by Jeff St. John
October 31, 2019

Michigan is not the most aggressive state in terms of clean energy mandates, grid modernization initiatives or distributed energy resource integration. But over the past few years, the Wolverine State’s energy future has begun to shift dramatically — and now, state leaders have launched a comprehensive effort to tie it all together. 

It’s called MI Power Grid, and according to Gov. Gretchen Whitmer and the Michigan Public Service Commission, it’s going to be the central source for Michigan residents and businesses seeking to take part in the state’s broader energy transformation.

The plan comprises “new clean energy programs and rates, advancements in how energy infrastructure is planned to meet customer needs, and updated regulations to improve customer service and reliability.” 

“These are...really important building blocks for what some would call the utility of the future, others would call regulatory reform [and] others would call transformation of utility business models,” Ryan Katofsky, managing director for the Advanced Energy Economy trade group, a big supporter of MI Power Grid, said in a recent interview.  

Vanguard states like California and New York have been engaged in similar reforms for over a decade. For Michigan, the big driver for MI Power Grid was the passage of major energy legislation in 2016, which overhauled the state’s renewable portfolio standard, its approach to energy efficiency and demand response programs, and other key energy policies. 

Many of these changes have been welcomed by clean energy advocates as improvements over the status quo. At the same time, not all of the changes from the 2016 laws were welcomed by the state’s solar installers and DER providers. In particular, the decision to do away with Michigan’s net metering regulations and replace them with new utility “distributed generation programs” meant to link compensation more closely to the real-world costs and benefits of DERs has failed to yield a workable policy, those groups say.  

That could change soon, however. This week, Michigan lawmakers introduced a package of bills, dubbed Powering Michigan Forward, that would offer state regulators several options to replace the 2016 regime. At its heart is the concept of a "fair value of solar" tariff, meant to capture the full array of DER benefits to the grid in a way that the utility programs developed from the 2016 legislation haven’t yet accomplished. 

But as California, New York and other states tackling these issues have discovered, utilities have to do a lot of data collecting and cleaning, as well as analysis of their power grids as they are today, before they start hashing out the metrics and methods to determine the costs and benefits of DERs for their future grid plans.

In that light, the MI Power Grid initiative could be a key tool for Michigan’s utilities, regulators and electricity customers to work out their differences over DER policy, said Laura Sherman, president of the Michigan Energy Innovation Business Council, the state AEE affiliate that helped craft the Powering Michigan Forward package.

“The MI Power Grid [plan] is a really good way to coordinate a lot of activities that have been going on at the commission since the 2016 energy legislation,” she said. This could include the contentious effort to align the interests of Michigan’s utilities, which currently oppose the Powering Michigan Forward legislation, with the interests of the state’s small but growing clean energy industry. 

Michigan’s big-picture energy challenge

Michigan’s 2016 legislation focused its clean energy policies at the large scale. That included the launch of the state’s first integrated resource plan to guide long-term planning for Michigan's two big investor-owned utilities, Consumers Energy and DTE Energy. 

The 2016 law boosted Michigan's renewable portfolio standard from 10 percent to 15 percent by the end of 2021. But in an inversion of the traditional role of states forcing utilities to take on more aggressive renewable goals, Consumers and DTE agreed last year to commit to clean energy plans that include big improvements in energy efficiency and a pledge that 25 percent of their electricity will come from renewable resources by 2030. 

At the same time, the Michigan Public Service Commission has been working separately on a distribution system planning (DSP) initiative, AEE’s Katofsky said. As with similar efforts in California, New York and other states, Michigan’s DSP calls for distribution grid-level hosting capacity analysis, DER interconnection improvements, and potentially DERs as non-wires alternatives. 

In aspirational terms, the distribution system planning initiative is seeking to create models for expanding the opportunities for rooftop solar systems, behind-the-meter batteries, electric vehicles and other grid edge systems, Katofsky said. In recent years, Michigan’s utilities have started pilot projects on these fronts, such as Consumers’ residential solar-storage and EV charging infrastructure pilots, or DTE’s pilot to tap the demand response potential of homes and businesses as an alternative to distribution grid upgrades. 

But Michigan’s utilities also have some long-running distribution grid reliability problems that have come to the Public Service Commission's attention in recent years.

“There have been some weather-related issues that have brought the issue of resilience to the foreground,” including winter storm outages that have left hundreds of thousands without power in recent years, Katofsky said. Parts of DTE’s older 4-kilovolt distribution system around Detroit are in dire need of upgrades.

Last year, the Michigan Public Service Commission approved Consumers' and DTE’s plans to spend a collective $7.2 billion over the next five years on grid modernization. While the vast majority of this five-year budget is aimed at traditional grid upgrades and improvements, the PSC also ordered utilities to integrate their DSP efforts into their ongoing planning, with an eye on ensuring that DERs are offered opportunities to participate as well. 

Consumers and DTE filed their first DSP plans last year — to mixed reviews from the state’s DER community. As with similar first-stage efforts in California and New York, much of the initial effort has focused not on the fancier end-state goals, such as DER marketplaces for distribution grid services, but on more immediate challenges, such as reforming interconnection processes, Katofsky noted. 

At the same time, the Michigan PSC is pushing Consumers and DTE to better integrate the data coming from the smart meters they fully deployed to all customers this decade.

“They’ve been rather slow on leveraging the power of those meters for both grid operations and for rate design,” said Douglas Jester, managing partner at 5 Lakes Energy, a consultancy that advocates for efficiency contractors, municipal governments and residential and commercial customers in state energy policy matters. 

The PSC’s recent decision to require Consumers and DTE to institute time-of-use pricing for all customers starting in 2021 is one example of the policy options available once advanced metering infrastructure is in place, Jester noted.

Likewise, smart meters will play a role in expanding Michigan’s demand response potential from its current reliance on large interruptible industrial loads, to allow smaller commercial and residential customers much more fine-grained and real-time control over their energy usage, he said. 

Michigan’s 2016 laws also call for linking Consumers' and DTE’s expanded energy efficiency and demand response efforts with opportunities for incentive payments under a performance incentive mechanism, he said. This is one of several performance-based ratemaking initiatives underway in Michigan, aimed at better aligning utility profits and losses with how well they perform various aspects of their mission of providing reliable, affordable and increasingly clean electricity. 

Allowing third parties to compete alongside utilities to provide energy services is also an important aspect of Michigan’s policy reforms, noted Sherman, the Michigan Energy Innovation Business Council president. For example, Consumers’ IRP calls for splitting its planned procurement of 5,000 megawatts of new solar by 2030 evenly between utility-owned and third-party-developed projects.  

Other states have taken the same approach to balancing utilities' and third parties’ interests in large-scale renewable procurements. But when it comes to DER policy, it’s been much more challenging to find a compromise — largely because the costs and benefits of DERs to the system at large are much harder to quantify. And it’s an area where the EIBC is hoping that the newly introduced legislation, along with the MI Power Grid initiative, can help. 

Learning from other states on valuing DERs

Michigan’s 2016 legislation left state DER policy up in the air, repealing the existing net metering program while calling for a replacement program that has proven to be very difficult to implement.

Like many other utilities, Consumers and DTE oppose net metering on the grounds that it shifts the costs of maintaining its system from net-metered customers to others who aren’t net-metered. That’s because utilities' fixed costs are bundled into the variable rates that customers pay, and net-metered customers can end up reducing those variable rates to the level of zero.  

The Distributed Generation Programs that Consumers and DTE developed under the 2016 legislation were meant to solve this problem with a tariff structure that sets prices on excess electricity generated from DERs, while also charging them for the power that customers take from the grid.

Not all of the utility requests were approved by the Public Service Commission. DTE, for example, wasn’t able to win a $15-per-month fixed charge it hoped to impose on new DER-equipped customers. 

But even without the fixed charges, the “inflow-outflow” methods created for crediting customers are far too complex for most DER installers and customers to understand, Sherman said. The concept of measuring DER versus grid power instantaneously, and charging or crediting customers accordingly, is theoretically fair but technically nearly impossible to implement, she said. What’s more, just how utilities calculate those inflows and outflows are largely invisible to anyone but them. 

This lack of transparency in real-world calculation is matched by a lack of agreement on the value of DERs in the first place, Sherman said. The EIBC and other proponents contend that a fuller accounting of the “cost of service” benefits of DERs will actually yield returns that are higher than what DER-equipped customers were receiving for their net-metered power, not lower, as is the case with the utility tariffs to emerge from the 2016 legislation.

These are the same kinds of disputes that have confronted regulators, utilities and DER advocates in other states trying to fairly share the costs and benefits of DERs to the system at large. But while Michigan may be lagging behind those states in terms of implementing its vision, it can also learn from those states’ experiences, Katofsky noted. 

“Distributed generation penetration in the state is relatively low,” he said. But the Michigan PSC and Gov. Whitmer see DERs "as a big part of the future and see an opportunity to get out in front of it” through both the DSP proceeding and the MI Power Grid initiative. 

And as the history of DER valuation efforts in California and New York has shown, compromise between utilities on one side of the incentive structure and the customers and DER providers on the other side is predicated on both sides sharing the same data and agreeing on how it should be valued.

“What you can say is that they were deliberative about it,” Katofsky said. “They were true to their intent of trying to figure out a more precise way to compensate for DER benefits.”