State PBF/USF History, Legislation, Implementation
Last Updated: February 2013
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Since FY 2010, Michigan has used state funds to temporarily replace ratepayer funds that had provided low-income energy assistance and energy efficiency since 2002. As of early 2013, the state legislature continues to work to permanently replace the ratepayer-funded Low Income and Energy Efficiency Fund (LIEEF) that was outlawed in 2011.
In January 2013, the Michigan Energy Assistance Program (SB 1135) was signed into law, creating the structure, but not the funding to replace LIEEF.
Administered by the Department of Human Services (DHS), the state's LIHEAP office, the program will provide energy assistance to low-income households that have incomes of not more than 150 percent of federal poverty guidelines. Services will include helping these households pay their gas and electric bills, in addition to helping recipients optimize energy efficiency. The program must use 70 percent of its funds during the "crisis season," defined as November 1 through May 31.
The program is an outgrowth of the demise of the LIEEF. Starting in 2002 and funded through ratepayer surcharges, the LIEEF provided energy assistance and energy efficiency to low-income customers, as well as energy efficiency programs for all customer classes.
From 2002 through 2010, the Michigan Public Service Commission (PSC) solicited grant proposals and allocated LIEE funds statewide, including significant portions to the DHS, the Michigan Community Action Agency Association, and THAW (the statewide fuel fund) to operate their respective assistance programs. During that time, the PSC gave out $664 million in grants, with over $452 million of that targeted to low-income energy assistance. For more background on the LIEEF, see below.
In 2011, the Michigan Court of Appeals ruled the PSC was acting outside its statutory powers both in administering the LIEEF and in approving utilities collecting ratepayer funds for it. The Michigan legislature responded to the court ruling by creating the "Vulnerable Household Warmth Fund" to help low-income households pay their energy bills. The act gave one-time appropriations to both the PSC and DHS for emergency energy assistance during the 2011-2012 heating season. The legislature then revisited the issue for the 2012-2013 season.
SB1135 served as the vehicle to replace the LIEEF with the Michigan Energy Assistance Program. A companion bill, SB 1134, would have created a funding mechanism of up to $60 million for the program through an annual surcharge on all electric customers' bills. While SB 1135 passed, the funding bill failed.
As a result, the legislature made two one-time state appropriations totaling approximately $60 million to provide energy assistance for fiscal year 2013. The money came from two sources, TANF and the state general fund. The $27.7 million from the general fund made its way to the PSC via an agreement with DHS that the funds be used to aide low-income households. The PSC granted the money to nine organizations, a majority of which had received funding from the LIEEF in the past. The $32.2 million in TANF funding will be spent through DHS' LIHEAP crisis assistance component, called State Emergency Relief. The legislature also removed the surcharge from the bills of electric customers for 2013.
Most of the LIEEF funding supported energy assistance; however, grants also were awarded for low-income energy efficiency. During that time period, over $113 million went to such projects. While the loss of the LIEEF negatively impacted the amount of money available, another source of funding supports energy efficiency for all customer classes.
In 2008, the legislature passed the "Clean, Renewable, and Efficient Energy Act." The act required all gas and electric utilities to implement programs to reduce overall energy usage by specified targets, in order to reduce the future costs of gas and electric service to customers. These "optimization plans," the law stated, had to include programs for "each customer class, including low income residential." The act established a surcharge on the bills of all electric and gas customers to cover energy-efficiency programs.
In establishing rules for the act, the PSC stated it was dedicated to ensuring that "every effort is made to enable low income customers to experience net reductions in their energy bills in the near term." As a way of reaching low-income households, the PSC awarded a grant to the Michigan Community Action Agency Association to administer Efficiency United, a partnership of 19 utilities' efforts. Between 2009 and 2011, all Michigan utilities contributed almost $56 million to low-income energy efficiency programs.
The "Customer Choice and Electricity Reliability Act of 2000" (Public Act 141) initially established the LIEEF, and it was continued by subsequent PSC orders. The purpose of the fund was to provide shutoff and other protection for low-income customers and to promote energy efficiency by all customers.
Michigan's 2000 restructuring law created the LIEEF as part of securitization — bonds that customers pay off on their bills that allow electric utilities to recover their stranded costs. Savings from securitization in Michigan were first used to lower rates by five percent; any other savings went into the LIEEF. Initially, Detroit Edison was the only electric utility whose securitization savings exceeded the amount necessary to fund the rate reduction required in the law and was the only company that contributed to the Fund.
In a February 2004 interim order granting rate relief to Detroit Edison, the PSC determined that there were no longer any excess securitization savings to fund the LIEEF, and that it should be included in Detroit Edison's cost of service. It established a surcharge on the utility's distribution rates to fund the LIEEF. The surcharge was set to generate $39.9 million annually.
A new funding source for the LIEEF came in December 2005 when the PSC, in a rate case settlement with Consumers Energy, directed the company to contribute $26.5 million annually to the LIEEF from its electric customers. Additionally, in November of 2006, the Commission authorized Consumers Energy to fund $17.4 million annually for the LIEEF from its natural gas customers, bringing the total annual LIEEF funding to nearly $84 million. Like Detroit Edison, Consumers Energy was to recover its costs through customer charges.
Finally, in June 2010, the Commission issued an order authorizing Michigan Consolidated Gas Company to provide $5 million annually to the LIEEF, bringing annual revenue for the fund to nearly $88.9 million.
Beginning in 2002, the PSC administered the grant money through a competitive process, awarding about $60 million in grants each year. Most years the DHS received a large portion of the funds and used them for energy crisis assistance. The funds were also awarded to such entities as the Michigan Community Action Agency Association, The Heat and Warmth Fund (a Detroit-based statewide fuel fund), and the Salvation Army for energy assistance and energy efficiency projects. Overall, the PSC allocated approximately 68 percent of the grants to low-income energy assistance programs, about 17 percent to low-income energy efficiency programs, and the remainder to the development of energy efficiency programs for all customers.
As a result, the majority of the funding between 2002 and 2010 — about $452 million — went to low-income bill payment assistance, with a significant portion granted to DHS, the state LIHEAP grantee, for distribution. Most of the remaining funds — about $113 million — supported low-income energy efficiency projects.
In July 2011, the Michigan Court of Appeals struck down the fund saying the PSC no longer had authority to maintain it and disburse money from it. The court said the legislature implicitly intended to halt authorization for the LIEEF, because it had omitted references to the fund while amending the "Customer Choice" act in 2008. The court was not persuaded by the argument that the legislature didn't intend to terminate the fund, as witnesses by its yearly allocations to the LIEEF after 2008.
For more information:
- Michigan Public Service Commission, Report on the Low-Income and Energy Efficiency Fund, October 2011
- 2011 ruling by Michigan Court of Appeals