Energy Efficiency Policies and Practices in Michigan

Utility Sector

Utility sector policies are those policies that directly affect the way that the state's electricity and natural gas utilities do business and serve the energy needs of their customers.  These policies include utility forecasting and planning requirements for energy efficiency, requirements for energy efficiency delivery to customers, regulatory mechanisms to determine utility revenues for energy efficiency services, processes for working collaboratively with other utilities and energy stakeholders to advance energy efficiency, requirements for evaluating energy efficiency programs and portfolios, and policies to promote the development of the next generation of energy grids.

Resource Planning

Under MCL 460.6s(4)(a), (as modified by PA 286 of 2008), utility seeking a Certificate of Neccesity for a new power plant, transmission project, or major power purchase contract must show that they have established the need for that capacity through an approved Integrated Resource Plan.

MCL 460.6s(11) authorizes the Commission to establish IRP standards, including projected energy efficiency savings under subsection (d) and demand-side management under subsection (e).

The Commissions's standards for the IRP process in Michigan are found in the Commission's own Docket U-15896. The rules apply to any utility serving more than 1 million customers for projects over $500 million in size. For smaller utilities/projects, they may propose alterations or waivers for the IRP process.  The standards specify that forecasting should include the effects of energy efficiency and demand-side management, but does not specify a planning horizon for that forecast. 

► Overview of Resource Planning policies in the Midwest

Energy Efficiency Standards

The Clean, Renewable, and Efficient Energy Act (PA 295 of 2008) created a mandatory energy efficiency portfolio standard (known as the Energy Optimization, EO Standard) for Michigan's electric and natural gas utilities - IOUs, municipal, and co-op utilities.  The energy efficiency portion of that Act is found in Part 2, Subpart B.

PA 295 sets hard savings targets for utilities. Utilities began their programs in 2009, and ramped up to reach a goal of 1.0% of electricity (MCL 460.1077(1)) and 0.75% of natural gas by 2012 (MCL 460.1077(3)). There is a spending cap in place for natural gas utilties, which also ramped up from 2009-2012. Natural gas utilities can spend no more than 2.0% of total sales revenue on their energy efficiency programs in 2012 and subsequent years.

Utilities that do not wish to run their own energy efficiency programs can make an Alternate Compliance Payment to a third-party administrator approved by the Commission under PA 295, Section 91(MCL 460.1091).

Michigan PSC guidelines for the implementation of PA 295 were issued in Docket U-15800. According to these filing requirements (Appendix E), Energy Optimization plans are for a minimum of 2 years and a maximum of 6 years.

► Overview of Efficiency Standards policies in the Midwest

Rate Structures & Incentives


Utilities that provide energy efficiency under PA 295 can recovery the cost of implementing approved plans under PA 295, Section 89 (MCL 460.1089). Costs that exceed those specified in the approved plan are not recoverable, unless they are prudently made and meet cost-effectiveness testing. Costs are recovered by a volumetric charge for residential customers and a per-meter charge for other customers. Subsection (3) places a cap on the total amount of cost that can be recovered by customer class (e.g. 2.2% of annual revenues for residential customers).

Under subsection (4), a utility can also seek to capitalize program costs for its energy optimization programs, unless it made an alternate compliance payment under Section 91.

Lost Revenue Recovery

Under PA 295, Section 89(6) (MCL 460.1089), natural gas utilities can request a symmetrical revenue decoupling mechanism for the recovery of lost revenues, as long as they are spending at least 0.5% of total revenues on energy efficiency programs.

The law does not mention decoupling for electric utilities. Previously, pilot decoupling mechanisms were approved on a case-by-case basis for both natural gas (U-15985, U-15986, and U-15990) and electric utilities (U-15768 and U-15751) in Michigan. The electric decoupling pilots were struck down by the Michigan Court of Appeals in 2012 after a determination that the MPSC lacked the legislative authority to approve them.

Utility Incentives

Under PA 295, Section 75 (MCL 460.1075), rate-regulated utilities can include in their Energy Optimization Plan an incentive for exceeding their energy savings requirement for a program year. The incentive is the lesser of either 25% of the customer bill savings or 15% of the utility's actual program expenditures.

If a utility does not seek an incentive, it can chose to carry over Energy Optimization Credits for the savings in excess of requirement to later program years under MCL 460.1083(3)(b).

Noncompliance Penalties

PA 295 does not specify penalties for noncompliance, though it does specify that after its September 2015 compliance report,  the Commission can suspend programs of a utillity that does not meet cost-effectiveness requirements (MCL 460.1097(8)) and require it to maintain current energy efficiency levels without new cost-recovery.

The Attorney General or a member of a cooperative utility can bring civil action against a utility for non-compliance with the Energy Optimization Standard.

► Overview of rate structures & incentives in the Midwest

Stakeholder Collaboration

The Michigan Energy Optimization Collaborative was established by the Commission Orders approving the initial EO Plans for Consumers Energy and Detroit Edison. The Collaborative, facilitated by PSC staff, includes all the utilities that are subject to PA 295, as well as energy efficiency experts, equipment installers, and other interested stakeholders. Its duties include recommending improvements to EO plans for all providers, providing program evaluation support, developing or re-designing energy efficiency programs, updating the Michigan Energy Measures Database, and promoting economic development and job creation through energy efficiency.

► Overview of stakeholder collaboratives in the Midwest

Program Evaluation

Cost-effectiveness Testing

Under the Energy Optimization Plan guidelines issued by the PSC in U-15800 (Appendix E), the portfolio must pass the Utility System Resource Cost Test (USRCT; better known as the Program Administrator Cost Test, PACT), though individual programs need not pass that test.  EO Plan filings should include USRCT, Total Resource Cost Test (TRC), Rate Impact Measure Test (RIM), and Participant Cost Tests (PCT).

Net vs. Gross

The Energy Optimization Plan guidelines issued by the PSC in U-15800 (Appendix E) specify that evaluation plans must include the verification of annual incremental gross energy savings.  In Docket U-17049, on December 20, 2012, the MPSC ruled that Detroit-Edison could use a fixed 0.9 net-to-gross ratio for its program planning and evaluation purposes for 2012-2015 and recommended that the Michigan EM&V Collaborative continue to discuss net-to-gross ratios and updating the MEMD. 

Technical Resource Manual

The Energy Optimization Collaborative developed the Michigan Energy Measures Database (MEMD) which serves as the technical resource manual for energy program development and evaluation in the state of Michigan.

► Overview of efficiency program evaluation in the Midwest

Smart Grid

The Smart Grid Information Clearninghouse identifies the following smart grid projects in Michigan:

Recovery Act-funded smart grid projects that benefit Michigan, as identified on SmartGrid.gov include:

► Overview of smart grids in the Midwest



Read the report that accompanies these pages:
Energy Efficiency Policies, Programs, and Practices in the Midwest:
A Resource Guide for Policymakers (2014 Edition)

►more information about the Resource Guide