02/13/08

Panelists analyze Gov. Granholm's State of the State energy proposals

by Lynn Stevens | Business Review Western Michigan Thursday February 12, 2009, 8:21 AM Consumers Energy [NYSE: CMS] doesn't think Gov. Jennifer Granholm's call for a 45 percent reduction in fossil fuel use by 2020 is realistic, spokesman Dan Bishop said.

Allowing every business owner and homeowner to sell electricity they generate to the grid could lead to an explosion of entrepreneurship, involving a wide variety of fuel sources and generating technologies, said Eric Schneidewind, a former Michigan Public Service Commission chairman and partner at Varnum, Riddering, Schmidt & Howlett's Lansing office.

 

They expressed those opinions at a virtual roundtable Business Review convened following the governor's State of the State address. William Snyder, chairman and CEO of EnergyChek International Inc., a global, third-party total-energy-reduction company with headquarters in Kalamazoo, also participated.

 

The governor called for legal changes to enable every homeowner or business owner to sell electricity to the grid generated from solar or wind devices on their buildings. Do you envision every home and business jumping in?

 

Bishop: We have a net-metering program now. It's regulated by the state. If somebody wanted to put up a windmill in their backyard or on their farm, there's a program for them to sell electricity. If people want to do this, there are regulations and rules that do allow it. You can look up net metering in the search function on Consumers's Web site.

 

William Snyder Snyder: Rewarding efforts simply resonates with and motivates people. If someone takes the initiative and makes an investment to improve their energy position, and this effort results in excess power that can be back-fed to the grid, those people should be rewarded.

 

Schneidewind: This may be one of the most exciting developments in the governor's package. The 2008 energy legislation included a program called net metering which allows small businesses and homeowners to install electric generation intended primarily for their own use, but limited the program to 1 percent of utility sales.

 

When these customers generate excess power, they are allowed to sell that power back into the grid for a rate approximating the utility cost of energy production. If net metering can be expanded to allow larger power plants beyond the need of the customer, you will see an explosion of entrepreneurial spirit, with construction of a wide variety of fuel sources and power-generating technologies.

 

With a fair price for the excess power produced, many residents and businesses will decide to get into the power industry and provide an economical, reliable and highly dispersed source of power. This is one initiative that everyone can support.

 

The governor announced a program called Michigan Saves, to allow individuals and businesses to weatherize homes and install energy-efficient technology with no upfront charges. Monthly energy savings are supposed to pay for the cost of improvements.

 

Snyder: This concept of paying for improvements with yields from energy-expense reductions is a very logical and prudent approach to funding most energy-improvement projects. With proper implementation and commissioning, improvements to a structure's lighting, envelope and/or heating-and-cooling systems can reduce energy expenses by up to 50 percent. Portions of these savings are applied to the cost of the improvements, while the remaining portion becomes positive cash flow for the end user.

 

The average home in Michigan spends about $1,800 plus or minus annually on energy. Properly implemented energy-conservation measures could bring this number down to $1,000. The debt load, say $4,000, costs the homeowner $720 annually. The homeowner realizes $280 positive cash flow annually. From a commercial/industrial perspective, the scenario is the same, except with huge numbers.

 

It's absolutely critical to model these projects first, to eliminate any trial and error.Making existing structures and systems more efficient is by far the most economical and most achievable course of action to take.Schneidewind: One of the most attractive ways to encourage weatherization and conservation is to provide financing terms which match monthly or yearly payments for conservation measures to the projected monthly savings due to reduced energy consumption. In that way, the customer feels little financial pain through the payback period and sees a large net drop in bills once payback is complete, due to continuing energy savings. This is a good idea.

 

What do you think about the call for 45 percent reduction by 2020 of fossil fuels for electricity generation?

 

Bishop: We view it as unrealistic. Now, 75 percent of the electricity that Consumers Energy provides to our 1.8 million customers comes from Michigan-based coal plants. The challenge is, we finished 2007 with record electric sales. Typically those are increasing 1 to 2 percent per year -- for 2008, they're going to be off -- we did not have an increase in sales in 2008. It's our strong belief electric demand will recover when the economy rebounds -- and we start plugging those electric vehicles in at night.

 

How will we meet those demands? We want to build the world's cleanest coal plant at Essexville, near Bay City. We've filed for an air permit from the state. We're working through the process to move forward with that.

 

The 21st Century Energy Plan said Michigan's demand will continue to increase. Michigan will need clean sources of power, which means coal plants. If we don't build, it will cost Michigan consumers $4 billion, because we will be buying from other states. The irony is, the power we'd be buying is generated by coal plants in Ohio, Indiana and Illinois -- but we'd lose the construction jobs and the tax benefits here in Michigan.Snyder: Clearly it's important to lessen our dependence on foreign oil. Implementing energy-conservation measures that improve efficiency is our first and best line of defense and will lend to this effort substantially.

 

Schneidewind: In order to achieve a 45 percent reduction, all energy-efficiency and renewable impacts would have to be used to offset or retire existing fossil (primarily coal) plants, and the state would have to show little, if any, economic growth, particularly in the manufacturing sector.

 

The approach appears to be an attempt to cure a defect in the recently enacted energy legislation. The Michigan Public Service Commission has no real authority to mandate that the least-expensive or most environmentally acceptable sources of power be used by utilities.

 

I believe there is a better approach to resolving the problems identified by the governor: All Source Competitive Bidding. Last year, large energy customers, developers of conventional power plants and developers of renewable resources came together to support Senate Bill 427, sponsored by Sen. Wayne Kuipers (Rep. of Holland), which would mandate All Source Competitive Bidding.

 

Under (the bill), a utility needing power supply could gain prior approval from the MPSC to pass through costs of the new supply to customers if it opened its requirements to bid from all potential sources, including nuclear, fossil, renewable resources and energy efficiency. A true bid process would bring out the lowest prices and multiple sources of supply. It could increase the use of renewables and efficiency while ensuring that customers do not pay an excessive price for the needed new supply.

 

The governor said the utilities will make money by selling less energy -- how will that work?Bishop: The basic idea behind energy optimization is it provides an incentive for power companies to work with customers to help them moderate their electric demand. Exactly what that means, how we'll work with customers, what incentives will be provided will all come out in the filing we're going to make later this month.

 

Schneidewind: The technique to achieve this goal is called decoupling. Energy utilities will ask the MPSC to effectively increase the price they charge for electricity or natural gas in proportion to the sales that they lose due to energy efficiency. If a utility loses 10 percent of its sales due to efficiency, it would be allowed to increase its rates approximately 10 percent to recover existing investment in power plants and power-distribution lines over a smaller amount of energy.

 

Utilities typically claim that they need decoupling to avoid significant losses. Policy makers often support decoupling in order to gain utility support for implementing efficiency and renewable-energy measures. That seems to be what is taking place here.

 

 

 

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