Rebuttal Testimony of Sebastian Coppola

Transcription

1 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) CONSUMER ENERGY COMPANY ) for authority to increase its rates for ) the generation and distribution of ) electricity and other relief ) MPSC Case No. U-0 Rebuttal Testimony of Sebastian Coppola On behalf of Attorney General Bill Schuette August, 0

2 Introduction Q. PLEASE STATE YOUR NAME, OCCUPATION, AND ADDRESS. A. My name is Sebastian Coppola. I am an independent business consultant. My office is at Southgate Rd., Rochester, Michigan 0. Q. ARE YOU THE SAME SEBASTIAN COPPOLA WHO FILED REVISED DIRECT TESTIMONY AND EXHIBITS IN THIS CASE ON AUGUST, 0? A. Yes. Rebuttal Testimony Q. WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY? 0 A. The purpose of my rebuttal testimony is to address certain areas of the direct testimony filed by Commission Staff ( Staff ) witnesses Rob Ozar, Ryan Laruwe and Nicholas Revere. More specifically, I will address their testimony on rebates for in-house electric vehicle battery chargers ( EV Chargers ), a slimmed-down Investment Recovery Mechanism ( IRM ) and a proposed Revenue Adjustment Mechanism ( RAM ). My rebuttal testimony also responds to the direct testimony of ABATE witness Nicholas Phillips, Jr., Hemlock Semiconductor Corp. witness Michael Gorman, The Kroger Co. witness Neal Townsend and Michigan Environmental Council witness George Sansoucy on Cost of Service issues. U-0 S. Coppola - Rebuttal Testimony //

3 Q. ARE YOU SPONSORING ANY EXHIBITS WITH YOUR REBUTTAL TESTIMONY? A. No. EV Chargers Rebuttal to Rob Ozar s Direct Testimony: Q. PLEASE SUMMARIZE MR. OZAR S TESTIMONY ON REBATES FOR IN- HOUSE ELECTRIC VEHICLE BATTERY CHARGERS. 0 A. Beginning on page of his direct testimony, Mr. Ozar discusses the regulatory policy implications of encouraging EV owners to charge their vehicles during off-peak times and his support for ratepayer-funded incentives, reimbursements and rebates toward a customer purchase of home-based EV Chargers, including chargers at multi-dwelling locations. The basis of his support for such ratepayer-funded rebates appears to be the use of power during off-peak periods in conjunction with the requirement that the customer agrees to sign up for a whole-house dynamic-pricing tariff or a specific EV time-based tariff. On page of his testimony, Mr. Ozar also outlines additional recommendations and conditions for supporting the use of rebates for EV Chargers. U-0 S. Coppola - Rebuttal Testimony //

4 Q. DO YOU AGREE WITH MR. OZARS SUPPORT OF REBATES FOR IN-HOME EV CHARGERS? A. Although I am in favor of promoting additional electric sales, particularly during low demand periods, I am skeptical of rebate programs with no proven track record and which have not been economically justified. 0 Mr. Ozar s support of rebates for in-house EV Chargers is simply theoretical and seems to be based on the broad regulatory policy of encouraging power usage during off-peak periods. He has not presented any economic analysis to show that the cost of the rebates, which is an upfront investment by ratepayers, will be recovered over a reasonable timeframe from incremental sales of power to homeowners who are using the chargers for their electric vehicles. Any rebates, at whatever levels they are set, should be economically justified on a net present value basis or they should not be made. It is also important that the customer have significant skin in the game. In other words, the rebate amount should be set to defer part of the cost of buying and installing the EV charger, but not cover all or a major portion of this cost. The customer must make a significant investment to be motivated to use the EV charger in order to get value from the investment. Receiving a free or nearly-free EV charger will not provide the same incentive or motivation to use the charger since the homeowner/vehicle owner has no significant investment in it. 0 Q. WHAT IS YOUR RECOMMENDATION? U-0 S. Coppola - Rebuttal Testimony //

5 A. As I stated in my direct testimony, the Company needs to justify the proposed EV program based on a robust economic analysis that shows the investment made will result in economic returns that exceeds the cost of investment in the program. The same is true of any rebates, incentives or other reimbursements given to customers for in-home or multidwelling EV Chargers. I recommend that the Commission reject the Company s proposed EV program and any related customer rebates, reimbursement or other incentive payments until there is clear and supporting evidence that the program and any incentive payments are economically justified based a robust cost/benefit analysis. 0 IRM and RAM Rebuttal to Ryan Laruwe s Direct Testimony: Q. PLEASE SUMMARIZE MR. LARUWE S TESTIMONY PROPOSING A LIMITED INVESTMENT RECOVERY MECHANISM. A. On page of his direct testimony, Mr. Laruwe states that he is opposed to implementation of the Company s proposed IRM. He identifies three major problems with this proposal. First, it fails to meet the test year requirements of MCL 0.a(). Second, it does not provide adequate review of future expenditures for reasonableness and prudence. Third, it does not account for the cost reductions which will undoubtedly occur if the investments were to occur and operate as outlined in the application. U-0 S. Coppola - Rebuttal Testimony //

6 However, beginning on page, Mr. Laruwe proceeds to define an IRM that would be acceptable to the Staff if it werelimited to recovery of costs for only distribution capital and distribution operation and maintenance programs that either represent the legal obligations of the Company or promote system resiliency and operational efficiency. 0 He states that in order to meet the requirements of MCL 0a() and the use of projected test years, the first iteration of the IRM be limited to September to December 0. His proposal would also require that the Company file an annual plan of expenditures to be reviewed by parties to the rate case and approved prior to the Company instituting the surcharge each year. The plan would then serve as the basis for an annual reconciliation proceeding. Finally, Mr. Laruwe expects that the IRM surcharge would reflect annual benefits projected to be achieved from modernization of the distribution system. Q. DO YOU AGREE WITH MR. LARUWE TESTIMONY ON THE IRM? A. While I agree with his testimony rejecting the Company s proposed IRM, I disagree with his proposed scaled-down IRM. It is very troubling that Staff would define and create a single-issue cost recovery mechanism. In fact, the limited IRM proposed by Mr. Laruwe suffers from many of the same problems he identified with the Company s proposal and adds additional problems. It is difficult to understand how a program that initially starts with the last four months of 0, which is a period of time after the Company s filed forecasted test year ending August 0, would be any more compliant with the projected U-0 S. Coppola - Rebuttal Testimony //

7 test year requirements of MCL 0a() than the Company s proposed IRM program with its subsequent -month periods. Although the Staff proposed annual plan filing and reconciliation add another layer of review, they also add the additional burden to parties to the rate cases to dedicate additional resources and incur additional costs to undertake two additional annual contested single issue rate cases. 0 0 More troubling is Staff s proposal to expend the IRM, which hereto has been only a capital program as proposed by the Company, to include recovery and reconciliation of operation and maintenance costs. This recommendation seems to be driven by Staff s concern that the Company is not spending the dollars granted in the rate cases by the Commission. Although on the surface a reconciliation of these expenses may seem reasonable, it is counterproductive. It encourages overcapitalization and spending when spending may not be necessary. If the Company is not spending the amount of rate relief granted for certain expenses, and has not provided good justification for not doing so, then the solution is to hold the Company accountable for those lapses and assess penalties. Otherwise, if we carry this logic to its ultimate conclusion, we would perform a full reconciliation of all expense and capital programs each year to ensure that the Company will spend the rate relief granted. This would create an unreasonable and senseless process that wasted stakeholders valuable time and resources. Similarly, selecting certain cost items for reconciliation through a tracking mechanism is not advisable. In fact, in recent years, the Commission has moved away from cost and revenue tracking mechanisms. U-0 S. Coppola - Rebuttal Testimony //

8 0 Staff s proposal to limit capital expenditures and O&M programs that represent only the legal obligations of the Company or promote system resilience or efficiency is concerning since it would likely further expand the IRM later on. I am certain that the Company would argue that capital expenditures for environmental compliance and main relocations among other programs are also legal obligations and should be included. The Company would also argue that other capital programs in Power Generation, Information Technology and other areas also create long-term operational efficiencies and should be included. In other words, there is little doubt that once approved, Pandora s Box would be opened allowing the Company to periodically expand the IRM via obscure proceedings that would not only evade the regulatory scrutiny applied to general rate cases, but also have a corrosive effect on Michigan s ratemaking structure that has been relied upon for decades. 0 Staff s proposed IRM also lacks customer protections since it allows recovery of costs irrespective of the likelihood that the Company may be earning a return above the authorized level in the rest of the business. Including certain O&M benefits in the IRM as proposed by Staff is helpful but not adequate. The Grid Modernization cost savings would be a small fraction of the total O&M savings or cost reductions that the Company may achieve each year. So we could easily find ourselves in a situation where the Company is earning a return above the allowed rate of return and could still be implementing higher IRM surcharges each year. Finally, the Staff-proposed IRM also encourages the Company to spend ever-increasing amounts in capital additions because it has a mechanism that nearly guarantees full recovery of those costs as spent. U-0 S. Coppola - Rebuttal Testimony //

9 Although in the past the Commission has approved recovery mechanisms for main replacement programs, it is not appropriate or prudent for Staff to propose such a recovery mechanism. Staff has not identified any compelling reason why an IRM of any design is necessary. A limited IRM certainly would not stop the Company from filing new rate cases at the frequent pace with which it has done recently. Q. WHAT IS YOUR RECOMMENDATION TO THE COMMISSION? 0 A. I recommend that the Commission reject the Company s proposed IRM for the reasons described in my direct testimony and in the direct testimony of Mr. Laruwe. The Commission also should reject Staff s proposed IRM for the reasons described in this rebuttal testimony. Rebuttal to Nicholas Revere s Direct Testimony: Q. PLEASE SUMMARIZE MR. REVERE S TESTIMONY PROPOSING A MODIFIED REVENUE ADJUSTMENT MECHANISM. A. On page of his direct testimony, Mr. Revere states that he is opposed to implementation of the Company s proposed RAM. He identifies three major reasons for rejecting the Company s proposed RAM. First and foremost, he states that it is inappropriate for the Company to request approval of a RAM when Michigan courts have ruled they are illegal for electric utilities. He believes the Company should wait to file for such a mechanism until the legislature actually passes a law authorizing electric decoupling. Second, the U-0 S. Coppola - Rebuttal Testimony //

10 Company s proposed RAM shifts risks traditionally borne by the utility, such as weather and other revenue changes unrelated to energy conservation, onto the customer. Third, the proposed RAM fails to meet the conditions that result in just and reasonable rates. However, beginning on page, Mr. Revere proceeds to define a RAM that would be acceptable to the Staff if it were limited in scope. The proposed RAM would include recovery of actual weather normalized lost revenues up to certain caps tied to Energy Optimization ( EO ) target savings. Staff s proposed RAM for the Company s electric business would work similarly to the Company s Revenue Decoupling Mechanism currently in place for the gas business. 0 Q. DO YOU AGREE WITH MR. REVERE TESTIMONY ON THE RAM? A. I agree with his testimony rejecting the Company s proposed RAM. But, I disagree with his proposed scaled-down RAM. I find it very troubling that Staff would define and create a road map for the Company to propose a revenue recovery mechanism. Such a proposal puts Staff in an unattainable position of both creating a program and later having to analyze and critically review the Company s proposed program that mirrors Staff s design. It seems to me that Staff s primary role is to be an independent reviewer of costs, revenues and recovery mechanisms proposed by the utility to ensure rates are fair and reasonable. In that vein, Staff s responsibility is not to assist utilities in developing cost recovery mechanisms that enhance the utilities profits. U-0 S. Coppola - Rebuttal Testimony 0 //

11 It is highly inappropriate for Staff to signal what is acceptable and furthermore define a revenue recovery mechanism that would be acceptable. This is particularly troubling when no legislation has been passed yet that authorizes or defines the parameters of a revenue decoupling mechanism for electric utilities in Michigan. In that regard, Mr. Revere s proposed RAM is premature and again inappropriate for the main reason he rejected the Company s proposal. Q. WHAT IS YOUR RECOMMENDATION? 0 A. I recommend that the Commission reject the Company s proposed RAM for the reasons described in my direct testimony and in the direct testimony of Mr. Revere. For the same reasons and other reasons described in this rebuttal testimony, the Commission also should disregard Staff s proposed RAM. Cost of Service Study Rebuttal to the Direct Testimony of Nicholas Phillips, Jr., Michael Gorman and Neal Townsend: Q. PLEASE SUMMARIZE THE DIRECT TESTIMONY ON COST OF SERVICE ALLOCATION ISSUES BY MESSRS. PHILLIPS, GORMAN AND TOWNSEND. A. In their direct testimony, Messrs. Phillips and Townsend basically adopt the Company s proposal to allocate power production costs on the methodology of CP 00/0/0. Their testimony does not provide any additional evidence or arguments that the Company s U-0 S. Coppola - Rebuttal Testimony //

12 methodology is appropriate and supportable. Mr. Phillips discusses the use of CP in North Carolina as an isolated case to try and demonstrate the use of peak demand during a single hour of the year by the North Carolina Utilities Commission. However, he does not adopt this method. Mr. Gorman proposes two corrections to the 00/0/0 methodology proposed by the Company and seems to endorse the same methodology. Q. DO YOU AGREE WITH THE RECOMMENDATIONS OF MESSRS. PHILLIPS, TOWNSEND AND GORMAN? 0 A. No. Messrs. Phillips, Townsend and Gorman do not present any new compelling testimony or provide any additional evidence that the Company s methodology is supportable other than repeating the same arguments for the use of the 00/0/0 methodology which the Commission previously considered and rejected in Case No. U- and U-. Mr. Gorman merely seeks to refine the 00/0/0 methodology with his two proposed corrections. These corrections would be moot issues if the Commission rejects the 00/0/0 methodology in its entirety. Rebuttal to George Sansoucy s Direct Testimony: Q. PLEASE SUMMARIZE MR. SANSOUCY S TESTIMONY ON COST OF SERVICE. U-0 S. Coppola - Rebuttal Testimony //

13 A. In his direct testimony, Mr. Sansoucy rejects the Company s proposed 00/0/0 methodology of allocating production costs. Furthermore, he recommends the Commission consider adopting two separate methodologies to allocate production costs for baseload generation and peak generation. Q. DO YOU AGREE WITH THE RECOMMENDATIONS OF MR. SANSOUCY? 0 A. Yes. I support those recommendations. Mr. Sansoucy is correct in rejecting the Company s proposed 00/0/0 methodology for allocation of production costs across the board. His approach to split the allocation of production cost between baseload and peaker plant generation also makes sense and better reflects the cost causation principle. The baseload plants are built and operate at a high load factor and are driven more by volumetric production. Therefore, Mr. Sansoucy s recommendation that production costs for those plants should be allocated on CP 0-- method is most appropriate. On the other hand, the peaker plants are built and operate on the premise of providing peak day generation. Thus, a 00/0/0 cost allocation methodology makes most sense for the allocation of production costs for these plants. In Case No. U-0, I made a similar observation in rejecting the Company s proposal for the 00/0/0 allocation methodology. Q. WHAT ARE YOUR RECOMMENDATIONS TO THE COMMISSION? Case No. U-0 Sebastian Coppola Direct Testimony at page. U-0 S. Coppola - Rebuttal Testimony //

14 A. I recommend that the Commission reject the recommendations of Messrs. Phillips, Gorman and Townsend to adopt the Company s proposed 00/0/0 production cost allocation methodology with or without corrections. I reiterate the recommendation I made in my direct testimony that the Company retain the current /0/ methodology approved in Case No. U-. However, if the Commission wished to revisit and revise this allocation methodology, it should then adopt the split allocation methodology proposed by Mr. Sansoucy of CP 0// for baseload plants and CP 00/0/0 for peaker plants. Q. DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY? 0 A. Yes, it does. U-0 S. Coppola - Rebuttal Testimony //

15 PROOF OF SERVICE - U-0 The undersigned certifies that a copy of the Rebuttal Testimony of Sebastian Coppola on behalf of Attorney General Bill Schuette was served upon the parties listed below by ing the same to them at their respective addresses on the th day of August 0. John A. Janiszewski Consumers Energy Company: Kelly M. Hall H. Richard Chambers Bret A. Totoraitis Robert W. Beach Anne M. Uitvlugt Gary Gensch, Jr. James D.W. Roush bret.totoraitis@cmsenergy.com kelly.hall@cmsenergy.com robert.beach@cmsenergy.com rick.chambers@cmsenergy.com anne.utivlugt@cmsenergy.com gary.genschjr@cmsenergy.com james.roush@cmsenergy.com mpscfilings@cmsenergy.com MPSC Staff: Spencer A. Sattler Heather M.S. Durian Meredith R. Beidler sattlers@michigan.gov durianh@michigan.gov beidlerm@michigan.gov Attorney General: John A. Janiszewski JaniszewskiJ@michigan.gov novakr@michigan.gov sebcoppola@corplytics.com gillc@michigan.gov ABATE: Robert A.W. Strong Michael J. Pattwell Leland Rosier rstrong@clarkhill.com mpattwell@clarkhill.com lrrosier@clarkhill.com jdauphinais@consultbai.com Hemlock Semiconductor Corporation: Jennifer Utter Heston jheston@fraserlawfirm.com Michigan Cable Telecom Association: David E.S. Marvin dmarvin@fraserlawfirm.com Energy Michigan, Inc.: Laura A. Chappelle Timothy J. Lundgren lachappelle@varnumlaw.com tjlundgren@varnumlaw.com AJZ-Consulting@comcast.net MEC/NRDC/Sierra Club: Chris Bzdok chris@envlaw.com karla@envlaw.com kimberly@envlaw.com ddagan@nrdc.org

16 Michigan State Utility Workers Council, Utility Workers Union of America, AFL-CIO: John R. Canzano Lilyan N. Talia Kroger Company: Kurt J. Boehm Jody Kyler Cohn Anthony J. Szilagyi Environmental Law & Policy Center: Margrethe Kearney Robert Kelter Bradley Klein Elissa Jeffers Residential Customer Group, Michelle Rison: Don L. Keskey Brian W. Coyer MCV: David R. Whitfield Charles E. Dunn ChargePoint, Inc.: Timothy J. Lundgren Kevin Miller Colleen Quinn Wal-Mart Stores East, LP, and Sam s East, Inc.: Melissa M. Horne mhorne@hcc-law.com