S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * *

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1 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) UPPER PENINSULA POWER COMPANY ) seeking ex parte approval of deferred accounting ) Case No. U relative to certain costs and amounts associated ) with the Au Train and Cataract hydro-facilities. ) ) At the July 27, 2010 meeting of the Michigan Public Service Commission in Lansing, Michigan. PRESENT: Hon. Orjiakor N. Isiogu, Chairman Hon. Monica Martinez, Commissioner Hon. Greg R. White, Commissioner ORDER APPROVING SETTLEMENT AGREEMENT On March 25, 2010, Upper Peninsula Power Company (UPPCo) filed its application for ex parte approval of deferred accounting relative to certain costs and amounts associated with the Au Train and Cataract hydro-facilities. A prehearing conference was held on June 17, 2010 before Administrative Law Judge James N. Rigas. The Commission Staff participated in the proceedings. Subsequently, the parties submitted a settlement agreement resolving all issues in the case. that: According to the terms of the settlement agreement, attached as Exhibit A, the parties agree (i) UPPCo should be authorized to apply deferral accounting, in Account 186 (Miscellaneous Deferred Debits), to the Au Train costs and losses/gains, including transaction costs associated with the sale of Au Train, until the conclusion of UPPCo s current rate case, Case No. U-16166, for accounting purposes only.

2 The ratemaking treatment of such deferred Au Train costs will be determined in Case No. U (ii) UPPCo s entry into a purchase power agreement with UP Hydro, LLC, to purchase energy produced at the Au Train facility and related renewable energy credits should be addressed in UPPCo s power supply cost recovery proceedings or renewable energy proceedings, as appropriate. (iii) UPPCo should be authorized to apply deferral accounting, in Account 186 (Miscellaneous Deferred Debits), to the Cataract costs and losses/gains, including transaction costs related to the possible sale of Cataract, for accounting purposes only. The ratemaking treatment of such deferred Cataract costs will be determined in a future rate case. The Commission finds that the settlement agreement is reasonable and in the public interest, and should be approved. THEREFORE IT IS ORDERED that: A. The settlement agreement, attached as Exhibit A, is approved. B. Upper Peninsula Power Company is authorized to apply deferral accounting, in Account 186 (Miscellaneous Deferred Debits), to the Au Train costs and losses/gains, including transaction costs associated with the sale of Au Train, until the conclusion of the company s current rate case, Case No. U-16166, for accounting purposes only. The ratemaking treatment of such deferred Au Train costs will be determined in Case No. U C. Upper Peninsula Power Company s entry into a purchase power agreement with UP Hydro, LLC, to purchase energy produced at the Au Train facility and related renewable energy credits should be addressed in the company s power supply cost recovery proceedings or renewable energy proceedings, as appropriate. D. Upper Peninsula Power Company is authorized to apply deferral accounting, in Account 186 (Miscellaneous Deferred Debits), to the Cataract costs and losses/gains, including transaction Page 2 U-16208

3 costs related to the possible sale of the Cataract, for accounting purposes only. The ratemaking treatment of such deferred Cataract costs will be determined in a future rate case. The Commission reserves jurisdiction and may issue further orders as necessary. Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL MICHIGAN PUBLIC SERVICE COMMISSION Orjiakor N. Isiogu, Chairman Monica Martinez, Commissioner By its action of July 27, Greg R. White, Commissioner Mary Jo Kunkle, Executive Secretary Page 3 U-16208

4 EXHIBIT A S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION ***** In the matter of the application of ) Upper Peninsula Power Company seeking ) Case No. U ex parte approval of deferred accounting relative to ) certain costs and amounts associated with ) the Au Train and Cataract hydro-facilities. ) SETTLEMENT AGREEMENT As provided in 78 of the Administrative Procedures Act of 1969 ( APA ), as amended, MCL , and Rule 333 of the Rules of the Practice and Procedure Before the Commission, 2000 AC, R , Upper Peninsula Power Company ( UPPCO ) and the Michigan Public Service Commission Staff ( Staff ), hereby agree as follows: 1. On March 25, 2010, UPPCO filed with the Michigan Public Service Commission ( Commission ) its Application seeking ex parte approval of deferred accounting relative to certain costs and amounts associated with the Au Train and Cataract hydro-facilities. 2. On May 20, 2010, the Commission s Executive Secretary issued a Notice of Hearing directing UPPCO to mail a copy of the Notice of Hearing to all cities, incorporated villages, townships, and counties in its service area and to publish the Notice of Hearing in daily newspapers of general circulation throughout its Michigan service area. Complying with the directives, UPPCO filed with the Commission the requisite affidavit of mailing and proofs of publication on June 3, On June 17, 2010, Administrative Law Judge James N. Rigas presided over the prehearing conference in this matter. Staff entered its Appearance. There were no intervenors.

5 4. Subsequent to the prehearing conference, the parties have engaged in settlement discussions and have reached agreement on all of the issues in this case. The parties to this Settlement Agreement agree as follows: a. UPPCO should be authorized to apply deferral accounting, in Account 186, (Miscellaneous Deferred Debits) to the Au Train costs and losses/gains, including transaction costs associated with the sale of Au Train, until the conclusion of UPPCO s current rate case, Case No. U-16166, for accounting purposes only. The ratemaking treatment of such deferred Au Train costs will be determined in Case No. U b. UPPCO s entry into a Purchase Power Agreement with UP Hydro, LLC to purchase energy produced at the Au Train facility and related renewable energy credits should be addressed in UPPCO s PSCR proceedings or renewable energy proceedings, as appropriate. c. UPPCO should be authorized to apply deferral accounting, in Account 186, (Miscellaneous Deferred Debits) to the Cataract costs and losses/gains, including transaction costs related to the possible sale of Cataract, for accounting purposes only. The ratemaking treatment of such deferred Cataract costs will be determined in a future rate case. 5. All of the signatories are of the opinion that this Settlement Agreement is reasonable, in the public interest and will aid the expeditious conclusion of this case. 6. This Settlement Agreement is intended to be a final disposition of this proceeding, and the parties join in respectfully requesting that the Commission grant prompt approval. The parties agree not to appeal, challenge or contest the Commission s Order accepting and 2

6 approving this Settlement Agreement without modification. If the Commission does not accept the Settlement Agreement without modification, the Agreement shall be withdrawn and shall not constitute any part of the record in this proceeding or be used for any other purpose whatsoever. 7. This Settlement Agreement has been made for the sole and express purpose of settling this case, and all discussions relating hereto are and shall be privileged and shall not be used in any manner, or be admissible for any other purpose in connection with this proceeding or any other proceeding hereof. This Settlement Agreement does not constitute precedent in any other case or proceeding. Without limiting the generality of the foregoing, this Settlement Agreement shall not constitute res judicata or collateral estoppel as to any issue. Neither the parties to the settlement nor the Commission shall use this Settlement Agreement or the order approving it, as precedent in any case or proceeding; provided however, reference to Paragraph 4 may be made to enforce or implement the provisions thereof. 3

7 8. All signatories waive Section 81 of the APA of 1969, as amended, MCL UPPER PENINSULA POWER COMPANY Dated: July 15, 2010 By: One of its Attorneys Ronald W. Bloomberg (P30011) Sherri A. Wellman (P38989) MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. One Michigan Avenue, Suite 900 Lansing, MI (517) MICHIGAN PUBLIC SERVICE COMMISSION STAFF Dated: July 15, 2010 By: Its Attorney Michael J. Orris (P51232) Assistant Attorney General Public Service Division 6545 Mercantile Way, Suite 15 Lansing, MI (517) ,103,004.1\

8 P R O O F O F S E R V I C E STATE OF MICHIGAN ) Case No. U County of Ingham ) Mignon Middlebrook, being duly sworn, deposes and says that on July 27, 2010, A.D. she served a copy of the attached Commission Order by first class mail, postage prepaid, or by inter-departmental mail, to the person(s) as shown on the attached service list(s). Mignon Middlebrook Subscribed and sworn to before me this 27 th day of July 2010 Gloria Pearl Jones Notary Public, Ingham County, MI My commission expires June 5, 2016

9 Service List U Ronald W. Bloomberg Miller, Canfield, Paddock & Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing MI Michael J. Orris Michigan Dept. of Attorney General Public Service Division 6545 Mercantile Way, Suite 15 Lansing MI James N. Rigas Michigan Public Service Commission 6545 Mercantile Way Suite 14 Lansing MI Upper Peninsula Power Company Mr. Dennis Derricks 500 N. Washington Street Ishpeming MI Sherri A. Wellman Miller Canfield Paddock & Stone One Michigan Avenue, Suite 900 Lansing MI 48933