GILLARD, BAUER, MAZRUM, FLORIP, SMIGELSKI & GULDEN ATTORNEYS AT LAW 109 E. CHISHOLM STREET ALPENA, MICHIGAN May 12, 2015

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1 ROGER C. BAUER JAMES L. MAZRUM JAMES D. FLORIP WILLIAM S. SMIGELSKI TIMOTHY M. GULDEN JOEL E. BAUER DANIEL J. FLORIP GILLARD, BAUER, MAZRUM, FLORIP, SMIGELSKI, & GULDEN ATTORNEYS AT LAW 109 E. CHISHOLM STREET ALPENA, MICHIGAN May 12, 2015 (989) FAX: (989) JOEL W. GILLARD ( ) Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission P.O. Box Lansing, MI Via E Filing Re: Alpena Power Company 2015 Renewable Energy Plan Review Case No.: U Dear Ms. Kunkle: Alpena Power Company's Application for its 2015 Renewable Energy Plan Review, together with written direct testimony of the company's witness, Ms. Vicki Goodburne, and associated exhibits, is being electronically filed with the Michigan Public Service Commission. No paper filing is being made. I am forwarding a draft notice of hearing by e mail to Ms. Gloria Jones at jonesg1@michigan.gov. Please contact me if you have any questions or need anything else. Thank you for your cooperation. Sincerely, GILLARD, BAUER, MAZRUM, FLORIP, SMIGELSKI & GULDEN James D. Florip Attorney for Alpena Power Company JDF/tsm Enclosures cc: Via E Mail: V. Goodburne (w/encs.) A Burton (w/encs.)

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, ) regarding the regulatory reviews, revisions, ) determinations, and/or approvals necessary for ) Case No. U ALPENA POWER COMPANY to fully comply with ) Public Acts 286 and 295 of 2008 ) ) APPLICATION Alpena Power Company, hereinafter referred to as Applicant, files this Application for its 2015 Renewable Energy Plan Review and its request for approval of Applicant s renewable energy plan, in accordance with the Clean, Renewable, and Efficient Energy Act, 2008 PA 295, MCL , et seq. ( the Act ), as hereinafter set forth, and respectfully represents to the Commission as follows: 1. Applicant is a private investor-owned Michigan utility corporation with its principal office located in the City of Alpena, Michigan, supplying electric service to its customers (approximately 16,300) within its service area which includes: the City of Alpena; the Townships of Alpena, Green, Long Rapids, Maple Ridge, Ossineke, Sanborn, Wellington and Wilson in the County of Alpena; the Township of Presque Isle in Presque Isle County; the Township of Caledonia in Alcona County; and the Village of Hillman and Township of Hillman in Montmorency County, all in the State of Michigan. 2. Jurisdiction is pursuant to 1909 PA 106, as amended, MCL et seq.; 1919 PA 419, as amended, MCL et seq.; 1939 PA 3, as amended, MCL et seq.; 1982 PA 304, as 1 APPLICATION U-17791

3 amended, MCL 460.6j et seq.; 1969 PA 306, as amended, MCL et seq.; 2008 PA 295, MCL et seq., and the Commission's Rules of Practice and Procedure, as amended, 1999 AC, R et seq. 3. Alpena presently serves its electric customers under rates and charges as ordered by the Commission in its Opinion and Order in Case No. U dated October 13, 2009, Case U , Alpena s 2015 PSCR Plan as approved by the Commission s January 27, 2015 order, Alpena s 2013 Energy Optimization Reconciliation and Forecast as approved by the Commission s July 22, 2014 order in Case U and Alpena s Renewable Energy Plan Review as approved by the Commission s October 17, 2013 order in case U This Application is filed to allow the Commissioner to conduct a 2015 Renewable Energy Plan Review in accordance with the provisions of the Act, and to request the Commission s approval of Applicant s renewable energy plan. Accordingly, Applicant herewith submits its testimony and its exhibits which will present and address the following: (a) A copy of Applicant s Renewable Energy Plan as filed in, and approved by the Commission in its order of May 12, 2009, in Case No. U-15804, is incorporated herein by reference thereto. (b) An analysis of the current status of the Plan, as reviewed in 2013 in Case No. U , and continued implementation of the approved Plan. (c) An analysis, considering current information and experience, of the Applicant s approved Plan s ability to meet the requirements of the Act. 5. Alpena filed its Application for its Renewable Energy Plan ( Plan ) on February 17, APPLICATION U-17791

4 in Case No. U The Plan, as presented by Alpena through its witness, Joseph H. Bedford ( Bedford Testimony ), which was not bound into the record, includes Case No. U-15804, Exhibit A-1 with three schedules of data and information relating to Renewable Energy Credits ( RECs ) required to meet the Renewable Energy Portfolio Standards of the Act, to Alpena s purchase requirements for RECs recovery of costs related to plan implementation, and allocation of costs by customer class; and U-15804, Exhibit A-3 consisting of a tariff sheet to implement the proposed cost recovery. Alpena s Plan was last reviewed by the Commission in 2013 in Case No. U The Plan called for Applicant to purchase the bulk of its required REC s during the Plan s twenty-year life from Consumers Energy that is through After 2024 through 2029, Applicant may be required to purchase all or a portion of required REC s from another provider. Applicant has since formalized the purchase of REC s from Consumers by virtue of a contract with Consumers approved by this Commission on September 15, 2009 in Case No. U Applicant is seeking approval of its Renewable Energy Plan. In addition, Alpena is seeking authority to discontinue recovery of costs effective July 1, 2015, as implemented by the tariff sheet contained in Exhibit A Additionally, Applicant is seeking authority to roll-over any under or over recovery of the Renewable Energy Plan costs to subsequent plan years. 9. Applicant represents that the requested relief is necessary to allow for continued compliance with Act 295 and recovery of associated costs. 3 APPLICATION U-17791

5 WHEREFORE, Applicant requests that this Commission: (a) Accept for filing this Application for review and approval of Applicant s Renewable Energy Plan and associate surcharges. (b) (c) (d) (e) Fix a time and place for hearing of Applicant s request. Make such investigation as it may deem necessary or advisable in the circumstances. Approve the electric rate tariff sheet attached hereto as Exhibit A-3. Grant Applicant authority to roll-in any over or under recovery of costs to subsequent plan years. (g) Grant Applicant such other and additional relief as it may deem appropriate. Respectfully submitted, ALPENA POWER COMPANY Dated: May 12, 2015 By: Attorney for Alpena Power Company Mr. James D. Florip (P26861) Gillard, Bauer, Mazrum, Florip, Smigelski & Gulden 109 E. Chisholm Street Alpena, MI Telephone: (989) jdflorip@gillardlaw.com 4 APPLICATION U-17791

6 TESTIMONY OF VICKI M. GOODBURNE ON BEHALF OF ALPENA POWER COMPANY Q. State your name and business address. A. Vicki Goodburne, Alpena Power Company, 401 N. Ninth Avenue, Alpena, Michigan Q. What is your educational background? A. I received a Bachelor of Science Degree in Accounting from Lake Superior State University in In June 2012, I received a Master of Business Administration Degree in Accounting from Capella University. Q. What is your position with Alpena Power Company? A. I am the Accounting Manager. Q. Please state your past work experience with Alpena Power Company ( Alpena ), including your present duties and responsibilities. A. I was employed by Alpena in June 2001 as the Finance Department Manager. In July 2007 my job title changed to Accounting Manager. My responsibilities include financial reporting, general ledger preparation and assistance in regulatory affairs. Q. Have you previously testified in any proceedings before this Commission? A. Yes. I have testified on behalf of Alpena in all of the PSCR and PSCR reconciliation cases from 2002 through 2008, including U R, the 2008 PSCR Reconciliation. I also testified in Alpena s 2007 rate case, Case No. U-15250; Alpena s 2010 PSCR plan, Case No.U-16030; Alpena s 2010 PSCR Reconciliation, Case No. U R; Alpena s 2011 PSCR plan, Case No.U ; Alpena s 2011 Energy Optimization Cost Reconciliation, Case No. U-16735; Alpena s 1 TESTIMONY OF V M GOODBURNE CASE U-17791

7 2013 PSCR plan, Case U-17090, Alpena s 2013 PSCR Reconciliation, Case No. U R and Alpena s 2015 PSCR plan, Case U Q. Would you briefly describe the business and operations of Alpena? A. Alpena is a private investor-owned Michigan utility Corporation with its office located in the City of Alpena, Michigan, supplying electric service to approximately 16,300 customers in the Northeastern lower peninsula of Michigan. Alpena purchases approximately 99% of its electric power requirements from Consumers Energy Company ( Consumers ) under wholesale rates subject to the jurisdiction of the Federal Energy Regulatory Commission ( FERC ) and approved by the Commission in Case Nos. U and U-11029, and purchases additional power, when available, from certain large industrial customers under rates established under special contracts. Q. How may total employees does Alpena have? A. Alpena has a total of 35 full-time employees. Q. Are Alpena s present rate schedules on file with this Commission? A. Yes, they are. Alpena presently serves its electric customers under rates and charges as ordered by the Commission in its Opinion and Order in Case No. U dated October 13, 2009, Case U-17670, Alpena s 2015 PSCR Plan as approved by the Commission s January 27, 2015 order, Alpena s 2013 Energy Optimization Reconciliation and Forecast as approved by the Commission s July 22, 2014 order in Case U and Alpena s Renewable Energy Plan Review as approved by the Commission s October 17, 2013 order in case U TESTIMONY OF V M GOODBURNE CASE U-17791

8 Q. What is the purpose of your testimony in this proceeding? A. My Testimony will address the following: (a) In general, this third two-year review of Alpena's Renewable Energy Plan ( the Plan ) approved by the Commission in Order in Case No. U dated May 12, 2009; and first reviewed by the Commission in 2011 in Case No. U-16580; and reviewed again by the Commission in 2013 in Case No. U (b) (c) A description of the Plan as approved by the Commission in Case No. U An analysis of the current status of the Plan and the continued implementation of the approved Plan. (d) An analysis, reflecting current information and experience, of the Plan s ability to meet the requirements of Act 295, Public Acts 2008 ( the Act ). Q. Please summarize Alpena s Renewable Energy Plan as approved by the Commission. A. Alpena s plan to comply with the Renewable Energy Portfolio Standards of the Act called for Alpena to purchase its required Renewable Energy Credits ( RECs ). Under the approved Plan, as shown on Exhibit A-1, Schedule 1 (a twenty-year renewable program summary), Alpena, after discussion with Consumers Energy, planned to acquire the bulk of its required RECs from Consumers Energy. Alpena s long-term thirty-year Power Purchase Agreement ( PPA ) with Consumers terminates on December 31, Pursuant to the Act (Sec. 35(2)) Alpena pursued a relationship with Consumers Energy to obtain RECs associated with electricity purchased by Alpena pursuant to the PPA. Alpena s Plan involves monitoring RECs needed after the 3 TESTIMONY OF V M GOODBURNE CASE U-17791

9 termination of the PPA on December 31, As the market for RECs matures, and dependent upon Alpena s Plan for electric power supply after the termination of the PPA, Alpena will employ a reasonable and prudent strategy to obtain required RECs beginning in 2025 or 2026, for the balance of the twenty-year Plan. Q. Does Alpena have a contract in place with Consumers Energy for the purchase of the RECs? A. Yes. Alpena had worked with Consumers Energy to determine the estimated number of RECs covered by Section 35(2) of the Act, and a method in principal for allocating and pricing RECs to be transferred to Alpena. Alpena received a forecast from Consumers for the total amount of RECs that will be allocated to us over the life of the contract. Q. How did Alpena implement the customer charges? A. Alpena s approved Plan included original tariff sheet D-4.10 allowing the recovery of the incremental cost of compliance with the Renewable Energy Portfolio Standards, while original tariff sheet D-4.90 detailed the proposed surcharges. In this review, Alpena has revised tariff sheet D-4.90 to eliminate the Renewable Energy Surcharge as it has collected such funds to carry Alpena through the end of the Plan. Q. What arrangements has Alpena made to acquire the RECs called for in its Plan and necessary to meet the Renewable Energy Portfolio Standards as promulgated by the Act? A. Alpena and Consumers Energy have executed a Renewable Energy Credit Sale Agreement ( the Contract ) wherein Consumers Energy will provide Alpena with the bulk of its required RECs through 2024, when Alpena s PPA with Consumers terminates. 4 TESTIMONY OF V M GOODBURNE CASE U-17791

10 Q. Please further describe the REC Contract with Consumers. A. The Contract was dated August 4, 2009 and was approved by the Commission by its Opinion and Order of September 15, 2009 in Case No. U (as modified by the Commission s Errata of October 27, 2009). The Contract provides for the delivery of RECs to Alpena, with a delivery period commencing January 1, 2009, utilizing the mechanism established by the Commission pursuant to Section 41(4) of the Act. Q. What has Alpena done to facilitate the delivery of RECs from Consumers Energy pursuant to the Contract? A. Alpena has an account with the Michigan Renewable Energy Certification System ( MIRECS ). This account with MIRECS allows the transfer of RECs from Consumers Energy to Alpena. Once Alpena accepts the RECs from Consumers, they are transferred into a compliance account where they are held until they are submitted to the Commission for their annual report filing. Q. Has Alpena had any RECs transferred to it by Consumers Energy since the 2013 Plan Review? A. Yes it has. In 2013 we received 14,068 RECs, which includes 12,195 RECs and 1,873 incentive RECs. Our required number of RECs for 2013 compliance is 10,882. The excess amount of RECs received are not allowed to be carried forward because they were all from vintage year 2010 and RECs only have a lifetime of three years from the end of the month in which they were generated, so they could only be used in In 2014 we received 18,040 RECs, which includes 15,796 RECs and 2,244 incentive RECs. Our required number of RECs for 2014 compliance is 16,524. The excess amount of RECs were all 5 TESTIMONY OF V M GOODBURNE CASE U-17791

11 from vintage year 2011, so they could only be used in Q. Please describe the renewable energy resources included in Alpena s total portfolio. A. Alpena s renewable resources include biomass, which accounts for 7,670 MW for 2013 and 10,745 MW for 2014, hydroelectric water, which accounts for 5,491 MW for 2013 and 5,488 MW for 2014 and landfill gas, which accounts for 907 MW in 2013 and 1,807 for Q. Has Alpena been billed by Consumers Energy for RECs sold to Alpena pursuant to the Contract since the 2013 Plan review? A. Yes it has. Alpena paid Consumers $786,196 in 2013 and $348,674 in 2014 for RECs. Q. Are you making any changes to Alpena's Renewable Energy Surcharge? A. Yes. Alpena will eliminate the Renewable Energy Surcharge as of July 1, Alpena's contract charge for RECs is equal to Consumers' annual recovery amount for incremental cost of service. Effective July 2014 Consumers eliminated their Renewable Energy Surcharge. Consumers estimates that Alpena has $348,787 left to pay out for the remainder of the contract, since they eliminated their surcharge. Alpena's current over-recovery is $549,879. Q. Could you explain Exhibit A-2, Schedule 1? A. Exhibit A-2, Schedule 1 is Alpena s calculation showing the projected life-cycle cost of renewable energy, in conjunction with total system cost, is less than the levelized life-cycle cost of energy generated by a new conventional coal-fired facility. Q. Can you provide an analysis of Alpena s Renewable Energy Plan s ability to meet the portfolio standard requirements of the Act? 6 TESTIMONY OF V M GOODBURNE CASE U-17791

12 A. Yes. First, I think it is important to note that Alpena does not own any facilities that produce electric power. Alpena purchases approximately 99% of its electric power requirements from Consumers Energy Company ( Consumers ) under wholesale rates subject to the jurisdiction of the Federal Energy Regulatory Commission ( FERC ) and approved by the Commission in Case Nos. U and U-11029, and purchases additional power, when available, from certain large industrial customers under rates established under special contracts. Alpena does not intend to construct any facilities that would produce and qualify for renewable energy credits. Second, Alpena s Renewable Energy Plan calls for it to obtain its required RECs from Consumers Energy via the aforementioned Renewable Energy Credit Sale Agreement. The RECs contract supplies a stable source of RECs enabling Alpena to meet its Renewable Energy Portfolio Standards through the end of Alpena s wholesale purchase agreement with Consumers Energy which terminates on December 31, According to Alpena s Plan, it will have to obtain RECs from another provider beginning in 2025 or Third, Alpena s Renewable Energy Plan represents the most economical way for Alpena to comply with the Renewable Energy Portfolio Standards of the Act, given its size, its relative inability to construct power producing facilities which would qualify for Renewable Energy Credit certification, and the provisions of Section 35(2) of the Act which allows for transfer of ownership of RECs to Alpena from Consumers Energy pursuant to agreement. Alpena will be paying only the incremental cost to Consumers related to the construction of the RPS facilities, which will be commensurate with charges Consumers Energy jurisdictional customers will pay, 7 TESTIMONY OF V M GOODBURNE CASE U-17791

13 and which is subject to the review of the Commission. Q. What is your analysis of the Alpena Plan s ability to meet the requirements of the Act? A. In 2012 Alpena started receiving RECs from Consumers through the MIRECs system. Alpena has also started making payments to Consumers for the RECs. Alpena continues their reporting requirements regarding the actions taken to comply with the renewable energy standards as required by Section 51 of the Act. Alpena has been collecting the Renewable Energy Surcharge as called for in the Plan. Q. Are you proposing any amendments to Alpena s Renewable Energy Plan? A. Yes we are. Now that we have some forecasted data from Consumers, we can make changes to plan that will reflect the new data. Q. At this time, is it your position that Alpena s initial Renewable Energy Plan should again be approved? A. Yes. And that Plan would include the formulations as contained in Exhibit A, Schedules 1, and the tariff sheet as contained in Exhibit A-3. Q. Does this complete your testimony? A. Yes. 8 TESTIMONY OF V M GOODBURNE CASE U-17791

14 ALPENA POWER COMPANY CASE NO. U EXHIBIT A 1 INDEX SCHEDULE 1 Twenty Year Renewable Program Summary

15 MICHIGAN PUBLIC SERVICE COMMISSION Case No.: U Exhibit: A-1 ALPENA POWER COMPANY Schedule: 1 Page: 1 of 1 Goodburne Twenty Year Renewable Energy Plan Surcharge Summary Units Year Running Avg Sales Forecast MWH 321, , , , , , , , , , , , , , , , , , , , ,728.4 RPS Requirement MWH , , , , , , , , , , , , , , , , , ,241.3 RPS Required RECs RECS , , , , , , , , , , , , , , , , , , RECs from Existing Renew Energy Supply (Pre R RECS Required RECs RECS , , , , , , , , , , , , , , , , , ,241.3 RPS Renwable Energy Credit Compliance Required RECs RECS , , , , , , , , , , , , , , , , , ,827.5 RECS Obtained RECS , , , , , , , , , , , , , , , , , ,827.5 RECs Compliance Balance RECS , , , RECs Compliance % % N/M N/M N/M 211.5% 129.3% 109.2% 99.3% 97.9% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% RECs Eligible for Carryover RECS Revenue Requirment Build/BOT $Thous $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - PPA $Thous REC Purchases (Sales) $Thous Total $Thous $ - $ - $ - $ $ $ $ $ 85.9 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - RECs Obtained Generation Based Build/BOT RECS PPA RECS , , , Subtotal RECS , , , Purchase (Sold), net RECS , , , Incentive (Act 295 Sec 39 (2)) RECS , , , Total RECS Forecasted Transfer Price (Not applicable = $0) $/MWH $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Amount Recovered through PSCR $Thous $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Incremental Cost of Compliance $Thous $ - $ - $ - $ $ $ $ $ 85.9 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Non-Volumetric Surcharge Meter (or Customer) Forecast Residential 1s 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 13,720 Secondary 1s 4,006 4,006 4,006 4,006 4,006 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 3,969 Primary 1s Total 1s 17,736 17,736 17,736 17,736 17,735 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 17,698 Planned Surcharge Rate Residential $/month $ 3.00 $ 3.00 $ 3.00 $ 0.24 $ 0.24 $ 0.24 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Secondary (Weighted Average) $/month $ 6.67 $ 6.67 $ 6.67 $ 1.81 $ 1.81 $ 1.81 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Primary (Weighted Average) $/month $ $ $ $ $ $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Planned Surcharge Residential $Thous $ $ $ $ 64.9 $ 39.6 $ 39.5 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Secondary $Thous Primary $Thous Total $Thous $ $ $ $ $ $ $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Year End Regulatory Balance Proposed Minimum $Thous $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - Forecast $Thous (227.5) (659.8) (219.5) (262.8) (85.9) Carrying Charges (Short-term interest) $Thous Case U correction Total Year End Regulatory Balance $Thous $ $ 1,122.5 $ 1,984.2 $ 1,800.4 $ 1,169.7 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 288.1

16 ALPENA POWER COMPANY CASE NO. U EXHIBIT A 2 LIFE CYCLE COST TEST

17 Michigan Public Service Commission Case No.: U Alpena Power Company Exhibit: A-2 Schedule: 1 Goodburne Life Cycle Cost Test 2012 Total System Cost $ Year Levelized REC Cost 3.93 Total System Cost $68.51 Levelized Life Cycle Cost of New Coal Plant $133.00

18 ALPENA POWER COMPANY CASE NO. U EXHIBIT A 3 TARIFF SHEET

19 M.P.S.C. No. 9 Alpena Power Company (To revise surcharges) Revised Sheet No. D-4.90 SURCHARGES (continued from Sheet No. D-4.01) Rate Schedule Renewable Energy Surcharge Effective July 2015 Bill Month Energy Optimization Surcharge Effective January 2016 Bill Month Residential $0.00/meter/month $ /kWh General Service $0.00/meter/month $2.67/meter/month Standard Power $0.00/meter/month $42.17/meter/month Large Power (less than 13,200 volts) $0.00/meter/month $305.26/meter/month Large Power (13,200 volts or higher) $0.00/meter/month $305.26/meter/month Large Industrial (13,200 volts or lower) $0.00/meter/month $1,181.25/meter/month Large Industrial (higher than 13,200 volts) $0.00/meter/month $854.50/meter/month Large Industrial (>13,200 volts-self Direct) $0.00/meter/month $239.08/meter/month Outdoor Protective Lighting (100 watt) $0.00/light/month $0.23/light/month Outdoor Protective Lighting (250 watt) $0.00/light/month $0.39/light/month Street & Highway Lighting $0.00/light/month $0.19/light/month Special Power Contracts(Self Direct) $0.00/meter/month $567.00/meter/month Issued June, 2015 by Effective for services rendered on Ann K. Burton, President and after July 1, 2015 Alpena, MI Issued under authority of the Michigan Public Service Commission