STATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL P.O. BOX 30755 LANSING, MICHIGAN 48909 BILL SCHUETTE ATTORNEY GENERAL June 9, 05 Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 6545 Mercantile Way Lansing, MI 489 Dear Ms. Kunkle: Re: MPSC Case No. U-7735 Please find attached for electronic filing Attorney General s Surrebuttal and Notice of Hearing Scheduled for June 5, 05, regarding the abovereferenced case. Thank you for your assistance. Respectfully, Michael E. Moody (P5985) John A. Janiszewski (P74400) Assistant Attorneys General Environment, Natural Resources, and Agriculture Division 6 th Floor, G. Mennen Williams Bldg. 55 W. Ottawa Street Lansing, MI 48909 Ph: (57) 373-7540 Email: JaniszewskiJ@michigan.gov
PROOF OF SERVICE - U-7735 The undersigned certifies that a copy of the Attorney General s Motion to Allow Surrebuttal and Notice of Hearing was served upon the parties listed below by e-mailing the same to them at their respective email addresses on the 9th day of June 05. Michael E. Moody Consumers Energy Company: H. Richard Chambers Raymond E. McQuillan Bret A. Totoraitis Kelly M. Hall Robert W. Beach hrchambers@cmsenergy.com remcquillan@cmsenergy.com bret.totoraitis@cmsenergy.com kelly.hall@cmsenergy.com robert.beach@cmsenergy.com mpscfilings@cmsenergy.com MPSC Staff: Lauren D. Donofrio Bryan A. Brandenburg Graham Filler donofriol@michigan.gov brandenburgb@michigan.gov fillerg@michigan.gov ABATE: Robert A.W. Strong Leland Rosier rstrong@clarkhill.com lrrosier@clarkhill.com Attorney General: John A. Janiszewski janiszewskij@michigan.gov cadwellw@michigan.gov sebcoppola@corplytics.com Midland Cogeneration Venture Limited Partnership: David Whitfield Ford J.H. Turrell dwhitfield@wnj.com fturrell@wnj.com Retail Energy Supply Association: Laura A. Chappelle Timothy J. Lundgren Sherry X. Lin lachappelle@varnumlaw.com tjlundgren@varnumlaw.com sxlin@varnumlaw.com Michigan Environmental Council: Chris Bzdok Emerson Hilton chris@envlaw.com emerson@envlaw.com ruthann@envlaw.com kimberly@envlaw.com Hemlock Semiconductor Corp.: David E.S. Marvin Jennifer Utter Heston dmarvin@fraserlawfirm.com jheston@fraserlawfirm.com
The Kroger Company: Kurt J. Boehm Jody Kyler Cohn kboehm@bkllawfirm.com jklyercohn@bkllawfirm.com Wal-Mart East, LP and Sam s East, Inc.: Tyler D. Tennent ttennent@dmms.com Michigan Cable Telecommunications Association: Michael S. Ashton mashton@fraserlawfirm.com Michigan State Utility Workers Council, UWUA: John Canzano jcanzano@michworklaw.com
STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of CONSUMERS ENERGY COMPANY MPSC Case No. U-7735 for authority to increase its rates for the generation and distribution of electricity and for other relief. / NOTICE OF HEARING To: All Counsel of Record PLEASE TAKE NOTICE that the Attorney General s Motion to Allow Surrebuttal will be heard on Tuesday, June 6, 05 at 9:00 a.m. or as soon thereafter as counsel may be heard before the Honorable Mark E. Cummins in his courtroom located at 709 West Saginaw, Lansing, Michigan 48909. Respectfully submitted, Bill Schuette Attorney General Michael E. Moody (P5985) John Janiszewski (P74400) Assistant Attorney General Environment, Natural Resources, and Agriculture Division 6 th Floor, G. Mennen Williams Bldg. 55 W. Ottawa Street Lansing, MI 48909 (57) 373-7540
Dated: June 9, 05
STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of CONSUMERS ENERGY COMPANY MPSC Case No. U-7735 for authority to increase its rates for the generation and distribution of electricity and for other relief. / Attorney General's Motion to Allow Surrebuttal NOW COMES Bill Schuette, Attorney General of Michigan, by and through his attorneys, requests the Administrative Law Judge (ALJ) to allow the filing of surrebuttal in the above captioned case. Pursuant to Michigan Public Service Commission (MPSC or Commission) Rule 79.047, some surrebuttal may be permitted at the discretion of the presiding officer or the commission. In reviewing the rebuttal testimony of DTE Energy, the Attorney General discovered some factual inaccuracies. Because prefiled testimony on complex utility matters creates the best record for the ALJ and Commission as well as provides the other parties the ability to review the information in advance of cross examination, the Attorney General seeks permission to file surrebuttal of one DTE Energy witness.
Relief Requested For the reasons stated above, the Attorney General respectfully requests the ALJ to grant the Attorney General s motion to allow surrebuttal in the above captioned case. Respectfully submitted, Bill Schuette Attorney General Michael E. Moody (P5985) John Janiszewski (P74400) Assistant Attorney General Environment, Natural Resources, and Agriculture Division 6 th Floor, G. Mennen Williams Bldg. 55 W. Ottawa Street Lansing, MI 48909 (57) 373-7540 Dated: June 9, 05
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 ) CONSUMER ENERGY COMPANY ) for authority to increase its rates for ) the generation and distribution of ) electricity and other relief ) MPSC Case No. U-7735 Sur-Rebuttal Testimony of Sebastian Coppola On behalf of Attorney General Bill Schuette June 9, 05
Introduction Q. PLEASE STATE YOUR NAME, OCCUPATION, AND ADDRESS. 3 4 A. My name is Sebastian Coppola. I am an independent business consultant. My office is at 598 Southgate Rd., Rochester, Michigan 48306. 5 6 Q. ARE YOU THE SAME SEBASTIAN COPPOLA WHO FILED DIRECT TESTIMONY AND EXHIBITS IN THIS CASE ON APRIL 4, 05? 7 A. Yes. 8 Sur-Rebuttal Testimony 9 Q. WHAT IS THE PURPOSE OF YOUR SUR-REBUTTAL TESTIMONY? 0 3 4 5 A. The purpose of my sur-rebuttal testimony is to address inaccurate financial information included in the rebuttal testimony of Company witnesses Andrew J. Denato. More specifically, Mr. Denato has presented inaccurate common equity ratios of the peer companies listed in Exhibit A-9 and has drawn incorrect conclusions. This inaccurate information attempts to confuse and mislead the Commission in arriving at a decision about the appropriate debt and equity capitalization FOR the Company in this rate case. 6 7 8 The absence of sur-rebuttal on other matters should not be taken as an indication that the Attorney General or its expert witness agree with those positions taken by the Company or other parties to this proceedings in their direct or rebuttal testimony. U-7735 S. Coppola 6/9/5
Q. ARE YOU SPONSORING ANY EXHIBITS WITH YOUR SUR-REBUTTAL TESTIMONY? 3 A. Yes. I am sponsoring Exhibit AG-3. 4 5 Q. PLEASE SUMMARIZE MR. DENATO S REBUTTAL TESTIMONY ON THIS MATTER. 6 7 8 9 A. In his rebuttal testimony, Mr. Denato disagrees with the analysis presented in my direct testimony and the testimony of Staff witness Megginson that the Company common equity capitalization should be set at approximately 50% of total permanent capital. According to Mr. Denato s rebuttal testimony: 0 3 4 5 6 7 8. The Company s target goal of 50% common equity capital should not be taken literally.. The Company s proposed 5.08% common equity ratio is close enough that should be considered approximately 50%. 3. The AG s proposed 50.5% common equity ratio is illogical because it also deviates from 50%. 4. The Company s proposed 5.08% common equity ratio is not excessive when compared to the average equity ratio of a group of other utilities shown in Exhibit A-9 (AJD-4). Denato Rebuttal testimony beginning on page 3, line 9, and continuing through page 5, and also on page 0 (lines 3-4) and page (lines -9). U-7735 S. Coppola 6/9/5
3 Q. PLEASE ADDRESS MR. DENATO S CONCLUSION THAT THE COMPANY S PROPOSED COMMON EQUITY RATIO IS NOT EXCESSIVE WHEN COMPARED TO OTHER UTILITIES. 4 5 6 7 8 9 0 A. Mr. Denato s claim that the Company s proposed common equity capitalization is not excessive is based on his analysis of 3 utilities presented in Exhibit A-9 (AJD-4). The exhibit states that the 03 long-term debt, preferred stock and common equity balances for each company were sourced from SNL Financial. Based on this information and his calculations, Mr. Denato shows common equity ratios in column (j) of the exhibit that range from a low of 47.4% for Entergy Corporation to a high of 6.37% for Westar Energy, Inc. On line 4, column (j), Mr. Denato calculated an average common equity ratio of 5.73% for the entire group of utilities. Q. IS THE INFORMATION PRESENTED IN EXHIBIT A-9 (AJD-4) CORRECT? 3 A. No. 4 Q. PLEASE EXPLAIN. 5 6 7 8 A. I have reviewed the permanent capitalization in the financial statements on Form 0K filed by each utility with the Securities and Exchange Commission (SEC) for the year 03. None of the numbers for long term debt, preferred stock and common stock in Exhibit A-9 (AJD-4) tie to the numbers published by each utility in their respective U-7735 S. Coppola 3 6/9/5
Form 0K for the year 03. In many cases, the numbers are considerably different and change the outcome of the average ratio for the group by a large percentage. 3 4 5 6 7 8 9 For example, on line 5 of Exhibit A-9, Mr. Denato lists Dominion Resources with a common equity ratio of 54.6%. My review of Dominion s 0K for 03 shows a common equity ratio of 35.83%. Similarly for Duke Energy, the common equity ratio is not 54.6% but 50.6%, and for NextEra Energy it is 39.4% not 60.94%. Other utilities with major differences are TECo Energy, Westar Energy and Xcel Energy, where the Company shows common equity ratios of 55.%, 6.37% and 54.88% but the 0K shows lower ratios of 44.4%, 48.7% and 46.08%, respectively. 0 Q. HAVE YOU PREPARED AN EXHIBIT WITH THE ACTUAL CAPITALIZATION NUMBERS FROM EACH COMPANY S FORM 0K? 3 4 5 A. Yes. Exhibit AG-3 shows the long term debt, preferred stock and common equity balances from each company s 0K at the end of 03, and the calculated common equity ratio for each company. On line 4, the exhibit shows the calculated average common equity ratio of 48.3% for the entire group of utilities. 6 7 8 Q. IS THE FINANCIAL INFORMATION FROM EACH COMPANY S FORM 0K A MORE AUTHORITATIVE SOURCE THAN THE INFORMATION FROM A SOURCE SUCH AS SNL FINANCIAL INFORMATION? U-7735 S. Coppola 4 6/9/5
3 A. Yes. The 0K is the best authoritative source for financial information for each of the utilities. I believe the information presented in Exhibit AG-3 is from the most reliable source because it was selected from individual inspection of each utility s Form 0k. 4 5 Q. DID YOU USE THE SAME PEER GROUP OF COMPANIES IN EXHIBIT AG-3 THAT MR. DENATO USED IN EXHIBIT A-9? 6 7 8 9 0 A. Yes. However, I added a footnote to point out to the Commission that CMS Energy, CECo s parent company, had a common equity capitalization of 30.59% in 03. CMS Energy has, by far, the lowest common equity percent than any of the utilities in the Company s peer group. I want to clearly point out that CMS Energy was not included in the calculation of the average common equity ratio for the peer group in Exhibit AG-3. 3 Q. HOW DOES THE AVERAGE COMMON EQUITY RATIO FOR THE GROUP OF UTILITIES IN EXHIBIT AG-3 COMPARE TO THE AVERAGE CALCULATED BY MR. DENATO IN EXHIBIT A-9? 4 5 6 7 8 A. The actual average common equity ratio of 48.3% for the utility group is 4.60 percentage points lower than the number presented by Mr. Denato in Exhibit A-9. This is a significant difference. It is clear that the incorrect ratios calculated by Mr. Denato have resulted in the Company reaching the wrong conclusion that its proposed common equity ratio of 5.08% is not excessive. U-7735 S. Coppola 5 6/9/5
Q. WHAT IS THE PROPER CONCLUSION TO REACH FROM THE INFORMATION PRESENTED IN EXHIBIT AG-3? 3 4 5 A. The actual average common equity ratio of 48.3% for the utility group demonstrates that the 50.5% common equity ratio proposed by the AG in this case is very reasonable and in fact generous. 6 Q. WHAT IS YOUR RECOMMENDATION TO THE COMMISSION? 7 8 9 0 A. The Commission should not be mislead by the incorrect data presented by the Company in Exhibit A-9 (AJD-4). This information is not accurate and not representative of the actual common equity ratios of the Company s peer group. Therefore, the Commission should disregard this information and give it no weight in setting an appropriate permanent capitalization in this rate case. 3 The Commission should instead adopt the permanent capitalization ratios for debt and common equity proposed in my direct testimony. 4 Q. DOES THIS CONCLUDE YOUR SUR-REBUTTAL TESTIMONY? 5 A. Yes, it does. U-7735 S. Coppola 6 6/9/5
MICHIGAN PUBLIC SERVICE COMMISSION Exhibit AG-3 Consumers Energy Company Case No. U-7735 June 9, 05 Company Selected Proxy Group - Equity Ratios as a % of Permanent Capital - AG CORRECTED Page of Fiscal Year Ended 03 Millions of Dollars-Permanent Capital * Preferred or Total % Common Long-Term Non-Control. Common Permanent Equity to Line Company Name Ticker Debt** Equity Equity Capital Perm. Capital (a) (b) ( c ) (d) ( e) (f) (g) Alliant Energy LNT $ 3,336 $ 0 $ 3,8 $ 6,89 48.% Ameren AEE 6,038 4 6,544,74 5.43% 3 American Electric Pwr. AEP 8,377 6,085 34,463 46.67% 4 Consolidated Edison ED 0,974 -,45 3,9 5.74% 5 Dominion Resources D 0,849 -,64 3,49 35.83% 6 DTE Energy DTE 8, 33 7,9 6,066 49.30% 7 Duke Energy DUK 40,56 78 4,330 8,664 50.6% 8 Edison International EIX 0,46,753 9,938,7 44.93% 9 Entergy ETR,596 94 9,63,3 43.5% 0 First Energy FE 7,46 3,69 9,94 4.39% Great Plains Energy GPX 3,57 39 3,474 7,030 49.4% NextEra Energy NEE 7,735-8,040 45,775 39.4% 3 Northeast Utilities NU 8,30 56 9,6 8,078 53.7% 4 OGE Energy OGE,400-3,037 5,437 55.86% 5 PC&E PCG 3,606 5 4,34 8,00 50.86% 6 Pinnacle West Capital PNW 3,336 46 4,94 7,676 54.64% 7 Portland General Elec. POR,96,89 3,736 48.69% 8 Pub. Service Enters. Grp. PEG 8,643,608 0,5 57.3% 9 SCANA SCG 5,449-4,664 0,3 46.% 0 Southern SO,83 375 9,764 4,95 47.% TECO Energy TE,9 -,334 5,55 44.4% Westar Energy WR 3,9 6 3,063 6,88 48.7% 3 Xcel Energy XEL,9-9,566 0,758 46.08% 4 Average 48.3% 5 Memo: CMS Energy CMS 7,80 37 3,454,9 30.59% * All information in columns ( c ), (d ) and (e ) is from Form 0-K filings with the Securities and Exchange Commission. ** Includes Current Maturities of Long Term Debt.