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Incentives/Policies for Renewables & Efficiency

Printable Version
Energy Optimization Standard   

Last DSIRE Review: 10/10/2012
Program Overview:
State: Michigan
Incentive Type: Energy Efficiency Resource Standard
Eligible Efficiency Technologies: Custom/Others pending approval, Electricity and Natural Gas Reduction Technologies
Applicable Sectors: Investor-Owned Utility, Retail Supplier
Electric Sales Reduction1.0% annual reduction of previous year retail electricity sales (MWh) by 2012
Natural Gas Sales Reduction0.75% annual reduction of previous year retail natural gas sales (decatherms) by 2012
Web Site:,4639,7-159-52495_53472---,00.html
Authority 1:
Date Enacted:
Date Effective:
MCL ยง 460.1071 et seq
Authority 2:
Date Enacted:
PSC Order, Docket U-15800
Authority 3:
Date Enacted:
PSC Order, Docket U-15900
Authority 4:
Date Enacted:
PSC Order, Docket U-16563

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. This is known as the Renewable Energy Standard (RES).  In addition to renewables, the standard requires both electric and natural gas utilities meet certain energy savings requirements. In order to meet the Energy Optimization Standard, utilities must offer energy efficiency programs for their customers. Each utility must file a proposed Energy Optimization Plan (EOP) with the MPSC.

Each utility EOP must:

  • Propose programs tailored to each customer class, including low income residential.
  • Specify funding levels
  • Describe how the program costs will be recovered
  • Ensure that charges collected from each customer rate class are spent on programs for that customer class
  • Demonstrate that programs will be cost-effective (excluding low income programs)
  • Provide for practical and effective administration of each program
  • Include a process for an independent evaluation and verification of the EOPs

For utilities that exceed the standards set forth, the MPSC may authorize additional financial incentives for the utility. Any incentive must be limited to 25% of the net cost of reductions experienced by the utility's customers as a result of the implemented EOP, and 15% of the utility's actual expenditures for the program for the year.

The MPSC must submit an annual report to the legislature, describing the MPSC's efforts to implement energy conservation and energy efficiency programs and measures. The 2011 report is located here.

The MPSC established an energy savings requirement of incremental annual retail electricity sales reduction. Requirements are set for the 2008-2009 biennium; each year thereafter is its own requirement period.  Energy savings requirements for each period are calculated by one of the following options:

  • The number of weather-normalized MWhs, decatherms, or MCFs sold by the utility to retail customers in the state during the year for which incremental energy savings are being calculated, or
  • The average number of MWhs, decatherms, or MCFs sold by the utility during the 3 years preceding the year for which incremental energy savings are being calculated.

Utilities create Energy Optimization Credits (EOCs) for each megawatt-hour (MWh) of annual incremental energy savings achieved through its EOP. EOCs expire when they are used to comply with Energy Optimization Standard or RES. EOCs may be carried over for one year, but credits from the previous year may not exceed one third of that year's standard.

Electric Utility Compliance

The standard requires incremental electricity savings during 2008 and 2009 equivalent to 0.3% of 2007 retail electricity sales, increasing to 1.0% of previous year's retail sales in 2012 and thereafter.

Calendar Year Incremental Energy Savings
2008-2009 0.3%
2010 0.5%
2011 0.75%
2012 and each year after 1.0%

The cost of implementing an approved energy optimization plan is recovered from volumetric charges on residential customers, per-meter charges on non-residential metered charges, and itemized charges on unmetered electric customers. Commercial and industrial electric customers may opt out of the surcharge and implement a self-directed energy optimization plan. In order to participate in this program, the customer must meet certain annual peak demand requirements. Forms and filing instructions are available on the MPSC web site. Utilities may not opt out of surcharges required for low income programs.

Natural Gas Utility Compliance

Natural gas utilities must meet a 0.1% reduction of 2007 retail natural gas sales (in decatherms) by 2009. The natural gas annual sales percentage reduction increases to 0.25% in 2010, then 0.5% in 2011 before holding at 0.75% reduction in 2012 of the previous year's (2011) natural gas sales. The benchmark then holds at 0.75% for every year thereafter. The measurement for compliance shall be a reduction percentage of the previous year's total amount of natural gas delivered to retail customers.

Calendar Year Incremental Energy Savings
2008-2009 0.1%
2010 0.25%
2011 0.5%
2012 0.75%
2013 0.75%

The cost of implementing approved energy optimization plans is recovered from natural gas customers by volumetric charges.

Credits and Load Management

After 2012, utilities may substitute Renewable Energy Credits (RECs), Advanced Cleaner Energy Credits (ACECs), or load management in order to meet the efficiency requirements. RECs must be associated with renewable energy generated that year from a system constructed after October 6, 2008. One REC is equal to one EOC. ACECs include gasification, coal-fired facilities with carbon dioxide capture and sequestration, and electric generation facilities that use technologies not in operation as of October 6, 2008. ACECs must be in-state or located in the service territory of the utility. ACECs from plasma arc gasification are equal to one EOC, and 4 ACECs from non-plasma arc gasification technologies is equal to one EOC. RECs, ACECs, and load management implementations must be approved my the commission and may not account for more than 10% of the energy efficiency standard.

  Rob Ozar
Michigan Public Service Commission
Electic Reliability Division, Energy Efficiency Section
6545 Mercantile Way
Suite 7
Lansing, MI 48911
Phone: (517) 241-9798
Web Site:,1607,7-159-16400_53445_53446---,00.html
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Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

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