Approved by Board of Directors, April 25, 2012

The Michigan Chamber of Commerce is opposed to the proposed Constitutional Amendment to require utilities to obtain at least 25% of their electricity from renewable
energy sources by 2025. The proper way to develop a Renewable Portfolio Standard (RPS) or broader energy policy is through the legislative process, not by amending the State Constitution.

Background

In January of 2012, a group called “Michigan Energy, Michigan Jobs," filed with the Secretary of State to circulate petitions for a proposed constitutional amendment that would require 25% of each electricity providers annual retail sales in Michigan to be derived from the generation or purchase of electricity produced from renewable energy resources. Facilities used for satisfying this standard shall be located within Michigan. Further, if adopted the proposal would limit rate increases to one percent a year for costs related to meeting the 25% mandate.

Very little is known about the out-of-state interest group that is pushing this constitutional amendment. Sources indicate that the driving force is a venture capitalist that is located in California. To date, the proponents have been very clandestine about their motives and strategy and have disclosed relatively little to the general public. One item that has been disclosed is a group of supporters who have been trotted out for press conferences or comments to the media regarding this issue. This group includes: International Union of Operating Engineers Local 324, Michigan Nurses Association, Sheet Metal Workers International Association Locals 7, 80, and 292, SEIU State Council, Communication Workers of America District 4, American Federation of Teachers Michigan, United Steel Workers District 2, Amalgamated Transit Union, United Food and Commercial Workers Local876 and 951, Astraeus Wind, Blue Green Alliance, and Energetx Composites.

From conversations with proponents, it is clear that one of the strategies to push for passage of the ballot proposal will include marketing the idea that jobs will be created if the amendment is adopted. To date, we have seen no evidence that this proposal will generate significant job creation for Michigan workers. Opponents of the proposal are currently working on economic analysis to illustrate the false nature of the claim.

In 2008, elected officials in a bi-partisan manner established a Michigan RPS of 10% to be achieved by 2015. The 10% renewable portfolio standard was not discussed separate from the rest of the energy policy. The RPS was generated as part of overall state energy policy because every piece of the policy is connected and changing one can create problems with other parts. As opposed to the proposed constitutional amendment, this standard was determined after significant legislative debate, extensive hearings and full inclusion of opinions by all interested parties. Unfortunately, during this election season those seeking quick financial opportunities are willing to clutter the Constitution instead of pursuing a more thoughtful approach that focuses on the legislative process open to all stakeholders.

Simply mandating a higher number will not increase Michigan’s progress in creating renewable energy. Allowing a small group of people with an agenda to force energy policy change through a ballot initiative will only create more challenges to the pursuit of expanding our renewable energy infrastructure. Passage of the 2008 energy law demonstrated that there was bipartisan agreement at that time on the direction the state needed to head regarding energy policy and a renewable portfolio standard.

The Michigan Chamber’s Energy and Environment Committee voted unanimously to recommend this policy proposal to the Board of Directors. Chamber staff is currently gathering information relating to implementation of Michigan’s 2008 energy law from both supporters and opponents of the current policy. The legislature is not expected to make energy policy a priority before recessing for the summer and few session days are planned between the August primary and November general election. Governor Snyder plans to deliver a special message on energy policy later in 2012. Given this situation, the Chamber’s Energy and Environment Committee will begin a more comprehensive review of state and federal energy policy this fall.

The Michigan Chamber of Commerce supports an energy plan for Michigan that provides a diverse mix of fuel sources including nuclear, coal, natural gas, and renewable energy. The Chamber supports moving forward with energy technologies that are determined to be both affordable and reliable.

The Michigan Chamber supports all of the following as it relates to siting wind turbines in the Great Lakes:

• The Michigan Chamber supports a permit process for siting of wind turbines in the Great Lakes that includes meaningful local input and participation. The views and concerns of local communities must be considered in the decision-making process. However, final decision-making must rest with state government. Michigan cannot have a patchwork of rules and regulations related to energy development.
• The Michigan Chamber supports a permit process for siting wind turbines that includes a review and approval by the Public Service Commission. The Commission shall only approve projects where there is a demonstrated need and the projects are determined to be both reliable and affordable.
• The Michigan Chamber reaffirms support for cost-of-service rates for all customer classes, and opposes any further energy subsidies or mandates, beyond those provided by Public Act 295 of 2008, that are paid by industrial and commercial customers related to the development of renewable energy. The Chamber would oppose any effort through tariffs or mandates that would force utilities or industrial or commercial customers to purchase or pay for offshore wind that is not determined to be cost competitive.
• The Michigan Chamber reaffirms support for the protection of the Great Lakes. The Great Lakes are Michigan’s greatest natural asset. The development of wind turbines on the Great Lakes should be done with great caution. The permit approval process must take into account protection of such things as wildlife, view sheds, fishing areas, harbors, and marinas. The permit process should also include requirements for strong upfront financial performance instruments that protect the Great Lakes in case of unforeseen circumstances (i.e. bankruptcy and damage to turbines).

Background

Offshore wind provides Michigan with a substantial energy supply potential. Offshore wind operates at a higher capacity factor typically in the range of 37% to 40%, which is substantially more than onshore wind. In addition, offshore wind could likely be built to a much larger scale as compared to onshore projects, which are often limited by land use patterns.

The announcement by Scandia Wind that it planned to build 200 wind turbines in Lake Michigan near Ludington has set off a heated and contentious debate along the West Michigan lakeshore. Many local residents, small business, and locally-elected officials have been coming out in opposition to the proposed Scandia project. A group called Lake Michigan Power Coalition has been formed to try and stop the Scandia project from moving forward. They are concerned that turbines could negatively impact Lake Michigan's waters, regional economy, shoreline ecosystem, and quality of life.

Great Lakes Offshore Wind Council
Through Executive Order 2009-46, Governor Granholm established the Great Lakes Wind Council with the responsibility to “provide input on proposed new Great Lakes wind development legislation.” The council was made up of eight state agency members and 21 outside government members. The council put forward 24 criteria to map the best locations for offshore wind energy development. The criteria for the most favorable areas included being at least six miles offshore and avoiding sensitive wildlife areas and shipping lanes. Based on the criteria, five sites were selected as being most favorable:

1. Berrien County – SW Michigan – Lake Michigan
2. Delta County – Upper Peninsula – Lake Michigan
3. Alger County – Upper Peninsula – Lake Superior
4. Sanilac County – Thumb – Lake Huron
5. Outer Saginaw Bay – Lake Huron

The council recommended a permit process conducted and run by the Department of Natural Resources and Environment (DNRE). Under the proposed process, the DNRE would conduct a public hearing in the county nearest the selected parcel. The DNRE would be the final decision maker. The recommended process does not include an approval by a local unit of government or an approval by the Public Service Commission.

EQ/ETT Meeting
On May 18, 2010, the Michigan Chamber’s Energy, Technology & Telecommunications and Environmental Quality committees held a joint meeting where the issue of Great Lakes offshore wind was debated and discussed. Skip Pruss, formerly director of energy, labor and economic growth and chair of the Great Lakes Wind Council, presented the recommendations of the council to the Michigan Chamber committees. Former Director Pruss emphasized that Great Lakes wind was part of Governor Granholm’s strategy to bring green jobs to Michigan and help to diversify the state’s economy.

The committee also heard from Jeff Hoenle and Peter O’Neil from the Lake Michigan Power Coalition. This coalition is made up of concerned residents along the shoreline in West Michigan. The coalition advocated for local input into the decision-making process related to siting wind turbines in the Great Lakes. The coalition articulated a position that, in addition to approval by state government, there must also be an approval by a local unit of government. They argue that municipalities know best in serving long-range civic planning.

After the presentations, the Chamber committee held a members-only discussion on the issue. There was consensus in the room that the recommendations of the Great Lakes Wind Council gave a good framework on how and where to site offshore turbines. However, members of the committee agreed that the council report failed to take into account the rate impacts associated with offshore wind. The Chamber committee recommended that Chamber staff push cost containment measures that include all necessary and related costs, including transmission.

Based on the discussions and recommendations of the committee, staff prepared a draft policy for review. The draft policy was sent out to members of the committee for review and comment. Committee members provided excellent and thoughtful feedback. Staff took the feedback and developed a revised version. EQ Committee Chair Rick Van Dellen agreed and supported the revised version. The revised version was then sent to the committee for a vote. Committee members were given the option of support, neutral, or oppose. A strong majority of committee members who voted, voted to support the policy proposal.

Energy Rates
An important victory for the business community in passage of PA 286 of 2008 was to require the Public Service Commission to implement cost-of-service rates for all customer classes within five years. For 30 years, Michigan’s job providers have been unfairly paying higher electric rates in order to subsidize residential rates. These higher electric rates for business customers in Michigan have made Michigan’s rates less competitive with those of other states. The annual savings for business customers was expected be over $350 million.

To date, the Public Service Commission has moved slower in implementing the cost-of-service rates than was anticipated when the bills were approved. In a Consumers Energy rate case, the commission used a formula to calculate cost-of-service results that was different than expected. The net result in Consumers’ territory is that, instead of rate cuts for commercial and industrial customers, rates actually increased.

Costs of Renewable Energy
Public Act 295 of 2008 requires that, by 2015, 10 percent of Michigan’s energy come from renewable sources. During the legislative debate, the Michigan Chamber worked hard to develop a cost cap that would minimize the rate impact associated with a mandated renewable portfolio standard. Under the new law, surcharges for renewable energy are capped at a per-meter charge not to exceed $3.00 per month for residential customers, $16.58 per month for commercial customers, and $187.50 per month for industrial customers.

In compliance with PA 295 of 2008, the Michigan Public Service Commission, in May of 2010, approved four renewable projects with a capacity of 243.2 megawatts of energy. The projects had an average 20-year levelized price of 9.75 cents per kWh. This levelized price means that customers will pay the same 9.75 cents for the next 20 years. The projects included three onshore wind farms and a landfill gas operation.

In August of 2010, the Public Service Commission approved two additional renewable projects with a capacity of 20.2 megawatts of energy. The projects had an average 20-year levelized price of 9.89 cents per kWh. The projects were a landfill gas operation in Oakland County and a biomass (primarily wood) facility in the Upper Peninsula.

In the US and Canada, offshore wind projects are proving to be very expensive. Two of the most recent projects are at least double the cost of the onshore wind projects approved in Michigan. Both of the projects include annual inflationary increases. The most high-profile project is the Cape Wind project off the coast of Massachusetts. The Purchase Power agreement for Cape Wind is 18.7 cents per kWh with a 3.5% annual inflator that will impact every year of the PPA for 15 years. In Ontario, the Ontario Power Authority is moving ahead with a 300 MW project in Lake Ontario. The signed contract is at 19.5 cents per kWh with a 2% annual inflator.

Comparison of Prices: Michigan Renewable Energy vs. Current Offshore Projects

Michigan Onshore Wind

Landfill Gas

In addition to wind, other options exist to help meet Michigan’s Renewable Portfolio Standard. Landfill gas is a cost-competitive technology that provides reliable and affordable power. Landfill gas projects in Michigan have a capacity factor of over 90 percent. This means that they operate 90 percent of the time. This compares to wind that has capacity factors in the range of 20 to 30 percent. The Public Service Commission recently approved a contract between Consumers Energy and Waste Management at a 20-year levelized price of 9.875 cents per kWh.

The Michigan Chamber has endorsed bipartisan legislation, HB 5334 (Mayes – D-Bay City) and SB 725 (Birkholz – R-Saugatuck), designed to increase energy production from landfills. The legislation would allow yard waste to be deposited into approved landfill energy production facilities. This change in law could provide up to an additional 60 MW of affordable and reliable renewable energy.

Green Jobs 

Creating “green jobs” has been a centerpiece of the Granholm Economic Development Strategy. Green jobs are generally considered those jobs related to renewable energy sources including wind, solar, and battery storage technologies. The green jobs strategy is built on government mandates to purchase green power and targeted tax incentives to try and lower the cost of the technologies. According to the presentation from Skip Pruss to the EQ/ETT meeting, the Granholm strategy has created $173 million in investment in wind technology, $3.1 billion in solar investment, and $5.7 billion in investments in battery technology.

Some studies are now questioning the green jobs strategy being implemented by Governor Granholm and many European countries. The European countries have more years of experience with the green jobs strategy, starting the strategy in the mid-1990’s, thus allowing more studies and data to be collected. The European policies were driven by goals to reduce overall carbon emission. Following  is a summary of key studies and information from the European experience:

Spain

In Spain, the government mandated that by 2010, 20 percent of energy must come from renewable energy sources. A recent study by a Spain University entitled, “Study of the Effects on Employment of Public Aid to Renewable Energy Sources,” found that for every one green job created by the mandate, 2.2 jobs were lost due to the higher electric rates. The study concludes that the high cost of electricity drives away energy-intensive manufacturing business. http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf (February 4, 2010).

Germany

In Germany, they used a subsidy program that put a tariff on all energy customers to support the wind and solar industries. The program has led to one of the largest installed capacities of wind and solar in the world. However, a recent study in Germany entitled “Economic Impacts from the Promotion of Renewable Energies: The German Experience,” concludes that the German policy created green jobs but at a high cost. The study found that it took 175,000 € in subsidies to create one green job. In addition, the German policy caused job losses from the manufacturing sector due to higher electricity rates, and a loss of purchasing power for consumers due to the rate increases. 

http://www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf (2009).

France

The European country with the lowest emission rates and lowest energy costs is France. France has taken a different path than Spain and Germany. The French are one of the leaders in the world in nuclear energy with over 78 percent of energy coming from nuclear fuel. France is the largest exporter of electricity in the European Union because of its low prices.