Re: Case No. U (Consumers Energy Company s Application For Recovery Of Enhanced Security Costs For Electric Generating Facilities)

Transcription

1 May, 00 A CMS Energy Company Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission Mercantile Way P.O. Box 0 Lansing, MI 0 General Offices: One Energy Plaza Tel: () -00 Jackson, MI 0 Fax: () - or () - *Washington Office: 0 th Street, NW Tel: (0) - Washington, DC 00 Fax: (0) - Writer s Direct Dial Number: () -0 Writer s Address: remcquillan@cmsenergy.com LEGAL DEPARTMENT DAVID A MIKELONIS Senior Vice President And General Counsel James E Brunner Jon R Robinson Arunas T Udrys Assistant General Counsel David E Barth Francis X Berkemeier H Richard Chambers John P Dickey Ann F Goodman Deborah Ann Kile Roger K Krakusin Eric V Luoma Raymond E McQuillan Rhonda M Morris Deborah A Moss* Mirče Michael Nestor Robert M Neustifter David A Pell Vincent P Provenzano Susan L Rasmussen Catherine M Reynolds John C Shea P Leni Staley Charlotte A Walls Kimberly C Wilson Michael G Wilson Attorney Re: Case No. U- (Consumers Energy Company s Application For Recovery Of Enhanced Security Costs For Electric Generating Facilities) Dear Ms. Kunkle: Enclosed, for filing in the above-referenced matter, is an original and four copies of Consumers Energy Company s Application and the testimony and exhibits of Daniel S. Alfred, Robert E. Frounfelker, Jr., Brian B. Linde, Stephen T. Wawro and Michael E. VanAlst. In addition, an electronic copy, of the documents listed above, is being filed with the Commission in a portable document format (PDF) as part of the Commission s Electronic Filings Program. Sincerely, Raymond E. McQuillan fl00--

2 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) APPLICATION CONSUMERS ENERGY COMPANY ( Consumers Energy ) hereby applies for recovery of enhanced security costs for electric generating facilities. In support of this Application, Consumers Energy states as follows:. Consumers Energy is a Michigan corporation with offices at One Energy Plaza, Jackson, Michigan 0. Consumers Energy is presently engaged as a public utility in the business of, among other things, generating, purchasing, distributing and selling electric energy to approximately. million customers in the lower peninsula of the State of Michigan.. Consumers Energy s retail electric business is subject to the jurisdiction of the Michigan Public Service Commission ( MPSC or Commission ) pursuant to certain provisions set forth in PA, as amended, MCL 0. et seq; MSA.() et seq; 0 PA 0, as amended, MCL 0. et seq; MSA. et seq; and 0 PA 00, as amended, MCL. et seq; MSA., including Section thereof, MCL.; MSA.0.. On September, 00 an unprecedented act of terrorism occurred in New York, Pennsylvania and Washington, D.C. Since then there have been continuing threats of terrorism on USA soil. Although utilities have historically maintained security and disaster recovery mechanisms and procedures, commensurate with their essential services, the events of September th required reassessment and potential improvements. In 00 PA 0, the ap00--

3 Michigan legislature amended the Customer Choice and Electric Reliability Act to allow electric utilities to apply to the MPSC to recover enhanced security costs for an electric generating facility.. As provided in the Customer Choice and Electricity Reliability Act, MCL 0.0d, the Company is making application to the Commission to recover Enhanced Security Costs for its electric generating facilities through a security recovery factor.. The Customer Choice and Electricity Reliability Act required the Commission to prescribe by order the form for filing an application to recover security costs. The Commission did identify filing requirements in its Opinion and Order dated February, 00 in Case No. U-.. As defined in the Customer Choice and Electricity Reliability Act, Enhanced Security Costs means reasonable and prudent costs of new and enhanced security measures incurred before January, 00 for an electric generating facility by a covered utility that are required by federal or state regulatory security requirements issued after September, 00 or determined to be necessary by the commission to provide reasonable security from an act of terrorism. Enhanced security costs include increases in the cost of insurance that are attributable to an increased terror related risk and the cost of maintaining or restoring electric service as a result of an act of terrorism. MCL 0.0d()(c).. The Nuclear Regulatory Commission ( NRC ) issued Interim Compensatory Measures ( ICMs ) Orders to the electric industry after September, 00, modifying the operating licenses of all commercial nuclear reactors and requiring them to meet the orders in a timely manner. The ICMs dealt with facility access authorization, vehicle barrier systems, an increase in the design basis threat, and for those sites like Palisades with an existing dry cask storage system, independent spent fuel storage. The NRC has issued advisories, information notices and orders in three distinct and separate categories; operating nuclear ap00--

4 facilities, decommissioning nuclear facilities, and spent fuel storage installations. For example, orders issued by the NRC in December 00 required Big Rock Point Restoration Project to arm security officers with additional firepower.. The NRC Rules and Regulations include information described as Safeguards Information. This is information not otherwise classified as national security information or restricted data which specifically identifies the licensees or applicants detailed () security measures for the physical protection of special nuclear material, or () security measures for the physical protection and location of certain plant equipment vital to the safety of production or utilization facilities. Examples of information classified as Safeguards Information include physical security plan, site specific drawings of the protection systems, details of alarm system layouts, location of intrusion devices, etc., security patrols, patrols scheduled to test alarms, etc., security communication systems on-site and off-site, lock combinations and mechanical key designs, lists or location of vital plant safety-related equipment, security officer qualifications and training plans, response plans to specific threats or response times, security force size, armament, or off-site response capabilities.. For obvious security reasons, the Company cannot provide detailed Safeguards Information in a public filing. Instead, those persons that have a need to know and possess the required background training and storage requirements may choose to request some Safeguards Information directly from the Nuclear Regulatory Commission. Some portions of the NRC Interim Safeguards and Security Order are available on the NRC website and have been included with workpapers of some witnesses. 0. The Company has filed with this Application the Direct Testimony of Brian B. Linde, Directory of Nuclear Security with the Nuclear Management Company LLC; Steven Wawro, Director of Nuclear Assets at Palisades Nuclear Plant; Michael E. VanAlst, Site ap00--

5 Security Manager at Big Rock Point Nuclear Plant; Robert Frounfelker, Executive Director, Risk Management in Consumers Energy s Corporate Insurance Department, and Dan Alfred, Senior Rate Analyst in the Revenue Requirements Section of Consumers Energy s Rates Department. As the Commission provided in Case No. U-, Schedule I Determination of Security Recovery Factor; Schedule II Determination of Enhanced Security Costs; Schedule III - Identification of Yearly Enhanced Security Costs; Schedule IV Historical Information are included, along with the appropriate portions of Schedule V Work papers.. As reflected in the testimony and exhibits filed by these respective witnesses, the total value of enhanced security costs for the time period between September, 00 and December, 00 is approximately $. million. These are reasonable and prudent costs of new and enhanced security measures at nuclear electric generating facilities required by federal regulatory security requirements issued after September, 00, and also increased in the cost of insurance attributable to an increased terror related risk. Pursuant to MCL 0.0d() the Commission is requested to approve recovery of the enhanced security costs described in the Company s testimony and exhibits, and to designate a period of recovery of the enhanced security costs, including the reasonable return on the unamortized balance, over a period not to exceed five years PA 0 directs the Commission to process an application for recovery of enhanced security costs pursuant to a prescribed schedule. The commission is requested to establish a schedule for processing this Application that conforms to the statute. ap00--

6 WHEREFORE Consumers Energy requests that the Commission:. Determine that the form of this Application for a security recovery factor is complete;. Require that notice of the application be published by Consumers Energy within 0 days from the date the Application was filed;. Hold an initial hearing within 0 days of the date the Notice is published in newspapers in general circulation in the service territory of the covered utility;. Issue an order approving the security recovery factor within 0 days of the initial hearing;. Designate a period for recovery of the enhanced security costs, including a reasonable return on the unamortized balance over a period not to exceed five years, and. Grant such other and further relief as may be proper. Respectfully submitted, CONSUMERS ENERGY COMPANY Dated: April 0, 00 By: John G. Russell President and Chief Executive Officer - Electric Consumers Energy Company One Energy Plaza Jackson, MI 0 () - David A. Mikelonis (P0) Jon R. Robinson (P) Raymond E. McQuillan (P00) Attorney for Consumers Energy Company One Energy Plaza Jackson, MI 0 () -0 ap00--

7 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) OF DANIEL S. ALFRED ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

8 DANIEL S. ALFRED 0 0 PART I QUALIFICATIONS Q. Please state your name and business address. A. Daniel S. Alfred, One Energy Plaza, Jackson, Michigan. Q. By whom are you employed and in what capacity? A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ) as a Senior Rate Analyst. Q. Please describe your educational background. A. I received a Bachelor of Business Administration in Accounting degree in from Eastern Michigan University. I received a Master of Business Administration degree with an emphasis in finance from Eastern Michigan University in April of 00. Q. Please describe your business experience. A. In March, I joined American International Airways as a financial analyst. My duties there included assisting with the closing of the accounting books on a monthly basis, assistance with all audits, and special projects. From June of to January of I was employed as a retail accountant with Borders Books and Music. My responsibilities there included the oversight of forty retail stores with the specific tasks of preparing monthly financials, expense control, and summary reports distributed to upper management. From January to January I was employed as an accounting analyst with Diversey Lever Company. My responsibilities there included assisting with the closing of the accounting books, subsidiary accounting, and special projects. In January of I joined Consumers Energy as a Rate Analyst in the Financial Analysis and Planning Section of the Rates Department and was promoted to General te00-dsa

9 DANIEL S. ALFRED 0 Rate Analyst in October of. During August of 00, I transferred to a position in the Revenue Requirements Section of the Rates Department. In February of 00, I was promoted to my current position as a Senior Rate Analyst in the Revenue Requirements Section of the Rates Department. Q. What are your responsibilities within the Revenue Requirements Section? A. As a Senior Rate Analyst in Revenue Requirements, I am responsible for developing analyses related to the Company s revenue requirements and preparing electric and gas rate case filings at the Michigan Public Service Commission ( MPSC ) and the Federal Energy Regulatory Commission ( FERC ). In addition, I prepare special studies involving financial and ratemaking analyses in response to requests internal and external to the Company. Q. During your tenure with Consumers, have you testified in any utility proceeding before the Michigan Public Service Commission? A. Yes. I testified on the gas historical period revenue deficiency in Consumers last general rate case (Case No. U-0). te00-dsa

10 DANIEL S. ALFRED 0 PART II PURPOSE AND OPERATIONS SUMMARY Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this proceeding is to present the development of the Security Recovery Factor for the enhanced security costs incurred at Consumers Energy s nuclear electric generating facilities. This has been done in accordance with the filing requirements from the order in Case No. U- dated February, 00. Q. Are you sponsoring any exhibits in support of the Company s request for enhanced security costs? A. Yes. I am sponsoring the following exhibits: Exhibit A- (DSA-) Schedule I Determination of Security Recovery Factor Exhibit A- (DSA-) Revised Tariff Sheet 0 Q. Were these exhibits prepared by you or under your direction? A. Yes. Q. Please explain how Exhibit A-, (DSA-) Schedule I is utilized to develop the present value of the enhanced security costs. A. This Exhibit presents the determination of the security recovery factor that the Company is requesting in this proceeding, consistent with the methodology prescribed by the Commission in their Order dated February, 00 in Case No. U-. As the Commission required in Exhibit A to that Order, cash flows have been discounted back to September, 00 using the after tax overall rate of return on investment for the Company as approved by the Commission in the Company s last proceeding (Case No. U-0) addressing the issue of rate of return. The costs for which the Company te00-dsa

11 DANIEL S. ALFRED 0 0 requests recovery have been historically spent from September, 00 to December, 00, and projected to be spent in 00 and 00. Line of Schedule I [Total Enhanced Security Costs] reflects the amounts pulled forward from Line on Schedule II. Line [Jurisdictional Enhanced Security Costs] reduces the Total Enhanced Security Costs from Line by a jurisdictional factor to determine the amount assigned to retail sales customers. The jurisdictional factor (0.) was determined in the last electric rate case (Case No. U-0) and is multiplied by Line to determine the amount on Line. Line [Present Value of Enhanced Security Costs] is computed by taking the security costs from Line and discounting them back to September, 00 using the after-tax overall rate of return (.0%), which was approved in the last electric rate case (Case No. U-0). Line [Total Present Value ESC] is calculated by adding together all the cash flows from Line to arrive at a total present value as of September, 00 for enhanced security costs. Q. Please explain how this Exhibit develops the security recovery factor requested by the Company. A. Line [Billing Units/Jurisdictional Retail Sales Volumes-kWh] is a measure of the kilowatt hours that are forecasted during the proposed recovery period from 00 to 00. The sales forecast for the billing units was developed in year 00. The sales forecast excludes Retail Open Access (ROA) sales. The sales volumes on Line will be multiplied by the levelized security recovery factor on Line [Five Year Levelized Security Recovery Factor] to arrive at the Total Revenue figures on Line. Line [Present Value Revenue] performs the same operation as Line by discounting each te00-dsa

12 DANIEL S. ALFRED 0 0 revenue figure from Line back to September, 00. Again, the after-tax overall rate of return of.0% is used for the discount factor. Line [Total Present Value Revenue] adds together the present value revenues from years 00 to 00 and validates that the calculations are correct by tying exactly to the present value figure on Line. Q. Please explain how the five year levelized security recovery factor on Line is calculated. A. I added Line 0 and Line, under the Additional Detail section, to the Exhibit to help clarify how the factor is calculated. Line 0 is the result of discounting the sales volumes on Line back to September, 00 using the same process as was performed on Line and Line. Line adds the discounted sales volumes together from Line 0 to determine a total present value of retail sales volumes. This total present value of sales volumes is essentially comparative to the total present value of the revenues as shown on Line. To calculate the levelized security recovery factor, you would divide Line by Line to arrive at the security recovery factor of $0.000 per kilowatt hour as shown on Line. Q. Please explain Exhibit A- (DSA-) Revised Tariff Sheet. A. This exhibit is the surcharge tariff sheet that the company is proposing. As you can see, it contains the identical surcharge as shown above and is applicable to all rate schedules excluding the Company s ROA tariffs consistent with both the legislation enacting security cost recovery and the MPSC s order in Case No. U-. Q. How should the security recovery factor be implemented? A. The security recovery factor should remain in effect for a period of up to sixty billing months following the MPSC s order in this proceeding. The security recovery factor te00-dsa

13 DANIEL S. ALFRED should commence with the first billing cycle in the first billing month following the MPSC s order. Q. Should there be a reconciliation mechanism for any deviations between the actual results and assumed components in this filing? A. Yes. As described in the Commission s order in Case No. U-, since the statute covers the period ending December, 00, a provision for projected expenses is intended to minimize the administrative process. The Commission will order 0 reconciliation after the five-year recovery period. Such reconciliation will include funds received from proceeds that have been received from any other source, including, but not limited to, any applicable insurance settlements or grants or other emergency relief from federal, state, or local governmental agencies for the purpose of defraying enhanced security costs. The reconciliation mechanism should ensure that revenues produced by the surcharge match the total costs incurred through December, 00. This reconciliation should be performed after the end of the proposed collection period. Q. Does this conclude your testimony? A. Yes. te00-dsa

14 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) EXHIBITS OF DANIEL S. ALFRED ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

15 Exhibit: A- (DSA-) Case NO.: U- Date: May 00 Schedule Witness: DSAlfred Determination of Security Recovery Factor /-/ Line Description Col. () () () () () () () () () (0) Recoverable Costs Total Enhanced Security Costs (from Schedule, Line ) $, $,00, $,, $0,, $,00, Jurisdictional Enhanced Security Costs $, $,, $,,0 $0,,0 $,, Present Value of Enhanced Security Costs $0, $,, $,0, $,, $,, Total Present Value ESC (Sept. 00-Dec. 00) $0,0,0 Billing Units Jurisdictional Retail Sales Volumes - kwh,,,0,,,,,,,,,,,, Levelized Rate & Revenue Five Year Levelized Security Recovery Factor ($/kwh) Total Revenues (Line * Line ) $,0, $,0, $,0, $,,0 $,, Present Value Revenue $,0, $,0, $,, $,0, $,, Total Present Value Revenue (00-00) $0,0,0 Additional Detail 0 Present Value of Retail Sales Volumes - kwh,,,,,,,,,,00,,0,,,0 Total Present Value Retail Sales Volumes,0,0, kwh

16 Case No: U- Exhibit: A- (DSA-) Witness: DSAlfred Date: May, 00 Page: Page of M.P.S.C. No. - Electric Consumers Energy Company Sheet No. E-.00 SURCHARGES Nuclear Decommissioning Surcharge Security Recovery Surcharge (Case No. U-) (Case No. U- ) Rate Schedule Palisades Big Rock Effective for Effective //00 Effective //* 00 Bill Month through through Total //00 00 Bill Month Surcharges Residential Service Rates $.000/kWh 0 $.000 $.000 Rate B Rate B Rate C Rate D Rate F Rate GH Rate H Rate I Rate J Rate J Rate CG Rate L Rate L Rate L Rate L Rate PA NA NA NA NA Rate PS Rate PS Rate PS Rate R Rate R Rate R Rate UR Rates ROA-R, ROA-S, and ROA-P Surcharges are included in the applicable rate schedule *The elimination of the Big Rock Nuclear Decommissioning Surcharge, effective with the January 00 billing month, reduces rates below the caps established for certain customers by 000 PA.

17 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) OF ROBERT E FROUNFELKER, JR. ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

18 ROBERT E FROUNFELKER, JR. 0 0 PART I QUALIFICATIONS Q. Please state your name and business address. A. Robert E Frounfelker, Jr. One Energy Plaza, Jackson, Michigan. Q. By whom are you employed and in what capacity? A. I am employed by Consumers Energy Company as Executive Director, Risk Management and within that capacity I manage the Consumers Energy Corporate Insurance Department. Q. How long have you been employed by CMS Energy or Consumers? A. Approximately years. Q. Please state your educational background and work experience. A. I graduated from the Ferris State University in with a dual bachelor s degree in business and marketing, completing these degrees concurrently. After completing college I worked at Goodyear Tire Company and then at Jackson Ford. I began my insurance career in as an agent and field underwriter for Sentry Insurance Company. From through I was employed at Citizens Insurance Company as a commercial underwriter and later as an actuarial analyst. In I accepted a job at Consumers Power Company as an insurance analyst. I was promoted to Director of Corporate Insurance in and am currently the Executive Director of Risk Management for Consumers Energy; a position I have held since. Q. What are your responsibilities in your present position? A. As Executive Director, Risk Management, I am responsible for the management of the CMS Energy and Consumers Energy property and casualty insurance programs. te00-ref

19 ROBERT E FROUNFELKER, JR. 0 Q. Are you a member of any professional societies, organizations or hold any professional certifications? A. I am a member of the Risk and Insurance Management Society-Detroit Chapter and the Risk Management and Insurance Advisory Committees of the Edison Electric Institute and Nuclear Electric Insurance Limited, and a former member of the Risk Management Committee of Energy Insurance Mutual. I was awarded a Chartered Property Casualty Underwriter (CPCU) certificate in after successfully passing the series of 0 examinations from the American Institute of Property and Liability Underwriters. I also earned an Associate in Risk Management certificate from the Insurance Institute of America in. Q. Have you previously testified before this Commission? A. Yes. I testified in Case No. U-0, concerning insurance expenses in the Company s gas rate case. te00-ref

20 ROBERT E FROUNFELKER, JR. 0 0 PART II PURPOSE AND OPERATIONS SUMMARY Q. What is the purpose of your testimony in this proceeding? A. I am presenting testimony supporting an increase in insurance premium expenses relative to Consumers Energy s insurance coverage for terrorism risks. Q. What Exhibits are you sponsoring? A. I am sponsoring the following Exhibits: A- (REF-), and am responsible for Exhibit A-, Schedule II, Lines (C), Exhibit A-, Schedule III, Lines A(c) and B(c), and Exhibit A-, Schedule IV, Lines B and C concerning corporate insurance costs. Q. Were these exhibits prepared by you or under your direction? A. Yes they were. Q. Would you describe the reasons for the increased insurance premiums for terrorism coverage? A. Prior to September, 00, terrorism insurance coverage was generally included as part of the standard coverage at no identifiable extra cost. After September, 00, many of the insurers and reinsurers withdrew or reduced coverage for future terrorism losses. In response to this insurance crisis, in November 00, the U.S. Congress enacted the Terrorism Risk Insurance Act (TRIA) that provides U.S. government financial support for insurers to underwrite terrorism coverage. The expenses that are included in my Exhibit A- (REF-) are the identifiable terrorism premium expenses Consumers Energy paid during 00 and 00 and the estimated future terrorism premiums for 00 and 00. te00-ref

21 ROBERT E FROUNFELKER, JR. 0 Q. What is covered by the terrorism insurance expense you included? A. The terrorism insurance premiums are for policies or endorsements that cover loss caused by terrorist initiated events to electric generating stations, electric substations, service centers and offices. It also insures against legal liability resulting from terrorist acts. Q. How much additional insurance premium was paid for 00 and 00? A. For 00 Consumers Energy paid $,0,0 additional premium and for 00 Consumers Energy paid $,,0 additional premium to insure those electric operations against terrorism risk. Q. How did you estimate the future cost of terrorism insurance in your Exhibit? A. I assumed a.% increase in the terrorism insurance premium cost for 00 and.% increase for 00. The estimated cost of terrorism insurance for each of those years is: 00 - $,00, $,000 The total of the applicable years increases in the cost of insurance attributable to increased terror related risk is $,0,0. Q. Does this conclude your testimony at this time? A. Yes, it does. te00-ref

22 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) EXHIBITS OF ROBERT E FROUNFELKER, JR. ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

23 Case No: U- Witness: REFrounfelker Exhibit A- (REF-) Date: May, 00 Page of CONSUMERS ENERGY COMPANY Terrorism Insurance Premiums Actual 00 Actual 00 Actual 00 Estimated 00 Estimated 00 Total Electric Facilities -0- $,0,0 $,,0 $,00,000 $,,000 Assumptions: Premium increase.% for 00 Premium increase.% for 00. Terrorism Risk Insurance Act will be renewed December 00.

24 Exhibit: A- Case No.: U- Date: May 00 Witnesses: STWawro MEVanAlst Schedule II REFrounfelker, Jr. Page of Determination of Enhanced Security Cost /-/ Line Description Col. () () () () () () Gross Security Cost $, $,00, $,, $ 0,, $,00, A Palisades $, $,, $,, $,,000 $,00,000 B Big Rock $, $,0 $ 0, $ 0, $, C Insurance Premiums $ - $,0,0 $,,0 $,00,000 $,,000 Less: Funds Received from Others $ - $ - $ - $ - $ - Enhanced Security Cost $, $,00, $,, $ 0,, $,00,

25 Exhibit: A- Case No.: U- Date: May 00 Witnesses: STWawro Schedule III MEVanAlst REFrounfelker, Jr. Identification of Yearly Enhanced Security Costs Page of /-/ Line Description Col. () () () () () () A Total Security Cost $, $,00, $,, a Federal $, $,, $,00,0 Palisades $, $,, $,, MPSC Acct. #'s:.00,.00, 0.00,.00,.00,.00,.000 Big Rock $, $,0 $ 0, MPSC Acct. #'s:.00,.00, 0.00,.00,.00, 0.0 b State $ - $ - $ - c Insurance Premiums $ - $,0,0 $,,0 MPSC Acct. #'s:.00,.00 B Total Security Cost $ 0,, $,00, a Federal $,, $,, Palisades $,,000 $,00,000 MPSC Acct. #'s:.00,.00, 0.00,.00,.00,.000 Big Rock $ 0, $, MPSC Acct. #'s:.00,.00, 0.00,.00,.00, 0.0 b State $ - $ - c Insurance Premiums $,00,000 $,,000 MPSC Acct. #'s:.00,.00

26 Date: May 00 Schedule IV Witness: STWawro MEVanAlst Security Costs REFrounfelker, Jr. Page of Line Description Col. () () () () () () () () () A MPSC Acct. #'s:.00,.00, 0.00,.00,.00,.00, 0.0,.000,.00,.00 B Total Security * $,0, $,, $,, $,, $,,0 C Total Security $,, $,, $,,0 * Big Rock was an Operational Plant in and through August of

27 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) OF BRIAN B. LINDE ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

28 BRIAN B. LINDE 0 0 PART I QUALIFICATIONS Q. Please state your name and business address. A. Brian B. Linde, Nuclear Management Company LLC, Hudson, Wisconsin. Q. By whom are you employed, and in what capacity? A. I am employed by Nuclear Management Company LLC as the Director of Nuclear Security. Q. How long have you held this position? A. I have held this position since May 00. Q. Where is your job location and what are your responsibilities? A. My office is at the Nuclear Management Company s (NMC) corporate office in Hudson, Wisconsin. I am responsible for all security functions at the eight nuclear reactors that NMC operates at five sites. This includes management and supervision of the Security Program of the plants as well as directly interfacing with the Nuclear Regulatory Commission, senior NMC/Plant management and local, state and federal law enforcement personnel. Q. Are you a member of any professional organizations? A. Yes. I am a member of the Nuclear Energy Institute (NEI) Security Working Group, specifically on the Force on Force and Design Basis Threat Subcommittees, working with the Nuclear Regulatory Commission staff to clarify and resolve issues related to the orders issued by the commission. I have been certified by the American College of Forensic Examiners (ACFE) in Homeland Security as a Level III Specialist (highest of three levels). I am an instructor for several organizations outside of the NMC in the areas of Weapons, Tactics, and Strategy related to commercial and governmental nuclear te00-bbl

29 BRIAN B. LINDE 0 0 security. I work as a Subject Matter Expert for local law enforcement agencies and assist with drills and exercises related to emergency preparedness. I have been a member of the IEEE Standard (Security Systems) working group involved in the revision of the standard. Q. Prior to your present assignment, what positions have you held? A. I was the Security Manager at the Monticello Nuclear Generating Plant in Wisconsin from 000 to 00. I also currently work as an adversary team trainer for the NMC, as well as assisting in Operational Security Readiness Evaluation preparations and evaluations at other NMC sites. In after leaving the Navy, I obtained a Senior Reactor Operator License while working for General Electric, and did work at several nuclear power plants including Limerick in Pennsylvania and Cooper Nuclear Station in Nebraska. I moved to the Monticello site in to support the site as the lead General Electric engineer, and joined the site s operations engineering staff in. Q. Please describe your education background and business experience. A. I graduated from Oregon State University with a BS in Nuclear Engineering Technology in and completed the Naval Reserve Officer Training Center scholarship program. I was commissioned in the United States Navy, attended Naval Nuclear Power School and served as the Officer in Charge of a research detachment at Bangor, WA. I was assigned to the Subgroup staff for additional duty and served as Subgroup liaison with the United States Marine Corps security element at Sub base Bangor, WA. Q. Have you ever held any licenses related to the operation of Nuclear Power Plants? A. Yes. I trained for and received a US Nuclear Regulatory Commission Senior Reactor Operating license at the Monticello Nuclear Plant in. I held that license until June te00-bbl

30 BRIAN B. LINDE 0. I also held a General Electric Senior Reactor Operating Certification while working at Limerick in. Q. Please describe the arrangement between Consumers Energy and the Nuclear Management Company (NMC). A. NMC is responsible for the management and operation of Palisades on behalf of Consumers Energy. NMC was formed in by Northern States Power Company (now Xcel Energy Inc.), Alliant Energy, Wisconsin Electric Power Company (now We Energies), and Wisconsin Public Service Company to operate and manage the nuclear generating facilities owned by the four utilities. In 000, Consumers Energy became an equity owner in NMC, and executed a Nuclear Power Plant Operating Services Agreement with NMC that transferred certain Palisades operating responsibilities to NMC. In 00, Consumers Energy transferred the Palisades Operating License to the NMC. Consumer Energy s non-union employees became NMC employees in July 00. te00-bbl

31 BRIAN B. LINDE 0 0 PART II PURPOSE AND OPERATIONS SUMMARY Q. What is the purpose of this testimony? A. I will describe the regulatory changes that have resulted in incremental security costs at U.S. nuclear plants following the September, 00, terrorist acts in New York, Pennsylvania, and Washington DC. These changes were imposed on both the Palisades and Big Rock Nuclear Plants owned by Consumers Energy. I will describe the regulatory changes imposed on both operating nuclear plants and those undergoing decommissioning. I will also confirm that the actions that Palisades has taken and those planned have met the federal requirements and were similar to those required of all operating nuclear plants in the United States. Q. Please describe the actions the nuclear industry took following September, 00. A. Immediately upon hearing of the events of that day, Palisades, Big Rock and other nuclear plants responded with heightened security measures. A series of actions to increase and harden security at commercial nuclear facilities began and are continuing. The Nuclear Regulatory Commission (NRC) monitored the initial actions and began work on a series of new regulations that have been introduced over the last two years. Q. What types of security regulations did the NRC issue for commercial nuclear plants? A. The NRC has issued advisories, information notices and orders in three distinct and separate categories: operating nuclear facilities; decommissioning nuclear facilities; and independent spent fuel storage installations (ISFSIs). te00-bbl

32 BRIAN B. LINDE 0 0 Q. What specific NRC security orders adding new requirements applicable to Palisades and or Big Rock Point were issued following September, 00? A. The following NRC Security orders were issued following September, 00, adding incremental Security requirements. On December, 00, the NRC issued a confirmatory action letter requiring Big Rock Point to arm their security officers with additional firepower. On February, 00, the NRC issued Interim Compensatory Measures ( ICMs ) for Safeguards and Security. This was applicable to Palisades. On May, 00, the NRC issued Interim Compensatory Measures for decommissioning nuclear power plants. This was applicable to Big Rock. On October, 00, the NRC issued orders for Interim Safeguards and Security Compensatory Measures for Independent Spent Fuel Storage Facilities (ISFSI). These were applicable to Palisades and Big Rock. On January, 00, the NRC issued an order for Compensatory Measures Related to Access Authorization. This was applicable to Palisades. On April, 00, the NRC issued an order for Compensatory Measures Related to Fitness-For-Duty Enhancements Applicable to Nuclear Facility Security Force Personnel. This was applicable to Palisades. On April, 00, the NRC issued an order for Compensatory Measures Related to Training Enhancements on Tactical and Firearms Proficiency and Physical Fitness Applicable to Armed Nuclear Power Plant Security Force Personnel. This was applicable to Palisades. te00-bbl

33 BRIAN B. LINDE 0 0 On April, 00, the NRC issued an order Requiring Compliance with Revised Design Basis Threat for Operating Power Reactors. This was applicable to Palisades. Q. What effect did the NRC Security Orders have on the plants? A. The orders modified the operating licenses of all operating reactors, decommissioned commercial reactors and spent fuel storage sites, and required them to meet the orders in a timely manner. The requirements and actions taken as a result of the orders for the most part are considered to be Safeguards Information since they provide specific information on the site security programs in accordance with 0 CFR. Only persons with proper training, a need to know, and facilities for handing this sensitive information are allowed access to the Safeguards Information. As with the entire U.S. nuclear industry, significant money was expended at both Palisades and Big Rock to implement the new requirements. Q. Please further describe the term Safeguards Information. A. Quoting from the United States Nuclear Regulatory Commission Rules and Regulations Title 0, Chapter, Code of Federal Regulations Energy Part Physical Protection of Plants and Materials, Safeguards Information is information not otherwise classified as National Security Information or Restricted Data which specifically identifies a licensee s or applicant s detailed () security measures for the physical protection of special nuclear material, or () security measures for the physical protection and location of certain plant equipment vital to the safety of production or utilization facilities. Q. What type of information is generally classified as Safeguards Information? A. Examples of information classified as Safeguards Information include: Physical Security Plan te00-bbl

34 BRIAN B. LINDE 0 0 Site specific drawings of the protection systems Details of alarm system layouts, location of intrusion devices, etc. Security procedures, patrol schedules, duress alarms, etc. Security communication systems on-site and off-site Lock combinations and mechanical key designs Lists or locations of vital plant safety-related equipment Security officer qualification and training plans Response plans to specific threats or response times Security force size, armament, or off-site response capabilities Q. Who at Palisades would have access to documents that are classified by the NRC as Safeguards Information? A. Only employees with a need to know, i.e., only those that have a work related required need to perform official, contractual, or licensee duties of employment. This includes only a small group of the site employees. Safeguards Information control requires specific locked security storage containers and processes that are followed to control the dissemination of this information. Q. Why were the Interim Compensatory Measures and subsequent Security Orders classified as Safeguards Information? A. Attachments to these orders included specific security information and requirements in the examples of Safeguards Information described above. Q. Are the complete orders available to interested parties? A. At least portions of these orders are available on the NRC Web Site ( In the available portions, the NRC recognizes that Palisades and Big Rock voluntarily and te00-bbl

35 BRIAN B. LINDE 0 0 responsibly implemented additional security measures, but in light of the continuing generalized high-level threat environment the NRC found it necessary to impose new additional security measures. Many of these orders contain portions that are Safeguards Information, and the Safeguards Information is not available publicly. Palisades and Big Rock cannot disclose the Safeguards Information. Individuals having a need to know, and that possess the required background, have completed background checks, training, and storage requirements may choose to request them directly from the Nuclear Regulatory Commission. I have included the orders referenced, without the Safeguards Information, in my work papers. Q. When were the Interim Compensatory Measures completed at Palisades? A. The requirements were instituted as soon as practical, within the NRC required timeline. The NRC compliance inspections were completed satisfactorily with no violations in 00, 00, and to date in 00. Q. Were the Interim Compensatory Measures the final changes to federal security orders? A. No. While the industry worked through the ICM requirements, the NRC was developing the Final Order requirements and issued them on April, 00. These final orders also became a part of the operating license for commercial nuclear facilities. As noted above many of the requirements were considered to be Safeguards Information (SGI) in accordance with 0 CFR. Q. In general terms please provide a brief summary of each NRC Security order. A. The NRC Security Orders detail requirements as follows: December, 00, NRC Confirmatory Action Letter required Big Rock Point to arm their security officers with additional firepower. The plant was in a te00-bbl

36 BRIAN B. LINDE 0 0 decommissioning status and their Security Plan allowed relaxation of contingency weapons requirements at operating nuclear plants. With the increased threat the NRC required security to undergo additional training and to possess additional contingency weapons. February, 00, NRC Interim Compensatory Measures for Safeguards and Security. These had the effect of modifying the operating licenses of all commercial reactors and required them to meet the orders in a timely manner. The ICMs dealt with facility Access Authorization, Vehicle Barrier Systems, an increase in the Design Basis Threat, and for those sites like Palisades with an existing dry cask storage system, Independent Spent Fuel Storage. May, 00, NRC Interim Compensatory Measures for decommissioning nuclear power plants. This dealt with facility Access Authorization, Vehicle Barrier Systems, and increase in security measures. On October, 00, the NRC issued an order for Interim Safeguards and Security Compensatory Measures for Independent Spent Fuel Storage Facilities (ISFSI). It identified a higher threat environment and required enhanced security measures. January, 00, Access Authorization Order defines changes to background checks and requirements for unescorted access to the site. This order describes procedures to mitigate insider threats. April, 00, Fitness-For-Duty (Security Officer Overtime / Fatigue) defines requirements for limitations on hours worked by Security officers, describes work hours tracking requirements, and measures to be taken to ensure that officers are not working in a fatigued condition. te00-bbl

37 BRIAN B. LINDE 0 0 April, 00, Training Enhancements Order defines specific training elements that must be incorporated into the security officer training program. These describe firearms and tactical requirements as well as physical fitness testing requirements. April, 00, Design Basis Threat Order defines the type of threat that the security force and defensive strategy must deal with. The requirements set out in this order define the composition, capabilities and actions attacking elements would bring to bear against the facility. These requirements are then factored into how the facility would deal with this threat. Q. When was implementation of the requirements imposed by those orders required? A. The new orders contained specific implementation dates to provide facilities time to plan, construct and implement the required plant processes and modifications to meet the orders. Q. Did the new orders contain sufficient clear direction to fully implement the new requirements? A. As an aid to the industry, the NRC issued a guidance document on September, 00, that provided additional information and more specific requirements for operating plants. This document continues to be updated and is currently in revision. The Nuclear Energy Institute (NEI) issued guidance documents in May 00 for the decommissioning plant orders and October 00 for the ISFSI orders that provided additional information and more specific requirements. te00-bbl 0

38 BRIAN B. LINDE 0 0 Q. Were the NRC orders solely responsible for the post September, 00, incremental security costs? A. No. The orders imposed requirements that request the majority of the incremental security costs. Over the last two and a half years, several dozen NRC advisories have also been issued, and some of these required additional expenditures by the sites. For example, advisories were issued each time the Department of Homeland Security & NRC changed response threat / color levels. At elevated threat levels, the NRC-approved site Security Plans require additional security levels and therefore additional security spending. Other advisories notified the site of non-specific threats or other security information and these resulted in no additional security costs. Q. Is the Palisades plant in full compliance with the NRC Security requirements? A. Yes. Palisades coordinated their efforts with other sites in the NMC organization to provide support and share information. The Palisades plant is in full compliance with the Interim orders issued in February of 00, and had a compliance inspection in 00 with no violations identified. In addition, Palisades is in full compliance with the Access Authorization and Security Officer Overtime orders issued in April of 00, and had a compliance inspection in March of 00 with no violations identified. As required, Palisades has submitted their Security Officer Training and Qualification plans and implementation schedule. The site continues to implement hardware and design modifications and is prepared to meet the required Security Order completion requirements. te00-bbl

39 BRIAN B. LINDE 0 0 Q. In your opinion, has Palisades responded to the new federal orders in a prudent manner? A. Yes. The site s response been in accordance with what I have experienced within the NMC s plants and others that I have become involved. Modifications performed or planned at Palisades are similar to those being done at all U.S. nuclear plants with similar configurations. Staffing, training, and response capabilities are within the expectations of the NRC and the government. Qualified employees or contractors performed the modifications. Competitive bidding was used for all major procurement activities. The costs for these actions incurred at Palisades compare favorably with the costs incurred by the other nuclear plants managed by NMC. Q. In general terms, what major security changes have been implemented at Palisades? A. Prior to September, 00, Palisades, like all U.S. nuclear plants, had a very robust security presence and the sites were considered some of the most secure facilities in the nation. As a result of the additional actions described above, the sites now are even more secure. Additional terror alert security officers with higher levels of training and armament are available to resist a larger and better-trained adversary force. Barriers and inspections further from the plant prevent unwanted vehicles from approaching the critical buildings. Additional monitoring and detection equipment provides the security force with earlier intruder detection. Enhanced working relationships have been formed with local and state agencies. Site Emergency Plans have been integrated with Security Response Plans. te00-bbl

40 BRIAN B. LINDE Q. Has the Department of Homeland Security or any other organization offered to fund any of the incremental security costs at Palisades, Big Rock, or any plant in the U.S? A. No. There has been no government funding, grants, or other emergency relief for the incremental security costs imposed by new regulations at Palisades or Big Rock. I am not aware of such funding availability for any U.S. nuclear plant. Q. Does this conclude your written testimony? A. Yes. te00-bbl

41 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 ) Consumers Energy Company for ) recovery of enhanced security costs ) Case No. U- for electric generating facilities. ) ) OF STEPHEN T. WAWRO ON BEHALF OF CONSUMERS ENERGY COMPANY May, 00

42 STEPHEN T. WAWRO 0 0 PART I QUALIFICATIONS Q. Please state your name and business address. A. Stephen T. Wawro, Palisades Nuclear Power Plant, Covert, Michigan. Q. By whom are you employed, Mr. Wawro, and in what capacity? A. I am employed by Consumers Energy, as the Director of Nuclear Assets. Q. How long have you held this position? A. I have held this position since June 00. Q. Where is your job location and what are your responsibilities? A. My office is at the Palisades Nuclear Plant. I am the liaison between Consumers Energy and the Nuclear Management Company (NMC). I am responsible for oversight of the NMC operation of the Palisades Nuclear Plant. Q. Prior to your present assignment, what positions did you hold with Consumers Energy? A. From 000 to June 00, I was the Palisades Director of Staff. From to 000, I was Palisades Director of Maintenance, Outage & Planning. From to, I was Palisades Planning and Scheduling Manager. From to, I was the Palisades Operations Scheduling Superintendent. From to, I was a Shift Supervisor in the Operations Department at Palisades. From to, I was a Shift Supervisor at the Midland Nuclear Plant construction site. Q. Please describe your educational background and business experience. A. Following graduation from high school, I served 0 years in the United States Navy. I spent the first year as an engineering technician and the remaining nine years as an electronics technician in the Navy s nuclear power program. During this period I served for five years in the submarine fleet aboard the USS Nathanael Greene. After completing te00-stw