Public Act 295

Establishing an RPS and New Net Metering and Interconnection Programs in Michigan

With the passage of Public Act 295 in October 2008, Michigan became the twenty-eighth state in the U.S. to establish energy optimization standards through a Renewable Energy Portfolio Standard (RPS). An RPS is a market-driven policy that increases the production, use, and availability of renewable energy sources in a state. It requires the state's utilities, alternative retail suppliers, electric cooperatives, and municipal electric utilities to generate a certain percentage of their retail electricity sales from renewable sources, by a certain date. Public Act 295 also required the Michigan Public Service Commission (PSC) to establish a statewide net metering program for renewable energy systems.

According to Governor Granholm, the three bill package comprising PA 295 will, "create tens of thousands of new energy jobs by making Michigan even more attractive to job-creating companies that are looking for a place to expand as they meet the growing demand for energy from renewable sources like wind and solar power." This RPS will attract venture capital firms and green energy manufacturers who generally invest only in states that have an RPS. It is also intended to save consumers and businesses $1.04 billion a year by 2025.

The Renewable Energy Portfolio Standard (RPS)
The RPS created by PA 295 requires that by 2015 utilities generate 10% of their retail electricity sales from eligible renewable energy sources such as biomass, solar and solar thermal, wind, geothermal, municipal solid waste (MSW), landfill gas, existing traditional hydroelectric, tidal, wave, and water current resources. Although the compliance period for the standard does not take effect until 2012, electric and natural gas utility providers were required to file energy optimization plans with the PSC within 90 days of the Commission's temporary order, U15800. This order was issued by the Commission on December 4, 2008. It effectively implemented the act and required 83 electric providers to file under PA 295. These providers consisted of alternative energy suppliers, municipal electric providers, cooperatives, investor-owned electric providers, and investor-owned gas providers. In Michigan's Upper Peninsula, however, some utilities with hydroelectric resources (Alger-Delta, Cloverland, and Ontonagon Coops; Edison Sault and Xcel Energy) already exceed this 10% goal.

There are generally three ways that utility providers meet the requirements of an RPS, although compliance with Michigan's RPS is Renewable Energy Credit (REC) based. Utilities may own a renewable energy facility and its output generation, may purchase or trade Renewable Energy Certificates (RECs), or utilities may purchase electricity from a renewable facility. Compliance with the standard can be met by purchasing renewable energy credits (RECs) with or without the associated renewable energy. For every unit of electricity (1 megawatt-hour or 1000 kilowatt-hours) that certified renewable energy generators produce, they earn RECs. RECs are essentially the property rights or proof of renewably sourced energy production.

In Michigan, RECs are market based with price estimates ranging from 1.5 to 7 cents per KWh. These credits may be "bundled" along with their electricity or "unbundled", meaning the REC and the electricity are sold as separate commodities. They have a lifetime of three years from the end of the month they are generated, and RECs generated within 120 days of the start of a calendar year may be used to satisfy the previous year's obligation, known as "back dating". Michigan also has special incentive RECs, e.g. those from solar generation, which earn a total of 3 RECs for each MWh generated. The Public Service Commission was obligated under PA 295 to establish a certification and tracking program for Michigan RECs in compliance with PA 295. This program is known as MIRECS, or the Michigan Renewable Energy Certification System, and it was launched on October 29, 2009. According to the MIRECS website, the program "issues, tracks and enables trading and retirement of credits through a unique, traceable serial number issued for every megawatt hour (MWh) of qualifying energy generated by facilities registered with MIRECS. The credit types include Michigan Renewable Energy Credits (RECs), Advanced Cleaner Energy Credits (ACECs) and Michigan Incentive Renewable Energy Credits (ICs)."

Compliance with the RPS in Michigan can also be met through the substitution of energy optimization credits (EOCs) or advanced cleaner energy credits (ACECs) for RECs if approved by the Commission, though no more than 10% of a utility's obligation may be met with a combination of both types of credits. In order to be approved, the Commission must determine the cost-effectiveness of the substitution, plus CO2 emissions benefits of the credits. If approved, EOCs are substituted at a ratio of 1 EOC = 1 REC, while ACECs are substituted at a ratio of 10 ACECs = 1 REC.

To be counted under the standard, energy efficiency measures must reduce customer consumption of energy, electricity, or natural gas through changes in equipment and changes in customer behavior. Under PA 295, each utility must meet a unique annual requirement based on their existing renewable energy portfolio in 2007. An existing renewable energy portfolio is determined by the amount of qualifying electricity produced or obtained by an electric provider during the one-year period preceding the effective date of the act (October 6, 2008). These annual benchmarks are:

• 20% of total 2015 obligation in 2012
• 33% of total 2015 obligation in 2013
• 50% of total 2015 obligation in 2014
• 100% of total obligation in 2015