Paul Egan, and Kathleen Gray

Detroit Free Press

LANSING — A comprehensive Michigan energy package that stalled in the Legislature for more than two years received easy passage in the Legislature Thursday after opposition largely evaporated on the final day of the Legislature's lame duck session.

Senate Bill 437 passed the House by a bipartisan 79-28 vote, and Senate Bill 438 passed 76-31. The bills then went back to the Senate, which gave approval by votes of 33-4.

The package is aimed at making sure Michigan has all the electricity generation it needs, as several coal-fired plants are slated to close in the next several years, while maintaining a small electric choice component in the state's highly regulated electricity marketplace. The package also includes features aimed at increasing use of renewable energy and improving energy efficiency.

"Everybody gave a little to produce what I think is a good, long-term energy package" to assure "affordable, reliable energy," said Rep. Aric Nesbitt, R-Lawton, one of the architects of the plan.

Incoming House Minority Leader Sam Singh, D-East Lansing, said measures to improve energy efficiency will "save significant amounts of money for businesses and homeowners."

Republican Gov. Rick Snyder, who was credited with a significant role in brokering the agreement, said it was a "safe bet" he would sign the bills. “This is a major milestone for Michigan," Snyder told reporters. "t was a great bipartisan effort and a great case of watching coalitions coming together. We’re going to have a very adaptable policy that’s going to focus on reliability, affordability and sustainability,”

Despite predicted savings, electricity rates are not expected to drop under the plan, since the new plants the state's major utilities need to build will have significant costs attached to them. Nesbitt said he believes the package will make Michigan rates "more competitive in the long term."

A major thrust of the latest proposal was an attempt to bring on board Republicans in the House who believe the bills passed by the Senate in November would kill the small amount of competition — limited to 10% — in Michigan's highly regulated electricity marketplace. Snyder pushed concessions to the electric choice advocates in recent negotiations and in an early-morning Thursday presentation to the GOP House caucus, lawmakers said.

In Michigan, those electric choice customers include many school districts and manufacturers who fear the addition of an unknown tariff would largely kill any electricity cost savings they now enjoy.

“The compromise bill is a win-win for schools and for the state,” said Tim Peraino, president of Michigan Schools Energy Cooperative. “Schools get to continue buying lower-cost power through preserving the state’s energy choice program, which keeps money in the classroom, and the state gets the comprehensive energy bill it so badly needs.

Terri Reid, president of the free market Michigan Freedom Fund, said the revised package "eliminates every anti-choice poison pill" found in the earlier plan.

“By forcing these changes, House members put the needs of local schools, job makers and their constituents above the profit sheets of two massive electric utilities," Reid said in a news release. "They stood up against millions in advertising and an army of lobbyists and they put ratepayers first.”

Sen. Mike Nofs, R-Battle Creek, another architect of the complex energy overhaul,

told reporters Thursday morning that Snyder proposed a compromise central to the breakthrough

Nofs said most of the new elements relate to a new backup plan, in case the federal government does not approve a framework to assure reliability and choice that the administration announced in September, after talks with the Midcontinent Independent System Operator (MISO) — an agency that tracks regional electricity supply and demand.

With many Michigan coal-fired plants slated to close in the next several years, the state's two major utilities — DTE Energy and Consumers Energy — say they need to build replacement capacity. However, they say they are only prepared to build to serve the 90% of Michigan customers who are served by Michigan's largely regulated market — not the 10% of "electric choice" customers who buy from alternative suppliers.

To address that issue, the Senate plan included a tariff called a "prevailing state compensation mechanism" that alternative energy suppliers — in many cases brokers who don't produce their own electricity — would have to pay the utilities to help underwrite the cost of assuring Michigan has enough electricity to meet all customer needs. The tariff would only apply to alternative energy suppliers who couldn't show they were able to supply their electric choice customers through existing long-term contracts or through their own generation.

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Officials said the legislation passed Thursday places strict limits on the type and size of costs that could be included in calculating that tariff.

Under the new backup plan, there would be a contested hearing before the Michigan Public Service Commission before the tariff is determined. That's similar to provisions in the front-line plan the state announced with MISO, but different from the backup plan included in the Senate-approved version of the energy legislation.

Nofs said the new plan also eliminates a "trailing fee" that under the Senate-approved plan customers would be charged if they leave the big utilities for alternative energy suppliers. But in return for elimination of that fee, customers who leave alternative energy suppliers to return to the big utilities will be required to stay with the utilities for at least six years, providing them with more stability, he said.

Proponents of choice "are getting a lot, and the utilities are getting a lot," Nofs said.

The requirement for a six-year commitment after a customer returns to the utilities could potentially result in the size of Michigan's electric choice market dropping below 10% in the short term, Nofs said.

Nofs said the 15% mandate for use of renewable energy sources — up from 10% currently — would likely remain, though there could be a change in the way utilities are compensated for efficiency measures.

Joshua Lunger, director of government affairs for the Grand Rapids Area Chamber of Commerce, said another important new element in the legislation is the way a mechanism known as decoupling is handled. Under decoupling, utilities are compensated through higher rates as energy efficiency measures take effect, so they don't suffer an overall revenue decline. Lunger said his agency is comfortable with that concept, but the bills the Senate passed were framed in such a way that utilities could also be compensated for revenue drops not related to efficiency measures, and there were no caps in place. That deficiency in the bills that passed the Senate has been corrected, Lunger said.

"We're very thankful to all the stakeholders" for making changes the Grand Rapids Chamber believes will protect ratepayers, Lunger said.

Dan Bishop, a spokesman for Consumers Energy, said, "Michigan families and businesses can now be assured that our state has a comprehensive plan for ensuring electric reliability and affordable and sustainable energy going forward."

John Austerberry, a spokesman for DTE, said, "We support the amendments that the governor has brought forward ... and we are looking forward to approval in both the House and Senate."

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.

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