Wealthy benefit most from Michigan’s energy savings plans, study finds

Andy Balaskovitz is a reporter for Midwest Energy News, a partner in the Institute for Nonprofit News

Michigan utilities spend tens of millions of dollars each year on rebates, energy audits and other programs to help customers cut their energy bills.

Most of that spending isn’t helping the customers who could use the savings the most, according to a new study by researchers at the University of Michigan.

The study from the school’s Urban Energy Justice Lab found energy efficiency programs at Michigan’s two largest utilities disproportionately benefit wealthier ratepayers.

About 35 percent of Michigan utility customers qualify as low-income, but only about 12 percent and 17 percent of electric efficiency investments by Consumers Energy and DTE Energy, respectively, went into programs aimed at low-income households.

On an energy savings basis, the disparity is even wider. For every kilowatt-hour efficiency programs saved for low-income residents, up to 22 kilowatt-hours were saved for higher-income customers.

The authors said their findings reveal an unintended social consequence of the way Michigan’s Energy Waste Reduction programs are structured. State law requires utilities to seek out cost-effective energy savings, and low-income programs generally cost a lot more per-kilowatt-hour savings compared to other programs.

The report warns that states must consider social equity to avoid discriminating against vulnerable populations.

“We want to make sure we’re not leaving out one-third of the state’s population,” said graduate student Ben Stacey, who co-authored the report with Tony Reames, director of the Urban Energy Justice Lab.

A spokesman for the Michigan Public Service Commission said it’s important that all types of customers be able to participate in energy saving programs, and that the commission is working to make sure utilities’ conservation plans for 2018 deliver “the most cost-effective programs which will benefit all Michigan residents and businesses.”

DTE officials were reviewing the study this week and declined to comment.

Consumers spokeswoman Katelyn Carey said the utility is increasing its investment in low-income efficiency programs in 2018 by 40 percent. It distributes free LED light bulbs to food banks, which she said was not included in the study, and it also considers customer education an important piece of its low-income program.

She also noted that almost a quarter of the company’s energy efficiency investments assist low-income households when you combine electric and natural gas. (The study found natural gas efficiency programs were more evenly distributed.)

Establishing a baseline

State law requires regulated utilities to achieve a percentage of energy savings based on electric retail sales from the previous year: 0.75 percent for gas and 1 percent for electric. Since 2008, ratepayers have saved billions of dollars in energy costs through efficiency programs, with $4.35 saved for each dollar spent.

Utility customers pay for efficiency programs through an on-bill surcharge, with residential ratepayers supporting residential programs and commercial and industrial customers supporting those customer classes. The report notes that both customer classes contribute to low-income programs.

The researchers analyzed data from the utilities’ annual efficiency program reports filed with the Michigan Public Service Commission. Between 2010 and 2016, the utilities spent $596 million on residential efficiency programs for gas and electric customers. Consumers spent $160 million on electric programs during that time, $18.7 million of which was for low-income customers. DTE spent $237 million, with $40 million of that for low-income electric customers.

The study created an “Energy Efficiency Equitable baseline” to show how much investment programs should receive if they were based proportionally on the number of customers. Basically, if low-income residents make up 30 percent of the rate base, then they should receive 30 percent of program funding.

According to that baseline, the utilities underspent on low-income electric programs by around $74 million.

Stacey said it would take further study to determine why gas efficiency program spending is more equitable than the electric side: “I suspect certain measures that are relied on for electric programs tend to be marketed toward high-income consumers,” he said.

Ultimately, Kushler said the report’s findings are “not surprising, given the primary objective of these programs is to acquire a low-cost resource. The cost of saving energy in the low-income sector is considerably higher compared to the other programs.”

A recent report facilitated by the Department of Energy found the average cost for low-income programs was 13 cents per kilowatt-hour in 2012 compared to 4 cents for efficiency programs “in all sectors.” Among the factors that increase costs: outreach can be more challenging, customers often aren’t asked to contribute as much money, and poorer housing conditions can increase the cost of improvements.

Given that general programs provide more bang for the buck, Kushler said utility spending between the two income groups shouldn’t be at a one-to-one ratio.

A focus on low-income customers has been a topic for a working group at the Michigan Public Service Commission that is studying efficiency programs as a result of comprehensive energy legislation passed last year.

Justin Schott, executive director of EcoWorks Detroit, said there’s been a growing discussion with utilities and the commission about the lack of equity in how energy efficiency dollars are spent.

“I think it’s a missed opportunity we have now,” Schott said, “but it’s also just not a fair way to distribute energy savings."

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Comments

Anna
Thu, 12/14/2017 - 11:00am

As a user of DTE's free energy audit program, which is offered to every customer with almost every bill, I will tell you why low income customers don't take more advantage of these programs to save money. They often don't have an adult at home during business hours. They don't want to let anyone associated with officialdom into their houses if they are stealing power, using their oven for heat, etc. They are worried that substandard housing will be reported and they will become homeless. Or they have more pressing problems than reducing their electric or gas bill by 3-5%.

Justin Bowen
Sat, 01/20/2018 - 9:50pm

Whether renting or owning, customers can save upwards of 20% on whatever bill is associated with their water heater by simply turning down their water heater. That's just one simple change. They can also periodically drain their tanked water heater, install low-flow fixtures (which they can get for free from their energy auditor) on water faucets and shower heads, switch from incandescent or CFL to LED (a bit more expensive, but saves on A/C bills in the summer if there are a lot of light bulbs), weatherize windows and doors, change furnace filters, install blinds or curtains, and do many other things that, when combined, will have a massive impact on utility bills. Low-income customers need not purchase new high-efficiency appliances or add thousands of dollars of insulation to save money on their utility bills; taking one-time or once-a-year steps that they can "set and forget" will have a measurable impact on the lives of low-income customers.

Rick
Thu, 12/14/2017 - 12:49pm

Every time I've used DTE energy benefits it's been a hassle. Something from the contractor isn't enough, you have to submit more paperwork, photos and keep plugging away as they ask for more and more.

Seems like the program is designed to produce hurdles and only to reward those with endless patience.

But that's the DTE business model isn't it!?

Barry Visel
Thu, 12/14/2017 - 3:11pm

So, I install energy saving devices (which often cost more than regular devices), and then I pay a surcharge on my utility bill, which apparently makes up for the revenue the utility lost because I’m now more energy efficient. I must be missing something. Or perhaps it’s not actually about saving money, but about using less energy...which is fine, but don’t pass it off as something that will save money. BTW, we shouldn’t blame the utilities for how these programs work...utilities are simply trying to meet the goals set by state regulators as efficiently as possible to avoid causing their customers to pay even more for these energy efficiency programs.

Lee
Thu, 12/14/2017 - 5:04pm

"The study from the school’s Urban Energy Justice Lab found energy efficiency programs at Michigan’s two largest utilities disproportionately benefit wealthier ratepayers." and "Ultimately, Kushler said the report’s findings are “not surprising, given the primary objective of these programs is to acquire a low-cost resource. The cost of saving energy in the low-income sector is considerably higher compared to the other programs.” and "Given that general programs provide more bang for the buck, Kushler said utility spending between the two income groups shouldn’t be at a one-to-one ratio."

Just what is our objective? To reduce the community's energy costs and thereby improve the community's material standard of living? O,r is it to pursue equality by making lower income people in particular better off? It is another example of he dilemma described by the late Arthur Okun in his book "Equality and Efficiency: The Big Tradeoff". He outlined how an increase in equality had to be paid for by a reduction in economic efficiency and thus a reduction in the size of the economic pie. In other words, people would have a more equal share of a smaller pie. He posed the following question: if you were transferring resources from the richest ten percent to the poorest ten percent in a leaky bucket, and whatever leaked out was lost to the community. It wasn't available for anyone's use. He said that he personally would continue to transfer resources from the rich to the poor even if sixty percent of it leaked from the bucket. That is a perfectly legitimate position to take, and he was honest enough to say what price he would be willing to pay to help the poor. Not that many people are that honest.

The Economist magazine of December 9, 2017 had some commentary about Cuba that illustrated the dilemma more concretely. Cuba has a high degree of equality, but is paying a horrific price for it. "Despite aid from Venezuela, which has now fallen to half its peak level, Cuba remains unable to produce much of the food it consumes or pay its people more than miserable wages. " And, "Mr. Vidal finds hat GDP per person in Cuba in 2014 was just $3,016 at the average exchange rate, barely half the officially reported figure and only a third of the Latin American average. This includes the value of free social services (such as health, education and housing) that Cubans receive."

It is certainly good to be concerned about the poor, but isn't it possible that having their share of a larger pie would be the most effective way of improving their situation?

Rodger Kershner
Fri, 12/15/2017 - 11:05am

I think there might be some misunderstanding here. The real purpose of incenting people to consume less electricity was not to save those people money. It was to delay or avoid altogether construction of new expensive power plants, the cost of which is borne by all utility customers. The idea was to spend a few dollars on incentives to conserve and save many dollars to build new plants.

Rich
Sun, 12/17/2017 - 8:06am

If you want to do something to aid the poor and improve their energy efficiency, try a program to insulate homes. Most homes built prior to the 1950's lacked any insulation. How many homes in poorer neighborhoods have zero insulation, have single pane leaky windows, and enough voids in the ceiling that the people are living in the equivalent of an unheated garage.

Kevin Grand
Sun, 12/17/2017 - 8:35am

"The study from the school’s Urban Energy Justice Lab found energy efficiency programs at Michigan’s two largest utilities disproportionately benefit wealthier ratepayers."

...

"The report warns that states must consider social equity to avoid discriminating against vulnerable populations."

Um, why?

The so-called goals of this piece cannot work in the real-world.

Who is going to be using more energy, a large office building in downtown Detroit, or someone living in a run down neighborhood less than a mile away?

If reducing overall energy usage is the ultimate goal, then plain common sense will tell you who will benefit more from these energy reduction programs.