan and

sufficient information to determine if the plan's annual goals have

been achieved. Along with submission of the verification, the large

customer shall also submit an updated plan that outlines how the

large customer intends to continue to meet the goals of this act.

(6) If the commission determines after providing an

opportunity for an evidentiary hearing that a large customer failed

to complete an energy efficiency project for which it obtained

commission approval, the large customer shall pay the relevant

utility the amount of any charges from which it was exempted for

that project under subsection (1), prorated to reflect any energy

savings that were achieved by that project. The utility shall use

the payment for the utility's energy efficiency programs under this

act.

(7) A facility of a large customer that is included in its

plan is prohibited from participating in the relevant utility's

energy efficiency program.

(8) Upon request of the large customer, all submissions to the

commission by the customer are confidential and exempt from

disclosure under the freedom of information act, 1976 PA 442, MCL

15.231 to 15.246.

(9) A large customer plan shall be submitted by a

knowledgeable official of the large customer along with an

affidavit that the information in the plan is true and correct to

the best of the official's knowledge and belief.

(10) A large customer's projected energy savings under a

commission-approved energy efficiency project or plan under this

section shall count as the relevant utility's incremental energy

savings under section 7 or 9, as applicable.

(11) A large customer shall pay to the commission costs

incurred by the commission under this section in conjunction with a

proposed energy efficiency plan of the large customer.

(12) As used in this section, "large customer plan" or "plan"

means a large customer's plan for a self-directed energy efficiency

program under subsection (1).

Sec. 21. The commission shall promote load management in

appropriate circumstances, including allowing rate recovery for

prudent load management expenditures.

Sec. 23. (1) A utility shall annually submit to its customers

in their bills a statement specifying the reduction in electricity

or natural gas usage in this state attributable to this act during

the previous year. The statement shall also encourage each customer

to compare the customer's energy usage during the current and

preceding year. The statement shall indicate that it is being made

to comply with the requirements of this act. A cooperative electric

utility required to submit a statement to its members under this

subsection shall submit the statement in a periodical issued by an

association of rural electric cooperatives.

(2) By 1 year after the effective date of this act, and every

2 years thereafter, the commission shall report to the legislature

on the progress and results from the implementation of the energy

efficiency programs required to be implemented by utilities under

this act, including the net benefit to customers. The commission

shall make copies of the report available for distribution to the

public. The department of labor and economic growth shall post the

report on its website.

(3) By March 31 of every odd-numbered year, beginning in 2009,

the commission shall submit to the legislature a report that

evaluates this act and makes any recommendations the commission may

have for amendments to this act.

Enacting section 1. This act does not take effect unless all

of the following bills of the 94th Legislature are enacted into

law:

(a) House Bill No. 5383.

(b) House Bill No. 5524.

(d) House Bill No. 5549.

(e) House Bill No. 5972.

(f) House Bill No. 5973.

(g) House Bill No. 5974.

(h) House Bill No. 5975.

(i) House Bill No. 5976.

(j) House Bill No. 5977.