Founded in 1852 by Sidney Davy Miller SHERRI A. WELLMAN TEL (517 483-4954 FAX (517 374-6304 E-MAIL wellmans@millercanfield.com Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan 48933 TEL (517 487-2070 FAX (517 374-6304 www.millercanfield.com MICHIGAN: Ann Arbor Detroit Grand Rapids Kalamazoo Lansing Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York CANADA: Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw Wrocław January 4, 2018 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Lansing, MI 48917 Re: Northern States Power Company Case No. U-18093 Dear Ms. Kale: Enclosed for electronic filing are the Exceptions to Proposal for Decision of Northern States Power Company and Proof of Service. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. SAW/kld Enclosures cc w/enc: ALJ Mark D. Eyster Bryan A. Brandenberg Margrethe Kearney Donald F. Reck Michelle Schlosser Deborah Erwin Mara K. Ascheman 30488232.1\130017-00087 By: Sherri A. Wellman
STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter, on the Commission s own motion, establishing the method and avoided cost calculation for NORTHERN STATES POWER COMPANY to fully comply with the Public Utilities Regulatory Policy Act of 1978, 16 USC 2601 et seq. Case No. U-18093 NORTHERN STATES POWER COMPANY S EXCEPTIONS TO PROPOSAL FOR DECISION Dated January 4, 2018
NORTHERN STATES POWER COMPANY S EXCEPTIONS I. INTRODUCTION On November 21, 2017, Administrative Law Judge ( ALJ Mark D. Eyster issued his Proposal for Decision ( PFD in Michigan Public Service Commission ( MPSC or the Commission Case No. U-18093. Northern States Power Company ( NSP-W or the Company disagrees with several recommendations regarding the avoided cost calculation method and costs related to the Public Utility Regulatory Policies Act of 1978, PL 95-617; 92 Sate 3117 ( PURPA made in the PFD. The Company files these Exceptions pursuant to the established schedule and with the knowledge that this Commission has already issued orders in three other PURPA proceedings. 1 NSP-W appreciates the desire for uniform, consistent application of methods and avoided cost calculations for the utilities of the state. However, NSP- W is very different than other Michigan utilities and therefore does not support a one-size-fitsall approach because it is not reflective of the Company s actual avoided costs. 2 The Company respectfully requests the Commission to adopt the Company s proposals regarding avoided cost methodology and its proposed Standard Offer Tariff as set forth in its testimony, exhibits, and briefs submitted in this case. 1 Consumers Energy Co, May 31, 2017 order in Case No. U-18090; DTE Electric Co, July 31, 2017 order in case No. U-18091; Upper Peninsula Power Co ( UPPCo, September 28, 2017 order in Case No. U-18094. 2 Because the Commission initiated separate contested case proceedings for each electric utility providing service in the state, it gave the impression that a uniform approach was unwarranted. Certainly, the Commission Staff had this in mind when it supported an avoided cost proposal in Case No. U-18095 for Upper Michigan Energy Resources Corporation ( UMERC that is based on the energy and capacity rates contained in the power purchase agreement ( PPA between UMERC and Wisconsin Electric Power Company and the PPA between UMERC and Wisconsin Public Service Corporation. Like UMERC, the basis for NSP-W s position on avoided costs lies with its Interchange Agreement ( I/A with Northern States Power Company, a Minnesota Corporation, which serves as the Company s sole source of power supply. (NSP-W Reply Brief, p. 6-7 2
II. EXCEPTIONS A. Avoided Cost Methodology Although the PFD offered detail to explain the proposal and positions of Staff and intervenors, it provided little detail to explain the proposal and position of NSP-W. The PFD Conclusion declares that any evidence and arguments not specifically addressed in the PFD were deemed irrelevant to the findings and conclusions of this matter. (PFD, p. 33 NSP-W respectfully advises that there is no basis for this declaration. Although NSP-W does not wish to cause undue burden by repeating the record within this Exception filing, the Company finds that it is warranted given the fact that much, if not all, of the PFD s Discussion regarding Avoided Cost Methodology (PFD, pp 20-22, is identical to the discussion section appearing in the Proposal for Decision issued regarding Indiana Michigan Power Company ( I&M in Case No. U-18092 (I&M PFD, pp 23-24. This is so, despite the fact that the records in this case and in U- 18092 are different as based on the unique characteristics of NSP-W and I&M. As such, the Company wishes to reiterate the relevance of Ms. Deborah Erwin s rebuttal testimony where she thoroughly described a number of facts that make NSP-W different than other electric providers in Michigan. First, NSP-W is a single operating company that serves load in multiple states Wisconsin and Michigan. Second, NSP-W s sole source of energy is an agreement between NSP-W and Northern States Power Company, a Minnesota corporation ( NSP-M, which allows the two companies (collectively, the NSP Companies to efficiently operate across five states (Michigan, Wisconsin, Minnesota, North Dakota and South Dakota as a single electric production and transmission system (collectively, the NSP system. Third, the NSP Companies submit their plans for future resource needs for review by the Minnesota Public Utilities 3
Commission through a formal Integrated Resource Planning ( IRP process. Fourth, resource additions to supply the needs of the NSP Companies are typically subject to competitive bidding processes, whether those resources will be owned or contracted. Fifth, NSP-W already provides its customers with renewable energy in excess of the newly enacted increased renewable energy standard requirements. (2 Tr 63-68 This evidence supports the Company s avoided cost methodology proposal as the most appropriate for how the Company serves its customers, determines its resource needs, and its resource acquisition process. (2 Tr 63 The Company has clearly demonstrated that Staff s hybrid proxy method for determining avoided capacity costs and an NGCC plant that includes a fixed investment cost attributable to energy ( ICE for determining avoided energy costs does not comply with the PURPA requirements repeated in the PFD as same does not reflect NSP-W s true avoided costs, and adopting these methodologies, especially for the sake of consistency amongst the Michigan utilities, could result in unjust or unreasonable rates for NSP-W s customers. (NSP-W Initial Brief, pp. 13-14 While the goal of consistency is worthy where applicable, the Commission recently demonstrated that where utilities are not similarly situated, a difference in avoided cost methodology is appropriate. 3 In contrast to most other Michigan utilities, NSP-W rarely procures resources on its own; rather, all of NSP-W s energy and capacity needs are met through the I/A with NSP-M. (2 Tr 64 Additionally, the PFD fails to include any mention of NSP-W s disagreement with intervenors regarding the distinction between the concepts of embedded costs and avoided costs. (2 Tr 73-74 The Company has demonstrated that it does not need capacity in 3 Although the PFD in each of the three other PURPA proceedings finds the Staff s hybrid proxy methodology as appropriate, the Commission agreed that, given UPPCo s unique circumstances, circumstances that are very different from Consumers and DTE Electric (Michigan s two largest utilities, the Staff s proposed hybrid proxy method may not truly reflect UPPCo s avoided costs. (Order in Case No. U-18094, p. 8. 4
the near future and it is not clear that NSP-W will have any capacity needs in the latter years of the current ten-year planning horizon. There is enough uncertainty about its capacity needs during the ten-year horizon that it is reasonable to provide no capacity payment to QFs at this time, because it is not clear any capacity costs would be avoided by a QF. (2 Tr 67 Lastly, the PFD makes no mention of NSP-W s positions regarding other avoided costs. 4 Specifically, evaluating NSP-W s renewable energy needs (2 Tr 68, 74-75, technology-specific avoided cost calculations (2 Tr 76, and solar valuation studies (2 Tr 76 are all areas where NSP- W provided relevant evidence regarding other avoided costs. NSP-W respectfully disagrees that the intervenors proposals were well-reasoned and supported by the evidentiary record. The intervenors did not provide convincing evidence to justify including these other avoided costs in this case, and as stated above, NSP-W already provides renewable energy in excess of its Michigan renewable energy requirements. Further, the Commission, based on other records, has already found insufficient basis for including these avoided costs in other utilities PURPA orders, and should reject the PFD s recommendation 5 for a study of currently unaccounted for avoided costs for NSP-W. 6 B. Biennial Contested Case Review The PFD recommended a biennial contested case review. This recommendation is made absent recognition that NSP-W has (i a small number of Michigan customers, 7 (ii no immediate 4 Other Avoided Costs include items such as hedging value, avoided emissions, and environmental compliance. 5 Again, the recommendation and findings made on this account were identical to that appearing in the I&M proposal for decision. 6 Consumers Energy Co, May 31, 2017 order in Case No. U-18090, p, 26, 29; DTE Electric Co, July 31, 2017 order in case No. U-18091, p. 22-23; Upper Peninsula Power Co ( UPPCo, September 28, 2017 order in Case No. U- 18094, p. 14. 7 NSP-W s Michigan jurisdiction represents only 2 percent of its retail load, or three-tenths of one percent of the NSP system load. In terms of the number of retail customers, NSP-W serves approximately 10,000 customers in Michigan. (NSP-W Initial Brief, pp. 9-10 5
capacity needs within the current ten-year planning horizon, 8 and (iii advised that consistent with current federal and state regulations, 9 a biennial review through a contested case is an unnecessary regulatory and administrative burden to NSP-W. As such, the record evidence does not support conducting biennial contested cases. 10 Therefore, the Commission should reject the recommendation of the PFD for a biennial contested case review process, and adopt NSP-W s proposal to provide an annual report to update the LMP forecast and allow the Company the ability to obtain a waiver from updating the avoided capacity cost calculations until such time that the Company s capacity needs change. (NSP-W Initial Brief, pp. 15-16 C. Standard Offer Tariff Cap With respect to setting the Standard Offer Tariff Cap, the recommendation made in the PFD appears to be based solely on the amount and immediacy of the NSP system s planned resource additions to serve NSP-W and NSP-M s five Upper Midwest states, as outlined in NSP- M s most recent IRP filing. With that reasoning, it is imperative that the Commission consider the relevance of the Company s I/A and the IRP process with respect to how the Company determines and acquires its capacity or energy needs together with NSP-M. Factors come into play that are not necessarily associated with NSP-W s capacity needs, such as the Minnesota Public Utilities Commission order for NSP-M to procure additional Demand Response resources. (2 Tr 63-68 Furthermore, the ALJ seems to interpret the NSP Companies plans to add 8 See NSP-W Reply Brief, pp. 3-4 9 Per 18 CFR 292.302(2(b of the PURPA regulations, the Company agrees to make avoided cost data available to the Commission at least every two years. MCL 460.6v of 2016 PA 341, which became effective on April 20, 2017, essentially reiterates the requirement to implement PURPA and provides that the procedures and rates associated with implementation of PURPA must be re-examined in a contested case at least every 5 years. However, after an initial contested case proceeding, for a utility serving less than 1,000,000 electric customers in Michigan, the Commission may conduct any periodic re-evaluation using notice and comment procedures instead of a full contested case. (NSP-W Initial Brief, pp. 8, 15 10 The Commission in other proceedings has recognized the administrative time savings associated with the filing of reports only. See generally, Case Nos. U-14378, U-16169 (Main Replacement Programs. 6
renewable energy resources to their Upper Midwest system as a NSP-W capacity need, which is not the case. These resources are being added as an economic source of energy to replace higher cost energy sources or to meet Minnesota renewable energy standards, not to meet NSP-W s capacity needs. The Company asks the Commission to also consider the small size of the Company s Michigan service territory and the impact that a larger QF would have on NSP-W s customer costs. (2 Tr 52-53 The Company requests the Commission adopt its proposed Standard Offer Tariff for generators 100 kw 11 and less as presented in Exhibit A-2 (MDS-2 and for large generators of greater than 100 kw and up to and including 20 MW as presented in Exhibit A-1 (MDS-1. D. Renewable Energy Credits ( RECs under Standard Offer Tariff The PFD relies on intervenors position for its recommendation that the QF may sell the RECs to the host utility or otherwise [dispose] of them at the QF s option. 12 NSP-W continues to support Staff s recommendation in this case that RECs be allocated to the utility under the Standard Tariff. Intervenors maintain that RECs must be valued separately from PURPA compensation, and that because NSP-W must comply with Michigan renewable energy requirements, a QF s RECs have separate value to NSP-W. The PFD again in this case fails to acknowledge the evidence provided by NSP-W that it already provides renewable energy in excess of its Michigan renewable energy requirements. If the Company would be required to purchase the RECs separately from the QF, the Company s electric customers would incur unnecessary and unreasonable costs related to the purchase of RECs. Therefore, the Commission 11 Federal regulations (18 CFR 292.304(c(1 only require a standard offer tariff for generators of this size category. 12 PFD at p. 29, citing Consumers Energy Co, May 31, 2017 order in Case No. U-18090, p, 26. 7
should reject the recommendation of the PFD and adopt the Staff s proposal for treatment of RECs under the Standard Offer Tariff as supported by NSP-W. E. Standard Offer Tariff Term The PFD makes claims that NSP-W s proposal to offer only a five-year term for the Standard Offer Tariff is discriminatory as longer-term contracts provide financial stability for QFs and NSP-W s customers and falls in line with the expectations of project financiers. (PFD, p 32 Financial stability of QFs is not a requirement under PURPA regulations. (18 CFR 292.304 Furthermore, PURPA does not mandate long-term enforceable obligations. There is no benefit to NSP-W s customers for taking on the risk associated with a long-term contract. (NSP-W Reply Brief pp 13-14 Although it may be true that longer contract terms provide financial stability for QFs, it is not necessarily true that it will provide a benefit for NSP-W s customers. Therefore, the Commission should reject the recommendation of the PFD and adopt NSP-W s proposal for a five-year Standard Offer contract term. III. CONCLUSION AND RELIEF REQUESTED Based on the foregoing, NSP-W requests that the Commission reject the recommendations made in the PFD as identified supra, and adopt the Company s proposals regarding avoided cost methodology and its proposed Standard Offer tariff as set forth in its testimony, exhibits, and briefs submitted in this case. 8
Respectfully submitted, NORTHERN STATES POWER COMPANY Dated: January 4, 2018 By: Its Attorney Sherri A. Wellman (P38989 Miller, Canfield, Paddock & Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, MI 48933 (517 487-2070 30487998.1\130017-00087 9
STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter, on the Commission s own motion, establishing the method and avoided cost calculation for NORTHERN STATES POWER COMPANY, a Wisconsin corporation and wholly owned subsidiary of Xcel Energy, Inc., to fully comply with the Public Utilities Regulatory Policy Act of 1978, 16 USC 2601 et seq. STATE OF MICHIGAN ss COUNTY OF INGHAM PROOF OF SERVICE Case No. U-18093 Kim L. Delinescheff, being first duly sworn, deposes and says that on January 4, 2018, she served a copy of Northern States Power Company s Exceptions to Proposal For Decision on the persons below via electronic mail as follows: The Honorable Mark D. Eyster Administrative Law Judge Michigan Public Service Commission 7109 W. Saginaw Hwy. Lansing, MI 48917 eysterm@michigan.gov Bryan A. Brandenburg Assistant Attorney General Public Service Division 7109 West Saginaw Highway 3rd Floor Lansing, MI 48917 brandenburgb@michigan.gov Margrethe Kearney Environmental Law & Policy Center 1514 Wealthy Street SE, Suite 256 Grand Rapids, MI 49506 mkearney@elpc.org Subscribed and sworn before me on this 4 th day of January, 2018. Kim L. Delinescheff Crystal L. Abbott, Notary Public State of Michigan, County of Eaton My Commission Expires: May 25, 2018 Acting in Ingham County 30488047.1\130017-00087