2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

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1 STATE OF MICHIGAN 2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 3 In the matter of the application of The Detroit Edison Company for 4 authority to increase its rates, Case No.U amend its rate schedules and rules 5 governing the distribution and supply of electric energy, and for 6 miscellaneous accounting authority. / 7 In the matter of the application of 8 The Detroit Edison Company for authority to defer certain pension Case No. U and post-employment benefits expense for future amortization and recovery. Volume No / 11 CROSS-EXAMINATION 12 Proceedings held in the above-entitled 13 matter before Mark E. Cummins, Administrative Law Judge 14 with Michigan Administrative Hearings System, at the 15 Michigan Public Service Commission, 6545 Mercantile Way, 16 Room D, Lansing, Michigan, on Tuesday, May 10, 2011, 17 commencing at 9:19 a.m. 18 APPEARANCES: 19 JON P. CHRISTINIDIS, ESQ. MICHAEL J. SOLO, JR., ESQ. 20 DTE ENERGY One Energy Plaza, 688 WCB 21 Detroit, Michigan On behalf of The Detroit Edison Company (Continued) Metro Court Reporters, Inc

2 APPEARANCES Continued: 2 DON L. KESKEY, ESQ. Public Law Resource Center, PLC North Capitol Avenue Lansing, Michigan On behalf of Michigan Community Action 5 Agency Association 6 CHRISTOPHER M. BZDOK, ESQ. Olson Bzdok & Howard, PC East Front Street Traverse City, Michigan On behalf of Michigan Environmental Council, 9 National Resource Defense Council, and Environmental Law and Policy Center 10 DONALD E. ERICKSON, 11 Assistant Attorney General 525 W. Ottawa Street, 7th floor 12 P.O. Box Lansing, Michigan On behalf of Attorney General Bill Schuette 14 ROBERT A. W. STRONG, ESQ. 15 CLARK HILL, PLC 212 East Grand River Avenue 16 Lansing, Michigan On behalf of Association of Businesses Advocating Tariff Equity 18 MICHAEL J. WATZA, ESQ. 19 Kitch Drutchas Wagner Calitutti & Sherbrook One Woodward Avenue, Suite Detroit, Michigan On behalf of Detroit Medical Center, Henry Ford Health System, William Beaumont Hospital, and 22 Trinity Health Michigan (Continued) Metro Court Reporters, Inc

3 APPEARANCES Continued: 2 ANNE UITVLUGT, ROBERT W. BEACH, 3 BRIAN W. FARKAS, Assistant Attorneys General Mercantile Way, Suite 15 Lansing, Michigan On behalf of Michigan Public Service 6 Commission Staff REPORTED BY: Lori Anne Penn, CSR Metro Court Reporters, Inc

4 I N D E X 2 WITNESS: PAGE 3 George E. Sansoucy 4 Direct Testimony Bound In 1964 Rebuttal Testimony Bound In Peter J. Lanzalotta 6 Testimony Bound In Pamela Morgan 8 Testimony Bound In Ronald C. Callen 10 Testimony Bound In William. Peloquin 12 Testimony Bound In Frank W. Radigan 14 Testimony Bound In Katie J. Morgan 16 Testimony Bound In Kirk D. Megginson 18 Testimony Bound In Yerva C. Talbert 20 Testimony Bound In Kevin Liu 22 Testimony Bound In Charles J. Reasoner 24 Testimony Bound In Metro Court Reporters, Inc

5 I N D E X 2 WITNESS: PAGE 3 Nicholas I. Nwabueze, Ph.D. 4 Testimony Bound In Robert G. Ozar, P.E. 6 Testimony Bound In Kavita B. Bankapur 8 Testimony Bound In Daniel M. Birkam 10 Testimony Bound In Mark J. Pung 12 Testimony Bound In Brian. Welke 14 Direct Examination by Mr. Beach Ronald J. Ancona 16 Direct Examination by Mr. Beach 2281 Cross-Examination by Mr. Bzdok Cross-Examination by Mr. Erickson Nicholas M. Evans 19 Direct Examination by Mr. Beach 2321 Cross-Examination by Mr. Erickson Charles E. Putnam 21 Direct Examination by Ms. Uitvlugt Cross-Examination by Mr. Erickson Poornima Jayasheela 24 Direct Examination by Ms. Uitvlugt 2353 Cross-Examination by Mr. Strong Metro Court Reporters, Inc

6 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 MEC-1 Actual Capital Costs Incurred MEC-2 Projected Capital Costs MEC-3 9 Year Summary of Operating, Maintenance, and Fuel Costs For DTE Coal Power Plant Fleet 7 MEC-4 Operating & Maintenance Cost Allocation For St. Clair Power Plant and Trenton Channel Power 9 Plant Based on Estimated 2011 Generation by DTE 10 MEC-5 Projected Operating, Maintenance, and Fuel Costs for DTE Coal Power Plant Fleet 12 MEC-6 Projected Operating, Maintenace, and Fuel Costs for DTE Coal Power Plant Fleet 14 MEC-7 Summary of Test Year Costs Proposed for Exclusion from Revenue Requirements 16 MEC-8 Test Period Capital Expenditures Steam, Hydraulic, Environmental and Other Power Generation 18 MEC-9 Discovery Response NRDCDE-1.2/ MEC-10 Discovery Response MECDE-1.5k/ Question k. 21 MEC-11 Discovery Response MECDE-1.5g/ Question g. 22 MEC-12 Discovery Response MECDE-1.5i/ Question i. 24 MEC-13 Discovery Response MECDE-1.5m/ Question m. 25 Metro Court Reporters, Inc

7 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 MEC-14 Discovery Response MECDE-1.6c/ Question c. 4 MEC-15 Discovery Response MECDE-1.1a/ Question a. 6 MEC-16 Discovery Response MECDE-1.2/ MEC-17 Prior Experience of Peter J Lanzalotta 8 MEC-18 Proceedings In Which Peter Lanzalotta Has Testified 10 NRD-1 Opinion and Order in Case Nos EL-POR and EL-POR 11 Public Utilities Commission of Ohio 12 NRD-2 Aligning Utility Interests with Energy Efficiency Objectives: A 13 Review of Recent Efforts at Decoupling and Performance 14 Incentives, October 2006, Report Number U NRD-3 Aligning Utility Incentives with Investment in Energy Efficiency A Resource of the National Action 17 Plan for Energy Efficiency November NRD-4 A Review of Distribution Margin Normalization as Approved by the Oregon Public Utility Commission 20 for Northwest Natural March 31, NRD-5 NARUC Decouping for Electric & Gas Utilities: Frequently Asked 22 Questions - Grants & Research Department September NRD-6 Rate Impacts and Key Design Elements of Gas and Electric Utility Decoupling: A Comprehensive Review 25 October 2009 Metro Court Reporters, Inc

8 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 NRD-7 Rate Impacts and Key Design Elements of Gas and Electric Utility 4 Decoupling: A Comprehensive Review June 30, MCA-1 Ronald C. Callen Resume MCA-2 Department of Energy - Quarterly Statement of Payments - Nuclear Waste Fund 8 MCA-2A Discovery Response MCAAA/DE MCA-3 High Level Nuclear Waste Disposal Attempts 11 MCA-4 The Electricity Journal - Shrinking Grid, Shrinking Globe 12 MCA-5 The Obama Decision on Yucca Mountain and its Aftermath 14 MCA-6 U.S. Department of Energy's Motion to Stay the Proceeding - Docket 15 No , February 1, 2010, NRC 16 MCA-7 U.S. Department of Energy's Motion to Withdraw - Docket No , 17 March 3, 2010, NRC 18 MCA-8 February 8, 2010, Letter MCA-9 Nuclear Waste Fund Payment Information by State through 20 FY MCA-10 Senate Concurrent Resolution No. 8, Senate Concurrent Resolution No. 9, 22 Senate Resolution No. 28, House Concurrent Resolution No MCA-11 Department of Energy Budget by Appropriation 25 Metro Court Reporters, Inc

9 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 MCA-12 Nuclear Decommissioning Cost Analysis 4 MCA-13 June 24, 2010, Letter w/attachment MCA-14 U.S. SEC Form 10-K DMC-1 Frank W. Radigan Resume DMC-2 Detroit Medical Center Fact Sheet DMC-3 Web page printout from DMC-4 About Beaumont Hospitals DMC-5 Trinity Health DMC-6 Opinion and Order in MPSC Case No. U DMC-7 Opinion and Order in MPSC Case No. U DMC-8 Large Customer Contract Between The Detroit Edison Company and 16 The Detroit Medical Center 17 DMC-9 Discovery Responses DMCDE-1.1/ through DMCDE-1.13/ DMC-10 Discovery Responses DMCDE-2.1/ through DMCDE-2.11/ DMC-11 Discovery Responses DMCDE-3.1/ through DMCDE-3.3/ DMC-12 Discovery Responses DMCDE-4.1/ throughdmcde-4.39/ DMC-13 Discovery Response DMCDE-4.9/ (Supplemental) 24 (DMC-9 through DMC-13 conditionally received, subject to 25 review. Documents held by Judge Cummins until May 19, 2011) Metro Court Reporters, Inc

10 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 AG-55 MPSC Staff's Answer to the AG's First Discovery Request, 4 Questions 2, 3.a., 3.b., 4 5 AG-56 MPSC Staff's Answer to the AG's First Discovery Request, 6 Questions 5, 6.a., 6.b., 7, 8, 9 7 AB-19 MPSC Staff's Answer to ABATE'S First Discovery Request 8 Questions 1.a, 1.b., 1.c., 1.d. 9 AB-20 MPSC Staff's Answer to ABATE'S First Discovery Request 10 Question 2 11 AB-21 MPSC Staff's Answer to ABATE'S First Discovery Request 12 Question 3 13 AB-22 MPSC Staff's Answer to ABATE'S First Discovery Request 14 Question 4 15 AB-23 MPSC Staff's Answer to ABATE'S First Discovery Request 16 Question 6 17 AB-24 MPSC Staff's Answer to ABATE'S First Discovery Request 18 Question 7 19 AB-25 MPSC Staff's Answer to ABATE'S First Discovery Request 20 Question AB-26 MPSC Staff's Answer to ABATE'S First Discovery Request 22 Question AB-27 MPSC Staff's Answer to ABATE'S First Discovery Request 24 Question Metro Court Reporters, Inc

11 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 AB-28 MPSC Staff's Answer to ABATE'S First Discovery Request 4 Question 20 5 AB-29 MPSC Staff's Answer to ABATE'S First Discovery Request 6 Question 21 7 AB-30 MPSC Staff's Answer to ABATE'S First Discovery Request 8 Question 22 9 AB-31 MPSC Staff's Answer to ABATE'S First Discovery Request 10 Question AB-32 MPSC Staff's Answer to ABATE'S First Discovery Request 12 Question AB-33 MPSC Staff's Answer to ABATE'S First Discovery Request 14 Question AB-34 MPSC Staff's Answer to ABATE'S First Discovery Request 16 Question AB-35 MPSC Staff's Answer to ABATE'S First Discovery Request 18 Question AB-36 MPSC Staff's Answer to ABATE'S First Discovery Request 20 Question AB-37 MPSC Staff's Answer to ABATE'S First Discovery Request 22 Question AB-38 MPSC Staff's Answer to ABATE'S First Discovery Request 24 Question Metro Court Reporters, Inc

12 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 S-1 Schedule A1 (Welke) S-2 Schedule B1.1, B2, B3, B4 (Talbert) S-3 Schedule C1 Rev, C2, C5, C5.1, 2123 C5.2, C5.3, C5.4 (Welke) Schedule C3 (Jayasheela) Schedule C6 (Talbert) Schedule C7, C8, C9 (Liu) Schedule C11 (Birkam) S-4 Schedule D1, D2, D3 (Bankapur) Schedule D5 (Megginson) S-6 Schedule F1 (Putnam) Schedule F2, F2.1, F2.2, F2.3, 11 F3 Pgs , F4 Pgs (Jayasheela) Schedule F3 Pgs and 39-43, F4 Pgs. 2-19(Pung) S-7 U Capital Expenditures (Ancona) 15 S-8 (NME-1) Adjustments to AMI and SmartCurrents Cost-Benefit Analysis 16 (NME-2) Calculation of Year of 50% Deployment (Evans) 17 S IEEE Benchmark Survey SAIDI, SAIFI, CAIDI Data (Excluding MED) for Large Utilities (One 19 Million or More Customers) (Reasoner) 20 S-10 Audit Request No. NME-2, Request Nos. 1, 2, 3, 4, 5, 6 (Ozar) 21 S-11 Calculation of Power Supply Expenses Using MPSC Staff Methodology from U (Ancona) 23 S-12 MPSC Staff's Answer to ABATE's Second Discovery Request, Question 31 (Pubnam) 25 Metro Court Reporters, Inc

13 E X H I B I T S 2 NUMBER DESCRIPTION MRKD OFRD RECD 3 S-13 MPSC Staff's Answer to the Detroit Edison Company's Second Discovery 4 Request, Question DEST S-14 Discovery Response STDE-9.71/ Metro Court Reporters, Inc

14 Lansing, Michigan 2 Tuesday, May 10, At 9:19 a.m (Hearing resumed following adjournment of May 9, ) 7 (Documents marked for identification by the Court 8 Reporter as Exhibit Nos. MEC-1 through MEC-18; NRD-1 9 through NRD-7; MCA-1, MCA-2, MCA-2A, MCA-3 through 10 MCA-14; DMC-1 through DMC-8 and DMC-13.) JUDGE CUMMINS: With that, let's go on 13 the record. This is a continuation of the proceedings in 14 Case Nos. U and U We're here today to 15 continue with the cross-examination. We'll be beginning 16 with testimony provided by three of the intervenors, that 17 would be MEC, MCAAA and the four consolidated hospitals. 18 Mr. Bzdok, why don't we begin with you. 19 MR. BZDOK: Thank you, your Honor, and 20 good morning. At this time, based on an agreement from 21 the parties to waive cross-examination of the following 22 witnesses, on behalf of the Michigan Environmental 23 Council and the Natural Resources Defense Counsel, I 24 would move to bind in the direct testimony of George E. 25 Sansoucy, which consists of a cover page and 14 pages of Metro Court Reporters, Inc

15 questions and answers, and move for the admission of 2 Exhibits MEC-1 through MEC I'm happy to continue with the witnesses 4 and take them as a bunch or do them individually, as your 5 Honor prefers. 6 JUDGE CUMMINS: In light of the 7 stipulation, I guess we can probably go ahead and have 8 you them do them as a group. 9 MR. BZDOK: Thank you. 10 MR. ERICKSON: Your Honor, I would prefer 11 to go separately, simply because then we would have a 12 break between the witnesses, the bind-in statements by 13 Mr. Bzdok and the others, that way we'll have the bind-in 14 statements, the bound-in testimony, and then another 15 bind-in statement and bound-in testimony, and then we'll 16 have the witness, everything about the witness all 17 together rather than have to go backwards. 18 JUDGE CUMMINS: And that's fine. Why 19 don't we go ahead and do them separately, Mr. Bzdok. 20 At this point, based on the agreement of 21 the parties, is there any objection to binding in 22 Mr. Sansoucy's direct testimony and to receiving exhibits 23 MEC-1 through MEC-16? Hearing none, Mr. Sansoucy's 24 testimony is bound in the record. Exhibits MEC-1 through 25 MEC-16 are received in evidence. Metro Court Reporters, Inc

16 1964 STATE OF MICHIGAN MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of THE DETROIT EDISON COMPANY for Authority to Increase Its Rates, Amend Its Rate Schedules and Rules Governing the Distribution and Supply of Electric Energy, and for Miscellaneous Accounting Authority. In the matter of the Application of THE DETROIT EDISON COMPANY for approval to defer certain pension and post-employment benefits expense for future amortization and recovery. o. Case N U Hon. Mark E. Cummins, ALJ o. Case N U Hon. Mark E. Cummins, ALJ Direct Testimony of George E. Sansoucy on Behalf of the Michigan Environmental Council and the Natural Resources Defense Council Christopher M. Bzdok (P53094) OLSON, BZDOK & HOWARD, P.C. Attorneys for MEC & NRDC 420 East Front Street Traverse City, MI Telephone: (231) ; Fax: (231) chris@envlaw.com April 1, 2011

17 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 1 of 14 pages Direct Testimony of George E. Sansoucy 2 Q. Please state your name, business address, and affiliation. 3 A. My name is George E. Sansoucy. My business address is 32 Nimble Hill Road, 4 Newington, New Hampshire I am the owner of George E. Sansoucy, P.E., LLC. 5 Q. What are your educational background and professional qualifications to 6 appear in this proceeding? 7 A. I have a Bachelors and a Masters of Science Degree in Civil Engineering and am 8 a Registered Professional Engineer in New Hampshire. My firm, George E. Sansoucy, 9 P.E., LLC, provides valuation, consulting and engineering services to clients throughout 10 the United States. The firm's two primary services are 1) the valuation of public utility 11 infrastructure, energy projects, and complex industrial properties, and 2) consultation 12 services on energy and regulatory matters involving the public and private utilities sector 13 in the United States. I have testified in legal and regulatory proceedings before state and 14 federal courts and administrative agencies, including the Federal Energy Regulatory 15 Commission and the Nuclear Regulatory Commission. I have testified in Case No. 16 U before the Michigan Public Service Commission in the matter of the application 17 of Consumers Energy Company for approval of a Power Purchase Agreement and for relief 18 in connection with the sale of the Palisades Nuclear Power Plant and other assets. I have 19 also testified in Michigan Public Service Commission Case No. U (Renewable 20 Energy Plan), Case No. U (Renewable Energy Plan), Case No. U (Power 21 Supply Cost Recovery Plan), Case No. U R (Power Supply Cost Recovery 22 Reconciliation), and Case No. U (Rate Case).

18 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 2 of 14 pages Purpose and Summary 2 Q. Please summarize your testimony. 3 A. Detroit Edison proposes to continue running eight inefficient coal-fired generating 4 units whose total generation is less than the projected decline in the company's electric 5 sales. My testimony analyzes the unreasonable and excessive cost to ratepayers of 6 continuing to operate these unnecessary plants despite significant declines in company 7 sales requirements. My testimony also analyzes the company's plan to ramp up these units 8 in order to use them to offset generation from the more efficient units that the company 9 plans to sell for resale. 10 Q. Are you sponsoring any exhibits? 11 A. Yes. I am sponsoring 16 exhibits. 12 MEC-1: Summary of Actual Capital Costs Incurred MEC-2: Projected Capital Costs 14 MEC-3: 9-Year Summary of Operating, Maintenance and Fuel Costs for DTE 15 Coal Power Plant Fleet 16 MEC-4: Separation of Units for St. Clair and Trenton Channel Costs 17 MEC-5: Projected Operating, Maintenance and Fuel Costs for DTE Coal 18 Power Plants 19 MEC-6: Projected Operating, Maintenance and Fuel Costs for Selected DTE 20 Power Plants. 21 MEC-7: Summary of Test Year Costs Proposed for Exclusion From Revenue 22 Requirements 23 MEC-8: Discovery Response STDE-2.6/40 24 MEC-9: Discovery Response MECDE-1.5g/71

19 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 3 of 14 pages MEC-10: Discovery Response MECDE-1.5i/73 2 MEC-11: Discovery Response MECDE-1.5k/75 3 MEC-12: Discovery Response MECDE-1.1a/53 4 MEC-13: Discovery Response MECDE-1.2/62 5 MEC-14: Discovery Response MECDE-1.5m/77 6 MEC-15: Discovery Response MECDE-1.6c/86 7 MEC-16: Discovery Response NRDCDE-1.2/186 8 Q. Were these exhibits prepared by you or at your direction? 9 A. Exhibits MEC-1 through MEC-7 were prepared by me or at my direction. 10 Exhibits MEC-8 through MEC-16 are discovery responses from Detroit Edison in this case. 11 Detroit Edison's Projected Sales 12 Q. Describe Detroit Edison's sales forecast for the projected test period. 13 A. Based on the testimony of Sherrie Siefman, Detroit Edison anticipates roughly a 7% 14 reduction in electric sales to its customers, from approximately 47,000,000 megawatt hours 15 to 43,000,000 megawatt hours, or a 4 million megawatt hour reduction. The general extent 16 of this reduction carries through the entire application in various forms depending on 17 various assumptions, and will persist at least through Detroit Edison's Renewable Energy Plan 19 Q. Describe Detroit Edison's renewable energy plan. 20 A. Detroit Edison's renewable energy plan forecasts the addition of over one million 21 MWh of new renewable generation in 2012, ramping up to roughly 4.3 million MWh by This significant and rapid ramp-up of renewable generation will contribute along with 23 the sales decline to a continuing reduced need for other forms of company owned 24 generation.

20 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 4 of 14 pages Detroit Edison's Coal-Fired Generation Fleet 2 Q. Describe the Detroit Edison coal-fired generation fleet. 3 A. Based on Exhibit MEC-8 (discovery response STDE-2.6/40), as of 2010 Detroit 4 Edison maintains a coal fleet of 21 boiler turbine units at eight sites. Based on Exhibit 5 MEC-9 (discovery response NRDCDE-1.2/86), the Conners Creek and Marysville units are 6 on cold standby and forecasted for retirement during the projected test period. 7 Q. Describe the efficiency of Detroit Edison's coal fleet. 8 A. A number of the older units are substantially inefficient. Exhibit MEC-10 (discovery 9 response MECDE-1.5k/75) lists the heat rates for these plants. Greenwood operates at 10 a heat rate of approximately 13,940 BTU/kWh, Harbor Beach at 13,252 BTU/kWh, St. Clair 11 1 at approximately 11,200 BTU/kWh, St. Clair 3 at approximately 11,400 BTU/kWh, St 12 Clair 2 and 4 at approximately 11,300 BTU/kWh, and Trenton Channel 2 (a/k/a 7A and 8) 13 at approximately 13,100 BTU/kWh. 14 Q. Describe the capacity factors of the plants you just listed. 15 A. According to Exhibit MEC-11 (discovery response MECDE-1.5g/71), these units by 16 and large have low projected capacity factors for this year. 17 Greenwood is projected at 2.8%; 18 Harbor Beach at 3.6%; 19 the St. Clair 1-4 units range between 40.5% and 57.3%; and 20 the Trenton Channel 7 and 8 units between 19.9% and 54.1%. 21 The attachment to Exhibit MEC-11 shows that these units were by and large run at similarly 22 low capacity factors in Exhibit MEC-8 (STDE-2.6/40) shows general recent declines 23 in the capacity factors for these plants and significant recent declines for a few of them. 24 The latter include Harbor Beach (from 39.6% in 2005 to 14.4% in 2009 and 19.2% as of

21 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 5 of 14 pages November 30, 2010) and Trenton Channel 8 (from 44.3% in 2005 to 16.4% in 2009 and % as of November 30, 2010). 3 Q. What are the forecasted retirement years for these plants? 4 A. Based on Exhibit MEC-9 (discovery response NRDCDE-1.2/186), estimated 5 retirement years for these plants are: for Trenton Channel 8; for St. Clair 1 and 2; for St. Clair 3 and 4; for Trenton Channel 7; for Harbor Beach; and for Greenwood. 12 Q. How much generation do these plants represent? 13 A. Based on Exhibit MEC-12, these units represent 3,730,060 megawatt hours, or 14 about 270,000 megawatt hours less than the sales decline for the projected test period. 15 Q. How much coal do these units burn? 16 A. Based on Exhibit MEC-13, which is discovery response MECDE-1.5m/77, these 17 units burned 2,437,000 tons of coal in 2009, or approximately 8% of the total coal 18 consumed by the company that year. 19 Projected Capital Expenditures for these Plants 20 Q. Describe the capital expenditures projected for these plants. 21 A. Coal fired power plants require a significant amount of constant new capital for 22 repair and restoration of the coal plants to generate electricity. This is an ongoing expense 23 that is capitalized and that does not show up in the operating expenses, which results in 24 a skewed view of the actual costs to generate electricity from coal. Additionally, significant

22 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 6 of 14 pages pollution control devices are being required to be installed on a number of the power plant 2 units and will continue to be required until all units meet updated pollution control 3 standards. 4 Q. Please explain Exhibit MEC-1. 5 A. Exhibit MEC-1 is the actual net capital costs required and incurred by the company 6 for its coal fleet from The source of this information is the FERC Form 1's 7 provided by Detroit Edison as discovery response MECDE-1.6c/86, which is attached to 8 my testimony as Exhibit MEC-14. Column U provides the total for each of the categories 9 of capital costs, land and land rights, structures and improvements, equipment costs, and 10 total costs. Column U, line 32 of page 2 of Exhibit MEC-1 indicates a total expense of 11 $1,783,587,992 net costs for capital requirements of the coal fleet for the preceding nine 12 years, or an average of approximately $200,000,000 per year. 13 Q. What does this analysis provide? 14 A. This historic analysis provides information with which to forecast the on-going capital 15 requirements of the coal fleet during the projected test period and until Q. Please explain Exhibit MEC A. Exhibit MEC-2 contains the projected capital costs for the coal fleet. The exhibit 18 provides four categories for each plant: 19 the pollution control costs which are provided by the company as part of its 20 discovery; 21 the estimated total other costs which are the recurring capital costs based on 22 both the amount provided in discovery for the test year and the forecasted 23 amount through the forecast period to 2020; 24 a total of costs; and

23 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 7 of 14 pages the capital costs per megawatt. 2 Q. Are there capital costs associated with maintaining a coal unit in cold 3 standby? 4 A. A certain level of residual caretaker maintenance and capital cost is required to keep 5 units available for restart in the event of a need. Based on Exhibits MEC-1 and -2, it is 6 anticipated that 10% of their anticipated capital costs would be necessary to keep units in 7 cold standby. 8 Q. Have you estimated the difference in capital costs between operating the 9 Greenwood, Harbor Beach, St. Clair 1-4, and Trenton Channel 7A and 8 plants and 10 maintaining them in cold standby? 11 A. Yes. Based on Exhibit MEC-2, the difference in capital costs between running these 12 plants and maintaining them in cold standby is $15,321,000 in the projected test year. 13 Through 2020, coincident with the forecast in this rate case, the total difference in capital 14 costs between running these plants and maintaining them in cold standby is $191,285, This latter number represents 90% of the addition of Columns H + Q, less the remaining 16 units in St. Clair and Trenton Channel. 17 Capital Costs from New Regulations 18 Q. Do these figures you have outlined in the section of your testimony above 19 include capital and operating costs related to pollution controls that will likely need 20 to be installed at the coal units due to pending or existing environmental 21 regulations? 22 A. No. I have been made familiar with four separate environmental regulations that are 23 likely to require within the next few years the installation of pollution controls on coal-fired 24 electric generating units that DTE continues to operate. Those regulations are:

24 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 8 of 14 pages The Clean Air Transport Rule, which would require significant reductions of 2 SO2 and NOx emissions from coal-fired electric generating units in 31 3 eastern states (including Michigan) in 2012, with further reductions in U.S. EPA published a draft of the Clean Air Transport Rule in the Federal 5 Register on August 2, 2010, 75 Fed. Reg. 45,210, and has held public 6 hearings and a public comment period on the proposal. 7 Power Plant Mercury and Air Toxics Standards, which would establish limits 8 for emissions of hazardous air pollutants such as mercury, acid gases, and 9 metallic toxins from coal-fired electric generating units. On March 16, 2011, 10 U.S. EPA issued a proposed Standard that would require 91% reductions of 11 mercury and acid gases. That proposed standard is located at 12 By court 13 order, U.S. EPA is required to issue a final version of the Standards by 14 November 2011 and covered sources would have to come into compliance 15 within three or four years. 16 Section 316(b) of the Clean Water Act, which requires standards for cooling 17 water intake structures at existing electric generating units. U.S. EPA issued 18 a proposed 316(b) rule on March 28, 2011, which is found at: and the agency is required by court order to finalize a 316(b) rule by July 27, Clean Air Act New Source Review - The Clean Air Act's New Source Review 22 provisions end grandfathering of existing major sources of air pollution from 23 CAA requirements when the source is modified. 42 U.S.C. 7411(a)(2). 24 Such "modifications" are defined as "any physical change in, or change in

25 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 9 of 14 pages the method of operation of, a stationary source which increases the amount 2 of any air pollutant emitted by such source or which results in the emission 3 of any air pollutant not previously emitted." 42 U.S.C. 7411(a)(4). When 4 a source is modified, it triggers permitting requirements under the CAA, 5 including the duty to install Best Available Control Technology pollution 6 controls. 42 U.S.C. 7475(a), 7479(2)(C) and 7503(a). I am aware that 7 U.S. EPA has already brought an enforcement action against DTE, alleging 8 that modifications at DTE's Monroe Unit 2 should have triggered NSR 9 requirements. U.S. v. DTE Energy Co., Civil Action No. 10 2:10-cv BAF-RSW (E.D. Mich.). 11 Discovery regarding likely costs related to these environmental regulations is still pending 12 resolution, and review of that discovery may reveal other likely costs that should be 13 factored into my analysis. The point for now is that my figures do not include those 14 potential expenditures, and therefore the capital cost estimates I have outlined are more 15 likely than not an underestimate of the true capital costs of running these plants going 16 forward. 17 Operation and Maintenance Expenses for These Plants 18 Q. Please explain Exhibit MEC A. Exhibit MEC-3 is a nine-year historic summary of operations, maintenance, and fuel 20 costs for Detroit Edison's coal fleet. The source of this information is the FERC Form 1's 21 provided by Detroit Edison as discovery response MECDE-1.6c/86, which is attached to 22 my testimony as Exhibit MEC-14. This exhibit is used as a basis to form the go-forward 23 projection of costs in Exhibit MEC-4.

26 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 10 of 14 pages Q. Please explain Exhibit MEC-4. 2 A. Exhibit MEC-4 is the operation and maintenance cost allocation for the St. Clair and 3 Trenton Channel power plants based on the estimated 2011 generation and the operation, maintenance and fuel costs found in Exhibit MEC-3, Column K. The purpose 5 of Exhibit MEC-4 is to separate out, on a heat rate weighted basis, the percentage of costs 6 related to St. Clair units 1-4 from that of St. Clair units 5 and 6. The second page of Exhibit 7 MEC-4 prepares the same separation for Trenton Channel 7 and 8 versus Trenton 8 Channel 9. In both cases, St. Clair units 1-4 comprise 41.8% of the St. Clair power plant 9 on a heat rate weighted basis, and Trenton Channel 7 and 8 comprise 27% of the total 10 Trenton Channel plant on a heat rate weighted basis. 11 Q. Please explain Exhibit MEC A. Exhibit MEC-5 is an estimate of projected operation, maintenance and fuel costs for 13 Detroit Edison's coal fleet for the projected test period of this case starting with the costs brought forward from Exhibit MEC-3, the 2010 estimated costs, the 2011 estimated 15 costs, and the first three months of Q. Please explain Exhibit MEC A. Exhibit MEC-6 is a summary of the 2012 and forecasted to 2020 operating costs 18 extracted from Exhibit MEC-5 for Greenwood, Harbor Beach, St. Clair units 1-4, and 19 Trenton Channel units 7 and Q. Have you estimated the difference in operating costs between running the 21 Greenwood, Harbor Beach, St. Clair 1-4, and Trenton Channel 7A and 8 plants and 22 maintaining them in cold standby through 2020? 23 A. Yes. The total operating costs of these plants for the entire period is 24 found in Column O of Exhibit MEC-6 by adding lines 10, 21, 32, and 43, the summary

27 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 11 of 14 pages totals in Column O of operation and maintenance costs, and applying 41.8% for St. Clair 2 and 27% for Trenton Channel. The total resulting projected operation and maintenance 3 costs through 2020 are $831,198,474. Again using 10% of these projected costs as an 4 estimate for caretaker costs incurred during cold standby, the result is a roughly 5 $750,000,000 difference between running these plants and maintaining them in cold 6 standby. 7 Q. Have you estimated the difference in operating costs between running the 8 Greenwood, Harbor Beach, St. Clair 1-4, and Trenton Channel 7A and 8 plants and 9 maintaining them in cold standby during the projected test year? 10 A. Yes. The difference in operating costs between running these eight plants and 11 maintaining them in cold standby during the projected test year would be 90% of 12 $72,505,900, or $65,000,000 rounded. I obtained this estimate from Exhibit MEC-6, 13 Column E, by addition of lines 10, 21, 32, 41.8% of 32, and 37% of 43, and then 14 multiplying by Ramp-Up of these Plants for Increased Non-Requirement Sales for Resale 16 Q. Describe Detroit Edison's projected steam generation. 17 A. In Exhibit MEC-15, which is discovery responses MECDE-1.1a/53, the company 18 indicates that it projects to increase its steam generation from 36,893,000 MWh to 19 39,425,000 MWh in 2015, despite the 7% decrease in electric sales to ultimate customers 20 I described earlier in my testimony. 21 Q. What accounts for the disparity? 22 A. Detroit Edison projects non-requirement sales for resale - in other words, wholesale 23 sales of electricity - rising from 2.25 million megawatt hours in 2011 to million 24 megawatt hours in 2015.

28 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 12 of 14 pages Q. How does Detroit Edison plan to generate this energy? 2 A. In essence, the company plans to ramp up the least efficient units in its coal fleet 3 in order to sell electricity from more efficient plants for resale. In Exhibit MEC-11, which 4 is discovery response MECDE-1.5g/71, the company projects increased capacity factors 5 for Greenwood, Harbor Beach, St. Clair 1-4, and Trenton 7 and 8. It is also interesting to 6 note that some of the company's more efficient units, such as Trenton 9, do not show a 7 ramp up, St. Clair 6 is ramped down slightly, River Rouge 3 is ramped down slightly, and 8 Monroe 2 is not ramped up. 9 Q. At what price does the company plan to sell electricity for resale? 10 A. According to Exhibit MEC-16, which is discovery response MECDE-1.2/62, the 11 company anticipates being able to sell electricity for approximately $43 per megawatt hour 12 in 2011, rising to $53 per megawatt hour in Q. Are there any market indicators you are aware of that support a price of $43 14 per megawatt hour in 2011? 15 A. No. 16 Q. What do the costs of operating the company's coal units suggest about the 17 plan to increase non-requirement sales for resale? 18 A. They suggest that these sales for resale will be derived from the more efficient 19 power plants, leaving the less efficient power plants to satisfy the native load of the 20 company. 21 Q. Please explain. 22 A. Exhibit MEC-6 contains the total operating, maintenance, and fuel expenses for 23 each of the company's coal plants on a dollars-per-megawatt-hour basis. For 2011, those 24 costs are:

29 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 13 of 14 pages Belle River: $ Greenwood: $ Harbor Beach: $ Monroe: $ River Rouge: $ St. Clair: $ Trenton Channel: $ I note that for St. Clair and Trenton Channel, these costs include both the efficient and the 9 inefficient units. I also note that these costs do not include the capital expenditures 10 necessary to continue operating the less efficient plants I discussed earlier in my 11 testimony, which are proposed to be recovered from ratepayers as I described. 12 In order to maximize profit and/or to meet the market both on and off peak, it is more 13 likely than not that the company's ratepayers will pay for power disproportionately from the 14 less efficient generation. This situation will be exacerbated if the power market does not 15 reach $43.00 per megawatt hour. While profits may be earned to offset the higher cost of 16 operating the less efficient power plants owned by the company and used by the rate 17 payers, there is no analysis or indication that any profits derived from sales for resale will 18 be sufficient to offset the O&M and capital costs for the eight units on which I have focused 19 my testimony. 20 Conclusion and Recommendation 21 Q. Please explain Exhibit MEC A. Exhibit MEC-7 is a summary of the excessive and unreasonable O&M and capital 23 costs to be incurred by ratepayers in the projected test period for inefficient units that are 24 unnecessary to run and do not benefit ratepayers, for the reasons I have described in my

30 Direct Testimony of George E. Sansoucy, P.E. On Behalf of MEC and NRDC Page 14 of 14 pages testimony. Alternatively, if these units are run, Exhibit MEC-7 contains the costs that should 2 be allocated to market power sales and not to the rate base and ratepayers. These costs 3 are broken down by unit and by category, and total $15,321,011 in capital costs and 4 $65,255,277 in O&M expense including fuel. 5 Q. Does that conclude your testimony? 6 A. Yes.

31 MR. BZDOK: Thank you, your Honor. At 2 this time on behalf of MEC and NRDC, I would move to bind 3 in the direct testimony of Peter J. Lanzalotta, and also 4 to admit Exhibits MEC-17 and MEC-18. I would also move 5 at this time to bind in Mr. Lanzalotta's surrebuttal 6 testimony, which consists of a cover page and two pages 7 of questions and answers, understanding that that bind-in 8 was subject to your Honor's decision on the motion for 9 leave to file. 10 JUDGE CUMMINS: Very well. Any objection 11 to binding in Mr. Lanzalotta's direct and surrebuttal 12 testimony, and to receiving Exhibits MEC-17 and MEC-18? 13 MR. CHRISTINIDIS: Your Honor, the 14 Company would simply note its continuing objection to the 15 surrebuttal of Mr. Lanzalotta for the reasons we already 16 stated on the record. 17 JUDGE CUMMINS: Very well, 18 Mr. Christinidis. Anything else with regard to these 19 witnesses or this witness? Hearing nothing, 20 Mr. Lanzalotta's testimony will be bound into the record, 21 Exhibits MEC-17 and MEC-18 are received into evidence Metro Court Reporters, Inc

32 1980 STATE OF MICHIGAN MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of THE DETROIT EDISON COMPANY for Authority to Increase Its Rates, Amend Its Rate Schedules and Rules Governing the Distribution and Supply of Electric Energy, and for Miscellaneous Accounting Authority. In the matter of the Application of THE DETROIT EDISON COMPANY for approval to defer certain pension and post-employment benefits expense for future amortization and recovery. o. Case N U Hon. Mark E. Cummins, ALJ o. Case N U Hon. Mark E. Cummins, ALJ Direct Testimony of Peter J. Lanzalotta on Behalf of the Michigan Environmental Council and the Natural Resources Defense Council Christopher M. Bzdok (P53094) OLSON, BZDOK & HOWARD, P.C. Attorneys for MEC & NRDC 420 East Front Street Traverse City, MI Telephone: (231) ; Fax: (231) chris@envlaw.com April 1, 2011

33 Direct Testimony of Peter J. Lanzalotta U Page 1 of Direct Testimony of Peter J. Lanzalotta 2 3 Q. Mr. Lanzalotta, please state your name, position and business address. 4 A. My name is Peter J. Lanzalotta. I am a Principal with Lanzalotta & Associates LLC, 5 ("Lanzalotta"), 67 Royal Point Drive, Hilton Head Island, SC Q. On whose behalf are you testifying in this case? 7 A. I am testifying on behalf of the Michigan Environmental Council and the Natural 8 Resources Defense Council. 9 Q. Mr. Lanzalotta, please summarize your educational background and recent 10 work experience. 11 A. I am a graduate of Rensselaer Polytechnic Institute, where I received a Bachelor of 12 Science degree in Electric Power Engineering. In addition, I hold a Masters degree in 13 Business Administration with a concentration in Finance from Loyola College in Baltimore. 14 I am currently a Principal of Lanzalotta & Associates LLC, which was formed in 15 January Prior to that, I was a partner of Whitfield Russell Associates, with which I 16 had been associated since March My areas of expertise include electric system 17 planning and operation. I am a registered professional engineer in the states of Maryland 18 and Connecticut. 19 In particular, I have been involved with the planning and operation of electric utility 20 systems as an employee of and as a consultant to a number of privately- and 21 publicly-owned electric utilities over a period exceeding thirty years. 22 I have presented expert testimony before the FERC and before regulatory 23 commissions and other judicial and legislative bodies in 22 states, the District of Columbia, 24 and the Provinces of Alberta and Ontario. My clients have included utilities, state 25 regulatory agencies, state ratepayer advocates, independent power producers, industrial

34 Direct Testimony of Peter J. Lanzalotta U Page 2 of consumers, the United States Government, environmental interest groups, and various city 2 and state government agencies. 3 Q. Are you sponsoring any exhibits? 4 A. Yes. A copy of my current resume is included as Exhibit MEC-1 and a list of my 5 testimonies is included as Exhibit MEC-2. 6 Q. What is the purpose of your testimony? 7 A. I was retained to review various system-planning aspects of the Company's electric 8 generation program to try to learn if any determinations had been made as to whether 9 there were any of the Company's operating coal-fired electric generating units which could 10 not be placed into cold shutdown in the near future because doing so would negatively 11 affect electric system reliability. This testimony presents the results of my review. 12 Q. Please explain how you conducted your analyses. 13 A. I have reviewed the following information in our investigation: 14 I. The Company's Direct Testimony in this proceeding. 15 ii. The Company's responses by to discovery questions submitted by the 16 Michigan Environmental Council and the Natural Resources Defense Council, in this 17 proceeding, including: 18 MECDE-1.8/99, 1.9/100, and 1.10/ NRDCDE-1.1/185, 1.2/186, 1.13/197, and 1.24e/ iii. Various publicly-available system planning documents from the Mid-West 21 ISO website. 22 Q. Please summarize your conclusions. 23 A. When asked various questions about potential system reliability impacts of retiring 24 or placing into cold shutdown some of its coal-fired generating, units, Detroit Edison 25 indicated that it had not analyzed whether there would be impacts and that it did not have

35 Direct Testimony of Peter J. Lanzalotta U Page 3 of the information necessary to analyze that issue. My review found several references to 2 MISO's having studied the future closure of coal-fired generation within the MISO system, 3 which includes the Detroit Edison system. However, nowhere in the various sources of 4 information I reviewed did I find any conclusions that any specific future generating unit 5 closures of coal-fired generating units owned by the Company were constrained by 6 negative reliability impacts. 7 Q. Please describe MISO and the MISO studies you reviewed. 8 A. The Midwest ISO is a Regional Transmission Organization ("RTO"), which, at one 9 time reportedly encompassed 1.1 million square miles of member transmission systems 10 from Manitoba, Canada to Kentucky and from western Pennsylvania to eastern Nebraska. 11 The Midwest ISO is currently in the process of losing members in Pennsylvania and Ohio 12 to a neighboring RTO, PJM. 13 As an RTO, the Midwest ISO is responsible for system operational control, for 14 market operations, and for system planning of the overall electric system. The Midwest 15 ISO is the planning coordinator for the electric systems within its control and performs 16 planning functions collaboratively with participants. As the planning coordinator, the 17 Midwest ISO develops the annual Midwest Transmission Expansion Plan (MTEP), which 18 is a regional plan to ensure the reliability of the regional electric system. I have reviewed 19 the most recent version of the MTEP. In addition, I have reviewed planning criteria and 20 planning procedures publicly available from a Midwest ISO web site. 21 Q. Were you referred to the MTEP by the Company? 22 A. Yes. In discovery response NRDCDE-1-13/197, the Company was asked: 23 Produce a copy of any assessment, analysis, or study prepared or reviewed by or for 24 Detroit Edison that examines the impact that retirement of any of the company's electric 25 generating units would have on transmission system reliability.

36 Direct Testimony of Peter J. Lanzalotta U Page 4 of The Company's response stated, in part: 2 Detroit Edison has not performed nor does it have the information necessary 3 to enable it to perform a study to determine the impact that retirement of any 4 of the company's electric generating units would have on transmission 5 system reliability. The Midwest ISO is responsible for performing region wide 6 reliability studies and their Transmission Expansion Plan (MTEP) can be 7 found at: Q. Did you find any indication that the closure of coal-fired generating units in 10 the future was being studied? 11 A. Yes. On Page 142 of the 2010 MTEP, a sensitivity planning scenario is described 12 as follows: 13 The Carbon Cap and Trade future scenario (S3) models a declining cap 14 on future CO2 emissions. The carbon cap is modeled after the 15 Waxman-Markey bill, which has an 83% reduction of CO2 emissions from a baseline by the year That target is achieved through a linear 17 reduction from 2010 to 2050 with mid point goals of 3% reduction in 2012, 18 17% reduction in 2020 and 42% reduction in This future scenario 19 employs coal retirements, with the oldest and highest heat-rate coal units 20 retired first The 2010 MTEP continues on the next page with a description of another planning 23 scenario as follows: 24 The PAC Carbon Cap and Trade with Nuclear future scenario (S10) 25 models a declining cap on future CO2 emissions. The carbon cap is modeled 26 after the Waxman-Markey bill, which has an 83% reduction of CO2 27 emissions from a 2005 baseline by the year That target is achieved 28 through a linear reduction from 2010 to 2050 with mid point goals of 3% 29 reduction in 2012, 17% reduction in 2020 and 42% reduction in This 30 future employs coal retirements, with the oldest and highest heat-rate coal 31 units retired first-integrated Gasification Combined Cycle (IGGC) with 32 sequestration and Combined Cycle (CC) with sequestration technologies do 33 not mature fast enough to become an option within the study period. 34 Both of these scenarios involve substantial future retirements of coal-fired 35 generating units and are described as looking at a period of up to 40 years into the future.

37 Direct Testimony of Peter J. Lanzalotta U Page 5 of Q. Does the MTEP make reference to any negative reliability impacts that were 2 discovered from the closure of coal-fired generating units in general? 3 A. No. The MTEP discussion of the planning scenarios that focus on the closure of 4 coal-fired generating units does not make any reference to negative reliability impacts that 5 result from such closures in general and that might constrain such closures. 6 Q. Does the MTEP make reference to any negative reliability impacts that were 7 discovered from the closure of any specific generating units owned by the 8 Company? 9 A. No. The MTEP discussion of the planning scenarios that focus on the closure of 10 coal-fired generating units does not make any reference to negative reliability impacts that 11 result from the closure of any specific coal-fired generating units owned by the Company 12 and that might constrain such closures.. 13 Q. Does the MTEP make any reference to any negative reliability impacts 14 resulting from the near-term closure, or placement into cold shutdown, of any of the 15 Company's currently operating coal-fired generating units? 16 A. No. I could find no reference to any negative reliability impacts that might result 17 from and act as a constraint against the near-term closure, or placement into cold 18 shutdown, of any of the Company's currently operating coal-fired generating units. 19 Q. Does this conclude your direct testimony? 20 A. Yes.