Case No. U In the Matter of the Application of CONSUMERS ENERGY COMPANY for authority to recover deferred major maintenance expense.

Transcription

1 A CMS Energy Company May, 0 Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 00 W. Saginaw Lansing, MI General Offices: LEGAL DEPARTMENT One Energy Plaza Jackson, MI 0 Tel: Fax: () -00 () - CATHERINE M REYNOLDS Senior Vice President and General Counsel *Washington Office: 0 Rhode Island Ave. N.W. Tel: (0) -0 JAMES E BRUNNER Suite 00 Senior Vice President Washington, DC 00 Fax: (0) - and Chief Legal Counsel Writer s Direct Dial Number: () - Writer s Address: robert.beach@cmsenergy.com JON R ROBINSON Vice President and Deputy General Counsel Utility Law and Regulation MELISSA M GLEESPEN Vice President and Corporate Secretary Eric V. Luoma Shelley J Ruckman Kimberly C Wilson Assistant General Counsel Ashley L Bancroft David E Barth Robert W Beach H Richard Chambers Kelly M Hall Gary L Kelterborn Chantez P Knowles Raymond E McQuillan Jason M Milstone Rhonda M Morris Deborah A Moss* Mirče Michael Nestor Jeffrey D Pintar James D W Roush John C Shea Scott J Sinkwitts Adam C Smith Janae M Thayer Bret A Totoraitis Mary Jo Weindorf Attorney RE: Case No. U- In the Matter of the Application of CONSUMERS ENERGY COMPANY for authority to recover deferred major maintenance expense. Dear Ms. Kunkle: Included in this electronic file is Consumers Energy Company s Application and Testimony and Exhibits of Company witnesses David B. Kehoe and Anne K. Rogus. Also included is a Proof of Service showing electronic service upon the parties to Case No. U-. This is a paperless filing and is therefore being filed only in a PDF format. Sincerely, Robert W. Beach cc: Parties to Case No. U- per Attachment to Proof of Service fl0--

2 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the Matter of the Application of ) CONSUMERS ENERGY COMPANY ) for authority to recover deferred major ) maintenance expense. ) Case No. U- ) APPLICATION Consumers Energy Company ( Consumers Energy or the Company ) respectfully requests the Michigan Public Service Commission ( MPSC or the Commission ) to authorize Consumers Energy to recover deferred major maintenance expense that the Company incurred during the time in which the rates authorized in MPSC Case No. U- were in effect. In support of this Application, Consumers Energy states as follows:. Consumers Energy is, among other things, engaged as a public utility in the business of generating, purchasing, distributing, and selling electric energy to approximately. million retail customers in the State of Michigan. The retail electric system of Consumers Energy is operated as a single utility system, within which uniform rates are charged.. Consumers Energy s retail electric business is subject to the jurisdiction of the Commission pursuant to various provisions of 0 PA 0, as amended, MCL 0. et seq., PA, as amended, MCL 0. et seq., and PA, as amended, MCL 0., et seq. Pursuant to these statutory provisions, the Commission has the power and jurisdiction to regulate Consumers Energy s retail electric rates.. On June 0, 0, Consumers Energy filed an Application requesting an electric rate increase and other relief in Case No. U-. As part of that request for electric rate relief, the Company requested the recovery of projected major maintenance expense. Major maintenance generally refers to outage and non-outage maintenance activities at the Company s ap0--

3 generating units that are infrequent in nature and performed periodically, according to a predetermined schedule or scheduled on a non-routine basis. These maintenance activities are critical to the continued safe and reliable operation of the Company s generating units.. The Commission issued a June, 0 Order in Case No. U- which approved Consumers Energy s request for rate relief in part. In its Order, the Commission approved a portion of the Company s requested major maintenance expense and established a process for the future recovery of major maintenance expense incurred by the Company which exceeds the amount authorized in rates as follows: [t]he Commission finds that it should approve $,,000 million [sic] for major maintenance projects for the test year. That amount is equal to the percentage of funds the company actually used following Case No. U- multiplied by the utility s projected amount for major maintenance of the marginal generating units in the present case. Should the company need to spend more on major maintenance during the time that the rates set in this case are in effect, it may defer such costs as a regulatory asset, which will be recoverable following a determination of reasonableness and prudence. Consumers should be prepared to inform the Commission about how the excess funds were spent and provide support for finding those expenditures reasonable and prudent in light of the approaching mothballing of those plants. MPSC Case No. U-, June, 0 Order, pp. -. Thus, the Commission approved the recovery, in rates, of a base level of major maintenance expense and established a major maintenance expense deferral mechanism which operated during the time that the Case No. U- rates were in effect. This mechanism permits the Company to recover the excess or additionally incurred major maintenance expense so long as those expenses are supported by a demonstration of reasonableness and prudence.. Consumers Energy now files this Application to seek authorization to recover the deferred major maintenance expense reasonably and prudently incurred by the Company at its electric generation facilities during the time in which the rates established in Case No. U- ap0--

4 were in effect. That period commenced June, 0 and continued through May, 0, or approximately months.. From June, 0 until May, 0, Consumers Energy incurred $0,, in major maintenance expense due to major maintenance projects at the Company s electric generation facilities. Major maintenance expenses were incurred at the following Consumers Energy electric generation facilities: Campbell, Ludington/Hydroelectric plants, Zeeland, Cobb, Whiting, Karn, and Weadock.. The $0,, in major maintenance expense incurred by the Company, during the time in which the rates established in Case No. U- were in effect, exceeded the major maintenance expense that the Commission authorized in Case No. U-. In accordance with the Commission s June, 0 Order in Case No. U-, the Company began recording the excess or additionally incurred major maintenance expense as a regulatory asset at the point in time when the major maintenance expenses incurred by the Company exceeded the amount authorized in Case No. U-. For each month thereafter, until new rates were established effective May, 0 in Case No. U-0, the Company continued to accumulate and record the amount of spending in excess of the amount authorized in rates in the regulatory asset account.. In this case, Consumers Energy seeks Commission authorization to recover $0,,0 in deferred major maintenance expense. This amount represents the Company s incremental major maintenance spending in excess of base rates. The Company proposes to collect this amount through the implementation of a surcharge that will operate over a -month period effective with the Commission s final order in this proceeding. Any remaining residual ap0--

5 balances resulting from this reconciliation are proposed to be addressed through the Residual Balance Mechanism approved by the Commission in Case No. U-.. Consumers Energy is, concurrently with this Application, filing written testimony and exhibits which detail the major maintenance expenses incurred by the Company at its electric generation facilities during the time in which the rates established in Case No. U- were in effect and the reasonableness and prudence of those expenses. Further, the testimony and exhibits support the calculation of the total deferred major maintenance expense and propose a method for collecting this deferred expense from customers. 0. Consumers Energy is, concurrently with this Application, also filing a proposed tariff sheet showing the surcharge amounts sought to be collected from customers. The tariff sheet showing the proposed surcharges is attached to the testimony as Exhibit A-. WHEREFORE, Consumers Energy Company respectfully requests that the Commission grant the following relief: A. Authorize the recovery of $0,,0, with interest, in deferred major maintenance expense reasonably and prudently incurred at the Company s electric generation facilities during the time in which the rates established in Case No. U- were in effect; B. Approve the surcharges set forth in the attached testimony and exhibits, and the application of such surcharges to customer bills; C. Authorize Consumers Energy to apply the Residual Balance Mechanism approved in Case No. U- to any remaining residual balances that continue to exist after implementation of the surcharges; D. Promptly issue a notice of hearing for this proceeding; and ap0--

6 E. Grant Consumers Energy such other and further relief as may be lawful and appropriate. Respectfully submitted, CONSUMERS ENERGY COMPANY Dated: May, 0 By Patricia K. Poppe Vice President Customer Experience, Rates and Regulation H Richard Chambers (P) Robert W. Beach (P) One Energy Plaza Jackson, Michigan 0 Attorney for Consumers Energy Company () - ap0--

7 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 authority to recover deferred major ) maintenance expense. ) Case No. U- ) OF DAVID B. KEHOE ON BEHALF OF CONSUMERS ENERGY COMPANY May 0

8 DAVID B. KEHOE 0 0 Q. Please state your name and business address. A. David B. Kehoe, W. Parnall Road, 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 Director of Staff, Electric Generation. Q. Please describe your educational background. A. I received a Bachelor of Science (Chemistry) degree in December from the University of Michigan. I also received a Master s degree (Business Administration) in May from the University of Detroit. Q. Please describe your business experience. A. In, I began working as an Associate Engineer for The Detroit Edison Company ( Detroit Edison ). In this capacity I worked at Detroit Edison s Engineering Research Department largely serving as an analytical chemist specializing in instrumental analytical chemistry. From mid- to September, I held the position of Fuels Engineer and was responsible for both the operation of Detroit Edison s fuels laboratory as well as for consulting with the operating power plants on fuel and combustion product impacts. Additionally, from until I was in charge of the Polychlorinated Biphenyls ( PCB ) analysis laboratory. This laboratory analyzed soil and oil samples for the presence of PCBs and was part of Detroit Edison s program to remove PCBs from existing equipment and to verify the absence of PCBs from soil samples that came from remediation of transformer-oil spills. While at Detroit Edison, I was also a member of the American Chemical Society, the American Society for Testing and Materials te0-dbk

9 DAVID B. KEHOE 0 0 ( ASTM ) Committee on Corrosion and Deposits from Combustion Gasses, and ASTM D- Committee. In, I left the position of Senior Engineer at Detroit Edison and went to CQ Inc., a subsidiary of the Electric Power Research Institute. While at CQ Inc., I held the position of Project Manager, and consulted with utilities, coal companies, and engineering firms on fuel selection and fuel impacts. Additionally, I served on the Department of Energy coal research project peer review panel. In, I left CQ Inc. and joined CMS Generation, a subsidiary of CMS Energy, as a Plant Support Manager. My responsibilities included negotiation of long-term service agreements, power purchase agreements, operation and maintenance agreements for new and existing power plants, providing operations review and cost estimates in development of new power plants, and providing technical assistance to existing power generating assets. In 000, I became the Asset Manager for the Jorf Lasfar Energy Company ( Jorf Lasfar ) in Morocco, and was responsible for representing CMS Energy s interests in that project. In that capacity, I also served on the Management Committee of Jorf Lasfar, which functioned as that project s board of directors. As such, I was responsible for dividend declarations, cash management policy, setting annual goals and objectives, reviewing performance, and establishing salary bonus structure for the project management. In addition, I also served in a similar capacity for the GasAtacama project in northern Chile. In April of 00, I accepted the position of Director of Staff, Electric Generation. te0-dbk

10 DAVID B. KEHOE 0 0 Q. What are your responsibilities as Director of Staff, Electric Generation? A. As Director of Staff, Electric Generation, I am responsible for strategic planning for the electric generation business of Consumers Energy. This function includes air quality and regulatory oversight as well as financial planning and budgeting. Q. Have you previously testified before the Michigan Public Service Commission ( MPSC or the Commission )? A. Yes. I sponsored testimony in the following cases: Case Nos. U- and U--R [00 Power Supply Cost Recovery ( PSCR ) Plan and Reconciliation cases]; Case Nos. U- and U--R (00 PSCR Plan and Reconciliation cases); Case Nos. U-0 and U-0-R (00 PSCR Plan and Reconciliation cases); Case No. U- (00 Electric Rate case); Case Nos. U-00 and U-00-R (00 PSCR Plan and Reconciliation cases); Case Nos. U- and U--R (00 PSCR Plan and Reconciliation cases); Case No. U- (00 Electric Rate case); Case Nos. U- and U--R (00 PSCR Plan and Reconciliation case); Case No. U- (00 Electric Rate case); Case No. U- (00 Show Cause Order); Case No. U-0 (00 Depreciation Practices for Electric and Common Utility Plant); Case No. U-0 (00 Depreciation Practices for Ludington Pumped Storage Plant); Case Nos. U-0 and U-0-R (00 PSCR Plan and Reconciliation cases); Case No. U- (00 Electric Rate case); Case Nos. U- and U--R (0 PSCR Plan and Reconciliation cases); Case No. U- (0 Depreciation Practices for Lake Winds Energy Park); Case No. U- (0 Electric Rate case); Case Nos. U-0 and U-0-R (0 PSCR Plan and Reconciliation cases); Case No. U-0 (0 Electric Rate case); Case Nos. U-0 and U-0-R (0 PSCR Plan and te0-dbk

11 DAVID B. KEHOE 0 Reconciliation cases); Case No. U- (0 PSCR Plan case); Case No. U- (0 Accounting Practices for certain Electric and Common Utility Plant); and Case No. U- (0 Financing Order Approving the Securitization of Qualified Costs). Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to: (i) identify the scope and purpose of this proceeding; (ii) identify and support the reasonableness and prudence of all major maintenance expenses incurred by the Company during the time that the rates established in Case No. U- were in effect; and (iii) seek recovery of the Company s deferred major maintenance expense. Q. Are you sponsoring exhibits with your testimony? A. Yes, I am sponsoring the following exhibits: Exhibit A- (DBK-) Exhibit A- (DBK-) I. SCOPE OF PROCEEDING Major Maintenance Deferral Summary 0 Non Fuel O&M/MWh 0 Q. Please explain Operating and Maintenance ( O&M ) spending. A. O&M spending has two primary components Base and Major Maintenance. Q. What is major maintenance? A. Major maintenance generally refers to outage and non-outage maintenance activities at the Company s generating units that are infrequent in nature and performed periodically, according to a predetermined schedule or scheduled on a non-routine basis. Q. Please describe outage maintenance expenses. A. Outage maintenance expenses are associated with major overhauls and require the generating unit be removed from service for boiler and/or turbine inspections and te0-dbk

12 DAVID B. KEHOE 0 0 maintenance. These outages are typically scheduled on a periodic basis and are required by law, insurance providers and/or industry standards to ensure operational safety and reliability. Q. Please describe non-outage maintenance expenses. A. Non-outage maintenance expenses typically do not require the generating unit be removed from service, however they are still critical to the operation of the unit. Q. What expense categories make up major maintenance? A. Major maintenance is comprised of material (parts) and contract labor costs. Q. Why is it necessary to perform major maintenance? A. Major maintenance is necessary to maintain and improve the performance of the Company s generating fleet. More specifically, major maintenance improves unit reliability and efficiency which ultimately saves customers money by reducing the need for additional replacement power and fuel. Q. Are major maintenance costs relatively consistent? A. No. Although the Company attempts to plan for controlled and consistent levels of major maintenance, factors such as new environmental or regulatory mandates, unforeseen equipment failure, emerging industry initiatives, unit dispatch, expected power prices, unit performance, and simple timing variations can impact the cost and scheduling of major maintenance. Because major maintenance outages occur relatively infrequently, for an individual unit, it is very possible to have significant year-by-year variations in the number, duration, and magnitude of the required major maintenance work. te0-dbk

13 DAVID B. KEHOE 0 0 Q. Do major maintenance costs vary by individual generating unit? A. Yes. As the Company s generating units vary in age, size, type and design, so do the costs to maintain these units. Q. Why is Consumers Energy seeking recovery of deferred major maintenance expense in this proceeding? A. The Company is seeking recovery of deferred major maintenance expense pursuant to the Commission s June, 0 Order in Case No. U- which approved, $,,000 million [sic] for major maintenance projects for the test year. The Commission s Order continued by explaining that, [s]hould the company need to spend more on major maintenance during the time that the rates set in this case are in effect, it may defer such costs as a regulatory asset, which will be recoverable following a determination of reasonableness and prudence. (Order in Case No. U-, page ). Q. Please identify when the rates set in Case No. U- were in effect. A. In her testimony, Company witness Anne K. Rogus identified June, 0 through May, 0 as the time in which the rates established in Case No. U- were in effect. Q. Did Consumers Energy incur more than $,,000 in major maintenance expense during the time in which the Case No. U- rates were in effect? A. Yes. The Company spent $,, for major maintenance between June, 0 and May, 0. te0-dbk

14 DAVID B. KEHOE Q. Please explain why the time period that you have identified above for major maintenance spending (June, 0 through May, 0) does not align with the time period identified by Company witness Rogus, June, 0 through May, 0. A. The time period that I have identified above does not precisely align with the time period identified by Ms. Rogus because the Company s accounting system does not have the ability to provide daily major maintenance expenditures. In her testimony, Ms. Rogus explains the methodology used by the Company to prorate the June 0 expenses for the period that rates approved in Case No. U- were in effect. II. INCURRED MAJOR MAINTENANCE EXPENSE 0 0 Q. Please explain where the Company s major maintenance expense was incurred? A. The Company incurred $. million in major maintenance expense at the following generating units: (i) $.0 million Campbell; (ii) $. million Ludington/ Hydroelectric plants; (iii) $. million Zeeland; (iv) $. million Cobb; (v) $. million Whiting; and (vi) $. million Karn/Weadock ($. million Karn, $.0 million Weadock and $. million Karn/Weadock Fuel Handling and other shared systems). These amounts are summarized in Exhibit A- (DBK-). Q. Please describe Exhibit A- (DBK-), Major Maintenance Deferral Summary Journal Entries & Site Data. A. Exhibit A- (DBK-) is an eight-page document which identifies how the $. million in major maintenance expense was incurred on the Company s generating fleet. Page of provides an overview of the monthly major maintenance expenses that were incurred at each site or combination of sites. Pages through provide a detailed summary of the monthly expenses, as well as a brief description of the expense that was incurred. te0-dbk

15 DAVID B. KEHOE 0 0 Campbell Q. Please identify the major maintenance expenses at the Campbell plant and explain why these expenses were reasonable and prudent. A. Page of Exhibit A- (DBK-) identifies major maintenance expenses incurred by the Company at the Campbell plant. Lines,,,,, and identify the dollars spent on pulverizer maintenance for the three units at Campbell. Pulverizers are used to grind coal prior to combustion. Pulverizers experience high wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for pulverizer maintenance. These expenses were prudently incurred because without adequate pulverizer maintenance, the units could not operate. Similarly, lines,,, and identify the dollars spent on repair of the coal dumper and coal handling chutes. This plant equipment also experiences wear due to the abrasive qualities of coal, and must be periodically maintained. The Campbell site can only receive coal by train, and therefore the coal dumper must be maintained to run the plant. Lines and identify the dollars spent on replacement of dust collection bags in the coal dust collection system at the plant. Proper control of airborne dust is critical for the respiratory safety of our employees, is required by the Michigan Occupational Safety and Health Administration ( MIOSHA ), and avoids coal dust explosions. Lines and identify the dollars spent on the overhaul of the Campbell Unit A main boiler feed pump ( MBFP ). This pump provides water to the boiler for the generation of steam. The generation of steam turns the steam turbine which then turns te0-dbk

16 DAVID B. KEHOE 0 0 the generator. This expense was prudently incurred because the Campbell unit provides a significant value to the Company s customers and without a MBFP the unit cannot function. Lines and identify the dollars spent on vibration studies for Unit generator collector rings. Collector rings are located at the end of the rotor shaft and are subject to wear. If the collector rings are not properly maintained, the reliability of the unit and the bulk electric system will decline due to the loss of voltage. Lines, 0,, and identify the dollars spent on turbine valve maintenance. Turbine valves are used to control the flow of steam through the turbine. There are two types of turbine valves: control valves and stop valves. Turbine control valves modulate the flow of steam into the turbine thereby balancing the steam flow to the load on the unit. Stop valves are used to interrupt the flow of steam to the turbine in emergency situations. Maintenance of steam valves is prudent because it is critical for the safe operation of the unit. Steam valve failure could result in the catastrophic disassembly of the turbine. Lines and identify the dollars spent on Unit Induced ( ID ) fan rotor installation. The ID fan removes combustion gases from the boiler, and is balanced with the air flow from the Forced Draft ( FD ) fan. This balance controls the pressure in the boiler. An imbalance between these fans could result in either implosion or explosion of the boiler. The ID fan experiences wear due to the abrasive effects of coal ash. Maintenance of the rotor is necessary for the control of boiler pressure and the proper functioning of pollution control equipment. Similarly, lines and identify the overhaul of the spare FD fan motor. te0-dbk

17 DAVID B. KEHOE 0 0 Lines and 0 identify the dollars spent on building louver repairs. Louvers control air flow into and out of the building. Without properly functioning louvers, building temperatures in the upper floors can easily exceed 0 degrees Fahrenheit, causing unsafe working conditions. Lines and identify the dollars spent on corrosion fatigue analysis. Corrosion fatigue is a phenomenon that occurs in high-pressure water lines, reducing the pipes ability to contain high-pressure water and steam. Analysis and control of corrosion fatigue is critical to the safe operation of the unit. Lines and identify the dollars spent on Unit outage base boiler and critical maintenance. Base boiler and critical maintenance is the repair or replacement of a small number of damaged boiler tubes. The repair and replacement of damaged boiler tubes is prudent because it improves reliability. Lines and identify the dollars spent on Unit primary air heater. The primary air heater uses combustion gases to heat the incoming air used for combustion. Heating the incoming air in this way has a significant beneficial effect on the efficiency of the unit and thus, reduces power supply costs for our customers. The primary air heater experiences erosion and corrosion from the combustion gases and requires periodic maintenance. Lines and 0 identify the dollars spent on structural steel inspection and replacement. The combination of coal and moisture make for a corrosive environment. Because both elements are present in and around the fuel handling system, the structural steel must be inspected and replaced on a regular basis. This practice ensures the safe and uninterrupted operation of this critical area of a coal-fired power plant. te0-dbk 0

18 DAVID B. KEHOE 0 0 Lines and identify the dollars spent on the clean dry ash silo. Consumers Energy markets clean dry ash to concrete manufacturers. Consumers Energy s customers receive a benefit from this maintenance in the form of a reduction in O&M expenses. Additionally, this maintenance reduces the amount of ash to be placed in the site ash storage fields which results in an environmental benefit. Lines 0 and identify the dollars spent investigating a potential mercury reducing supplement/additive which can be sprayed on coal to reduce emissions. DTE Energy advised the Company of this supplement/additive. Lines and identify the dollars spent on numerous small projects. Approximately 0% of these small projects are reliability projects which consist of repairs on small pumps, compressors, and motors used to operate the plant. Approximately 0% of these expenses are environmental projects such as precipitator repairs. The remaining 0% are safety projects such as coal pipe repairs, reheat piping support, and repair of hydrogen seals. Ludington Pumped Storage/ Hydroelectric Plants Q. Please identify the major maintenance expenses at the Ludington Pumped Storage ( LPS )/hydroelectric plants and explain why these expenses were reasonable and prudent. A. Page of Exhibit A- (DBK-) identifies major maintenance expenses incurred by the Company at the LPS and hydroelectric plants. Lines and show the dollars spent on upgrading the Rogers emergency spillway. The existing spillway consisted of an earthen slope to accommodate water which may spill over the Rogers dam. New Federal Energy Regulatory Commission ( FERC ) regulations require spillways on earthen dams to be te0-dbk

19 DAVID B. KEHOE 0 0 concrete so that water flowing down the spillway would not compromise the structural integrity of the dam itself. Lines and identify the dollars spent refurbishing/overhauling the Webber Unit turbine. The Webber hydro plant began operation in 0. This was the first time Unit was rebuilt. This expense was needed to ensure the continued safe and reliable operation of the unit. Lines and identify the dollars spent maintaining the concrete log chute wall at the Tippy Plant. The concrete had become badly deteriorated, creating a structural safety concern. Also, there is an access ladder located on the back-side wall of the log chute. The ladder is used to inspect the back deck of the plant. Due to the deterioration of concrete, the ladder was unsafe to use. The deteriorated concrete was removed, and replaced with new concrete, ensuring the structural integrity of the log chute wall and ladder. The Tippy hydro plant began operation in. Lines,,, and identify the dollars spent on FERC licensing and Code of Federal Regulations, Title, Part, Subpart D ( Part ) activities. Part requires a FERC approved independent consultant to perform safety inspections of hydro facilities every five years remediation (repairs) of any violations must be completed within months. Also included in Part is a requirement to survey the river banks to identify any changes that may occur. These expenses were required for regulatory approval and the continued operation of these sites. Lines and identify the dollars spent on numerous small projects ranging from a few thousand dollars up to $,000. These projects were predominantly repairs to the power-houses and dam structures. Other projects include river maintenance, hydro te0-dbk

20 DAVID B. KEHOE 0 0 monitoring systems, and plant electrical repairs. These projects are largely required by FERC to ensure the structural integrity and safe, reliable operation of the Company s hydro units. Lines and identify the dollars spent on the LPS fish barrier net. The fish barrier net is required by FERC to minimize fish mortality associated with the operation of the LPS plant during the summer months. Lines and identify the dollars spent on all other LPS projects which almost entirely consist of repairs to the LPS reservoir asphalt and clay liners. This work is needed to maintain the structural integrity of the LPS reservoir. Zeeland Q. Please identify the major maintenance expenses at the Zeeland plant and explain why these expenses were reasonable and prudent. A. Page of Exhibit A- (DBK-) identifies major maintenance expenses incurred by the Company at the Zeeland plant. Lines,,,,, 0,, and show the dollars spent on gas turbine major maintenance. Consumers Energy has a maintenance agreement with the original equipment manufacturer, General Electric. This agreement specifies a payment schedule based on hours of operation and the number of turbine starts. An agreement of this kind assures parts availability for major turbine overhauls. Lines and identify the dollars spent on chemical cleaning of the deep well used for cooling tower water blow-down. Minerals in the cooling water accumulate due to evaporation and must be removed from the cooling tower water. The deep well is the only method that the Zeeland plant has to dispose of these minerals. te0-dbk

21 DAVID B. KEHOE 0 0 Lines and identify the dollars spent on circuit test switches required for electric testing and plant operations. Cobb Q. Please identify the major maintenance expenses at the Cobb plant and explain why these expenses were reasonable and prudent. A. Page of Exhibit A- (DBK-) identifies the major maintenance expenses incurred by the Company at the Cobb plant. Lines and identify the dollars spent on coal mill repairs. Mills are used to grind coal prior to combustion. Mills experience high wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for mill maintenance. These expenses were prudently incurred because without adequate mill maintenance the units could not operate. Lines and identify the dollars spent on breaker house repairs. Coal breakers are used to reduce the size of the coal prior to milling. This reduces wear on the coal mills themselves and provides proper coal sizing to assure complete combustion. Lines 0 and 0 are for repairs for the coal sizing grid, which is used to differentiate large coal lumps from small coal lumps. Both the sizing grid and breaker house are needed to accommodate the Cobb plant s coal supply. Lines and identify the dollars spent on the repair of the Cobb Unit ID fan. The ID fan removes combustion gases from the boiler and is balanced with the air flow from the FD fan. This balance controls the pressure in the boiler. An imbalance between these fans could result in either implosion or explosion of the boiler. The ID fan experiences wear due to the abrasive effects of coal ash. Maintenance of the rotor is te0-dbk

22 DAVID B. KEHOE 0 0 necessary for the control of boiler pressure and the proper functioning of pollution control equipment. On August, 0, Cobb Unit suffered a failure of one of the two ID fans. A comparison of the cost of repair and the remaining value of Cobb was performed and a decision made to proceed with the repair. Lines and identify the dollars spent on replacing Intermediate Pressure ( IP ) turbine casing studs. The IP turbine casing studs are large bolts which hold a protective casing in place. These bolts are under a significant amount of pressure and are exposed to extreme heat. After 0 years, several of the casing studs failed (cracked) and needed to be replaced for the continued safe operation of the unit. Lines and identify the dollars spent on net cleaning used to reduce fish mortality in cooling water intake structures. To comply with the Environmental Protection Agency s ( EPA ) Clean Water Act, section (b) requires the installation of netting to minimize fish mortality. Because power plants require large supplies of cooling water, these nets must be cleaned and maintained to allow adequate supplies of cooling water. If not maintained, the nets can reduce the flow of cooling water and force the unit(s) to shut down. Lines and identify the dollars spent on ash pond repairs. These activities ensure the structural integrity of the ash containment facilities so that environmental requirements continue to be met. Lines and identify the dollars spent on sea wall mitigation. These activities ensure the structural integrity of the coal dock facilities. BC Cobb receives all its coal by lake-vessel, therefore coal receipts could not be made safely without adequate facilities. te0-dbk

23 DAVID B. KEHOE 0 0 Whiting Q. Please identify the major maintenance expenses at the Whiting plant and explain why these expenses were reasonable and prudent. A. Page of Exhibit A- (DBK-) identifies the major maintenance expenses incurred by the Company at the Whiting plant. Lines and show the dollars spent on Unit turbine and generator base. This maintenance/inspection was necessary to ensure the continued safe operation of the unit until April 0. Lines and identify the dollars spent on Unit boiler base. Boiler base maintenance represents the repair or replacement of a small number of damaged boiler tubes. The repair and replacement of damaged boiler tubes improves unit reliability. Lines and identify the dollars spent on Unit transformer inspection. This maintenance/inspection was necessary to ensure the continued safe and reliable operation of this equipment until April 0. Lines and identify the dollars spent on Unit precipitator base. Also known as an electrostatic precipitator ( ESP ), precipitators remove particles (dust and ash) from exhaust gases using an induced electrostatic charge. Precipitators are required to meet environmental federal and state emissions standards. Lines,, 0, and identify the dollars spent on Units and corrosion fatigue analysis. Corrosion fatigue is a phenomenon that occurs in high-pressure water lines, reducing the pipes ability to contain high-pressure water and steam. Analysis and control of corrosion fatigue is critical to the safe operation of the unit. Lines and identify the dollars spent on Unit ash-pit inspection and repairs. The removal of ash from the bottom of the boiler is critical to the continued operation of te0-dbk

24 DAVID B. KEHOE 0 0 a coal-fired generating unit. This work included replacement of refractory material which protects boiler walls from the hot ash exiting the boiler. These expenses were prudently incurred because if the ash was not able to be removed from the bottom of the boiler, the unit could not operate. Additionally, this work was required for the safe operation of the boiler. Lines and identify the residual expenses from the previous Unit outage in 0. These dollars include removal of screens related to a boiler outage, oil pump repairs, and turbine repairs that were necessary for the safe and reliable operation of the unit. Lines 0 and identify the dollars spent on mill overhaul/maintenance. Mills are used to grind coal prior to combustion. Mills experience high wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for mill maintenance. These expenses were prudently incurred because without adequate mill maintenance the units could not operate. Lines and identify the dollars spent on Units and stack mass tuned dampers. Stack mass tuned dampers reduce the effects of the wind on the stacks and were installed as a less expensive option than replacing these 0-year old stacks. If dampers are not properly maintained, the safety of these structures could be compromised, causing significant safety risks. Lines and identify the dollars spent on dumper outage base. The dumper equipment experiences wear due to the abrasive qualities of coal, and must be te0-dbk

25 DAVID B. KEHOE 0 0 periodically maintained. The Whiting plant can only receive coal by train, and therefore the coal dumper must be maintained to run the plant. Lines and identify the dollars credited for a transformer insurance claim from 00. Lines and identify the dollars spent on all other Whiting projects. This expense includes turbine control valve and small pump maintenance. Turbine control valves modulate the flow of steam into the turbine thereby balancing the steam flow to the load on the unit. Small pumps are used throughout the plant for various purposes such as the flow of water and oil for cooling and lubrication. Both turbine valve and small pump maintenance are needed to maintain unit reliability. Also included in all other expenses is asbestos encapsulation. This expense was necessary to ensure a safe working environment. Karn/Weadock Q. Please identify the major maintenance expenses at the Karn/Weadock site and explain why these expenses were reasonable and prudent. A. Pages and of Exhibit A- (DBK-) provide spending details at the Karn/Weadock site. Page of (lines through 0) and page of (lines through ) provide spending detail on Karn Units through. Page of (lines through ) and page of (lines through ) provide spending detail on Weadock Units and. Page of (lines through ) and page of (lines through ) provide spending detail on the shared Karn/Weadock fuel handling system and other shared systems. Page, line and page, line identify the dollars spent on Karn Unit mill maintenance. Mills are used to grind coal prior to combustion. Mills experience high te0-dbk

26 DAVID B. KEHOE 0 0 wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for mill maintenance. These expenses were prudently incurred because without adequate mill maintenance the units could not operate. Page, lines and and page, lines and show the dollars spent on Karn Units and boiler base repairs. Boiler base maintenance represents the repair or replacement of a small number of damaged boiler tubes. The repair and replacement of damaged boiler tubes improves unit reliability. Page, lines and and page, lines and identify the dollars spent on Karn Unit throttle valve inspection and Karn Unit mid-cycle turbine valve inspection. Mid-cycle turbine valves preform the same function as a turbine control valve: they modulate the flow of steam into the turbine thereby balancing the steam flow to the load on the unit. Mid-cycle turbine valve inspection/maintenance is needed for the continued safe and reliable operation of the unit. Page, line and page, line identify the dollars spent on the removal and remediation of the Karn Units and German Road fuel oil tank. Because Consumers Energy no longer used this site to supply fuel oil to units and, the facilities were removed. Remediation of the tank base was completed to avoid future environmental issues. Page, line and page, line identify the dollars spent on Karn Unit turbine outage related to a turbine inspection. The inspection of the Karn Unit turbine was consistent with the industry standard for turbine inspections; however, the time between inspections was expanded due to Karn Unit operating as a peaking unit and not a base te0-dbk

27 DAVID B. KEHOE 0 0 load unit. The turbine inspection consisted of blades and vanes, valves and boiler feed pumps ( BFP ). Turbine inspections are required for safe and reliable operation. Page, line 0 and page, line identify the dollars spent on Karn Unit BFP overhaul. The BFP provides water to the boiler for the generation of steam. The steam turns the steam turbine which then turns the generator. This expense was prudently incurred because Karn Unit provides a significant value to the Company s customers and without a MBFP, the unit cannot function. Page, line and page, line identify the dollars spent on Karn Unit gas valve inspection and rebuild. Karn Unit uses natural gas to create steam, which in-turn is used to generate electricity. If the valve which supplies natural gas to this unit fails, the safe and reliable operation of this unit would be jeopardized. Page, line and page, line 0 identify the dollars spent on Karn Unit A and B ID fan dampers linkage and bearings. The ID fan removes combustion gases from the boiler. Maintenance of the ID linkage and bearings control boiler pressure and the proper functioning of pollution control equipment. Page, line and page, line identify the dollars spent on Karn Unit boiler wash. Cleaning the fire-side of the boiler tubes removes soot and other deposits that inhibit the transfer of heat from the fire to the water in the boiler tubes. This process improves the heat rate of the unit which in-turn results in less fuel usage and lower power supply costs for customers. Page, lines and and page, lines and identify the dollars spent on Karn Units and canes and diffusers. These are components of the steam separation equipment in the boiler. Canes and diffusers need to be maintained for proper te0-dbk 0

28 DAVID B. KEHOE 0 0 steam/water separation. Water carry-over in main steam can cause severe turbine damage. Maintenance of canes and diffusers ensures unit reliability. Page, line and page, line identify the dollars spent on Karn Unit reheat bends. This work is simply the repair or replacement of a small number of damaged boiler tubes which are located in a specific region of the boiler. The repair and replacement of damaged boiler tubes improves unit reliability. Page, line and page, line identify the dollars spent on Karn Unit A 0 volt bus repair. This expense was necessary to maintain reliable station power to the Karn/Weadock site. Page, line and page, line identify the dollars spent on Karn Unit mill maintenance. Mills are used to grind coal prior to combustion. Mills experience high wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for mill maintenance. These expenses were prudently incurred because without adequate mill maintenance the units could not operate. Page, line and page, line identify the dollars spent on all other Karn major maintenance. These projects include work on maintaining and improving unit reliability through numerous boiler, pump and valve inspections and repairs. This category also includes testing and maintenance of electric components such as collector rings, the Iso-phase buss, and Unit s generator. Testing and maintenance of these components result in improved unit reliability. Remediation of basement water (due to the high water table in this area), is also included in this category. This expense was prudently incurred for the continued safe and reliable operation of the Karn site. te0-dbk

29 DAVID B. KEHOE 0 0 Page, lines and and page, lines and 0 identify the dollars spent on Weadock Units and outage and turbine throttle valve parts, and turbine control valves. The throttle valve controls the rate at which steam is released into the turbine and turbine control valves modulate the flow of steam into the turbine thereby balancing the steam flow to the load on the unit. These parts and maintenance were necessary for the safe and reliable operation of the unit. Page, line and page, line identify the dollars spent on Weadock Unit mill maintenance and materials. Mills are used to grind coal prior to combustion. Mills experience high wear due to the abrasive qualities of coal. The increased use of Western coal with its lower heat content requires more coal to be ground for the same generation of electricity, thus increasing the need for mill maintenance. These expenses were prudently incurred because without adequate mill maintenance the units could not operate. Page, lines and and page, lines and identify the dollars spent on Weadock Units and precipitator base grit blasting. Precipitators remove particles (dust and ash) from exhaust gases by using an induced electrostatic charge. To meet required emission standards, precipitators must be cleaned (grit blasting) to ensure optimal efficiency. Page, line and page, line identify the dollars spent on all other Weadock major maintenance. These projects include work on the water cannons that remove debris from the fire-side of the boiler tubes, boiler cleaning, and landfill surveillance. The water cannons and boiler cleaning improve heat rate, which result in less fuel usage and the landfill surveillance ensures continued environmental compliance. te0-dbk

30 DAVID B. KEHOE 0 0 Page, line and page, line identify the dollars spent on inspection and repairs of the Karn/Weadock fuel handling conveyor superstructure. The combination of coal and moisture make for a corrosive environment. Because both elements are present in and around the fuel handling system, the structural steel must be inspected and replaced on a regular basis. This practice ensures the safe and uninterrupted operation of this critical area of a coal-fired power plant. Page, line and page, line identify the dollars spent on the replacement of dumper parts. This plant equipment experiences wear due to the abrasive qualities of coal and must be periodically maintained. This expense was prudent because maintaining dual fueling paths to the Karn/Weadock site results in lower transportation costs for coal deliveries to this site. Page, line 0 and page, line identify the dollars spent on replacement of dust collection bags in the coal dust collection system at the plant. Proper control of airborne dust is critical for the respiratory safety of our employees, is required by MIOSHA, and avoids coal dust explosions. The Karn/Weadock plant provides a significant value to the Company s customers, and without the ability to operate safely, the plant cannot operate. Page, line and page, line 0 identify the dollars spent on all Karn/Weadock shared projects. These small projects include: (i) ground-water monitoring; (ii) removal of vegetation from landfill dikes; (iii) Piping and Instrument Diagram ( P and ID ) revisions and upgrades; (iv) landfill surveillance; and (v) thaw shed/dumper stacker maintenance. The majority of the costs were related to the removal of vegetation from landfill dikes and ground-water monitoring which are required activities related to the operation of the ash disposal facilities at the site. te0-dbk

31 DAVID B. KEHOE 0 0 Reasonableness and Prudence of Incurred Expenses Q. Based on the major maintenance expense detail provided in Exhibit A- (DBK-), $. million in major maintenance expenses were incurred for the Campbell, Ludington/Hydros, Zeeland, Karn units, the Karn/Weadock Fuel Handling System, and other shared systems. Were these expenditures reasonable and prudent? A. Yes. The expenses incurred at these units were reasonable and prudent because they were required for safety, reliability, and regulatory/environmental compliance. These expenses also maintained and/or improved the performance of the generating units, reducing the need for additional replacement power and fuel. Q. Based on the major maintenance expense detail provided in Exhibit A- (DBK-), $. million in major maintenance expenses were incurred for the Cobb, Weadock, and Whiting units. Were these expenses reasonable and prudent? A. Yes. The expenses incurred at these sites were reasonable and prudent because they were required for safety, reliability, and regulatory/environmental compliance. These expenses also maintained and/or improved the performance of the generating units, reducing the need for additional replacement power and fuel. Furthermore, the Cobb, Weadock, and Whiting units will continue to produce competitively priced energy (based on modeling which was completed by Consumers Energy) through April 0, when operation of these units is scheduled to cease. As noted in the Commission s June, 0 Order in Case No. U-, Consumers Energy previously evaluated the $. million in major maintenance expense identified in this case and calculated a small but significant benefit to our customers/ratepayers in the continued operation of these units. (Order in Case No. U-, page ). te0-dbk

32 DAVID B. KEHOE 0 Q. When did Consumers Energy make the decision to mothball the Cobb, Weadock, and Whiting units? A. In December 0, the Company made the decision to mothball the Cobb, Weadock, and Whiting units in 0. The Company had considered mothballing the units prior to the December 0 announcement, but the final decision to mothball the units was made in December 0. Q. Has the Company adjusted its plan to mothball the Cobb, Weadock, and Whiting units from the date indicated in its December 0 announcement? A. Yes. Since the December 0 announcement, the Michigan Department of Environmental Quality ( MDEQ ) granted Consumers Energy a one-year extension for compliance with the Mercury and Air Toxics Standards ( MATS ) rules. The MATS compliance date for the Cobb, Weadock, and Whiting units was extended to April, 0 and the mothball date for these units was adjusted accordingly. Q. Would it have been reasonable and prudent to eliminate major maintenance for the Cobb, Weadock, and Whiting units? A. No. Major maintenance is necessary to ensure the continued safe, reliable, and regulatory/environmental compliant operation of these units. Additionally, if the Company were to eliminate major maintenance, it would result in the premature failure of one or more of these year old units, forcing them to shut down prior to April 0. te0-dbk