Demand Response Investments

The Michigan Public Service Commission announced its adoption of a three-phase approach that it will be using when reviewing and evaluating utility investments in demand response (DR) measures. 

The decision grew out of a determination in an electric rate case from earlier in the year that the traditional rate-setting process is not particularly conducive to dealing with changes in DR program design, spending, and timing. The commission elaborated that it had concluded that recovering DR costs through base rates is "not sufficiently flexible to account for uncertainties that impact program spending and results." 

It thus had convened a workgroup dedicated to proposing a framework for the evaluation and cost recovery of DR expenditures. 

The commission stated that its new strategy is predicated on a multistep process pursuant to which DR proposals, including program costs and benefits, are evaluated as part of a utility's integrated resource planning (IRP) process. Once DR plans are accepted as part of an IRP proceeding, associated DR program costs will be considered approved and can be recognized in rates in the utility's next general rate case. 

In between IRP proceedings, the commission said, a provider may propose changes to its DR programs or pilots, with such changes reviewed and authorized in a rate case and then included in the next IRP. T

he third phase involves a reconciliation of the DR program costs and customer participation rates (i.e., demand savings achieved) that will occur each year, with rates and participation reconciled against the levels approved in the IRP proceedings. 

The commission concluded that the changes will help ensure that a utility is able to recover the fixed investment required to implement successful DR programs, while allowing the commission more regular oversight over the ongoing operation of successful programs. 

The commission was receptive to a suggestion raised by Consumers Energy Company that costs associated with DR should follow deferred regulatory accounting with return. (Case No. U-18369)