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Things are changing in Michigan for utilities. A pair of bills made their way through the Michigan Senate and House, ultimately signed by Governor Snyder, that have implications for utility-led smart home and energy management solutions. These changes not only make such a move more attractive financially, but they also place pressure on utilities to provide more detailed energy feedback to consumers.
The first bill, S.B. 437, provides many steps to support Energy Efficiency (EE) and Demand Response (DR) programs. For starters, it outlines a required Integrated Resource Plan process that includes EE and DR components – making the case that these programs are critical to keep the cost of electricity investment in check. This puts EE and DR in play economically against traditional generated power. The bill also takes steps to clarify DER participation by establishing appropriate tariffs for grid connection, allowing connections at a reasonable rate and clarifying the economics of establishing such programs.
The model proposed includes a shared savings mechanism that increases utility incentives to do more than the minimum when it comes to growing EE and DR programs. In fact, EE programs can earn up to 30% net benefits or 20% of cost structure by significantly exceeding savings goals to 1.5% per year. This helps utilities offset the loss of revenue due to their focus on energy efficiency by allowing utilities to be incentivized by performance-based rewards other than simply increasing the volume of energy sales.
S.B. 437 also provides clearer guidance for utilities who are considering offering customers value-added programs such as appliance health, energy management, and engineering services. Ultimately, it encourages utilities to provide supplementary services that help customers manage their energy use.
The second bill, S.B. 438, establishes a long-term renewables and energy efficiency goal to reduce 35% of energy needs by 2025 and a short-term renewables of 15% by 2021. It also clarifies that load management programs can be fully recovered if they are cost-effective. This allows utilities to establish new rate plans that will help customer better manage their energy use, and it also means that customers will need real-time feedback on their energy consumption to ensure they are spending their money wisely.
The enactment of these bills in December shows that Michigan is serious about fixing issues with the current utility business model. It also shows signs of encouraging innovation, which is overdue in the industry at large. Other states are making movements in this direction as well. For example, California’s AB793 requires utilities to implement and incentivize energy management technologies. New York’s Reforming Energy Vision model is broad, holistic, and encouraging rapid experimentation. This is the early foundation of changes that will bring new business models to the utility industry.
Declining energy demand, disruptive pressures at multiple points on the value chain, and changing customer expectations are converging to push the industry in this direction. Utilities have the opportunity to lead this change and create new business models by offering value-added home energy management and automation solutions to their consumers.
As you participate in strategic planning for the coming years, I would love to hear your thoughts on how these changes are impacting the vision of your utility.