Overview of Low-Income Restructuring
Legislation and Implementation
Michigan
Last Updated: June 2008
From February 2002 through May 2008, the Michigan Public Service Commission (MPSC) has disbursed a total of $369 million in low-income energy grants. The total for FY 2007 was $80 million.
The grants come from the state’s Low-Income and Energy Efficiency Fund (LIEEF) initially established as part of the Customer Choice and Electric Reliability Act of 2000 (Public Act 141) and continued in a subsequent order. The purpose of the Fund is to provide shut-off and other protection for low-income customers and to promote energy efficiency by all customer classes.
Since late 2001, the MPSC has called for energy assistance and energy efficiency grant proposals on over a dozen occasions and has allocated LIEE funds statewide though a series of grant awards beginning in February 2002. Overall, the Commission has allocated approximately 75 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 customer classes.
As a result, the majority of the funding – about $298 million – has gone for low-income bill payment assistance and a majority of that amount has been made available for distribution through the Family Independence Agency (FIA), the state LIHEAP grantee. Most of the remaining funds have gone for low-income energy efficiency projects.
In awarding the grants, the Commission announced that it gave significant consideration to organizations with a proven record in distributing energy assistance to low-income residents, an existing administrative structure to handle additional distribution activities, and the ability to coordinate assistance with other service providers and serve multiple counties. In addition to grants to the FIA, the Michigan Community Action Agency Association, The Heat and Warmth Fund, a Detroit-based statewide fuel fund, and the Salvation Army have been regular grant recipients.
In several cases, including during the winter of 2005-06, the Commission issued the energy assistance grants on an expedited basis in response to rising gas prices, the state’s budget, extremely cold weather, the economy, and an increasing occurrence of utility service shutoffs. In May 2007, $22 million in LIEE funds was distributed directly to the FIA by the state legislature, rather than through the MPSC, in order to swiftly provide supplemental funds for the LIHEAP crisis assistance program, which had run out of money.
Background
Michigan’s 2000 restructuring law created the LIEEF as part of securitization – bonds that customers pay off on their bills, allowing the state’s two largest electric utilities, Detroit Edison and Consumers Energy, to recover their stranded costs. Savings from securitization were first used to lower rates by five percent; any other savings went into the LIEEF. 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 February 2004, in an 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.
In its final decision on the Detroit Edison rate case issued in November 2004, the Commission wrote that the “existence and funding of the LIEEF should continue at the present level unless the issue is revisited in an appropriate case.” It dismissed arguments from the utility and others that the funds should only be used for low-income customers located in Detroit Edison’s service territory because the utility’s customers are the only ones paying into the LIEEF.
A new funding source for the LIEEF came in December 2005 when the MPSC, in a rate case settlement with Consumers Energy, directed the company to contribute $26.5 million annually to the LIEEF from its electric customers. Consumers Energy had proposed spending $15 million on low-income energy programs, but the Commission increased the amount, saying that state law allows it to take the necessary steps to assure that low-income and energy efficiency funds are available and sufficient.
Additionally, in November of 2006, the Commission in Case No. U-14547 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 will recover its costs through customer charges.
More background information is available in Report on the Low-Income and Energy Efficiency Fund, June 2007, the PSC’s latest annual report on the effectiveness of its low-income fund.
Return to Utility Restructuring
Page Last Updated: June 3, 2008
