2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

Transcription

1 1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of Consumers Energy Company for approval Case No. U- of its Energy Waste Reduction Plan. Volume / CROSS-EXAMINATION Proceedings held in the above-entitled matter before Dennis W. Mack, J.D., Administrative Law Judge with MAHS, at the Michigan Public Service Commission, West Saginaw Highway, Lake Michigan Room, Lansing, Michigan, on Wednesday, October, 01, at :01 a.m. 1 APPEARANCES: 1 GARY A. GENSCH, JR., ESQ. 1 THERESA A.G. STALEY, ESQ. Consumers Energy Company 1 One Energy Plaza, Room EP- Jackson, Michigan 01 1 On behalf of Consumers Energy Company 1 CHRISTOPHER M. BZDOK, ESQ. 1 Olson Bzdok & Howard, PC 0 East Front Street 1 Traverse City, Michigan 0 On behalf of Natural Resources Defense Council 1 LYDIA BARBASH-RILEY, ESQ. Olson Bzdok & Howard, PC 0 East Front Street Traverse City, Michigan On behalf of National Housing Trust (Continued) Metro Court Reporters, Inc..0.

2 1 APPEARANCES Continued: DON L. KESKEY, ESQ. Public Law Resource Center, PLLC Albert Avenue, Suite East Lansing, Michigan On behalf of Residential Customer Group STEPHEN A. CAMPBELL, ESQ. Clark Hill, PLC 00 Woodward Avenue, Suite 00 Detroit, Michigan - and - SEAN PATRICK GALLAGHER, ESQ. Clark Hill, PLC 1 East Grand River Avenue Lansing, Michigan 0 On behalf of Association of Businesses Advocating Tariff Equity (ABATE) 1 SPENCER A. SATTLER, MONICA STEPHENS, 1 Assistant Attorneys General West Saginaw Highway, Floor 1 Lansing, Michigan 1 1 On behalf of Michigan Public Service Commission Staff REPORTED BY: Lori Anne Penn, CSR- Metro Court Reporters, Inc..0.

3 1 I N D E X WITNESS: PAGE WILLIAM A. PELOQUIN Testimony Bound In 0 THEODORE A. YKIMOFF Direct Examination by Mr. Gensch 1 Cross-Examination by Mr. Bzdok Cross-Examination by Ms. Barbash-Riley ALFRED A. ALATALO Testimony Bound In 1 EUGENE M.J.A. BREURING Testimony Bound In 1 1 SVITLANA LYKHYTSKA 1 Testimony Bound In 1 1 RICHARD A. MORGAN 1 Testimony Bound In 1 1 THERESA K. SCHMIDT 1 Testimony Bound In 1 1 S. AUSTIN SMITH 1 Testimony Bound In 1 0 ANNIKA BRINK 1 Testimony Bound In 1 CHRIS NEME Testimony Bound In 1 MICHAEL P. GORMAN Testimony Bound In Metro Court Reporters, Inc..0.

4 1 I N D E X WITNESS: PAGE KAREN M. GOULD Testimony Bound In DAVID S. WALKER Testimony Bound In Metro Court Reporters, Inc..0.

5 1 1 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A-1 (EMB-1) Electric Retail Sales 1 Forecast A- (EMB-) Gas Retail Deliveries 1 Forecast A- (EMB-) Billing Determinants Used 1 For Developing The Electric Energy Optimization Surcharges A- (EMB-) Billing Determinants Used 1 For Developing The Electric Self- Direct Energy Optimization Surcharges A- (EMB-) Billing Determinants Used 1 For Developing The Gas Energy Optimization Surcharges 1 A- (SL-1) EWR Electric Cumulative 1 1 Over (Under) Recovery (By Class and Total) 1 A- (SL-) EWR Gas Cumulative Over 1 1 (Under) Recovery (By Class and Total) 1 A- (SAS-1) Allocation of the Energy Efficiency Program Investments- Electric & Gas 1 A- (SAS-) Calculation of Energy 1 1 Efficiency Plan Surcharges - Electric & Gas 0 A- (SAS-) Proposed Electric Energy 1 1 Efficiency Surcharge Tariff Sheet A- (SAS-) Proposed Gas Energy 1 Efficiency Surcharge Tariff Sheet A-1 (TAY-1) Calculation of Annual 1 Energy Savings Targets Metro Court Reporters, Inc..0.

6 1 1 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A-1 (TAY-) Energy Waste 1 Reduction Plan Report A-1 (TAY-) Calculation of Electric 1 Investment Recovery A-1 (TAY-) Calculation of Natural 1 Gas Investment Recovery A-1 (TAY-) Proposed Financial Incentive Mechanism A-1 (SAS-) Proposed Electric Energy 1 Efficiency Tariff Sheets A-1 (SAS-) Proposed Gas Energy 1 Efficiency Tariff Sheets 1 A-1 (TAY-) Impact of Staff s Low-Income 1 Performance Metric 1 A-0 (TAY-) CORRECTED Energy 1 1 Efficiency Plan Performance Metrics 1 A-1 (TAY-) Michigan CFL NTG 01 1 Research Final Report 1 A- (TAY-) Multifamily Program 1 1 Enhancements 1 A- (TAY-) Duke Energy Prepaid 1 Advantage Pilot Learnings Report RCG EE Plan - Allocation of Support Service Investments AB-1 EWR Plan Investments (01-01) AB- Natural Gas Energy Efficiency Surcharges Metro Court Reporters, Inc..0.

7 1 1 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD NRD-1 C. Neme CV NRD- Discovery Response NRDC-CE NRD- Optimal Energy and Energy Futures Group Final Phase 1 Report NRD- Discovery Response NRDC-CE NRD- Discovery Response NRDC-CE NRD- Discovery Response NRDC-CE-a-e NRD- Discovery Response NRDC-CE (CECo Response to NRDC-1) NRD- 1-0 Ameren Illinois Energy Efficiency Plan, 1 Exhibit 1.1, Appendix I, page -0 1 NRD- Discovery Response NRDC-CE (CECo Response to NRDC-a) 1 NRD- Discovery Response NRDC-CE (CECo Response to NRDC-) 1 NRD-1 Discovery Response NRDC-CE (CECo Response to NRDC-) 1 NRD-1 Discovery Response NRDC-CE NRD-1 Discovery Response NRDC-CE- 0 1 NRD-1 Discovery Response NRDC-CE NRD-1 Discovery Response NRDC-CE NRD-1A CADMUS Memorandum - July, 01 NRD-1B Discovery Response NRDC-CE- NRD-1C Discovery Response NRDC-CE- NRD-1 Discovery Response NRDC-CE Metro Court Reporters, Inc..0.

8 1 1 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD NRD-0 Energy Star Lighting Program Evaluation Final Report - 01 Program Year - June 1, 01 NRD-0 Discovery Response NRDC-CE (Discussed, but never marked) NHT-1 Resume of Annika Brink, National Housing Trust NHT- Response to -NHT-CE-, which I am sponsoring on behalf of NHT NHT- Response to -NHT-CE-, which I am sponsoring on behalf of NHT 1 NHT- Response to -NHT-CE-, which I am sponsoring on behalf of NHT 1 NHT- Mosenthal, P. and Socks, M., Potential for Energy Savings in Affordable Multifamily Housing, 1 Optimal Energy for NRDC, 01, which I am sponsoring on behalf 1 of NHT 1 NHT- February 1, 01 Michigan EEFA Potential Study Findings Webinar 1 NHT- Response to -NHT-CE NHT- Response to -NHT-CE NHT- Corrected Response to NHT-CE-0 NHT- Discovery Response NHT-CE- NHT-A Multifamily Impact Evaluation 1 1 National Grid Rhode Island January 1, 01 Metro Court Reporters, Inc..0.

9 1 1 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD NHT-B 01 National Grid Multifamily 1 1 Program - Gas and Electric Impact Study - October S-1 (KMG-1) Electric Financial Incentive Mechanism Calculation S- (KMG-) Gas Financial Incentive Mechanism Calculation S- (DSW-1) Company work paper, WP-TAY-1, provided in Discovery Response -NRDC-CE-1 S- (DSW-) Company audit response to question, /0/1 1 S- (DSW-) Home Energy Report Annual 1 Savings & Total Investments 1 S- (DSW-) Company discovery response, -NRDC-CE-1 1 S- (DSW-) Company discovery response, 1 -NRDC-CE Metro Court Reporters, Inc..0.

10 1 1 Lansing, Michigan Wednesday, October, 01 At :01 a.m (Hearing resumed following adjournment of Thursday, May, 01.) (Documents marked for identification by the Court Reporter as Exhibit Nos. A-1 through A-1, A-0 Corrected, A-1 through A-; and RCG-1.) JUDGE MACK: Good morning. This is a 1 proceeding before the Michigan Public Service Commission 1 on the application of Consumers Energy Company for 1 approval of its 01 through 01 Energy Waste Reduction 1 Plan. This case is assigned Docket No. U-. 1 My name is Dennis Mack, I'm an 1 administrative law judge with the Michigan Administrative 1 Hearing System. 1 Mr. Gensch, would you care to begin the 0 appearances? 1 MR. GENSCH: Yes. Good morning, your Honor. Gary Gensch and Theresa Staley on behalf of Consumers Energy Company. JUDGE MACK: Thank you. MS. BARBASH-RILEY: Good morning, your Metro Court Reporters, Inc..0.

11 1 1 Honor. Lydia Barbash-Riley on behalf of the National Housing Trust. JUDGE MACK: Thank you. MR. BZDOK: Good morning, your Honor. Christopher Bzdok appearing today on behalf of the Natural Resources Defense Council. JUDGE MACK: Thank you. MS. STEPHENS: Good morning, your Honor. Monica Stephens and Spencer Sattler on behalf of MPSC Staff. JUDGE MACK: Thank you. 1 MR. CAMPBELL: Good morning, your Honor. 1 Steve Campbell with Clark Hill, PLC, on behalf of the 1 Association of Businesses Advocating Tariff Equity. 1 JUDGE MACK: Thank you. 1 MR. KESKEY: Good morning, your Honor. 1 Don Keskey appearing on behalf of the Residential 1 Customer Group. 1 JUDGE MACK: Thank you, Mr. Keskey. 0 Consistent with the schedule set during 1 the prehearing conference on May, 01, and subsequently amended, this is the date and time for the tendering of witnesses. Prior to going on the record, the parties agreed that Mr. Keskey could offer his case, and then we'll move on to the Company. Metro Court Reporters, Inc..0.

12 1 1 So with that, Mr. Keskey. MR. KESKEY: Thank you, your Honor. Based on the stipulation of the parties, I would move that the Direct Testimony of William A. Peloquin be bound into the record; this consists of a cover page, which is also page 1, and then continues on with pages of questions and answers. Also, I would like to enter into the record stipulated Exhibit RCG-1, which consists of a cover page and then two -- a chart of two pages of figures as presented in the exhibit. JUDGE MACK: Thank you, Mr. Keskey. Any 1 objections to the offer? (No response.) 1 Hearing none, the testimony is bound into 1 this record and Exhibit RCG-1 is admitted. 1 (Testimony Bound In.) Metro Court Reporters, Inc..0.

13 0 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission's own motion, regarding the regulatory review, revisions, determinations, and/or approvals necessary for Consumers Energy Company to fully comply with Public Act of 00 and Public Act of 01 / Case No. U- DIRECT TESTIMONY OF WILLIAM A. PELOQUIN On Behalf of Residential Customer Group September, 01

14 I. QUALIFICATIONS Q. Please state your name and business address for the record. A. My name is William A. Peloquin. My business address is Monroe, Portland, MI. Q. Briefly describe your professional qualifications. A. I graduated from Michigan State University with a Bachelors Degree in Economics. In 1 I graduated from Michigan State University s Master of Business Administration program, with a major in Finance. I am a retired Certified Public Accountant. I have over thirty (1) years of full time work experience devoted exclusively to regulatory matters, and seven additional years as a consultant testifying in regulatory cases. I was formerly employed by the Michigan Public Service Commission for the period September through November 1. I was employed by the Attorney General of the State of Michigan from November 1 through October 00 when I retired. I have also testified in several cases before the MPSC since about 00 involving Consumers Energy Company and DTE Electric Company. I have testified in numerous rate cases, including the following electric rate cases: U-0 The Detroit Edison Company U-0 Indiana & Michigan Electric Company U-0 The Detroit Edison Company U- The Detroit Edison Company U-1 Consumers Power Company U-0 Indiana & Michigan Electric Company U-00 The Detroit Edison Company U- Michigan Power Company U- Consumers Power Company U-0-R The Detroit Edison Company (remand) U-0 Consumers Power Company U- Consumers Power Company U- The Detroit Edison Company U- Consumers Power Company

15 U- Consumers Power Company U- Detroit Edison Company U-1 Consumers Energy Company U-1 Detroit Edison Company U-1 Consumers Energy Company U-1 Consumers Energy Company U-1 Consumers Energy Company U-1 Detroit Edison Company U-1 Consumers Energy Company U-1 Consumers Energy Company I have testified in numerous small electric rate cases, including those of the following electric cooperatives: Cherryland, Ontonagon, Presque Isle, Southeastern Michigan, Thumb, Tri-County and Wolverine. I testified in the Wolverine and Northern Michigan Cooperative securities cases involving Fermi, Case Nos. U-0 and U-0 and the storage battery plant (SBEED), Case Nos. U- and U-. I testified in Wolverine Power Supply Cooperative, Inc. s Case U-1 (Power Supply Cost Recovery Clause). I have testified in steam heating rate cases U- (Consumers Power) and U- (Detroit Edison). I testified in the telephone cases of Baraga Telephone and Shiawassee Telephone. I have developed PSCR factors and presented testimony in the following Power Supply Cost Recovery and Gas Cost Recovery plan cases: U-1 Consumers Power Company (PSCR) U- Wolverine Power Supply Cooperative, Inc. (PSCR) U-0 The Detroit Edison Company (PSCR) U- The Detroit Edison Company (PSCR) U- Consumers Power Company (PSCR) U-00 The Detroit Edison Company (PSCR) U- The Detroit Edison Company (PSCR) U-0 The Detroit Edison Company (PSCR) U-1 Michigan Consolidated Gas Company (PSCR) U- Consumers Power Company (PSCR) U- Consumer Power Company (PSCR)

16 1 1 1 U-0 Consumers Power Company (PSCR) U-0 Detroit Edison Company (PSCR) U- Consumers Power Company (PSCR) U- Detroit Edison Company (PSCR) U- Detroit Edison Company (PSCR) U-01 Consumers Energy Company (PSCR) U- Consumers Energy Company (PSCR) U- Michigan Consolidated Gas Company (GCR) U- Michigan Consolidated Gas Company (GCR) U-1 Detroit Edison Company (PSCR) U-10 Consumers Energy Company U- Consumers Energy Company (PSCR) I testified in the following reconciliation cases: U--R U-1-R U-1-R U--R U--R U--R U-00-R U--R U--R U--R U-0-R U--R U--R U--R U-1-R U-1-R U-1-R U--R U--R U--R 1 FCAC & PIPAC DECo DECo Insulation Outreach Reconciliation 1 PSCR CPCo 1 GCR MGU 1 PSCR CPCo Reconciliation 1 PSCR DECo Reconciliation 1 PSCR DECo Reconciliation 1 PSCR CPCo Reconciliation 10 PSCR CPCo Reconciliation 10 GCR CPCo Reconciliation 1 GCR DECo Reconciliation 1 PSCR CPCo Reconciliation 1 PSCR CECo Reconciliation 1 PSCR DECo Reconciliation 1 PSCR DECo Reconciliation 00 PSCR CECo Reconciliation 00- GCR - DECo Reconciliation 00- GCR - CECo Reconciliation 0 PSCR - CECo Reconciliation 0 PSCR - DECo Reconciliation 0 1 I have presented testimony in various gas rate cases and special topic (including securitization) cases before the Commission, including the following cases: U-1 Deferred Income Taxes DECo U- Deferred Income Taxes CPCo U-01 Depreciation Rates CPCo U-1 Storm Damages DECo U-1 Decker Coal Penalties DECo U-0 Automatic Adjustment Clauses

17 U- Storm Damages DECo U- Deferred Taxes Michigan Consolidated Gas Co. U-0 Lifeline Rates CPCo U-0 Fermi Test Generation DECo U- Sale of Capacity to GPU DECo U- Rail Charge Refunds DECo U- Incentive Discount Rate MGU U- Gas Cost Recovery Accounting CPCo U-0 Restructured Residential Rates DECo U-0-R Restructured Residential Rates (Reopened) DECo U-0 Restructured Residential Rates CPCo U-1 DECo/CPCo (Estimated Billings) U-1 CPCo (Deferred Tax Accounting) U- Tondu Energy Systems, Inc. (Cogen) U-0 Midland Salvage U-0 CPCo (Gas Tax Reform Act) U- DECo (Electric Tax Reform Act) U-1 Midland Salvage U-1 Michigan Consolidated (Gas Rates) U-1 Midland Cogeneration Venture U-00 CPCo (1 Midland Compliance Filing A) U- Michigan Bell New Service Offering U- CPCo (1 Midland Compliance A) U-0 CPCo (Deferred Tax Accounting) U- CPCo (Depreciation) U- CPCo (Competitive Bidding) U- CPCo (Compliance 1 10) U- CPCo (Deferred Tax Accounting) U- CPCo (Midland Proceeds) U- DECo (Future Capacity Solicitations) U-1 CPCo (Accounting/MCV Capacity Charges) U- CMS Gas Transmission (South Chester Pipeline Act ) U- CPCo (Deferred Tax Accounting) U-00 Generic (Post Retirement Benefits) U-0 DECo (1 PA ) U-1 CPCo (MCV Contested Settlement) U-1 CPCo Retail Wheeling U-1 DECo Retail Wheeling U- DECo Biennial Energy Conservation U-0 CMS Gas Transmission (Albert-Vienna Pipeline Act ) U-1 CMS Gas Transmission (East Antrim) U- CPCo (Electric Line Extension Act ) U- CPCo (DSM Reconciliation) U- CPCo (Depreciation) U- CPCo (Gas Rate Case) U- CPCo (Special Competitive Services)

18 U- Michigan Consolidated Gas Company (Depreciation) U- CPCo (Transmission Facilities Classifications) U- DECo (Transmission Facilities Classifications) U-1 CECo (Depreciation) U- CECo (Nuclear Decommissioning) U- DECo (Fermi Depreciation) U- CECo/DECo (Ludington Pumped Storage Depreciation) U- DECo (Depreciation) U- Great Lakes Cooperative (Beaver Island Cable and Generation) U- Electric Deregulation: Educational Surcharges U-1 DECo (Securitization) U- CECo (Securitization) U-1 Commission s Own Motion (Netting of Stranded Costs) U-00 CECo (Gas Rate Case) U-1 CECo (Sale of Palisades) U- CECo (Gas Rate Case) U-1 CECo Nuclear Legacy Case (Big Rock) U-1 Mich Con (Gas Rate Case) U-1 CECo (Gas Rate Case) U- CECo (Gas Rate Case) U-1 Mich Con (Manufactured Gas Plant accounting) U-1 CECo (Gas Rate Case) (Manufactured Gas Plant Recovery) U- CECo (DOE Settlement Proceeds) U-101 Northern States Power Company U-10 Consumers Energy Company I have also been directly involved in testifying in and/or otherwise participating in the successful settlement of the following cases: U--R Nuclear Plant Decommissioning Funds (Reopened) U- Generic Accounting for TRA U- Revenue Reduction TRA Michigan Bell U- Revenue Reduction TRA Michigan Consolidated Gas Co. U- Revenue Reduction TRA General Telephone U- Revenue Reduction TRA Michigan Power (Electric) U- Revenue Reduction TRA Michigan Power (Gas) U-1 Revenue Reduction TRA Alpena Power U- Revenue Reduction TRA Edison Sault U- DECo (Fermi Electric Rates) U-0 CPCo (Deferred Tax Accounting) U-0 CPCo (Deferred Tax Accounting) U-0 Michigan Consolidated Gas Co. (Deferred Tax Accounting) U- Michigan Consolidated Gas Co. (Gas Rates) U- DECo (Construction Lines) U Michigan Power/I&M (Tax Normalization Accounting) U- DECo (Deferred Tax Accounting)

19 U- Great Lakes Cooperative (Beaver Island Cable and Generation) U- In Re Application of Midland Cogeneration Venture U- Michigan Consolidated Gas Company GCR (Partial Settlement) U-1 Michigan Consolidated Gas Company (Sale of Storage Gas) U--A Consumers Energy Waste Reduction Case (Amended) Q. Are you a member of any professional associations? A. Yes. I am a member of the Institute of Certified Public Accountants. II. DIRECT TESTIMONY Q. What is the purpose of your testimony? A. My primary purpose is the allocation of Consumers energy efficiency program cost responsibility to the Residential Class customers. Q. Have you previously testified in regard to this issue? A. Yes, in Case No. U- Amended (U--A). Q. What portion of Consumers Applications are you specifically addressing? A. The prefiled direct testimony of Mr. Theodore Ykimoff s, specifically pages 1-1, and his prefiled Exhibit A-1 (TAY-) and Exhibit A-1. Mr. Ykimoff s Exhibit A-1 proposes to allocate at least $,, of 01 through 01 Business Class Electric EE Plan Investment to be recovered from the Electric Residential Class. This Electric Business EE Plan cross-subsidy is shown in Column (e) of each of the four pages of Exhibit A-1.

20 Q. Do you disagree with this cross-class subsidy? A. Yes. The Business Class EE Investment benefits the individual businesses by reducing their cost of their Energy Efficiency Investment immediately, while also reducing their future energy costs. I oppose requiring the Residential Class to subsidize the Business Class EE Investments. Each EE class should be responsible for their own EE class investments. The surcharge to the residential class should be proportional to, or aligned with, the EE program investment devoted to that class and no more. Similarly, the surcharges to the other rate classes, such as the business class, should be proportional to the EE program investment devoted to that class. The sole exception is the low income adjustment. Q. Is your recommendation in this proceeding consistent with your prior testimony in Case U--A? A. Yes. Q. What was the affect in U--A of re-assigning the 01 Residential Electric Revenue Requirement, without the cross-class subsidy? A. The 01 Residential Electric Revenue Requirement was initially reduced by $0,0,, from $,,1 (U--A Exhibit A-1) to $,. Q. Does CECO s proposal align the rate surcharges in a proportional manner to the program investment proposed by CECO for each rate class? A. No. CECO Witness Ykimoff proposes to charge the residential class on a nonproportional basis. This is an unreasonable allocation of burdens on the residential class to subsidize other classes which will already receive most of the benefits of the EE Plan.

21 Q. You previously stated that the Company s cross-class revenue requirement proposal in this case was at least $,,. Please explain your at least modification. A. In Case U--A, Mr. Ykimoff represented that the Residential Class Incremental Investment for 01 was $, [See U- Exhibit A-1, p 1, column (c)]. I discovered in U--A that Consumers had, in my opinion, over-assigned EE program cost overheads (support services) to the Residential Class direct investments. I proposed that EE program cost overheads should be assigned in proportion to the direct EE Investments. In Case No. U--R, assigning program cost proportional to the EE direct investment reduced the 01 Electric Residential Class Incremental Investment from $, to $,. This resulted in an additional $0, reduction in the 01 Electric Residential Revenue Requirement. Q. Were your U--A recommendations accepted in the subsequent partial settlement? A. Yes. The Commission s July 1, 01 Order in Case No. U-, stated at page that Specifically, the parties agree residential customer incremental costs recovered as surcharges will not exceed $,, including support services, for electric programs, with the business class paying the remaining incremental costs recovered as surcharges, and residential customer incremental costs recovered as surcharges will not exceed $,0,, including support services, for gas programs with the business class paying the remaining incremental costs recovered as surcharges. The parties also agree recovery from a class will be equal to the investment applicable to that class until a decision is made regarding cost allocation in Consumers EWR plan (Case No. U-), which will establish the surcharges based on that allocation on a going-forward basis.

22 Q. Has Mr. Ykimoff also proposed a cross-class subsidy in his proposed EE Gas Plan Recovery? A. Yes. His Exhibit A-1 (column e) shows a assignment of $,,0 of Business Class Gas EE Plan Investments to be recovered from the Residential Gas Class. Q. Do you oppose Consumers $.1 million Business Class cross-class subsidy of this case for the EE Gas Plan Recovery? A. Yes. While Consumers Gas cross-subsidy is much smaller than its Electric cross-subsidy, it is unfair and unacceptable. Q. Was the issue of the assignment of program overheads/support services also applicable to the U--A 01 Residential Class Gas EE Recovery? A. Yes. In Case No. U--A, I again proposed that the EE program cost overheads should be assigned proportionally to the direct EE investments. In Case No. U--A, assigning program support costs proportional to the EE direct investment reduced its 01 Gas Investment Residential Class Incremental Investment from $,,0 to $,0,. Q. The $,0, amount to be recovered from the Gas Residential Class was also included in the July 01 Commission Order? A. Yes. Q. Do you recommend that the Residential Gas EE program overheads should be assigned proportionally to the direct Gas EE Investments in this case? A. Yes.

23 0 1 Q. Consumers Witness Mr. Austin Smith represents that page of his Exhibit A- (SAS-1), presents the status-quo revenue requirements. I.E. without the crossclass revenue requirement subsidy. Do you find page of Exhibit A- acceptable? A. No. The issue of the probable over-assignment of program support/program overheads to the Residential Class customers is still unresolved. Q. Does this complete your testimony? A. Yes it does.

24 1 1 JUDGE MACK: Anything else, Mr. Keskey? MR. KESKEY: No, that completes it, your Honor. JUDGE MACK: Thank you. Mr. Gensch. You may proceed. MR. GENSCH: Thank you, your Honor. Consumers Energy calls Theodore A. Ykimoff to the stand T H E O D O R E A. Y K I M O F F was called as a witness on behalf of Consumers Energy Company and, having been duly sworn to testify the truth, 1 was examined and testified as follows: 1 JUDGE MACK: The witness has been sworn; 1 so go ahead, Mr. Gensch. 1 DIRECT EXAMINATION 1 BY MR. GENSCH: 1 Q Mr. Ykimoff, would you please state your full name and 1 business address for the record? 1 A Theodore A. Ykimoff, One Energy Plaza, Jackson, Michigan Q And by whom are you employed? A Consumers Energy. Q And what is your job title with Consumers Energy? A Director of Energy Efficiency. Q And did you cause to be prepared a document entitled Metro Court Reporters, Inc..0.

25 1 Direct Testimony of Theodore A. Ykimoff on Behalf of Consumers Energy Company, which consists of a cover page and 1 pages of questions and answers? A I did. Q Did you also cause to be prepared a document entitled Rebuttal Testimony of Theodore A. Ykimoff, which consists of a cover page and pages of questions and answers? A I did. Q Are there any changes that you wish to make at this time to either your direct or rebuttal testimony? A Yes, I do have one change to my rebuttal testimony. Page 1, line 1. Before the start of the first sentence 1 beginning with "The Company", insert, "To achieve the 1 maximum performance metric in each program year," and 1 then proceeded by, "the Company would also", the text 1 that's already there. 1 MR. BZDOK: Could we get that one more 1 time? 1 THE WITNESS: Yep, sure. I can read it. 0 On page, line 1, before the start of the first 1 sentence beginning with "The Company", insert, "To achieve the maximum performance metric in each program year," and then continue on with that sentence, "the Company would also". JUDGE MACK: And that was your rebuttal Metro Court Reporters, Inc..0.

26 1 testimony? THE WITNESS: Yes. JUDGE MACK: O.K. Did you get that, Mr. Bzdok? MR. BZDOK: "To achieve the maximum performance metric...". THE WITNESS: "... metric in each program year," and then just continue on with that sentence. MR. BZDOK: Got it. Q (By Mr. Gensch): Did you also cause -- also prepare a number of exhibits associated with your direct and 1 rebuttal testimony? 1 A I did. 1 Q And are those exhibits marked as Exhibits A-1, A-1, 1 A-1, A-1, A-1, A-1, A-0 Corrected, A-1, A-, and 1 A-? 1 A Yes. 1 Q Do you have any changes that you wish to make today to 1 those exhibits? 0 A No. 1 MR. GENSCH: At this time, your Honor, the Company moves to bind in the Direct and Rebuttal Testimony of Theodore A. Ykimoff, and for the admission at the end of cross-examination of Exhibits A-1 through A-1, A-0, A-0 Corrected, A-1, A-, A-, and A-1. Metro Court Reporters, Inc..0.

27 1 And with that, I tender Mr. Ykimoff for cross- examination. JUDGE MACK: Thank you. Any objection to the offer of the direct and rebuttal testimony? (No response.) Hearing none, that testimony is bound into the record. (Testimony bound in.) Metro Court Reporters, Inc..0.

28 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 its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF THEODORE A. YKIMOFF ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

29 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. Please state your name and business address. A. My name is Theodore A. Ykimoff, and my business address is One Energy Plaza, Jackson, Michigan, 01. Q. By whom are you employed and in what capacity? A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ) as Director of Smart Energy Efficiency Solutions. In this capacity, I am responsible for overseeing the development, implementation, and evaluation of the Company s electric and gas Energy Efficiency/Energy Waste Reduction Plans. Q. Please describe your educational and professional experience. A. I have a Bachelor of Business Administration degree from Michigan State University. In 1, I accepted the position as Gas Conservation Program Manager in the Marketing Department with Consumers Energy. In this role, I was responsible for marketing value-added products and services to the Company s approximately 1. million residential gas customers. In 00, I assumed a position as a Corporate Account Manager in the Company s Customer Operations Department to provide value-added products and services to the Company s large electric and gas business customers. In early 00, I was promoted to Senior Program Lead in the Company s Energy Efficiency Department. In this role, I was responsible for developing the Company s Energy Optimization ( EO ) Plans in accordance with the requirements established by the 00 Energy law, 00 Public Act ( PA ) ( PA ). In 0, I was promoted to Residential Energy Efficiency Operations Director, which expanded my responsibilities to include supervising the development and implementation of the Company s residential energy efficiency programs. In 01, I was promoted to my current position, which te01-tay 1

30 1 THEODORE A. YKIMOFF DIRECT TESTIMONY expanded my responsibility to include supervising the Company s business energy waste reduction programs; evaluation, measurement, and verification of the residential and business program savings; and the marketing of these programs. Q. Please list the cases in which you have testified. A. I have testified before the Michigan Public Service Commission ( MPSC or the Commission ) in the following cases: Case No. Description U EO Plan; U-10 Gas Revenue Pilot Decoupling Mechanism; U Amended EO Plan; U-1 01 EO Reconciliation; U Amended EO Plan; U- 01 EO Reconciliation; and U EO Reconciliation. Q. What is the purpose of your testimony in this proceeding? A. I am sponsoring the Company s Electric and Gas Energy Waste Reduction Plan (the Plan ). Specifically, I will: I. Provide an overview of the Company s Plan in this filing; 1 II. Describe the customer benefits and rate impacts of the Company s Plan; and 0 1 III. Describe the Company s recommended financial incentive mechanism. Q. Are you sponsoring any exhibits in this case? A. Yes, I am sponsoring the following exhibits: te01-tay

31 1 Exhibit THEODORE A. YKIMOFF DIRECT TESTIMONY Description A-1 (TAY-1) Calculation of Annual Energy Savings Targets; A-1 (TAY-) Energy Waste Reduction Plan Report; A-1 (TAY-) Calculation of Electric Investment Recovery; A-1 (TAY-) Calculation of Natural Gas Investment Recovery; and A-1 (TAY-) Proposed Financial Incentive Mechanism. Q. Were these exhibits prepared by you or under your supervision? A. Yes. ENERGY WASTE REDUCTION PLAN OVERVIEW Q. Please provide a brief overview of the Company s Energy Waste Reduction Plan. A. As indicated in the Company s Palisades Securitization filing, Case No. U-10, the Company proposes to meet the future energy and capacity needs of its electric residential and business customers through a combination of cost-effective supply-side and demand-side options. In particular, the Company intends to leverage its existing energy efficiency network of trade allies and program infrastructure to offer residential and business customers a balanced and comprehensive set of meaningful long-term energy savings services and programs. To accomplish this, the Company is proposing the Commission approve its filed Plan, in accordance with 01 PA ( PA ), before December 1, 01. Approving this Plan will ensure the Company s customers will continue to save energy and spend less on their utility bills beyond 01. The details of the residential and business programs are presented by Company witnesses Theresa K. Schmidt and Alfred A. Alatalo, respectively. The cost effectiveness of each program and the overall plan are presented by Company witness Richard A. Morgan. The surcharges te01-tay

32 THEODORE A. YKIMOFF DIRECT TESTIMONY necessary to implement and administer the plan are presented by Company witness S. Austin Smith, which includes the funding reserve balance and low-income accounting adjustment sponsored by Company witness Svitlana Lykhytska. Q. What would result if the Commission does not approve the Company s Plan before December 1, 01? A. Funding for the Company s current energy waste reduction plan will expire at the end of 01. Without Commission approved funding for 01, the Company would have to close its energy waste reduction programs by December 1, 01. Q. How would delaying approval of the Company s Plan hinder its ability to meet the increased demand-side energy and capacity goals proposed in Case No. U-10? A. Although the time needed to acquire the additional demand-side resource is shorter than building a similar sized supply-side resource, it is not as simple as merely flipping a switch. The Company has learned that it takes time and concerted effort to build and maintain trusting relationships with trade allies and customers. Since 00, the Company has been working to build these relationships by implementing consistent and stable programs. Increased business customer participation in 01 forced the Company to close its most popular business program early. Since then, the Company has devoted more resources to repair its relationship with trade allies and customers. However, without the timely approval and recovery of the investments being sought in this case, the Company risks further eroding its relationship with trade allies and customers by having to suspend programs until funding is approved. te01-tay

33 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. Is the Company proposing any changes in the methodology for calculating the annual savings targets? A. No. The annual energy savings targets are shown in Exhibit A-1 (TAY-1) for both electric and gas service. The savings targets for each service are based on the corresponding annual retail sales provided by Company witness Eugene M.J.A. Breuring. The Company proposes to continue calculating energy savings targets for both its amended and future plans based on the prior year weather normalized sales and the statutory savings percentages in accordance with Sections (1) and () of PA. Q. Is the Company proposing to adjust its annual saving targets? A. Yes, the Company is proposing to continue applying the gas transportation adjustments consistent with the methodology approved by the Commission in prior cases. Q. Please discuss any changes in the Company s annual spending caps since the Company s last plan was approved. A. In December 01, PA was enacted, which removed the funding limits placed on helping electric and gas customers reduce energy waste. Removing the caps, however, did not bestow on utilities unlimited funding to invest in all demand-side projects and resources. The Company is still required to offer a cost-effective portfolio, as measured by the Utility System Resource Cost Test ( UCT ), and have an independent third party validate its energy savings annually. Q. Please explain why the Company believes the level of spending being requested is reasonable. A. The Company considered both the level of energy savings and cost-effectiveness of these savings when developing its plan. Specifically, the Company hired Morgan Marketing 0 te01-tay

34 THEODORE A. YKIMOFF DIRECT TESTIMONY Partners as an independent consultant to assist it in evaluating the cost-effectiveness of its individual programs and the overall plan. Although the Company used the UCT as its primary measure of cost-effectiveness, it also considered the results of the Total Resource Cost Test, Participant Test, and Rate Impact Test when evaluating its programs. The results of these tests are presented in my Exhibit A-1 (TAY-). Q. Please describe the results of the UCT associated with the plan. A. The UCT provides a measure of the avoided system costs relative to the program costs associated with implementing and administering a plan. Intuitively, the avoided costs can be thought of as the system benefit from a customer participating in a program. If the energy savings can be delivered at a UCT greater than unity, then the benefit to customers from taking action exceeds the cost of providing the program. Thus, it is considered a worthy investment. As shown on Exhibit A-1 (TAY-), the Company s plan achieves UCT scores of. and 1. for electric and gas services, respectively. Q. Please elaborate on the pertinence of the UCT score as an indicator of cost-effectiveness. A. As mentioned above and discussed by Company witness Morgan, the UCT score is a ratio of avoided energy and capacity costs relative to the cost of implementing the energy waste reduction programs. Formulaically this is expressed as, 1 UU = AA II where U is the UCT score, A is the avoided cost of energy and capacity costs, and I is the investment cost of offering the programs. However, dividing the numerator and denominator by the lifetime energy savings, S, from the programs indicates that the UCT score is merely a measure of the marginal cost of providing energy and capacity relative te01-tay

35 THEODORE A. YKIMOFF DIRECT TESTIMONY to the price of providing the service. The price of providing the energy waste reduction is commonly referred to as the cost of conserved energy. UU = AA II SS AA SS = SS II = MMMMMMMMMMMMMMMM CCCCCCCC CCCCCCCC oooo CCCCCCCCCCCCCCCCCC EEMMCCMMMMEE SS Conceptually, UCT scores of unity indicate that customers are indifferent to the Company investing in supply-side resources or energy waste reduction programs. UCT scores greater than unity indicate that customers benefit from the Company investing more in reducing energy waste versus purchasing energy and capacity from supply-side resources. The opposite is true when UCT scores are less than unity. Q. How has the Company incorporated the benefits to customers from investing in energy waste reduction in its Palisades Securitization filing, Case No. U-10? A. It is my understanding that the Company s Palisades Securitization filing basically represents an integrated resource framework in which supply- and demand-side options are evaluated in a consistent manner and objectively analyzed based on the net present value of costs. As discussed by Company witness Thomas P. Clark in that case, the net present value cost of the Company s overall resource portfolio is reduced $1 million by expanding the energy waste reduction component of the resource mix from 1.0% to 1.%. See Mr. Clark s Exhibit A- (TPC-) in U-10. Likewise, in this case the Company contends that investing in energy waste reduction benefits customers by providing them the lowest-cost resource to meet their future energy and capacity needs. Q. What is the net benefit of the Company s proposed Plan in this case? A. The net benefit to customers is projected to be $1. billion as measured by the net benefit of the portfolio. The net benefit of $1. billion is derived by taking the product of the te01-tay

36 THEODORE A. YKIMOFF DIRECT TESTIMONY electric investment costs, $ million, and the UCT score,., less the investment costs. That is, $1.BB = $MM (. 1) Q. Are the net benefits from the Company s energy waste reduction plan consistent with those observed by others? A. Yes, it is my understanding that these net benefits are consistent with what others are observing in the industry. For instance, Ameren Missouri found that it could reduce its resource portfolio costs roughly $ billion by expanding energy efficiency as part of its integrated resource plan. Likewise, the Tennessee Valley Authority also found similar results as part of their 0 integrated resource plan. Q. If the Company s investment level is approved, then will it exceed the minimum statutory energy savings targets? A. Yes, the Company expects to exceed the electric and gas statutory savings targets of 1.00% and 0.% by at least 0.% and 0.%, respectively. Although the Company expects to exceed the statutory savings targets, changes in federal standards and declining natural gas prices are increasing the difficulty of cost-effectively helping customers reduce energy waste. Q. Is the Company proposing to continue investing in Education and Awareness and Pilots as part of its Plan? A. Yes, the Company proposes to invest % and % of its recommended annual funding in Education and Awareness and Pilots for its electric and gas programs, respectively. In addition, the Company proposes to continue applying the deemed savings from these investments as part of meeting its statutory and performance objectives. te01-tay

37 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. Is the Company proposing any changes to the structure of its programs as part of its Plan? A. No, the Company proposes to continue offering its currently approved thirteen residential programs and three business programs in addition to a variety of pilots. Q. Does the Company intend to offer energy savings options to municipal customers with utility-owned streetlighting? A. Yes. The Company is proposing to extend its Energy Waste Reduction programs to municipal customers with utility-owned streetlighting as part of its proposed Plan. As such, I have asked Company witness Smith to include a streetlighting surcharge to recover the expected investments associated with these projects. Q. How were the programs in the Company s plan selected? A. The Company selected the programs in its plan based on (i) their proven ability to deliver cost-effective energy savings in other jurisdictions and (ii) the Company s own experience with implementing and administering the programs in Michigan. Moreover, the Company is continuously testing alternative services under its residential and business pilot programs. Q. Does the Company propose to continue investing in informational report programs to encourage customers to reduce energy waste? A. Yes, the benefits associated with informational report programs to help customers reduce energy waste are well documented. Indeed, the Cadmus Group has performed more than a dozen studies and evaluations, using rigorous and thoroughly vetted methods, to determine and isolate the impacts of the Company s informational report programs. Some of the techniques used by Cadmus have included: difference-in-difference billing analysis, regression analysis, uplift analysis, treatment and control group surveys, te01-tay

38 THEODORE A. YKIMOFF DIRECT TESTIMONY customer satisfaction surveys, stakeholder interviews, materials and database reviews, market plan assessments, and focus groups. Q. Is the Company proposing to continue its level of investment in helping low-income customers reduce energy waste? A. Yes, the Company is committed to providing its low-income customers with a robust set of energy saving services. In particular, customers participating in the Company s Income Qualified program receive recommended energy saving solutions and financial assistance, along with energy saving information to assist them in reducing energy waste and managing their utility bills. Often the Company coordinates its low-income services with local contractors and Community Action Agencies to provide customers with assistance, which helps keep administrative costs low. This allows the Company to provide these customers with a comprehensive list of home and equipment measures at no charge. These might include furnaces, insulation, water heaters, refrigerators, thermostats, air sealing, low-flow showerheads, faucet aerators, and pipe wrap. Q. Is the Company seeking continued authority to allocate funds between programs? A. Yes, the Company is requesting continued authority to reallocate 0% of its portfolio investments to maintain program consistency each year. This flexibility was requested and approved in Case Nos. U-, U-, U-, and U-. Q. How will the Company s programs be administered? A. The Company plans to continue using independent contractors selected through a competitive bidding process to coordinate the daily activities in the field. The Company will continue to employ a small staff, including program managers, a quality control te01-tay

39 THEODORE A. YKIMOFF DIRECT TESTIMONY advisor, a budget analyst, and an administrative assistant to manage the contractors and perform other administrative tasks. Q. What process does the Company propose for evaluating actual energy savings associated with the plan? A. The Company plans to continue using independent third-party consultants to evaluate the effectiveness of its efforts using bill analyses, customer surveys, and on-site verifications based on a sample of customers participating in each program. In addition, the Company proposes to continue using surveys and personal interviews to better understand customer perceptions of each program and to help improve program operations and the overall customer experience. Q. How will the Company demonstrate that its plan is achieving the intended results? A. The Company will continue to file an annual reconciliation report with the Commission after the end of each plan year that details the level of spending and energy saved from each program. Q. Is the Company proposing alternative net-to-gross factors in its Plan? A. No, the Company proposes to continue using a net-to-gross factor of 0.0 for most programs, 1.00 for its Income Qualified program, and 0. for Standard Compact Fluorescent Lamp lighting. Q. Is the Company open to continued collaboration with other parties regarding the design and implementation of its plan? A. Certainly. The Company has been, and will continue to be, an active participant in the energy efficiency market and various working groups. For instance, the Company is te01-tay

40 THEODORE A. YKIMOFF DIRECT TESTIMONY currently active in the Program Design and Implementation Workgroup, Low-Income Workgroup, Evaluation Workgroup, and Economic Development Forums. CUSTOMER BENEFITS & RATE IMPACTS Q. Please describe the expected customer benefits associated with the Company s Plan. A. Customers have reduced electric and gas energy waste by participating in the Company s energy efficiency programs by over,000 Gigawatt-hours and Billion Cubic Feet since 00. These reductions in energy waste have saved the Company s customers over a billion dollars on their utility bills. In addition, customers have avoided the need for additional supply-side resources by reducing peak demand approximately 0 MW. The Company intends to continue helping its customers reduce energy waste in by,,0 MWh, 01. MW, and,, Mcf, respectively. Q. Please elaborate on how customers benefit from the Company investing in energy waste reduction. A. Absent investing in reducing energy waste, the Company would satisfy the energy and capacity needs of its customers with additional power supply resources. However, the cost of supply-side resources is generally two to three times that of demand-side 1 resources. 1 In this instance, the per unit cost of the Company s Plan over the useful life of the equipment is 1. per kwh, as shown on page of my Exhibit A-1 (TAY-), whereas the Company s current expected market price of energy exceeds.0 per kwh and is projected to increase year-over-year as supply-side resources are retired. By investing in energy waste reduction the Company can lower its overall 1 Molina, Maggie, The Best Value for America s Energy Dollar: A National Review of the Cost of Utility Energy Efficiency Programs, American Council for an Energy Efficient Economy ( ACEEE ), March 01, Report Number U. te01-tay 1

41 1 THEODORE A. YKIMOFF DIRECT TESTIMONY system costs, which savings is passed on to customers through lower rates. As such, all customers participants and nonparticipants enjoy the cost savings benefits of the Company investing in energy waste reduction. Q. Are there supplemental benefits to customers beyond avoiding additional supply-side resources? A. Yes, the industry literature is replete with studies indicating that customers also see improved property values, living-standards, environmental conditions, and economic conditions as a result of utilities investing in energy waste reduction programs. Q Based on your experience with energy efficiency programs, are the capacity savings contained in this case conservative? A. Yes, I believe the capacity savings attributed to energy efficiency are conservative. The Company uses the Michigan Energy Measures Database ( MEMD ) as its source for energy and demand savings values in Michigan. Over the years the Commission Staff and utilities have made a concerted effort to improve the completeness of the energy savings values listed in the MEMD. As a result of focusing primarily on the energy savings values, the demand savings values included in the MEMD have been understated. For instance, in reviewing the MEMD I am aware of certain measures that are known to produce demand savings, such as WiFi thermostats, but have blank values listed instead. Going forward the Company intends to increase its focus on improving the completeness of the demand savings values, along with the energy savings values, in the MEMD to provide a clearer picture of the impacts energy efficiency has on reducing capacity requirements. Baatz, Brendon, Everyone Benefits: Practices and Recommendations for Utility System Benefits of Energy Efficiency, ACEEE, June 01, Report Number U. te01-tay 1

42 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. Please explain the difference between the electric energy and capacity savings for you mentioned above with the level testified to by Company witness Teri L. VanSumeren in Case No. U-10. A. Last year the Energy Efficiency Department prepared an aggregate level forecast for Ms. VanSumeren based on its expected program costs and measure savings data available at that time. Since then, however, the team has been challenged to find new channels to leverage its customer facing departments, trade allies, and implementation contractor networks to deliver the electric energy and capacity savings the Company has committed to, at the lowest possible cost. In particular, by focusing investments on business projects, the Company believes it can provide energy and capacity savings for less than was originally predicted and provided in the testimony of Ms. VanSumeren. Q. How will the proposed Energy Waste Reduction investment be recovered from customers? A. The Company proposes to recover the electric and gas investments of $.0 million and $1. million from customers over four years beginning with its January 01 bill month. The revised surcharges would replace the energy efficiency surcharges approved through December 1, 01. The proposed monthly incremental and total surcharges are presented in the testimony and exhibits of Company witness Smith. Q. Is the Company recommending any changes in how it recovers its investments from customers? A. Yes. As shown in Exhibits A-1 (TAY-) and A-1 (TAY-), the Company is proposing to recover its investments from each customer class based on the increased relative cost of conserved energy. Exhibits A-1 (TAY-) and A-1 (TAY-) show the 01 Plan te01-tay 1

43 THEODORE A. YKIMOFF DIRECT TESTIMONY investments for the residential and business classes in column (a) along with the incremental investments being proposed in this case. Column (e) shows the Company s proposed allocation adjustment to account for the incremental program cost savings from delivering increased system benefits by optimizing the portfolio to invest in the lowest cost options. The net effect of the Company s proposed investment recovery is shown in column (f). Q. Please explain how the Company calculated the program cost savings adjustment in column (e). A. The program cost savings adjustment is based on proposed increased energy savings and the relative cost-of-conserved energy for each class. For instance, suppose the Company has committed to deliver an additional 0 kwh of energy savings and that the lifetime cost-of-conserved energy for the residential and business programs that could be expanded to deliver the increased savings is. per kwh and 1. per kwh, respectively. On one hand, the Company might meet its 0 kwh commitment by increasing its investment in the residential programs at a cost of. per kwh, but clearly both the residential and business customers would be better served economically if the Company instead invested the additional funds in the business class at 1. per kwh. Doing so would still increase the overall system benefits to customers, but at half the cost. The Company s proposed program cost savings adjustment reflects the fact that all customers benefit by the increased investment. By allowing the Company to optimize the recovery of its investments in energy waste reduction, it can continue to offer both residential and business customers a comprehensive set of programs but at a much lower total cost. 0 te01-tay 1

44 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. What is the rate implication to business customers if the Commission does not agree with the Company s proposal to allocate the recovery of its investment in energy waste reduction? A. The average electric business customer would see a bill increase of.0% to.0% if the Commission required the Company to recover its increased investments exclusively from that class. Conversely, the average electric residential customers would share in the benefit of avoided supply-side resources at almost no incremental cost. Under the Company s proposed methodology, electric business customers would see a bill increase in the range of 0.% to 1.% while electric residential customers would see a 1.% bill increase. The surcharges based on the existing recovery methodology and the Company s proposed methodology are shown in Exhibits A- (SAS-). As such, the Company proposes to better align the cost of delivering the lowest cost demand-side option with the shared benefits of reducing system generation for all customers. This cost alignment makes energy waste reduction investments more equivalent to investments in supply-side generation resources. Q. How will the Company ensure, to the extent feasible, that charges collected from a particular customer rate class align with the corresponding benefits? A. The Company will continue to track spending for each program separately to ensure it does not exceed the Commission approved program spending levels. In addition, the Company will evaluate the system benefits from each class during its annual plan reconciliations and biennial plan reviews and adjust the surcharges in these proceedings as needed. 1 te01-tay 1

45 THEODORE A. YKIMOFF DIRECT TESTIMONY Q. What is the rate impact to customers associated with the Company s proposed Plan? A. The Company considers both the impact and expense necessary to deliver energy savings when developing its plans. The objective is to offer customers both affordable and meaningful programs. The rate impact for the Company s residential and business electric and gas customers are projected to be less than one percent of their monthly utility bills, respectively. As such, the Company believes its plans provide a win-win strategy for customers, i.e., more savings for customers at a low monthly cost. Q. How will the Company dovetail its Plan with its Amended 01 Plan filed on March 1, 01? A. The programs proposed in the Company s 01 Amended Plan are consistent with those being proposed in this case for Similarly, the investments and surcharges proposed in the Amended Plan are factored into Company witness Smith s calculation of the levelized surcharges for 01 through 01. FINANCIAL INCENTIVE MECHANISM Q. Is the Company proposing a financial incentive mechanism for 01-01? A. Yes. According to Section of PA, the Company believes it is allowed to earn the financial incentive set forth in PA for helping customers reduce energy use based on the percent of first year energy savings. I have provided an illustration of the electric and gas financial incentive mechanisms in Exhibit A-1 (TAY-). The Company is proposing the Commission approve a linear sliding scale incentive mechanism, consistent with my proposal described in the Company s 01 Amended Plan in Case No. U-, based on the savings tiers set forth in Section (1) () of PA. I believe using a te01-tay 1

46 1 THEODORE A. YKIMOFF DIRECT TESTIMONY sliding scale financial incentive is more appropriate in that it would encourage utilities to invest beyond the minimum levels necessary to jump from one incentive tier to the next. Q. Does this conclude your testimony? A. Yes. te01-tay 1

47 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 its Energy ) Case No. U- Waste Reduction Plan ) ) REBUTTAL TESTIMONY OF THEODORE A. YKIMOFF ON BEHALF OF CONSUMERS ENERGY COMPANY September 01

48 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. Please state your name and business address. A. My name is Theodore A. Ykimoff, and my business address is One Energy Plaza, Jackson, Michigan, 01. Q. Are you the same Theodore A. Ykimoff who previously filed direct testimony on behalf of Consumers Energy Company ( Consumers Energy or the Company ) in this case? A. Yes, I am. Q. What is the purpose of your rebuttal testimony? A. I will be addressing concerns with: (i) the additional performance metrics and mechanisms proposed by the Michigan Public Service Commission ( MPSC or the Commission ) Staff ( Staff ) witness Karen M. Gould, Natural Resource Defense Council ( NRDC ) witness Chris Neme, and National Housing Trust ( NHT ) witness Annika Brink; (ii) decreasing the Residential Lighting Program Net-to-Gross ( NTG ) and energy savings values as proposed by NRDC witness Neme; (iii) the reasonableness of increasing the Multifamily Low-Income Program from $1. million to between $. and $1. million as proposed by NHT witness Brink; (iv) the exclusion of the Pay My Way Program from becoming an Energy Efficiency ( EE ) Program; (v) maintaining the status quo recovery of EE investments as proposed by Staff witness David S. Walker, NRDC witness Neme, and Residential Customer Group ( RCG ) witness William A. Peloquin; and (vi) removing the flexibility to reallocate program funding within a class and financial incentive as proposed by Association of Businesses Advocating Tariff Equity ( ABATE ) witness Michael P. Gorman. rte01-tay 1

49 1 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. Are you sponsoring any exhibits as part of your rebuttal testimony? A. Yes, I am sponsoring the following exhibits: Exhibit A-1 (TAY-) Exhibit A-0 (TAY-) Exhibit A-1 (TAY-) Exhibit A- (TAY-) Exhibit A- (TAY-) Impact of Staff s Low-Income Performance Metric; Energy Efficiency Plan Performance Metrics; Michigan CFL NTG 01 Research Final Report; Multifamily Program Enhancements; and Duke Energy Prepaid Advantage Pilot Learnings Report PERFORMANCE INCENTIVE METRICS & MECHANISM Q. Please explain your concern with Staff witness Gould s proposed performance metrics associated with the EE financial incentive. A. Although I agree that having additional performance metrics will influence the structure and focus of the Company s Energy Waste Reduction ( EWR ) plans, they can also be distracting or have the opposite effect of what was intended if they are unrealistic or extreme. I believe the first-year and lifetime energy savings performance metrics proposed by Staff witness Gould are reasonable for EE, as they are consistent with the past performance incentives in 01 and 01. However, I am concerned with the magnitude of the Low Income energy savings being proposed. Q. Please explain why you are concerned with Staff s proposed Low Income energy savings metric. A. A balance must exist between cost effectively reducing energy waste as the primary objective of energy efficiency and any secondary policy objectives such as increasing investments in the low-income or multifamily programs. While I concur that delivering energy savings to our most vulnerable customers is indeed important, it should not rte01-tay

50 REBUTTAL TESTIMONY THEODORE A. YKIMOFF diminish or replace the primary objective. Requiring the Company to increase the level of electric and gas energy savings associated with the Income Qualified Program from 0.% and.% today to 1% of total energy savings - constituting an electric and gas energy savings increase of 1,% and % in 01 will actually discourage the Company from exploring deeper savings measures. As part of the EWR Plan, the Company proposed investing $. million in its Income Qualified program over the next four years, which equates to a first year electric and gas acquisition cost of $0./kWh and $1./Mcf, respectively. The high acquisition costs reflect the fact that the Income Qualified programs are not cost-effective and, thus, excluded from the cost- effectiveness tests under Public Act of 01 ( Act ). For comparison, the cost of acquisition for the total portfolio (excluding Income Qualified) is approximately % less than the acquisition costs referenced above for the Income Qualified Program. This also suggests that to deliver the level of low-income energy savings being proposed by Staff witness Gould, the Company would need to increase its investments in the Income Qualified Program between $1 and $ million over the next four years. See Exhibit A-1 (TAY-). Q. Did Staff witness Gould indicate through her testimony how the Company might achieve this aggressive of a goal in the absence of the Company requesting additional funding in this case? A. No. It is unclear how Ms. Gould expects the Company to increase the electric and gas energy savings delivered from this class by 1,% and % without requesting additional funding, significantly reducing the funding, or eliminating its other programs. rte01-tay

51 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. Would the Company be open to an Income Qualified Program performance metric other than percent of energy savings proposed by the Staff in this case? A. Yes, the Company believes it would be more appropriate to have a performance incentive for the low-income segment of its EE portfolio based on achieving a minimum amount of investment in the Income Qualified and Multifamily Income Qualified programs. I believe having the performance metrics based on investment is much more in line with Staff s and others objectives of having the Company better serve these customers by exploring deeper, and more costly, energy savings projects. Additionally, the Company is recommending a performance metric tied to the total number of premium measures installed or performed that would deliver deeper energy savings. Q. Do you have any other concerns with Ms. Gould s proposed performance mechanism? A. Yes. I am concerned with her proposal to limit the financial incentive based on the minimum metric achieved. By limiting the financial incentive to the minimum metric achieved, I believe utilities will be discouraged from attempting to exceed the metrics in the other two categories. For instance, if the Company could realistically achieve.% of Income Qualified electric energy savings relative to the total portfolio energy savings in 01, then there is no incentive for the utility to strive for energy savings beyond 1.0% of first-year or % of lifetime. That is, limiting the financial incentive based on the performance in one metric may cause the utility to capitulate on its other metrics. Q. Is there an alternative performance mechanism that would encourage the Company to achieve various performance metrics? A. Yes, I believe using a weighted average performance mechanism similar to that proposed by NRDC witness Neme would encourage the Company to pursue primary rte01-tay

52 1 REBUTTAL TESTIMONY THEODORE A. YKIMOFF and secondary performance metrics to achieve the financial incentive. In particular, I believe weighting the lifetime energy savings by 0% and each alternative metric by % would be appropriate. Q. Do you have concerns with the performance metrics proposed by NRDC witness Neme in this case? A. Yes. On pages 1 and 0 of his direct testimony, Mr. Neme proposes electric and gas small business performance metrics based on the proportion of lifetime energy savings relative to the proportion of small business energy sales. 1 I have two main concerns with this performance metric. First, the Company does not track customer participation in its programs based on the amount of energy they use annually. That is, small business customers can participate in the Company s Business Solutions Program such as Prescriptive, New Construction, Building Operator Training, etc. Small Business Direct Install Program, or Business Multifamily Program. Second, even if the Company did track participation in its EE programs by the amount of customer energy usage, it would not have a clear picture of how well it performed until after the year was complete and it collected the annual customer energy sales information. Q. Is the Company open to having a more manageable small business performance metric? A. Yes. In the past the Company has had a small business performance metric based on the amount of business energy assessments completed for small and medium sized business customers. The Company would be open to reinstating this metric for Electric small business is defined as annual energy usage below 00 MWh per year. Gas small business is defined as annual energy usage below,000 Mcf per year. rte01-tay

53 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. Do you have any concerns with the performance metrics proposed by NHT witness Brink in this case? A. Yes. Ms. Brink is proposing the Company have the following set of low-income multifamily performance metrics: achieve average energy savings of at least % per property, deliver an energy assessment and report to at least 0% of eligible customers, and have at least 0% of eligible properties install multiple measures to receive the multiple measure bonuses. Although the idea of having low-income multifamily performance metrics is laudable, I am concerned that the metrics being proposed by NHT are unrealistic. Regarding the first performance metric, the Company has observed that multifamily properties typically achieve energy savings of between % to %, based on the projects they have completed, and that these levels are consistent with what other utilities have observed across the country. Similarly, requiring 0% of eligible customers receive an energy assessment and report or install multiple measures does not align with the level of customer interest the Company has observed in the past. Q. Are there alternative low-income multifamily performance metrics the Company believes are reasonable to implement in this case? A. Yes. The Company would be open to increasing the amount of its investments in the Low-Income Multifamily Program and guaranteeing to spend the higher level as a performance metric. ^the To achieve the maximum performance metric in each program year, The Company would also be amenable to providing at least % of eligible low-income multifamily properties with energy assessments beginning in 01. In 01, the Company would increase the percent of eligible properties receiving an energy assessment to %. In 00, the percent of eligible properties would be increased to 0% and finally increased to % in rte01-tay

54 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. Please provide a summary of what the Company believes are reasonable alternatives to the proposed performance metrics and mechanism you have mentioned above. A. After taking into account the testimony of the other parties, I have included Exhibit A-0 (TAY-) as a summary of the electric and gas performance metrics and weights that the Company believes aligns with the objectives of promoting deeper energy savings projects and can reasonably be achieved. LIGHT-EMITTING DIODE NTG AND AVERAGE LIFE Q. Do you agree that the Energy Independence and Security Act ( EISA ), a federal law enacted in 01, has had the effect of reducing available energy savings from lighting measures? A. Yes. The lighting market continues to transform from older technologies to newer ones. This shift will have an impact on the energy savings from lighting measures making evaluation efforts in support of these measures important. Q. To address the changing landscape for lighting measures, NRDC witness Neme suggests a reduction to the residential retail standard Light-Emitting Diode ( LED ) NTG ratio from the Company s filed 0.0 NTG to 0.0 NTG beginning in 01, and to reduce the NTG each subsequent year (01-01) by %. Do you agree with this suggestion? A. No. As part of Mr. Neme s direct testimony in support of the residential retail standard LED NTG reduction, he provides support for his recommendation by citing to LED NTG ratios used by other utilities, none of which are located in Michigan. Mr. Neme is using other non-michigan utility LED NTG ratios as a proxy to establish NTG values for the Company s residential retail standard LED. 1 rte01-tay

55 REBUTTAL TESTIMONY THEODORE A. YKIMOFF Q. How has the Company previously addressed concerns regarding NTG ratios? A. In 01, a joint attribution study was undertaken to estimate the NTG ratio for Compact Fluorescent Lamps ( CFLs ) provided by Consumers Energy and DTE Energy Company. This study, which I have included as Exhibit A-1 (TAY-), estimated an NTG value of 0. for standard CFLs delivered through upstream (residential retail lighting) programs in Q. Would you recommend a similar approach to address the NTG value for residential retail standard LEDs? A. Yes. The Company contends the NTG ratio should be evaluated as part of the Company s program evaluation efforts. This approach is more prudent than borrowing values from other states, and provides more accuracy regarding the NTG value for residential retail standard LEDs in Michigan. In acknowledgement of the changing lighting market, and until such time that evaluation can be completed to set an NTG ratio for residential retail standard LEDs, I propose to set the NTG ratio at 0. for retail lighting standard LEDs. This value is consistent with the value the Company historically has used for standard CFLs through its residential Retail Lighting Program. Q. Do you agree with Mr. Neme s approach to adjusting measure life assumptions for standard LED bulbs? A. I do understand the need to consider adjustments to standard LED measure lives to account for EISA lighting standards. However, much like the residential lighting NTG issue raised by Mr. Neme, due to the novelty of this approach in Michigan and the possible uncertainty around it, I believe this approach should be verified and validated by the Company s evaluation contractor. rte01-tay

56 REBUTTAL TESTIMONY THEODORE A. YKIMOFF INCREASED MULTIFAMILY LOW-INCOME INVESTMENTS AND PROGRAM ENHANCEMENTS Q. Do you have concerns with the various proposed modifications to the multifamily program being proposed by NHT witness Brink in this case? A. Although I agree conceptually with many of the suggestions being proposed by Ms. Brink, I do have some concerns about the timing and magnitude of some of the proposed changes. For instance, the Company historically invested roughly $1. million in the Low-Income Multifamily Program. Ms. Brink requests the Company increase these investments between % and 1,% per year. While I agree there is an opportunity to increase investments in this program, I am concerned that the levels being requested by NHT are extremely aggressive and could not be reasonably attained by the Company. As a potential solution to address the concerns raised by NHT, I have incorporated many of Ms. Brink s suggestions into a proposed potential enhancement of the Income Qualified Multifamily EE Program attached as my Exhibit A- (TAY-). FUTURE TREATMENT OF THE PAY MY WAY PILOT Q. On pages through of his direct testimony, NRDC witness Neme expresses concern about the Company including the Pay My Way Program as a potential future EE Program. Do you agree with Mr. Neme that energy conservation programs, such as Pay My Way, should be excluded from EE programs? A. No. Section (f)(iii) of Act expressly allows for energy conservation to be included as part of EE plans to the extent the conservation is measurable and attributed to the EWR Plan. The Company is currently exploring and evaluating the potential benefits of offering a prepay program to its customers as part of the Pay My Way pilot. If after the rte01-tay

57 1 1 1 REBUTTAL TESTIMONY THEODORE A. YKIMOFF evaluation is complete it is determined that customers conserve energy by participating in Pay My Way, then the Company would consider offering it as a full-time program. Q. Are you aware of other utilities piloting prepaid programs as part of EE? A. Yes. After responding to NRDC s discovery question -NRDC-CE-, I became aware of Duke Energy s prepaid advantage pilot in which participants experienced energy savings of approximately.%. I have attached the Duke Energy report as Exhibit A- (TAY-). RECOVERY OF PROGRAM INVESTMENTS BASED ON CLASS BENEFITS Q. Many of the parties filed testimony opposing the recovery of EE investments based on the cost-of-conserved energy and proposed to maintain the status quo. Do you have concerns with maintaining the status quo in terms of recovering EE investments? A. Yes. I believe the Company s proposed approach for allocating the EE investments based on the increased relative cost of conserved energy provides a good mechanism to 1 reflect that all customers benefit from the increased investment. For the reasons discussed in my direct testimony, the Company continues to support its proposed allocation of the EE investments because investing in EWR can lower the Company s overall system costs and as a result lower rates for all customers. REMOVAL OF PROGRAM FLEXIBILITY & THE FINANCIAL INCENTIVE Q. Do you agree with ABATE witness Gorman s proposal for the Commission to prohibit the Company from reallocating up to 0% of its approved program investments within each class? A. No. The Commission has given the Company the authority to reallocate up to 0% of its approved EE investments within each class (residential and business) in its past approved rte01-tay

58 1 1 1 REBUTTAL TESTIMONY THEODORE A. YKIMOFF EE plans as a means of managing and administering its portfolio between filings. Without this flexibility, the Company could not effectively respond to changes in customer participation and interests. Q. Do you agree with Mr. Gorman s proposal to prohibit the Company from earning a financial incentive? A. No. Act permits the use of financial incentives as a means of encouraging utilities to help customers reduce energy waste beyond the minimum levels established in the law. Indeed, Act specifically gives the Commission authority to approve a financial incentive of up to 0% of program investments if the utilities exceed 1.% of energy savings. In the absence of the higher financial incentives, then utilities would be less likely to pursue energy efficiency beyond the minimums. Q. Does this conclude your rebuttal testimony? A. Yes. rte01-tay

59 1 JUDGE MACK: Who would like to go first on cross? MR. BZDOK: I would, please, if you don't mind. JUDGE MACK: Go ahead, Mr. Bzdok. CROSS-EXAMINATION BY MR. BZDOK: Q Good morning, Mr. Ykimoff. A Good morning. Q How you been? A Doing well. Thank you. 1 Q Good, good, good. I want to talk to you about a few 1 topics in your rebuttal testimony today, which include 1 your Exhibit A-0, the compromise proposal that the 1 Company is making relative to performance incentives; I 1 also want to talk to you about net-to-gross values for 1 lighting, and I also want to talk to you about the prepay 1 program. I think those are the main topics for today. 1 So first let's talk about the proposal 0 that the Company makes, that you make on behalf of the 1 Company in your rebuttal testimony which you discuss on page. Let me know -- of your rebuttal. Let me know when you're there. A Thank you. Yes, I'm there. Q O.K. So generally, starting perhaps in a question that Metro Court Reporters, Inc..0.

60 1 starts on the prior page, but you're asked to provide a summary of -- let me step back a minute. So just for context, you've been discussing some of the Company's positions relative to certain performance incentive mechanism recommendations made by other parties, correct? A That is correct. Q And then starting on page, you're asked to provide a summary of what the Company believes are reasonable alternatives to the metrics that were proposed by other parties, correct? 1 A Correct. 1 Q And those other parties were primarily Staff, NRDC, and 1 NHT; is that right? 1 A That is correct. 1 Q And so then you discuss on page that you have included 1 an Exhibit A-0 with your rebuttal that is a summary of 1 performance and metrics that the Company is proposing in 1 response to the input from the other parties; is that 0 fair? 1 A That's correct. Q And so these -- and just for the record, there is a corrected version of A-0 as well; is that correct? A That is correct. Q O.K. And so the proposal in A-0 represents a -- Metro Court Reporters, Inc..0.

61 1 searching for the right word here -- a movement in the Company's position relative to performance metrics from the original filed case and exhibits associated with your direct testimony; is that a fair characterization? A Oh, yes. Yes. Q The Company is -- A-0 represents the Company's current proposal sitting here today for performance metrics? A That is correct. Q And so we don't need to have a lot of discussion about the initial filed proposal? A No. 1 Q O.K. Now, just for context, would you agree that NRDC in 1 its submittal in this case, in the testimony and exhibits 1 of Chris Neme on behalf of NRDC, NRDC has supported the 1 Commission approval of a performance mechanism for 1 Consumers; would you agree? 1 A I would agree with that. 1 Q So NRDC supports Consumers earning a performance 1 incentive under appropriate metrics which are still under 0 debate; is that fair? 1 A That is correct. Q And you would agree with me that under Public Act of I'm not asking you for a legal opinion, just your understanding -- you would agree that there is no automatic right to a performance incentive mechanism, Metro Court Reporters, Inc..0.

62 1 right? A That is correct. Q So that is a discretionary decision by the Commission based upon proposals made by the Company and the other parties; would you agree? A I would agree with that. Q O.K. Based on, again, on your understanding as the witness who is discussing the performance mechanism and not as a legal opinion, what is your understanding of what the purpose of the performance mechanism is, or the purposes, if that's the case? 1 A To encourage utilities to drive the higher energy saving 1 targets and levels and some secondary performance metrics 1 that would be tied to achievement of metrics, such as low 1 income investment or something of that nature, but 1 primarily the impetus is on driving savings. 1 Q When you say higher savings, higher savings than 1 statutorily required? 1 A Yeah, compared to what we've had in the past under 0 PA. 1 Q So I've got to two purposes: To encourage to drive to higher savings than statutorily required; and to achieve secondary performance objectives relative to low income and other considerations? A Correct. Metro Court Reporters, Inc..0.

63 0 1 Q And specifically, in A-0, the Company's current proposal in response to the other parties, those other considerations would include the multifamily energy assessments peak demand savings, business energy assessments, as well as the low income and the lifetime energy savings; would you agree? A That is the proposal, correct. Q So I have a couple of discovery responses that I'd like you to look at, and so these are documents that I have marked as proposed Exhibits NRD-1, NRD-1, and NRD 1. And just for the record, they are discovery responses 1 that have been marked, or discovery responses from the 1 Company -- 1 MR. BZDOK: And I forgot to ask if I can 1 approach. May I approach? 1 JUDGE MACK: No, feel free. 1 Q (By Mr. Bzdok): NRD-1, NRD-1, and NRD 1, which are 1 discovery responses from the Company, NRDC-CE-, 1 NRDC-CE-0, and NRDC-CE-1, these are responses by you, 0 correct? 1 JUDGE MACK: Hold on. Let's go off the record. (Documents distributed and marked for identification by the Court Reporter as Exhibit Nos. NRD-1, NRD-1, and NRD-1.) Metro Court Reporters, Inc..0.

64 1 1 JUDGE MACK: We're back on the record. Go ahead, Mr. Bzdok. Q (By Mr. Bzdok): So these are all discovery responses signed by you; is that correct? A That is correct. Q So let's look at the first one, NRD-1, which deals with the performance requirement values for low income spending and a comparison of those values of spending in 01 and 01 to the plan for 01; is that correct? A That is correct. Q So in -- so here you have a table which includes low 1 income investment actual 01, 01, 01, and then you 1 have the proposed low income investment performance 1 metric 01, '1, '0, and '1; is that right? 1 A That is correct. 1 Q So the numbers in the lower table correspond with the 1 numbers under line No. of Exhibit A-0; is that right? 1 A That is correct. 1 Q And that's true for page 1 on the electric side of A-0 0 and page on the gas side for A-0; is that right? 1 A That is correct. Q O.K. So to boil this down really, just to streamline it, what these figures represent is that the Company is proposing in its compromise proposal, A-0, that that the minimum amount of low income spend on the electric and Metro Court Reporters, Inc..0.

65 1 gas side for low income would be the same as the actual amount anticipated to be spent in 01 on those programs; is that fair? A That is correct. Q So in your opinion, is that incentive for 01 going to drive higher savings, or is it going to allow the Company to earn a performance incentive for more or less achieving the same thing it achieved this year? A It will actually achieve both, we'll deliver additional savings from increased -- THE REPORTER: Additional savings from 1 the what investment? 1 THE WITNESS: Pardon? 1 THE REPORTER: Additional savings from 1 what investment? 1 A... from the investment that we would make the additional 1 incremental investment in our income qualified program, 1 low income program. 1 Q (By Mr. Bzdok): So when you say drive additional 0 savings, are you -- I'm just trying to understand your 1 testimony, not to argue. When you say it's going to drive additional savings, do you mean it's -- sure, go ahead. A It will provide us an opportunity to deliver additional savings by infusing additional dollars into that program. Metro Court Reporters, Inc..0.

66 1 Q So do I understand your testimony correctly that at the same actual -- at the same spend in 01 as 01 for the low income programs, you're projecting there will be additional savings? A No. I'm suggesting as we move up from the minimum to the maximum, that there will be more. Q O.K. Would it be reasonable to suggest that to start earning a performance incentive in 01, the investment in low income ought to be at least some degree higher than the actual investment in low income in 01? A That would be an option to definitely look at, yes. 1 MR. BZDOK: I'll move to admit NRD-1. 1 JUDGE MACK: Any objection to the offer? 1 (No response.) 1 Hearing none, Exhibit NRD-1 is admitted. 1 Q (By Mr. Bzdok): Let's take a look at NRD-1, which is 1 your Discovery Response NRDC-CE-0. This question also 1 deals with the performance metric and the actual 1 activities in recent years, would you agree, just 0 generally speaking? That's a bad question. Let me 1 phrase that question more precisely. NRD-1, which is Discovery Response NRDC-CE-0, makes a comparison of multifamily income qualified assessments in -- I'm going to rephrase it again, and I apologize. Metro Court Reporters, Inc..0.

67 1 NRD-1, Discovery Response NRDC-CE-0, contains actual figures for income qualified multifamily assessments in the years 01, 01, and year-to-date for 01; is that right? A That is correct. Q And what are income qualified multifamily assessments, just for context? A We will go in there and actually perform an audit and provide the customer with a report that shows them what energy saving opportunities they have available to them. Q Is this sometimes just in general common parlance 1 referred to as an energy audit? 1 A Correct. 1 Q The projection for 01 is that by year-end, 1 to 1 1 percent of all properties participating in this 1 program will receive an energy assessment; is that 1 correct? 1 A That's the projection, correct. 1 Q And the projected minimum amount at which the performance 0 incentive for multifamily energy assessments would be 1 earned in 01 is 0 percent of participating buildings on both the electric and the gas side in A-0; is that right? A That is correct. Q So again, we have a situation where the performance Metro Court Reporters, Inc..0.

68 1 incentive will start to be earned at a level very close to the actual amount of activity in this year; would you agree? A That is correct. Q Would it be reasonable, again, to set the performance incentive threshold a little bit higher than the actual activity in 01 to drive that higher performance on that metric, would that be reasonable? A That option should be explored. MR. BZDOK: Move to admit NRD-1. JUDGE MACK: Any objection? (No 1 response.) 1 Exhibit NRD-1 is admitted. 1 Q (By Mr. Bzdok): Take a look at NRD-1, which is 1 Discovery Response NRDC-CE-1, it's going to be the same 1 line of questioning. Let me know when you're ready. 1 A We're on 1 right now? Or I apologize. 1? 1 Q Yes. 1 A O.K. I'm ready. 0 MR. BZDOK: One second, Judge. 1 JUDGE MACK: Wait. We're on 1, aren't we? MR. BZDOK: We're on NRD-1, which is Discovery Response NRDC-CE-1. JUDGE MACK: Oh, all right. Metro Court Reporters, Inc..0.

69 1 A My clarification. Q (By Mr. Bzdok): So first -- so my first question is, both this discovery response and Exhibit A-0, line, talk about electric assessments, gas assessments, and combination assessments for small business; do you see that? A Yes. Q How do the -- this is just for my understanding. How do the -- so in A-0, on the electric side, there are proposed minimum and maximum performance requirements stated in a number of assessments, correct? 1 A Correct. 1 Q And the assessments on page 1, the electric page, those 1 assess -- so for 01, on the electric page,,000 1 assessments is a number for electric and combination 1 small business customers, correct? 1 A That would be correct. 1 Q Combination would mean customers who have both electric 1 and gas service from Consumers Energy; do I have that 0 right? 1 A That is correct. Q And then on the gas side, again we have,000 assessments for gas and combination small business customers, correct? A Correct. Metro Court Reporters, Inc..0.

70 1 Q And in this situation, the combination small business customer would be a customer who takes gas and electric service from Consumers Energy, correct? A That is correct. Q How is it determined -- for the combination customers, how is it determined which bucket they go in, who is an electric combination, who is a gas combination, for purposes of meeting -- A For purposes of meeting that, it would be a combination customer would count in both categories. Q O.K. In looking at NRDC JUDGE MACK: And just so we're on the 1 same page, that's NRD-1? 1 MR. BZDOK: Thank you. Yes. 1 Q (By Mr. Bzdok): Proposed NRD Exhibit 1, Discovery 1 Response 1, there are data reported for 01 of, 1 electric, gas, and 1,0 combination assessments in 1 01; would you agree? 1 A That's correct. 0 Q So for purposes of the electric side, the proposed 1 minimum performance incentive for 01 of,000 assessments would represent a decrease in number of assessments from those completed in 01 using electric and combination assessments together; would you agree with that? Metro Court Reporters, Inc..0.

71 1 A If you were to use 01 as the basis, yes, that's correct. Q It would represent an increase on the electric side from -- well, I guess we don't know, right? For 01, are -- do you have any projection for how many electric and combination assessments are anticipated to be completed by year-end 01? A I know we intend in total to do about,00, so that's -- I don't have the split. Q So on the energy assessments question, at least for 01, it's possible that both the minimum and maximum 1 performance requirement thresholds could be under the 1 level of actual achievement in 01 and 01; would you 1 agree with that? 1 A There's a potential, correct. 1 Q Would it be reasonable to expect that those threshold 1 numbers should be higher than the actual achievements in 1 01 and '1? 1 A I guess that would depend on what the plan was to do 0 originally. 1 Q What do you mean? A The plan in '1 through '1 originally, what the plan was to do versus what you're now increasing it to. Q So if I understand your testimony correctly, you're positing that on Exhibit A-0 represents a higher level Metro Court Reporters, Inc..0.

72 1 of performance than initially planned for in the original filing for a number of assessments? A That is correct. Q And when we talk about number of assessments originally planned in the filing, that's in the energy efficien -- energy waste reduction plan that you're referring to, right? A Correct. Q Because this was not a performance metric in the original plan? A No. 1 MR. BZDOK: Move to admit NRD-1. 1 JUDGE MACK: Any objection to the offer? 1 (No response.) 1 Exhibit NRD-1 is admitted. 1 MR. BZDOK: Due to an error in my ability 1 to count, there will be no NRD-1. 1 JUDGE MACK: O.K. 1 MR. BZDOK: May I approach freely, or 0 would you like me to ask? 1 JUDGE MACK: No, feel free throughout. MR. BZDOK: Thank you. (Document distributed.) Q (By Mr. Bzdok): I'm going to now provide you with a copy of a discovery response which I have marked as proposed Metro Court Reporters, Inc..0.

73 0 1 Exhibit NRD-1, which is Discovery Response NRDC-CE-. (Document marked for identification by the Court Reporter as Exhibit No. NRD-1.) Q (By Mr. Bzdok): This is also a proposed -- excuse me. This is also a discovery response by you; is that correct? A That is correct. Q The question here deals with peak savings metrics; is that right? A Correct. Q And so that's line of Exhibit A-0 on the electric 1 side; is that right? 1 A That is correct. 1 Q And what is the purpose of a peak demand savings metric? 1 A To reduce the capacity, the needed capacity for our grid 1 so we won't, during peak days, won't have to deliver as 1 much energy. 1 Q So is it fair to say that those programs are especially 1 cost-effective because they both reduce energy and also 0 the need for capacity? 1 A Absolutely. Q The question and answer here essentially asks you for your opinion on whether -- well, let me back up. So the peak demand savings metric as stated in A-0 is a first-year peak demand savings Metro Court Reporters, Inc..0.

74 1 1 metric, correct? A That is correct. Q And then in Exhibit, proposed Exhibit NRD-1, Discovery, you're indicating that the Company would consider a lifetime peak savings metric; is that correct? A That is correct. Q And that was something that was proposed by NRDC's witness, Mr. Neme; is that correct? A That is correct. Q In considering such a metric, and I'm just asking you for your sort of I guess impression, would it be similar to 1 or different than what Mr. Neme proposed, are there 1 thoughts you have on that that you could elaborate here 1 today? 1 A No, I mean we would be good with evaluating moving to 1 lifetime peak demand reduction savings metric. 1 Q Based -- with the elements that Mr. Neme proposed? 1 A Sure. 1 MR. BZDOK: Move to admit NRD-1. 0 JUDGE MACK: Any objection? (No 1 response.) Exhibit NRD-1 is admitted. MR. BZDOK: Could we go off the record for a moment? JUDGE MACK: We're off the record. Metro Court Reporters, Inc..0.

75 1 (Documents distributed and marked for identification by the Court Reporter as Exhibit Nos. NRD-1A and NRD-1B.) JUDGE MACK: O.K. We are back on the record. While we were off the record, Mr. Bzdok, I understand you have now an Exhibit NRD-1? MR. BZDOK: Yes, we have a 1A and a 1B. Q (By Mr. Bzdok): And before that, I want to look at Mr. Neme's prefiled Exhibit NRD-. Do you have his exhibits with you? A I do not. 1 Q O.K. 1 (Document shown to counsel for Consumers Energy and 1 provided to the witness.) 1 Q (By Mr. Bzdok): So I'm going to just give you one of my 1 copies of Mr. Neme's prefiled testimony and exhibits, 1 which I've opened to Exhibit NRD-, prefiled, which is 1 Discovery Response NRDC-CE-. Do you see that? 1 A I do. 0 Q And this was also a discovery response by you; is that 1 right? A That is correct. Q O.K. So let's orient back now to your rebuttal testimony, pages and, under heading that says Light-Emitting Diode NTG and Average Life. Let me know Metro Court Reporters, Inc..0.

76 1 when you're there. A I'm there. Q O.K. So here you are responding to testimony by Mr. Neme; is that correct? A That is correct. Q And that, the testimony that you're responding to has to do with the net-to-gross ratio that is assumed in the plan for Light-Emitting Diodes, or LEDs; is that right? A That is correct. Q And what is a net-to-gross ratio, just for context? A The percentage of participants that you can demonstrate 1 that you've convinced to take that action, and if you 1 were to take one minus the net-to-gross, that would be 1 the -- oh, gees, I'm losing my mind here -- would be the 1 oh, the free riders, I'm sorry, free riders; so yes, 1 that's the customers you convince to actually participate 1 in the program that you can take credit for the savings. 1 Q So and there are three main effects, again, just for 1 context, that impact the NTG right; free ridership, 0 spillover, and market effects, just broadly speaking? 1 A That's correct. Q And what is a free rider, or what is free ridership? A In the absence of the program, they would have participated -- they would have done that action anyways. Q So in this case, they would have bought the LED bulb Metro Court Reporters, Inc..0.

77 1 whether they were offered an incentive or not? A Correct. Q And what is a spillover? A Spillover is you are promoting a product, but they don't necessarily participate in your program to get a rebate, but they actually like, for example, purchase a furnace but don't get a rebate, that would be spillover; you influence someone, but they didn't participate in the program, but you influenced them to take an action towards energy efficiency. Q How might that come about in the context of LEDs? 1 A To the extent that you were promoting LEDs and the 1 customer went in the store and just bought LEDs on their 1 own that weren't necessarily bought down by Consumers 1 Energy. 1 Q And when you say bought down, that's the program where 1 Consumers pays the retailer to reduce the cost of the 1 item; is that right? 1 A That's correct. 0 Q And what are market effects, broadly speaking? 1 A Market effects are, there could be market effects with respect to like any kind of rules or regulations that the government may have, any kind of supply and demand issues with product availability, those kinds of things. Q So in the context of LEDs, how would that work? Metro Court Reporters, Inc..0.

78 1 A Just the -- very similar to what we faced with the CFL, the potential when there was a shortage of CFLs in the market several years ago, similarly you may have that situation with LEDs, just the availability. Q O.K. So just to bracket the positions, Consumers' original filing proposed an NTG of.0 for LEDs; is that correct? A That is correct. Q And then Mr. Neme in his testimony proposed that the NTG for LEDs should be set at.0, and then decline by.0 each year of the plan following that; is that correct? 1 A That is correct. 1 Q And do you have an understanding of why he was proposing 1 a lower NTG and also one that would decline for LEDs? 1 A Due to the EISA, Energy Independent Security Act, 1 implementation and the phase-out of incandescent and 1 other types of bulbs, minimum efficiency standard set. 1 Q And so how does that impact LEDs? 1 A So on store shelves there may not be as great an 0 abundance of a variety of bulbs, like incandescent 1 and halogen, there just may be more of a preponderance of LEDs on the store shelves. Q And so that would lead a customer to buy an LED irrespective of the incentive because the market is changing and LEDs are primarily what's available? Metro Court Reporters, Inc..0.

79 1 A There could be a transformation in the market, correct. Q And it would be your expectation, just broadly speaking and not attached to any numbers, that it would be reasonable to expect that EISA will reduce the NTG for LEDs going forward; would you agree with that? A I would agree it would have some impact, yes. Q And would you agree that already we've seen a substantial increase in the market share of LEDs already sitting here today in 01 compared with, say, you know, 01? A Yes. Q Would you characterize that as a small increase or a big 1 increase in the market share for LEDs in that time 1 period? 1 A Well, I think back to when we had just CFLs -- 1 THE REPORTER: I'm sorry. Just CFLs...? 1 We have no mic and we have a loud fan. 1 THE WITNESS: I'm sorry. 1 THE REPORTER: The mic doesn't work. 1 A Could you please repeat the question again? 0 MR. BZDOK: Can you read that question 1 back? JUDGE MACK: Let's go off the record. (A brief discussion was held off the record.) (The record was read aloud as follow: "Q Would you characterize that as a small increase Metro Court Reporters, Inc..0.

80 1 or a big increase in the market share for LEDs in that time period?") Q (By Mr. Bzdok): So let me rephrase the question. Would you generally characterize the increase in market share in LEDs between, say, 01 and now as a small increase or a big increase in market share? A Relative to the base of 01, there's been, I would -- greater than medium; I would wouldn't say it's been a huge increase, but I'd say it's been greater than the middle ground, yeah. Q And an increase in market share -- strike that question. 1 So starting on line of page of your 1 rebuttal testimony, you have a discussion of EISA and 1 sort of an ongoing transformation of the lighting market. 1 Do you see that generally? 1 A Correct. 1 Q And then you have a -- and then you talk about Mr. Neme's 1 testimony about the.0 versus.0, and the -percent 1 reduction going forward, correct? 0 A Correct. 1 Q And then you indicate a disagreement with that, and you offer an alternative; is that fair? A That is correct. Q And the alternative that you offer is based upon a study which you sponsor as Exhibit A-1 with your rebuttal Metro Court Reporters, Inc..0.

81 1 testimony, correct? A Correct. Q And the -- and based upon that study -- well, and then you indicate that study estimated an NTG value of 0. for standard CFLs through upstream residential retail lighting programs in 01-01, correct? A Correct. Q And an upstream program is a buy-down, like we talked about earlier? A That's correct. Q O.K. And so let's take a look at that study of your 1 Exhibit A-1. You have a copy of that, right? 1 A I do. 1 Q O.K. So looking at this study, A-1, Michigan CFL 1 Net-to-Gross Advisory Panel Final Report, this was a 1 joint study on behalf of Consumers and DTE, correct? 1 A That is correct. 1 Q Performed by Cadmus, Navigant, and NMR, correct? 1 A Correct. 0 Q And this date of the study is April 1, 01, correct? 1 A That is correct. Q And that's a date of publication, right? A Correct. Q So I'm looking at page 1, Executive Summary, very first sentence, the research for this study was done during Metro Court Reporters, Inc..0.

82 1 01; would you agree? A Correct. Q And this study concludes that an NTG value of 0. for standard CFLs is appropriate for 0 -- the years 01-01, right? A Correct. Q How is a CFL different than an LED? A Well, based on the, the measure life and the efficiency of the bulb -- Q LEDS are -- sorry. Go ahead. A They're more efficient. 1 Q LEDs are more efficient? Is that a yes? 1 A Correct. 1 Q Is it fair to say that the -- so EISA has some new 1 standards that are coming into effect as of 00; is that 1 right? 1 A That's correct. 1 Q And so is it generally, when you talk about a market 1 transformation, is it generally your perception that the 0 importance of CFLs in promoting energy savings is going 1 to be reduced as a result of the 00 standards? A I would suspect, yes. Q And that the market share of LEDs is going to continue to increase as a result of the 00 standard? A Very likely, yes. Metro Court Reporters, Inc..0.

83 0 1 Q Would you agree that those effects are going to begin before the standard actually takes effect in 00 as retailers begin the shift towards more and more LEDs? A I would think so. Q The study on page, under Key Findings and Recommendations, second paragraph, says, "The NTGR values found in this study are higher than those found in prior NTGR research conducted in other jurisdictions." Do you see that? A Yes. Q And then there are some bullet point factors to which 1 this higher value of. in this study is attributed. Do 1 you see those? 1 A Correct, I do. 1 Q Go ahead. What were you going to say? 1 A I'm just agreeing. 1 Q O.K. One of the factors is the explicit inclusion of my 1 multiyear market effects in the definition of 1 net-to-gross in Michigan. Do you see that? 0 A Where are you? What -- 1 Q I'm on the first bullet point factor. JUDGE MACK: And we're going to have to speak up. O.K. THE WITNESS: I'm sorry. JUDGE MACK: That's fine. So do you have Metro Court Reporters, Inc..0.

84 1 1 that? A The first bullet point on page, yes, I'm there. Q (By Mr. Bzdok): And the second factor talks about the weaker condition of the Michigan economy relative to other regions could have inhibited customer purchases of discretionary products, such as CFLs, correct? A Correct. Q And then the third one is that the Michigan programs had only operated since 00, a shorter duration than programs in other regions, including Massachusetts, correct? 1 A Correct. 1 Q Is it fair to say that generally that NTGs, all other 1 things being equal, will tend to go down as a program 1 matures? 1 A I'm not an expert in net-to-gross ratios. 1 Q You go on in your testimony, rebuttal testimony on page 1, after you've described this study that we've just 1 looked at, to propose that that 0. value for standard 0 CFLs for 01-1 arrived at in the study be used as an 1 NTG value for LEDs for the initial years of this plan, correct? A That is correct. Q And then you say that -- and one of your criticisms is -- or one of your responses to Mr. Neme is that you believe Metro Court Reporters, Inc..0.

85 1 that using this study would be more appropriate than to adopt NTG values used by other utilities outside of Michigan, correct? A Correct. Q And then you indicate that the, starting at line, that the NTG for LEDs should be evaluated going forward as part of the 01 evaluation efforts, right? A Correct. Q In Discovery Response NRDC-CE-, which was prefiled by Mr. Neme as Exhibit NRD-, or prefiled by us on his behalf, one of the questions that we asked you at 1 question (e) was whether the, Consumers has conducted 1 any market research or sponsored any evaluation work 1 within the last three years that assessed directly or 1 indirectly its program net-to-gross ratio for any 1 lighting products, with a parenthetical; do you see that 1 question? 1 A I apologize, what question was that? 1 Q I'm sorry. So I'm in the Neme Exhibit NRD-. 0 A One second. 1 JUDGE MACK: Let's go off the record. (At :00 a.m., a discussion was held off the record.) (Document distributed and marked for identification by the Court Reporter as Exhibit No. NRD-1C.) Metro Court Reporters, Inc..0.

86 1 JUDGE MACK: We are back on the record. Mr. Bzdok, you want to address what you handed out? MR. BZDOK: Sure. Q (By Mr. Bzdok): So I have handed you, Mr. Ykimoff, a discovery response that I have marked as proposed Exhibit NRD-1C, which is Discovery Response NRDC-CE-. Do you see that? A I do. Q And this is also a discovery response by you; is that correct? A It is. 1 Q And question (e), we asked you if Consumers had 1 conducted any market research or sponsored any evaluation 1 work within the last three years that assessed directly 1 or indirectly its program net-to-gross ratio for any 1 lighting products, with a parenthetical, and then if so, 1 please provide that research. Do you see that question? 1 A I do. 1 Q And in the response, you provided us with a document 0 listed under (e) as a 01 CFL NTG study that was 1 provided in an attached file. Do you see that? A I do. Q And that CFL 01 study is the Cadmus Memorandum dated July, 01, that we've marked as proposed Exhibit NRD-1A; is that correct? Metro Court Reporters, Inc..0.

87 1 A That is correct. Q And that, so the Cadmus Memo -- is it all right if I just call it that, 1A? A Sure. Q The Cadmus Memo concludes, generally speaking, that the. CFL NTG value that was set in Exhibit A-1, the 01 study, that that NTG should be continued for 01-01, correct? A That is correct. Q And one of the reasons given for that is that -- is the robustness of the current NTG estimate indicates its 1 continued validity, correct? 1 A Correct. 1 Q And basically -- basically that's an opinion that's given 1 as to the rigor with which the earlier study was done; is 1 that fair? 1 A Yes. 1 Q And then the other reason that's given is that CFL NTG 1 values elsewhere are stable or increasing, correct? 0 A It appears that, yes. 1 Q And there's a table there given for CFL NTG values for four other utilities or locations, ComEd, Ameren Illinois, Efficiency Maine, and Massachusetts, correct? A Correct. Q And these are, at least some of these utilities or Metro Court Reporters, Inc..0.

88 1 jurisdictions are the same as those relied on by Mr. Neme in his testimony for reasons why NTGs should be considered for lowering below the Company's proposal, correct? A Correct. Q So the -- so it's fair to say that the Cadmus Memo also relies on values from other out-of-state utilities, right? A As a point of comparison, yes. Q The Cadmus Memo also mentions that, on page at the end, recommends that additional research may be warranted in 1 01 or 01 to update the NTG estimates for 01, 1 correct? 1 A Correct. 1 Q And just generally speaking, this is because of this 1 market transformation or market evolution concept that 1 we've talked about, right? 1 A Likely. 1 Q To your knowledge, no additional research was done in for NTG values for 01 and beyond under the 1 recommendations by Cadmus, right? A That is correct. Q Looking back again at -- so NRD-1B proposed, which is NRDC-CE-, do you have that in front of you as well? A I do. Metro Court Reporters, Inc..0.

89 1 Q That discovery response just reflects what we've talked about in terms of the Cadmus Memo recommendation, correct? A Correct. MR. BZDOK: So I will move to admit NRD-1A, B, and C. JUDGE MACK: Any objection? (No response.) Hearing none, Exhibits NRD-1A, 1B, and 1C are admitted. And, Mr. Bzdok, I don't know if we got 1 into it, but I believe any questions earlier regarding 1 NRD- are in fact a reference to NRD-1C? 1 MR. BZDOK: Yes. Thank you. 1 JUDGE MACK: Go ahead. 1 Q (By Mr. Bzdok): In NRD-1C, that Discovery Response 1 NRDC-CE-? 1 A Yes. 1 Q On question (d), we asked if Consumers had conducted any 0 market research or sponsored any evaluation work within 1 the last three years that analyzed the market for residential lighting products, with a parenthetical, and if so, to provide any of that data or reports; is that correct? A Correct. Metro Court Reporters, Inc..0.

90 1 Q And the answer to that one, item (d), was, yes, please see the lighting program evaluation study that was attached, correct? A Correct. Q I'm going to hand you what I've marked as proposed NRD Exhibit 0. (Document distributed and marked for identification by the Court Reporter as Exhibit No. NRD-0.) Q (By Mr. Bzdok): Which is titled Energy Star Lighting Program Evaluation Final Report for the 01 Program Year, dated June 1, 01, correct? 1 A That's correct. 1 Q And this is the lighting program evaluation study 1 referred to in item (d) of Discovery Response, Exhibit 1 NRD-1C, correct? 1 A Correct. 1 Q And this report also discusses the transformation of the 1 lighting market and the impact of that on LED and CFL 1 bulbs, for example, at page 1 under Research Objective? 0 Do you see that? 1 A Yes. Q And then on page under Energy Star Version.0, there's a statement under point 1, "Under the new specification, CFL bulbs will be largely excluded from Energy Star Version.0 due to increased efficacy Metro Court Reporters, Inc..0.

91 1 requirements for omnidirectional bulbs." Do you see that? A Uh-huh, I do. Q And then there's a table below that that gives some of the statistics for how that standard is going to change, right? A Correct. Q Do you have any opinion of how the exclusion of CFL bulbs from Energy Star Version.0 will affect the market for LEDs? A I do not. 1 MR. BZDOK: I'm going to move to admit 1 NRD-0. 1 JUDGE MACK: Any objection? (No 1 response.) 1 Hearing none, Exhibit NRD-0 is admitted. 1 Q (By Mr. Bzdok): Now, the Pay My Way pilot, which is the 1 last topic that I wanted to discuss with you today, which 1 you discuss in your rebuttal testimony at pages and ; 0 what is the Pay My Way pilot? If you need another 1 minute, please go ahead. I didn't mean to interrupt. A A program that educates customers, providing them with timely information on their energy consumption, and they pay ahead to the utility and receive daily updates in terms of the energy that they use. Metro Court Reporters, Inc..0.

92 1 Q So NRDC Witness Chris Neme testified in this case that he did not believe that the Pay My Way Program should be considered an energy efficiency program; is that fair? When I'm asking if it's fair, I'm asking if that's your understanding of what he testified, not whether you agree with it. A That's my understanding. Q And you are responding to that position at pages and of your rebuttal and indicating that your opinion is that the Pay My Way pilot should be considered a potential future EE program, correct? 1 A Correct. 1 Q You, among other things, you provide as Exhibit A- a 1 report from Duke Energy in which Duke Energy had a 1 prepaid pilot program in which participants experienced 1 energy savings; is that correct? 1 A That is correct. 1 Q And that's your proposed Exhibit A-, correct? 1 A That is correct. 0 Q And that -- so the Duke Energy report had nothing to 1 do -- let me rephrase that. Consumers Energy did not participate in any way in the Duke Energy report, correct? A Correct. Q Was not a partner or a collaborator or had no visibility Metro Court Reporters, Inc..0.

93 0 1 into how that study was done? A No. Q And you personally had no connection or participation in that study, correct? A That is correct. Q Rather than continue to admit more discovery responses and in the interest of time, I'm just going to try to do this as a discussion instead. You would acknowledge that -- well, let me say it a different way. Is it true that Consumers Energy expects that people who are having difficulty 1 paying their monthly energy bill will be a significant 1 portion of the customers who are expected to participate 1 in Pay My Way? 1 A That could be the case, but we're kind of in the early 1 infancy of the program piloting it. 1 MR. BZDOK: This will be my last 1 discovery response, I only have one copy with me today, 1 but I'm going to show it to counsel and we will get 0 additional copies made at the break or at lunch, but 1 before we're done today, we'll have additional copies of this one. JUDGE MACK: And what's that marked? MR. BZDOK: It's marked as proposed NRD-1. Metro Court Reporters, Inc..0.

94 1 1 Q (By Mr. Bzdok): And so I've handed you proposed NRD-1, which is Discovery Response NRDC-CE-; is that correct? A That's correct. Q And this is a discussion of -- well, I guess I would just point you to the paragraph on page wherein the response states that the Company expects those having difficulty paying their monthly energy bills will comprise a significant portion of the participating customers in Pay My Way. Do you see that? A I do. MR. BZDOK: I'll move to admit NRD-1. 1 JUDGE MACK: Any objection? 1 Let's go off the record. 1 (At : a.m., a discussion was held off the 1 record.) 1 JUDGE MACK: Now we're back on. 1 Q (By Mr. Bzdok): Just to clarify, the document that I had 1 handed you that was marked NRD proposed 1, NRDC-CE-, 1 is identical to the document which was prefiled with 0 Mr. Neme's testimony and exhibits as Exhibit NRD-; is 1 that right? A That is correct. Q So my questions to you about proposed Exhibit NRD-1 would be the same if we were referring to prefiled Exhibit NRD-, right, your answers would be the same? Metro Court Reporters, Inc..0.

95 1 A Correct. MR. BZDOK: That concludes my questions for you. Thank you very much. I will not move to admit NRD-1. JUDGE MACK: Thank you, Mr. Bzdok. And just so we're clear, there was no NRD-1 either, correct? MS. STALEY: Right. MR. BZDOK: Let me just triple check that. All right. JUDGE MACK: Let's go off the record. MR. BZDOK: Correct. 1 (Brief pause.) 1 JUDGE MACK: O.K. We're back on the 1 record. Mr. Bzdok, there was no NRD-1, correct? 1 MR. BZDOK: That is correct. 1 JUDGE MACK: And you are done with your 1 cross-examination? 1 MR. BZDOK: Yes. Thank you very much, 1 Mr. Ykimoff. 0 THE WITNESS: Thank you. 1 JUDGE MACK: Thank you, Mr. Bzdok. Let's take a break, we will come back on the record at :. (At : a.m., there was a 1-minute recess.) Metro Court Reporters, Inc..0.

96 1 (Documents marked for identification by the Court Reporter as Exhibit Nos. NHT-, NHT-A, and NHT-B.) JUDGE MACK: O.K. We're back on the record. While we were off the record, Mr. Gallagher has joined us. Mr. Gallagher, would you like to enter your appearance? MR. GALLAGHER: Yes, Judge Mack. Thank you. Sean Gallagher from Clark Hill, PLC, on behalf of the Association of Businesses Advocating Tariff Equity. JUDGE MACK: Thank you. 1 Ms. Barbash-Riley, do you have cross-examination? 1 MS. BARBASH-RILEY: Yes, I do. 1 JUDGE MACK: Go ahead, please. 1 CROSS-EXAMINATION 1 BY MS. BARBASH-RILEY: 1 Q Good morning, Mr. Ykimoff. 1 A Good morning. 1 Q My name is Lydia Barbash-Riley, I'm counsel for the 0 National Housing Trust. 1 MS. BARBASH-RILEY: I have a document here that I have marked as proposed Exhibit NHT-, these are Mr. Ykimoff's Responses -NHT-CE-. May I approach? JUDGE MACK: Yes. Feel free throughout. Metro Court Reporters, Inc..0.

97 1 Thank you. (Document distributed.) Q (By Ms. Barbash-Riley): I've presented to you discovery responses labeled NHT-, our proposed Exhibit NHT-, that you indicated you prepared. Do you recognize that these are discovery responses that you have provided in this case? A I do. Q You state in response to NHT-(a) that, "The Company has benchmarked the percentage of energy savings seen in properties that participate in multifamily programs 1 administered by other utilities and found that limited 1 information is available." Is that correct? 1 A That is correct. 1 Q How was this benchmarking done? 1 A Discussions with other utilities, getting on utility 1 websites, looking at their filings, determining what type 1 of activities that they're doing with respect to their 1 different programs, and also review of evaluation reports 0 specifically around multifamily for other utilities. 1 Q And who did this benchmarking? A We have, typically either have a program manager do benchmarking and/or our evaluation contractor do that. Q So did you personally do this benchmarking? A I did not. Metro Court Reporters, Inc..0.

98 1 Q Do you know if the team or the people who did the benchmarking found any studies other than the studies you cited in Response NHT- indicating that multifamily properties typically achieve energy savings of between and percent based on projects they've completed? A I am not aware of any other studies that were performed or evaluated. Q So you have not reviewed any other studies of energy savings achieved by properties participating in multifamily programs? A None that come to mind, no. 1 Q And the team who did the benchmarking did not review any 1 other studies evaluating the savings achieved by 1 properties participating in multifamily programs? 1 A None that I'm aware of, no. 1 Q So is it fair to say that your statement on page of 1 your rebuttal testimony, that the Company has observed 1 that multifamily properties typically achieve energy 1 savings of between percent to percent based on the 0 projects they have completed, is based solely on the 1 benchmarking team's review of the two studies that you produced in response to Discovery Question NHT-? A That would be correct. Q And do you not expect that any other utility in the nation has reported results on this question? Metro Court Reporters, Inc..0.

99 1 A I'm certain there are. Q Do you expect that any of these studies could show savings of over percent? A Potentially, yes. MS. BARBASH-RILEY: I'll move to admit NHT- at this time. JUDGE MACK: Any objection? (No response.) Hearing none, Exhibit NHT- is admitted. MS. BARBASH-RILEY: I have documents that I have marked as proposed Exhibits NHT-A and B, these 1 are two reports that Mr. Ykimoff produced in response to 1 Discovery NHT-CE-. 1 (Documents distributed.) 1 Q (By Ms. Barbash-Riley): These are the reports you 1 produced in response to the question asking you to 1 produce the sources for the statement that the Company 1 has observed that multifamily properties typically 1 achieve energy savings of between and percent based 0 on projects they have completed, correct? 1 A That is correct. Q Did you review the Rhode Island report that you produced with your response to NHT-(b)? A I did read it, yes. Q You did read it? Metro Court Reporters, Inc..0.

100 1 A I did. Q Are you aware of whether the Rhode Island program addressed water heating and HVAC equipment replacement? A I do not recall. Q Are you aware if savings from water heating and HVAC equipment replacement is captured in the program savings total? A I am not aware. Q Would the savings percentages indicated in this report potentially be higher if this program addressed water heating and HVAC equipment replacement? 1 A Assuming it didn't, yes. 1 Q Assuming it didn't? 1 A Yes. 1 Q At this point, please refer to Table 1 of the Rhode 1 Island Multifamily Impact Evaluation Report; this is on 1 page 1, or document No A Which table is that? 1 Q This is Table 1, Program Level Results from Difference 0 of Differences Model with Comparison Group. 1 A You said page 1? Q Yes, page 1, it's also labeled document No. 01. JUDGE MACK: In the corner of the document are those numbers -- Q (By Ms. Barbash-Riley): In the corner of the document. Metro Court Reporters, Inc..0.

101 1 JUDGE MACK: -- Bates stamp numbers. A Oh, I see. O.K. JUDGE MACK: Actually, I believe it's Exhibit, proposed Exhibit A -- MS. BARBASH-RILEY: That's correct. JUDGE MACK: -- page 1. And just so we're clear, Exhibit A and Exhibit B are all together here? MS. BARBASH-RILEY: That's correct. JUDGE MACK: O.K. A Program Level Results? 1 Q (By Ms. Barbash-Riley): Yes. 1 A Yes. 1 Q Does Table 1 indicate that the gas savings for 1 multifamily low income are. percent? 1 A Yes, for gas, yes. 1 Q And does Table 1 indicate that the electric savings for 1 multifamily low income are. percent? 1 A It does. 0 Q Now, could you please turn to Table 1 on page of the 1 gas savings report, this is Bates No. 00, and this is proposed Exhibit NHT B, B. A Table 1? Q Yes. A Yes. Metro Court Reporters, Inc..0.

102 1 Q Does Table 1 indicate that the gas savings are.1 percent for all premises? A On Table 1? Q That's correct, on page, labeled -- A Yep. Q Uh-huh. A Yes. Q So based on these clarifications which -- or these percentage, savings percentages that you just verified, why did you indicate that percent is the upwards limit of the energy savings typically achieved by multifamily 1 properties on page of your rebuttal testimony? 1 A Both those numbers were cited in both of these studies, 1 and I'm looking through my notes to find out the 1 reference page that I had. In the first report, the 1 National Grid -- 1 Q This is the Rhode Island report, correct? 1 A Yes. The Rhode Island report, on page 1, paragraph, 1 start with Table, the bottom, it indicates: During 0 this same period, our electric -- 1 THE REPORTER: Our electric? JUDGE MACK: Hold on. THE WITNESS: I apologize. JUDGE MACK: That's O.K. Let's get to that page. Metro Court Reporters, Inc..0.

103 1 1 THE WITNESS: Page 1. JUDGE MACK: Proposed A, page 1. And everybody there? Q (By Ms. Barbash-Riley): Is this Table? A No. This is actually Site-Level Model Results, on the results section on page 1. Q Can you please provide the Bates number that's on the page? A Pardon me? Q Can you please provide the Bates number that is on the page you were reading from; there are multiple page 1s? 1 A I know. I'm actually referencing my attachment because 1 I -- let me find this one, too. I apologize. 1 JUDGE MACK: What table is it? 1 THE WITNESS: There's not a table, it's 1 actually text. 1 JUDGE MACK: Oh, it's text. 1 THE WITNESS: Yes. 1 JUDGE MACK: O.K. Let's go off the 0 record. 1 (A brief discussion was held off the record.) JUDGE MACK: We are back on the record. We, I believe we're all on the same page, literally. Go ahead. Q (By Ms. Barbash-Riley): Go ahead. Metro Court Reporters, Inc..0.

104 1 1 A So in the third paragraph in of the, the last sentence in the third paragraph, during this same period, our electric comparison group experienced an increase in normalized consumption of 1. percent while the comparison group reduced consumption. percent. So that was the.-percent reference in that study. Q Can you please reconcile that with the results on Table 1 of page 1 indicating that gas savings for multifamily low income are. percent? A That's likely just the overall impact from the study, the.. I'm not -- I don't know for sure. 1 Q So you can't say for certain what accounts for the 1 difference between the.-percent savings indicated in 1 Table 1 and the results described on page 1 of Exhibit 1 NH -- proposed Exhibit NHT-A? 1 A I can not, I did not perform that evaluation. 1 Q Thank you. Do you have anything further on these 1 reports? 1 A No. 0 MS. BARBASH-RILEY: At this point, I 1 would like to move to admit NHT-A and NHT-B. JUDGE MACK: Any objections? (No response.) Exhibits NHT-A and B are admitted. Q (By Ms. Barbash-Riley): Looking again at your Responses Metro Court Reporters, Inc..0.

105 1 NHT-CE-, in your response to NHT-(c)(iv), you indicate that individual multifamily properties may complete multiple projects over time, but that properties typically complete one project during a rolling 1-month time period; is that correct? A That is correct. Q If an individual property completed multiple projects over time, is it possible that the calculation or the counting of the energy savings could differ from your response to NHT-(c)(ii) in which you stated that the - to -percent savings are counted per property or per 1 premises, depending on the project? 1 A That's possible, yes. 1 Q Please describe how it could differ. 1 A Dependent upon the timeframe that you're actually looking 1 at the energy savings. So we have annual targets, and if 1 the customer participated in one particular year, they 1 get an energy savings; if they concurrently participated 1 the next year or maybe a couple years later, there could 0 be an opportunity to save even more energy. 1 Q So is it possible that if these savings were calculated in the year or counted in the way in which you just described, that properties could achieve greater than this - to -percent savings? A Yes. Metro Court Reporters, Inc..0.

106 1 Q Now I would like to direct your attention to page, lines 1 to 1, of your rebuttal testimony, in which you state that, "... requiring 0 percent of eligible customers to receive an energy assessment and report or install multiple measures does not align with the level of customer interest the Company has observed in the past." Is that an accurate restatement of your rebuttal testimony in that section? A That is correct. Q What is your basis for this statement? A The percentage of customers that have typically taken and 1 performed an energy assessment. 1 Q And how does the Company track the level of customer 1 interest? 1 A Could you restate the question? 1 Q Did you not hear or not understand? 1 A No, I guess I don't understand the question. 1 Q So you said that the percentage of -- the basis for your 1 statement is the percentage of customers that typically 0 report or -- ask for an energy assessment or report or 1 install multiple measures. My question is, how does the Company keep track of the -- how does the Company calculate this percentage? A We would take the number of participants in the actual program, that would be the denominator, and we take the Metro Court Reporters, Inc..0.

107 1 number of those customers that actually opted to have an assessment, and whatever percentage that rendered, that would be the percentage of customers that would have an assessment performed. Q And does the Company keep track of this data over time? A We typically do not, but we have as of recent. Q How recent? A Beginning in 01. Q So your statement that requiring 0 percent of eligible customers does not align with the level of customer interest, how many years of data is that opinion based 1 on? 1 A It would be last year plus what we've experienced so far. 1 Q At this point, please refer to the chart on page of 1 your rebuttal Exhibit A- under the heading Multifamily 1 Low Income Projected Incentive Investment. 1 JUDGE MACK: I'm sorry, what page was 1 that? 1 MS. BARBASH-RILEY: This is page of 0 rebuttal Exhibit A-. 1 A I apologize, could you please repeat that reference to that? MS. BARBASH-RILEY: Could you please read back my reference? JUDGE MACK: Well, you're asking about Metro Court Reporters, Inc..0.

108 1 Exhibit A-. THE WITNESS: O.K. JUDGE MACK: Page. Do you have that? THE WITNESS: I think I do, yes. A Multifamily program enhancements page, yes, page? I'm there. Q (By Ms. Barbash-Riley): Yes. Could you please tell me what this chart indicates? A That the Company intends to invest in 01 $. million in the Multifamily Income Qualified Program in just incentives, and then consistent with 01, we'd invest 1 the same amount in 01, and then our 00 and '1 plan 1 would be an investment of $. million each year. 1 Q So these incentive investments represent commitments by 1 the Company to invest in low income multifamily energy 1 efficiency programs from 01 to 01? 1 A Yes, they do. 1 Q Will these commitments be reflected in the final energy 1 waste reduction plan as line items on the Company's 0 approved program tables? 1 A We can see that that happens, yes. Q Could you please elaborate on how? A I guess we would update our filing document that shows the detail of programs that, it's actually in our plan filing where we have a summary of all the programs, that Metro Court Reporters, Inc..0.

109 1 also includes the energy savings as well as the investment, so we would include that as a line item in our summary page. Q Thank you. A Yeah. Q Now please refer to page 1, line, of your rebuttal Exhibit A-0, and also page, line, also of rebuttal Exhibit A-0. A I'm there. Q What portion of these performance requirement minimum and maximum dollar amounts are for multifamily properties? 1 A And we're referencing, so we're still on the exhibit that 1 we were just on, on Exhibit A-? 1 Q No. Now we are on Exhibit A-0. 1 A Gotcha. Got it right here. O.K. Those would just 1 pertain to the multifamily income qualified metric for 1 both electric and gas. 1 Q Based on what you just stated, what will be the 1 performance requirement minimum and maximum dollar 0 amounts for single-family low income properties? 1 A So it would represent that -- so that the, for 01, the minimum performance would be 0 percent receive an assessment, and for 01, the maximum would be percent, and that metric could maximize out at percent of the utility's overall performance incentive Metro Court Reporters, Inc..0.

110 1 metric, which is more like, I think it's equivalent to basically percent of the 0 percent the Company's eligible to receive. Q Could you please refer back to line No., the Low Income Programs, and the minimum and maximum expenditures. JUDGE MACK: We're still on A-0, correct? MS. BARBASH-RILEY: That's correct. A O.K. Q (By Ms. Barbash-Riley): So of these dollar amounts, what portion is for multifamily properties, low income 1 multifamily properties? 1 A The. million in total. O.K. So that would be. 1 million in total, there would be a split between the 1 electric and gas investment, but in total, it would 1 represent the total $. million in multifamily income 1 qualified plus our residential income qualified, so it 1 would be a combination of both. 1 Q Could you please confirm that this. million has not 0 been broken out into electric and gas? 1 A Broken out in what way? Q The expenditure on the electric and gas programs. A So of that $. million, we do anticipate to invest a percentage of that in electric and a percentage of that in gas, so it will be split, but we still intend to Metro Court Reporters, Inc..0.

111 1 invest the total. million specifically for multifamily income qualified. Q And just to reiterate, that. million is entirely for multifamily, low income multifamily? A Correct. Q And would the Company be amenable to breaking out the percentage investment between electric and gas in the approved plan? A We could certainly -- we'd certainly be open to discussing that, yes. Q Moving back to page of your rebuttal Exhibit A-, 1 under the heading Multifamily Low Income Projected 1 Incentive Investment -- 1 A Yes. 1 Q -- would you agree that the amount for 01 in this chart 1 on page represents an increase of. million from the 1 current Multifamily Low Income Program Investment that 1 you indicated on page 1, line 1, of your rebuttal 1 testimony? 0 A I would. 1 Q Will this additional. million for the multifamily investment be paid for solely by using funds from the Low Income Single Family Program budget? A We will not be using funds from the Residential Income Qualified Program to fund that, no. Metro Court Reporters, Inc..0.

112 1 Q Now, referring to the points on page of rebuttal Exhibit A- under the heading Utility Performance Metrics, is it your understanding that the Company would have to both spend the entire budget as outlined in the Multifamily Low Income Projected Investment chart on this same page and provide an energy assessment to at least the proportion of properties receiving those incentives as described on this page of your exhibit? A Correct. MS. BARBASH-RILEY: No further questions. JUDGE MACK: Thank you. Mr. Gallagher, 1 do you have any cross-examination of this witness? 1 MR. GALLAGHER: I do not, your Honor. 1 JUDGE MACK: Thank you. Ms. Stephens, 1 does Staff have any cross-examination of this witness? 1 MS. STEPHENS: We do not, your Honor. 1 JUDGE MACK: Thank you. Mr. Ykimoff, 1 thank you for your testimony today. 1 MR. GENSCH: Your Honor, can I have a 0 couple minutes with the witness? 1 (At :0 a.m., there was an in-place recess.) JUDGE MACK: We're back on the record. Mr. Gensch, do you have any redirect for this witness? MR. GENSCH: No, your Honor. Thank you. JUDGE MACK: O.K. Let's take up the Metro Court Reporters, Inc..0.

113 1 exhibits. Any objection to the offer of the exhibits? (No response.) Hearing none, Exhibits A-1, A-1, A-1, A-1, A-1, A-1, A-0 Corrected, A-1, A-, and A- are admitted. Now, with that, thank you for your testimony today, Mr. Ykimoff. (The witness was excused.) JUDGE MACK: Let's go off the record now. (At : a.m., a brief discussion was held off the 1 record.) 1 JUDGE MACK: We're back on the record. 1 Mr. Gensch, who's next? 1 MR. GENSCH: Your Honor, the parties have 1 agreed to bind in the testimony and exhibits of the 1 Company's remaining witnesses. 1 JUDGE MACK: O.K. Why don't you list 1 them, and then we'll take them all up together. 0 MR. GENSCH: O.K. Great. These include 1 the Direct Testimony of Alfred A. Alatalo, which consists of a cover page and 1 pages of questions and answers, and he had no exhibits; the Direct Testimony of Eugene M.J.A. Breuring, which consists of a cover page and four pages of questions and answers, and Mr. Breuring Metro Court Reporters, Inc..0.

114 1 sponsored Exhibits A-1, A-, A-, A-, and A-; this also includes the Direct Testimony of Svitlana Lykhytska, which was a cover page and six pages of questions and answers, and she sponsored Exhibits A- and A-; there's also the Direct Testimony of Richard A. Morgan, which consists of a cover page and eight pages of questions and answers, and Mr. Morgan had no exhibits; the Direct Testimony of Theresa K. Schmidt, which consists of a cover page and 1 pages of questions and answers, and she had no exhibits; and finally, we have the Direct Testimony of S. Austin Smith -- well, actually he had 1 Direct Testimony, which is a cover page and six pages of 1 questions and answers, and he also had Supplemental 1 Direct Testimony, including a cover page and two pages of 1 questions and answers, and Mr. Smith sponsored Exhibits 1 A-, A-, A-, A-, A-1, and A-1. 1 JUDGE MACK: Is that it? 1 MR. GENSCH: That's all, your Honor. 1 JUDGE MACK: O.K. Any objection to the 0 offer? (No response.) 1 Hearing none, the testimony that was described by Mr. Gensch is bound into this record, and Exhibits A-1,,,,,,,,,,, 1, and 1 are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

115 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF ALFRED A. ALATALO ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

116 ALFRED A. ALATALO DIRECT TESTIMONY INTRODUCTION AND QUALIFICATIONS Q. Please state your name and business address. A. My name is Alfred A. Alatalo, and my business address is One Energy Plaza, Jackson, Michigan, 01. Q. Please describe your position and responsibilities. A. As Business Energy Efficiency Operations Director, I am responsible for the development and implementation of Consumers Energy Company s ( Consumers Energy or the Company ) business electric and business natural gas Energy Optimization ( EO )/Energy Waste Reduction programs. Q. Please describe your educational and professional experience. A. I hold a Bachelor in Mechanical Engineering degree from Michigan Technological University and am licensed as a Professional Engineer in the State of Michigan. I have been employed at Consumers Energy since 1, where I began my career as a Graduate Engineer in the Nuclear Plant Support Department. For the first ten years of my employment, I held positions of increasing responsibility in the nuclear generation area. In 1, I transferred to the Demand Side Management area to manage gas energy efficiency programs for businesses. In 1, I transferred to Marketing, Services and Trading and provided heating, ventilation, and air conditioning ( HVAC ) services to business customers. In 1, I transferred to the Business Customer Management Department and continued to provide HVAC services until 001. At that time, I became a corporate account manager for the business customers in the Mid-Michigan area. In this role, I served as the main interface for Consumers Energy with business customers in such facets as billing, rates, reliability, and energy efficiency. In 00 I was promoted to 1 te01-aaa 1

117 ALFRED A. ALATALO DIRECT TESTIMONY Southern Team Lead for Business Customer Management and given the responsibility for managing the corporate account managers and the associated relationships with all business customers from Kalamazoo to Detroit. In 00, I moved to the Energy Efficiency area as Business Team Lead and was given responsibility for developing and implementing the business portfolio of energy efficiency programs. In 0, I was promoted to my current position as Business Energy Efficiency Operations Director. Q. Have you previously testified before the Michigan Public Service Commission ( MPSC or the Commission )? A. Yes, I have filed testimony on behalf of the Company in the following cases: Case No. U- regarding Consumers Energy s EO Plan; Case No. U-1 regarding Consumers Energy s 01 EO Reconciliation; Case No. U- regarding Consumers Energy s EO Plan; Case No. U- regarding Consumers Energy s 01 EO Reconciliation; and Case No. U-10 regarding Consumers Energy s 01 EO Reconciliation. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to: Describe the Company s business programs in its proposed Energy Waste Reduction Plan; Provide the proposed business program costs for 01 01; and Provide the resulting business program energy and capacity savings for Q. Are you sponsoring any exhibits with your direct testimony? A. No. 1 te01-aaa

118 ALFRED A. ALATALO DIRECT TESTIMONY CONSUMERS ENERGY S PROPOSED BUSINESS ENERGY EFFICIENCY/ENERGY WASTE REDUCTION PROGRAMS Q. Does Consumers Energy plan to offer Energy Waste Reduction programs to its business customers? A. Yes. Consumers Energy is proposing to offer the following Energy Waste Reduction programs to its business electric and business natural gas customers: Comprehensive Business Solutions Program; Small Business Direct Install Program; Business Multi-Family Program; and Business Pilots. Q. Please describe the Company s Comprehensive Business Solutions Program. A. The Comprehensive Business Solutions Program will generate energy savings for all business customers through the promotion of high-efficiency electric and natural gas equipment. The primary objective of the program is to focus on increasing the market share of commercial-grade, high-efficiency technologies sold through existing market channels, which would result in: (1) increasing the installation rate of high-efficiency technologies in facilities that would not have done so in the absence of the program and () improving the operating efficiency of existing long-life equipment. The Comprehensive Business Solutions Program is composed of the following components: Prescriptive Rebates; Custom Rebates; New Construction; Compressed Air; Smart Buildings (Retro-Commissioning); 1 te01-aaa

119 ALFRED A. ALATALO DIRECT TESTIMONY Agriculture; Industrial Energy Management; Building Performance with Energy Star; Buy Michigan; Building Operator Certification; Municipal Facilities; and Business Energy Efficiency Reports. Q. Please describe the aforementioned components of the Comprehensive Business Solutions Program. A. The Prescriptive Rebates component will offer cash back incentives to customers when they purchase qualifying equipment or services. The program is designed to offer incentives for cross-cutting technologies that address a variety of market sectors and industries by using targeted, proactive outreach efforts to influence specific market sectors including: Trade allies (wholesalers, distributors, contractors, and retailers that market qualifying technologies); High-impact/high-need customer sectors (such as schools, municipal buildings, and hospitals); and Industrial business customers. The program targets measures where the unit energy savings can be reliably predicted and, therefore, standard per-measure savings ( deemed savings ) and incentive levels are established which simplifies the application process and reduces administrative costs. Business customers decisions for capital investments are financially driven and often considered on a first-cost option basis. That is, their focus on project payback te01-aaa

120 ALFRED A. ALATALO DIRECT TESTIMONY related to capital equipment often overlooks long-term operating costs when making choices to replace equipment. Traditionally, energy efficiency equipment is not directly related to the capital investment strategies of business customers. Therefore, it is essential to educate and provide financial incentives to overcome barriers to implementing energy efficiency improvements. Cash-back mail-in incentives equal to 0% to 0% of the incremental cost to purchase energy efficient products are offered, and tiered incentive approaches promote investment in high-efficiency equipment and multi-measure projects. The Custom Rebates component will assist larger business customers with the analysis and selection of high-efficiency equipment or processes not covered under the Prescriptive Rebates. Large business customers typically have more complex mechanical equipment supporting facility operations and manufacturing processes. As a result, many barriers prevent projects from being implemented. This component of the program is designed to help large business customers take a project from conception to completion. In particular, the custom component identifies complex energy savings projects, provides economic analysis, and aids in the completion of the incentive application. Incentives are based on energy savings on a per kwh or Mcf basis for installed measures, and emphasis is placed on targeting large customers better-served by a custom approach versus the Prescriptive incentives. Targeted markets include: 1 te01-aaa

121 ALFRED A. ALATALO DIRECT TESTIMONY Large manufacturing facilities; Hospitals; Schools; and Lodging/hospitality industry. Technical support is also offered to help customers evaluate comprehensive energy-efficiency opportunities, including walkthrough energy assessments to identify energy savings and to assist in specifying projects. The New Construction component will work with the design community to influence business owners to capture immediate and long-term energy efficiency opportunities that are available during the design and construction phases of new buildings, additions, and renovations in the non-residential market. To secure these opportunities, it is necessary to overcome: (1) any resistance to adopt new practices; () reluctance by owners to accept increased upfront costs for efficient options; () removing energy efficiency measures through value engineering processes to reduce costs; and () the tendency to design individual systems for worst-case conditions rather than efficiency of an integrated system over the range of expected operating conditions. Incentives for both owners and designers will be provided. The Compressed Air component will provide a package of prescriptive incentives including a compressed air system evaluation to improve the overall efficiency of customers compressed air systems. This will be marketed directly to customers as well as strongly through trade allies who work in the compressed air field. The Smart Buildings (Retro-Commissioning) component is a systematic facility investigation that identifies low-cost and no-cost facility improvement measures. The te01-aaa

122 ALFRED A. ALATALO DIRECT TESTIMONY program will utilize operations and maintenance reviews in combination with enhanced energy audits that draw upon existing building commissioning techniques to assist customers to optimize the energy efficiency of their facilities. Providing customers with value-added services, such as energy-saving estimates, and incentivizing engineering studies will allow them to plan a future energy-saving strategy and realize immediate savings through these low-cost/no-cost measure implementations. The Agriculture component will focus on providing technical assistance as well as incentives for participating agricultural customers through Prescriptive and Custom Rebates. Program staff will work directly with agricultural customers to assist them in finding opportunities for energy improvement as well as associated incentives for project completion. In addition, the program collaborates with Michigan State University s Farm Audit Program to offer incentives to customers who have an audit completed on their facility. The Industrial Energy Management component will work closely with industrial customers in a long-term continuous improvement relationship to help achieve energy savings reductions through ISO0001 and Energy Star methodologies. This includes: training, energy audits, forming energy committees, and assistance in obtaining certification. The Building Performance with Energy Star component will help commercial buildings such as schools and hospitals become more energy efficient through behavioral assessments, benchmarking, energy committees, and energy audits. The Buy Michigan component will provide bonus incentives to customers who choose energy saving equipment manufactured in Michigan. 1 te01-aaa

123 ALFRED A. ALATALO DIRECT TESTIMONY The Building Operator Certification ( BOC ) component is a competency-based training and certification program for operations and maintenance staff working in commercial, institutional, or industrial buildings. BOC achieves energy savings by training individuals directly responsible for the maintenance of energy-building equipment and day-to-day building operations and maintenance professionals. Classes are designed to improve job skills and lead to improved comfort and energy efficiency in the participant s facility. More details on the Comprehensive Business Solutions Program are provided in Exhibit A-1 (TAY-), sponsored by Company witness Theodore A. Ykimoff. The Municipal Facilities component will help customers find energy savings in their water treatment facilities. The Business Efficiency Reports Program is a behavioral program designed to create energy efficiency awareness and engage Consumers Energy s small- to medium-sized business customers to change their energy consuming behavior as well as participate in other business energy efficiency programs. Q. Please describe the Company s Small Business Direct Install Program. A. The Small Business Direct Install Program provides direct install energy efficiency services to small businesses and not-for-profit customers typically considered hard to reach and who have limited resources to participate in standard business programs. Small business customers with an average 1-month individual facility utility usage of less than 00,000 kwh or,000 Mcf are eligible to participate in the program. Eligible participants include owner-occupied or tenant facilities with owner permission. This includes small retail businesses such as convenience and grocery stores, small offices, te01-aaa

124 ALFRED A. ALATALO DIRECT TESTIMONY service stations, restaurants, hotels/motels, nonprofit organizations, and small manufacturers. This program consists of several components, each targeting small business customers. These small business customers typically lack the technical and financial resources necessary to participate in the larger efficiency programs. Often they are sole proprietorships where the owner or manager cannot commit time and effort to reducing energy usage. Market providers of energy efficiency products and services seldom target these small customers due to higher costs relative to larger customers. To overcome these barriers, several initiatives are offered to this market. Q. Please describe the initiatives of the Small Business Direct Install Program. A. The Small Business Solutions Core Program initiative promotes energy saving opportunities to small businesses through the installation of common lighting and refrigeration measures. Program-approved trade allies provide efficiency audits, customer education, and the installation of cost-effective measures on a turnkey basis. At no charge, customers will receive an energy audit that results in a standardized report detailing costs and potential savings from recommended measures. Customers will be entitled to choose all, some, or none of the eligible recommended measures and schedule installation services with a program-approved trade ally. Incentives will be paid up to 0% of the installation costs, up to a $,000 maximum incentive per premise. The Direct Install initiative is designed to introduce energy efficiency to the smaller businesses. This initiative provides low-flow showerheads, faucet aerators, pre-rinse sprayers, pipe wrap, and Light Emitting Diodes ( LEDs ) to a variety of small te01-aaa

125 ALFRED A. ALATALO DIRECT TESTIMONY business customers, including hotels, motels, restaurants, retail, nonprofit organizations, and houses of worship. The Assessment initiative targets small businesses specifically to perform an on-site energy assessment along with direct installation of LEDs and other low-cost measures. The teams performing the work are given a schedule and route; perform the assessment; discuss energy efficiency opportunities with the business owner; and install LED s, showerheads, and faucet aerators where applicable at scheduled locations. As a follow-up to the assessment, customers are ed a report of the measures installed and recommendations on how they can save more energy by installing additional energy efficiency products in their business. The LED Buy-Down initiative provides a discount for the cost of LED bulbs at common retail locations to encourage customers to purchase energy efficient lighting for their businesses. For more details on the Small Business Direct Install Program see Exhibit A-1 (TAY-). Q. Please describe the Company s Business Multi-Family Program. A. The Business Multi-Family Program produces immediate electric energy savings in multi-family buildings through the direct installation of energy-saving measures, both in the common areas of the building and in the individual living units. An implementation contractor will dispatch a crew of installers to retrofit living units in targeted buildings. Since this is traditionally a hard-to-reach market, low-cost measures such as lighting and low-flow water devices will be installed free of charge to the property owner. In addition, incentives for both Prescriptive and Custom measures will be offered. For more details on the Business Multi-Family Program, see Exhibit A-1 (TAY-). 1 te01-aaa

126 ALFRED A. ALATALO DIRECT TESTIMONY Q. Please describe the Company s Business Pilot programs. A. The Business Pilot programs are intended to test program concepts prior to full launch. New technologies and marketing methodologies are offered to various customer segments and revised based on results. Pilots being offered may include, but not be limited to, the following: Business Smart Thermostats; Advanced Lighting Controls; Strategic Energy Management K-1; Steam System Optimization; and Energy Efficiency Training. CONSUMERS ENERGY S EXPECTED PERFORMANCE OF BUSINESS EO PROGRAMS Q. What is the expected energy savings from Consumers Energy s Energy Waste Reduction business programs? A. The expected first-year electric and natural gas energy savings from the Company s business programs are 1,, MWh and,, Mcf, respectively. Q. What is the basis for the expected energy savings? A. The basis for expected energy savings is historical performance of past programs, industry trends, market performance, and new initiatives and incentives offered by the Company. The various business programs being proposed in this case are expected to deliver the first-year savings shown in Exhibit A-1 (TAY-), Table ES-. 1 te01-aaa

127 ALFRED A. ALATALO DIRECT TESTIMONY Q. What are the expected capacity savings from the Company s business programs for 01 01? A. Between 01 and 01, Consumers Energy expects to produce net capacity savings of. MWs from its business programs, as shown in Exhibit A-1 (TAY-), Table ES-. Q. How does the Company propose to verify these savings? A. Program Evaluation, Measurement, and Verification ( EM&V ) activities are central to the success of Consumers Energy s portfolio. Consumers Energy s EM&V processes are based on extensive experience and participation in the EO Evaluation Collaborative established by the Commission. EM&V activities are implemented through a third-party contractor selected through a competitive bid process to verify program savings impacts and monitor program performance. These activities serve as a way to determine the actual program level savings being delivered and to maximize EO investments. Beginning in 0, the evaluation team began applying two adjustment factors to gross energy savings to derive final verified net energy savings including: (1) verified gross adjustment factor and () net-to-gross adjustment factor. The verified gross savings adjustment factors incorporate installation rates and, where applicable, engineering adjustment factors derived from previous program evaluations. The net-to-gross adjustment factor is currently a constant 0.0 across all business programs, but at 0. for standard Compact Fluorescent Lamps, as approved by the Commission. Effective EM&V measures ensure that expected results are measurable, achieved results are robust and defensible, program delivery is effective in maximizing participation, and the overall portfolio is cost-effective. 1 te01-aaa 1

128 ALFRED A. ALATALO DIRECT TESTIMONY Q. How much does Consumers Energy propose to invest in the business electric and natural gas programs to deliver the aforementioned energy and capacity savings? A. Between 01 and 01 Consumers Energy proposes to invest approximately $ million and $ million in its electric and natural gas business programs, respectively. See Exhibit A-1 (TAY-), Table ES-. Q. How did Consumers Energy determine this spending level? A. Investment in the Company s business programs is based on its commitment to cost-effectively reduce total electric and natural gas energy waste by 1.% - 1.0% and 1.0% - 1.%, respectively. Q. Is this investment level reasonable? A. Yes. The Company believes this level of electric and natural gas investment in its business programs is reasonable and prudent. The Company desires to exceed the annual savings targets in a cost-effective manner. Cost-effectiveness is measured by the results of the Utility Cost Test ( UCT ) as established in 00 Public Act ( PA ) and 01 PA. If the planned savings can be delivered at a UCT score greater than 1.0, then the planned savings are considered a good investment. The Company expects its proposed electric business programs to achieve a UCT score of. and its proposed natural gas business programs to achieve a UCT score of.. Individual program UCT scores can be found in Exhibit A-1 (TAY-), Table ES-. Q. How will the Company demonstrate that its business investments are achieving the desired results? A. The Company will file annual reconciliation reports with the Commission after the end of each plan year detailing program investment and energy savings achieved for each 1 te01-aaa 1

129 1 ALFRED A. ALATALO DIRECT TESTIMONY program and by customer class in the previous year. Such reports will be in sufficient detail to allow the Commission to determine that the Company is complying with the Commission s orders and statutory requirements. Q. Does this conclude your testimony? A. Yes 1 te01-aaa 1

130 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF EUGÈNE M.J.A. BREURING ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

131 EUGÈNE M.J.A. BREURING DIRECT TESTIMONY Q. Please state your name and business address. A. My name is Eugène M.J.A. Breuring, and my business address is One Energy Plaza, Jackson, Michigan. Q. By whom are you employed and in what capacity? A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ) as a Senior Rate Analyst II in the Planning, Budgeting & Analysis Section of the Rates & Regulation and Quality Department. Q. Please describe your qualifications. A. In 1 I graduated from Grand Valley State University with a Bachelor of Business Administration in Accounting. In 1, I graduated from Thunderbird School of Global Management with a Master of Business Administration International Management. I have also attended trade-specific conferences and seminars related to Michigan and United States economies, Michigan economic forecasts, as well as regression modeling. Prior to joining Consumers Energy in 01, I worked at the Kellogg Company, Tecumseh Products Company, and Stryker Corporation, mostly in a financial planning, budgeting, and forecasting capacity. In January of 01, I accepted the position of Senior Rate Analyst II, which is my current position at Consumers Energy. In this capacity, I am responsible for preparing the Company s official electric and natural gas sales and customer forecasts, sponsoring the sales and customer forecast testimony and exhibits, industry research, and various economic studies. Also, I am responsible for creating the Company s revenue forecast related to the gas and electric business. 1 te01-emb 1

132 1 1 1 EUGÈNE M.J.A. BREURING DIRECT TESTIMONY Q. Have you sponsored testimony in any previous cases before the Michigan Public Service Commission ( MPSC or the Commission )? A. Yes, I have presented the Company s electric and gas sales forecasts in the following cases: U Energy Optimization ( EO ) Plan; U-10 General Electric Rate Case; and U- 01 Power Supply Cost Recovery Plan. PART I - INTRODUCTION Q. Please explain the purpose of your direct testimony in this proceeding. A. I am presenting the historical and forecasted sales and revenues used in developing the Company s Energy Waste Reduction Plan. Q. Are you sponsoring any exhibits in this case? A. Yes. I am providing the following exhibits: 1 1 Exhibits Description A-1 (EMB-1) Electric Retail Sales Forecast; A- (EMB-) Gas Retail Deliveries Forecast; A- (EMB-) Billing Determinants Used For Developing The Electric Energy Optimization Surcharges; A- (EMB-) Billing Determinants Used For Developing The Electric Self-Direct Energy Optimization Surcharges; and A- (EMB-) Billing Determinants Used For Developing The Gas Energy Optimization Surcharges. Q. Were these exhibits prepared by you or under your direct supervision? A. Yes. te01-emb

133 EUGÈNE M.J.A. BREURING DIRECT TESTIMONY PART II ELECTRIC AND GAS RETAIL SALES Q. Please describe Exhibit A-1 (EMB-1). A. Company witness Theodore A. Ykimoff asked that I provide the currently approved weather normal electric sales for use in calculating the electric statutory savings targets. Exhibit A-1 (EMB-1) is a single-page exhibit that shows the electric retail weather-normal sales forecast by class, as well as the previous year s weather-normal sales for each of the forecasted years. Q. How has the Commission defined electric retail sales for purposes of the Company s EO Plan? A. The Commission defines electric retail sales in its December, 00 Temporary Order in Case U-100. In that Order the Commission defined retail sales to include residential, commercial, industrial, street lighting, and interdepartmental electric sales. Q. Please describe Exhibit A- (EMB-). A. Company witness Ykimoff asked that I also provide the currently approved weather normal gas sales for use in calculating the natural gas statutory savings targets. Exhibit A- (EMB-) is a single-page exhibit that shows the gas retail weather-normal deliveries forecast by class, as well as the previous year s weather-normal sales for each of the forecasted years. Q. How has the Commission defined gas retail sales for purposes of the Company s EO Plan? A. The Commission defined gas retail sales in its December, 00 Temporary Order in Case No. U-100. In that Order the Commission defined gas retail sales as gas sales including customer choice and transportation volumes. te01-emb

134 EUGÈNE M.J.A. BREURING DIRECT TESTIMONY PART III FORECASTED BILLING DETERMINANT FORECASTS Q. Please describe Exhibits A- (EMB-) and A- (EMB-). A. Exhibits A- (EMB-) and A- (EMB-) contain the electric forecasted billing determinants used in developing the proposed electric Energy Waste Reduction Plan surcharges. Exhibit A- (EMB-) provides the forecasted billing determinants for customers participating in the Company s energy efficiency programs. Exhibit A- (EMB-) provides the forecasted billing determinants for those customers electing instead to self-direct. Q. Please describe Exhibit A- (EMB-). A. Exhibit A- (EMB-) is a single page exhibit providing the forecasted gas billing determinants used in developing the proposed gas Energy Waste Reduction Plan surcharges. Q. Does this conclude your testimony? A. Yes. te01-emb

135 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF SVITLANA LYKHYTSKA ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

136 SVITLANA LYKHYTSKA DIRECT TESTIMONY Q. Please state your name and business address. A. My name is Svitlana Lykhytska, and my business address is One Energy Plaza, Jackson, Michigan, 01. Q. Please describe your position and responsibilities. A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ) as a Principal Accounting Analyst in the General Accounting Department. I am responsible for analyzing financial results for the Company. Q. Please describe your education and professional experience. A. I received a Bachelor degree and a qualification of engineer economist (with a specialization in economics and organization of consumer goods industry) from the Technologic Institute of Light Industry of Kiev, Ukraine in 1. In 00, I received a Bachelor of Science in Business Administration degree in Accounting from Michigan State University. In 00, I started my career at Consumers Energy in the General Accounting Department where I progressed from Accounting Analyst in 00 to Senior Accounting Analyst Lead in 01 and Principal Accounting Analyst in 01. I obtained my Certified Management Accountant and Certified Financial Manager certifications in 00. Q. What is the purpose of your testimony? A. The purpose of my testimony is to provide the methodology and calculation of the Company s accounting process associated with its Electric and Natural Gas Energy Waste Reduction ( EWR ) programs. 1 te01-sl 1

137 1 SVITLANA LYKHYTSKA DIRECT TESTIMONY Q. Are you sponsoring any exhibits with your direct testimony? A. Yes, I am sponsoring two exhibits: 1 Exhibit A- (SL-1) Exhibit A- (SL-) EWR Electric Cumulative Over (Under) Recovery (By Class and Total); and EWR Gas Cumulative Over (Under) Recovery (By Class and Total) Q. Have these exhibits been prepared by you or under your supervision? A. Yes. Q. What information is provided in these exhibits? A. Exhibits A- (SL-1) and A- (SL-) provide accounting data (by month and customer class) for the Electric and Natural Gas EWR programs including surcharges billed, costs incurred, and over/under recovery balances with carrying costs. Q. What surcharge amounts were billed to customers in the first ten months of 01? A. In accordance with the tariff sheets on file with the Michigan Public Service Commission ( MPSC or the Commission ), the Company began billing customers in June 00 for EWR surcharges. In the first ten months of 01, the Company billed $,, in 1 total to electric customers (Exhibit A- (SL-1), page 1, line 1, column d). These surcharges are split between Residential and Commercial and Industrial ( C&I ) classes in the amounts of $,, and $,0,, respectively. In the first ten months of 01, the Company billed $,0, in total to gas customers (Exhibit A- (SL-), page 1, line 1, column d). These surcharges are split between Residential and C&I customer classes in the amounts of $1,, and $,,, respectively. Q. What program costs were booked in the first ten months of 01? A. In the first ten months of 01, the Company booked $1,, of program costs for the Electric EWR Program (Exhibit A- (SL-1), page 1, line, column d). These costs te01-sl

138 SVITLANA LYKHYTSKA DIRECT TESTIMONY are split between Residential and C&I customer classes in the amounts of $,,0 and $,,, respectively. In the first ten months of 01, the Company booked $,0, of program costs for the Gas EWR Program (Exhibit A- (SL-), page 1, line, column d). These costs are split between Residential and C&I customer classes in the amounts of $,0,0 and $,,, respectively. Q. What is Low-Income Accounting Adjustment? A. Per the Settlement Agreement in Case No. U- reached between Consumers Energy, the Commission Staff, and other parties, which was approved by the MPSC in its December, 01 Order, levelized surcharges to recover electric and natural gas EWR programs costs were approved. The full surcharges include a four-year low-income accounting adjustment. The adjustment is implemented to correctly allocate low-income EWR cost collected from C&I customers in years to residential customers. Q. What information is provided on the Low-Income Accounting Adjustment line in your exhibits? A. Information provided on line of my exhibits shows Low-Income Accounting 1 1 Adjustment component of the surcharges billed to C&I customers monthly. To accurately match monthly surcharges to approved recovery amounts by customers classes, the Low-Income Accounting Adjustment component should be added to residential and subtracted from C&I customers surcharge revenue. Q. What information is provided on the Annual Transfer of Low-Income Funding line in your exhibits? A. Public Act of 01 requires all customer classes to fund their share of the cost of the residential low-income programs. Information provided on line of my exhibits shows te01-sl

139 SVITLANA LYKHYTSKA DIRECT TESTIMONY monthly collections from C&I customers on behalf of low-income residential programs. To accurately match monthly surcharges to approved recovery amounts by customers classes, the funding amount should be added to residential and subtracted from C&I customers surcharge revenue. Q. How are over/under recovery amounts calculated? A. The incremental over/under recovery amount is a difference between lines 1 and with amounts on lines and added to the difference. (Exhibits A- (SL-1) and A- (SL-), page 1, line ). This total is added to the prior year-end over/under recovery amount calculated in the same manner plus the prior year interest recorded on the over/under recovery balance. If, since the program s inception, the Company has collected more in total surcharges than costs incurred, the Company has over recovered. In that case, excess revenues are deferred and a regulatory liability is recorded. Conversely, since program inception, if the Company has incurred more costs than surcharges collected, the Company has under recovered its costs. In that case, excess costs are deferred and a regulatory asset is recorded. Q. What are the over/under balances in the regulatory asset and/or regulatory liability accounts associated with the EWR Program as of October 1, 01? A. In the electric EWR Program, for the 01 reconciliation period, total booked costs exceeded total surcharges resulting in an under recovery in all customer classes in the amount of $,,1 (Exhibit A- (SL-1), page 1, line, column d). The C&I Program resulted in an under recovery in the amount of $,, and the Residential Program resulted in an over recovery in the amount of $,0,. The prior year over recovery balance and interest carried forward into 01 were $1,0, and $,00 (Exhibit 1 te01-sl

140 SVITLANA LYKHYTSKA DIRECT TESTIMONY A- (SL-1), page 1, lines and, column d). As a result, the total over recovery balance as of the end of October 01 is $1,,0 (Exhibit A- (SL-1), page 1, line, column d) split between Residential and C&I in the amounts of $,,0 and $,0,1, respectively. In the Natural Gas EWR Program, 01 total booked costs exceeded total surcharges resulting in an under recovery in the amount of $,00,1 (Exhibit A- (SL-), page 1, line, column d) split between Residential and C&I in the amounts of $, and $,0, respectively. The prior year over recovery balance and interest carried forward into 01 was $,1, and $, (Exhibit A- (SL-), page 1, lines and, column d). As a result, the total over recovery balance as of the end of October 01 is $,0,1 (Exhibit A- (SL-), page 1, line, column d) split between an under recovery of $,, associated with the Residential Program and an over recovery of $,, associated with the C&I Program. Q. Have carrying costs on over/under recovery balances been recorded and at what interest rate? A. Yes, the Company records carrying costs on over/under recovery balances per the Commission s May, 00 Order, page, in Case No. U-10. The carrying cost rate used for both over-and under-recovery balances is the Company s short-term borrowing rate. In the first ten months of 01, carrying costs were recorded for the Electric EWR Program in the amount of $, (Exhibit A- (SL-1), page 1, line, column d). For the same period of 01, carrying costs were recorded for the Natural Gas EWR Program in the amount of $, (Exhibit A- (SL-), page 1, line, column d). 1 te01-sl

141 1 Q. Does this conclude your testimony? A. Yes. SVITLANA LYKHYTSKA DIRECT TESTIMONY 1 te01-sl

142 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF RICHARD A. MORGAN ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

143 RICHARD A. MORGAN DIRECT TESTIMONY Q. Please state your name, position, and business address. A. My name is Richard A. Morgan. I am President of Morgan Marketing Partners, LLC ( MMP ) and my business address is 0 Davenport Drive, Madison, Wisconsin, -. Q. Can you describe MMP? A. MMP is a professional services firm formed in 1 that partners with utility and governmental clients to provide energy efficiency consulting services including program design and development, cost-effectiveness modeling, strategic marketing consulting, implementation and operations assistance, new product and service development, management assistance, and evaluation and assessments. MMP has worked with clients including, but not limited to: DTE Energy Company, Duke Energy, California Public Utility Commission, Energy Trust of Oregon, Missouri River Energy Services, Kansas City Power & Light, Jacksonville Electric Authority, Rochester Public Utilities, MidAmerican Energy, Hawaii Electric, Northwest Energy Efficiency Alliance, the State of Indiana, and Wisconsin Focus on Energy administered by Wisconsin Energy Conservation Corporation. One of MMP s longest-term clients is Duke Energy, with whom I worked on program planning and design. One of these programs was recognized by the American Council for an Energy Efficient Economy ( ACEEE ) as an award-winning program for low-income customers. From 001 to 0, MMP served as planner and advisor to Wisconsin Energy Conservation Corporation and the State of Wisconsin on the statewide residential and business public benefits efficiency program, Wisconsin Focus on Energy. MMP has also developed comprehensive Energy Efficiency Program portfolios for Kansas City Power & Light, NIPSCO, Vectren, and Missouri River Energy Services. I served as one of two principal auditors to complete a management audit for the Energy Trust of Oregon to review all aspects of the Trust te01-ram 1

144 RICHARD A. MORGAN DIRECT TESTIMONY including organizational structure, program design/delivery, support systems, public involvement, and overall management. The California Public Utility Commission retained MMP to participate on an independent review team to provide advice regarding the portfolio of utility energy efficiency programs developed for In 01, I also completed a portfolio program assessment with a team of evaluators to assess all the energy efficiency programs offered by the California utilities. Q. Can you summarize your educational background and professional qualifications? A. I earned a Bachelor of Science degree in Resource Management from Ohio State University, School of Natural Resources in 1. I am the Past President of the American Marketing Association, Madison Chapter, and a past Board Member and Vice President, Business Development for the Association of Energy Services Professionals ( AESP ). I am currently on the board of the Midwest Energy Efficiency Alliance. I have had numerous papers and research published at AESP and ACEEE. I am also the winner of the 00 AESP B.H. Prasad Outstanding Contributor of the Year. Q. Can you describe your professional background and experience? A. I have 0 years of management, planning, program design, implementation, low-income program, and marketing experience in the energy field. Prior to starting MMP in 1, I spent four years as a manager and consultant with A&C Enercom, a leading energy services and consulting company. I was also Marketing Manager for EWI Engineering, a 0-person engineering consulting firm. Before joining EWI Engineering, I spent over years with Wisconsin Power & Light Company, a combined gas and electric company now a part of Alliant Energy, in its Marketing and Energy Efficiency Department. I held numerous positions managing many different services including: low-income programs, residential services, commercial and industrial gas services, demand-side management programs, and marketing/sales initiatives. Within my various positions my te01-ram

145 RICHARD A. MORGAN DIRECT TESTIMONY responsibilities included: program planning, evaluation oversight, new product/service development, program design, market research, advertising/promotion planning, implementation and operations management, evaluation, budgeting, tracking, training, government interface, sales, field customer service support, quality control, and business center operations. Prior to joining Wisconsin Power and Light, I worked for the Oregon Department of Energy and the Western SUN, a federally-funded regional solar center. Q. Have you previously provided testimony before the Michigan Public Service Commission ( MPSC or the Commission )? A. Yes, I testified on behalf of Consumers Energy Company ( Consumers Energy or the Company ) for its 0 Energy Optimization ( EO ) Reconciliation, Case No. U-1; for its 01 EO Reconciliation, Case No. U-; for its 01 EO Reconciliation, Case No. U-1; for its 01 EO Reconciliation, Case No. U-; and for its 01 EO Reconciliation, Case No. U-10. I have also sponsored direct testimony on behalf of Consumers Energy for its EO Biennial Plan filing, Case No. U- and for its EO Biennial Plan, Case No. U-. In addition, I have testified in DTE Energy Company s EO Plan approved by the Commission in its June, 00 Order in Case No. U-10 and in Case No. U-10 on behalf of MichCon. I also filed testimony in support of The Detroit Edison Company s and MichCon s 0 amended plan to expand that program under that same case. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to: (1) describe the cost-effectiveness modeling for the Company s Energy Waste Reduction Plan ( Plan ) to comply with the statutory requirements in Public Act of 01 ( Act ); and () provide the results demonstrating that the energy efficiency portfolio is cost-effective using the Utility System Resource Cost Test ( UCT ) (excluding the low-income customers). te01-ram

146 RICHARD A. MORGAN DIRECT TESTIMONY Q. Are you sponsoring any exhibits? A. No. Q. What is the Plan and what does it contain? A. The Plan is a roadmap for Consumers Energy to achieve its energy savings goals cost effectively. The Plan describes the programs and their elements so that they can be implemented by the Company. Although the Plan provides direction for the Company as it implements the programs, it is important to note that the programs continue to be refined both during the development of the detailed operational plans with the implementation contractors, and during implementation. This is to be expected over multi-year program plans as technologies, markets, and customer opportunities change. The program descriptions include: a summary, target markets, market barriers/theory, initial measures/services recommended, estimated savings, implementation and delivery approach, incentive strategies, participation criteria, quality control, and budgets as described in the testimony of Company witnesses Theresa K. Schmidt and Alfred A. Alatalo. From this program information, a cost benefit analysis is completed to assure that the programs are cost effective. Q. Does the Plan meet the statutory savings goals? A. Yes. The Consumers Energy Plan was developed to exceed the statutory goals as set forth in Act described by Company witness Theodore A. Ykimoff. Q. How was cost-effectiveness of these programs determined? A. The DSMore cost analysis tool was used to calculate and report cost-effectiveness for the programs using the UCT as defined by Act. Consumers Energy s programs must be cost-effective utilizing the UCT, but several other cost-effectiveness tests were performed, and their results along with the UCT are tabulated in Exhibit A-1 (TAY-). te01-ram

147 RICHARD A. MORGAN DIRECT TESTIMONY Q. Can you describe the DSMore modeling tool? A. The DSMore tool is award-winning modeling software that is nationally recognized and used in many states across the country to determine cost-effectiveness. Developed and licensed by Integral Analytics based in Cincinnati, Ohio, the DSMore cost-effectiveness modeling tool takes hourly prices and hourly energy savings from the specific measures/technologies being considered for each program, and then correlates both to weather. This tool looks at over 0 years of historic weather variability to get the full weather variances appropriately modeled. In turn, this allows the model to capture the low probability, but high consequence weather events and apply appropriate value to them. Thus, a more accurate view of the value of the efficiency measure can be captured in comparison to other alternative supply options. Q. Can you please describe the various tests run in your DSMore modeling? A. Exhibit A-1 (TAY-) shows the cost-effectiveness test results for the Consumers Energy Electric and Natural Gas energy efficiency programs in total, by residential and business classes, and for each program. The various test results shown are for the following tests: UCT: Defined as the ratio of the net benefits of the programs to the program costs incurred by the utility for the programs. For a program to be cost-effective, this ratio needs to be greater than one; Total Resource Cost Test: Defined as the total avoided cost divided by the program costs plus the participant s costs. Incentives paid to the customer are in both the cost and benefit sides of the equation, so they cancel each other out; Rate Impact Measure: Defined as the avoided cost benefits divided by the program costs and lost revenues; and Participant Test: Defined as the participant s benefits in energy savings from their bill plus their incentives divided by their costs to participate. te01-ram

148 RICHARD A. MORGAN DIRECT TESTIMONY Q. What type of program information is used for model inputs? A. Inputs into the model include participation rates, incentives paid, energy savings of the measure, life of the measure, implementation costs, administrative costs, and incremental costs to the participant of the high efficiency measure. Q. What savings were used for the plans and cost effectiveness calculation? A. Savings for the plans and cost benefit analysis were based on the Michigan Energy Measures Database ( MEMD ). The adopted 01 MEMD was the basis for the Company s plans. Q. What freeridership, or Net-to-Gross ( NTG ) values were utilized in the development of the Company s plans? A. For the planning years 01-01, the Company assumed continuation of the current NTG values of 0. for Compact Fluorescent Lamps, 1.0 for low-income, and a NTG value of 0.0 for most other programs, consistent with the deemed values granted by the Commission in its December 01 approval of the Energy Optimization Plan in Case No. U-. Q. How were program costs developed for the Plan and cost benefit analysis? A. Program costs for the planning years were based on projected program implementation budgets and costs. These estimates were provided by the current program implementation contractors, reviewed for reasonableness, and adjusted based on program best practices. This assures that the budgets are based on realistic historic operational costs, and incentives based on realistic levels that are proven in the market. Q. What type of utility information is used in DSMore? A. For utility information, DSMore utilizes utility rates, escalation rates, discount rates for the utility, society and the participant, and avoided costs. te01-ram

149 RICHARD A. MORGAN DIRECT TESTIMONY Q. What is the source of the utility information used for Consumers Energy s DSMore inputs? A. The utility inputs provided to me by Consumers Energy reflect data supporting current rate structures and Company forecasts. Q. Within the model how are the avoided electric benefits computed? A. The avoided benefits in the Company s analysis utilizes historic hourly price data from the Midcontinent Indpendent System Operator, Inc. market and hourly weather data to determine the value of the saved kwh. The savings by measure are applied at specific hours over the year since prices vary by hour. These prices are weighted based on the probability of weather variations over years of weather history so that the full range of weather and prices are properly captured. Each hour has a unique price which is then escalated over time. This assures that the savings reflect the value you would expect to see in the market over time from the avoided energy sales. Q. How are the gas benefits different? A. The avoided benefits for gas are calculated using weather adjusted prices, similar to the electric, but are based on gas prices from the Henry Hub sales market. Gas prices are based on daily gas prices versus hourly prices for electric. Again the purpose is to best represent the value of the energy savings as would be seen in the marketplace. Q. What are net benefits? A. Net benefits are the computed avoided cost benefits, which I described previously, minus the program costs to acquire those benefits. Q. Please describe the cost-effectiveness results for Consumers Energy s Plan. A. All Consumers Energy programs are cost-effective with the Gas Program Portfolio UCT score of 1. and the Electric Program Portfolio UCT score of.. This means that the te01-ram

150 RICHARD A. MORGAN DIRECT TESTIMONY 1 1 savings benefits are 1% greater than the program cost for Gas and % greater than the program cost for Electric. Q. Based on the results of your work, is Consumers Energy s Energy Waste Reduction Plan cost-effective? A. Yes. Based on the analysis I performed using DSMore, the Company s Energy Waste Reduction Plan passes the cost-effectiveness test in accordance with the legislative requirements of Act. This analysis was done in accordance with legislative guidelines and did not include low-income programs. The results of my analysis are provided in Exhibit A-1 (TAY-). Q. Does this complete your testimony? A. Yes, it does. te01-ram

151 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF THERESA K. SCHMIDT ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

152 THERESA K. SCHMIDT DIRECT TESTIMONY Q. Please state your name and business address. A. My name is Theresa K. Schmidt, and my business address is One Energy Plaza, Jackson, Michigan, 01. Q. Please describe your current position and responsibilities. A. As Residential Energy Efficiency Operations Director, I am responsible for the development and implementation of Consumers Energy Company s ( Consumers Energy or the Company ) electric and gas residential Energy Efficiency/Energy Waste Reduction programs. Q. Please describe your education and professional experience. A. I hold a Bachelor of Business Administration & Organizational Development Degree from Spring Arbor University. In 10, I began employment at a CMS Energy subsidiary, CMS Accounts Receivable Services, as an Executive Assistant and was promoted to Marketing Coordinator where I was responsible for all aspects of marketing our services, including supervising a marketing and administrative support staff. In 1, I transferred to CMS Marketing Services & Trading as a Marketing & Sales Associate in the Retail Sales Department, providing research, creating marketing plans, and coordinating outreach efforts in the newly deregulated electric and gas markets. In 000, I transitioned to Consumers Energy s Business Customer Operations & Strategy Department supporting initiatives focused on large electric and gas business customers and was promoted to Business Advisor working on the Electric Customer Choice ( ECC ) Program. This included tracking and preparing ECC participation reporting to the Michigan Public Service Commission ( MPSC or the Commission ). In 00, I joined the Customer Care and Services team as a subject matter expert during the mass 1 te01-tks 1

153 THERESA K. SCHMIDT DIRECT TESTIMONY conversion of our legacy systems to SAP. During this time, I also managed major projects including the implementation of FACTA and the Company s eservices web application. After the conversion project, I was promoted to the Company s Smart Grid project in Customer Value Services Department managing the Direct Load Management Pilot Program until 0. I was then promoted to Database Analyst for the Energy Efficiency programs and soon transitioned to an Energy Efficiency Residential Program Manager in 01. While in this role, I have managed many of the residential programs, including: Appliance Recycling; Insulation and Windows; Heating, Ventilation, and Air Conditioning ( HVAC ) and Water Heating; Home Performance with ENERGY STAR ; Efficient Lighting; ENERGY STAR Appliances; and the Think! Energy Education Program. In 01, I was promoted to Residential Energy Efficiency Operations Director, which expanded my responsibilities to include supervising the development and implementation of the Company s residential energy efficiency programs. Q. Have you previously testified before the Commission? A. I have not provided direct testimony before the Commission, but have provided supporting analysis used by previous Company witnesses in the Company s Energy Optimization ( EO )/Energy Waste Reduction filings. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my direct testimony in this case is to provide: i. A detailed overview of the Company s residential programs contained in its Energy Waste Reduction Plan ( Plan ); and ii. Projected Residential Program energy savings and investments as part of the Company s energy waste reduction plans. te01-tks

154 THERESA K. SCHMIDT DIRECT TESTIMONY Q. Are you sponsoring any exhibits with your direct testimony? A. No. Q. Please describe the most significant proposed changes to the residential programs associated with the Plan. A. The Company is proposing minor changes to the residential programs, consistent with its 01 Amended Plan filed on March 1, 01 in Case No. U-, as part of its Plan. There are electric and gas funding changes in to the overall residential programs. In particular for 01, the Company proposes to increase overall residential electric and gas program investment in the currently approved 01 Plan by $. million to account for updates made to forecasted incentives/rebates and customer participation levels. Although this represents an overall % increase in funding, the Company will increase electric and gas energy savings by,000 MWh and 1 MMcf to compensate for the removal of the long-life bonuses and market transformation multipliers along with achieving the higher energy savings goals. This is consistent with the additional increase for years Q. What residential programs does the Company propose to provide as part of its Plan? A. The following 1 residential programs will be offered: Appliance Recycling Program; Efficient Lighting; ENERGY STAR Appliances; Home Energy Analysis; Home Energy Report; te01-tks

155 THERESA K. SCHMIDT DIRECT TESTIMONY Home Performance with ENERGY STAR ; HVAC and Water Heating; Income Qualified Energy Assistance; Insulation & Windows; Multi-Family Direct Install; Residential New Construction; Think! Energy - Energy Education Program Grades through ; and Residential Agriculture. Q. Please describe the Company s Appliance Recycling Program. A. The average household replaces a refrigerator every ten years. Many of the refrigerators and freezers being replaced still function and often end up as energy guzzling back-up appliances in basements and garages, or are sold in a used appliance market. The Appliance Recycling Program targets customers with these second refrigerators and freezers, providing the dual benefit of cutting energy consumption and keeping the appliances out of the used market. An appliance recycling contractor provides turnkey implementation services that include verification of customer eligibility, scheduling of pick-up appointments, appliance pick-up, rebate processing, and recycling services. Q. Please describe the Company s Efficient Lighting Program. A. The Residential Lighting Program will continue to provide incentives and marketing support through major retailers to promote sales and use of ENERGY STAR lighting products. General advertising, in-store signage, sales associate training, an online Find-a-Retailer tool, and instant customer incentives through price markdowns will drive te01-tks

156 THERESA K. SCHMIDT DIRECT TESTIMONY participation. The residential program will focus exclusively on Light Emitting Diode ( LED ) technology as it moves away from compact fluorescent bulbs. Q. Please describe the Company s ENERGY STAR Appliances Program. A. The ENERGY STAR Appliances Program employs a Web-based and in-store promotional strategy to influence the purchase of high-efficiency appliances along with a planned online store. Since appliance standards, as well as the market share of high-efficiency appliances, are gradually increasing, the program is specific in its list of qualifying models and marketing emphasis. To increase the opportunity for customer participation, Wi-Fi thermostats are included as eligible measures, including pool pumps, clothes washers, room air conditioners, and dehumidifiers. Q. Please describe the Company s Home Energy Analysis Program. A. Participating customers receive direct installation of energy-savings measures and a walk through energy inspection of their homes that culminates in a customized summary report with energy saving tips and recommendations. The energy-savings measures include LED bulbs, water heater pipe insulation, low-flow water aerators, showerheads, and programmable thermostats or Wi-Fi enabled thermostats that are installed free of charge for residential customers. Other utility energy efficiency programs are cross-promoted and customers are encouraged to take the next step in their energy efficiency journey by participating in the Home Performance with ENERGY STAR Program. Q. Please describe the Company s Home Energy Report Program. A. The Home Energy Report ( HER ) Program provides residential customers with information on their home s energy use through personalized reports delivered by mail or to empower them to make informed energy decisions. Behavioral science research 1 te01-tks

157 1 1 THERESA K. SCHMIDT DIRECT TESTIMONY has demonstrated that peer-based comparisons are highly motivating ways to present information; the HER Program will leverage a dynamically created comparison group for each residence based on nearby households. Our Interval Web Portal is the foundational system for reports sent by , enabling comparisons of interval data, and providing customers access to view additional energy use details online. In addition to presenting energy use information, the reports offer low- or no-cost energy-saving tips and cross-promote other residential energy efficiency programs. Q. Please describe the Company s Home Performance with ENERGY STAR Program. A. The Home Performance with ENERGY STAR Program produced long-term electric and natural gas energy savings in the residential sector by helping customers analyze their energy use and make home improvements that consider the home as a complete system. This was accomplished by emphasizing a holistic approach to making homes safe, 1 1 healthy, and energy efficient. Building Performance Institute-certified contractors offered Comprehensive Home Assessments at market-based fees that included diagnostic testing and a visual inspection for health and safety issues. Once the inspection was complete, the contractor used energy modeling software to generate a final report that informed the customer of energy savings, costs, and payback. The program targeted residential customers in single-family homes and offered various options to capture savings; financial incentives were available for building shell improvements and energy-efficient heating and cooling equipment. te01-tks

158 THERESA K. SCHMIDT DIRECT TESTIMONY Q. Please describe the Company s High-Efficiency HVAC and Water Heating Equipment Program. A. The high-efficiency Heating, Cooling, and Water Heating Program increases demand using a market push and pull strategy. The strategy focuses on educating customers about the economic benefits and increased in-home comfort of high-efficiency heating, cooling, and water heating equipment. The HVAC Program engages contractors to promote the program and ensure equipment purchased is properly sized and correctly installed. Participating HVAC contractors are provided specific value propositions including account management representation, training, educational materials, and marketing collateral. Customers can easily locate a participating contractor through a web-based find-a-contractor tool. Financial incentives paid to customers will reduce the incremental cost of purchasing qualifying high-efficiency models. The program has increased the educational component for Programmable and WiFi thermostats to full set back to assist customers in obtaining the full energy savings from the units. Q. Please describe the Company s Income Qualified Energy Assistance Program. A. The Income Qualified Energy Assistance Program identifies specific opportunities for low-income customers to lower their energy bills through installation of energy efficient measures, providing financial assistance to cover the full cost of installation, and educating customers with limited income about how to reduce their energy usage and manage their utility costs. The program coordinates low-income services with local weatherization providers and community action agencies to offer comprehensive assistance at lower administrative costs. We have expanded this program to drive more participation with the low-income Manufactured Housing market. 1 te01-tks

159 THERESA K. SCHMIDT DIRECT TESTIMONY Q. Please describe the Company s Insulation and Windows Program. A. The Insulation and Windows Program provides incentive rebates to customers to encourage them to install qualified energy saving windows and home insulation. The program is unique in that it allows customers to use the services of a contractor, or to perform the improvements and apply for rebates themselves. This is particularly appealing for the do-it-yourself customers. The program is marketed through a network of contractors and through point of purchase promotional material in Big Box retailers throughout the State. Q. Please describe the Company s Multi-Family Direct Install Program. A. The Multi-Family Direct Install Program produces immediate electric and natural gas energy savings in multi-family buildings through the direct installation of energy-saving measures in individual living units and common areas. Since this is traditionally a hard-to-reach market, the Company s implementation contractor will dispatch crews of installers to targeted buildings to install low-cost energy saving measures free of charge to the property owner and tenants. The program is also designed to achieve deeper energy savings through the promotion of high efficiency equipment for prescriptive and custom retrofit projects. We will continue to offer a one-stop-shop approach that serves income qualified, residential, and commercial segments through one program, managed by one implementation contractor. Q. Please describe the Company s Residential New Construction Program. A. The New Construction Program produces long-term electric and natural gas savings by encouraging the construction of single-family homes and duplexes that meet the current ENERGY STAR standards. Builders who participate are provided rebates that cover 1 te01-tks

160 THERESA K. SCHMIDT DIRECT TESTIMONY approximately 0% of the cost to certify each home to ENERGY STAR standards. The program also employs an educational component for builders on the increased value of building energy efficient homes. Q. Please describe the Company s Think! Energy Energy Education Program Grades through. A. The intent of the Think! Energy program is to influence students and their families to take actions that can reduce their home energy use and increase efficiency. The program targets elementary and middle school students in grades through. In-class energy efficiency presentations are provided along with a take-home kit that raises awareness about how individual actions and low-cost measures can provide reductions in consumption of electricity, natural gas, and water. The program is endorsed by the Michigan Department of Education. Q. Please describe the Residential Agriculture Program. A. The Agriculture Program is designed to offer residential agriculture customers incentives for energy saving measures in retrofit and major renovation projects. It provides participating customers the same level of rebates as the prescriptive and custom incentives from the Business Energy Efficiency Program. Q. Does the Company intend to also make an investment in residential pilot programs? A. Yes. Potential pilot concepts, either being tested or evaluated, include: PrePay, Non-Wire Alternatives (formally Geo-Targeted), and Smart (Learning) Thermostat. 1 te01-tks

161 1 THERESA K. SCHMIDT DIRECT TESTIMONY Q. For each of the residential programs and residential pilot programs described above, is there more detailed information available in this filing? A. Yes. The Energy Waste Reduction Plan Report, Exhibit A-1 (TAY-) sponsored by Company witness Theodore A. Ykimoff s provides detailed program 1 sections that include: program objective, target market, program duration, program description, program logic, incentive strategy, eligible measures, implementation strategy, marketing strategy, evaluation strategy and requirements, Consumers Energy administrative requirements, estimated participation, estimated investment, energy saving targets, and benefit-cost test results. Q. From the residential programs and pilot programs that the Company plans to implement as part of this filing, what are the projected total annualized MWh, MW, and Mcf savings expected to be delivered for the plan period 01-01? A. From residential programs, the Company projects to deliver the sum of first-year energy savings of 1, MWh, 1.1 MW, and,0,0mcf from 01 to 01. Annual energy saving amounts over this time period can be found in the Company s Plan Report, Exhibit A-1 (TAY-). Q. How is energy savings calculated in each of the residential programs? A. The base energy savings values for various measures are contained in the Michigan Energy Measures Database ( MEMD ). For any measures that do not have energy savings included in the MEMD, supporting documentation and engineering calculations must be provided to support claimed energy savings. These are then reviewed by our third party evaluation contractors. te01-tks

162 THERESA K. SCHMIDT DIRECT TESTIMONY Q. For this plan, is there any additional adjustment to these base energy savings used to calculate final energy savings? A. Yes. There are Net to Gross adjustments and installation adjustments. Q. What is a Net to Gross adjustment and installation adjustment? A. Net to gross adjustment: These ratios are used to estimate the energy savings achieved by the Company s programs net of that which would have occurred in the absence of the programs, i.e., freeriders. Installation adjustment: Post hoc evaluations conducted by the Company s evaluation contractors for each program verify the actual installation at customer premises of the energy efficiency measures for which the Company is claiming energy savings. These evaluations sometimes reveal that a small percentage of the installations did not occur, occurred outside the Company s service territory, and occurred improperly such that the desired energy savings are not being achieved, or were subsequently removed by the customer. To the extent these conditions are found, the Company takes an appropriate adjustment to claimed energy savings. This adjustment is referred to as an installation adjustment. Q. What assumption has the Company made with regard to net to gross ratios in the EO Plan presented in this case? A. The Company has assumed a net to gross ratio of 0.0% for each of its residential programs with one exception. 1 te01-tks

163 THERESA K. SCHMIDT DIRECT TESTIMONY Q. What assumption has the Company made with regard to installation adjustments in the plan presented in the case? A. The Company s independent residential evaluation contractor, Cadmus Group, provided these adjustments based on evaluation research conducted and they are included as an adjustment to energy savings, where applicable. This detailed information can be found in the Company s Plan Report, Exhibit A-1 (TAY-). Q. Is the Company proposing to use market transformations? A. No. Q. Are the Company s proposed programs and investments sufficient to ensure the achievement of the applicable statutory energy savings target? A. Yes. Many of the programs contained in this filing have been in-market since 00 and continue to demonstrate strong customer interest and participation that has helped drive performance beyond the statutory energy savings target. Q. What is the projected total residential electric and total gas program investment to deliver these energy savings over the Plan period? A. To deliver the energy savings targets over the Plan period the Company projects it will need $1 million of residential program electric investment and $1 million of residential program gas investment. Annual program investment detail over this time period can be found in the Company s Plan Report, Exhibit A-1 (TAY-). Q. How did the Company determine the investment level for the residential portfolio? A. Investment for the residential portfolio is based on a number of variables that include: historical investment levels, projected incentives, number of measures installed, industry te01-tks 1

164 THERESA K. SCHMIDT DIRECT TESTIMONY trends, market performance, market potential, and new initiatives offered by the Company. Q. Will the Company s residential programs, excluding low-income residential customers, collectively be cost-effective? A. Yes. The residential electric portfolio is projected to be delivered at an overall Utility Cost Test ( UCT ) score of. and the residential gas portfolio is projected to be delivered at an overall UCT score of 1.. The expected benefit-cost test results for each of the residential programs are detailed in the Company s Plan Report, contained in Exhibit A-1 (TAY-). Q. How will the Company demonstrate that its investments in the residential programs are achieving the desired results? A. Consistent with the approach used since 00, the Company will file annual reconciliation reports with the Commission after the end of each plan year detailing how much was invested for each program and energy saved for each program by customer class (residential, non-residential) in the previous year. Such reports will be in sufficient detail to allow the Commission to determine that the Company is complying with the Commission s orders and statutory requirements. Q. Does that conclude your testimony? A. Yes. te01-tks 1

165 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) DIRECT TESTIMONY OF S. AUSTIN SMITH ON BEHALF OF CONSUMERS ENERGY COMPANY March 01

166 1 S. AUSTIN SMITH DIRECT TESTIMONY Q. Please state your name and business address A. My name is S. Austin Smith, and my business address is One Energy Plaza, Jackson, Michigan 01. Q. By whom are you employed? A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ). Q. What is your position with Consumers Energy? A. I am a Rate Analyst I in the Pricing Section of the Rates and Regulation Department. Q. Please state your educational background and work experience. A. In 01 I graduated from Alma College with a Bachelor of Business Administration Degree with an emphasis in Accounting. From June 01 to July 01 I was employed by Alro Steel on the Sales team in Jackson, MI; Charlotte, NC; and Flint, MI. My responsibilities included: (i) managing a portfolio of customer accounts; (ii) customer service and customer relations problem-solving; (iii) delivery scheduling; (iv) logistics planning; (v) inter-company communication; and (vi) face-to-face customer sales visits, tours, and events. In August 01, I began employment as a Rate Analyst I in the Pricing Section of the Rates and Regulation Department at Consumers Energy. My current responsibilities include rate design, research and development of additional services, analyses for Senior Management, and customer-specific rate analyses. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony in this proceeding is to present the Company s proposals for: (1) the allocation of the Energy Waste Reduction Plan ( Plan ) investments between customer groups; () the utilization of the monthly billing determinants te01-sas 1

167 1 S. AUSTIN SMITH DIRECT TESTIMONY for surcharge design; () the calculation of the proposed surcharges necessary to recover the proposed investments; and () the surcharge tariff sheets for the Company s Plan. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: 1 Exhibit A- (SAS-1) Allocation of the Energy Efficiency Program Investments- Electric & Gas; Exhibit A- (SAS-) Calculation of Energy Efficiency Plan Surcharges - Electric & Gas; 1 Exhibit A- (SAS-) Exhibit A- (SAS-) Proposed Electric Energy Efficiency Surcharge Tariff Sheet; and Proposed Gas Energy Efficiency Surcharge Tariff Sheet Q. Were these exhibits prepared by you or under your supervision? A. Yes, they were. Q. Please describe Exhibit A- (SAS-1). A. Exhibit A- (SAS-1), Allocation of the Energy Efficiency Program Investments- Electric & Gas, is a two-page exhibit which shows the proposed allocation of the Company s investment to help its customers reduce energy waste among the various customer groups for both the electric and gas plans. Q. What was the basis for the investment allocations? A. The electric and gas energy waste reduction investments were provided by Company witness Theodore A. Ykimoff. The investments are allocated to the various customer groups based on the additional energy savings being delivered and the relative cost-of-conserved energy for each class, with certain adjustments for the allocation of low income programs in compliance with the provisions of 01 Public Act ( PA ) ( PA ). In addition, Mr. Ykimoff also asked that I provide the allocation of investments based on the level of te01-sas

168 S. AUSTIN SMITH DIRECT TESTIMONY investment in each class, consistent with prior cases, as an alternative in the event the Commission disagrees with the Company s proposal. This is represented on Exhibit A- (SAS-1), page, as the status quo method. Q. Please describe Exhibit A- (SAS-). A. Exhibit A- (SAS-), Calculation of Energy Efficiency Plan Surcharges - Electric & Gas, is a two-page exhibit which provides an overview of the calculation of the monthly energy efficiency plan component surcharges by customer group, which will recover the Company s annual investments. The derivation of the surcharges will be discussed in more detail later in my testimony. Q. Please describe Exhibit A- (SAS-). A. Exhibit A- (SAS-), page 1, Proposed Electric Energy Efficiency Surcharge Tariff Sheet, shows the total energy efficiency electric surcharges by customer group in a rate sheet format. Exhibit A- (SAS-), page, Proposed Electric Energy Efficiency Surcharge Tariff Sheet, shows the total energy efficiency electric surcharges by customer group based on the status quo method discussed above. Q. Please describe Exhibit A- (SAS-). A. Exhibit A- (SAS-), page 1, Proposed Gas Energy Efficiency Surcharge Tariff Sheet, shows the total energy efficiency gas surcharges by customer group in a rate sheet format. Exhibit A- (SAS-), page, Proposed Gas Energy Efficiency Surcharge Tariff Sheet, shows the total energy efficiency gas surcharges by customer group based on the status quo method discussed above. 1 te01-sas

169 S. AUSTIN SMITH DIRECT TESTIMONY Q. What is the basis for the development of the Company s proposed Plan investment recovery mechanism? A. The monthly surcharges were designed to recover the Company s investments in energy waste reduction in accordance with PA. Q. Does the Company intend to assess an energy efficiency surcharge to municipal customers with utility owned streetlighting? A. Yes. The Company is proposing to open its Energy Waste Reduction programs for these customers as part of its proposed Plan. As such, the Company proposes to assess a per light surcharge to recover the expected investments associated with upgrading these projects. Q. Please elaborate on how the Company intends to recover its investment in energy waste reduction from its customers. A. The Company will assess monthly levelized surcharges to recover its proposed investments over the period of January 01 through December 01. The Company is proposing to replace its existing energy efficiency surcharges beginning with the first billing cycle of the January 01 billing month. The surcharges have been designed to recover the investments for each respective customer class (residential and business) as required by PA. The surcharges for each customer group calculated on Exhibit A- (SAS-) represent the recovery of the residual 01 investments plus the $ million and $1 million of electric and gas investments, respectively. The Company s combined surcharges (current plus incremental) are displayed on Exhibit A- (SAS-) and Exhibit A- (SAS-). 1 te01-sas

170 1 S. AUSTIN SMITH DIRECT TESTIMONY Q. How did you calculate the proposed Plan surcharges? A. The annual investments to be collected for each rate category on a 0% expensed basis for the period January 01 through December 01 were calculated based on the levelized net present value of incremental plan expenditures provided by Company witness Ykimoff. Q. How will the monthly surcharges be assessed? A. The electric and gas surcharges will be assessed to each customer group as specified in PA. Residential electric customers will be charged on a per kwh basis on their monthly bill. Secondary and primary electric customers will be assessed the surcharge on a per meter basis on their monthly bill. All gas customer groups will be charged each month on a per Mcf basis. Q. How are the surcharges for a typical residential customer impacted? A. Under the Company s proposed allocation, a residential electric customer using kwh per month would see an increase of $.1 per month, while a residential gas customer using Mcf per month would see an increase of $0. per month. Q. How will the Company determine the appropriate surcharge category for each customer? A. A new customer with no usage history will initially be assigned to the lowest usage surcharge level for their rate class. Existing customers will be placed in their demarcated subclass based on their 1-month historic usage. An annual review of customers average annual consumption levels will be performed each January to determine which usage segment the customers will be assigned to during the next year. te01-sas

171 1 S. AUSTIN SMITH DIRECT TESTIMONY Q. How does the Company propose to recover its plan costs from the Low-Income Residential Program? A. The energy waste reduction investments for the Low-Income Residential Program have been allocated to all customer groups based on the weighting of the customer group s respective investments to the total investments for a given year. Customers who self-direct their own programs are still responsible for paying their share for these Low-Income Residential Program investments through the appropriate surcharge assigned to their respective customer group in compliance with the statutory requirements. Q. Does this conclude your testimony in this proceeding? A. Yes, it does. 1 te01-sas

172 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 of the application of ) CONSUMERS ENERGY COMPANY ) for Approval of its Energy ) Case No. U- Waste Reduction Plan ) ) SUPPLEMENTAL DIRECT TESTIMONY OF S. AUSTIN SMITH ON BEHALF OF CONSUMERS ENERGY COMPANY June 01

173 1 1 S. AUSTIN SMITH SUPPLEMENTAL DIRECT TESTIMONY Q. Please state your name and business address. A. My name is S. Austin Smith, and my business address is One Energy Plaza, Jackson, Michigan 01. Q. By whom are you employed? A. I am employed by Consumers Energy Company ( Consumers Energy or the Company ). Q. What is your position at Consumers Energy? A. I am a Rate Analyst I in the Pricing Section of the Rates and Regulation Department. Q. Are you the same S. Austin Smith who submitted direct testimony in this case? A. Yes. Q. Are you sponsoring exhibits with your supplemental direct testimony? A. Yes, I am sponsoring the following exhibits: Exhibit A-1 (SAS-) Exhibit A-1 (SAS-) Proposed Electric Energy Efficiency Tariff Sheets; and Proposed Gas Energy Efficiency Tariff Sheets Q. Were these exhibits prepared by you or under your supervision? A. Yes, they were. Q. What is the purpose of your supplemental direct testimony? A. The purpose of my supplemental direct testimony is to make changes to tariff language in accordance with Public Act of 01 ( Act ). Q. Please describe the proposed tariff changes in Exhibit A-1 (SAS-)? A. The term Energy Optimization has been substituted with Energy Waste Reduction to reflect the new terminology used in Act. References to Act have also been added throughout. Section C1. has been updated to remove references to previous ste01-sas 1

174 S. AUSTIN SMITH SUPPLEMENTAL DIRECT TESTIMONY years that are no longer applicable and to include a reference to the Michigan Public Service Commission s Order in Case No. U-1. The surcharge tariff sheets have been revised to simplify the language in footnote by removing unnecessary references to the effective period, the applicable cases, and components of the surcharge. Pages and of Exhibit A-1 (SAS-) replace page 1 of Exhibit A- (SAS-) and page 1 of Exhibit A- (SAS-), respectively, as referenced in my direct testimony in this case. Q. Please describe the proposed tariff changes in Exhibit A-1 (SAS-)? A. Similar to the changes discussed above, the term Energy Optimization has been substituted with Energy Waste Reduction, references to Act have been added, and the surcharge tariff sheets have been revised to simplify the language in footnote. Pages and of Exhibit A-1 (SAS-) replace page of Exhibit A- (SAS-) and page of Exhibit A- (SAS-), respectively, as referenced in my direct testimony in this case. Q. Does this conclude your supplemental direct testimony? A. Yes, it does. ste01-sas

175 1 1 JUDGE MACK: Anything else on behalf of the Company? MR. GENSCH: No, your Honor. JUDGE MACK: Thank you. Let's go to you, Ms. Barbash-Riley. What do you have? (Documents marked for identification by the Court Reporter as Exhibit Nos. NHT-1 through NHT-.) MS. BARBASH-RILEY: The National Housing Trust moves to bind in the Corrected Direct Testimony of Annika Brink, which consists of a cover page and 1 pages 1 of questions and answers. We have handed out the 1 corrected pages, they consist of corrections on page, 1 lines and, which state now in the corrected 1 testimony that, "The Company's dual fuel territory 1 contains approximately,0 low-income multifamily 1 households." We've struck out the text "serves", "of 1 these", and "with both fuels". Then on page 1, in the 1 chart under the column labeled Subsidized Affordable 0 Incentive as % of Incentive Cost, under the line DHW 1 Boiler Tune-Up - CA, it was "" percent, it is now "" percent. JUDGE MACK: Exhibits? MS. BARBASH-RILEY: This testimony was originally filed with nine exhibits. Metro Court Reporters, Inc..0.

176 1 1 JUDGE MACK: And those are? Make the offer of the exhibits, NHT? MS. BARBASH-RILEY: Exhibits NHT-1 through. JUDGE MACK: 1 through. Any objection? (No response.) Hearing none, the testimony of Ms. Brink is bound into this record, and Exhibits NHT-1 through NHT- are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

177 1 STATE OF MICHIGAN MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission s own motion, regarding the regulatory review, revisions, determinations, and/or approvals necessary for CONSUMERS ENERGY COMPANY to fully comply with Public Act of 00 and Public Act of 01. Case N o. U- ALJ Dennis Mack CORRECTED DIRECT TESTIMONY OF ANNIKA BRINK ON BEHALF OF THE NATIONAL HOUSING TRUST

178 1 ERRATA to the DIRECT TESTIMONY OF ANNIKA BRINK ON BEHALF OF THE NATIONAL HOUSING TRUST Page(s) Change The Company s dual fuel territory contains serves approximately,0 of these low-income multifamily households with both fuels. 1 Table : Column: Subsidized Affordable Incentive as % of Inc. Cost, Row: DHW Boiler Tune-Up CA - corrected percentage from % to %

179 1 Table of Contents I. Introductions and Qualifications... 1 II. Testimony Overview... III. Testimony... Part 1. NHT s Involvement in Low-Income Multifamily Program Design Related to Consumers Previous EO Case... Part. Opportunities for Low-Income Multifamily Energy Savings in Consumers Territory and Barriers to Energy Efficiency Faced by Low-Income Multifamily Properties... Part. Evolution of Energy Savings Opportunities Over Time and Recommended Incentive Structure Changes Based on this Evolution and Current Needs... 1 Part. Recommended Changes to Consumers Low Income Multifamily Program to Align with Best Practices for Serving the Affordable Multifamily Sector... Part. Utility Performance Metrics... 1 i

180 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of I. Introductions and Qualifications Q: Please state your name, employer, and business address. A: My name is Annika Brink. I am employed by the National Housing Trust (NHT) as their Energy Efficiency Advisor. In this capacity I work with state and local partners across the country to make multifamily housing healthy and affordable through energy efficiency. I have primary responsibility for NHT s energy efficiency policy work in the Midwest, including Michigan. My business address is National Housing Trust, 0 th Street NW, Suite 0A, Washington, DC 000. Q: Please describe your educational background. A: I received a Master in Public Policy from Harvard University in 0, where I focused on energy, sustainability, and social/urban policy and produced research on state and local policy solutions for rental sector energy efficiency. I also received a Bachelor of Arts in History and German Studies from Wesleyan University in 00 and subsequently spent a year studying Architecture and Urban Planning at the Universität Stuttgart in Stuttgart, Germany. Q: Please summarize your professional experience. A: I have seven years of professional experience with energy policy, affordable housing, and green building, both from an energy and a housing perspective. In my work for NHT, I analyze state, local, and utility efficiency policies and programs; help disseminate best practices; and facilitate coordination among housing and energy stakeholders. I have filed comments with utility regulators in Missouri, Minnesota, and Kansas. From 0 to 01, I led the nonprofit Alliance to Save Energy s engagement of publicly-owned not-for-profit electric power utilities, where I helped utilities share best practices, consider energy efficiency program models, benchmark their energy efficiency portfolios, develop innovative online tools, and achieve 1

181 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of consensus on priority topics. I have been a LEED Green Associate since 01. I have worked for affordable housing developers in Grand Rapids, Michigan (internship) and Minneapolis, Minnesota, including work on green affordable housing, community development, and multifamily rehabilitation projects. I have additional experience working on energy efficiency issues in Michigan. I regularly participate in Energy Waste Reduction stakeholder meetings and am working with other lowincome, multifamily, and energy efficiency stakeholders to provide input as part of the Michigan Public Service Commission s facilitated discussions on Integrated Resource Planning rules under development. Over the last three years, I have worked with local housing and energy stakeholders to convene a diverse cross-section of stakeholders in convenings (five total of - stakeholders each), conversations, work groups, and monthly calls under the umbrella Michigan Energy Efficiency for All. Together, on an ongoing basis, we explore and address local multifamily energy efficiency experiences, barriers, solutions, and potential collaborative solutions related to expanding energy efficiency for affordable multifamily housing. A copy of my curriculum vitae is attached as Exhibit NHT-1. Q: Have you previously filed expert witness testimony in other proceedings before the Commission? A: No. Q: Have you testified on energy efficiency matters before other regulatory commissions? A: Yes, I have testified before the Missouri Public Service Commission and the Kansas Corporation Commission. Q: Are you sponsoring any exhibits?

182 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of A: Yes. I am sponsoring the following exhibits: Exhibit NHT-1: Resume of Annika Brink, National Housing Trust Exhibit NHT-: Response to -NHT-CE-, which I am sponsoring on behalf of NHT; Exhibit NHT-: Response to -NHT-CE-, which I am sponsoring on behalf of NHT; Exhibit NHT-: Response to -NHT-CE-, which I am sponsoring on behalf of NHT; Exhibit NHT-: Mosenthal, P. and Socks, M., Potential for Energy Savings in Affordable Multifamily Housing, Optimal Energy for NRDC, 01, which I am sponsoring on behalf of NHT.; Exhibit NHT-: February 1, 01 Michigan EEFA Potential Study Findings Webinar; Exhibit NHT-: Response to -NHT-CE-0; Exhibit NHT-: Response to -NHT-CE-; and Exhibit NHT-: Response to -NHT-CE-0. Q: On whose behalf are you testifying? A: I am testifying on behalf of the National Housing Trust (NHT). 1 II. Testimony Overview Q: What is the purpose of your testimony? A: The purpose of my testimony is as follows: My testimony will generally focus on the Company s offerings for low-income multifamily buildings: this is a subset of the Company s multifamily program, which is funded as Residential Multifamily and Business Multifamily, but operated as a single multifamily program. I will refer to this program as the multifamily program. 1. First, I provide additional background on NHT s history of involvement in lowincome multifamily program design related to Consumers Energy s ( Consumers or the Company ) previous EO case, U-.

183 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Second, I outline the opportunities for low-income multifamily energy savings in Consumers territory, as well as the barriers to energy efficiency faced by owners of such properties.. Third, I describe how the market and energy savings opportunities are evolving over time, and recommended program changes based on this evolution.. Fourth, I recommend changes to Consumers incentive amounts and budgets, and changes necessary to more closely match best practices for serving the affordable multifamily sector.. Fifth, I describe utility performance metrics that will aid Consumers in successfully serving its affordable multifamily customers. Q: Please summarize your recommendations. A: A summary of my recommendations is as follows: Incentive Structure: I recommend five categories of changes to Consumers incentive structure: (1) Increasing incentive levels for non-lighting measures; () additional rebates for American Society of Heating, Refrigerating, and Air- Conditioning Engineers (ASHRAE) Level II energy audits; () allowing applicants for Low Income Housing Tax Credits to reserve rebates for up to months; () increasing the budget allocated to low-income multifamily in order to facilitate a move toward deeper savings and to fund the higher incentive levels; and () providing the same incentive levels to both subsidized and unsubsidized affordable multifamily housing. Low Income Multifamily Energy Efficiency Program Design: I recommend seven changes to Consumers Low Income Multifamily energy efficiency program design,

184 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of including (1) providing more comprehensive, wrap-around services for owners, including intensive support before, throughout, and after the retrofit process; () providing every program participant with an energy assessment that meets, at a minimum, standards for an ASHRAE Level I audit; () improving linkages to MSHDA and to better financing options; () enabling easy proof of eligibility for unsubsidized properties; () including additional direct install measures; () standardizing procedures for more detailed reporting; and () setting utility performance metrics that encourage continued program evolution toward delivering more comprehensive, whole-building savings. Budget Expenditure: I recommend that Consumers work toward a goal of spending $.-$1. million annually on low-income multifamily, that they spend their entire low-income multifamily budget, and that this amount be clearly and publicly stated in EWR portfolio documents. Utility Performance Metrics: Finally, I recommend that for low-income multifamily properties participating in Consumers low-income multifamily program, Consumers achieve average energy savings per property of at least percent, deliver an energy assessment and report to at least 0 percent of properties, and have at least 0 percent of properties install multiple measures or receive the multiple measure bonus. I discuss these recommendations in more detail in my testimony below. 0 III. Testimony 1 Part 1. NHT s Involvement in Low-Income Multifamily Program Design Related to Consumers Previous EO Case Q: Please describe NHT s involvement in low-income multifamily program design related to Consumers Energy s previous EO case.

185 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of A: The National Housing Trust was an intervenor in Consumer s previous Energy Optimization plan filing, working with the Company to identify incremental improvements that were then applied to its proposed multifamily program as part of a multi-party settlement agreement. NHT s scope was limited to multifamily energy efficiency. We were pleased with the settlement, because it showed movement toward the type of one-stop shop program design that streamlines access to energy efficiency incentives across meters and fuels, providing a wholebuilding picture of energy savings opportunities, as well as support for busy owners of multifamily buildings to move forward with retrofits. Additionally, the Company earmarked funds specifically for low-income multifamily buildings and introduced bonus incentives for these buildings, which we felt was justified based on the moral imperative to serve low-income customers, as well as by the multiple barriers to energy efficiency present in the low-income multifamily sector. Q: What is your assessment of the subsequent implementation of energy efficiency offerings for low-income multifamily buildings? A: Based on information supplied by the Company in response to NHT Discovery Requests, the evolution of the Income-Qualified Multifamily offering toward a comprehensive one-stop shop model has been slower and less complete than hoped for. 1 That is, the data show a program that continues to deliver direct install projects and one-off prescriptive rebate projects, rather than a program that delivers deep, whole-building energy savings, which is a best practice for the low-income multifamily sector. It is extremely difficult to get affordable multifamily building owners attention, and these buildings often operate on periodic financing/re-financing cycles where they are only able to make major building upgrades every 1-0 years. Thus, it is 1 Exhibit NHT-, Response to -NHT-CE-, and Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT. Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT.

186 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of imperative to address all possible energy savings opportunities in an affordable multifamily building at the moment when the utilities have the owner s attention. It is clear from the Company s data that the program has not succeeded in encouraging owners to take a more comprehensive approach and move beyond direct install or single prescriptive measures. As of August 01, only two out of the multifamily projects participating in the program received the multiple measures bonus. This indicates that the large majority of projects only complete one measure. It is possible that some projects did more than one measure and did not request the bonus, but if the bonus is not significant enough for owners to bother requesting it, then it is too low to motivate an owner to do a more comprehensive retrofit. The results also show that direct install is not being used as part of pathway to deeper savings. Only percent of projects received both direct install services and prescriptive rebates. percent did only direct install and the remaining percent did only prescriptive rebates. This indicates that the program is not using direct install as a means of engaging owners and encouraging them to pursue deeper savings and that many owners are likely only accessing prescriptive rebates for projects they would have done anyway, rather than because they learned about the full suite of savings opportunities in their properties through participation in the program. Upon review of Discovery Responses provided by the Company, the Company s current rebate levels, and best practices for serving the low-income multifamily sector, we are hopeful that additional program design changes (as described later in this testimony) will enable the Company s low-income multifamily offering to continue its evolution toward a more advanced Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT. Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT.

187 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of one-stop shop model. Throughout the past two years, we have been impressed with the Company s thirst for improvement and its openness to incorporating ideas for change. Part. Opportunities for Low-Income Multifamily Energy Savings in Consumers Territory and Barriers to Energy Efficiency Faced by Low-Income Multifamily Properties Q: How many low-income multifamily households live in Consumers territories? A: Census and GIS-based analysis conducted for a 01 Energy Efficiency for All (EEFA) potential study reveals that there are approximately,1 low-income multifamily households in Consumers electric territory and approximately 1,1 low-income multifamily households in Consumers gas territory. The Company s dual fuel territory contains serves approximately,0 of theselow-income multifamily households with both fuels. Exhibit NHT- (which I am sponsoring on behalf of NHT), Mosenthal, P. and Socks, M., Potential for Energy Savings in Affordable Multifamily Housing, Optimal Energy for NRDC, 01 (supplementary analysis of Michigan s natural gas potential completed by Optimal in January-February 01) (This report was prepared for a group of organizations including the National Housing Trust, to which I contributed as a GIS analyst.); Exhibit NHT-, Socks, M., Brink, S., and Purcell, N., Quantifying and Capturing the Large Efficiency Potential in the Multifamily Affordable Housing Sector, Michigan EEFA Potential Study Findings Webinar, 01 (summarizing Michigan-specific results). (This report was prepared at my direction at NHT.) **NOTE: Additional analysis was conducted in order to present gas results by gas utility service territory (as opposed to electric utility service territory): therefore, the gas results presented here are different from the results in the full multi-state potential study report (which presented gas results by electric utility territory).

188 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Table 1: Affordable Multifamily Unit Counts for Consumers Energy s Electric and Gas Territories All Housing Units (SF+MF) All MF Affordable Utility Total Total Market- Rate Total Affordable Unsubsidized Affordable Subsidized Affordable (HUD, LIHTC, Rural, etc.) PHA- Owned Affordable Michigan,1,, 1,0 1, 0,0 1,,1 Consumers - electric 1,1,1,,0,1, 0,, Consumers - gas 1,,0,0 1, 1,1 0,0 1,, Consumers - overlap of electric and gas 00, 1,1 1,0,0,0,1,1 The different types of low-income multifamily housing include public housing (owned by a city, county, or other public entity); subsidized affordable housing (privately owned, but with affordability restrictions in place according to Low Income Housing Tax Credit, HUD, or USDA requirements); and unsubsidized housing (privately owned, but without affordability restrictions, and affordable by virtue of market forces). Q: Is there enough energy savings potential in the low-income multifamily sector to justify a program that seeks to deliver deep, whole-building energy savings? A: Yes, there is. The study cited above and subsequent additional analysis found that if Consumers pursued maximum achievable cost-effective electric and gas savings in the affordable multifamily sector from 01-0, the cumulative savings would equate to percent to percent lower electric usage and percent to 1 percent lower gas usage sector- wide across its respective territories in 0. The low-end estimate represents cost-effective potential without factoring in the substantial non-energy benefits (NEBs) of low-income energy Exhibit NHT-, Mosenthal, P. and Socks, M.,

189 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of efficiency, while the high-end estimate represents cost-effective potential when NEBs are included in cost-effectiveness analysis. I will address NEBs further later in my testimony. It should be noted that these numbers and the numbers in the two related tables below apply to buildings with + units, so these numbers are actually an underestimate of the potential for lowincome multifamily buildings of + units, which is the population eligible for Consumers proposed low-income multifamily program. Table : Maximum Achievable Savings Estimates Consumers Energy - electric Consumers Energy - gas Max Achievable, No NEBs (GWh) Max Achievable, High NEBs (GWh) Max Achievable, No NEBs (Gas BBtu) Max Achievable, High NEBs (Gas BBtu) Cumulative Savings in Year 0 Savings % of Total Usage in Year 0 10 % % 1,0 % 1, 1% Furthermore, the Consumers low-income multifamily electric energy efficiency investments outlined here would return $.0 to $.0 in benefits for every $1.00 invested, resulting in $1 million to $ million in net benefits over 0 years. Its investments in lowincome multifamily gas energy efficiency would return $.0 to $.00 in benefits for every $1.00 invested, resulting in $ million to $0 million in net benefits over 0 years. In total, this is $ to $ in possible net benefits. In order to achieve these results, Consumers would need to invest an average of between $. million (for low-end net benefits) and $1. million (for high-end net benefits) in low-income multifamily energy efficiency each year for 0 years. Company Exhibit A-1 (TAY-), p.. Exhibit NHT-, Mosenthal, P. and Socks, M.,

190 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Table : Costs and Benefits for Gas Maximum Achievable Savings Scenarios Consumers Energy - electric Consumers Energy - gas Consumers Energy - electric + gas Total Costs (Million 01$) Total Benefits (Million 01$) Net Benefits (Million 01$) Max Achievable, No NEBs $ $0 $1. Max Achievable, High NEBs $ $ $. Max Achievable, No NEBs $ $1 $. Max Achievable, High NEBs $ $ $0.0 BCR Max Achievable, No NEBs $1 $ $ n/a Max Achievable, High NEBs $ $ $ n/a Max Achievable, No NEBs, average annual $. $1. $. n/a Max Achievable, High NEBs, average annual $1. $. $. n/a Q: What level of investment are you proposing that Consumers undertake annually for low-income multifamily energy efficiency? A: Based partially on this analysis of energy savings potential in the affordable multifamily sector, we propose that Consumers ramp up to an annual investment of $. to 1. million. A reasonable ramp-up might occur over the course of - years, starting from a base of the Company s 01 low-income multifamily investment of $. million. Q: What additional reasons do you have for proposing increased investment in lowincome multifamily buildings? A: There are two additional reasons why the low-income multifamily sector merits increased investment. The first is the overwhelming need in this sector, as well as the wide array of benefits that can follow from energy efficiency investments here. The second is the barriers to energy efficiency investments and unique financing lifecycles faced by low-income multifamily buildings, which are chronically underserved by energy efficiency programs and which Exhibit NHT-, Mosenthal, P. and Socks, M.,

191 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of necessitate a more intensive, hands-on approach to delivering energy efficiency than in other sectors. Q: Please elaborate on the need found in the low-income multifamily sector, as well as the benefits you indicated can follow from energy efficiency investments in this sector. A: Energy efficiency programs are extremely beneficial to low-income tenants and can help owners maintain the buildings they live in, especially in subsidized properties where owners have limited cash flow because of legal obligations to maintain low rents and other restrictions. Retrofits can result in non-energy benefits (NEBs) such as water/wastewater bill savings, reduced maintenance costs, lower turnover rates, increased resident comfort, increased durability, improved safety, and improved health (e.g., less asthma or aggravation of chronic conditions from extreme heat and cold, resulting in fewer sick days from work and school). Utilities can benefit from reduced arrearage carrying costs, reduced customer collection calls/notices, reduced termination/reconnection costs, and reduced bad debt write-offs. Over percent of Michigan s multifamily households rent and almost half of renters in Consumers territories spend more than 0 percent on rent plus utilities, the federal standard for housing unaffordability. The percentage of renters spending more than 0 percent on rent plus utilities is percent in the Company s electric territory, percent in its gas territory, and percent in its combined electric-gas territory. According to the U.S. Department of Housing U.S. Census Table B American Community Survey -Year Estimates. GROSS RENT AS A PERCENTAGE OF HOUSEHOLD INCOME IN THE PAST 1 MONTHS, Universe: Renter-occupied housing units. And U.S. Census Table B American Community survey -Year Estimates. TENURE BY UNITS IN STRUCTURE, Universe: Occupied housing units. Approximately.% of Michigan s multifamily households rent when considered as buildings with + units and.% do so when a + units definition is used. 1

192 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of and Urban Development, such households may have difficulty affording necessities such as food, clothing, transportation and medical care. Low-income multifamily households face a higher energy burden than non-low-income households. A 01 report by Energy Efficiency for All and the American Council for an Energy-Efficient Economy (ACEEE) that looked at energy burden across metropolitan areas found that low-income multifamily households had a median energy burden of.0 percent compared to only. percent for households generally and a mere 1. percent for non-lowincome multifamily households. This means that the median low-income multifamily household spends percent of its gross income on energy utility spending. The study found that lowincome multifamily households faced the highest average energy burdens in the Southeast and Midwest regions compared to other regions. 1 Q: Can energy efficiency help alleviate the high energy burdens facing low-income multifamily households? A: Yes. The Energy Efficiency for All/ACEEE report cited above found that energy efficiency was key to alleviating these high energy burdens: [F]or all low-income households and for multifamily low-income households, bringing their housing stock up to the efficiency level of the median household would eliminate % of their excess energy burden. As one might expect, the energy burdens of low-income households are driven in large part by their lowincome status. However more than one-third of their excess energy burden was caused by inefficient housing stock. 1 Therefore, as discussed below, we support increased incentives to help low-income multifamily buildings upgrade the efficiency of their properties. Spending 0% of income on rent plus utilities is found in the U.S. Department of Housing and Urban Development s definition for whether a household is housing cost burdened. See HUD.gov, Affordable Housing, available at 1 Drehobl, A. and Ross, L., Lifting the High Energy Burden in America s Largest Cities: How Energy Efficiency Can Improve Low Income and Underserved Communities, Energy Efficiency for All and ACEEE, April 01, p. 1 Drehobl, A. and Ross, L., p. 1. 1

193 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of A historical lack of access to energy efficiency for multifamily rental housing presents an opportunity for the Company to tap latent energy savings. In fact, efficiency measures are far less likely to be installed in multifamily rentals than in any other type of housing. Multifamily units occupied by low-income renters had.1 fewer energy efficiency features in 00 and. fewer in 00 compared with other households. 1 This translates to significant unrealized lowincome multifamily energy savings. Q: Please elaborate on the barriers to energy efficiency investments and unique financing lifecycles faced by low-income multifamily buildings. A: Low-income multifamily buildings may have difficulty implementing energy efficiency retrofits because programs are not designed with multifamily needs in mind. For example, a program may be geared toward participation by individual tenants, even though owners are the decision-makers for investments in multifamily properties. Or, owners are often asked to apply separately to gas and electric programs, and separately to programs for common area and tenant units. Owners may decide the transaction costs and time commitment of understanding, applying to, and participating in such disjointed programs are not worth the incentives being offered. Other barriers are financial, such as insufficient financial incentives or owners lack of access to capital. For affordable buildings financed through the state housing finance agency (the Michigan State Housing Development Authority), utility-sponsored energy efficiency incentives may not be flexible or reliable enough to account for the long planning and construction timelines associated with this process, where time from energy audit to rehabilitation completion may be months or more. 1 Pivo, G., Unequal access to energy efficiency in US multifamily rental housing: opportunities to improve, 01. Building Research & Information, :, pp

194 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of In some cases, contractors are unfamiliar with the multifamily building type and the potential savings it presents, leaving savings on the table. Multifamily buildings, especially subsidized ones, often have complex management and decision-making structures and limited staff time to manage incentive processes, while efficiency programs may allocate insufficient technical assistance to help overcome these barriers and manage owners program participation. And, owners often lack access to energy usage data for the tenant meters in their buildings, which can hamper their ability to make well-informed whole-building energy efficiency investment decisions and to prioritize such investments across their property portfolios. Perhaps paramount are the facts that it can be extremely difficult to get affordable multifamily building owners attention, and that subsidized affordable multifamily buildings often operate on periodic financing/re-financing cycles where owners are only able to make major building upgrades every 1-0 years. Thus, it is imperative to address all possible energy savings opportunities in an affordable multifamily building at the moment when the utilities have the owner s attention. Unfortunately, many programs are not designed with this building/financing lifecycle in mind. As a result of these and other barriers, low-income multifamily buildings are typically underserved by existing energy efficiency programs such as the federal Weatherization Assistance Program. This further deepens the importance of free- and low-cost low-income multifamily offerings as an essential part of any equitably designed energy efficiency portfolio. Such programs ensure that low-income multifamily households are able to participate in and directly benefit from a utility s energy efficiency investments. Because of this sector s unique needs, offerings that are specifically targeted to and designed for low-income multifamily 1

195 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of buildings are necessary to ensure that such buildings are equitably served with energy efficiency offerings. While the barriers discussed here are significant and complex, there is compelling evidence from the field that programs can be designed to overcome these barriers, including two key best practice reports I will bring to the Commission s attention later in my testimony. Part. Evolution of Energy Savings Opportunities Over Time and Recommended Incentive Structure Changes Based on this Evolution and Current Needs Q: How are the energy savings opportunities and needs of the low-income multifamily sector evolving over time? A: Consumers Energy has been offering some type of multifamily energy efficiency offering since 00, when it introduced its Multi-family Direct Install program. 1 It is our understanding from speaking with the Company, and based on a general understanding of the Company s multifamily offerings and the market that: one, the focus of this program has never been comprehensive, whole-building retrofits; and two, the Company has been successful enough at reaching multifamily properties with direct install offerings that the direct install market is starting to become saturated. We also see evidence that low incentive levels have played a role in depressing owner demand for deeper savings in low-income multifamily buildings. This appears to be the case even with the introduction of 0 percent bonus incentives for low-income multifamily in We compared the Company s current rebate levels to the incremental costs (per the Michigan 1 Consumers Energy Company s Application for approval of its Renewable Energy Plan and Energy Optimization Plan in Cases No. U-10/U-1, filed Feb. 1, 00, pdf pp. 1-1 (labeled -), available at 1

196 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of Energy Measures Database 1 ) and found very few measures for which current subsidized affordable housing rebates (with the 0 percent bonus) cover the incremental cost of the efficiency upgrade. 1 In the table below, we have highlighted several non-lighting measures for which we believe current low-income multifamily rebate levels are insufficient to induce owners to act. Table : Consumers Current Subsidized Affordable Multifamily Rebate Levels vs. Incremental Costs Measure IU = In-Unit CA = Common Area Incentive Level Market- Rate Subs. Affordable Unit Incremental Cost (from MEMD) Subsidized Affordable Incentive as % of Inc. Cost Instant Hot Water Heater - IU $0.00 $.00 Unit $0.00 1% Indirect Water Heater ( 0% Eff) - CA $. $. MBH $1. 1% Instant Hot Water Heater - Gas - CA $1.00 $.0 Unit $0.00 % Furnace Replacement % - IU or CA - Example: 0 kbtu/hr $0.00 $.00 Unit $1. kbtu/hr input capacity Example: $ Example: % Space Heating Boiler Replacement >0% - CA $.00 $.0 MBH $1. % Boiler Reset Control -CA $0.0 $0. MBH $1. % Air Conditioner - <0 Tons - 1 SEER $0.00 $.00 Ton $1. % DHW Boiler Tune-Up - CA $0. $0. MBH $0. % Airtight Can Light $.00 $.0 Fixture $.00 0% Duct Sealing $.00 $.00 1,000 Sq Ft $1. % Roof Insulation $.00 $.00 1,000 Sq Ft $. 0% For owners of low-income multifamily housing, who already face many barriers beyond cost, rebates that do not even cover the incremental cost are unlikely to spur the type of comprehensive, whole-building upgrades indicated by best practice as appropriate for this sector. Indeed, we see very few multifamily owners leveraging the Company s program offerings to invest in this manner, as evidenced by the low number of properties taking advantage of the 1 Michigan Energy Measures Database, available at 1 Consumers Energy, 01Multifamily Program Catalog, available at 1

197 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of Company s multiple measure bonus in 01: zero market-rate properties, zero unsubsidized affordable properties, and only two subsidized affordable properties. 1 The multiple measure bonus is awarded when a property installs measures from across two or more of the following categories: in-unit lighting, common area lighting, tune-ups/maintenance, in-unit HVAC/DHW, common area HVAC/DHW, building envelope, and custom. 1 The fact that this bonus is so infrequently earned suggests two things to us. First, it seems that owners are coming to the program with specific, limited-scope projects in mind and are not being induced by the Company s available incentives to pursue further upgrades. And second, the multiple measure bonus level is set too low, at 1 percent. For a $0 rebate on a $,000 upgrade, this would translate to just $.0 extra or 1. percent of the cost of the upgrade. On its own, this is not enough to make an owner seriously consider additional upgrades, especially when the rebates for those additional upgrades are set so low. Based on the growing saturation of the direct install market, as well as the evidence presented here that the current incentive structure is not inducing more comprehensive upgrades, we feel that changes are needed in order to move beyond direct install and stimulate the market for deeper savings. Q: What changes do you recommend to respond to an evolving market? A: We have five recommendations for restructuring incentives to respond to the evolving market. We will present additional program design best practices later in this testimony. The recommendations for restructuring incentives are: 1. Increase incentive levels for non-lighting measures; 1 Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT. 1 Id. 1

198 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of Add rebates for American Society of Heating, Refrigerating, and Air- Conditioning Engineers (ASHRAE) Level II energy audits;. Allow applicants for Low Income Housing Tax Credits to reserve rebates for up to months;. Increase the budget allocated to low-income multifamily in order to facilitate a move toward deeper savings and to fund the higher incentive levels; and. Provide the same incentive levels to both subsidized and unsubsidized affordable multifamily housing. Our first incentive structure recommendation is to increase incentive levels for nonlighting measures in low-income multifamily buildings. As outlined in Table and the accompanying paragraphs above, incentive levels, especially for non-lighting measures, do not appear sufficient to spur owners to more comprehensive retrofits. For low-income multifamily buildings, we recommend that the Company: Continue to cover 0 percent of total cost for direct install measures in both common areas and dwelling units; Cover 0 percent of total cost for in-unit measures where the tenant pays the utility bill, as would be the case if the tenant were served by the Income Qualified Energy Assistance program 0 ; and 0 According to the program description in the Company s application for approval of its Energy Waste Reduction Plan, the Income Qualified Energy Assistance program provides customers with a comprehensive list of home and equipment measures at no charge. Direct Testimony of Ted Ykimoff, p.. In the more detailed program description, typical measures are listed as: Insulation (attic, wall, sill box); Pre and post Diagnostic testing(blower door & duct blaster); Blower door testing, pre and post test; Air sealing; Appliance/equipment replacements with high-efficiency (water heaters, refrigerators); Lighting (LED s); Setback thermostats; Watersaving measures (low-flow showerheads, aerators, pipe wrap, etc.); Furnace/boiler replacements, ECM motor replacements; and Furnace/boiler Tune-ups. Company Exhibit A-1 (TAY-), p.. 1

199 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 0 of Cover at least 0 percent of total cost (and averaging closer to 0-0 percent of total cost) for common area, envelope, and building systems measures, as well as for inunit measures in master-metered buildings We believe that these rebate levels would, in the majority of cases, be higher than the current rebates available to low-income multifamily buildings, which are currently rebated at a 0 percent higher level than the non-low-income multifamily rebate levels. It is our opinion that the rebate levels outlined above would be much more meaningful to owners of low-income multifamily buildings, and therefore much better suited to spurring them to undertake more comprehensive energy efficiency projects, to the benefit of both the building s residents and its long-term operating costs. Our second incentive structure recommendation is to add a rebate for ASHRAE Level II energy audits for low-income multifamily, which are more intensive and provide more information than the energy assessments currently offered by the multifamily program. The ASHRAE has defined three audit types that compose a widely-accepted standard across the field. The table below outlines key differences between different types of assessments and audits, with descriptions drawn from the Company s discovery responses 1 and a U.S. Department of Energy reference document. 1 Exhibit NHT-, Response to -NHT-CE-0, which I am sponsoring on behalf of NHT. Baechler, M., Strecker, C., and Shafer, J., A Guide to Energy Audits, Prepared by Pacific Northwest national Laboratory and Portland Energy Conservation, Inc. for U.S. Department of Energy, 0, available at 0

200 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of Table : Key Differences Between Types of Energy Assessments and Audits, Arranged from Left to Right in Order from Least to Most Intensive Consumers Energy s Energy Assessment Differs from the ASHRAE Level I standard by not including an assessment of energy bills. ASHRAE Level I Audit [Identifies] nocost and low-cost energy savings opportunities, and a general view of potential capital improvements. Activities include an assessment of energy bills and a brief site inspection of your building. ASHRAE Level II Audit ASHRAE Level I audit activities plus EEM recommendations in line with your financial plans and potential capital-intensive energy savings opportunities. Level II audits include an indepth analysis of energy costs, energy usage and building characteristics and a more refined survey of how energy is used in your building. ASHRAE Level III Audit ASHRAE Level I and Level II activities plus monitoring, data collection and engineering analysis. This audit (sometimes referred to as an investment grade audit) [provides] solid recommendations and financial analysis for major capital investments The more intensive ASHRAE Level II audits are especially important for multifamily buildings that are applying for Low Income Housing Tax Credits (LIHTC), the largest source annually for new and rehabilitated subsidized multifamily housing units in the country. Subsidized multifamily buildings are typically re-financed on a cycle of 1-0 years, with tax credits being one of the primary mechanisms for this re-financing. At this point, owners must assemble a complex package of funding from multiple sources in order to make their rehabilitation projects work. This means that there is capital available for improvements that owners have not been able to consider over the past 1-0 years: this provides an excellent opportunity for Consumers to connect with the multifamily housing owners and place a full array of energy efficiency upgrades in front of them. The earlier in the process Consumers can connect with the owner the better, as earlier incorporation makes it less likely energy efficiency upgrades will be value-engineered out of the scope of work. Exhibit NHT-, Response to -NHT-CE-0, which I am sponsoring on behalf of NHT. Joint Center for Housing Studies of Harvard University, The State of the Nation s Housing, Chapter, p., 01, available at df. 1

201 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Our third incentive structure recommendation is to allow applicants for Low Income Housing Tax Credits to reserve rebates for up to months. As noted above, owners must assemble a complex package of funding from multiple sources. This process complicates and slows the typical rehabilitation timeline. Delays in financing, closing, or construction can easily stretch the time between energy audit and rehabilitation construction completion beyond initial timelines. Allowing owners to reserve rebates for the duration of this process provides certainty to the owners and increases the likelihood that energy efficiency upgrades will remain part of the scope of work. This recommendation aligns with the Energy Efficiency for All best practice # Assure incentives are reliable at project outset and ACEEE best practice # Align utility and housing finance programs, discussed in the next section. Our fourth incentive structure recommendation is to increase the budget allocated to lowincome multifamily in order to facilitate a move toward deeper savings and to fund the higher incentive levels. As outlined earlier in this testimony, we recommend a ramp-up to an annual low-income multifamily budget of $. to $1. million. Our fifth incentive structure recommendation is to provide the same incentive levels to both subsidized and unsubsidized affordable multifamily housing. Given the Company s difficulty reaching unsubsidized affordable multifamily buildings, we recommend that the Company raise the incentive levels for this group to match those offered to subsidized affordable multifamily buildings. We also recommend continuous improvement of the low-income multifamily program to work toward realization of best practices. Henderson, Philip, Program Design Guide: Energy Efficiency Programs in Multifamily Affordable Housing, A project of: NRDC, NHT, Energy Foundation, Elevate Energy and produced with the assistance of ICF International, 01, available at Johnson, Kate, Apartment Hunters: Programs Searching for Energy Savings in Multifamily Buildings, 01, available at

202 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Part. Recommended Changes to Consumers Low Income Multifamily Program to Align with Best Practices for Serving the Affordable Multifamily Sector Q: Please outline the best practices for low-income multifamily energy efficiency programs. A: There are two key best practice reports I would like to bring to the Commission s attention, which were published by Energy Efficiency for All in 01 and ACEEE in 01. Both reports focus on streamlining program participation for busy owners, providing additional handholding and project management/technical assistance, and structuring incentives to achieve deeper savings, among their other recommendations. The reports are summarized and linked in the table below along with their checklists of best practices for overcoming multifamily barriers to participation: Table : Comparison of EEFA and ACEEE Best Practices Reports for Overcoming Barriers to Participation in Multifamily Efficiency Programs. Energy Efficiency for All ( Program Design Guide: Energy Efficiency Programs in Multifamily Affordable Housing Best Practices Checklist for Policymakers and Program Administrators 1. Establish a goal to capture all cost-effective efficiency in multifamily affordable housing (MFAH).. Assure coordination and count savings across electricity, gas, and water utility programs.. Assure that cost-effectiveness tests work for MFAH by accounting for non-energy benefits and applying cost-effectiveness tests across portfolio of programs.. Improve building owners access to energy usage information.. Develop programs specifically targeted to MFAH buildings.. Structure incentives for whole-building savings. ACEEE ( Apartment Hunters: Programs Searching for Energy Savings in Multifamily Buildings Best Practices for Multifamily Energy Efficiency Programs 1. Provide a one-stop shop for program services.. Incorporate on-bill repayment or low-cost financing.. Integrate direct installation and rebate programs.. Streamline rebates and incentivize in-unit measures to overcome split incentives.. Coordinate programs across electric, gas, and water utilities.. Provide escalating incentives for Henderson, P., 01. Johnson, K., 01.

203 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of 1. Assure incentives are reliable at project outset.. Support benchmarking, audits, and other assessments.. Support a one-stop-shop where building owners can access integrated program services.. Build partnerships with key local market participants.. Help building owners finance efficiency projects by tailoring incentives to fit with conventional purchase and refinancing loans, partnering with lenders active in the local market, and exploring on-bill payment arrangements. 1. Assure robust quality assurance. achieving greater savings levels.. Serve both low-income and market-rate multifamily households.. Align utility and housing finance programs.. Partner with the local multifamily housing industry.. Offer multiple pathways for participation to reach more buildings Q: Given these best practices, to what extent does the proposed Consumers Energy program measure up and which additional program changes are you recommending? A: To answer this question, I will draw on the National Housing Trust s experience as well as the two best practice reports above. Consumers income-eligible multifamily offering (a subset of the Company s Multifamily Program) represents a solid start in serving this sector, incorporating several best practices for serving low-income multifamily buildings, but leaving room for immediate improvement and future growth. We strongly support the Company s following program design decisions, which we consider to be best practice: A program targeted specifically to low-income multifamily buildings; Joint delivery of electric and gas efficiency offerings; Provision of an energy assessment; In-unit and common area upgrades provided via a single program; Direct install and other rebates provided via a single program; and Access to custom incentives in order to drive savings regardless of the specific measure.

204 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of 1 1 These are all encouraging pieces. Based on review of discovery documents and conversations with Consumers staff and implementers, there is room to more thoroughly implement several of these program components as the program strives for continuous improvement. For example, while the program design contains many key provisions, the program has not necessarily succeeded in driving whole-building savings (EEFA best practice #) by getting participants to take advantage of the full scope of the program. Thus, while the program offers energy assessments, electric, gas, in-unit, common area, direct install, and prescriptive/custom rebates, the program is not usually successful in getting participants to act beyond a narrower scope of activity. Many of the recommendations below (as well as those made earlier in this testimony) are aimed at helping the program encourage owners to move toward more comprehensive, whole-building retrofit projects. We have several recommendations for how the Company can improve its program design in order to more fully realize the potential of an advanced one-stop shop program model (EEFA best practice #, ACEEE best practice #1). The following recommendations are specific to low-income multifamily, but some could certainly be applied across non-low-income and lowincome buildings equally. 1. Provide more comprehensive, wrap-around services for owners, including intensive support before, throughout, and after the retrofit process (key component of one-stop shop model);. Provide every program participant with an energy assessment that meets, at a minimum, standards for an ASHRAE Level I audit. That is, the program should See, e.g., Exhibit NHT-, Response to -NHT-CE-; Exhibit NHT-, Response to -NHT-CE-; Exhibit NHT-, Response to -NHT-CE-, which I am sponsoring on behalf of NHT.

205 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of provide benchmarking of the past 1 months of energy usage. At a minimum, this should be required for customers seeking prescriptive or custom incentives;. Improve linkages to MSHDA and to better financing options;. Enable easy proof of eligibility for unsubsidized properties (via Census tracts or rent roll verification);. Include additional direct install measures;. Standardized procedures for more detailed reporting so that low-income and multifamily stakeholders can track program performance over time; and. Set utility performance metrics that encourage continued program evolution toward delivering more comprehensive, whole-building savings. Q: Please elaborate on the program design improvements you have recommended above. A: Our first program design recommendation is to provide more comprehensive, wraparound services for owners, including intensive support before, throughout, and after the retrofit process (EEFA best practice #, ACEEE best practice #1). This is a key component of the onestop shop model and is intended to make it as easy as possible for low-income multifamily owners to participate in the program. We often say that multifamily owners need extra handholding, because they are so busy and the sector, financing, and building types are so complex. The first piece of this is ensuring an easy application process via one streamlined application and assistance with enrollment. A second key piece is holding a call or meeting with the owner to walk through their energy assessment report. It is crucial that this report include recommended upgrades, their installation costs, savings, and ROI (at a minimum, a range of costs is beneficial). It is important to explain what each recommendation is. Also important is

206 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of helping connect the owner with contractors helping them select a contractor to do the work. The program should help with creating a scope of work, sending out the scope of work to the contractor pool (if necessary), reviewing bids, selecting a contractor, and facilitating construction scheduling where necessary to ease administrative burdens. The program should also help coordinate with other funding sources and financing: to do so the program should develop relationships with financial institutions, help the owner determine which financing resource they may be eligible for, and connect the owner with these financial institutions as applicable. Our second program design recommendation is to provide every program participant with an energy assessment that meets, at a minimum, the standards for an ASHRAE Level I audit (the least comprehensive of the three ASHRAE audit standards. According to the Company, [the] major difference between the ASHRAE Level 1 audit and the energy assessment provided by Consumers Energy is that the ASHRAE Level 1 audit includes a Preliminary Energy Analysis (bills, consumption). 0 The reason the Company gives for not providing a bill and consumption analysis (benchmarking over the previous 1 months) is because of the complexity in accounting for multiple accounts and meters associated with one property. 1 This is exactly the reason the Company should provide a bill and consumption analysis. Because of complex metering arrangements, owners of multifamily buildings regularly experience difficulty accessing energy usage data for their own buildings. The Company is uniquely positioned to provide these data and to provide owners with a more solid understanding of their building s energy usage and savings opportunities (EEFA best practices # and #). Benchmarking of the previous 1 months of energy usage should be provided, at a minimum, to all customers seeking prescriptive or custom incentives. Alternatively, the 0 Exhibit NHT-, Response to -NHT-CE-0, which I am sponsoring on behalf of NHT. 1 Id.

207 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of Company could benchmark all properties prior to providing energy assessments in order to identify poor performers and then target those properties for delivery of energy assessments. Our third program design recommendation is to improve linkages to MSHDA and to better financing options (EEFA best practice # and, ACEEE best practice # and #). Better linkage between the Company s low-income multifamily program and MSHDA will enable the program to seek out buildings that are about to refinance and target these buildings, which are considering major capital improvements, for more focused attention and technical assistance (as well as ASHRAE Level II audits, as outlined in the incentive structure recommendations section of this testimony. Better linkage to better financing options will help owners overcome capital barriers. Two examples of actions the Company could take are: one, buy down interest rates on Michigan Saves loans from percent to 0 percent as the Company currently does for commercial properties and two, develop closer relationships with Michigan s PACE administrators. Our fourth program design recommendation is to enable easy proof of eligibility for unsubsidized properties, via Census tracts or rent roll verification. While subsidized properties can easily establish their eligibility for low-income multifamily rebates by providing evidence of their participation in federal affordable housing programs, unsubsidized properties have no easy path to establishing eligibility. Unsubsidized affordable housing is privately owned, but without affordability restrictions, and affordable by virtue of market forces. It might be found in older buildings, more poorly maintained buildings, or in less desirable neighborhoods. Given that the Company has had trouble attracting unsubsidized properties to its low-income multifamily program, anything that the program can do to eliminate barriers to enrollment would be welcome. In 01, the Company served market-rate properties (, units), 1

208 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page of subsidized properties (,1 units), and zero unsubsidized properties (zero units) through its multifamily program. The worst-case scenario for establishing eligibility is to ask an owner to collect income information from each of his or her tenants: unsubsidized properties are not required to collect this information as part of normal business operations, making this an extremely cumbersome, tedious, and time-consuming process. One alternative we support is identifying low-income Census tracts and automatically approving low-income rebate eligibility for any multifamily building in those Census tracts: Qualified Census Tracts or New Market Tax Credit Census tracts are two possible sets of Census tracts established by the federal government that the Company could use for this purpose. A second alternative we support is asking owners to provide a list of rent prices (or average rent prices for each unit size) for the building. In contrast to tenant income information, price information is easy for owners to produce. If these prices are at or below levels established by the Company, then the building would automatically qualify for low-income rebates. We suggest using the federal government s HOME low-income affordability rent tables, which are published annually by the U.S. Department of Housing and Urban Development for metropolitan areas and counties, given typical occupancy. The example of Kalamazoo, Michigan is provided below. Exhibit NHT-, Response to -NHT-CE-0, which I am sponsoring on behalf of NHT. U.S. Department of Housing and Urban Development, 01 and 01 Small DDAs and QCTs, available at CohnReznick, New Market Tax Credit (NMTC) Interactive Map, available at

209 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 0 of Table : HOME Program Rents for Kalamazoo-Portage, Michigan Metropolitan Statistical Area Our fifth program design recommendation is to include additional direct install measures. We suggest the Company consider the following direct install measures for inclusion in its lowincome multifamily offering: in-unit smart plug power strips, lower DHW temp if higher than, shower start valves, in-unit refrigerators. Our sixth program design recommendation is to standardize procedures for more detailed reporting so that low-income and multifamily stakeholders can track program performance over time. This is especially important for tracking the growing comprehensiveness of the program, that is, to what extent it is succeeding in delivering deeper, more comprehensive, whole-building savings. Our seventh and final program design recommendation is to set utility performance metrics that encourage continued program evolution toward delivering more comprehensive, whole-building savings. U.S. Department of Housing and Urban Development, MICHIGAN HOME PROGRAM RENTS, 01, available at 0

210 U- - October, 01 CORRECTED Direct Testimony of Annika Brink on behalf of NHT Page 1 of Part. Utility Performance Metrics Q: Which utility performance metrics should the Company be measured against during the period as relates to low-income multifamily offerings? A: We think the Company should be striving to meet the following benchmarks, at a minimum by the 01 program year, any of which might be adapted or give guidance to utility performance metrics. First, the Company should spend their entire low-income multifamily budget, the amount of which should be clearly and publicly stated in EWR portfolio documents. Second, for low-income multifamily properties participating in the Company s low-income multifamily program: Achieve average energy saving per property of at least percent; Deliver an energy assessment and report to at least 0 percent of properties; and At least 0 percent of properties install multiple measures (or receive the multiple measure bonus). Q: Does this conclude your testimony? A: Yes. 1

211 1 1 JUDGE MACK: Anything else on behalf of the NHT? MS. BARBASH-RILEY: No. JUDGE MACK: Thank you. Mr. Bzdok. (Documents marked for identification by the Court Reporter as Exhibit Nos. NRD-1 through NRD-, and NRD- through NRD-1.) MR. BZDOK: Thank you, your Honor. On behalf of the Natural Resources Defense Council, I would move at this time to bind into the record the Direct Prefiled Testimony, Corrected Direct Prefiled Testimony 1 of Chris Neme, which consists of a cover page and 1 pages of questions and answers. I would also move to 1 admit into evidence Exhibits NRD-1 through NRD-, and 1 NRD- through NRD-1, because, as was determined in the 1 hearing, NRD- was not in fact prefiled and came in 1 through discovery. 1 JUDGE MACK: Thank you. Any objection? 1 (No response.) 0 The testimony of Mr. Neme is bound into 1 this record, and Exhibits NRD-1 through NRD-, and NRD- through NRD-1 are admitted. (Testimony bound in.) Metro Court Reporters, Inc..0.

212 1 STATE OF MICHIGAN MICHIGAN PUBLUC SERVICE COMMISSION In the matter on the Commission s own Case No. U- Motion, regarding the regulatory review, Revisions, determinations, and/or approvals ALJ Dennis W. Mack Necessary for CONSUMERS ENERGY COMPANY to fully comply with Public Act of 00 and Public Act of 01 CORRECTED DIRECT TESTIMONY OF CHRIS NEME ON BEHALF OF THE NATURAL RESOURCES DEFENSE COUNCIL September 0, 01 1

213 0 Table of Contents I. Introductions and Qualifications... 1 II. Testimony Overview... III. Consumers Shareholder Incentive Performance Metrics... IV. Cost Allocation... V. Savings Assumptions for Residential LED Light Bulbs Net-to-Gross (NTG) Assumptions.... Measure Life Assumptions.... Combined Effects of Correcting NTG and Measure Life Assumptions... VI. Pre-Pay Pilot Program... i

214 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 1 I. Introductions and Qualifications Q: Please state your name, employer and business address. A: My name is Chris Neme. I am a co-founder and Principal of Energy Futures Group, a consulting firm that provides specialized expertise on energy efficiency and renewable energy markets, programs and policies. My business address is P.O. Box, Hinesburg, VT 01. Q: Please describe your educational background. A: I received a Master of Public Policy ( MPP ) degree from the University of Michigan (Ann Arbor) in 1. That is a two-year, multi-disciplinary degree focused on applied economics, statistics and policy development. I also received a Bachelor s degree in Political Science from the University of Michigan (Ann Arbor) in 1. My first year of graduate school counted towards both my Masters and Bachelor s degrees. 1 Q: Please summarize your business and professional experience. 1 1 A: As a Principal in Energy Futures Group, I play major roles in a variety of energy efficiency consulting projects. Recent examples include: Representing NRDC in consultations with utilities and other parties in three Midwestern states Michigan, Illinois and Ohio on efficiency program and portfolio design, costeffectiveness screening, evaluation, shareholder incentive structures and other related topics; 1 0 Serving as an appointed expert representative on the Ontario Energy Board s Evaluation and Audit Committee for natural gas demand-side management; 1

215 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 Serving on the Management Committee and leading strategic planning and program design for a team of firms, led by Applied Energy Group, that was hired by the New Jersey Board of Public Utilities to deliver the electric and gas utility-funded New Jersey Clean Energy Programs; Serving on a five-person national drafting committee for development of a new National Standard Practice Manual for cost-effectiveness screening of energy efficiency measures, programs and portfolios which was published in May 01; Helping the National Association of Regulatory Utility Commissioners and the Michigan Public Service Commission staff assess the relative merits of alternative approaches to defining savings goals for utility efficiency programs (focusing on lifetime rather than just first year savings); and Drafting policy reports for the Regulatory Assistance Project on a variety of energy efficiency and related regulatory policy issues such as whether 0% electric savings is achievable in ten years, the history of efforts across the United States to use geographically targeted efficiency programs to cost-effectively defer transmission and distribution system investments, the history of bidding of efficiency resources into the PJM and New England capacity markets, and other topics Prior to co-founding Energy Futures Group in 0 I worked for 1 years for the Vermont Energy Investment Corporation ( VEIC ), the last as Director of its Consulting Division managing a group of 0 professionals with offices in three states. Most of our consulting work involved critically reviewing, developing and/or supporting the implementation of electric, gas, and multi-fuel energy efficiency programs for clients across North America and beyond.

216 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 1 During my career in energy efficiency I have worked in numerous jurisdictions to develop or review energy efficiency potential studies, develop or review Technical Reference Manuals ( TRM ) of deemed savings assumptions (including the Ohio, Michigan and Illinois TRMs), support utility-stakeholder collaboratives (including those in Michigan and Illinois), negotiate or support development of efficiency program performance incentive mechanisms (including the current Michigan and Ontario mechanisms, as well as the mechanism included in recently passed Illinois legislation), and review or develop efficiency programs. All told, I have worked on these and/or other efficiency policy and program issues for clients in more than 0 states and provinces as well as parts of Europe. I have also led courses on efficiency program design, published widely on a range of efficiency topics and served on numerous national and regional efficiency committees, working groups and forums. A copy of my curriculum vitae is attached as Exhibit NRD Q: Have you previously filed expert witness testimony in other proceedings before the Commission? 1 A: Yes. I filed testimony in the following Michigan Public Service Commission Dockets: 1 1 U-, regarding Consumers Energy Company s proposed amendment to its 01 energy efficiency programs (Energy Waste Reduction) plan; 1 1 U-1 regarding DTE s proposed amendment to its 01 energy efficiency programs (Energy Waste Reduction) plan; 0 1 U-1 regarding Consumers Energy s estimates of energy efficiency potential in its assessment of alternatives to its proposal at the time to construct a new 00 MW gas-fired power plant (Thetford).

217 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 U-, regarding Consumers Energy s proposed modifications to its Energy Optimization plans; U-, regarding DTE s proposed modifications to its Energy Optimization plans; U-, regarding Consumers Energy s biennial review and Amended Energy Optimization plan; and U-, regarding DTE s biennial review and Amended Energy Optimization plan; Q: Have you been an expert witness on energy efficiency matters before other regulatory commissions? 1 A: Yes, I have filed expert witness testimony on more than 0 other occasions before similar regulatory bodies in nine other states and provinces, including the neighboring jurisdictions of Ohio, Illinois and Ontario 1 Q: Are you sponsoring any exhibits? 1 A: Yes. 1 Exhibit NRD-1 C. Neme CV 1 Exhibit NRD- NRDC-CE-1 1 Exhibit NRD- Optimal Energy and Energy Futures Group Final Phase 1 Report 1 Exhibit NRD- NRDC-CE-1 1 Exhibit NRD- NRDC-CE-1

218 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 Exhibit NRD- NRDC-CE-a-e Exhibit NRD- NRDC-CE- (CECo Response to NRDC-1) Exhibit NRD- NRDC-CE- Exhibit NRD- Exhibit NRD- 1-0 Ameren Illinois Energy Efficiency Plan, Exhibit 1.1, Appendix I, pages -0 - (CORRECTED) NRDC-CE- (CECo Response to NRDC-a) Exhibit NRD- NRDC-CE- (CECo Response to NRDC-) Exhibit NRD-1 NRDC-CE- (CECo Response to NRDC-) Exhibit NRD-1 NRDC-CE-1

219 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 II. Testimony Overview Q: What is the purpose of your testimony? A: My testimony addresses several aspects of Consumers proposed Energy Waste Reduction plan: 1. The Company s proposal to substantially increase the scope budget and savings of its efficiency program portfolio;. The Company s proposal to change its shareholder performance incentive mechanism from one with multiple performance metrics, of which lifetime savings was most important, to one with a single metric focused on first year savings; 1 1. The Company s proposal to change the way costs are allocated, from having residential customers pay only for residential programs (and business customers pay only for business programs) to having residential customers pay for both residential programs and a large portion of business program costs; 1 1. Consumers estimates of savings from LED light bulbs, particularly its use of a 0.0 net- to-gross (NTG) ratio and 1 year measure life assumption; and Consumers proposal to include a customer PrePay program among the pilot programs it plans to test (and potentially transition to include as full-scale programs in the future). 1 0 Q: Please summarize your response to the first issue the Company s proposal to substantially expand its energy efficiency effort.

220 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of A: The Company s proposal to significantly increase the energy savings from its energy efficiency program portfolio is laudable and should be supported by the Commission and other parties because of the enormous benefits the Company s proposed programs provide to its customers. While an increase in budget is necessary to acquire the increased savings, the benefits of the additional spending far outweigh the costs. Indeed, the Company is forecasting that its efficiency programs will provide $. in benefits for every dollar spent on electric efficiency and $1. in benefits for every dollar spent on gas efficiency. In other words, across both fuels, for every dollar that the Company spends on efficiency programs, its customers are saving more than three times as much in avoided investment in energy that would otherwise have been consumed and new power plants that would otherwise have been built. Moreover, the Company s estimates of its electric and gas system benefits are likely significantly underestimated because they exclude potential benefits from deferred investment in transmission and distribution (T&D) system infrastructure, 1 reduced investment in ancillary services, reduced risk, reduced credit and collection costs, avoided renewable portfolio standard compliance costs, 1 avoided future environmental compliance costs. Moreover, there are other substantial economic 1 development and environmental benefits not included in the Company s benefit-cost analysis. 1 1 Q: Please summarize your responses to and recommendations for each of the other issues you are addressing. 1 The Company suggests that though T&D infrastructure investments can theoretically be avoided, its current T&D systems are typically adequate to meet customers needs and that would need to change in order for T&D investment costs to be avoided (Exhibit A-1 (TAY-)). However, that statement is likely to be incorrect. Efficiency programs can and do reduce peak demands on the T&D system for to 0 years or even longer (depending on the measures and programs). If absent further investment in efficiency programs the Company would make any investment in the T&D system over the next decade or two that is related to localized growth in peak loads and we know that is has at least some distribution system investment that is being driven by localized peak load growth as a result of its work on a non-wires alternatives pilot program (Exhibit 1 (TAY-)) then its efficiency programs are highly likely to be providing at least some system-wide T&D investment deferral benefits. Discovery Response NRDC-1, which I am sponsoring as Exhibit NRD-.

221 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 I find each of the other Company proposals to be problematic. My summary responses to each are as follows: Shareholder incentive mechanism: The Company s proposal to shift from multiple performance metrics with a primary focus on lifetime savings to a single metric focused on just first year savings will create perverse incentives and undermine Michigan s longterm efficiency goals. The Commission should instead require that the Company (1) retain lifetime savings as its primary performance metric; and () include secondary metrics related to comprehensive treatment of energy savings opportunities in low income single family homes and multi-family buildings, the level of savings from small businesses and peak demand savings to ensure that there is adequate attention to all key state efficiency objectives Cost allocation: The Company s proposal to allocate a significant portion of business efficiency program costs to residential customers is inconsistent with the relative magnitude of efficiency benefits realized by each customer group. In fact, the Company s own analysis suggests that the portion of benefits from efficiency programs that are realized by residential and business customers is similar to the allocation of program budgets. Thus, the Commission should maintain the existing cost allocation mechanism, with residential customers paying for residential programs and business customers paying for business programs. 0 1 LED light bulb savings assumptions: The Company s proposal to use an NTG assumption of 0.0 for LED light bulbs will result in over-stating of the actual annual savings produced by the Company and therefore over-reward the Company s

222 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 shareholders (through its performance incentive mechanism) for its efficiency program results; the Company s use of a 1 year measure life assumption is far too high for standard LED light bulbs, leading to significant over-estimates of the value of the savings and potentially leading to over-estimates of reductions in future generating capacity needs. The Commission should require use of an NTG of 0.0 in 01, declining to 0. by 01; it should also require a significant downward savings adjustment to the savings assumed for standard LEDs after 00 (effectively reducing lifetime savings for standard LEDs installed in 01 by about 0%, with even greater reductions for standard LEDs installed in later years), consistent with national and regional best practices PrePay pilot program: The Company s proposal to include a PrePay pilot in its plan is inconsistent with a focus on energy efficiency programs. PrePay is just a different way of collecting payments from customers more akin to a change in rate design than a promotion of efficiency. If it is allowed to count towards efficiency savings goals, it will undermine the fundamental purpose of the state s efficiency programs, resulting in less real savings for consumers and the state s economy and over-rewarding Company shareholders (through its performance incentive mechanism) in the process. The Commission should make clear that the relative merits of pre-pay should be considered in a different kind of proceeding and that pre-pay is not an efficiency program and its effects should not count towards utility savings goals. 0 I discuss each of these issues in more detail in the following sections of my testimony.

223 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 0 1 III. Consumers Shareholder Incentive Performance Metrics Q: What is Consumers proposed shareholder incentive mechanism? A: Consumers is proposing that its shareholder incentive be tied solely to the level of first year savings its efficiency program portfolio produces each year. On the electric side, the Company would earn an incentive equal to 1% of program spending if it achieved first year savings equal to 1.00% of sales, and equal to 0% of program spending if it achieved first year savings equal to or greater than 1.0% of sales. The incentive would be linearly interpolated at all points in between 1.00% and 1.0% of sales. 1 On the gas side, the Company would earn an incentive equal to 1% of program spending if it achieved first year savings equal to 0.% of sales, and equal to 0% of program spending if it achieved first year savings equal to or greater than 1.00% of sales. The incentive would be linearly interpolated at all points in between 0.% and 1.00% of sales. 1 1 Q: How is that different from the Company s performance incentive structure in recent years? 1 1 A: At a high level, it is different in at least three key ways from the performance incentive structure that was in place from 01 through 01: The Company s maximum shareholder incentive was historically equal to only 1% of its program spending; the Company is now proposing to increase the maximum to 0%; Direct Testimony of Ted Ykimoff, pp. 1-1 and Exhibit A-1 (TAY-).

224 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 1. The Company previously had five or six different performance metrics; the Company is now proposing only one metric; and. The Company s primary performance metric the one to which the largest portion of shareholder incentive was tied was the amount of lifetime savings its programs produce; the Company is now proposing to shift to a sole focus on first year savings (i.e. the amount of savings efficiency measures installed in a given year will produce during just their first year of operation making the number of years they would produce savings irrelevant); Q: What is your view regarding Consumers proposal to increase the maximum shareholder incentive from 1% to 0%? 1 1 A: This change is clearly permitted by the new law, PA. Further, the Company must achieve a higher level of performance than it has in the past in order to earn the full 0%. Thus, I think the Commission should accept it. 1 1 Q: What is your view of Consumers proposal to replace multiple performance metrics with just one metric? A: Utility shareholder incentives should ideally be based on the policy objectives of a state. If the state has multiple policy objectives for efficiency programs particularly if some of those objectives compete with each other then the shareholder incentive structure should ideally have multiple performance objectives tied to those different objectives, encouraging the utility to effectively manage its efficiency programs to achieve each of the competing objectives.

225 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 In Case No. U- regarding Consumers proposed amendment to its 01 plan, I testified that though a performance incentive structure should ideally have multiple performance metrics, it would have been too difficult to develop a multi-metric structure that would be appropriate for the 01 amended plan given that the plan was being considered with much of the year already behind us. However, that is not the case now, for the plan. Given that there are compelling policy arguments for addressing the energy needs of low income customers; ensuring equitable treatment of all customers (including small businesses which are least likely to participate in business efficiency programs); and reducing peak demand (as well as annual energy use) in order to minimize the need for capital investment in new generation, transmission and distribution system capacity, it would be reasonable to have secondary performance metrics tied to these policy goals. 1 1 Q: What is your view of Consumers proposal to replace the lifetime savings with first year savings as the sole performance metric? A: I have significant concerns about this proposal. First year savings can be a poor indicator of the value of efficiency because it treats the savings from a measure that lasts one year or two years the same as savings from a measure that lasts or 0 years. As a result, it can create perverse incentives for utilities to increase promotion of efficiency measures and/or programs that have relatively low costs per first year MWh saved or per first year therm saved even if they have high costs per unit of lifetime savings and therefore less value to ratepayers. This point was made, with several concrete examples from the Michigan utilities efficiency program portfolios, in a report I co-authored several years ago for the National Association of Regulatory Utility 1

226 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 Commissioners (NARUC) and the Michigan Public Service Commission staff. It was also the reason that Commission Staff, NRDC and Consumers Energy agreed in a settlement proceeding several years ago to shift to the current lifetime savings metric. Put simply, Consumers proposal to revert back to a first year savings metric, if adopted, would represent a significant step backwards for the Commission, the Company and its customers. Q: Has Consumers offered any response to that concern? A: Not really. When asked if he saw any disadvantages from the perspective of its customers to the Company having a first year savings metric instead of a lifetime savings metric, Mr. Ykimoff said that he did not because too much emphasis on short-lived measures would jeopardize the cost-effectiveness of the portfolio. address my concern. However, that response does not really 1 Q: Why does it not address your concern? A: Consumers proposed program portfolio is so cost-effective a UCT benefit-cost ratio of. for electric customers and 1. for gas customers that the only way increased focus on short-lived savings could jeopardize the cost-effectiveness of the portfolio is if short-lived measures or programs had extremely low benefit-cost ratios (i.e. well below 0.) and could be ramped up to account for extremely large portions of total program savings (i.e. 0% or more). However, neither of those things is possible (let alone both at the same time). Very few programs in Consumers portfolio and none of the programs emphasizing short-lived savings Exhibit NRD-, Optimal Energy and Energy Futures Group, Final Report: Alternative Michigan Energy Savings Goals to Promote Longer Term Savings and Address Small Utility Challenges, prepared for the Michigan Public Service Commission, September 1, 01. ( Discovery Response NRDC-1(a), which I am sponsoring as Exhibit NRD-. 1

227 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 fail cost-effectiveness screening. Most notably, the Company s Home Energy Analysis program, which has a one year measure life, has a UCT benefit cost ratio of 1.00 for electric customers and 1.0 for gas customers. While it is possible that those cost-effectiveness ratios could go down somewhat if the programs were expanded (e.g. to serve customers with lower average energy use), the cost-effectiveness ratios could not go down nearly enough and the participation levels could not go up nearly enough to create any risk of Consumers program portfolio no longer being cost-effective. In other words, Consumers suggestion that fear of jeopardizing portfolio cost-effectiveness will stop it from over-emphasizing short-lived measures just does not comport with the facts in this case. On the other hand, expansion of programs with short-lived savings could materially affect the amount of lifetime energy savings the Company s program portfolio will produce. 1 1 Q: Would it be easy to translate Consumers proposed first year savings metrics to lifetime savings metrics for 01-01? 1 A: Yes. Consumers has already estimated the lifetime savings associated with each year of its 1 program plan. Based on those estimates, I have computed the lifetime savings that the 1 1 Company would need to achieve to reach the minimum levels of savings required to earn a shareholder incentive (i.e. equivalent to 1.00% electric first year savings and 0.% gas first year These averages include an assumption that all LED light bulbs have a savings life of 1 years. As discussed further below, that is far too long for standard or A-Line LEDs. Adjusting the measure life for such products would reduce the average measure life and, therefore, the lifetime savings goals associated with the Consumers plan. Again, that is discussed further below. Consumers did not appear to provide an estimated savings life for its Education and Awareness (Support Services) initiative. I have assumed a measure life of only one year for that program, consistent with Consumers assumption regarding measure life for its Pilot programs. If that is incorrect, the portfolio lifetime savings estimated below would need to be increased slightly. 1

228 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 savings) as well as the lifetime savings that the Company would need to earn the maximum shareholder incentive. Those values are presented in rows (f) and (h) in Table 1 below. Table 1: Lifetime Savings Equivalents for Shareholder Incentives Electric Savings Targets Source Consumers Plan a 1st Year Savings (MWh),, 1,, NRDC-CE- Attachment b Avg Measure Life (Years) (c) / (a) c Lifetime Savings (MWh),,,1,1,,,, NRDC-CE- Attachment d 1st Year Savings % of Sales 1.% 1.% 1.% 1.% Exh A-1 p. Savings at 1.00% of Sales e 1st Year Savings (MWh),00,,, Exh A-1 p. f Lifetime Savings (MWh),0,1,1,1,,1,, (e) * (b) Savings at 1.0% of Sales g 1st Year Savings (MWh),00 0, 01, 0,1 (e) * 1. h Lifetime Savings (MWh),,0,,,0,,, (g) * (b) Gas Savings Targets Source Consumers Plan a 1st Year Savings (Mcf),0,,,,0,1,0, NRDC-CE- Attachment b Avg Measure Life (Years) (c) / (a) c Lifetime Savings (Mcf) 1,0, 1,, 1,, 1,, NRDC-CE- Attachment d 1st Year Savings % of Sales 1.0% 1.0% 1.0% 1.0% Exh A-1 p. Savings at 0.% of Sales e 1st Year Savings (Mcf) 1,, 1,, 1,, 1,1, Exh A-1 p. f Lifetime Savings (Mcf),1,,,0,0,0,,0 (e) * (b) Savings at 1.00% of Sales g 1st Year Savings (Mcf),,,1,,,,1,0 (e) * 1.00 / 0. h Lifetime Savings (Mcf) 0,0, 0,0, 0,,0 0,, (g) * (b) Q: Why has Consumers proposed reverting back to a first year savings metric? A: The Company has not offered a detailed explanation for this proposed change. It simply states that its proposal is consistent with the language of the new law, PA. Direct Testimony of Theodore A. Ykimoff, p. 1 lines 0- and Exhibit A-1 (TAY-). 1

229 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 Q: Would the language of the new law prohibit adoption of lifetime savings metric? A: I am not an attorney, so I cannot offer a legal opinion. However, my general understanding of both the old law, PA, and the new law, PA, is that they already establish minimum savings requirements in terms of first year savings. And other than the fact that PA establishes three different incentive amounts for three different levels of savings, the language in both statutes regarding shareholder incentives is very similar. In developing my understanding of this issue, I have had the opportunity to review two settlement agreements from two cases in which I participated as an expert witness. First, I reviewed a partial settlement agreement approved by the Commission under PA, in which Consumers and other parties all agreed to translate first year savings requirements into lifetime savings performance metrics for the purpose of determining the value of shareholder incentives. It is not clear to me why the Commission would not have the same discretion under the new law. Indeed, I also reviewed a partial settlement in Consumers 01 plan amendment case (U-) under the new law that included a lifetime savings (instead of first year savings) shareholder incentive performance metric. My review of this latter agreement further informs my opinion in this regard. 1 1 Q: Are there other aspects of the PA s language regarding shareholder incentives that also require Commission interpretation in this case? Case No. U-, Commission Order Approving Partial Settlement Agreement (January 1, 01), p ; and Exhibit A to the Order, p, paragraph 1(b). Case No. U-, Commission Order Approving Partial Settlement Agreement (July 1, 01), p. In making these statements, I am not suggesting that the agreements should be considered precedent for this case. I simply note that my understanding that the Commission can approve a lifetime savings metric is informed in part by the existence of the orders approving these agreements. 1

230 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 A: Yes. Consumers is itself arguing for the Commission to use discretion in translating a different aspect of the shareholder incentive provisions of the new law. As I just noted, the new law, PA, describes three tiers of shareholder incentive: 1. 1% of spending for achieving 1.00% to 1.% electric savings and/or 0.0% to 0.% gas savings;. 1.% of spending for achieving 1.% to 1.0% electric savings and/or 0.% to 1.000% gas savings; and. 0% for achieving greater than 1.0% electric savings and/or 1.000% gas savings Consumers is asking that the Commission make the incentives within those tiers a linear sliding scale rather than a step function, even though the law is silent on that issue. I support that request, as it would also eliminate a perverse incentive. For example, rather than making a utility indifferent between achieving 1.0% and 1.0% electricity savings, as would be the case if a three-tiered incentive structure without a sliding scale were adopted, a sliding scale would give a utility an incentive to continuing improving its performance at every level of electric savings up to 1.0% Q: Given the two major concerns you have raised in this section of your testimony (1) the significant advantage of making lifetime savings, rather than 1 st year savings, the primary performance metric, and () the value of having a portion of shareholder incentives tied to 1 As under PA, the performance incentive structure under PA is expressed as the lesser of a percent of efficiency portfolio spending or the level of economic net benefits to consumers. For example, the first tier is the lesser of 1% of spending or % of net benefits. As noted above, the percent of spending has historically always been much more constraining then the percent of net benefits, so for the purpose of explaining the incentive mechanism here I have focused solely on the percent of spending. 1

231 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 other, secondary performance objectives how would you recommend structuring Consumers total shareholder incentive? A: For both electricity and gas, I would recommend 0% of the shareholder incentive weight (i.e. a maximum incentive equal to 1% of efficiency program spending) be tied to performance relative to total portfolio lifetime savings. For electric programs, I would recommend an additional % weight (i.e. a maximum incentive equal to % of program spending) be assigned to each of three additional performance metrics: (1) the number of low income housing units receiving comprehensive whole building assessments and retrofits; () the portion of business lifetime energy savings produced by small businesses and () total peak demand savings. For gas programs, I would recommend an additional 1% weight (i.e. a maximum of % of program spending) be assigned to each of two additional metrics (in addition to the primary lifetime savings metric): (1) the number of low income housing units receiving comprehensive whole building assessments and retrofits; and () the portion of business lifetime energy savings produced by small businesses Note that the sum of my proposed weights is equal to 1%. By definition, the Company should not be permitted to earn more than 0% of a maximum portfolio incentive of 0% of program spending. Having the sum of the maximums that can be earned for each individual metric exceed 0% simply means that the Company would not have to achieve the maximum level of performance on every single metric in order to earn the maximum portfolio incentive. This provides some risk mitigation for the Company, allowing achievement of the maximum rewardable performance in some metrics to offset somewhat less than maximum performance on others. This is conceptually the same as the structure that was in place in recent years. 1

232 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 As in the past, for each metric there should be threshold level of performance at which the Company would begin to earn an incentive, a specific amount that the Company would earn for attaining that threshold ( threshold incentive ) and a maximum level of performance at which the maximum incentive would be earned. The incentive earned at any point between the threshold level and the maximum level would be linearly interpolated between the threshold incentive and the maximum incentive. Q: What might that look like? A: Tables and shows what this might look like for the 01 electric and gas efficiency portfolios, respectively. Table : Conceptual Lay-Out of 01 Electric Performance Incentive Structure Performance Incentive Performance Levels (% of EE Spend) Metric Weight Concept Threshold Maximum Threshold Maximum Lifetime Energy Savings (MWh) 0% Lifetime savings equivalent to 1.0% and 1.% first year savings per Consumers Plan,0,1,,0 1.00% 1.00% Low Income Housing Units Receiving Comprehensive "Whole Building" Retrofits Proportionality of Business Lifetime Energy Savings (MWh) from Small Businesses % % Peak Demand Savings (MW) % Number of housing units - single family or multi-family - for which assessments and retrofits of all costeffective measures (including HVAC equipment and envelop measures) are provided. Must achieve at least 1% total energy savings per building to be counted. At least 0% must be multifamily to earn anything. Lifetime savings from small businesses (<00 MWh/year consumption) divided by lifetime savings from all business customers divided by % of total business MWh sales that are to small businesses (i.e. 0% proportionality is when % of lifetime savings = % of electric sales). Savings from all Business programs count. Lifetime coincident peak demand savings (1st MW savings multiplied by measure life) associated with 1.0% and 1.% first year savings per Consumers' Plan %.00% % of Business Sales % 0% of Business Sales % 1.00%.00% 1.00%.00% 1

233 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 0 of 0 1 Table : Conceptual Lay-Out of 01 Gas Performance Incentive Structure Performance Levels Performance Incentive Metric Weight Concept Threshold Maximum Threshold Maximum Lifetime Savings (Mcf) 0% Lifetime savings equivalent to 0.% and 1.00% first year savings per,1, 0,0, 1.00% 1.00% Consumers Plan Low Income Housing Units Receiving Comprehensive "Whole Building" Retrofits 1% Number of housing units - single family or multi-family - for which assessments and retrofits of all costeffective measures (including HVAC equipment and envelop measures) are provided. Must achieve at least 1% total energy savings per building to be counted. At least 0% must be multifamily to earn anything %.00% Proportionality of Business Lifetime Energy Savings (Mcf) from Small Businesses 1% Lifetime savings from small businesses (<000 Mcf/year consumption) divided by lifetime savings from all business customers divided by % of total business Mcf sales that are to small businesses (i.e. 0% proportionality is when % of lifetime savings = % of gas sales). Savings from all Business programs count. % of Business Sales % 0% of Business Sales % 1.0%.00% Q: In these two tables you provide not only the metrics and suggested weights, but also specific performance levels for each metric. What is the basis for those performance levels? A: The specific performance levels in these tables were developed as follows: Lifetime savings: These are based on the Company s own estimates of lifetime savings from its plan, adjusted down to the statutory 1 st year performance targets (i.e. 1.00% to 1.0% of electric sales and 0.% to 1.00% of gas sales) as shown in Table 1 of my testimony above. Note that as discussed further below, a modest downward adjustment of these lifetime electric savings targets to reflect more accurate assumptions regarding residential LED light bulb savings should be considered. 1 1 Low Income Housing Units Receiving Whole Building Retrofit: The maximum target is roughly equal to 1% of the number of low income households in Consumers electric 0

234 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 1 service territory. 1 In my experience, that it is a reasonably aggressive target. However, depending on how many comprehensive retrofits the Company is currently supporting each year, it may be appropriate to start a little lower in 01 and ramp up to that level in 01. It should be noted that Consumers has estimated that it will treat approximately 00 single-family homes and 00 multi-family housing units through its income qualified program offerings. 1 However, it appears that those customers (or at least most of them) are not receiving comprehensive retrofits Portion of business savings from small businesses: The maximum incentive would be earned if the portion of business savings acquired from small businesses was equal to the portion of business energy sales made to small businesses. That would be true equity. However, understanding it is harder to reach and treat small businesses, the threshold level is one-third less than that. Depending on the portion of savings Consumers is currently acquiring from small business customers, it may be appropriate to start with targets a little lower for 01 and ramp up to these levels in two or three years. 1 1 Lifetime peak demand savings: These are based on the Company s own estimates of the peak demand savings by program from its plan, multiplied by the Company s own 1 Consumers serves approximately 1. million residential customers (U.S. Energy Information Administration data for 01 which can be accessed from files available at Statewide, approximately % of households are at or below 00% of the federal poverty guideline ( fpl/?currenttimeframe=0&sortmodel=%b%colid%:%location%,%sort%:%asc%%d). If that percentage applied to Consumers territory, it would mean that between 0,000 and 00,000 of its residential customers were low income. Needless to say, that estimate could be adjusted if better data regarding Consumers low income population were available. 1 Discovery Response NRDC-1(b) and (d). I am sponsoring Discovery Response NRDC-1 (including all subparts) as Exhibit NRD-. 1 The Company estimates that its average financial incentive is about $00 for single family homes and $1 per dual fuel multi-family housing unit (Exhibit NRD-, response to NRDC-1(e) and (f)). That level of incentive is nowhere close to high enough to comprehensively retrofit residential low income buildings. 1

235 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 estimates of the average electric savings life for each program, then adjusted to levels consistent with the 1.00% and 1.0% first year threshold and maximum statutory savings standards. Q: Would the Company be able to earn the maximum incentives for each of these metrics under its Plan as filed? A: The Company would be able to achieve the maximum incentive level for the lifetime savings metrics, as well as the electric peak demand metric, with its plan as filed, since all of those metrics are pegged to the Company s own forecast performance in its plan. However, the metrics regarding low income comprehensive retrofits and small business savings may not be achievable without some modification to the Company s plan including the addition of some budget for programs targeting such customers. 1 Q: Have you estimated how much additional budget would be required? 1 A: No, I have not. 1 1 Q: What would you suggest that the Commission do in the absence of an estimate of the level of additional budget required to achieve the metrics you have proposed? A: I am advised by counsel that in Consumers Energy s first Energy Optimization Plan Case, the Commission found the Company s incentive proposal to be insufficient and ordered that new incentive proposals could be filed within 0 days of the order that otherwise approved the Company s EO Plan. 1 In this case, I would suggest that the Commission could similarly instruct 1 Case No. U-10, Commission Order dated May, 00, pp 1- and item I on p.

236 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 the Company to consult with interested parties and develop a modified incentive proposal necessary to meet these proposed targets, or alternative targets for the same metrics if the Company can present compelling evidence that it is not possible or reasonable to reach the specific targets I have proposed. As part of the order directing the development of the modified proposal, the Company could be instructed to provide information regarding trade-offs (i.e. how much more or less it would cost to lower or increase each target by % or 0%) so that the Commission and other parties can then fully judge the reasonableness of the targets. Q: Tables and represent a proposal for 01. What about 01, 00 and 01? A: My suggested structure i.e. the performance metrics, their weights and the portion that can be earned at the threshold and maximum levels be the same for all four years. 1 That said, some of the specific performance targets should vary a little. My specific suggestions are as follows: 1 1 Lifetime energy savings: my suggested lifetime savings targets are provided for all four years in Table Low income comprehensive retrofits: I would recommend that the low income comprehensive retrofit performance targets increase such that the threshold target would be 000 units (and the maximum target would be 00 units) by 00 and then level off for Note again that there are proposed modifications to the electric lifetime savings targets provided below, to account for more accurate estimates of savings from residential LED light bulbs.

237 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 Small business portion of business savings: I would recommend that the small business targets be the same for all four years. Lifetime peak demand savings: Based on the Company s forecast of peak demand savings by year, I would recommend that the lifetime peak demand savings metric decline by about a little more than % for 01 (to a threshold level of MW and a maximum level of 1 MW) and remain at about level for 00 and 01.

238 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 IV. Cost Allocation Q: How have energy efficiency portfolio costs historically been allocated to different rate classes? A: As I understand it, they have been allocated to the rate classes on which the funds were spent. For example, the costs of residential efficiency programs were allocated to residential customers; the costs of secondary commercial energy efficiency programs were allocated to secondary commercial customers; the costs of primary customer energy efficiency programs were allocated to primary customers; and so on. Q: Is Consumers proposing to change that way of allocating costs in this case? A: Yes. The Company is proposing that increases in costs of its efficiency programs, relative to its original U- costs (i.e. the U- costs prior to approval of its increased spending levels in July of this year), be disproportionately allocated to residential customers. Put another way, as Table shows, Consumers is suggesting that residential customers should pay for all of the increased spending on residential programs, plus about 0% of the increase in business electric efficiency program costs and 0% of the increase in business gas efficiency program costs over the 01 to 01 plan period. 1 1 Table : Consumers Allocation of Increased Business Program Costs to Residential Customers 1 1 Exhibits A-1 (TAY-) and A-1 (TAY-).

239 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of Total Electric Programs Bus Program Cost Increase $,0, $,1, $,1,1 $,,0 $1,1, Bus Program Cost Savings Adjustment $,1, $,0,1 $,1, $,1, $,, % of Bus Cost Increase Allocated to Res % 0% % 0% 0% Gas Programs Bus Program Cost Increase $,,01 $,,0 $,1, $,0, $,, Bus Program Cost Savings Adjustment $,, $,, $,, $,1,0 $,,0 % of Bus Cost Increase Allocated to Res % 1% 0% % 0% Q: How did Consumers determine how much residential customers should pay for business efficiency programs? A: Consumers states that it is less expensive to acquire its proposed increase in savings from business customers than from residential customers. It then suggests that residential customers should pay for that cost savings. Or, put another way, Consumers is suggesting that residential customers should incur an increase in cost equal to the cost they would have incurred had all of the increase in lifetime savings the Company is proposing been acquired from residential efficiency programs (rather than most of it coming from less expensive business efficiency programs). Q: What rationale does Consumers offer for this new approach to cost allocation? A: The Company suggests that this approach to allocation of costs is appropriate because its proposed increase in energy savings provides overall system benefits, that all customers benefit from those increased system benefits and those additional system benefits can be acquired through business efficiency programs at less than half the cost of acquiring them

240 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 through residential programs. 1 Mr. Ykimoff also suggests that its proposed approach to cost allocation is consistent with how costs of supply resources are allocated. 0 Q: Is Consumers proposal for how to allocate costs between residential and business customers reasonable? A: No. It is problematic in at least two key ways First, the Company has calculated the cost shift based on the incremental costs and savings relative to the old U- plan. However, it is keeping the old cost allocation mechanism (i.e. the sector on which program dollars are spent will incur those costs) for the first two-thirds of the electric spend and the first ~0% of the gas spend. In essence, they are suggesting that there should be one method for allocating cost for the first portion of their proposed budget (i.e. based on program spending by customer class) and a different method for the last portion. It is hard to see what the rationale for simultaneously using two different cost-recovery methods would be. Either the policy rationale the Company offers makes sense for the entire portfolio of programs and savings, or it makes no sense at all. As discussed below, I do not think it should be used at all. However, it is worth noting that when I apply Consumers mathematical method for cost allocation to the entire electric portfolio budget, rather than just to the incremental budget relative to the old U- plan, the resulting cost shift from business customers to residential customers is only about half as big as Consumers is proposing in this case. 1 1 Ykimoff testimony, p. 1, lines Discovery Response NRDC-CE-(a), which I am sponsoring as Exhibit NRD-. 1 Mr. Ykimoff s workpaper WP-TAY-1 shows Consumers calculated the cost shift by multiplying the difference in residential and business cost of acquisition of additional lifetime savings (e.g. $0.01/kWh difference for 01) by the difference in amount of additional lifetime savings being acquired from the residential and business sectors (. million MWh). I multiplied the difference in residential and business cost of acquisition for the entire portfolio of

241 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 Second, and more importantly, I see no reasonable policy rationale for making residential customers pay for the difference in cost of acquiring savings between residential and business efficiency programs. While Consumers is correct that residential customers will pay less if savings are acquired through less expensive business efficiency programs, residential customers also realize far fewer benefits under that scenario. It is inappropriate to allocate costs on the first part of that statement (paying less) while ignoring the second part (benefiting less). Q: Why do residential customers benefit less when more savings are acquired through business efficiency programs? Aren t the benefits of efficiency programs shared by all customers? A: Not exactly. While it is true that all customers benefit to some degree from efficiency investments of others, the benefits of efficiency investments are not shared equally. Those customers who make the efficiency investments benefit more than those who do not. Indeed, as Table shows, based on the Company s estimates of the impacts of both (1) allocations of avoided costs resulting from its proposed electric efficiency programs and () redistribution (between residential and business customers) of existing production costs resulting from its proposed electric efficiency programs, I calculate that residential customers receive % of residential electric program benefits and business customers receive % of business electric program benefits. Again, those calculations are based on the Company s calculations of residential and business sector impacts. I have not examined the Company s underlying assumptions in detail. Moreover, as discussed further below, I see some potential problems with some elements of the Company s calculations of benefits by sector. Nevertheless, the results are lifetime savings (about $0.00/kWh, according to data from NRDC-CE- Attachment) by the difference in total portfolio lifetime savings (. million MWh).

242 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 at least directionally what I would have expected them to be residential customer receive a large majority of residential program benefits and business customers receive an even larger majority of business program benefits. Table : Benefits of Efficiency Programs by Customer Group NPV Total Benefits Received (Thousands of $/Year) Residential Customers Business Customers Total Avoided costs From Res Programs $, $, $0, From Bus Programs $, $, $,1 Total $1,1 $, $,0 Redistributed Current Costs From Res Programs -$, $, $0 From Bus Programs $, -$, $0 Total $, -$, $0 Total Benefits From Res Programs $,1 $,0 $0, From Bus Programs $,0 $1,1 $,1 Total $1,1 $0,1 $,0 % of Program Benfits From Res Programs % % From Bus Programs % % Total % % Q: What portion of the total portfolio of electric program benefits would residential customers receive? A: As shown in Table, the Company s own analysis suggests that residential customers would receive about % of the total electric system benefits from its proposed portfolio of programs. However, there are at least a couple of reasons to believe that percentage is too high. For example, in calculating the amount of current system costs that would be redistributed as a result Based on data and analysis provided in response to NRDC-CE-(d), which I am sponsoring as Exhibit NRD-.

243 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 0 of 0 1 of residential and business programs, Consumers used the first year savings that the residential and business programs would produce. However, the savings estimated for its business programs are forecast to last % longer than the savings from its residential programs. That effect is not captured in the Company s analysis. If that effect were captured in the analysis, the portion of total benefits estimated to accrue to residential customers over the life of the efficiency savings would go down. In addition, the Company s analysis includes the net present value of avoided costs over the full life of the efficiency measures installed, but appears to capture only one year s worth of redistribution of current costs rather than the amount of costs that would be redistributed over the full life of the savings. Because the net effect of redistribution of current costs is negative for residential customers (i.e. the amount redistributed to residential customers as a result of business programs exceeds the amount redistributed away from residential customers as a result of residential programs), accounting for the amount of costs redistributed over the full life of the installed efficiency measures (rather than just one year s worth) would reduce the estimated portion of total benefits accruing to residential customers Q: Putting aside the reasons that the % is likely to be a high estimate of the portion of benefits accruing to residential customers, how does that number compare to the portion of costs that Consumers new cost recovery would have them incur? 1 0 A: It is much lower. As Table shows, Consumers is proposing that residential customers incur % of electric program costs over the planning period. Consumers estimates that the average measure life for its residential electric programs is. years and the average for its business electric programs is 1. years (Response to NRDC- Attachment). 0

244 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page 1 of 1 1 Table : Consumers Proposed Allocation of Electric Efficiency Program Costs Total Residential Allocated Cost Recovery $,,1 $,, $,, $,, $,, Business Allocated Cost Recovery $,1, $,,1 $1,, $,,0 $1,, Total Cost Recovery $,0,1 $,,0 $,, $,0,01 $,, Residential Portion of Cost Recovery % % % % % Q: Are you aware of any other jurisdiction that has adopted an approach to efficiency program cost recovery similar to what Consumers is proposing? A: No, I am not. Q: Given the concerns you have raised, how do you recommend the Commission address Consumers proposed change in approach to cost recovery? A: The evidence available in this case suggests that the portion of efficiency program benefits that will accrue to residential customers is nowhere close to the portion of the costs Consumers is proposing that residential customers bear. Furthermore, the available evidence does not suggest that the portion of benefits accruing to residential customers is appreciably different from the portion of costs that would be allocated to residential customers under the current cost recovery structure (i.e. with residential customers paying for just residential programs). Thus, I recommend that the Commission reject Consumers proposed approach to cost recovery and maintain the current approach to cost recovery. 1

245 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 V. Savings Assumptions for Residential LED Light Bulbs 1. Net-to-Gross (NTG) Assumptions Q: What NTG assumption is Consumers proposing to use for residential LED light bulbs? A: Consumers is proposing to use an NTG of 0.0. Q: What is the basis for that assumption? A: Consumers states that the basis for the assumption is the Michigan Energy Measures Database (MEMD). Ultimately, it is the assumption the Company has historically been using for most measures other than CFLs and low income measures, consistent with deemed values the Commission approved in 01. I am not aware of any empirical or other evidentiary basis the Company is using for the assumption. 1 Q: Do you agree this is a reasonable assumption? A: No. It is unrealistically high. 1 1 Q: What is the basis for your conclusion that 0.0 is an unrealistically high NTG assumption for residential LEDs? 1 A: First, the market for residential lighting has changed dramatically in recent years a 1 conclusion with which Consumers itself concurs. The changes have been most dramatic for 1 1 LEDs, with both significant improvements in availability and significant cost reductions. The result is that LED sales have grown quickly. Indeed, as Figure 1 shows, between the end th Response to NRDC-1(a), which I am sponsoring as Exhibit NRD-. Richard Morgan testimony, lines -1. Response to NRDC-(h), which I am sponsoring as Exhibit NRD-.

246 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 quarter of 01 and the first quarter of this year, the national market share for LED light bulbs increased from a little under % to about %. Figure 1: National Market Share Trends for Light Bulbs Second, of all the other jurisdictions focused on net savings with which I am aware, none are currently using an NTG as high as 0.0 for broad-based buy-downs of LEDs sold through Data from the National Electrical Manufacturers Association (NEMA) (

247 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 national or regional retailers. Consider Table, which shows current NTG assumptions for normal retail sales for each of the four jurisdictions referenced in the last memo on residential lighting NTGs by Consumers evaluators. The 01 values range from 0. for standard LEDs with less than 0,000 hours of life in Maine to 0.0 in Massachusetts and southern Illinois to 0. for long-life standard LEDs in Maine. In all cases, the 01 NTG assumptions are lower in 01 than in 01. It is also worth noting that in every case but Maine, the NTG values include both free rider and spillover effects. Table : Residential Retail LED NTG Assumptions in IL, ME, MA Year Utility & State Com Ed (Illinois) to Ameren Illinois to Efficiency Maine to 0. Massachusetts Q: What would be a reasonable NTG assumption for Consumers for LEDs? When asked if it new of any jurisdictions using an NTG as high as 0.0, Consumers identified Massachusetts, suggesting that its utilities were using NTG assumptions ranging from 0.0 to 0. for the 01 through 01 plan years (response to NRDC-1(b)), Exhibit NRD-. However, that response is both incorrect and misleading. To begin with, as Table notes, the assumption for territory-wide promotions through retail channels was 0% in 01, but declines to 0% by 01. Second, while it is true that Massachusetts does currently use NTGs of as high as 0. this year and 0. in 01, those higher values are applicable only to sales through what is called its hard-to-reach initiative in which discounts are provided specifically to targeted stores in low income communities. For both Illinois utilities the lower 01 value is for omni-directional LEDs; the higher is for directional LEDs. For detail on Com Ed values see: ons_ pdf. For detail on Ameren values see: FINAL_ pdf. For Efficiency Maine, separate values for 01 could not be found. For 01 values see: For 01 values see: Note that range for 01 covers standard bulbs through normal retail sales channels (0. NTG for lamps rated at more than 0,000 hours; 0. for those rated at less than 0,000 hours) and specialty reflector lamps promoted through normal retail sales channels (NTG of 0.). There is also a % NTG for standard LEDs discounted through special promotions. For Massachusetts utilities see:

248 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 A: I would suggest that the NTG should be no lower than 0.0 for 01, and declining five percentage points per year down to % by 01. That is consistent with assumptions recently made by Ameren Illinois in its Plan filing Measure Life Assumptions Q: What measure life assumption is Consumers using for LEDs? A: Consumers appears to be assuming that all LED light bulbs have a life of 1 years. Q: What is the basis for that assumption? A: The assumption is derived from the Michigan Efficiency Measures Database (MEMD). Q: Is 1 years a reasonable assumption for the measure life of an LED light bulb? A: Depending on the specific products Consumers will be promoting, it could be a reasonable assumption regarding how long the LED light bulb will last i.e. the equipment life. However, at least for standard LEDs, it is not a reasonable assumption regarding the average life of the first year savings i.e. the savings life. Put another way multiplying the first year savings of a standard LED by its assumed 1 year measure life will be produce an unrealistically high estimate of lifetime savings for the measure. Q: Why is the savings life shorter than the equipment life? A: For most measures they are the same. However, they can be different in cases in which the equipment life of the efficiency measure and the equipment life of the baseline measure being replaced are different. That is the case with LED light bulbs. 0 1 An LED light bulb that is purchased today or next year is assumed to be purchased instead of a halogen light bulb. The electricity savings produced by an LED in its first year of operation 0 Ameren Illinois Energy Efficiency Plan, Exhibit 1.1, Appendix I, pages -0 - which I am sponsoring as Exhibit NRD-.

249 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of will therefore be equal to the difference between its electricity consumption and that of the halogen that would have otherwise been purchased and installed. In addition to consuming less energy, LEDs last a lot longer than halogens. Depending on the product and other factors, LEDs can last 1 years. In contrast, halogens that are replaced by LEDs typically last only a year or so. Thus, in the baseline scenario, the customer would be buying a new light bulb roughly every year, for as long as the baseline product remains a halogen bulb. The result will be the same level of savings in each year for which the baseline product remains a halogen bulb. If it was reasonable to assume that the baseline product would remain a halogen bulb for the next fifteen years, the savings in each of the next fifteen years of the LED equipment life would be the same as in the first year. In that case, the LED savings life would be equal to the LED equipment life. However, that is not a reasonable assumption for standard LEDs because Federal efficiency standards under the Energy Independence and Security Act (EISA) that will go into effect in 00 will effectively require all new general service screw-based lamps i.e. those which standard LEDs would replace to be as efficient as compact fluorescent light bulbs (CFLs). 1 Thus, the annual savings estimated for standard LEDs will decline significantly starting in 00. Put another way, rather than assuming that the current annual savings of an LED will last 1 years, the annual savings for an LED installed in 01 should be assumed to last only two years, followed by 1 years of much lower levels of savings. 1 Q: Is that kind of adjustment appropriate for all LED light bulbs? 1 Note that Consumers agrees with this assertion (response to NRDC-(i)), Exhibit NRD-. Similarly, for a standard LED installed in 01, the current annual savings estimate would be appropriate for only one year, followed by 1 years of much lower levels of savings. And the savings for any standard LED installed in 00 or later will be much smaller in every year of its operation (i.e. requiring a lower first year savings value as well as lower savings in subsequent years).

250 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 A: No, only for the kinds of light bulbs whose efficiency is governed by the EISA product efficiency standards. That means all of what are commonly known in the industry as standard LEDs or A-Line LEDs. Consumers plan includes savings from both standard LEDs and specialty LEDs. The savings from the specialty LEDs would be unaffected by my proposed change. Q: Is the kind of adjustment to standard LED measure lives that you are suggesting consistent with national best practice? A: Yes. This is kind of savings adjustment was recommended a couple of years ago by the national Uniform Methods Project, a national effort designed to bring best practice consistency to energy savings estimation and evaluation: Bulbs expected to be in use in 00 and beyond will be affected by the EISA backstop provision mentioned in Section 1. The life cycle savings of CFLs, therefore, should either terminate for any remaining years in the expected life beginning in mid-00, or be substantially reduced after 00 to account for the backstop provision. Similarly, the life cycle savings for LEDs should incorporate this upcoming baseline change. Q: Are there other states that make such savings adjustments for standard LEDs starting in or around 00? A: Yes. Illinois is an example of a neighboring state that makes this adjustment. The Illinois TRM explains the LED mid-life baseline adjustment as follows: 0 1 During the lifetime of a standard Omnidirectional LED, the baseline incandescent/halogen bulb would need to be replaced multiple times. Since the baseline bulb changes over time (except for <00 and >00+ lumen lamps) the annual savings claim must be reduced within the life of the measure to account for this baseline shift. Dimetrosky, Scott, Katie Parkinson and Noah Lieb, Chapter 1: Residential Lighting Evaluation Protocol, The Uniform Methods Project: Methods for Determining Energy Efficiency Savings for Specific Measures, published by the National Renewable Energy Laboratory, February 01. Available at:

251 U- - September 0, 01 CORRECTED Direct Testimony of C. Neme on behalf of NRDC Page of 1 For example, for 0W equivalent bulbs installed in 01, the full savings should be claimed for the first six years, but a reduced annual savings ( [initial first year energy savings] multiplied by the adjustment factor in the table below) claimed for the remainder of the measure life. As you can see from the table, the portion of initial LED savings that no longer applies after 00 varies by lamp light output level. The average remaining savings across the four categories shown is 1%, representing an % reduction from pre-00 annual savings levels.. Combined Effects of Correcting NTG and Measure Life Assumptions 1 Q: What would be the effect of changing both the NTG assumption for LEDs and the measure life assumptions for standard LEDs? A: As Table shows, the combined effect of these two changes would be to reduce total first year LED savings from the Company s Residential ENERGY STAR Lighting program by about one-quarter in 01 and 01 and by more than 0% in 00 and 01. More significantly, it would reduce lifetime savings by more than 0% in 01 and 01 and by more than 0% in 01. Illinois Statewide Technical Reference Manual for Energy Efficiency, Version.0, Volume : Residential Measures, Final; February th, 01; effective June 1 st, 01; p. 1. Available at: TRM_Effective_00_v.0_Vol Res_01_Final.pdf.f