By Amanda Durish Cook and Rich Heidorn Jr.

Following a dramatic all-night session, Michigan lawmakers Thursday approved legislation that increases the state’s renewable portfolio standard, preserves its limited retail choice and assigns state regulators to referee battles over net metering and capacity charges.

Gov. Rick Snyder, who had been pushing revisions to the state energy policies since 2015, personally helped broker a compromise over retail choice, meeting with legislators overnight into early Thursday morning, then shaking hands on the Senate floor after its members voted 33-4 for the package (SB 437, SB438). The House approved the bills 79-28 and 76-31 earlier Thursday afternoon, the last day of the state’s two-year legislative session. (See Michigan Senate Increases RPS; Keeps 10% Retail Choice Cap.)

The first major change in Michigan energy policy since 2008, the legislation:

• Sets a 15% renewable standard by 2021, up from the current 10%, while broadening the eligibility to include geothermal and pump storage;
• Sets a nonbinding goal of meeting 35% of the state’s energy needs through renewables and energy efficiency by 2025;
• Maintains the state’s 10% retail-choice cap;
• Creates a “backup plan,” in case MISO’s proposed forward capacity auction for its competitive retail areas is rejected by FERC or proves too expensive;
• Adds cost controls to the utilities’ required integrated resource plans; and
• Allows utilities to offer competitive “value-added” services to supplement rate-base revenue.

Snyder took to his official YouTube channel Thursday to tout the bill, which he said would address concerns of a capacity shortfall. The state expects to lose 5,000 MW of coal-fired generation over the next seven years — pushing the state’s reserve margin down to 15%. Over the next 15 years, the state could lose 30% of its generation.

“What we’re in is a huge transition in how we get our energy,” Snyder said. “We’ve got a lot of aging coal plants that are beyond their useful life, and it’s not worth investing in them anymore. … We can transition to both natural gas and renewables and let the markets sort of define the balance between those two, so we’re moving away from an old energy source [where] we had to import all of this coal.”

Snyder also said he hoped the legislation would lead to more investment in solar power.

Capacity ‘Backup Plan’

To ensure the state has adequate capacity, the legislation requires a “much more robust” integrated resource planning process, said Greg Moore, legislative director for state Sen. Mike Nofs, one of the authors. Utilities will have to prove generation they build or buy is “the most reasonable and prudent” alternative. The IRPs, which must be filed every five years, will be expected to include provisions for energy efficiency, distributed generation and demand response, Moore said.

The bill also requires the Public Service Commission to conduct a contested hearing on whether a state capacity charge is “more cost-effective, reasonable and prudent” than MISO’s proposed forward capacity auction in meeting the RTO’s local clearing and the planning reserve margin requirements. If FERC fails to approve the forward auction by Sept. 30, 2017, the PSC will establish a “state reliability mechanism,” including a capacity charge. (See related article, MISO Forward Auction Filing Draws Protests.)

The commission would make separate findings for each utility service territory. If the commission implements a state capacity charge, it would remain in effect for at least four planning years unless that conflicts with the FERC ruling on MISO’s proposal.

MISO spokesman Jay Hermacinski said the RTO had no comment on the bill. “We really need to see what FERC’s going to do,” he said. “Once FERC’s made its decision then we’ll move forward. As we’ve done the last year and a half, we’ll be working with Michigan to come up with the best solution possible.”

The PSC also was directed to conduct a proceeding within one year on whether customers participating in net metering or distributed generation program should be charged a grid usage fee. It will consider both the costs net metering customers impose on the grid and the benefits they provide, said Moore.

Retail Choice Compromise

Some House Republicans had threatened to oppose the bill, fearing that a proposed capacity charge on competitive suppliers would kill the state’s retail-choice program. The state’s dominant utilities, DTE Energy and Consumers Energy, had sought the charge, accusing their competitors of being free riders.

“The question is how do you balance these all out, and I’m proud to say we got all of these groups largely to come to a strong agreement by finding some good middle ground,” Snyder said.

The legislation bars retail customers who return to their home utility after using an alternate supplier from returning to a competitor for six years. It also stipulates that if competitive suppliers lose customers and demand dips below the 10% threshold, the new, lower retail-choice percentage would become the new cap for six years. The competition program reportedly has a waiting list of about 11,000 customers.

Notwithstanding the cap, customers currently receiving all of their power from competitive suppliers would be able to increase their competitive loads at the existing or adjacent facilities.

Utilities would be allowed to supplement their rate-base revenues through “value-added” programs and services “if those programs or services do not harm the public interest by unduly restraining trade or competition in an unregulated market.”

Reaction

DTE and Consumers both commended the bills’ passage.

DTE praised the increased renewable mandates and preservation of the state’s retail-choice market while adding reliability obligations. “It addresses these issues in a fair and constructive way and provides a framework for the state to plan for its own energy future,” DTE said in a statement.

Consumers said the “sound energy policy legislation [ensures] that our state has a comprehensive plan for ensuring electric reliability and affordable and sustainable energy going forward.”

The Michigan Environmental Council said the final bill was a “vast improvement” over earlier proposals that would have eliminated the RPS. “This deal will save millions of dollars a year for Michigan residents by continuing to eliminate energy waste and increasing investments in wind and solar power, which are the cheapest ways to produce electricity,” the group said.

The conservative Michigan Freedom Fund said the revised package “eliminates every anti-choice ‘poison pill’” in earlier versions of the legislation.

Although the bills ultimately won broad bipartisan support, not everyone was happy with the result. Republican Sen. Patrick Colbeck told Detroit station WXYZ that the bills were rushed through and that he did not support leaving electricity cost decisions in the hands of the PSC.