October 20, Dear Ms. Kale:

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1 A CMS Energy Company October 20, 2017 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Post Office Box Lansing, MI General Offices: LEGAL DEPARTMENT One Energy Plaza Jackson, MI Tel: Fax: (517) (517) CATHERINE M REYNOLDS Senior Vice President and General Counsel *Washington Office: 1730 Rhode Island Ave. N.W. Tel: (202) MELISSA M GLEESPEN Suite 1007 Vice President, Corporate Washington, DC Fax: (202) Secretary and Chief Compliance Officer Writer s Direct Dial Number: (517) Writer s Address: anne.uitvlugt@cmsenergy.com SHAUN M JOHNSON Vice President and Deputy General Counsel H Richard Chambers Kelly M Hall Eric V Luoma Assistant General Counsel Ashley L Bancroft Robert W Beach Don A D Amato Robert A. Farr Gary A Gensch, Jr. Gary L Kelterborn Chantez P Knowles Mary Jo Lawrie Jason M Milstone Rhonda M Morris Deborah A Moss* Mirče Michael Nestor James D W Roush Scott J Sinkwitts Adam C Smith Theresa A G Staley Janae M Thayer Bret A Totoraitis Anne M Uitvlugt Aaron L Vorce Attorney RE: MPSC Case No. U In the matter of the application of CONSUMERS ENERGY COMPANY for Approval of Amendment 2 of the Power Purchase Agreement with T.E.S. Filer City Station Limited Partnership. Dear Ms. Kale: Included for electronic filing in the above-captioned case, please find the Initial Brief of Consumers Energy Company. This is a paperless filing and is therefore being filed only in a PDF format. I have enclosed a Proof of Service showing electronic service upon the parties. Sincerely, Anne M. Uitvlugt cc: Hon. Martin D. Snider, Administrative Law Judge Parties to Attachment 1 to Proof of Service. fl

2 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 ) CONSUMERS ENERGY COMPANY ) for Approval of Amendment 2 of the Power ) Case No. U Purchase Agreement with T.E.S. Filer City ) Station Limited Partnership ) ) I. INTRODUCTION INITIAL BRIEF OF CONSUMERS ENERGY COMPANY The case before the Michigan Public Service Commission ( MPSC or the Commission ) is one that allows Consumers Energy Company ( Consumers Energy or the Company ) to reduce costs to its customers. Consumers Energy negotiated with T.E.S. Filer City Station Limited Partnership ( Filer City ) an amendment ( Amendment No. 2 ) to the parties Power Purchase Agreement ( PPA ), which provides customers substantial benefits. As discussed in detail below, under the terms of Amendment No. 2, Filer City has agreed to the replacement of a higher cost fuel with a lower cost alternative, which results in a more efficient use of natural resources, reduced emissions, and increased capacity in Michigan s Lower Peninsula. 2 TR This results in a reduction in expenses to customers of approximately $45 million on a net present value basis over the term of Amendment No TR 53. A. Background On July 31, 1986, Consumers Energy and Tondu Energy Systems, Inc. entered into a long-term PPA to purchase all electric capacity and energy output from a cogeneration plant located in Filer City, Michigan ( Filer City Plant or the Plant ). Under the PPA, the Filer City Plant was: (i) expected to be fueled with coal, waste wood, and paper sludge; (ii) expected to be equipped with a generator with a nameplate rating not to exceed 60,000 kw; and (iii) expected to ib

3 be capable of extracting up to 280,000 lbs per hour of 600 psi process steam. The Commission approved this PPA in its February 19, 1987 Order in MPSC Case No. U Subsequent to the Commission s approval, the PPA was amended on April 30, 1987 ( Amendment No. 1 ) to adopt capacity payment rates which conformed to limitations established by the Commission in its February 19, 1987 Order. 2 TR 41. The PPA, as amended by Amendment No. 1, has an initial term that will conclude on June 16, 2025 and allows for subsequent one-year terms thereafter unless either party issues a notice to terminate the agreement. 2 TR 42. On August 10, 1988, Tondu Energy Systems, Inc. assigned its interest in the Filer City Plant and the PPA to the Western Michigan Cogeneration Limited Partnership. Tondu Energy Systems, Inc. is a General Partner of the Western Michigan Cogeneration Limited Partnership. Also on August 10, 1988, the Western Michigan Cogeneration Limited Partnership assigned its interest in the Filer City Plant and the PPA to Filer City. Western Michigan Cogeneration Limited Partnership and CMS Generation Filer City, Inc., an affiliate of Consumers Energy, are General Partners of Filer City. 2 TR 41. On May 4, 2017, Consumers Energy and Filer City executed Amendment No TR 42. B. History Of Proceedings On May 8, 2017, the Company initiated this proceeding seeking the Commission s approval, pursuant to MCL 460.6(j)(13) and all other applicable law, of Amendment No. 2 to the Company s PPA with Filer City. A prehearing conference was held on June 27, In addition to the Company, the MPSC Staff ( Staff ); the Attorney General; and the Residential Customer Group were granted intervention in this proceeding. 1 TR 5. The Independent Power Producers Coalition of Michigan ( IPPC ) was granted permissive intervention. 1 TR 17. ib

4 Evidentiary hearings were conducted before Administrative Law Judge ( ALJ ) Martin D. Snider on September 22, Pursuant to the schedule established by the ALJ, Initial Briefs are due October 20, 2017, and Reply Briefs are due November 17, The Company s Initial Brief provides a discussion regarding the reasonableness of Amendment No. 2, and provides initial responses to criticisms raised by Staff and the intervenors. II. AMENDMENT NO. 2 Amendment No. 2 allows for the conversion of the Filer City Plant to use natural gas as its primary fuel, as opposed to coal. This plant conversion necessitates the installation of highly efficient combustion turbine technology. 2 TR 42. So as to maintain the amount of waste steam being provided to the Filer City Plant s steam host the amount of energy and capacity produced by the converted Filer City Plant will increase. The Converted Plant is anticipated to have a net output of approximately 225 MW. 2 TR 45. Under the terms of Amendment No. 2, the Filer City Plant will sell additional electric capacity and energy to the Company. The contract price for the energy and capacity is at a lower rate than the rate specified under the existing terms of the PPA. 2 TR 42. As part of the amendment, the parties agreed that the initial term of the PPA should be extended to 15 years from the Plant conversion date. 2 TR 42. Exhibit A-2 (DFR-2) is a copy of Amendment No. 2. Amendment No. 2 provides for five potential dates where the converted Filer City Plant could commence delivery. These dates are June 1, 2018; June 1, 2019; June 1, 2020; June 1, 2021; and June 1, TR 44. These dates are premised on Filer City: (i) providing proof that it has an executed Interconnection Agreement for the Converted Plant and is authorized under the Interconnection Agreement to begin parallel operation with the interconnected system; and (ii) transferring to Consumers Energy the contract capacity for the Midcontinent Independent System Operator, Inc. ( MISO ) Planning Year beginning the following June 1 st, on or before ib

5 three business days prior to the Fixed Resource Adequacy Plan filing date for that Planning Year. 2 TR If Filer City is unable to convert the Plant prior to June 1, 2022, then Consumers Energy has the right to terminate this amendment. 2 TR 44. Amendment No. 2 further provides that the Company will purchase capacity and energy from the Converted Plant. Consumers Energy will purchase up to 225 Zonal Resource Credits ( ZRCs ) from the converted Filer City Plant. 2 TR 45. Under the amendment, capacity is priced based on the number of ZRCs purchased. Company witness David F. Ronk testified, For each ZRC purchased, a price schedule based on an initial price applicable for the Planning Year that the Converted Plant Initial Delivery Date occurs between 2018 and 2022 has been negotiated. Each price schedule includes an annual adjustment beginning on the first year anniversary of one-half the percentage change in the Consumer Price Index from the April preceding the then current Planning Year to April preceding the Converted Plant Initial Delivery Date. 2 TR 47. For the energy purchased from the Converted Plant, the Company will evaluate the day-ahead Locational Marginal Price ( LMP ) calculated by MISO for the plant node and will purchase the energy delivered from the Converted Plant if the energy price is less than the day-ahead LMP. Under this construct, for every operating day, the Company is entitled to select a Scheduled Delivery Period of at least eight hours to purchase energy when it deems that the maximum positive net energy value is provided or elect to forego any energy purchase if the net energy value is not positive for any delivery period of at least 8 hours. 2 TR 45. Company witness Ronk testified that under the amendment, the price for energy from the Converted Plant is: equal to the Cost of Production. The Cost of Production is equal to a fuel component and a variable cost component. The fuel component is the product of the gas price and the heat rate. The gas price is the midpoint of the common range for the DTE Gas Company s MichCon citygate location as published by Platts Daily Gas in the Daily Gas Survey plus the cost to deliver gas from the MichCon citygate location to the Converted Plant meters. The ib

6 heat rate is 7.6 mmbtu/mwh. The variable cost component is $5.00/MWh adjusted annually beginning June 1, 2018 by the percentage change in the Consumer Price Index from the prior April to April TR 47. If Consumers Energy does not purchase all of the available energy and capacity from the Converted Plant, Filer City may sell the remaining energy and capacity not purchased to others, including the MISO market. 2 TR 45. A. Benefits To Customers Consumers Energy reasonably and prudently entered into Amendment No. 2 to the benefit of its customers. This amendment not only increases capacity for Michigan s Lower Peninsula but is expected to reduce customer costs. Over the 15-year term of Amendment No. 2, costs under the agreement are anticipated to be reduced by approximately $45 million on a net present value basis. The savings amount is approximately $100 million on a net present value basis in the period leading up to July TR 42. Over the remaining term of the contract, there is an increased cost of approximately $60-$70 million on a net present value basis. 2 TR 43. Thus, the savings associated with Amendment No. 2 are based on the reduction of the payments amount under the current PPA and the avoidance of payments under Public Act 286 of 2008 ( PA 286 ). The Company fully supported its estimated customer cost savings under Amendment No. 2. Exhibit A-3 (DFR-3) provides a summary of 30 different scenarios that the Company modeled using a range of gas prices and capacity prices to consider the potential savings and costs that may result from Amendment No. 2 when compared to the original terms of the parties PPA. 2 TR 48. Further, Exhibit A-4 (DFR-4) provides the annual details of five of the modeled scenarios. Under these scenarios, which represents the most likely outcome based on gas and capacity price forecasts, Company witness Ronk indicated that the annual savings during the ib

7 years 2020 through 2024 were approximately $18 million and a cost in years 2026 through 2033 averaged about $7 million per year. 2 TR 49. B. Compliance With The Code Of Conduct Amendment No. 2 of the Filer City PPA came about due to negotiations initiated by Western Michigan Cogeneration Limited Partnership, one of the General Partners of Filer City. 2 TR 51. The Company conducted negotiations in the same manner as it does with other PPA counterparties. Consumers Energy considered the proposed modifications to the agreement in light of benefits it would provide to customers, as well as the Company s need for capacity and energy in the future. 2 TR 51. In negotiating Amendment No. 2, Company witness Ronk testified that [t]he Company and its affiliate have taken care to maintain separate responsibilities so as to allow for arms length negotiations on this matter. 2 TR 52. Because Amendment No. 2 represents an amendment to an agreement between the Company and an affiliate, the Commission s Code of Conduct is applicable. Section III.C. of the MPSC s Code of Conduct provides, in relevant part: If an affiliate or other entity within the corporate structure provides services, products, or property to an electric utility or alternative electric supplier offering regulated service in Michigan, compensation for services and supplies shall be at the lower of market price or 10% over fully allocated embedded cost... MPSC Case No. U-12134, October 29, 2001 Order on Rehearing, Exhibit A, page 3. Amendment No. 2 complies with the Code of Conduct. Exhibit A-5 (DFR-5) provides a detailed calculation of the Company s fully allocated embedded cost of capacity plus 10% of the Company s fully allocated embedded cost of capacity, and compares that amount to be charged by Filer City under Amendment No. 2. As shown in the exhibit, the highest amount to be charged for capacity under Amendment No. 2 is lower than the Company s fully allocated embedded cost of capacity plus 10%, and is lower than the market price for capacity to which the ib

8 Company is otherwise exposed. 2 TR 51. With respect to the energy price to be paid, the Company will make an energy payment based on the market price and will only purchase energy if the cost of production over the Company s proposed Scheduled Delivery Period is less than the Day-Ahead LMP over the same period, thus creating positive net energy value for customers. 2 TR 51. Thus, the capacity and energy prices under Amendment No. 2 comply with the Commission s Code of Conduct and are reasonable to be used as the contract price under the amendment. III. THE COMPANY S INITIAL REPLY TO INTERVENOR TESTIMONY A. Staff Staff is not challenging the benefit to customers of the approximate $45 million in savings provided by the terms of Amendment No TR Instead, Staff witness Julie K. Baldwin contends that Amendment No. 2 should be rejected by the Commission because it is discriminatory against other QFs. 2 TR In an attempt to support this claim, Staff asserts that the capacity payments in Amendment No. 2 are inconsistent with, and higher than, the Company s avoided costs being determined in MPSC Case No. U Staff further submits that the Company is providing an option to Filer City that it would not provide to other Qualifying Facilities ( QFs ). 2 TR 87. Staff s criticisms of Amendment No. 2 should be rejected by the Commission because they are unsupported and have been completely refuted in the record by the Company. As discussed in more detail below, Staff has: (i) improperly presented and calculated the costs for the existing Filer City PPA and Amendment No. 2; (ii) improperly compared Amendment No. 2 to the determination of the Company s avoided costs in MPSC Case ib

9 No. U-18090; and (iii) failed to provide evidentiary support for its argument that the Company is providing an option to Filer City that is it not providing to other QFs. 1. Filer City PPA And Amendment No. 2 Costs There is no question that cost is the paramount issue in this proceeding. The key benefit of Amendment No. 2 is the significant cost savings provided to customers when Amendment No. 2 is compared to the existing Filer City PPA. Staff s position in this case fails to reflect the true cost benefit of Amendment No. 2 because Staff erroneously calculated the rate for the existing Filer City PPA and improperly characterized the Amendment No. 2 capacity rate. The existing Filer City PPA rate of $85.36 per MWh identified by Staff witness Baldwin fails to include all amounts paid to Filer City. 2 TR 56. Mr. Ronk explained that the PPA rate presented by Ms. Baldwin does not include consideration of the PA 286 payment amount Filer City qualifies to recover. This payment permits Biomass Merchant Plants ( BMPs ) the ability to recover additional costs. 2 TR 56. When PA 286 payments are considered, in conjunction with the rates provided for in the terms of the PPA, the rate actually paid to Filer City in 2016 under the existing PPA is $94.73 per MWh, which is $9.37 per MWh greater than the amount cited by Staff. 2 TR 57; see also Exhibit A-6 (DFR-6). This correction is important to the resolution of the issues in this case because, as discussed infra, any cost analysis of Amendment No. 2 must consider the fact that the converted Filer City Plant will no longer collect PA 286 payments and therefore, additional cost benefits are afforded to customers. With respect to the Amendment No. 2 capacity rate, Ms. Baldwin s analysis improperly relied solely on the capacity rate for a June 1, 2018 Converted Plant Initial Delivery Date, as provided in Exhibit A-5 (DFR-5). However, Exhibit A-5 (DFR-5) was not meant to demonstrate the only possible capacity rate for Amendment No. 2. Rather, Exhibit A-5 (DFR-5) was ib

10 provided by the Company to demonstrate that Amendment No. 2 complies with the Commission s Code of Conduct because the highest amount to be potentially charged for capacity does not exceed the Company s fully allocated embedded cost of capacity plus 10%. 1 2 TR 57. As opposed to Ms. Baldwin s reliance on highest possible capacity payment, Mr. Ronk explained that consideration should be given to the full range of potential capacity payments in Amendment No. 2 as well as the likelihood of when the Converted Plant Initial Delivery Date will actually occur. 2 TR As discussed previously, Amendment No. 2 provides for a range of capacity payments for Converted Plant Initial Delivery dates which could potentially occur between June 1, 2018 and June 1, For each year after 2018, the capacity payment amount is reduced so that the customer savings provided by Amendment No. 2 are maintained. Mr. Ronk explained that the probability that the Converted Plant Initial Delivery Date will occur on June 1, 2018 is essentially zero. Furthermore, the probability that the Converted Plant Initial Delivery Date will occur on June 1, 2019 is only moderate due to progress made in obtaining federal and state regulatory approvals that are necessary to allow Amendment No. 2 to become effective. Mr. Ronk explained that the highest probable Converted Plant Initial Delivery Date is June 1, TR 58. By relying solely on the 2018 capacity payment amount, a rate which will almost certainly not be used, Ms. Baldwin has presented a misleading representation of the Amendment No. 2 capacity rate. A more reasonable evaluation of the capacity payments in Amendment No. 2 should take into account the range of possible capacity payments and the likelihood that the Converted Plant Initial Delivery Date will occur on June 1, In calculating the highest possible capacity payment, the Company also used a reasonable Consumer Price Index ( CPI ) adjustment of 2%. 2 TR However, the actual CPI adjustment may be less than 2% and was 1.7% over the past year. 2 TR ib

11 2. Comparison To Avoided Costs The primary flaw in Staff s analysis involves the inappropriate comparison of Amendment No. 2 to the avoided costs at issue in MPSC Case No. U That comparison served as the basis for Staff s claim that the rates in Amendment No. 2 are discriminatory to other QFs. Contrary to Staff s claims, the Commission s determination of the Company s current avoided costs in MPSC Case No. U is irrelevant to this proceeding. Amendment No. 2 was not intended to represent the Company s current avoided costs and instead represents the restructuring and reduction of the Public Utility Regulatory Policies Act of 1978 ( PURPA ) based avoid cost rates which the Filer City PPA was originally based on in the late 1980s. 2 TR 59. It is therefore only appropriate to evaluate Amendment No. 2 based on the original rates in the Filer City PPA and not the avoided cost rates that the Company would be obligated to pay a new QF. There are numerous other factors which also differentiate Amendment No. 2 from the avoided costs at issue MPSC Case No. U The first of such factors is that the converted Filer City Plant will be expected to provide capacity of approximately 225 MW. 2 TR 59. While the Converted Plant may still be considered a QF for Federal Energy Regulatory Commission ( FERC ) certification purposes, but for the existing PPA between Filer City and the Company, the Company would have no PURPA-based obligation to purchase electricity from Filer City at the avoided cost rate. Id. This is because the Company has been excused by FERC of its legal obligation to make purchases from QFs above 20 MW. It is unnecessary and inappropriate to compare the rate for the converted Filer City Plant to the rates determined in MPSC Case No. U-18090, which the Company will be required to pay to QFs with capacity at or below 20 MW. ib

12 Moreover, the fact that the converted Filer City Plant will be a combined cycle and a cogeneration plant is also a distinguishing factor. A combined cycle plant has significantly greater fixed expenses, a lower heat rate, and lower energy costs than the combustion turbine proxy plant which is being used to set avoided capacity costs in MPSC Case No. U TR 59. Furthermore, as a cogeneration facility, the converted Filer City Plant will use energy more efficiently which provides for an opportunity for lower cost energy than what a combustion turbine plant, like the one used to set avoided costs in MPSC Case No. U-18090, typically produces. The converted Filer City Plant s characteristics prevent Amendment No. 2 from being accurately compared to the Company s avoided cost rates. Another problem with Staff s comparison is that the proceedings in MPSC Case No. U are still ongoing. While the Commission has made numerous determinations in its May 31, 2017 and July 31, 2017 Orders in MPSC Case No. U-18090, the Commission has not yet determined the Company s avoided energy costs. Without the Commission s determination of the Company s avoided energy costs, it is still unknown what the Company s full avoided cost amount (i.e. energy and capacity) will be. 2 TR 60. This lack of certainty in the proceedings in MPSC Case No. U makes any comparison between Amendment No. 2 and the Company s to-be-determined avoided costs speculative. Although a comparison between Amendment No. 2 and the proceedings in MPSC Case No. U is inappropriate, the Company did correct Staff s analysis by providing a more meaningful comparison between the Converted [Filer City] Plant and the avoided energy cost likely to be established in MPSC Case No. U TR 60. This comparison included an analysis of the Company s full avoided costs, rather than Staff s comparison of only avoided capacity costs. The Company s comparison incorporated: (i) adjustments to account for avoided ib

13 payments based on the existing Filer City PPA and the value of the dispatchability component of Amendment No. 2; (ii) the components of the Company s avoided costs which have already been decided by the Commission s May 31, 2017 and July 31, 2017 Orders in MPSC Case No. U-18090; and (iii) Staff s proposed energy costs, as provided in Exhibits S-13 (JJH-7) and S-15 (JJH-9) in MPSC Case No. U-18090, to populate the remaining undecided avoided cost issues. 2 2 TR In performing the above comparison, the Company demonstrated that the rates in Amendment No. 2 are less than the Company s full avoided costs at issue in MPSC Case No. U As discussed supra, Staff s analysis of Amendment No. 2 failed to take into account the value of avoided payments under the existing Filer City PPA. Mr. Ronk therefore corrected Staff s analysis to include the value of these avoided payments. 2 TR 67; Exhibit A-8 (DFR-8). More importantly, Staff s analysis failed to reflect the dispatchability component of Amendment No TR 65. Mr. Ronk explained that while the original terms of the Filer City PPA did not allow the Company to dispatch the Filer City Plant, under Amendment No. 2, the Converted Plant will be dispatchable by the Company. 2 TR 65. The dispatchability component of Amendment No. 2 assures that the Company s energy purchases will be economic and that the plant operator assumes the risk associated with starting up the plant or shutting the plant down. 2 TR 66. Mr. Ronk s analysis takes into account this significant benefit to ensure that the true value of Amendment No. 2 was represented. By including the above adjustments with the avoided cost issues decided by the Commission in MPSC Case No. U and Staff s avoided cost input proposals, Mr. Ronk demonstrated that the maximum possible combined capacity and energy cost of the Converted 2 In performing this comparison, the Company does not endorse the positions of Staff in MPSC Case No. U The Company is only using Staff s MPSC Case No. U position in the Company s analysis in this proceeding for illustrative purposes. ib

14 Plant is less than the full avoided costs being determined in MPSC Case No. U In reaching this determination, Mr. Ronk used two different avoided cost payment selections that can be made by a QF, the LMP method and the proxy plant production cost method (2 TR 63), to show the following: By using the LMP avoided cost method approved by the Commission in MPSC Case No. U-18090, and adjustments for dispatchability and avoided payments, the Company s avoided cost combined capacity and energy payment is approximately $433,779 per MW-year or $80.17 per MWh; and By using the proxy plant production cost method approved by the Commission in MPSC Case No. U and an adjustment for avoided payments, the Company s avoided cost combined capacity and energy payment is approximately $407,863 per MW-year or $75.34 per MWh. See 2 TR 62-63; see also Exhibit A-8 (DFR-8). Mr. Ronk explained that the above amounts are both greater than the Amendment No. 2 combined energy and capacity amount of $401,514 per MW-year or $74.20 per MWh for the Converted Plant Initial Delivery Date of June 1, TR 63; see Exhibit A-8 (DFR-8). Mr. Ronk also demonstrated that the combined energy and capacity amounts for the Converted Plant Initial Delivery dates of June 1, 2019 and June 1, 2020 are $399,348 per MW-year or $73.80 per MWh and $398,751 per MW-year or $73.69 per MWh, respectively. 2 TR 64. These amounts are less than the combined energy and capacity amount for the Amendment No. 2 Converted Plant Initial Delivery Date of June 1, 2018 and even further below the avoided cost payment amounts illustrated above. Since the likelihood of a Converted Plant Initial Delivery Date of June 1, 2018 is virtually zero, these amounts provide a clearer picture of the combined energy and capacity payments which will be made pursuant to Amendment No TR 64. As a result of the above, the Commission should reject Staff s criticism of Amendment No. 2. It is improper to compare Amendment No. 2 to the avoided costs being determined in ib

15 MPSC Case No. U because Amendment No. 2 is based on a reduction to the avoided cost rates contained in the existing Filer City PPA. Furthermore, evidence provided by the Company in this case establishes that the combined energy and capacity payments contained in Amendment No. 2 are less than the combined energy and capacity payments produced in the avoided cost case proceeding, MPSC Case No. U Treatment Of Other QFs In addition to Staff s criticisms regarding the payment structure of Amendment No. 2, Staff witness Baldwin also took issue with Amendment No. 2 because of the five-year window for the QF to make the conversion with a fifteen year term payment subsequent to the conversion. 2 TR 67. Ms. Baldwin expressed concern that the Company is providing an option to an affiliate that they are not providing to other QFs. 2 TR 87. This criticism should be rejected because it does not justify a finding that Amendment No. 2 is discriminatory. In fact, Ms. Baldwin did not provided any evidence demonstrating that the Company would not offer a similar provision to a similarly situated generating unit. Furthermore, Mr. Ronk explained that the provision which allows Filer City up to five years to make the plant conversion recognized that the proposed conversion project required several regulatory approvals. 2 TR 68. Although the Company had a moderate expectation that the Converted Plant Initial Delivery Date would occur by June 1, 2019 to support the Company s capacity needs for the 2019 MISO Planning Year, the Company opted to include a potential Converted Plant Initial Delivery Date for June 1, 2018 because it still provided significant value to customers if it could be achieved. 2 TR 68. On the other hand, Mr. Ronk explained that while the value to the Company s customers diminishes if the Converted Plant Initial Delivery Date does not occur by the MISO 2019 Planning Year, the Company agreed to possible Converted ib

16 Plant Initial Delivery dates until June 1, 2022 because customer value could still be provided until that time. 2 TR 68. Mr. Ronk further explained that [t]he Company anticipates that it will take a similar position with similarly situated QFs. 2 TR 69. Therefore, there is no support for a finding that the window for plant conversion and term provided in Amendment No. 2 is discriminatory or that the Company would not offer a similar PPA structure to a similarly situated generating unit. B. IPPC IPPC filed testimony which adopted Staff s position regarding the alleged discriminatory effect of Amendment No. 2 without any additional analysis of its own. 2 TR 100. For the reasons discussed above in response to Staff, IPPC s position should also be rejected. The evidence presented in this case demonstrates that the Amendment No. 2 rates are not greater than the Company s avoided costs and there is also no evidentiary support for a finding that Amendment No. 2 contains terms that the Company would not offer to a similarly situated QF. At 2 TR 104, IPPC also disagreed with Mr. Ronk s calculation of PA 286 payments that the Company s customers avoid if Amendment No. 2 is approved. IPPC witness Thomas V. Vine argued that the customer savings from Filer City not collecting PA 286 payments was only approximately $1 million and not the $4.5 million calculated by Mr. Ronk. 2 TR 105. IPPC s argument is incorrect and should be rejected. Mr. Vine failed to correctly calculate the cost that will be avoided by the Company s customers if Amendment No. 2 is approved and Filer City no longer collects PA 286 payments. 2 TR 74. Mr. Ronk explained that Mr. Vine s analysis failed to limit the recoverable amount of the remaining BMP units by the lesser of the adjusted capped amount and the actual excess expense incurred during the month as follows: ib

17 In Exhibit IPP-1 (TV-1), Mr. Vine calculates a variance of $1,014,528 (see page 3) as contrasted with the estimate that I provided of approximately $4.5 million. In performing his calculation, Mr. Vine provides the amount of excess expense incurred by each of the eligible plants. He then prorates the recoverable amount based on the requirement that the aggregated monthly amount not exceed $1 million, and calculates the amount of recovery that would result if the capped amount was increased by the amount of change in the consumer price index. He performs the same calculation assuming that the Filer City Plant is ineligible to receive compensation and then compares the two results. In calculating the amount of recovery that would result if the capped amount was increased by the amount of change in the consumer price index, he erred by not limiting the recoverable amount by the lesser of the adjusted capped amount and the actual excess expense incurred during the month. For instance, on page 2 of Exhibit IPP-1 (TV-1), Cadillac Renewable Energy, LLC is shown to have incurred $159,622 in excess expense in October After performing his analysis assuming the Filer City Plant is ineligible to recover its excess expense, Mr. Vine incorrectly concludes that Cadillac Renewable Energy, LLC should be eligible to recover $178,572 for its expense in October 2016, which is more than its excess expense in a month. 2 TR In addition to failing to limit the recoverable amount by the remaining BMP units, Mr. Vine also failed to consider in his analysis that three other BMP units that currently receive PA 286 payments will not continue receiving PA 286 payments in the future. 2 TR 75. Hillman, Viking Lincoln, and Viking McBain units all have expiring contracts with the Company. Once the Company s current PPAs with these units expire, new agreements are expected to be reached with those generating units. The new agreements would preclude recovery of PA 286 payments because the agreements would not have been in existence on or before January 1, SeeMCL 460.6a(9). When these three units become ineligible to receive compensation under PA 286, each of the remaining BMP units will receive a larger share of their excess expenses. 2 TR 75. However, because the remaining BMP units, subsequent to the removal of the three ineligible units, would already be receiving full compensation for expenses as provided by ib

18 PA 286, the removal of Filer City from the pool of eligible BMP units does not materially increase the Company s expense to the remaining BMP units. 2 TR 76. Upon correcting the two aforementioned errors in Mr. Vine s analysis, Mr. Ronk explained that the true savings to customers of eliminating Filer City from the pool of eligible BMP units, as required by Amendment No. 2, is actually $5.2 million and not the $1 million in savings calculated by Mr. Vine. 2 TR 76; see also Exhibit A-13 (DFR-13). While the $5.2 million amount differs slightly from the $4.5 million amount calculated in Exhibit A-6 (DFR-6), there is no support for a finding that the Company overstated the true savings of Amendment No. 2, as Mr. Vine suggested. The $5.2 million benefit calculated in Exhibit A-13 (DFR-13) demonstrates that the $4.5 million amount originally calculated by Mr. Ronk was a conservative estimate and that Mr. Ronk did not over-state the savings that Amendment No. 2 provides to customers. 2 TR 76. IPPC s criticism of the Company s calculation of PA 286 payments, and corresponding customer costs, is flawed and should be rejected. ib

19 IV. CONCLUSION Therefore, for the reasons discussed herein, Consumers Energy Company requests that the Michigan Public Service Commission approve Amendment No. 2 of its PPA with Filer City. Amendment No. 2 is reasonable, prudent, and provides cost savings to customers. As such, the Company requests that the Commission specifically find that it approves recovery of the payments under the PPA, as amended by Amendment No. 2, for the kilowatt hours delivered by Filer City to Consumers Energy after the Converted Plant Initial Delivery Date for the purposes of Section 6jof 1982 PA 304, 1987 PA 81, and all other applicable law. Respectfully submitted, CONSUMERS ENERGY COMPANY Dated: October 20, 2017 By: Anne M. Uitvlugt (P71641) Robert W. Beach (P73112) One Energy Plaza Jackson, Michigan Attorneys for Consumers Energy Company (517) ib

20 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 ) CONSUMERS ENERGY COMPANY ) for Approval of Amendment 2 of the Power ) Case No. U Purchase Agreement with T.E.S. Filer City ) Station Limited Partnership ) ) STATE OF MICHIGAN ) ) SS COUNTY OF JACKSON ) PROOF OF SERVICE Melissa K. Harris is, being first duly sworn, deposes and says that she is employed in the Legal Department of Consumers Energy Company; that on October 20, 2017, she served an electronic copy of the Initial Brief of Consumers Energy Company upon the persons listed in Attachment 1 hereto, at the addresses listed therein. She further states that she also served a hard copy of the same document to the Hon. Martin D. Snider at the address listed in Attachment 1 by depositing the same in the United States mail in the City of Jackson, Michigan, with first-class postage thereon fully paid. Melissa K. Harris Subscribed and sworn to before me this 20 th day of October, Samantha O Rourke, Notary Public State of Michigan, County of Jackson My Commission Expires: 10/30/21 Acting in the County of Jackson ps

21 ATTACHMENT 1 TO CASE NO. U Administrative Law Judge Hon. Martin D. Snider Administrative Law Judge 7109 West Saginaw Highway Post Office Box Lansing, MI sniderm@michigan.gov Counsel for the Michigan Public Service Commission Staff Meredith R. Beidler, Esq. Monica M. Stephens, Esq. Assistant Attorneys General 7109 West Saginaw Highway Post Office Box Lansing, MI beidlerm@michigan.gov stephensm11@michigan.gov Counsel for Attorney General, Bill Schuette Michael E. Moody, Esq. Joel King, Esq. Assistant Attorney General Michigan Dept. of Attorney General, Special Litigation Unit 6 th Floor Williams Building Post Office Box Lansing, MI moodym2@michigan.gov kingj38@michigan.gov AG-ENRA-Spec-Lit@michigan.gov Counsel for the Residential Customer Group Don L. Keskey, Esq. Brian W. Coyer, Esq. Public Law Resource Center PLLC 333 Albert Avenue, Suite 425 East Lansing, MI donkeskey@publiclawresourcecenter.com bwcoyer@ publiclawresourcecenter.com Counsel for Independent Power Producers Coalition of Michigan Timothy J. Lundgren, Esq. Laura A. Chappelle, Esq. Toni L. Newell, Esq. Varnum LLP 201 North Washington Square, Suite 910 Lansing, MI tjlundgren@varnumlaw.com lachappelle@varnumlaw.com tlnewell@varnumlaw.com sl Page 1 of 1