S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * *

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, on the Commission s own motion ) regarding the regulatory reviews, revisions, ) determinations, and/or approvals necessary for ) Case No. U-1 Indiana Michigan Power Company to fully comply with ) Public Act of 01, and related accounting relief ) ) QUALIFICATIONS AND DIRECT TESTIMONY OF KATIE J. SMITH MICHIGAN PUBLIC SERVICE COMMISSION October, 01

2 QUALIFICATIONS OF KATIE J. SMITH CASE NUMBER U-1 PART I Q. Please state your name, business address and occupation for the record. A. My name is Katie J. Smith and my business address is W. Saginaw Highway, Lansing, MI 1. I am employed by the Michigan Public Service Commission (MPSC) as an Economic Analyst in the Energy Waste Reduction (EWR) Section of the Electric Reliability Division. Q. Please describe your educational background. A. I earned a dual Bachelor s degree in Finance and Economics from Lake Superior State University. Q. What is your work experience? A. I worked for the Eastern Upper Peninsula Intermediate School District from 00 to 00 where I conducted data analysis and data processing of the Michigan Educational Assessment Program (MEAP) as well as with a number of other standardized tests. In August of 00 I began employment with the MPSC as an Economic Analyst working in the Energy Efficiency Section, currently Energy Waste Reduction Section. Q. What does your work at the MPSC consist of? A. As an Economic Analyst working in the EWR section, I review filings made in utility Energy Waste Reduction plans and reconciliations. I also examine issues and make recommendations relating to Revenue Decoupling and Demand Response. Recently I ve been assigned the responsibility of managing the integration of EWR credits into the existing MIRECS system. I am also a member of the internal team working with EGEAS and AURORA resource adequacy models. 1

3 QUALIFICATIONS OF KATIE J. SMITH CASE NUMBER U-1 PART I Q. Have you previously filed testimony in proceedings before the Commission? A. Yes. I have provided testimony in the following cases: Case No. Description U-1 Revenue Decoupling U-1 EO Plan Financial Incentive U-1 EO Plan Financial Incentive U- Revenue Decoupling U-1 Revenue Decoupling U-1 Revenue Decoupling U- EO Plan Surcharge Clarification U-1 Revenue Decoupling U-1 Revenue Decoupling U- EO Plan Gas Transportation U-1 Revenue Decoupling U-1 Revenue Decoupling U- EO Plan Revenue Decoupling U- EWR Plan U- EWR Plan U-1 EWR Reconciliation U- Revenue Decoupling

4 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to present Staff s recommendations regarding Indiana Michigan Power Company s (the Company) energy waste reduction (EWR) plan proposed for years 01 and 01. Q. Are you sponsoring any exhibits in this case? A. Yes. I am sponsoring the following exhibit which was prepared by me. Exhibits Exhibit S- (KJS-1) Description Audit Response Q. What part(s) of the Company s EWR Plan will Staff address? A. Staff will address: 1) the reasonableness of the EWR Plan, ) the Electric Energy Consumption Optimization (EECO) program, ) the Home Energy Management (HEM) and Work Energy Management (WEM) programs ) the Income Qualified (IQ) programs, as testified by Staff witness Brad B. Banks ) the Home Energy Engagement (HEE) Programs and Public Efficient Streetlighting Program (PES), as testified by Staff witness David Walker, and ) the Financial Incentive Mechanism, as testified by Staff witness Karen M. Gould. Q. Has the Company previously filed EWR plans before the Commission? A. Yes. The Company has filed EWR, previously energy optimization (EO), plans under PA. Q. How has the Company s program changed over the past years? A. From 00-01, the Company was part of Efficiency United (EU), the State Administrator, for their EWR plans. In 01 the Company decided to withdraw from EU and administer their programs independently. The Company continued to partner with EU

5 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 for years to make the transition more seamless for their customers and continue to share some cost savings with EU. In 01 the Company decided to end its partnership with EU and become completely autonomous. Q. Does Staff find the Company s EWR plan to be reasonable? A. No. Staff does not find the Company s EWR plan for to be reasonable. As stated above, Staff is filing testimony on a number of programs that cause concern. Staff would like to see changes made to the Company s proposed EWR plan before recommending approval. Q. Has the Company been as successful administering their own EWR plan as when they were involved with Efficiency United? A. No. The company s Income Qualified program has suffered, as testified by Staff witness Brad B. Banks. Q. Is the Company offering some of the same programs that were offered in their 01 and 01 EO Plan? A. Yes. As testified by Staff witness Brad B. Banks, the Company is continuing to offer programs that underperformed in previous plan years. Q. Are there other EWR programs that the Company is asking to continue that Staff has concerns about? A. Yes, the Company is requesting to continue their EECO program. Q. What are Staff s concerns about the Company s proposed EECO program? A. Staff is concerned about the life of the EECO program. As testified by Jon Walter on p. 0 the Company has stated that there will be no installations in 01 or 01. The EWR plan accounts for first year savings based on installations. If there are no installations being

6 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 done, Staff does not feel the Company can count the savings associated with the EECO program. Q. Is the Company requesting any new EWR programs for 01-01? A. Yes the Company is requesting two new programs: the Home Energy Management (HEM) program and the Work Energy Management (WEM) program. Q. What kind of programs are these, and how is the Company asking to recover the costs of these programs? A. The HEM program, as testified in Jon Walter s testimony on p., is a new strategic load management program. It is designed to achieve peak demand reduction and to operate on an ongoing basis to produce participating customer energy use reduction respective to the type of end use equipment being controlled. The measures that would be installed under this program would be smart, Wi-Fi connected thermostats. The WEM program, as testified in Jon Walter s testimony on p., is a load management program designed for I&M s C&I sector of customers that will exercise control over qualifying participant end-use load through the use of load management equipment installed beyond the utility meter but owned by I&M. Eligible measures include energy management switches, sensors, control systems, near real time communication channels, and back office control software algorithms. The Company is proposing that these programs costs be deferred and collected in the Company s next rate case. Q. What guidance does PA provide when addressing load management programs? A. The following sections from PA discuss the promotion of load management programs and how these programs should be funded and incremental EWR savings accounted for:

7 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 Section () states that if you use load management to achieve energy savings in the EWR plan you must maintain the same EWR minimum savings to spend ratio with and without load management savings included. In other words, if you use load management for EWR credits, you have to increase your EWR target by the amount of load management EWR credits, in order to maintain the identical ratio of savings to spend, without load management. Sec. () If an electric provider uses load management to achieve energy savings under its energy waste reduction plan, the minimum energy savings required under subsection (1) shall be adjusted by an amount such that the ratio of the minimum energy savings to the sum of actual expenditures for implementing its approved energy waste reduction plan and the load management expenditures remains constant. Section () states that cost-effective load-management, which reduces overall energy use, is eligible for substitution for an energy waste reduction credit to meet the standard with commission approval. Sec () For any year after 01, an electric provider may substitute renewable energy credits associated with renewable energy generated that year from a renewable energy system constructed after October, 00, load management that reduces overall energy usage, or a combination thereof for energy waste reduction credits otherwise required to meet the energy waste reduction standard, if the substitution is approved by the commission. The commission shall not approve a substitution unless the commission determines that the substitution is costeffective. Sec () states that a combination of renewable energy credits and load management that reduces overall energy use cannot count for more than % of the EWR standard. Sec. () Renewable energy credits, load management that reduces overall energy usage, or a combination thereof shall not be used by a provider to meet more than % of the energy waste reduction standard. Substitutions for energy waste reduction credits shall be made at the rate of 1 renewable energy credit per energy waste reduction credit.

8 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 Sec. (1) states that load management program costs cannot be included as EWR program cost. Sec.. (1) costs for load management undertaken by an electric provider pursuant to an energy waste reduction plan are not recoverable as energy waste reduction program costs under this section, but may be recovered as described in section. Section. (1) states that the commission shall promote load management programs and commission-approved demand response programs. Since the costs and benefits of such programs must be considered as a whole, and that is not possible in an EWR case based on the legislative guidance to exclude these costs from EWR program costs, it is the staff position that the commission would approve these programs within the context of a rate case. Sec.. (1) Subject to subsection (), the commission shall do all of the following: (a) Promote load management in appropriate circumstances, including expansion of existing and establishment of new load management programs in which an electric provider may manage the operation of energy consuming devices and remotely shut down air conditioning or other energy intensive systems of participating customers, demand response programs that use time of day pricing and dynamic rate pricing, and similar programs, for utility customers that have advanced metering infrastructure. Electric provider participation and customer enrollment in such programs are voluntary. However, electric providers whose rates are regulated by the commission and whose rates include the cost of advanced metering infrastructure shall offer commission-approved demand response programs. Section. () states that load management programs cost may be fully recovered, but outside of an EWR case. Sec () Subsection (1) shall not be construed to prevent an electric utility from doing any of the following: (a) Recovering the full cost associated with providing electric service and load management programs. Q. Based upon the legislative guidance outlined above, what are Staff s thoughts on the HEM and WEM programs?

9 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 A. Staff believes the cost and benefits should be analyzed within the context of the Company s next rate case, for a determination of reasonableness and prudence. Staff is not opposed to the EWR savings from these programs being included in the Company s EWR plan, but the Company would have to take the risk that the actual cost of these such programs could be denied in their future rate case. Staff is not suggesting that these load management programs be approved in this case however the energy savings if the Company were to offer the HEM and WEM programs could be utilized as adjusted in Sec () of Act as stated on p. of this testimony. Q. What is Staff s opinion about the savings associated with the HEM and WEM programs? A. As Staff stated earlier in relation to the EECO program, the savings should only be counted based on the measures installed for these programs during the year they were installed. If no measures are installed, no savings should be counted. Q. Is the Company requesting the HEM and WEM programs in any other case before the Commission? A. No. As stated in S- (KJS-1) Audit Response p. question and answer, the HEM and WEM programs are not specifically mentioned in any other I&M filings with the Commission. Q. What is Staff s recommendation for the Company s EWR Plan filing for 01 and 01? A. Staff is recommending the Commission deny the Company s EWR plan filing as currently filed and request the Company make adjustments to their existing EWR plan filing that incorporates Staff s recommendations. Q. What changes to the Company s plan would Staff like to see before approval?

10 DIRECT TESTIMONY OF KATIE J. SMITH CASE NUMBER U-1 A. Staff would like to see the EECO program savings only be valid during years where installations are being made. Staff would also advocate that only savings associated with measures installed in the HEM and WEM programs be included in the Company s overall energy savings. As testified in Brad B. Banks testimony, Staff is recommending that I&M return to subcontracting the income qualified portion of their EWR plan, based on the downfall of that program over the past few years. As testified by Staff witness David Walker, Staff would place limitations on behavior-based programs. As testified in Karen M. Gould s testimony, Staff is proposing a new financial incentive mechanism that encompasses more meaningful qualitative measures and increased annual savings goals. Q. Does this conclude your testimony? A. Yes

11 S T A T E OF M I C H I G A N 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-1 Indiana Michigan Power Company to fully comply with ) Public Act of 01, and related accounting relief ) ) EXHIBITS OF KATIE J. SMITH MICHIGAN PUBLIC SERVICE COMMISSION October, 01

12 Michigan Public Service Commission Auditor: Katie Smith Energy Waste Reduction Plan Audit Request: KJS-1 Electric Reliability Division Audit Request Date of Request: October, 01 Indiana Michigan Power Company U-1 Person Responding: Case No. U-1 Exhibit S- (KJS-1) October, 01 Page 1 of Please provide the following documents or data. If the requested item is already included in the Company s filing, please provide a reference to its location (exhibit, work paper, etc.) 1. Staff is requesting any excel files that were used in the creation of the Company s testimony and exhibits. Please see attached file, I&M_MI EWR Plan Walter Exhibits Final.xlsx.. Are the savings associated with the EECO Program a result of the infrastructure installations, or a result of the company monitoring and using additional technology s to reduce energy consumption? Both. Electric Energy Consumption Optimization (EECO) Program (a/k/a Volt Var Optimization (VVO), or Conservation Voltage Reduction (CVR)) seeks the realization and attribution of energy and demand reductions on circuits where automated voltage control logic and near real time feedback loop voltage control has been applied. The application of EECO to a circuit creates automated voltage control zones where each zone has a specific voltage bandwidth profile dependent upon the specific load characteristics of the circuit. For some circuits, only one voltage zone is required, while for other circuits, more than one voltage zone may be required. The creation of tight bandwidth voltage control zones to a circuit causes energy and demand reductions to occur which can be expressed at an average voltage zone level which can then be summed to a yearly average circuit energy and demand reduction dependent upon the number of zones on the circuit, dependent upon the number of voltage control zones required for each circuit. Please also see Attachment IM 1 (JCW 1).. In Exhibit IM 1 (JCW 1), are the numbers in the program operating budget columns for 01 and 01 under the EECO, HEM, and WEM projects included in the EWR surcharges to customers? If no, please explain why they are included in this exhibit. If yes, please explain what is included for those program costs? 1

13 Michigan Public Service Commission Auditor: Katie Smith Energy Waste Reduction Plan Audit Request: KJS-1 Electric Reliability Division Audit Request Date of Request: October, 01 Indiana Michigan Power Company U-1 Person Responding: Program operating budget column costs for EECO, HEM, and WEM are not included in the EWR Surcharge to customers. Please also see the (,**) and (,***) asterisk footnotes on Exhibit IM 1 (JCW 1). These costs are included in this Exhibit to comprehensively demonstrate the cost and savings for all programs that I&M proposes to implement for target compliance. EWR Surcharge costs are delineated on a separate line ( Total I&M EWR Surcharge Budget ) to clarify and state which costs are included for EWR Surcharge recovery.. Are the HEM and WEM programs mentioned in any other I&M filings with the Commission? If so, can you provide the case numbers where these programs are mentioned? The HEM and WEM programs are not specifically mentioned in any other I&M filings with the Commission. However, I&M s currently approved Home Comfort & Efficiency Pilot Program, as part of EO Plan for 01 and 01 approved in Case No. U 1, is the precursor to the Home Energy Management Program where I&M has tested the same underlying technology as that proposed in HEM in that pilot.. Are the rebates for Wi Fi enabled thermostats that are mentioned in the HEM program funded by the EWR program? If no, how are the rebates funded? The rebates for Wi Fi enabled thermostats in the HEM program are funded by the HEM program which is proposed for deferral cost recovery and not cost recovery through the EWR Surcharge. As such, HEM rebates are funded as a cost deferral.. Starting on page 1 of Jon Walter s testimony, he used the wording adjusted minimum savings target. Can you explain what is meant by adjusted? Please provide any calculation that is used in order to make an adjusted savings target. What factors are in included? Case No. U-1 Exhibit S- (KJS-1) October, 01 Page of The term adjusted in the context of page 1 of Jon Walter s testimony reflects I&M s minimum energy savings target adjusted for load management programs (HEM and WEM) as set forth in MCL 0. Section (PA Subpart C, Section ()). The specific calculation to adjust I&M s pro forma minimum energy savings target is contained in Exhibit IM (JCW ) with the final result shown on the right hand side of the exhibit in the row entitled Adjusted Minimum Savings. The calculation adjusts for a constant ratio as set forth in MCL 0., using the minimum energy savings and the cost to implement EWR and load management programs to yield the

14 Michigan Public Service Commission Auditor: Katie Smith Energy Waste Reduction Plan Audit Request: KJS-1 Electric Reliability Division Audit Request Date of Request: October, 01 Indiana Michigan Power Company U-1 Person Responding: Case No. U-1 Exhibit S- (KJS-1) October, 01 Page of Adjusted Minimum Savings. The factors included in I&M s calculation are the 1% minimum energy savings target ( EWR Minimum Target identified on the left hand side of Exhibit IM (JCW ), EWR Implementation Costs, and LM Implementation Costs both identified on the right hand side of the same Exhibit IM (JCW ). The Adjusted Minimum Savings actual calculation formula is as follows: (EWR Minimum Savings / EWR Implementation Costs) x (EWR Implementation Costs + LM Implementation Costs)

15 S T A T E O F M I C H I G A N 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-1 Indiana Michigan Power Company to fully comply with ) Public Act of 01, and related accounting relief ) ) QUALIFICATIONS AND DIRECT TESTIMONY OF BRAD B. BANKS MICHIGAN PUBLIC SERVICE COMMISSION October, 01

16 QUALIFICATIONS OF BRAD B. BANKS CASE NUMBER U-1 PART I Q. Please state your name, business address, and occupation for the record. A. My name is Brad B. Banks. My business address is W. Saginaw Highway, Lansing, MI 1. I am employed by the Michigan. Public Service Commission (MPSC) as a Departmental Analyst in the Energy Efficiency Section of the Electric Reliability Division. Q: Please describe your education background. A: I earned a dual Bachelor s degree in History and English from Western Michigan University. Q: What is your work experience? A: I graduated from the Michigan State Police Academy in 1, and worked as an enforcement officer in the Motor Carrier Division, obtaining the rank of Sergeant. I supervised the division investigation unit, worked as investigative liaison with state and federal enforcement agencies, worked in various capacities with the Training Division, and worked at to the Michigan Intelligence Operations Center as part of the Federal Bureau of Investigation s Fusion Center initiative. I joined the MPSC in 00, working in commercial vehicle licensing and regulation. I transferred to the Energy Optimization (EO) section in 01, which has been renamed Energy Waste Reduction (EWR) section. I have attended the IPU Regulatory Studies Programs annually since 01. Q: What does your work at the MPSC consist of? A: As a Departmental Analyst, I act as case coordinator for utility EWR plans (formerly known as Energy Optimization (EO) plans), reconciliations, and plan amendment filings. I am involved in projects with the Michigan Agency for Energy regarding low income, multi-family, and green building initiatives. I have also been involved in the demand 1

17 QUALIFICATIONS OF BRAD B. BANKS CASE NUMBER U-1 PART I response and distributed energy workgroups. I participate in the monthly EWR Collaborative meetings. Q: Have you previously filed testimony in proceeding before the Commission? A: I have filed written testimony in U- and U-1. All of my other previous testimony experience is in civil and criminal judicial court proceedings. I have testified in formal and informal hearings more than 00 times.

18 DIRECT TESTIMONY OF BRAD B. BANKS CASE NUMBER U-1 Q: What is the purpose of your testimony? A: The purpose of my testimony is to present Staff s position regarding Indiana Michigan Power Company s (I&M) proposed income qualified (IQ) element of their Energy Waste Reduction (EWR) plan. Q: Are you sponsoring any exhibits? A: No. Q: Has I&M included an IQ element to their EWR plan? A: Yes. I&M has an income qualified program in its plan. Q: Is the IQ program different from the plan? A: No. The plan is identical to the plan. It again consists of an IQ home energy audit, IQ home weatherproofing, direct install measures (available to all residential customers), and refrigerator replacement. Q: Was this plan successful in the preceding plan years? A: No. I&M failed to administer an even modestly successful IQ plan. Q: Can you describe the outcome of I&M s 01 IQ plan as provided in the 01 reconciliation of U-1? A: I&M offered a home weatherproofing program to their IQ customers, with a goal of 0 customers to receive assistance. I&M performed a total of home energy audits and only a total of customers received home weatherproofing measures. This resulted in the achievement of % of their IQ Home Weatherproofing kilo watt hours (kwh) savings goals. Not until mid-way through the year did I&M commence an outreach program to community action agencies, Andrews University and the Benton Harbor Housing Authority. I&M also offered a refrigerator replacement program, which resulted in zero

19 DIRECT TESTIMONY OF BRAD B. BANKS CASE NUMBER U-1 refrigerators being replaced. I&M then finally relied on behavior based Home Energy Reports to achieve any kwh savings, mailing out Home Energy Reports. The Home Energy Reports accounted for, kwh of energy savings of I&M s total of 1, of IQ kwh energy savings. In other words, more than % of I&M s IQ program savings consisted of short measure life, behavior based home energy reports and they achieved 1% of their IQ qualified kwh savings goals. In 01, the IQ kwh savings represented a paltry 0. (i.e. less than 1) percent of the total residential savings, which is profoundly egregious when the I&M Michigan service territory is so severely challenged by a significant low income population. Q: Is I&M again relying on behavior programs in its EWR program design? A: Yes. Although changing the semantics of the behavior programs, providing new packaging, and labeling it with the marketing title of E (Educate, Encourage, Entice), it is still heavily reliant on short measure life components consistent with behavior programs. I&M still considers customer education and awareness key to their program. Q: Is I&M making any changes to the behavior program delivery? A: Yes. I&M intends to rely even more heavily on electronic and internet communications with customers to market the program offerings. I&M believes these savings will improve the program cost effectiveness. Q: Did I&M spend their entire Income Qualified budget in 01? A: No. I&M had an IQ budget of $,0.00 and they spent $,.00. Therefore, cost effectiveness of the program was never really an issue. Q: In 01, did I&M design and implement an Income Qualified program that met the needs of its most vulnerable customers?

20 DIRECT TESTIMONY OF BRAD B. BANKS CASE NUMBER U-1 A: No. I&M sent out mailings, paper and electronic, to customers regarding the IQ programs, but then relied on customers contacting them, after the mailings, to initiate any further program activity. This resulted in the customers who had previously received energy efficiency upgrades, when I&M utilized the state program administrator, Efficiency United (EU) being the primary customers who responded to the mailing campaign. In its 01 EM&V report and in the 01 annual report, (U-1, Exhibit IM- (JCW-) prior to seeking out program assistance from community action agencies, I&M indicated that they had trouble identifying and engaging income qualified customers in its service area. Q: Is I&M s Michigan service territory reflective of statewide low income levels? A: No. The United States Census Bureau reports that, in 01, the low income percentage in the state of Michigan was 1.. Of a sampling of cities within I&M s Michigan service territory, the percentage of the population who is classified as low income in 01 was: Three Rivers, %; Dowagiac, 1.%; Niles,.1%; Watervliet, 1.%; Buchanan, 1.%. At the extreme ends are St. Joseph at.% and Benton Harbor at 0.%. Even when removing St. Joseph and Benton Harbor from the calculation, the average low income percentage in I&M s Michigan service territory was., vastly exceeding the state average. Q: When did I&M use the state EWR program administrator, Efficiency United (EU), for their EWR program? A: From I&M was enrolled with Efficiency United. Q: Did Efficiency United, during those years, experience difficulty identifying and engaging income qualified customers?

21 DIRECT TESTIMONY OF BRAD B. BANKS CASE NUMBER U-1 A: No. In the 00-0 annual report Efficiency United had 1 Community Action Agency (CAA) participants and,0 non-caa participants. In the 0 annual report EU had total participants. In 01 EU reported CAA participants and non-caa participants. For 01, EU reported 1 CAA participants and 1,1 non-caa participants. For 01 and 01 I&M opted out of Efficiency United and contracted directly with CLEAResult to administer their EWR program. In 01 CLEAResult report CAA participants and non-caa participants. In 01 CLEAResult reported CAA participants and 1 non-caa participants. For the 01 and 01 plan years I&M decided to completely self-direct and their IQ program failed to achieve a modicum of success. Q: Is the 01 plan year proving to be more effective that 01? A: No. As of the filing of U-1 I&M had completed a total of home energy audits. While doubling the number from the previous year, it remains an insubstantial performance. In the testimony of I&M witness Walter, it is acknowledged that 01 plan year is experiencing difficulty similar to 01 (pp. and ). Q: In light of this, is it reasonable and prudent to propose an identical IQ program for 01-01? A: No. Staff believes I&M s IQ program to be substandard. Q: Does Staff propose to approve I&M s IQ program? A: No. Staff does not find I&M s IQ plan to be reasonable and prudent and cannot support the approval of the IQ portion of the plan. Q. What is Staff s opinion about the savings associated with the HEM and WEM programs?

22 DIRECT TESTIMONY OF BRAD B. BANKS CASE NUMBER U-1 Q. Does Staff have any recommendations regarding I&M s income qualified program? A. Because of the importance of a vibrant income qualified plan, and the vulnerability of their income qualified customers, Staff would recommend that I&M return to subcontracting the income qualified portion of their EWR plan. Q. Does this conclude your testimony? A. Yes

23 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 ) INDIANA MICHIGAN POWER COMPANY ) for Approval of its Energy ) Waste Reduction Plan ) Case No. U-1 ) QUALIFICATIONS AND DIRECT TESTIMONY OF KAREN M. GOULD MICHIGAN PUBLIC SERVICE COMMISSION October, 01

24 QUALIFICATIONS OF KAREN M. GOULD CASE NUMBER U- 1 PART I Q. Please state your full name, business address and occupation. A. My name is Karen M. Gould, and my business address is W. Saginaw, Lansing, MI 1. I am employed by the Michigan Public Service Commission (MPSC or Commission) as an Auditor in the Energy Waste Reduction Section of the Electric Reliability Division. Q. Describe your education and professional background. A. I graduated from Davenport University with a Bachelor s of Science degree in Accounting. From 1 to 00, I worked for a small corporation as the lead bookkeeper and Business Office Manager. I commenced employment with the Commission in 00. From 00 until 00 I was charged with auditing the expenditures of the Low Income Energy Efficiency Fund (LIEEF). Projects included the selection of grantees, audits of each individual grantee who was awarded funding through the LIEEF program, and payment processing. In 00, I began my current position working for the Energy Waste Reduction section (formerly Energy Optimization) as the financial auditor of the Energy Waste Reduction (EWR) program expenditures. In this position I am responsible for the auditing of rate regulated utilities annual reconciliation of their EWR program expenses and annual reports. I also work on the review of utility plan filings for their Energy Waste Reduction biennial plans and amendments. In this position I have taken on several special projects such as grant administrator of the Michigan Saves Energy Efficiency Financing program. From 00 through present I have annually attended the Institute of Public Utilities Regulatory Studies Program. The course work is designed specifically and exclusively to meet the needs of public-sector regulatory professionals. Also, in 00, I spent a week in Nigeria 1

25 QUALIFICATIONS OF KAREN M. GOULD CASE NUMBER U- 1 PART I with the Nigerian Electricity Regulatory Commission through NARUC where I prepared and presented sessions to the Nigerian Federal Electricity Regulatory Commission Staff on the topics of 00 Public Act (PA ) and other regulated energy issues. In September of 00, I attended Building Financial Institute s Building Analyst Training. This was a comprehensive home energy assessment with coursework in building envelope evaluation, thermal and pressure boundaries, air sealing and building airflow standards and calculations. From 00-0, I was the Chair of the EO Evaluation Collaborative Workgroup. This Collaborative, created in Case No. U- et al., consisted of all electric and natural electric utilities subject to the MPSC s jurisdiction under PA, as well as State-wide participation of non-profit organizations, environmental groups, and other State of Michigan government departments. I have served as the contract program manager for the State EWR Plan Administrator since 0, and have worked closely with the selected implementation team along with the contracted fiduciary team to ensure successful EWR programs are carried out for the utilities electing to have their programs completely conducted through this legislative option. In April of 01, PA was amended by Public Act (PA ) which continues the requirements for energy efficiency programs with specific savings targets by all electric and electric utilities in Michigan. Q. Have you ever testified before the Michigan Public Service Commission?

26 QUALIFICATIONS OF KAREN M. GOULD CASE NUMBER U- 1 PART I A. Yes, I have testified in Case No. U- and in Case No. U-. I have also provided written testimony for Case No. U-, U-, U-0, U-, U-, U- 1, and U-1.

27 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to provide recommendations regarding the proposed financial incentive mechanism. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am sponsoring the following exhibit? Exhibits Exhibit S-1 (KMG-1) Description Electric Financial Incentive Mechanism Calculation Q. Was this exhibit prepared by you? A. Yes. Q. Please describe exhibit S-1 (KMG-1). A. Exhibit S-1 (KMG-1) depicts a sliding scale method for determination of an award by the Commission for a financial incentive payment for exceeding electric savings goals in the areas of first year savings, lifetime savings goal, and increased lifetime low income savings percentage as a percentage of total lifetime savings achieved for the program portfolio. Component 1, 1 st year energy savings, must meet the minimum required percentage at Tier 1 to be eligible for the minimum anticipated financial incentive award. The mechanism is structured to have Indiana Michigan Power Company (the Company) meet criteria in components, and the potential award possible would be the sums of the percentages earned up to the maximum percentage reached under Component 1. For example, if the Company reached 1.% of their 1 st year savings goal in 01, they would be eligible for a financial incentive award of 1.1% of their total program spend. In this scenario, if they achieved 1,1, MWh for their lifetime savings goal, and reached.% of their low income

28 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 lifetime savings goal (as a percentage of lifetime savings achieved), they would be eligible for a financial incentive award of 1.% of their total program spend. Example:.% +.1% = 1.% The maximum potential award is not to exceed the maximum percentage possible for the achieved 1 st year targets under Component 1. Q. Does PA require the Commission to authorize a financial incentive payment for utility performance of their EWR plan implementation? A. No. Pursuant to PA, Section, (1), an energy waste reduction plan of a provider whose rates are regulated by the commission may authorize a commensurate financial incentive for the provider for exceeding the energy waste reduction standard. Payment of any financial incentive authorized in the energy waste reduction plan is subject to the approval of the commission. Q. Has the Commission provided guidance on the structure of a financial incentive mechanism? A. Yes. Order No. U- et al, on page, states,.the Commission has made the achievement of the full financial incentive contingent upon meeting certain program goals such as expanding low-income programs and coordinating offerings with low-income agencies to leverage funding, matching programs with other utilities programs to provide consistency in rebate amounts, promoting deep energy savings, and reducing peak demand. While the Commission expects that EWRPs [Energy Waste Reduction Plans] will continue to focus on these areas, in light of the significant changes in EWR technologies, the substantial increase in the maximum amount of the financial incentive, along with the other changes to EWR in Acts 1 and, the Commission finds that these additional performance metrics should be reevaluated. Thus, in their 01 plan cases, for the incentive for the period after the effective date of Act, the parties may propose mechanisms that include the same or additional program goals as part of the financial incentive. Eligibility for receiving a financial award depends upon achieving the specified net energy savings indicated in Act, but the details of the incentive structure will continue to be developed in EWRP cases.

29 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 Q. Has the Company clearly defined its proposal for a financial incentive mechanism? A. Yes Q. What financial incentive mechanism is the Company proposing? A. Company witness Jon C. Walters provides in his testimony, Exhibit IM- (JCW-), an illustrative electric financial incentive mechanism that is structured similar to their previously approved incentive mechanism which takes into consideration the Company s first year s savings which would earn up to a potential 0% of the legislative allowed financial incentive award, plus specific qualitative goals, that when achieved can add additional percentages of the potential financial incentive award. The recommended qualitative metrics include coordination with gas service territory overlap, residential outreach, small C&I segment outreach, and income qualified partnerships. Q. Does Staff agree with the Company proposed financial incentive mechanism? A. No. Staff believes that the financial incentive mechanism proposed is inclusive of qualitative metrics that would not require the Company to go above and beyond what is expected of them according to the legislative requirements of PA. All the qualitative measures are simply criteria of a prudent and reasonable EWR program portfolio. Staff expects to see all these metrics met simply by implementation of the plan in a business as usual case, or in which the only requirement was the legislative 1% target. In actuality, this proposed mechanism is not dissimilar to the previously approved financial incentive mechanism which was approved in 01, in Case No. U-1. The main difference is the newly proposed mechanism eliminates the important lifetime savings goal the Company was previously required to attain. This mechanism is actually easier to achieve

30 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 than their previously approved mechanisms, but has the potential for the Company to earn a much higher financial award. Q. What is the goal of the financial incentive mechanism? A. A financial incentive mechanism should be devised to compensate for the potential reduced opportunity for the provider to invest in utility infrastructure. PA, as amended by PA, identifies energy waste reduction programs as being designed to reduce the future cost of service to customers, to delay the need to construct new electric generating facilities, and to protect customers from incurring the costs of construction. The incentive structure should balance the risks and rewards in a way that provides a greater opportunity to earn its maximum incentive with a better balanced portfolio. Most importantly, the goal of a financial incentive in this case is to incentivize the Company to implement a EWR program that goes above and beyond business as usual, or actual performance achieved historically. Q. Why does Staff recommend the Commission should consider different criteria for the purposes of awarding a financial incentive payment? A. The different metrics proposed in a plan filing should be reflective of areas that provide increased benefit to the Company s customers. These benefits should either be greater than previously achieved, or provide substantial offerings to the Company s customers than what was provided in past program years. A. What are the benefits of longer life measures? A. Longer life measures provide more substantial energy savings, which will deliver more meaningful energy saving changes to a customer s overall energy bill. They can include, but are not limited to, measures such as insulation, windows, Energy Star appliances and

31 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 lighting. These measures individually will offer long-term savings ( + years or more), but can be most efficient and effective when incorporated together. By providing a diverse program for its customers, the Company would be insuring it is fulfilling the intent of the law which is to help provider s customers reduce energy waste and to reduce the future costs of provider service to customers. Although there are some programs that can be implemented more quickly and more cheaply, these programs only offer energy saving benefits for one or two years, such as Home Energy Reports (or behavioral programs). It is the measures that offer energy waste reduction with multiple year endurance that can provide the utility system cost savings envisioned in the legislation. The customer is able to realize greater benefit, which optimizes the potential higher costs of these programs and measures. Other benefits will be realized not only monetarily, but also environmentally, through increased customer comfort, and by providing increased reliability for Michigan s energy future. Q. Does Staff recommend a specific incentive mechanism for the Company s plan? A. Yes. Because there are other objectives mentioned or implied in the statute, such as providing EWR programs for low-income customers and reducing overall energy waste in Michigan, Staff recommends a well-designed incentive mechanism that will incentivize good performance in meeting the various objectives established for the EWR programs. Staff proposes a specific overall framework and two specific component areas should be included in the incentive mechanism. Although exceeding the mandated target should still be a baseline criteria when the Commission approves and awards a financial incentive, adding performance metrics will improve the chances of the EWR programs becoming a true utility system resource. This will also allow the customers to realize greater and more

32 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 meaningful energy waste reduction. Additional qualitative metrics recommended by Staff in a utility provider s incentive structure are individualized and unique to the provider s fuel source and service territory. In the past, financial incentive metrics included longer life-time savings goals, cross utility coordination, increased effort to provide more robust services to the income qualified (IQ) along with more innovative ways to reach this sector, multi-measure/multi-year programming, and development of strategic plans for C&I customers, just to name a few. The metrics utilized in the plans have been assessed over the years, Staff has found many of the metrics have evolved and become essential to the Company s plan. Because these past metrics have proven to benefit the Company s planning purposes, Staff feels that some of the previous metrics have moved from metrics that needed incentivizing into metrics that are simply part of the Company s business as usual components. A financial incentive mechanism should be individualized criteria that encourage the utility to go above and beyond their previous business as usual program portfolios that met the needs and legislative requirements of PA. Since the enactment of PA, and the increased amount of financial incentive award potential, the Company should not only build meaningful EWR program portfolios, but exceed historical performance, which will allow their customers to realize the multitude of benefits that robust EWR measures and programs can provide to a home or business. Q. Is Staff recommending the same financial incentive mechanism introduced in 01 in case no. U-1 and utilized with slight adjustments through the beginning of April 01? A. No. Staff proposes to revise the incentive mechanism to reflect the evolving program goals and align more closely with the new energy legislation. Q. What is Staff s recommendation for a financial incentive mechanism?

33 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 A. First, Staff is recommending that a financial incentive mechanism incorporate a sliding scale concept. It is recommended that the Company meet at least 0% of their 1 st year savings target to be eligible for any financial incentive award. Second, Staff does not recommend putting any emphasis on the UCT score other than that programs should meet the legislative required UCT score of 1.0 or greater (except for IQ programs). In Exhibit S-1 (KMG-1) represent the percentage of the proposed financial incentive award possible based on the percentage of 1 st year savings goal achieved. Q. Why is Staff recommending elimination of the UCT score as a criteria for the financial incentive award? A. Focusing too much on achieving very high UCT scores can result in shallow programs that just focus on the simplest and cheapest measures, and deliver much smaller overall savings. Programs that feature comprehensive measures with deeper savings will tend to have somewhat lower UCT scores, albeit still cost-effective, and still much cheaper than supply side resources. These relatively higher cost programs tend to be the more robust, longer life measures that have the ability to be a substantial utility system resource and actually displace supply-side investments, and have the ability to make a real difference on reducing a customer s energy usage and costs. A financial incentive mechanism based even partially on the UCT score would incentivize the Company to pursue low cost, short measure life program offerings. Q. What other criteria is Staff recommending the Commission consider for the purposes of awarding a financial incentive award? A. Staff is recommending the financial incentive award be based partially on the Company implementing a robust IQ program that displays the Company is aggressively promoting

34 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 healthier building stock while simultaneously reducing the burden of home energy bills for this underserved customer segment. The Company s efforts applied toward their low- income customers would be reflective of the types of meaningful programs offered, amount of program spend toward this segment, total MWh savings, and number of IQ households served in their service territory. Q. Why does Staff propose utilities be obligated to offer robust IQ programs for Commission consideration of a financial incentive award? A. Act Sec. 1 () (a) states, Propose a set of energy waste reduction programs that include offerings for each customer class, including low-income residential. The commission shall allow a provider flexibility to tailor the relative amount of effort devoted to each customer class based on the specific characteristics of the provider s service territory. Michigan s poverty rate is at 1.% 1. Unfortunately, I&M s service territory covers Michigan customers which represent a much larger percentage of low income customers, as mentioned in Witness Banks testimony. Therefore it would seem reasonable that the Company s programs would reflect savings achieved in their service territory that would reach an IQ percentage at a rate closer to the state average of 1.%, or more. Historically, the Company has provided programs to their IQ customers at an achieved savings percentage of around 1.% of their total savings (01 through 01). This is only about 1/ of the savings achieved in 01 when the Company was utilizing the State EO Plan Administrator, Efficiency United (EU). Similarly, the Company has reduced their funding to this customer segment by about the same percentage drop (about % average 1

35 DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 1 for years down to.% for 01-01). The low income lifetime savings goal would represent 0% of the possible incentive award. Q. What percentage of IQ customers and subsequent savings targets are you recommending the Company meet for consideration of a financial incentive award? A. IQ customers are responsible for paying monthly EWR surcharges equal to other residential customers who do not fall in this low income sector. IQ customers spend a much larger percentage of their household income on energy bills not only due to the fact they have a lower monthly income, but also because the housing stock, commonly multi- family housing, is usually not as efficient as homes inhabited by residential customers of a higher median income. Staff would like to see a gradual uptick in the IQ target savings until the company has reached a lifetime IQ savings percentage (as a percentage of lifetime savings achieved) equal to % each year of the program plan. Staff recommends that the Company strive for a % lifetime savings goal (as a percentage of lifetime savings) in 01, and a % lifetime savings goal (as a percentage of lifetime savings) for program year 01. Although, this annual incremental increase would bring the IQ program s savings projections to only % by the end of 01, it is Staff s intention to revisit this component of the Company s financial incentive mechanism during their next biennial EWR plan filing in 01 for program years 00 and 01. Currently, Staff anticipates a continuation of % annual uptick in lifetime low income savings to continue through the end of 01, bringing the Company s total lifetime savings achievement to 1% (as a percentage of lifetime savings achieved). The gradual annual uptick will allow the Company to make the changes necessary to build more robust and meaningful IQ programs each year. As IQ programs do not need to be cost effective, and the collection and spending caps are 1