Energy Efficiency Standards

The Clean, Renewable, and Efficient Energy Act (2008’s PA 295) created a mandatory energy efficiency portfolio standard (known as the Energy Optimization Standard) for Michigan's electric and natural gas utilities-- IOUs, municipal and co-op utilities. Effective April 20, 2017, PA 342 (2016) builds upon the PA 295 framework and changes the Energy Optimization program label to Energy Waste Reduction (EWR) programs.

The original 2008 standard set annual electric and natural gas savings targets for utilities. Utilities began their programs in 2009, and ramped up to reach a goal of 1.0% of electricity  and 0.75% of natural gas by 2012. Effective April 20, 2017, the annual electric savings requirement of 1% is extended through 2021 and the annual natural gas savings requirement remains intact. Beginning in 2021 and every two years thereafter, the Michigan Public Service Commission (MPSC) must review rate-regulated electric providers’ energy savings requirement and has the discretion to adjust the requirement above or below the 1% annual level. The MPSC will review natural gas providers’ standards beginning in 2021, but only if the natural gas providers first demonstrate they cannot achieve the annual 0.75% energy waste reduction standard.  

The existing 2% spending cap in place for natural gas and electric utilities has been eliminated effective April 20, 2017.

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.

Resource Planning

With the enactment the 2016 energy legislation package (PA 341 and PA 342), Michigan now has two distinct integrated resource planning (IRP) processes.

The first is triggered when utilities seek a Certificate of Necessity (CON) for a new power plant, transmission project or major power purchase contract. When pursuing a CON, the utility must show that they have established the need for that capacity through an approved integrated resource plan.

The MPSC’s standards for the CON IRP process apply to utilities developing projects over $100 million in size. The Michigan Public Service Commission is authorized to establish CON IRP standards, including projected energy efficiency savings under subsection (d) and demand-side management under subsection (e).

Under the second IRP process effective April 20, 2017, utilities must submit periodic IRPs to the MPSC according to various criteria and which provide 5-, 10- and 15-year load forecasts. As an initial step, the MPSC is required to provide the utilities with baseline modeling assumptions and scenarios to be used within future IRP filings. The initial MPSC assessment was finalized December 2017 and utilities submitted their first IRPs to the MPSC by 2019. Among the various criteria assessed within utility IRPs, utilities are required to demonstrate plans meet energy waste reduction requirements, to evaluate all supply-side and demand-side resources and to estimate the various rate impacts. 

Rate Structures & Incentives


Utilities that provide energy efficiency can recover the cost of implementing approved plans. 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 natural gas customers, and a per-meter charge for all other customers. A utility can also seek to capitalize program costs for its Energy Waste Reduction programs, unless it made an alternate compliance payment.

Lost Revenue Recovery and Revenue Decoupling

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.

Previously, pilot decoupling mechanisms were approved on a case-by-case basis for both natural gas and electric utilities in Michigan. The Michigan Court of Appeals struck down the electric decoupling pilots in 2012 after a determination that the MPSC lacked the legislative authority to approve them.

However, effective April 20, 2017, electric utilities with less than 200,000 customers in the state can request a revenue decoupling mechanism that adjusts for decreases in actual sales compared to the projected levels used in that utility’s most recent rate case that are the result of implemented energy waste reduction, conservation, demand-side programs, and other waste reduction measures if the utility first demonstrates statutory criteria.

Utility Incentives

Effective April 20, 2017, utilities can receive financial incentives for achieving certain energy waste reduction under either the PA 341 integrated resource planning process or the PA 342 energy waste reduction requirements.

Each provision provides for tiered incentives for an electric utility that achieves annual electric energy savings of 1% to over 1.5% of its total annual weather-adjusted retail sales in megawatt hours in the previous calendar year.  

Noncompliance Penalties

Michigan’s standard does not specify penalties for noncompliance, though it does specify that after its September 2015 compliance report, the commission can suspend programs of a utility that does not meet cost-effectiveness requirements 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 Waste Reduction Standard.

Stakeholder Collaboration

The Michigan Energy Waste Reduction Collaborative was established by the commission orders approving the initial EWR 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 EWR 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.

Program Evaluation

Cost-effectiveness Testing

The portfolio must pass the Utility System Resource Cost Test (USRCT; better known as the Program Administrator Cost Test), though individual programs need not pass that test. EWR 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 specify that evaluation plans must include the verification of annual incremental gross energy savings. 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.

Guidelines do not yet exist for the Energy Waste Reduction Plans which replace the Energy Optimization Plans effective April 20, 2017.

Technical Resource Manual

The Energy Waste Reduction 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.

State Energy Plan or Vision

2007's Michigan 21st Century Energy Plan (21CEP) was an extensive collaborative process led by the Department of Labor and Economic Growth (now Department of Licensing and Regulatory Affairs) that assessed Michigan's future energy needs and laid out a plan for meeting that need through resource planning, renewable energy and energy efficiency. The 21CEP process led to the creation of RPS and EERS standards for Michigan.

State Agency Energy Reduction Requirement

Michigan has a goal of 25% reduction of grid-based energy use by the state government by 2015. State departments are required to establish energy reduction coordinators to work with the state energy office and the state budget office to reduce energy use and train state employees in energy conservation.

EE in New State Buildings

Michigan has a goal of reducing state government energy use by 25% by 2015, based on the 2002 baseline. The State Energy Office, along with the Department of Management and Budget, must establish a program for auditing state owned and leased buildings every five years and recommending a plan for reducing energy use. This audit and recommendations for reducing energy usage must take into account the costs and benefits of meeting LEED green building standards, while also considering historical, architectural or cultural significance of a building.

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