STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION. Attorney General s Reply Brief

Transcription

1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of Consumers Energy Company for Approval of an Integrated Resource Plan Under MCL 460.6t and for other relief. / MPSC Case No. U Attorney General s Reply Brief Dana Nessel Attorney General Celeste R. Gill (P52484) Assistant Attorney General Michigan Department of Attorney General, Special Litigation Division Sixth Floor Williams Bldg. 525 W. Ottawa Street P. O. Box Lansing, MI (517) Gillc1@michigan.gov Dated: January 11,

2 Table of Contents Introduction... 3 Arguments... 5 Reliability of solar energy and sufficiency of capacity The PCA has too much excess capacity The Company fails to justify the need for its proposed financial compensation mechanism Relief Requested

3 INTRODUCTION On December 21, 2018, the Attorney General of Michigan, filed an Initial Brief in this matter before the Michigan Public Service Commission ( Commission ) responding to the Application filed by Consumer s Energy Company seeking approval of its Integrated Resource Plan (IRP), including its Proposed Course of Action (PCA). Other parties to this proceeding also filed their Initial Briefs including, Consumers Energy Company (Consumers Energy, CECo or the Company), Michigan Public Service Commission Staff (MPSC Staff or Staff), the Association of Businesses Advocating Tariff Equity (ABATE), the Residential Customer Group (RCG), the Michigan Environmental Council, Natural Resource Defense Council and Sierra Club (collectively, MEC-NRDC-SC), Environmental Law & Policy Center (ELPC), Great Lakes Renewable Energy Association (GLREA), Midland Cogeneration Venture, LP (MCV), Solar Energy Industries Association (SEIA), Independent Power Producers Coalition of Michigan, Michigan Electric Transmission Company, LLC (METC), and Michigan Energy Innovation Business Council. The Attorney General files this Reply Brief to respond primarily to issues raised in the Consumers Energy s initial brief, however it may also address some of the arguments made by the other parties. The Attorney General s decision not to address certain issues in this Reply Brief is not a waiver of those issues. The 3

4 Attorney General s briefs, as well as the witness testimony and exhibits should be considered in evaluating her position on the issues appearing in this case. MCL 460.6t(8)(a) provides that to approve a proposed integrated resource plan, the Commission must determine all of the following: (a) The proposed integrated resource plan represents the most reasonable and prudent means of meeting the electric utility s energy and capacity needs. To determine whether the integrated resource plan is the most reasonable and prudent means of meeting energy and capacity needs, the commission shall consider whether the plan appropriately balances all of the following factors: (i) Resource adequacy and capacity to serve anticipated peak electric load, applicable planning margin and local clearing requirement. (ii) Compliance with applicable state and federal environmental regulations. (iii) Competitive pricing. (iv) Reliability. (v) Commodity price risks. (vi) (vii) Diversity of generation supply. Whether the proposed levels of peak load reduction and energy waste reduction are reasonable and cost effective. (b) To the extent practicable, the construction or investment in a new or existing capacity resource in this state is completed using a workforce composed of residents of this state as determined by the commission. This subdivision does not apply to a capacity resource that is located in a county that lies on the border with another state. (c) The plan meets the requirements of subsection (5). 1 The Company asserts that its IRP meets those objectives. 2 To the contrary, the Company s IRP proposal fails to meet all of these objectives as discussed below and in the Attorney General s Initial Brief. 1 MCL 460.6t(8)(a) [emphasis added]. 2 Initial Brief of Consumers Energy Company, pp

5 The Attorney General is participating in this IRP proceeding in large part as an advocate for ratepayers, especially residential ratepayers. Because this proceeding will address resource planning over the next 5, 10 and 15 years, the Attorney General is especially interested in ensuring, to the greatest extent possible, that the Commission consider the reliability and affordability of any plan as it relates to lower income persons, senior citizens and other vulnerable ratepayers. It is the Company s burden to prove that its requests are reasonable and prudent. 3 This Reply Brief will address the following issues: 1. Reliability of the plan s resource mix and capacity deficiencies. 2. Timing of proposed capacity additions. 3. The financial compensation mechanism (FCM). The Attorney General requests that the Commission issue an order reflecting the observations and recommendations included in the Attorney General s witness s testimony and briefs. ARGUMENTS Reliability of solar energy and sufficiency of capacity. In its brief, Consumers Energy attempts to address the reliability concerns raised in the Attorney General s witness s testimony (and echoed in the Attorney 3 MCL 460.6t(8)(a). 5

6 General s Initial Brief), by first focusing on differences in the calculation of ZRCs for solar. 4 Next it uses some misdirection by arguing that the Attorney General s witness, Mr Coppola seemed to confuse the requirements to serve peak demand with sufficient capacity resources, versus the economic delivery of energy to customers in every hour of the year. 5 There technical arguments miss the point. The overarching concern expressed by the Attorney General in this proceeding is with the ability of the Company s proposed plan to deliver reliable energy when needed to its ratepayers. Also, of concern is the cost of some of the Company s proposals. The Attorney General s Initial Brief focuses on the fact that the PCA departs from the approach the Company has used historically to provide energy to its 1.8 million electric customers and instead relies on demand side programs such as EWR, CVR and DR, and building or buying renewable power resources primarily solar energy to meet customer demand for electricity. As noted in the Attorney General s Initial Brief, the Company s proposal anticipates a significant increase in solar generation from 12 MW in 2018 to 6,507 MW by This shift is concerning, in as it relates to reliability of the Company s power supply due to limitation on solar generation. 4 Initial Brief of Consumers Energy Company, pp and pp Initial Brief of Consumers Energy Company, p 148, citing Company witness Walz s testimony at 6 TR Attorney General s Initial Brief, p

7 The Company continues to ignore this concern and instead points to Exhibit AG-12 to assert that even with no solar production, the Company would still have sufficient resources under the PCA to meet peak demand in January Page 2 of Exhibit AG-12 includes a figure listing alternative sources such, such as CE Hydro, NUGS, CE wind, battery, CE coal, Ludington, CE gas, MISO market purchases. This exhibit does not demonstrate that the PCA is reliable. Is simply lists alternative sources that may or may not be viable options. The IRP provisions do not define what is meant by reliability. Presumably it relates to the ability of a utility to deliver power when needed. Reference to a dictionary is instructive. Reliable means 1. That may be relied on. 2. of sound and consistent quality character or quality. 8 In witness testimony and the Initial Brief, the Attorney General has already highlighted the shortcomings with the Company s resource mix including that the Ludington and battery storage options have capacity limitations; there continues to be concerns about the expansion of wind power; the Company is gradually phasing out coal and if all goes as planned, by 2039 Karn 1 and 2, Campbell 1 and 2, and Campbell 3 will be closed. Most of the items listed in Exhibit AG-12 appear to be in flux or otherwise have limitation that affect their ability to completely address reliability concerns. Shortfalls in any of 7 Initial Brief of Consumers Energy Company, p Oxford Pocket American Dictionary of Current English, Oxford University Press,

8 the other listed sources will likely result in an over-reliance on MISO market purchases with no guarantee of favorable pricing. As was noted in the Attorney General s Initial Brief, the Company should be required to commit to reviewing the following two issues in each subsequent IRP: (1) the reliability factor and the ability for the Company s proposed energy resources (including solar) to provide consistent power supply, particularly during peak demand periods; and (2) the assumption that solar costs can decrease by as much as 35%. The PCA has too much excess capacity. The Company is projecting that it will have significant capacity surpluses between the year 2020 and the year Under the PCA, its projected to have a capacity surplus situation in every year during that period. In its brief, the Company addressed the testimony of multiple intervener witnesses, who criticized the timing of the Company s capacity additions. 10 Using the testimony of Company witness Blumenstock, Consumers Energy argues that the early build up of capacity gives the Company time to implement its demand side programs and otherwise provides the Company with flexibility to further evolve its resource portfolio. 11 This 9 See, 6 TR 256, Figure Initial Brief of Consumers Energy Company, pp Initial Brief of Consumers Energy Company, p

9 approach may be less problematic if carrying excess capacity was free. But it is not. Ratepayers will bear the cost of the Company carrying significant excess capacity. It is clear that the build-up of excess capacity is part of the Company s strategy for meeting its demand-side programs goals. However, that approach is contrary to the objective that proposed levels of peak-load reduction and energy waste reduction be reasonable and cost effective. 12 As noted in the Attorney General s Initial Brief, the Company should be required to reduce the large amounts of surplus capacity it has in the near-term, by adjusting its acquisition and build-up of additional capacity to more closely match future losses of generation capacity. The Commission should require the Company to narrow the time and amount of new resource additions to reduce the surplus capacity to levels at least below 500 ZRCs. 13 That level would provide an adequate cushion to implement its demand side programs or further evolve its resource portfolio. The Company fails to justify the need for its proposed financial compensation mechanism. The Company s arguments in support of its proposed FCM closely mirror the testimony of its witnesses and have for the most part been addressed by the Attorney General s Initial Brief. 14 Therefore, the Attorney General will focus on 12 MCL 460.6t(8)(a)(vii). 13 Attorney General s Initial Brief, pp Attorney General s Initial Brief, pp

10 just a few points in this reply brief. First, the Company, referring to the testimony of Company witness Torrey posits that the Company s proposed FCM recognizes that regulatory outcomes in this IRP like all regulatory outcomes need to reflect an appropriate balance between the interests of the Company and customers. 15 However, the standard by which the regulatory outcome in this IRP case must be judged is the reasonableness and prudence of the proposals contained in the IRP. And, as discussed above, the burden of demonstrating the reasonableness and prudence of its proposals lie with the Company. An FCM is not needed based on the record in this case, and to approve one would be unreasonable and imprudent. Contrary to the Company s assertions, it is not needed to attract capital. 16 As noted in the Attorney General s Initial Brief, the Company has not had a problem attracting capital or earning adequate returns on its investments with its existing power purchase agreements (PPAs). The Company s attempt to refute this point based on the testimony of its witness, Mr. Maddipati is misleading. According to the Company, Mr. Maddipati notes, however, that these arguments fail to recognize two important facts: (i) Two of the largest PPAs, the Palisades Nuclear Plant and Midland Cogeneration Venture Limited Partnership ( MCV ) facility are set to expire in 2022 and 2025, respectively. These two PPA represent over 2 GWs and are set to expire in 4-years and 7-years, so in effect the Company s current PPAs are relatively short in duration. 15 Initial Brief of Consumers Energy Company, p Id at

11 If Mr. Nichols is suggesting the Company enter PPAs of less than 10- years, then this argument may carry some weight, but the Company s PCA could see it potentially enter into 6,000 MWs of PPAs with lengths of up to 25 years; and (ii) the Company is proposing to competitively bid all of its future generation the Company currently owns ~70% of its generation and the PCA combined with competitive bidding could cause that to be reduced dramatically. 17 Mr. Maddipati s first assertion is a gross misrepresentation of the duration and impact of the referenced PPAs. The MCV PPA has been in place since the early 1980s. It represents 1,240 MW of capacity and is due to expire in 2025 if not extended to The Entergy-Palisades PPA, which represents 813 MW of generation capacity will terminate in April The MCV and Entergy-Palisades PPAs represent about two-thirds of the Company s existing PPA capacity. Nonetheless, the Company currently enjoys very good ratings from the three major rating agencies that rate its senior secured debt. 18 And as discussed in the Attorney General s Initial Brief, neither these nor any other PPAs the Company have in effect have had a detrimental impact on the Company s debt rating. 19 Second, the Company s proposal does not prevent it from owning future generation, even if its competitively bids its build. Even the Staff s counterproposal 17 Initial Brief of Consumers Energy Company, p 232, citing Maddipati s testimony at 7 TR TR Attorney General s Initial Brief, pp and 8 TR

12 of a 50% cap on Company owned projects will result in Consumers Energy still owning and receiving a return on substantial assets. The Company still has not demonstrated that it nor its investors are negatively impacted by PPAs in a manner that would support the establishment of the proposed FCM. The Company s presentation fails to adequately address the fact that its financial health and profitability continue to be strong and it continues to earn returns on equity at or above its authorized level despite having significant existing PPAs. Finally, the Company takes issue with GLREA s witnesses testimony recommending that any FCM approved by the Commission should not include new PURPA contracts. The Attorney General agrees with GLREA s recommendation. As stated above an FCM is not needed and the same analysis provided above applies to PURPA contracts. Most importantly, given the PURPA structure, any incentives that could arguably apply to non-purpa PPAs are not needed given the rights available to qualified facilities (QFs) under PURPA. As discussed in the Attorney General s Initial Brief, the FCM is not needed to remedy any negative impacts. 20 It is a resolution in search of a problem. Therefore, the Attorney General repeats the recommendation that the Commission 20 Attorney General s Initial Brief, p

13 reject the Company s proposed FCM because it has not demonstrated that it is needed at this time or that it would benefit ratepayers. Relief Requested The Attorney General respectfully requests the Administrative Law Judge to issue a proposal for decision that is consistent with the positions set forth in the Attorney General s Initial Brief and this reply brief. Respectfully submitted, Dana Nessel Attorney General Celeste R. Gill Assistant Attorney General Michigan Department of Attorney General Special Litigation Division Sixth Floor, Williams Bldg. 525 W. Ottawa Street P. O. Box Lansing, MI (517) Dated: January 11,

14 PROOF OF SERVICE - U The undersigned certifies that a copy of the Attorney General s Reply Brief was served upon the parties listed below by ing the same to them at their respective addresses on the 11th day of January Celeste R. Gill Consumers Energy Company: Robert W. Beach Bret A. Totoraitis Anne Uitvlugt Gary Gensch, Jr. Michael C. Rampe Theresa A.G. Stanley Robert.beach@cmsenergy.com bret.totoraitis@cmsenergy.com anne.uitvlugt@cmsenergy.com gary.genschjr@cmsenergy.com Michael.rampe@cmsenergy.com Theresa.staley@cmsenergy.com mpscfilings@cmsenergy.com MPSC Staff: Daniel Sonneveldt Spencer Sattler Amit Singh Heather M.S. Durian sonneveldtd@michigan.gov sattlers@michiga.gov singha9@michigan.gov durianh@michigan.gov Attorney General: Celeste R. Gill Gillc1@michigan.gov ag-enra-spec-lit@michigan.gov Cypress Creek Renewables, LLC: Jennifer Utter Heston jheston@fraserlawfirm.com Cadillac Renewable Energy, LLC; Genesee Power Station, LP; Grayling Generating Station, LP; Hillman Power Company, LLC; TES Filer City Station; Viking Energy of Lincoln, Inc.; and Viking Energy of McBain, Inc.: Thomas J. Waters Anita G. Fox twaters@fraserlawfirm.com afox@fraserlawfirm.com Energy Michigan, Inc.: Laura A. Chappelle Timothy J. Lundgren lachappelle@varnumlaw.com tjlundgren@varnumlaw.com Michigan Electric Transmission Company, LLC: Richard J. Aaron Courtney Kissel raaron@dykema.com ckissel@dykema.com 1

15 Independent Power Producers Coalition of Michigan: Laura Chappelle Michigan Chemistry Council and Solar Energy Industries Association: Timothy Lundgren Justin Ooms Michigan Energy Innovation Business Council and Institute for Energy Innovation: Laura Chappelle Toni Newell Michigan Environmental Council, Natural Resource Defense Council and Sierra Club: Christopher M. Bzdok Lydia Babash-Riley ABATE: Bryan Brandenburg Michael Pattwell Midland Cogeneration Venture Limited Partnership: Jason Hanselman John Janiszewski Charles Dunn Great Lakes Renewable Energy Association and Residential Customer Group: Don Keskey Brian Coyer Administrative Law Judge: Hon. Sharon A. Feldman Counsel for Sierra Club: Michael Soules Environmental Law & Policy Center: Margrethe Kearney Bradley Klein 2