201 North Washington Square Suite 910 Lansing, Michigan June 7, 2017

Transcription

1 0 North Washington Square Suite 0 Lansing, Michigan Telephone / - Fax / - Timothy J. Lundgren tjlundgren@varnumlaw.com June, 0 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 0 W. Saginaw Highway P.O. Box 0 Lansing, Michigan 0 Re: MPSC Case No. U-0 Dear Ms. Kale: Attached for electronic filing in the above-referenced matter, please find the Rebuttal Testimony of T. Michael Twomey on behalf of Entergy Nuclear Palisades, LLC and Entergy Nuclear Power Marketing, LLC, as well as the Proof of Service. If you have any questions, please feel free to contact my office. Thank you for your assistance in this matter. Sincerely yours, VARNUM TJL/kc Enclosures c. ALJ All parties of record. Timothy J. Lundgren Grand Rapids Detroit Novi Kalamazoo Grand Haven Lansing Ann Arbor Hastings

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) CONSUMERS ENERGY COMPANY for a ) Case No. U-0 financing order approving the securitization ) of qualified costs and related approvals. ) ) REBUTTAL TESTIMONY OF T. MICHAEL TWOMEY ON BEHALF OF ENTERGY NUCLEAR PALISADES, LLC AND ENTERGY NUCLEAR POWER MARKETING, LLC

3 Q. Please state your name and business address. A. My name is T. Michael Twomey. My business address is 0 Hamilton Avenue, White Plains, New York, Q. Please describe your educational background and business experience. A. I received a bachelor s degree from Tulane University in and a law degree from the University of Connecticut in 0. Since 0, I have worked on a wide range of public utility regulatory issues, as a lawyer (from 0 to 00) and as a company executive (from 00 to the present). My experience includes serving as () Vice President of Regulatory Affairs of Entergy Louisiana, LLC (00 to 00), with responsibility for all state regulatory proceedings, such as rate cases, fuel audits, and power plant acquisition approvals; () Vice President of Utility Strategy of Entergy Corporation ( Entergy Corporation ) (00 to 00), with responsibility for developing regulatory strategies for Entergy Corporation s public utility operating companies in Arkansas, Louisiana, Mississippi, and Texas; and () Vice President of External Affairs-Wholesale of Entergy Corporation s Whole Sale Commodities group (00 to the present), with responsibility for matters discussed below. 0 Q. By whom and in what capacity are you employed? A. I am employed by Entergy Services, Inc., a subsidiary of Entergy Corporation. My title is Vice President, External Affairs-Wholesale.

4 0 Q. Please describe your job responsibilities. A. I am responsible for leading a team of government affairs and communications professionals that represent the company s interests before state government officials and regulatory agencies in Massachusetts, Michigan, New York, and Vermont; before the New York-ISO and ISO-New England; and with the media in those markets. The team is generally focused on external affairs issues related to Entergy Corporation s ownership and operation of non-utility nuclear plants. Over the last several years, the issues have included state matters related to pending applications with the Nuclear Regulatory Commission as well as engagement with state and local officials and communities related to nuclear plant shutdowns and eventual decommissioning. Q. Have you previously testified before the Michigan Public Service Commission (the Commission )? A. No, I have not. Q. On whose behalf are you testifying in this proceeding? A. I am testifying on behalf of Entergy Nuclear Palisades, LLC and Entergy Nuclear Power Marketing, LLC, to whom I will refer collectively as Entergy. 0 Q. What is the purpose of your testimony? A. I am responding to the Direct Testimony of certain Staff and intervenor witnesses. Q. Are you sponsoring any exhibits?

5 A. No, I am not. Q. Have you seen the testimony of Mr. Nicholas L. Phillips, in which he speculates that the Palisades Nuclear Plant (the Palisades Plant ) may not be economic for Entergy to continue to operate, and consequently questions why Entergy has not invoked Section 0. of the Power Purchase Agreement between Consumer Energy Company ( Consumers ) and Entergy (the PPA )? A. Yes, I have. 0 0 Q. Do you agree with Mr. Phillips assessment that it is confusing and contradictory that Entergy has offered to terminate the PPA through an amendment to the PPA (the PPA Amendment ) rather than invoke the termination provision in Section 0. of the PPA? A. No, I do not think it should be seen as either confusing or contradictory. Section 0. of the PPA would allow Entergy to provide notice of permanent retirement of the Palisades Plant only if Entergy had determined that operation of it had become materially and economically adverse such that continued operation of the Facility is no longer feasible, prudent and/or sustainable. However, those are not the circumstances that we are facing. This is clear from the PPA Amendment, which states in Section (b), Seller represents and warrants to Buyer that it has not determined that the operation of the Facility has become materially and economically adverse such that continued operation of the Facility is no longer feasible, prudent and/or sustainable in accordance with the PPA. In other words, Entergy has not made the determination required under Section 0. of the PPA, but has nevertheless determined that it would be in its business interests to close

6 the Palisades Plant under the terms of the PPA Amendment. These are two different and distinct sets of circumstances, and just because Entergy has determined that it is in its business interests to close the Palisades Plant under the circumstances of the PPA Amendment, that does not mean that the requirements of Section 0. can be met in the absence of the PPA Amendment. 0 0 Q. Staff witness, Ms. Catherine E. Cole, states that, Staff finds it interesting that the book value that Entergy provided for the Palisades Plant is $ million, and that this is also the amount of the negotiated buyout payment. While she does not make any further comment on this, she seems to be making an implicit suggestion that the buyout number was really set to reflect the plant s book value. Does the $ million buyout number derive from the plant s book value? A. No, it does not. The $ million number is the result of a lengthy negotiation between Entergy and Consumers, taking into consideration the benefit to Consumers s customers of an early termination of the PPA, as well as other factors. With respect to the book value, after Entergy reached agreement with Consumers Energy in December 0 to terminate the PPA in May 0 and based on the possibility of shutting the plant down earlier than previously assumed, Entergy tested the recoverability of the plant and related assets as of December, 0 to evaluate potential impairment charges. Under generally accepted accounting principles the determination of an asset s recoverability is based on the probability-weighted undiscounted net cash flows expected to be generated by the plant and related assets. Projected net cash flows primarily depend on the status of the operations of the plant and pending legal and state

7 0 regulatory matters, as well as projections of future revenues and costs over the estimated remaining life of the plant. The tests for the Palisades Plant indicated that the probability-weighted undiscounted net cash flows did not exceed the carrying values of the plants and related assets as of December, 0. In order to determine the amount of the December 0 impairment charge, an external valuation specialist assisted in the preparation of a fair value analysis of the Palisades Plant. This valuation was prepared using the income approach, a discounted cash flow method. As of December, 0, the estimated fair value of the Palisades Plant and related long-lived assets was approximately $00 million, which was based on the price that Entergy would expect to receive in a hypothetical sale of the Palisades Plant and related assets to a market participant. The net book value of the Palisades Plant and related assets on March, 0 was $ million. The difference in book values between December, 0 and March, 0 is due primarily to depreciation through March 0, amortization of deferred outage costs, and expensing of nuclear fuel. 0 Q. Have you seen the testimony of Mr. William A. Peloquin, in which he suggests that Entergy might operate the Palisades Plant at less than full capacity without the $ Million buyout? A. Yes, I have. Q. Do you agree with his assessment?

8 A. No, I do not. Running the Palisades Plant at less than full capacity for an extended period of time would introduce operational and economic complexities that Entergy would not be willing to accept. 0 Q. What is Entergy s plan if the Commission does not approve the proposed PPA Amendment? A. If the Commission does not approve the proposed amendment to the contract, then Entergy will operate the plant under the current contract terms in place before the proposed amendment was signed. As I have testified previously, when the circumstances of the PPA Amendment were taken into account, Entergy determined that it was in its business interests to close the Palisades Plant. Furthermore, if the Commission does not approve the early termination of the PPA, then Entergy would also have to reevaluate its commitment to provide $ million in community transition funding. Entergy s willingness to provide such funding is conditioned upon the successful execution of the transaction submitted to the Commission for approval. 0 Q. Mr. Peloquin suggests that the timeline for refueling, which is driving the need for a Commission determination by September 0, is not as pressing as Consumers has suggested. Do you agree? A. No, I do not agree. If the plant were to continue to operate beyond 0, it would need to be refueled in October 0. To prepare for such refueling, Entergy needs approximately one year to define the appropriate scope of work, schedule

9 supplemental contract workers, order equipment and materials, and order the fabrication of the fuel. While these tasks could be completed in less than one year, compression of the timeline would likely lead to increased costs and reduced efficiencies. 0 Q. Mr. Peloquin suggests that Entergy can either borrow unused fuel from its other plants for use at the Palisades Plant, or order the fuel and if it s not needed ship it to another plant for use there, or sell any fuel that is purchased but not needed. Are these viable options? A. No, they are not viable options, for the reasons explained above. 0 Q. Mr. Peloquin objects to what he calls [t]he lack of any revelation by Entergy as to its plans for the Palisades plant in 0 such as selling the plant or any other event. Is he correct that Entergy has not stated its plans? A. To the contrary, Entergy has announced its plans for the Palisades Plant in 0. If the Commission approves Consumers's application, Entergy intends to shut down the plant on October, 0. The buyout payment is intended to terminate Consumers's obligation to purchase the output of the Palisades Plant. We believe that terminating the PPA is in the best interests of all parties, including ratepayers, as CMS has stated in its application and testimony. Moreover, it is important to remember that the plant is privately held by Entergy, which is not subject to the jurisdiction of the Michigan Public Service Commission. And, as the Commission has stated publicly, any decision Entergy makes with respect to the closure of the Palisades Plant is separate and independent of the Commission s review of the termination of the PPA.

10 0 Q. Mr. Peloquin challenges the fairness of the agreement between Entergy and Consumers to share the ratepayer savings on a 0/0 basis through the buyout payment to Entergy. He speculates that this may not be the minimum amount that is necessary to entice Entergy to terminate the PPA contract early. I believe it is much less than $ million. Do you have a response? A. Yes, I do. Entergy believes that the terms it agreed to with Consumers in the PPA Amendment are reasonable and prudent and will benefit Consumers's ratepayers. Further, Entergy believes that the buyout price appropriately reflects the loss of PPA revenues to Entergy and the costs and obligations that still remain with Entergy despite early termination. I would like to reiterate the buyout price is not resulting in a financial windfall to Entergy as evident from the impairment charges recognized in December 0. Please see the extract below from 0 Entergy s press release dated December, 0. As a result of the agreement to terminate the PPA and its intention to shut down the plant, Entergy will recognize a noncash impairment charge of approximately $0 million ($ million after-tax) in the fourth quarter of 0. In addition to the impairment charge, through the end of 0 Entergy expects to record additional charges totaling approximately $ million related to severance and employee retention costs.

11 The PPA Amendment was the result of a thorough and careful negotiation between the two parties to the PPA and should not be subject to renegotiation by outside parties. Q. Does this conclude your Reuttal Testimony? A. Yes, this concludes my testimony. _.docx 0

12 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) CONSUMERS ENERGY COMPANY for a ) Case No. U-0 financing order approving the securitization ) of qualified costs and related approvals. ) ) PROOF OF SERVICE STATE OF MICHIGAN ) ) ss. COUNTY OF INGHAM ) Kimberly Champagne, the undersigned, being first duly sworn, deposes and says that she is a Legal Secretary at Varnum LLP and that on the th day of June, 0, she served a copy of the Rebuttal Testimony of T. Michael Twomey on behalf of Entergy Nuclear Palisades, LLC and Entergy Nuclear Power Marketing, LLC upon those individuals listed on the attached Service List via at their last known addresses. Kimberly Champagne

13 SERVICE LIST MPSC CASE NO. U-0 Administrative Law Judge Hon. Sharon Feldman Administrative Law Judge Michigan Public Service Commission 0 W. Saginaw Hwy., rd Floor Lansing, MI feldmans@michigan.gov Counsel for Attorney General Celeste R. Gill John A. Janiszewski Environment, Natural Resources, and Agriculture Division th Floor, G. Mennen Williams Bldg. P. O. Box 0 Lansing, MI 0 gillc@michigan.gov JaniszewskiJ@michigan.gov AG-ENRA-Spec-Lit@michigan.gov Counsel for Consumers Energy Company Robert W. Beach Bret A. Totoraitis Shaun M. Johnson One Energy Plaza EP- Jackson, MI 0 robert.beach@cmsenergy.com bret.totoraitis@cmsenergy.com shaun.m.johnson@cmsenergy.com mpsc.filings@cmsenergy.com Sherri A. Wellman Paul M. Collins Miller, Canfield, Paddock and Stone, PLC One E. Michigan Ave., Ste. 00 Lansing, MI wellmans@millercanfield.com collinsp@millercanfield.com Counsel for the Michigan Environmental Council Christopher M. Bzdok Tracy Jane Andrews Olson, Bzdok & Howard, PC 0 E. Front St. Traverse City, MI chris@envlaw.com tjandrews@envlaw.com karla@envlaw.com kimberly@envlaw.com Counsel for ABATE Michael J. Pattwell Sean P. Gallagher Stephen A. Campbell Clark Hill PLC E. Grand River Ave. Lansing, MI 0 mpattwell@clarkhill.com sgallagher@clarkhill.com scampbell@clarkhill.com James Dauphinais Mike Gorman Brubaker & Associates, Inc. 0 Swingley Ridge Rd., Ste. 0 Chesterfield, MO 0 jdauphinais@consultbai.com mgorman@consultbai.com Michigan Public Service Commission Staff Lauren D. Donofrio Meredith R. Beidler 0 W. Saginaw Hwy., rd Floor Lansing, MI donofriol@michigan.gov beidlerm@michigan.gov

14 Counsel for Residential Customer Group Don L. Keskey Brian W. Coyer Public Law Resource Center PLLC University Office Place Albert Avenue, Suite East Lansing, MI