8 1 state of michigan 2 before the michigan public …
TRANSCRIPT
8
1 STATE OF MICHIGAN
2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
3 In the matter of the application of
Consumers Energy Company for approval Case No. U-18261
4 of its 2018 - 2021 Energy Waste
Reduction Plan. Volume 2
5 _______________________________________/
6
CROSS-EXAMINATION
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Proceedings held in the above-entitled matter
8
before Dennis W. Mack, J.D., Administrative Law Judge
9
with MAHS, at the Michigan Public Service Commission,
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7109 West Saginaw Highway, Lake Michigan Room, Lansing,
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Michigan, on Wednesday, October 4, 2017, at 9:01 a.m.
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APPEARANCES:
13
GARY A. GENSCH, JR., ESQ.
14 THERESA A.G. STALEY, ESQ.
Consumers Energy Company
15 One Energy Plaza, Room EP11-223
Jackson, Michigan 49201
16
On behalf of Consumers Energy Company
17
CHRISTOPHER M. BZDOK, ESQ.
18 Olson Bzdok & Howard, PC
420 East Front Street
19 Traverse City, Michigan 49686
20 On behalf of Natural Resources Defense Council
21 LYDIA BARBASH-RILEY, ESQ.
Olson Bzdok & Howard, PC
22 420 East Front Street
Traverse City, Michigan 49686
23
On behalf of National Housing Trust
24
25 (Continued)
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1 APPEARANCES Continued:
2 DON L. KESKEY, ESQ.
Public Law Resource Center, PLLC
3 333 Albert Avenue, Suite 425
East Lansing, Michigan 48823
4
On behalf of Residential Customer Group
5
STEPHEN A. CAMPBELL, ESQ.
6 Clark Hill, PLC
500 Woodward Avenue, Suite 3500
7 Detroit, Michigan 48226
- and -
8 SEAN PATRICK GALLAGHER, ESQ.
Clark Hill, PLC
9 212 East Grand River Avenue
Lansing, Michigan 48906
10
On behalf of Association of Businesses
11 Advocating Tariff Equity (ABATE)
12 SPENCER A. SATTLER,
MONICA STEPHENS,
13 Assistant Attorneys General
7109 West Saginaw Highway, Floor 3
14 Lansing, Michigan 48917
15 On behalf of Michigan Public Service
Commission Staff
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21
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23 REPORTED BY: Lori Anne Penn, CSR-1315
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1 I N D E X
2 WITNESS: PAGE
3 WILLIAM A. PELOQUIN
4 Testimony Bound In 20
5 THEODORE A. YKIMOFF
6 Direct Examination by Mr. Gensch 31
Cross-Examination by Mr. Bzdok 66
7 Cross-Examination by Ms. Barbash-Riley 103
8 ALFRED A. ALATALO
9 Testimony Bound In 122
10 EUGENE M.J.A. BREURING
11 Testimony Bound In 137
12 SVITLANA LYKHYTSKA
13 Testimony Bound In 142
14 RICHARD A. MORGAN
15 Testimony Bound In 149
16 THERESA K. SCHMIDT
17 Testimony Bound In 158
18 S. AUSTIN SMITH
19 Testimony Bound In 172
20 ANNIKA BRINK
21 Testimony Bound In 184
22 CHRIS NEME
23 Testimony Bound In 219
24 MICHAEL P. GORMAN
25 Testimony Bound In 267
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1 I N D E X
2 WITNESS: PAGE
3 KAREN M. GOULD
4 Testimony Bound In 294
5 DAVID S. WALKER
6 Testimony Bound In 314
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1 E X H I B I T S
2 NUMBER DESCRIPTION MRKD OFRD RECD
3 A-1 (EMB-1) Electric Retail Sales 17 120 121
Forecast
4
A-2 (EMB-2) Gas Retail Deliveries 17 120 121
5 Forecast
6 A-3 (EMB-3) Billing Determinants Used 17 120 121
For Developing The Electric Energy
7 Optimization Surcharges
8 A-4 (EMB-4) Billing Determinants Used 17 120 121
For Developing The Electric Self-
9 Direct Energy Optimization
Surcharges
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A-5 (EMB-5) Billing Determinants Used 17 120 121
11 For Developing The Gas Energy
Optimization Surcharges
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A-6 (SL-1) EWR Electric Cumulative 17 120 121
13 Over (Under) Recovery (By Class
and Total)
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A-7 (SL-2) EWR Gas Cumulative Over 17 120 121
15 (Under) Recovery (By Class and
Total)
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A-8 (SAS-1) Allocation of the 2018-2021 17 120 121
17 Energy Efficiency Program
Investments- Electric & Gas
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A-9 (SAS-2) Calculation of Energy 17 120 121
19 Efficiency Plan Surcharges -
Electric & Gas
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A-10 (SAS-3) Proposed Electric Energy 17 120 121
21 Efficiency Surcharge Tariff Sheet
22 A-11 (SAS-4) Proposed Gas Energy 17 120 121
Efficiency Surcharge Tariff Sheet
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A-12 (TAY-1) Calculation of Annual 17 34 120
24 Energy Savings Targets
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1 E X H I B I T S
2 NUMBER DESCRIPTION MRKD OFRD RECD
3 A-13 (TAY-2) 2018 - 2021 Energy Waste 17 34 120
Reduction Plan Report
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A-14 (TAY-3) Calculation of Electric 17 34 120
5 Investment Recovery
6 A-15 (TAY-4) Calculation of Natural 17 34 120
Gas Investment Recovery
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A-16 (TAY-5) Proposed 2018 - 2021 17 34 120
8 Financial Incentive Mechanism
9 A-17 (SAS-5) Proposed Electric Energy 17 120 121
Efficiency Tariff Sheets
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A-18 (SAS-6) Proposed Gas Energy 17 120 121
11 Efficiency Tariff Sheets
12 A-19 (TAY-6) Impact of Staff’s Low-Income 17 120 121
Performance Metric
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A-20 (TAY-7) CORRECTED 2018 – 2021 Energy 17 34 120
14 Efficiency Plan Performance Metrics
15 A-21 (TAY-8) Michigan CFL NTG 2013 17 34 120
Research – Final Report
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A-22 (TAY-9) Multifamily Program 17 34 120
17 Enhancements
18 A-23 (TAY-10) Duke Energy Prepaid 17 34 120
Advantage Pilot Learnings Report
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- - -
20
RCG-1 2018-2021 EE Plan - Allocation of 17 19 19
21 Support Service Investments
22 - - -
23 AB-1 EWR Plan Investments (2018-2021) 265 266 266
24 AB-2 Natural Gas Energy Efficiency 265 266 266
Surcharges
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1 E X H I B I T S
2 NUMBER DESCRIPTION MRKD OFRD RECD
3 NRD-1 C. Neme CV 218 218 218
4 NRD-2 Discovery Response NRDC-CE-1 218 218 218
5 NRD-3 Optimal Energy and Energy Futures 218 218 218
Group Final Phase 1 Report
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NRD-4 Discovery Response NRDC-CE-13 218 218 218
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NRD-5 Discovery Response NRDC-CE-16 218 218 218
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NRD-6 Discovery Response NRDC-CE-11a-e 218 218 218
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NRD-7 Discovery Response NRDC-CE-39 218 218 218
10 (CECo Response to NRDC-21)
11 NRD-9 17-0311 Ameren Illinois 2018-2021 218 218 218
Energy Efficiency Plan,
12 Exhibit 1.1, Appendix I, page 59-60
13 NRD-10 Discovery Response NRDC-CE-45 218 218 218
(CECo Response to NRDC-27a)
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NRD-11 Discovery Response NRDC-CE-46 218 218 218
15 (CECo Response to NRDC-28)
16 NRD-12 Discovery Response NRDC-CE-44 218 218 218
(CECo Response to NRDC-26)
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NRD-13 Discovery Response NRDC-CE-15 218 218 218
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NRD-14 Discovery Response NRDC-CE-59 70 73 73
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NRD-15 Discovery Response NRDC-CE-60 70 75 75
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NRD-16 Discovery Response NRDC-CE-61 70 79 79
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NRD-17A CADMUS Memorandum - July 22, 2015 82 96 96
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NRD-17B Discovery Response NRDC-CE-63 82 96 96
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NRD-17C Discovery Response NRDC-CE-9 92 96 96
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NRD-18 Discovery Response NRDC-CE-58 80 81 81
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1 E X H I B I T S
2 NUMBER DESCRIPTION MRKD OFRD RECD
3 NRD-20 Energy Star Lighting Program 97 98 98
Evaluation Final Report - 2016
4 Program Year - June 13, 2017
5 NRD-20 Discovery Response NRDC-CE-45 -- -- --
(Discussed, but never marked)
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NHT-1 Resume of Annika Brink, National 182 183 183
8 Housing Trust
9 NHT-2 Response to 18261-NHT-CE-33, which 182 183 183
I am sponsoring on behalf of NHT
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NHT-3 Response to 18261-NHT-CE-34, which 182 183 183
11 I am sponsoring on behalf of NHT
12 NHT-4 Response to 18261-NHT-CE-35, which 182 183 183
I am sponsoring on behalf of NHT
13
NHT-5 Mosenthal, P. and Socks, M., 182 183 183
14 Potential for Energy Savings in
Affordable Multifamily Housing,
15 Optimal Energy for NRDC, 2015,
which I am sponsoring on behalf
16 of NHT
17 NHT-6 February 12, 2016 Michigan EEFA 182 183 183
Potential Study Findings Webinar
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NHT-7 Response to 18261-NHT-CE-50 182 183 183
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NHT-8 Response to 18261-NHT-CE-52 182 183 183
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NHT-9 Corrected Response to 182 183 183
21 18261-NHT-CE-30
22 NHT-10 Discovery Response NHT-CE-67 103 106 106
23 NHT-11A Multifamily Impact Evaluation 103 111 111
National Grid Rhode Island
24 January 12, 2016
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1 E X H I B I T S
2 NUMBER DESCRIPTION MRKD OFRD RECD
3 NHT-11B 2013 National Grid Multifamily 103 111 111
Program - Gas and Electric Impact
4 Study - October 2016
5 - - -
6 S-1 (KMG-1) Electric Financial 292 292 293
Incentive Mechanism Calculation
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S-2 (KMG-2) Gas Financial Incentive 292 292 293
8 Mechanism Calculation
9 S-3 (DSW-1) Company work paper, 292 292 293
WP-TAY-1, provided in Discovery
10 Response 18261-NRDC-CE-17
11 S-4 (DSW-2) Company audit response to 292 292 293
question 7, 8/02/17
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S-5 (DSW-3) Home Energy Report Annual 292 292 293
13 Savings & Total Investments
14 S-6 (DSW-4) Company discovery response, 292 292 293
18261-NRDC-CE-15
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S-7 (DSW-5) Company discovery response, 292 292 293
16 18261-NRDC-CE-45
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1 Lansing, Michigan
2 Wednesday, October 4, 2017
3 At 9:01 a.m.
4 - - -
5 (Hearing resumed following adjournment of Thursday,
6 May 25, 2017.)
7 (Documents marked for identification by the Court
8 Reporter as Exhibit Nos. A-1 through A-19, A-20
9 Corrected, A-21 through A-23; and RCG-1.)
10 - - -
11 JUDGE MACK: Good morning. This is a
12 proceeding before the Michigan Public Service Commission
13 on the application of Consumers Energy Company for
14 approval of its 2018 through 2021 Energy Waste Reduction
15 Plan. This case is assigned Docket No. U-18261.
16 My name is Dennis Mack, I'm an
17 administrative law judge with the Michigan Administrative
18 Hearing System.
19 Mr. Gensch, would you care to begin the
20 appearances?
21 MR. GENSCH: Yes. Good morning, your
22 Honor. Gary Gensch and Theresa Staley on behalf of
23 Consumers Energy Company.
24 JUDGE MACK: Thank you.
25 MS. BARBASH-RILEY: Good morning, your
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1 Honor. Lydia Barbash-Riley on behalf of the National
2 Housing Trust.
3 JUDGE MACK: Thank you.
4 MR. BZDOK: Good morning, your Honor.
5 Christopher Bzdok appearing today on behalf of the
6 Natural Resources Defense Council.
7 JUDGE MACK: Thank you.
8 MS. STEPHENS: Good morning, your Honor.
9 Monica Stephens and Spencer Sattler on behalf of MPSC
10 Staff.
11 JUDGE MACK: Thank you.
12 MR. CAMPBELL: Good morning, your Honor.
13 Steve Campbell with Clark Hill, PLC, on behalf of the
14 Association of Businesses Advocating Tariff Equity.
15 JUDGE MACK: Thank you.
16 MR. KESKEY: Good morning, your Honor.
17 Don Keskey appearing on behalf of the Residential
18 Customer Group.
19 JUDGE MACK: Thank you, Mr. Keskey.
20 Consistent with the schedule set during
21 the prehearing conference on May 25, 2017, and
22 subsequently amended, this is the date and time for the
23 tendering of witnesses. Prior to going on the record,
24 the parties agreed that Mr. Keskey could offer his case,
25 and then we'll move on to the Company.
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1 So with that, Mr. Keskey.
2 MR. KESKEY: Thank you, your Honor.
3 Based on the stipulation of the parties, I would move
4 that the Direct Testimony of William A. Peloquin be bound
5 into the record; this consists of a cover page, which is
6 also page 1, and then continues on with 11 pages of
7 questions and answers. Also, I would like to enter into
8 the record stipulated Exhibit RCG-1, which consists of a
9 cover page and then two -- a chart of two pages of
10 figures as presented in the exhibit.
11 JUDGE MACK: Thank you, Mr. Keskey. Any
12 objections to the offer? (No response.)
13 Hearing none, the testimony is bound into
14 this record and Exhibit RCG-1 is admitted.
15 (Testimony Bound In.)
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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 295 of 2008 and Public Act 342 of 2016 _______________________________________/
Case No. U-18261
DIRECT TESTIMONY OF
WILLIAM A. PELOQUIN
On Behalf of
Residential Customer Group
September 11, 2017
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I. QUALIFICATIONS 1
Q. Please state your name and business address for the record. 2
A. My name is William A. Peloquin. My business address is 11533 Monroe, Portland, MI 3
48875. 4
Q. Briefly describe your professional qualifications. 5
A. I graduated from Michigan State University with a Bachelors Degree in Economics. 6
In 1985 I graduated from Michigan State University’s Master of Business Administration 7
program, with a major in Finance. I am a retired Certified Public Accountant. 8
I have over thirty (31) years of full time work experience devoted exclusively to 9
regulatory matters, and seven additional years as a consultant testifying in regulatory 10
cases. I was formerly employed by the Michigan Public Service Commission for the 11
period September 1971 through November 1979. I was employed by the Attorney 12
General of the State of Michigan from November 1979 through October 2002 when I 13
retired. I have also testified in several cases before the MPSC since about 2003 involving 14
Consumers Energy Company and DTE Electric Company. 15
I have testified in numerous rate cases, including the following electric rate cases: 16
U-4570 The Detroit Edison Company 17 U-4704 Indiana & Michigan Electric Company 18 U-4807 The Detroit Edison Company 19 U-5108 The Detroit Edison Company 20 U-5331 Consumers Power Company 21 U-5608 Indiana & Michigan Electric Company 22 U-6006 The Detroit Edison Company 23 U-6322 Michigan Power Company 24 U-6923 Consumers Power Company 25 U-7660-R The Detroit Edison Company (remand) 26 U-7830 Consumers Power Company 27 U-9346 Consumers Power Company 28 U-10102 The Detroit Edison Company 29 U-10335 Consumers Power Company 30
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U-10685 Consumers Power Company 1 U-11495 Detroit Edison Company 2 U-11560 Consumers Energy Company 3 U-15244 Detroit Edison Company 4 U-15245 Consumers Energy Company 5 U-15645 Consumers Energy Company 6 U-16191 Consumers Energy Company 7 U-16472 Detroit Edison Company 8 U-16794 Consumers Energy Company 9 U-18322 Consumers Energy Company 10
I have testified in numerous small electric rate cases, including those of the following 11
electric cooperatives: Cherryland, Ontonagon, Presque Isle, Southeastern Michigan, 12
Thumb, Tri-County and Wolverine. I testified in the Wolverine and Northern Michigan 13
Cooperative securities cases involving Fermi 2, Case Nos. U-5407 and U-5408 and the 14
storage battery plant (SBEED), Case Nos. U-6636 and U-6643. 15
I testified in Wolverine Power Supply Cooperative, Inc.’s Case U-7521 (Power Supply 16
Cost Recovery Clause). 17
I have testified in steam heating rate cases U-4522 (Consumers Power) and U-6103 18
(Detroit Edison). I testified in the telephone cases of Baraga Telephone and Shiawassee 19
Telephone. 20
I have developed PSCR factors and presented testimony in the following Power Supply 21
Cost Recovery and Gas Cost Recovery plan cases: 22
U-7512 Consumers Power Company (PSCR) 23 U-7522 Wolverine Power Supply Cooperative, Inc. (PSCR) 24 U-7550 The Detroit Edison Company (PSCR) 25 U-7775 The Detroit Edison Company (PSCR) 26 U-7785 Consumers Power Company (PSCR) 27 U-8020 The Detroit Edison Company (PSCR) 28 U-8578 The Detroit Edison Company (PSCR) 29 U-8880 The Detroit Edison Company (PSCR) 30 U-9174 Michigan Consolidated Gas Company (PSCR) 31 U-9432 Consumers Power Company (PSCR) 32 U-9732 Consumer Power Company (PSCR) 33
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U-9960 Consumers Power Company (PSCR) 1 U-10702 Detroit Edison Company (PSCR) 2 U-10710 Consumers Power Company (PSCR) 3 U-10965 Detroit Edison Company (PSCR) 4 U-11528 Detroit Edison Company (PSCR) 5 U-15001 Consumers Energy Company (PSCR) 6 U-15415 Consumers Energy Company (PSCR) 7 U-15451 Michigan Consolidated Gas Company (GCR) 8 U-16146 Michigan Consolidated Gas Company (GCR) 9 U-16434 Detroit Edison Company (PSCR) 10 U-16890 Consumers Energy Company 11 U-18142 Consumers Energy Company (PSCR) 12
I testified in the following reconciliation cases: 13
U-6488-R 1982 FCAC & PIPAC – DECo 14 U-6871-R DECo – Insulation Outreach Reconciliation 15 U-7512-R 1982 PSCR – CPCo 16 U-7484-R 1983 GCR – MGU 17 U-7785-R 1984 PSCR – CPCo Reconciliation 18 U-7775-R 1984 PSCR – DECo Reconciliation 19 U-8020-R 1985 PSCR – DECo Reconciliation 20 U-8855-R 1988 PSCR – CPCo Reconciliation 21 U-9432-R 1990 PSCR – CPCo Reconciliation 22 U-9433-R 1990 GCR – CPCo Reconciliation 23 U-10702-R 1995 GCR – DECo Reconciliation 24 U-10710-R 1995 PSCR – CPCo Reconciliation 25 U-10973-R 1996 PSCR – CECo Reconciliation 26 U-10965-R 1996 PSCR – DECo Reconciliation 27 U-11175-R 1997 PSCR – DECo Reconciliation 28 U-14701-R 2006 PSCR – CECo Reconciliation 29 U-15701-R 2009-10 GCR - DECo Reconciliation 30 U-15704-R 2009-10 GCR - CECo Reconciliation 31 U-16045-R 2010 PSCR - CECo Reconciliation 32 U-16047-R 2010 PSCR - DECo Reconciliation 33
I have presented testimony in various gas rate cases and special topic (including 34
securitization) cases before the Commission, including the following cases: 35
U-5129 Deferred Income Taxes – DECo 36 U-5583 Deferred Income Taxes – CPCo 37 U-6041 Depreciation Rates – CPCo 38 U-6163 Storm Damages – DECo 39 U-6381 Decker Coal Penalties – DECo 40 U-6490 Automatic Adjustment Clauses 41
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U-6569 Storm Damages – DECo 1 U-6589 Deferred Taxes – Michigan Consolidated Gas Co. 2 U-6590 Lifeline Rates – CPCo 3 U-7065 Fermi Test Generation – DECo 4 U-7232 Sale of Capacity to GPU – DECo 5 U-7236 Rail Charge Refunds – DECo 6 U-7633 Incentive Discount Rate – MGU 7 U-7757 Gas Cost Recovery Accounting – CPCo 8 U-7930 Restructured Residential Rates – DECo 9 U-7930-R Restructured Residential Rates (Reopened) – DECo 10 U-7940 Restructured Residential Rates – CPCo 11 U-8110 DECo/CPCo (Estimated Billings) 12 U-8145 CPCo (Deferred Tax Accounting) 13 U-8562 Tondu Energy Systems, Inc. (Cogen) 14 U-8630 Midland Salvage 15 U-8680 CPCo (Gas – ’86 Tax Reform Act) 16 U-8683 DECo (Electric – ’86 Tax Reform Act) 17 U-8713 Midland Salvage 18 U-8812 Michigan Consolidated (Gas Rates) 19 U-8871 Midland Cogeneration Venture 20 U-9040 CPCo (1987 Midland Compliance Filing – 3A) 21 U-9266 Michigan Bell – New Service Offering 22 U-9322 CPCo (1988 Midland Compliance 3A) 23 U-9350 CPCo (Deferred Tax Accounting) 24 U-9493 CPCo (Depreciation) 25 U-9586 CPCo (Competitive Bidding) 26 U-9595 CPCo (Compliance 1989 – 1990) 27 U-9598 CPCo (Deferred Tax Accounting) 28 U-9611 CPCo (Midland Proceeds) 29 U-9798 DECo (Future Capacity Solicitations) 30 U-9819 CPCo (Accounting/MCV Capacity Charges) 31 U-9852 CMS Gas Transmission (South Chester Pipeline – Act 69) 32 U-9869 CPCo (Deferred Tax Accounting) 33 U-10040 Generic (Post Retirement Benefits) 34 U-10066 DECo (1989 PA 2) 35 U-10127 CPCo (MCV Contested Settlement) 36 U-10143 CPCo Retail Wheeling 37 U-10176 DECo Retail Wheeling 38 U-10297 DECo Biennial Energy Conservation 39 U-10320 CMS Gas Transmission (Albert-Vienna Pipeline – Act 69) 40 U-10321 CMS Gas Transmission (East Antrim) 41 U-10562 CPCo (Electric Line Extension – Act 69) 42 U-10554 CPCo (DSM Reconciliation) 43 U-10754 CPCo (Depreciation) 44 U-10755 CPCo (Gas Rate Case) 45 U-10787 CPCo (Special Competitive Services) 46
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U-11222 Michigan Consolidated Gas Company (Depreciation) 1 U-11283 CPCo (Transmission Facilities Classifications) 2 U-11337 DECo (Transmission Facilities Classifications) 3 U-11509 CECo (Depreciation) 4 U-11662 CECo (Nuclear Decommissioning) 5 U-11726 DECo (Fermi 2 Depreciation) 6 U-11724 CECo/DECo (Ludington Pumped Storage Depreciation) 7 U-11722 DECo (Depreciation) 8 U-12033 Great Lakes Cooperative (Beaver Island Cable and Generation) 9 U-12133 Electric Deregulation: Educational Surcharges 10 U-12478 DECo (Securitization) 11 U-12505 CECo (Securitization) 12 U-12639 Commission’s Own Motion (Netting of Stranded Costs) 13 U-13000 CECo (Gas Rate Case) 14 U-14992 CECo (Sale of Palisades) 15 U-15506 CECo (Gas Rate Case) 16 U-15611 CECo Nuclear Legacy Case (Big Rock) 17 U-15985 Mich Con (Gas Rate Case) 18
U-15986 CECo (Gas Rate Case) 19 U-16418 CECo (Gas Rate Case) 20 U-16535 Mich Con (Manufactured Gas Plant accounting) 21 U-16855 CECo (Gas Rate Case) (Manufactured Gas Plant Recovery) 22 U-16861 CECo (DOE Settlement Proceeds) 23
U-16901 Northern States Power Company 24 U-18250 Consumers Energy Company 25
I have also been directly involved in testifying in and/or otherwise participating in the 26
successful settlement of the following cases: 27
U-6150-R Nuclear Plant Decommissioning Funds (Reopened) 28 U-8638 Generic Accounting for TRA ’86 29 U-8675 Revenue Reduction – TRA ’86 – Michigan Bell 30 U-8684 Revenue Reduction – TRA ’86 – Michigan Consolidated Gas Co. 31 U-8676 Revenue Reduction – TRA ’86 – General Telephone 32 U-8686 Revenue Reduction – TRA ’86 – Michigan Power (Electric) 33 U-8687 Revenue Reduction – TRA ’86 – Michigan Power (Gas) 34 U-8691 Revenue Reduction – TRA ’86 – Alpena Power 35 U-8692 Revenue Reduction – TRA ’86 – Edison Sault 36 U-8789 DECo (Fermi 2 – Electric Rates) 37 U-9096 CPCo (Deferred Tax Accounting) 38 U-9097 CPCo (Deferred Tax Accounting) 39 U-9099 Michigan Consolidated Gas Co. (Deferred Tax Accounting) 40 U-9475 Michigan Consolidated Gas Co. (Gas Rates) 41 U-9498 DECo (Construction Lines) 42 U-9600-01 Michigan Power/I&M (Tax Normalization Accounting) 43 U-9866 DECo (Deferred Tax Accounting) 44
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U-12033 Great Lakes Cooperative (Beaver Island Cable and Generation) 1 U-15320 In Re Application of Midland Cogeneration Venture 2 U-15451 Michigan Consolidated Gas Company GCR (Partial Settlement) 3 U-15628 Michigan Consolidated Gas Company (Sale of Storage Gas) 4 U-17771-A Consumers Energy Waste Reduction Case (Amended) 5
Q. Are you a member of any professional associations? 6
A. Yes. I am a member of the Institute of Certified Public Accountants. 7
II. DIRECT TESTIMONY 8
Q. What is the purpose of your testimony? 9
A. My primary purpose is the allocation of Consumers 2018-2021 energy efficiency 10
program cost responsibility to the Residential Class customers. 11
Q. Have you previously testified in regard to this issue? 12
A. Yes, in Case No. U-17771 Amended (U-17771-A). 13
Q. What portion of Consumers Applications are you specifically addressing? 14
A. The prefiled direct testimony of Mr. Theodore Ykimoff’s, specifically pages 14-17, and his 15
prefiled Exhibit A-14 (TAY-3) and Exhibit A-15. 16
Mr. Ykimoff’s Exhibit A-14 proposes to allocate at least $117,955,667 of 2018 through 17
2021 Business Class Electric EE Plan Investment to be recovered from the Electric 18
Residential Class. This “Electric” Business EE Plan cross-subsidy is shown in “Column 19
(e)” of each of the four pages of Exhibit A-14. 20
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Q. Do you disagree with this cross-class subsidy? 1
A. Yes. The Business Class EE Investment benefits the individual businesses by reducing 2
their cost of their Energy Efficiency Investment immediately, while also reducing their 3
future energy costs. 4
I oppose requiring the Residential Class to subsidize the Business Class EE Investments. 5
Each EE class should be responsible for their own EE class investments. 6
The surcharge to the residential class should be proportional to, or aligned with, the EE 7
program investment devoted to that class and no more. Similarly, the surcharges to the 8
other rate classes, such as the business class, should be proportional to the EE program 9
investment devoted to that class. The sole exception is the low income adjustment. 10
Q. Is your recommendation in this proceeding consistent with your prior testimony in 11
Case U-17771-A? 12
A. Yes. 13
Q. What was the affect in U-17771-A of re-assigning the 2017 Residential Electric 14
Revenue Requirement, without the cross-class subsidy? 15
A. The 2017 Residential Electric Revenue Requirement was initially reduced by $30,011,572, 16
from $35,998,417 (U-17771-A Exhibit A-12) to $986,845. 17
Q. Does CECO’s proposal align the rate surcharges in a proportional manner to the 18
program investment proposed by CECO for each rate class? 19
A. No. CECO Witness Ykimoff proposes to charge the residential class on a non-20
proportional basis. This is an unreasonable allocation of burdens on the residential class to 21
subsidize other classes which will already receive most of the benefits of the EE Plan. 22
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Q. You previously stated that the Company’s cross-class revenue requirement proposal 1
in this case was at least $117,955,667. Please explain your “at least” modification. 2
A. In Case U-17771-A, Mr. Ykimoff represented that the Residential Class Incremental 3
Investment for 2017 was $986,845 [See U-18261 Exhibit A-14, p 1, column (c)]. 4
I discovered in U-17771-A that Consumers had, in my opinion, over-assigned EE program 5
cost overheads (support services) to the Residential Class direct investments. I proposed 6
that EE program cost overheads should be assigned in proportion to the direct EE 7
Investments. 8
In Case No. U-17771-R, assigning program cost proportional to the EE direct investment 9
reduced the 2017 Electric Residential Class Incremental Investment from $986,845 to 10
$535,953. This resulted in an additional $430,892 reduction in the 2017 Electric 11
Residential Revenue Requirement. 12
Q. Were your U-17771-A recommendations accepted in the subsequent partial 13
settlement? 14
A. Yes. The Commission’s July 31, 2017 Order in Case No. U-17771, stated at page 2 that 15
Specifically, the parties agree residential customer incremental costs recovered as 16 surcharges will not exceed $535,953, including support services, for electric 17 programs, with the business class paying the remaining incremental costs 18 recovered as surcharges, and residential customer incremental costs recovered as 19 surcharges will not exceed $3,011,527, including support services, for gas 20 programs with the business class paying the remaining incremental costs 21 recovered as surcharges. The parties also agree recovery from a class will be 22 equal to the investment applicable to that class until a decision is made regarding 23 cost allocation in Consumers’ 2018 - 2021 EWR plan (Case No. U-18261), which 24 will establish the surcharges based on that allocation on a going-forward basis. 25
28
10
Q. Has Mr. Ykimoff also proposed a cross-class subsidy in his proposed EE Gas Plan 1
Recovery? 2
A. Yes. His Exhibit A-15 (column e) shows a 2018-2021 assignment of $9,118,084 of 3
Business Class Gas EE Plan Investments to be recovered from the Residential Gas Class. 4
Q. Do you oppose Consumers’ $9.1 million Business Class cross-class subsidy of this 5
case for the 2015-2021 EE Gas Plan Recovery? 6
A. Yes. While Consumers Gas cross-subsidy is much smaller than its Electric cross-subsidy, 7
it is unfair and unacceptable. 8
Q. Was the issue of the assignment of program overheads/support services also 9
applicable to the U-17771-A 2017 Residential Class Gas EE Recovery? 10
A. Yes. In Case No. U-17771-A, I again proposed that the EE program cost overheads should 11
be assigned proportionally to the direct EE investments. 12
In Case No. U-17771-A, assigning program support costs proportional to the EE direct 13
investment reduced its 2017 Gas Investment Residential Class Incremental Investment 14
from $3,556,709 to $3,011,527. 15
Q. The $3,011,527 amount to be recovered from the Gas Residential Class was also 16
included in the July 2017 Commission Order? 17
A. Yes. 18
Q. Do you recommend that the Residential Gas EE program overheads should be 19
assigned proportionally to the direct Gas EE Investments in this case? 20
A. Yes. 21
29
11
Q. Consumers’ Witness Mr. Austin Smith represents that page 2 of his Exhibit A-8 1
(SAS-1), presents the “status-quo” revenue requirements. I.E. without the cross-2
class revenue requirement subsidy. 3
Do you find page 2 of Exhibit A-8 acceptable? 4
A. No. The issue of the probable over-assignment of program support/program overheads to 5
the Residential Class customers is still unresolved. 6
Q. Does this complete your testimony? 7
A. Yes it does. 8
30
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1 JUDGE MACK: Anything else, Mr. Keskey?
2 MR. KESKEY: No, that completes it, your
3 Honor.
4 JUDGE MACK: Thank you.
5 Mr. Gensch. You may proceed.
6 MR. GENSCH: Thank you, your Honor.
7 Consumers Energy calls Theodore A. Ykimoff to the stand.
8 - - -
9 T H E O D O R E A. Y K I M O F F
10 was called as a witness on behalf of Consumers Energy
11 Company and, having been duly sworn to testify the truth,
12 was examined and testified as follows:
13 JUDGE MACK: The witness has been sworn;
14 so go ahead, Mr. Gensch.
15 DIRECT EXAMINATION
16 BY MR. GENSCH:
17 Q Mr. Ykimoff, would you please state your full name and
18 business address for the record?
19 A Theodore A. Ykimoff, One Energy Plaza, Jackson, Michigan
20 49201.
21 Q And by whom are you employed?
22 A Consumers Energy.
23 Q And what is your job title with Consumers Energy?
24 A Director of Energy Efficiency.
25 Q And did you cause to be prepared a document entitled
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32
1 Direct Testimony of Theodore A. Ykimoff on Behalf of
2 Consumers Energy Company, which consists of a cover page
3 and 18 pages of questions and answers?
4 A I did.
5 Q Did you also cause to be prepared a document entitled
6 Rebuttal Testimony of Theodore A. Ykimoff, which consists
7 of a cover page and 11 pages of questions and answers?
8 A I did.
9 Q Are there any changes that you wish to make at this time
10 to either your direct or rebuttal testimony?
11 A Yes, I do have one change to my rebuttal testimony. Page
12 6, line 19. Before the start of the first sentence
13 beginning with "The Company", insert, "To achieve the
14 maximum performance metric in each program year," and
15 then proceeded by, "the Company would also", the text
16 that's already there.
17 MR. BZDOK: Could we get that one more
18 time?
19 THE WITNESS: Yep, sure. I can read it.
20 On page 6, line 19, before the start of the first
21 sentence beginning with "The Company", insert, "To
22 achieve the maximum performance metric in each program
23 year," and then continue on with that sentence, "the
24 Company would also".
25 JUDGE MACK: And that was your rebuttal
Metro Court Reporters, Inc. 248.360.8865
33
1 testimony?
2 THE WITNESS: Yes.
3 JUDGE MACK: O.K. Did you get that,
4 Mr. Bzdok?
5 MR. BZDOK: "To achieve the maximum
6 performance metric...".
7 THE WITNESS: "... metric in each program
8 year," and then just continue on with that sentence.
9 MR. BZDOK: Got it.
10 Q (By Mr. Gensch): Did you also cause -- also prepare a
11 number of exhibits associated with your direct and
12 rebuttal testimony?
13 A I did.
14 Q And are those exhibits marked as Exhibits A-12, A-13,
15 A-14, A-15, A-16, A-19, A-20 Corrected, A-21, A-22, and
16 A-23?
17 A Yes.
18 Q Do you have any changes that you wish to make today to
19 those exhibits?
20 A No.
21 MR. GENSCH: At this time, your Honor,
22 the Company moves to bind in the Direct and Rebuttal
23 Testimony of Theodore A. Ykimoff, and for the admission
24 at the end of cross-examination of Exhibits A-12 through
25 A-16, A-20, A-20 Corrected, A-21, A-22, A-23, and A-19.
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34
1 And with that, I tender Mr. Ykimoff for cross-
2 examination.
3 JUDGE MACK: Thank you. Any objection to
4 the offer of the direct and rebuttal testimony? (No
5 response.)
6 Hearing none, that testimony is bound
7 into the record.
8 (Testimony bound in.)
9 - - -
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15
16
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Metro Court Reporters, Inc. 248.360.8865
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
THEODORE A. YKIMOFF
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Q. Please state your name and business address. 1
A. My name is Theodore A. Ykimoff, and my business address is One Energy Plaza, 2
Jackson, Michigan, 49201. 3
Q. By whom are you employed and in what capacity? 4
A. I am employed by Consumers Energy Company (“Consumers Energy” or the 5
“Company”) as Director of Smart Energy Efficiency Solutions. In this capacity, I am 6
responsible for overseeing the development, implementation, and evaluation of the 7
Company’s electric and gas Energy Efficiency/Energy Waste Reduction Plans. 8
Q. Please describe your educational and professional experience. 9
A. I have a Bachelor of Business Administration degree from Michigan State University. In 10
1992, I accepted the position as Gas Conservation Program Manager in the Marketing 11
Department with Consumers Energy. In this role, I was responsible for marketing 12
value-added products and services to the Company’s approximately 1.5 million 13
residential gas customers. In 2003, I assumed a position as a Corporate Account 14
Manager in the Company’s Customer Operations Department to provide value-added 15
products and services to the Company’s large electric and gas business customers. In 16
early 2008, I was promoted to Senior Program Lead in the Company’s Energy Efficiency 17
Department. In this role, I was responsible for developing the Company’s Energy 18
Optimization (“EO”) Plans in accordance with the requirements established by the 2008 19
Energy law, 2008 Public Act (“PA”) 295 (“PA 295”). In 2011, I was promoted to 20
Residential Energy Efficiency Operations Director, which expanded my responsibilities 21
to include supervising the development and implementation of the Company’s residential 22
energy efficiency programs. In 2017, I was promoted to my current position, which 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
te0317-tay 2
expanded my responsibility to include supervising the Company’s business energy waste 1
reduction programs; evaluation, measurement, and verification of the residential and 2
business program savings; and the marketing of these programs. 3
Q. Please list the cases in which you have testified. 4
A. I have testified before the Michigan Public Service Commission (“MPSC” or the 5
“Commission”) in the following cases: 6
Case No. Description 7
U-16670 2012 – 2015 EO Plan; 8
U-16860 Gas Revenue Pilot Decoupling Mechanism; 9
U-17351 2014 – 2017 Amended EO Plan; 10
U-17601 2013 EO Reconciliation; 11
U-17771 2016 – 2017 Amended EO Plan; 12
U-17831 2014 EO Reconciliation; and 13
U-18025 2015 EO Reconciliation. 14
Q. What is the purpose of your testimony in this proceeding? 15
A. I am sponsoring the Company’s 2018 – 2021 Electric and Gas Energy Waste Reduction 16
Plan (the “Plan”). Specifically, I will: 17
I. Provide an overview of the Company’s Plan in this filing; 18 II. Describe the customer benefits and rate impacts of the Company’s Plan; and 19 III. Describe the Company’s recommended 2018 – 2021 financial incentive 20
mechanism. 21
Q. Are you sponsoring any exhibits in this case? 22
A. Yes, I am sponsoring the following exhibits: 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Exhibit Description 1
A-12 (TAY-1) Calculation of Annual Energy Savings Targets; 2
A-13 (TAY-2) 2018 - 2021 Energy Waste Reduction Plan Report; 3
A-14 (TAY-3) Calculation of Electric Investment Recovery; 4
A-15 (TAY-4) Calculation of Natural Gas Investment Recovery; 5 and 6
A-16 (TAY-5) Proposed 2018 - 2021 Financial Incentive 7 Mechanism. 8
Q. Were these exhibits prepared by you or under your supervision? 9
A. Yes. 10
ENERGY WASTE REDUCTION PLAN OVERVIEW 11
Q. Please provide a brief overview of the Company’s Energy Waste Reduction Plan. 12
A. As indicated in the Company’s Palisades Securitization filing, Case No. U-18250, the 13
Company proposes to meet the future energy and capacity needs of its electric residential 14
and business customers through a combination of cost-effective supply-side and 15
demand-side options. In particular, the Company intends to leverage its existing energy 16
efficiency network of trade allies and program infrastructure to offer residential and 17
business customers a balanced and comprehensive set of meaningful long-term energy 18
savings services and programs. To accomplish this, the Company is proposing the 19
Commission approve its filed Plan, in accordance with 2016 PA 342 (“PA 342”), before 20
December 31, 2017. Approving this Plan will ensure the Company’s customers will 21
continue to save energy and spend less on their utility bills beyond 2017. The details of 22
the residential and business programs are presented by Company witnesses Theresa K. 23
Schmidt and Alfred A. Alatalo, respectively. The cost effectiveness of each program and 24
the overall plan are presented by Company witness Richard A. Morgan. The surcharges 25
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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necessary to implement and administer the plan are presented by Company witness 1
S. Austin Smith, which includes the funding reserve balance and low-income accounting 2
adjustment sponsored by Company witness Svitlana Lykhytska. 3
Q. What would result if the Commission does not approve the Company’s 2018 - 2021 Plan 4
before December 31, 2017? 5
A. Funding for the Company’s current energy waste reduction plan will expire at the end of 6
2017. Without Commission approved funding for 2018, the Company would have to 7
close its energy waste reduction programs by December 31, 2017. 8
Q. How would delaying approval of the Company’s Plan hinder its ability to meet the 9
increased demand-side energy and capacity goals proposed in Case No. U-18250? 10
A. Although the time needed to acquire the additional demand-side resource is shorter than 11
building a similar sized supply-side resource, it is not as simple as merely flipping a 12
switch. The Company has learned that it takes time and concerted effort to build and 13
maintain trusting relationships with trade allies and customers. Since 2009, the Company 14
has been working to build these relationships by implementing consistent and stable 15
programs. Increased business customer participation in 2016 forced the Company to 16
close its most popular business program early. Since then, the Company has devoted 17
more resources to repair its relationship with trade allies and customers. However, 18
without the timely approval and recovery of the investments being sought in this case, the 19
Company risks further eroding its relationship with trade allies and customers by having 20
to suspend programs until funding is approved. 21
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Q. Is the Company proposing any changes in the methodology for calculating the annual 1
savings targets? 2
A. No. The annual energy savings targets are shown in Exhibit A-12 (TAY-1) for both 3
electric and gas service. The savings targets for each service are based on the 4
corresponding annual retail sales provided by Company witness Eugene M.J.A. Breuring. 5
The Company proposes to continue calculating energy savings targets for both its 6
amended and future plans based on the prior year weather normalized sales and the 7
statutory savings percentages in accordance with Sections 77(1) and 77(3) of PA 342. 8
Q. Is the Company proposing to adjust its annual saving targets? 9
A. Yes, the Company is proposing to continue applying the gas transportation adjustments 10
consistent with the methodology approved by the Commission in prior cases. 11
Q. Please discuss any changes in the Company’s annual spending caps since the Company’s 12
last plan was approved. 13
A. In December 2016, PA 342 was enacted, which removed the funding limits placed on 14
helping electric and gas customers reduce energy waste. Removing the caps, however, 15
did not bestow on utilities unlimited funding to invest in all demand-side projects and 16
resources. The Company is still required to offer a cost-effective portfolio, as measured 17
by the Utility System Resource Cost Test (“UCT”), and have an independent third party 18
validate its energy savings annually. 19
Q. Please explain why the Company believes the level of spending being requested is 20
reasonable. 21
A. The Company considered both the level of energy savings and cost-effectiveness of these 22
savings when developing its plan. Specifically, the Company hired Morgan Marketing 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Partners as an independent consultant to assist it in evaluating the cost-effectiveness of its 1
individual programs and the overall plan. Although the Company used the UCT as its 2
primary measure of cost-effectiveness, it also considered the results of the Total Resource 3
Cost Test, Participant Test, and Rate Impact Test when evaluating its programs. The 4
results of these tests are presented in my Exhibit A-13 (TAY-2). 5
Q. Please describe the results of the UCT associated with the plan. 6
A. The UCT provides a measure of the avoided system costs relative to the program costs 7
associated with implementing and administering a plan. Intuitively, the avoided costs can 8
be thought of as the system benefit from a customer participating in a program. If the 9
energy savings can be delivered at a UCT greater than unity, then the benefit to 10
customers from taking action exceeds the cost of providing the program. Thus, it is 11
considered a worthy investment. As shown on Exhibit A-13 (TAY-2), the Company’s 12
plan achieves UCT scores of 3.68 and 1.86 for electric and gas services, respectively. 13
Q. Please elaborate on the pertinence of the UCT score as an indicator of cost-effectiveness. 14
A. As mentioned above and discussed by Company witness Morgan, the UCT score is a 15
ratio of avoided energy and capacity costs relative to the cost of implementing the energy 16
waste reduction programs. Formulaically this is expressed as, 17
𝑈𝑈 =𝐴𝐴𝐼𝐼
where U is the UCT score, A is the avoided cost of energy and capacity costs, and I is the 18
investment cost of offering the programs. However, dividing the numerator and 19
denominator by the lifetime energy savings, S, from the programs indicates that the UCT 20
score is merely a measure of the marginal cost of providing energy and capacity relative 21
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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to the price of providing the service. The price of providing the energy waste reduction is 1
commonly referred to as the cost of conserved energy. 2
𝑈𝑈 =𝐴𝐴𝐼𝐼⋅𝑆𝑆𝑆𝑆
=𝐴𝐴𝑆𝑆�
𝐼𝐼𝑆𝑆�
=𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀𝑀 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶𝑜𝑜 𝐶𝐶𝐶𝐶𝑀𝑀𝐶𝐶𝐶𝐶𝑀𝑀𝐶𝐶𝐶𝐶𝐶𝐶 𝐸𝐸𝑀𝑀𝐶𝐶𝑀𝑀𝑀𝑀𝐸𝐸
Conceptually, UCT scores of unity indicate that customers are indifferent to the 3
Company investing in supply-side resources or energy waste reduction programs. UCT 4
scores greater than unity indicate that customers benefit from the Company investing 5
more in reducing energy waste versus purchasing energy and capacity from supply-side 6
resources. The opposite is true when UCT scores are less than unity. 7
Q. How has the Company incorporated the benefits to customers from investing in energy 8
waste reduction in its Palisades Securitization filing, Case No. U-18250? 9
A. It is my understanding that the Company’s Palisades Securitization filing basically 10
represents an integrated resource framework in which supply- and demand-side options 11
are evaluated in a consistent manner and objectively analyzed based on the net present 12
value of costs. As discussed by Company witness Thomas P. Clark in that case, the net 13
present value cost of the Company’s overall resource portfolio is reduced $124 million by 14
expanding the energy waste reduction component of the resource mix from 1.0% to 1.5%. 15
See Mr. Clark’s Exhibit A-9 (TPC-2) in U-18250. Likewise, in this case the Company 16
contends that investing in energy waste reduction benefits customers by providing them 17
the lowest-cost resource to meet their future energy and capacity needs. 18
Q. What is the net benefit of the Company’s proposed 2018 – 2021 Plan in this case? 19
A. The net benefit to customers is projected to be $1.3 billion as measured by the net benefit 20
of the portfolio. The net benefit of $1.3 billion is derived by taking the product of the 21
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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electric investment costs, $469 million, and the UCT score, 3.68, less the investment 1
costs. That is, 2
$1.3𝐵𝐵 = $469𝑀𝑀 ⋅ (3.68 − 1)
Q. Are the net benefits from the Company’s energy waste reduction plan consistent with 3
those observed by others? 4
A. Yes, it is my understanding that these net benefits are consistent with what others are 5
observing in the industry. For instance, Ameren Missouri found that it could reduce its 6
resource portfolio costs roughly $2 billion by expanding energy efficiency as part of its 7
integrated resource plan. Likewise, the Tennessee Valley Authority also found similar 8
results as part of their 2011 integrated resource plan. 9
Q. If the Company’s investment level is approved, then will it exceed the minimum statutory 10
energy savings targets? 11
A. Yes, the Company expects to exceed the electric and gas statutory savings targets of 12
1.00% and 0.75% by at least 0.57% and 0.29%, respectively. Although the Company 13
expects to exceed the statutory savings targets, changes in federal standards and declining 14
natural gas prices are increasing the difficulty of cost-effectively helping customers 15
reduce energy waste. 16
Q. Is the Company proposing to continue investing in Education and Awareness and Pilots 17
as part of its 2018-2021 Plan? 18
A. Yes, the Company proposes to invest 3% and 5% of its recommended annual funding in 19
Education and Awareness and Pilots for its electric and gas programs, respectively. In 20
addition, the Company proposes to continue applying the deemed savings from these 21
investments as part of meeting its statutory and performance objectives. 22
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Q. Is the Company proposing any changes to the structure of its programs as part of its Plan? 1
A. No, the Company proposes to continue offering its currently approved thirteen residential 2
programs and three business programs in addition to a variety of pilots. 3
Q. Does the Company intend to offer energy savings options to municipal customers with 4
utility-owned streetlighting? 5
A. Yes. The Company is proposing to extend its Energy Waste Reduction programs to 6
municipal customers with utility-owned streetlighting as part of its proposed 2018 – 2021 7
Plan. As such, I have asked Company witness Smith to include a streetlighting surcharge 8
to recover the expected investments associated with these projects. 9
Q. How were the programs in the Company’s plan selected? 10
A. The Company selected the programs in its plan based on (i) their proven ability to deliver 11
cost-effective energy savings in other jurisdictions and (ii) the Company’s own 12
experience with implementing and administering the programs in Michigan. Moreover, 13
the Company is continuously testing alternative services under its residential and 14
business pilot programs. 15
Q. Does the Company propose to continue investing in informational report programs to 16
encourage customers to reduce energy waste? 17
A. Yes, the benefits associated with informational report programs to help customers reduce 18
energy waste are well documented. Indeed, the Cadmus Group has performed more than 19
a dozen studies and evaluations, using rigorous and thoroughly vetted methods, to 20
determine and isolate the impacts of the Company’s informational report programs. 21
Some of the techniques used by Cadmus have included: difference-in-difference billing 22
analysis, regression analysis, uplift analysis, treatment and control group surveys, 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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customer satisfaction surveys, stakeholder interviews, materials and database reviews, 1
market plan assessments, and focus groups. 2
Q. Is the Company proposing to continue its level of investment in helping low-income 3
customers reduce energy waste? 4
A. Yes, the Company is committed to providing its low-income customers with a robust set 5
of energy saving services. In particular, customers participating in the Company’s 6
Income Qualified program receive recommended energy saving solutions and financial 7
assistance, along with energy saving information to assist them in reducing energy waste 8
and managing their utility bills. Often the Company coordinates its low-income services 9
with local contractors and Community Action Agencies to provide customers with 10
assistance, which helps keep administrative costs low. This allows the Company to 11
provide these customers with a comprehensive list of home and equipment measures at 12
no charge. These might include furnaces, insulation, water heaters, refrigerators, 13
thermostats, air sealing, low-flow showerheads, faucet aerators, and pipe wrap. 14
Q. Is the Company seeking continued authority to allocate funds between programs? 15
A. Yes, the Company is requesting continued authority to reallocate 30% of its portfolio 16
investments to maintain program consistency each year. This flexibility was requested 17
and approved in Case Nos. U-16712, U-16670, U-17351, and U-17771. 18
Q. How will the Company’s programs be administered? 19
A. The Company plans to continue using independent contractors selected through a 20
competitive bidding process to coordinate the daily activities in the field. The Company 21
will continue to employ a small staff, including program managers, a quality control 22
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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advisor, a budget analyst, and an administrative assistant to manage the contractors and 1
perform other administrative tasks. 2
Q. What process does the Company propose for evaluating actual energy savings associated 3
with the plan? 4
A. The Company plans to continue using independent third-party consultants to evaluate the 5
effectiveness of its efforts using bill analyses, customer surveys, and on-site verifications 6
based on a sample of customers participating in each program. In addition, the Company 7
proposes to continue using surveys and personal interviews to better understand customer 8
perceptions of each program and to help improve program operations and the overall 9
customer experience. 10
Q. How will the Company demonstrate that its plan is achieving the intended results? 11
A. The Company will continue to file an annual reconciliation report with the Commission 12
after the end of each plan year that details the level of spending and energy saved from 13
each program. 14
Q. Is the Company proposing alternative net-to-gross factors in its 2018-2021 Plan? 15
A. No, the Company proposes to continue using a net-to-gross factor of 0.90 for most 16
programs, 1.00 for its Income Qualified program, and 0.82 for Standard Compact 17
Fluorescent Lamp lighting. 18
Q. Is the Company open to continued collaboration with other parties regarding the design 19
and implementation of its plan? 20
A. Certainly. The Company has been, and will continue to be, an active participant in the 21
energy efficiency market and various working groups. For instance, the Company is 22
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currently active in the Program Design and Implementation Workgroup, Low-Income 1
Workgroup, Evaluation Workgroup, and Economic Development Forums. 2
CUSTOMER BENEFITS & RATE IMPACTS 3
Q. Please describe the expected customer benefits associated with the Company’s 4
2018-2021 Plan. 5
A. Customers have reduced electric and gas energy waste by participating in the Company’s 6
energy efficiency programs by over 11,000 Gigawatt-hours and 55 Billion Cubic Feet 7
since 2009. These reductions in energy waste have saved the Company’s customers over 8
a billion dollars on their utility bills. In addition, customers have avoided the need for 9
additional supply-side resources by reducing peak demand approximately 380 MW. The 10
Company intends to continue helping its customers reduce energy waste in 2018 – 2021 11
by 2,150,770 MWh, 301.6 MW, and 10,865,836 Mcf, respectively. 12
Q. Please elaborate on how customers benefit from the Company investing in energy waste 13
reduction. 14
A. Absent investing in reducing energy waste, the Company would satisfy the energy and 15
capacity needs of its customers with additional power supply resources. However, the 16
cost of supply-side resources is generally two to three times that of demand-side 17
resources.1 In this instance, the per unit cost of the Company’s 2018 – 2021 Plan over 18
the useful life of the equipment is 1.3¢ per kWh, as shown on page 11 of my Exhibit 19
A-13 (TAY-2), whereas the Company’s current expected market price of energy exceeds 20
3.0¢ per kWh and is projected to increase year-over-year as supply-side resources are 21
retired. By investing in energy waste reduction the Company can lower its overall 22
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 2014, Report Number U1402.
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system costs, which savings is passed on to customers through lower rates. As such, all 1
customers – participants and nonparticipants – enjoy the cost savings benefits of the 2
Company investing in energy waste reduction. 3
Q. Are there supplemental benefits to customers beyond avoiding additional supply-side 4
resources? 5
A. Yes, the industry literature is replete with studies indicating that customers also see 6
improved property values, living-standards, environmental conditions, and economic 7
conditions as a result of utilities investing in energy waste reduction programs.2 8
Q Based on your experience with energy efficiency programs, are the capacity savings 9
contained in this case conservative? 10
A. Yes, I believe the capacity savings attributed to energy efficiency are conservative. The 11
Company uses the Michigan Energy Measures Database (“MEMD”) as its source for 12
energy and demand savings values in Michigan. Over the years the Commission Staff 13
and utilities have made a concerted effort to improve the completeness of the energy 14
savings values listed in the MEMD. As a result of focusing primarily on the energy 15
savings values, the demand savings values included in the MEMD have been understated. 16
For instance, in reviewing the MEMD I am aware of certain measures that are known to 17
produce demand savings, such as WiFi thermostats, but have blank values listed instead. 18
Going forward the Company intends to increase its focus on improving the completeness 19
of the demand savings values, along with the energy savings values, in the MEMD to 20
provide a clearer picture of the impacts energy efficiency has on reducing capacity 21
requirements. 22
2 Baatz, Brendon, “Everyone Benefits: Practices and Recommendations for Utility System Benefits of Energy Efficiency”, ACEEE, June 2015, Report Number U1505.
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Q. Please explain the difference between the electric energy and capacity savings for 2018 - 1
2021 you mentioned above with the level testified to by Company witness Teri L. 2
VanSumeren in Case No. U-18250. 3
A. Last year the Energy Efficiency Department prepared an aggregate level forecast for 4
Ms. VanSumeren based on its expected program costs and measure savings data available 5
at that time. Since then, however, the team has been challenged to find new channels to 6
leverage its customer facing departments, trade allies, and implementation contractor 7
networks to deliver the electric energy and capacity savings the Company has committed 8
to, at the lowest possible cost. In particular, by focusing investments on business 9
projects, the Company believes it can provide energy and capacity savings for less than 10
was originally predicted and provided in the testimony of Ms. VanSumeren. 11
Q. How will the proposed 2018 – 2021 Energy Waste Reduction investment be recovered 12
from customers? 13
A. The Company proposes to recover the electric and gas investments of $469.0 million and 14
$219.3 million from customers over four years beginning with its January 2018 bill 15
month. The revised surcharges would replace the energy efficiency surcharges approved 16
through December 31, 2017. The proposed monthly incremental and total surcharges are 17
presented in the testimony and exhibits of Company witness Smith. 18
Q. Is the Company recommending any changes in how it recovers its investments from 19
customers? 20
A. Yes. As shown in Exhibits A-14 (TAY-3) and A-15 (TAY-4), the Company is proposing 21
to recover its investments from each customer class based on the increased relative cost 22
of conserved energy. Exhibits A-14 (TAY-3) and A-15 (TAY-4) show the 2017 Plan 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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investments for the residential and business classes in column (a) along with the 1
incremental investments being proposed in this case. Column (e) shows the Company’s 2
proposed allocation adjustment to account for the incremental program cost savings from 3
delivering increased system benefits by optimizing the portfolio to invest in the lowest 4
cost options. The net effect of the Company’s proposed investment recovery is shown in 5
column (f). 6
Q. Please explain how the Company calculated the program cost savings adjustment in 7
column (e). 8
A. The program cost savings adjustment is based on proposed increased energy savings and 9
the relative cost-of-conserved energy for each class. For instance, suppose the Company 10
has committed to deliver an additional 100 kWh of energy savings and that the lifetime 11
cost-of-conserved energy for the residential and business programs that could be 12
expanded to deliver the increased savings is 2.5¢ per kWh and 1.2¢ per kWh, 13
respectively. On one hand, the Company might meet its 100 kWh commitment by 14
increasing its investment in the residential programs at a cost of 2.5¢ per kWh, but clearly 15
both the residential and business customers would be better served economically if the 16
Company instead invested the additional funds in the business class at 1.2¢ per kWh. 17
Doing so would still increase the overall system benefits to customers, but at half the 18
cost. The Company’s proposed program cost savings adjustment reflects the fact that all 19
customers benefit by the increased investment. By allowing the Company to optimize the 20
recovery of its investments in energy waste reduction, it can continue to offer both 21
residential and business customers a comprehensive set of programs but at a much lower 22
total cost. 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Q. What is the rate implication to business customers if the Commission does not agree with 1
the Company’s proposal to allocate the recovery of its investment in energy waste 2
reduction? 3
A. The average electric business customer would see a bill increase of 4.0% to 5.0% if the 4
Commission required the Company to recover its increased investments exclusively from 5
that class. Conversely, the average electric residential customers would share in the 6
benefit of avoided supply-side resources at almost no incremental cost. Under the 7
Company’s proposed methodology, electric business customers would see a bill increase 8
in the range of 0.8% to 1.4% while electric residential customers would see a 1.9% bill 9
increase. The surcharges based on the existing recovery methodology and the 10
Company’s proposed methodology are shown in Exhibits A-9 (SAS-2). As such, the 11
Company proposes to better align the cost of delivering the lowest cost demand-side 12
option with the shared benefits of reducing system generation for all customers. This 13
cost alignment makes energy waste reduction investments more equivalent to investments 14
in supply-side generation resources. 15
Q. How will the Company ensure, to the extent feasible, that charges collected from a 16
particular customer rate class align with the corresponding benefits? 17
A. The Company will continue to track spending for each program separately to ensure it 18
does not exceed the Commission approved program spending levels. In addition, the 19
Company will evaluate the system benefits from each class during its annual plan 20
reconciliations and biennial plan reviews and adjust the surcharges in these proceedings 21
as needed. 22
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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Q. What is the rate impact to customers associated with the Company’s proposed 2018-2021 1
Plan? 2
A. The Company considers both the impact and expense necessary to deliver energy savings 3
when developing its plans. The objective is to offer customers both affordable and 4
meaningful programs. The rate impact for the Company’s residential and business 5
electric and gas customers are projected to be less than one percent of their monthly 6
utility bills, respectively. As such, the Company believes its plans provide a win-win 7
strategy for customers, i.e., more savings for customers at a low monthly cost. 8
Q. How will the Company dovetail its 2018 – 2021 Plan with its Amended 2017 Plan filed 9
on March 13, 2017? 10
A. The programs proposed in the Company’s 2017 Amended Plan are consistent with those 11
being proposed in this case for 2018 – 2021. Similarly, the investments and surcharges 12
proposed in the Amended Plan are factored into Company witness Smith’s calculation of 13
the levelized surcharges for 2018 through 2021. 14
FINANCIAL INCENTIVE MECHANISM 15
Q. Is the Company proposing a financial incentive mechanism for 2018-2021? 16
A. Yes. According to Section 75 of PA 342, the Company believes it is allowed to earn the 17
financial incentive set forth in PA 342 for helping customers reduce energy use based on 18
the percent of first year energy savings. I have provided an illustration of the electric and 19
gas financial incentive mechanisms in Exhibit A-16 (TAY-5). The Company is 20
proposing the Commission approve a linear sliding scale incentive mechanism, consistent 21
with my proposal described in the Company’s 2017 Amended Plan in Case No. U-17771, 22
based on the savings tiers set forth in Section 75(1) – 75(4) of PA 342. I believe using a 23
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THEODORE A. YKIMOFF DIRECT TESTIMONY
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sliding scale financial incentive is more appropriate in that it would encourage utilities to 1
invest beyond the minimum levels necessary to jump from one incentive tier to the next. 2
Q. Does this conclude your testimony? 3
A. Yes. 4
53
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
REBUTTAL TESTIMONY
OF
THEODORE A. YKIMOFF
ON BEHALF OF
CONSUMERS ENERGY COMPANY September 2017
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Q. Please state your name and business address. 1
A. My name is Theodore A. Ykimoff, and my business address is One Energy Plaza, 2
Jackson, Michigan, 49201. 3
Q. Are you the same Theodore A. Ykimoff who previously filed direct testimony on behalf 4
of Consumers Energy Company (“Consumers Energy” or the “Company”) in this case? 5
A. Yes, I am. 6
Q. What is the purpose of your rebuttal testimony? 7
A. I will be addressing concerns with: (i) the additional performance metrics and 8
mechanisms proposed by the Michigan Public Service Commission (“MPSC” or the 9
“Commission”) Staff (“Staff”) witness Karen M. Gould, Natural Resource Defense 10
Council (“NRDC”) witness Chris Neme, and National Housing Trust (“NHT”) witness 11
Annika Brink; (ii) decreasing the Residential Lighting Program Net-to-Gross (“NTG”) 12
and energy savings values as proposed by NRDC witness Neme; (iii) the reasonableness 13
of increasing the Multifamily Low-Income Program from $1.3 million to between 14
$7.2 and $14.7 million as proposed by NHT witness Brink; (iv) the exclusion of the Pay 15
My Way Program from becoming an Energy Efficiency (“EE”) Program; (v) maintaining 16
the status quo recovery of EE investments as proposed by Staff witness David S. Walker, 17
NRDC witness Neme, and Residential Customer Group (“RCG”) witness William A. 18
Peloquin; and (vi) removing the flexibility to reallocate program funding within a class 19
and financial incentive as proposed by Association of Businesses Advocating Tariff 20
Equity (“ABATE”) witness Michael P. Gorman. 21
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Q. Are you sponsoring any exhibits as part of your rebuttal testimony? 1
A. Yes, I am sponsoring the following exhibits: 2
Exhibit A-19 (TAY-6) Impact of Staff’s Low-Income Performance Metric; 3
Exhibit A-20 (TAY-7) 2018 – 2021 Energy Efficiency Plan Performance 4 Metrics; 5
Exhibit A-21 (TAY-8) Michigan CFL NTG 2013 Research – Final Report; 6
Exhibit A-22 (TAY-9) Multifamily Program Enhancements; and 7
Exhibit A-23 (TAY-10) Duke Energy Prepaid Advantage Pilot Learnings 8 Report. 9
PERFORMANCE INCENTIVE METRICS & MECHANISM 10
Q. Please explain your concern with Staff witness Gould’s proposed performance metrics 11
associated with the EE financial incentive. 12
A. Although I agree that having additional performance metrics will influence the structure 13
and focus of the Company’s Energy Waste Reduction (“EWR”) plans, they can also be 14
distracting or have the opposite effect of what was intended if they are unrealistic or 15
extreme. I believe the first-year and lifetime energy savings performance metrics 16
proposed by Staff witness Gould are reasonable for EE, as they are consistent with the 17
past performance incentives in 2015 and 2016. However, I am concerned with the 18
magnitude of the Low Income energy savings being proposed. 19
Q. Please explain why you are concerned with Staff’s proposed Low Income energy savings 20
metric. 21
A. A balance must exist between cost effectively reducing energy waste as the primary 22
objective of energy efficiency and any secondary policy objectives – such as increasing 23
investments in the low-income or multifamily programs. While I concur that delivering 24
energy savings to our most vulnerable customers is indeed important, it should not 25
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diminish or replace the primary objective. Requiring the Company to increase the level 1
of electric and gas energy savings associated with the Income Qualified Program from 2
0.8% and 2.7% today to 16% of total energy savings - constituting an electric and gas 3
energy savings increase of 1,783% and 495% in 2021 – will actually discourage the 4
Company from exploring deeper savings measures. As part of the 2018 – 2021 EWR 5
Plan, the Company proposed investing $44.5 million in its Income Qualified program 6
over the next four years, which equates to a first year electric and gas acquisition cost of 7
$0.92/kWh and $101.53/Mcf, respectively. The high acquisition costs reflect the fact that 8
the Income Qualified programs are not cost-effective and, thus, excluded from the cost-9
effectiveness tests under Public Act 342 of 2016 (“Act 342”). For comparison, the cost 10
of acquisition for the total portfolio (excluding Income Qualified) is approximately 78% 11
less than the acquisition costs referenced above for the Income Qualified Program. This 12
also suggests that to deliver the level of low-income energy savings being proposed by 13
Staff witness Gould, the Company would need to increase its investments in the Income 14
Qualified Program between $142 and $229 million over the next four years. See Exhibit 15
A-19 (TAY-6). 16
Q. Did Staff witness Gould indicate through her testimony how the Company might achieve 17
this aggressive of a goal in the absence of the Company requesting additional funding in 18
this case? 19
A. No. It is unclear how Ms. Gould expects the Company to increase the electric and gas 20
energy savings delivered from this class by 1,783% and 495% without requesting 21
additional funding, significantly reducing the funding, or eliminating its other programs. 22
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Q. Would the Company be open to an Income Qualified Program performance metric other 1
than percent of energy savings proposed by the Staff in this case? 2
A. Yes, the Company believes it would be more appropriate to have a performance incentive 3
for the low-income segment of its EE portfolio based on achieving a minimum amount of 4
investment in the Income Qualified and Multifamily Income Qualified programs. I 5
believe having the performance metrics based on investment is much more in line with 6
Staff’s and others’ objectives of having the Company better serve these customers by 7
exploring deeper, and more costly, energy savings projects. Additionally, the Company 8
is recommending a performance metric tied to the total number of premium measures 9
installed or performed that would deliver deeper energy savings. 10
Q. Do you have any other concerns with Ms. Gould’s proposed performance mechanism? 11
A. Yes. I am concerned with her proposal to limit the financial incentive based on the 12
minimum metric achieved. By limiting the financial incentive to the minimum metric 13
achieved, I believe utilities will be discouraged from attempting to exceed the metrics in 14
the other two categories. For instance, if the Company could realistically achieve 2.45% 15
of Income Qualified electric energy savings relative to the total portfolio energy savings 16
in 2018, then there is no incentive for the utility to strive for energy savings beyond 17
1.20% of first-year or 120% of lifetime. That is, limiting the financial incentive based on 18
the performance in one metric may cause the utility to capitulate on its other metrics. 19
Q. Is there an alternative performance mechanism that would encourage the Company to 20
achieve various performance metrics? 21
A. Yes, I believe using a weighted average performance mechanism – similar to that 22
proposed by NRDC witness Neme – would encourage the Company to pursue primary 23
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and secondary performance metrics to achieve the financial incentive. In particular, I 1
believe weighting the lifetime energy savings by 80% and each alternative metric by 10% 2
would be appropriate. 3
Q. Do you have concerns with the performance metrics proposed by NRDC witness Neme 4
in this case? 5
A. Yes. On pages 19 and 20 of his direct testimony, Mr. Neme proposes electric and gas 6
small business performance metrics based on the proportion of lifetime energy savings 7
relative to the proportion of small business energy sales.1 I have two main concerns with 8
this performance metric. First, the Company does not track customer participation in its 9
programs based on the amount of energy they use annually. That is, small business 10
customers can participate in the Company’s Business Solutions Program – such as 11
Prescriptive, New Construction, Building Operator Training, etc. – Small Business Direct 12
Install Program, or Business Multifamily Program. Second, even if the Company did 13
track participation in its EE programs by the amount of customer energy usage, it would 14
not have a clear picture of how well it performed until after the year was complete and it 15
collected the annual customer energy sales information. 16
Q. Is the Company open to having a more manageable small business performance metric? 17
A. Yes. In the past the Company has had a small business performance metric based on the 18
amount of business energy assessments completed for small and medium sized business 19
customers. The Company would be open to reinstating this metric for 2018 – 2021. 20
1 Electric small business is defined as annual energy usage below 400 MWh per year. Gas small business is defined as annual energy usage below 6,000 Mcf per year.
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Q. Do you have any concerns with the performance metrics proposed by NHT witness Brink 1
in this case? 2
A. Yes. Ms. Brink is proposing the Company have the following set of low-income 3
multifamily performance metrics: achieve average energy savings of at least 25% per 4
property, deliver an energy assessment and report to at least 50% of eligible customers, 5
and have at least 50% of eligible properties install multiple measures to receive the 6
multiple measure bonuses. Although the idea of having low-income multifamily 7
performance metrics is laudable, I am concerned that the metrics being proposed by NHT 8
are unrealistic. Regarding the first performance metric, the Company has observed that 9
multifamily properties typically achieve energy savings of between 2% to 4%, based on 10
the projects they have completed, and that these levels are consistent with what other 11
utilities have observed across the country. Similarly, requiring 50% of eligible customers 12
receive an energy assessment and report or install multiple measures does not align with 13
the level of customer interest the Company has observed in the past. 14
Q. Are there alternative low-income multifamily performance metrics the Company believes 15
are reasonable to implement in this case? 16
A. Yes. The Company would be open to increasing the amount of its investments in the 17
Low-Income Multifamily Program and guaranteeing to spend the higher level as a 18
performance metric. The Company would also be amenable to providing at least 25% of 19
eligible low-income multifamily properties with energy assessments beginning in 2018. 20
In 2019, the Company would increase the percent of eligible properties receiving an 21
energy assessment to 35%. In 2020, the percent of eligible properties would be increased 22
to 40% and finally increased to 45% in 2021. 23
To achieve the maximum performance metric in each program year, ^the
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Q. Please provide a summary of what the Company believes are reasonable alternatives to 1
the proposed performance metrics and mechanism you have mentioned above. 2
A. After taking into account the testimony of the other parties, I have included Exhibit A-20 3
(TAY-7) as a summary of the electric and gas performance metrics and weights that the 4
Company believes aligns with the objectives of promoting deeper energy savings projects 5
and can reasonably be achieved. 6
LIGHT-EMITTING DIODE NTG AND AVERAGE LIFE 7
Q. Do you agree that the Energy Independence and Security Act (“EISA”), a federal law 8
enacted in 2017, has had the effect of reducing available energy savings from lighting 9
measures? 10
A. Yes. The lighting market continues to transform from older technologies to newer ones. 11
This shift will have an impact on the energy savings from lighting measures making 12
evaluation efforts in support of these measures important. 13
Q. To address the changing landscape for lighting measures, NRDC witness Neme suggests 14
a reduction to the residential retail standard Light-Emitting Diode (“LED”) NTG ratio 15
from the Company’s filed 0.90 NTG to 0.70 NTG beginning in 2018, and to reduce the 16
NTG each subsequent year (2019-2021) by 5%. Do you agree with this suggestion? 17
A. No. As part of Mr. Neme’s direct testimony in support of the residential retail standard 18
LED NTG reduction, he provides support for his recommendation by citing to LED NTG 19
ratios used by other utilities, none of which are located in Michigan. Mr. Neme is using 20
other non-Michigan utility LED NTG ratios as a proxy to establish NTG values for the 21
Company’s residential retail standard LED. 22
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Q. How has the Company previously addressed concerns regarding NTG ratios? 1
A. In 2013, a joint attribution study was undertaken to estimate the NTG ratio for Compact 2
Fluorescent Lamps (“CFLs”) provided by Consumers Energy and DTE Energy 3
Company. This study, which I have included as Exhibit A-21 (TAY-8), estimated an 4
NTG value of 0.82 for standard CFLs delivered through upstream (residential retail 5
lighting) programs in 2014-2015. 6
Q. Would you recommend a similar approach to address the NTG value for residential retail 7
standard LEDs? 8
A. Yes. The Company contends the NTG ratio should be evaluated as part of the 9
Company’s program evaluation efforts. This approach is more prudent than borrowing 10
values from other states, and provides more accuracy regarding the NTG value for 11
residential retail standard LEDs in Michigan. In acknowledgement of the changing 12
lighting market, and until such time that evaluation can be completed to set an NTG ratio 13
for residential retail standard LEDs, I propose to set the NTG ratio at 0.82 for retail 14
lighting standard LEDs. This value is consistent with the value the Company historically 15
has used for standard CFLs through its residential Retail Lighting Program. 16
Q. Do you agree with Mr. Neme’s approach to adjusting measure life assumptions for 17
standard LED bulbs? 18
A. I do understand the need to consider adjustments to standard LED measure lives to 19
account for EISA lighting standards. However, much like the residential lighting NTG 20
issue raised by Mr. Neme, due to the novelty of this approach in Michigan and the 21
possible uncertainty around it, I believe this approach should be verified and validated by 22
the Company’s evaluation contractor. 23
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INCREASED MULTIFAMILY LOW-INCOME INVESTMENTS AND 1 PROGRAM ENHANCEMENTS 2
Q. Do you have concerns with the various proposed modifications to the multifamily 3
program being proposed by NHT witness Brink in this case? 4
A. Although I agree conceptually with many of the suggestions being proposed by 5
Ms. Brink, I do have some concerns about the timing and magnitude of some of the 6
proposed changes. For instance, the Company historically invested roughly $1.3 million 7
in the Low-Income Multifamily Program. Ms. Brink requests the Company increase 8
these investments between 554% and 1,131% per year. While I agree there is an 9
opportunity to increase investments in this program, I am concerned that the levels being 10
requested by NHT are extremely aggressive and could not be reasonably attained by the 11
Company. As a potential solution to address the concerns raised by NHT, I have 12
incorporated many of Ms. Brink’s suggestions into a proposed potential enhancement of 13
the Income Qualified Multifamily EE Program attached as my Exhibit A-22 (TAY-9). 14
FUTURE TREATMENT OF THE PAY MY WAY PILOT 15
Q. On pages 42 through 45 of his direct testimony, NRDC witness Neme expresses concern 16
about the Company including the Pay My Way Program as a potential future EE 17
Program. Do you agree with Mr. Neme that energy conservation programs, such as Pay 18
My Way, should be excluded from EE programs? 19
A. No. Section 5(f)(iii) of Act 342 expressly allows for energy conservation to be included 20
as part of EE plans to the extent the conservation is measurable and attributed to the 21
EWR Plan. The Company is currently exploring and evaluating the potential benefits of 22
offering a prepay program to its customers as part of the Pay My Way pilot. If after the 23
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evaluation is complete it is determined that customers conserve energy by participating in 1
Pay My Way, then the Company would consider offering it as a full-time program. 2
Q. Are you aware of other utilities piloting prepaid programs as part of EE? 3
A. Yes. After responding to NRDC’s discovery question 18261-NRDC-CE-44, I became 4
aware of Duke Energy’s prepaid advantage pilot in which participants experienced 5
energy savings of approximately 8.6%. I have attached the Duke Energy report as 6
Exhibit A-23 (TAY-10). 7
RECOVERY OF PROGRAM INVESTMENTS BASED ON CLASS BENEFITS 8
Q. Many of the parties filed testimony opposing the recovery of EE investments based on 9
the cost-of-conserved energy and proposed to maintain the status quo. Do you have 10
concerns with maintaining the status quo in terms of recovering EE investments? 11
A. Yes. I believe the Company’s proposed approach for allocating the EE investments 12
based on the increased relative cost of conserved energy provides a good mechanism to 13
reflect that all customers benefit from the increased investment. For the reasons 14
discussed in my direct testimony, the Company continues to support its proposed 15
allocation of the EE investments because investing in EWR can lower the Company’s 16
overall system costs and as a result lower rates for all customers. 17
REMOVAL OF PROGRAM FLEXIBILITY & THE FINANCIAL INCENTIVE 18
Q. Do you agree with ABATE witness Gorman’s proposal for the Commission to prohibit 19
the Company from reallocating up to 30% of its approved program investments within 20
each class? 21
A. No. The Commission has given the Company the authority to reallocate up to 30% of its 22
approved EE investments within each class (residential and business) in its past approved 23
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EE plans as a means of managing and administering its portfolio between filings. 1
Without this flexibility, the Company could not effectively respond to changes in 2
customer participation and interests. 3
Q. Do you agree with Mr. Gorman’s proposal to prohibit the Company from earning a 4
financial incentive? 5
A. No. Act 342 permits the use of financial incentives as a means of encouraging utilities to 6
help customers reduce energy waste beyond the minimum levels established in the law. 7
Indeed, Act 342 specifically gives the Commission authority to approve a financial 8
incentive of up to 20% of program investments if the utilities exceed 1.5% of energy 9
savings. In the absence of the higher financial incentives, then utilities would be less 10
likely to pursue energy efficiency beyond the minimums. 11
Q. Does this conclude your rebuttal testimony? 12
A. Yes. 13
65
66
1 JUDGE MACK: Who would like to go first
2 on cross?
3 MR. BZDOK: I would, please, if you don't
4 mind.
5 JUDGE MACK: Go ahead, Mr. Bzdok.
6 CROSS-EXAMINATION
7 BY MR. BZDOK:
8 Q Good morning, Mr. Ykimoff.
9 A Good morning.
10 Q How you been?
11 A Doing well. Thank you.
12 Q Good, good, good. I want to talk to you about a few
13 topics in your rebuttal testimony today, which include
14 your Exhibit A-20, the compromise proposal that the
15 Company is making relative to performance incentives; I
16 also want to talk to you about net-to-gross values for
17 lighting, and I also want to talk to you about the prepay
18 program. I think those are the main topics for today.
19 So first let's talk about the proposal
20 that the Company makes, that you make on behalf of the
21 Company in your rebuttal testimony which you discuss on
22 page 7. Let me know -- of your rebuttal. Let me know
23 when you're there.
24 A Thank you. Yes, I'm there.
25 Q O.K. So generally, starting perhaps in a question that
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1 starts on the prior page, but you're asked to provide a
2 summary of -- let me step back a minute.
3 So just for context, you've been
4 discussing some of the Company's positions relative to
5 certain performance incentive mechanism recommendations
6 made by other parties, correct?
7 A That is correct.
8 Q And then starting on page 7, you're asked to provide a
9 summary of what the Company believes are reasonable
10 alternatives to the metrics that were proposed by other
11 parties, correct?
12 A Correct.
13 Q And those other parties were primarily Staff, NRDC, and
14 NHT; is that right?
15 A That is correct.
16 Q And so then you discuss on page 7 that you have included
17 an Exhibit A-20 with your rebuttal that is a summary of
18 performance and metrics that the Company is proposing in
19 response to the input from the other parties; is that
20 fair?
21 A That's correct.
22 Q And so these -- and just for the record, there is a
23 corrected version of A-20 as well; is that correct?
24 A That is correct.
25 Q O.K. And so the proposal in A-20 represents a --
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1 searching for the right word here -- a movement in the
2 Company's position relative to performance metrics from
3 the original filed case and exhibits associated with your
4 direct testimony; is that a fair characterization?
5 A Oh, yes. Yes.
6 Q The Company is -- A-20 represents the Company's current
7 proposal sitting here today for performance metrics?
8 A That is correct.
9 Q And so we don't need to have a lot of discussion about
10 the initial filed proposal?
11 A No.
12 Q O.K. Now, just for context, would you agree that NRDC in
13 its submittal in this case, in the testimony and exhibits
14 of Chris Neme on behalf of NRDC, NRDC has supported the
15 Commission approval of a performance mechanism for
16 Consumers; would you agree?
17 A I would agree with that.
18 Q So NRDC supports Consumers earning a performance
19 incentive under appropriate metrics which are still under
20 debate; is that fair?
21 A That is correct.
22 Q And you would agree with me that under Public Act 342 of
23 2016 -- I'm not asking you for a legal opinion, just your
24 understanding -- you would agree that there is no
25 automatic right to a performance incentive mechanism,
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1 right?
2 A That is correct.
3 Q So that is a discretionary decision by the Commission
4 based upon proposals made by the Company and the other
5 parties; would you agree?
6 A I would agree with that.
7 Q O.K. Based on, again, on your understanding as the
8 witness who is discussing the performance mechanism and
9 not as a legal opinion, what is your understanding of
10 what the purpose of the performance mechanism is, or the
11 purposes, if that's the case?
12 A To encourage utilities to drive the higher energy saving
13 targets and levels and some secondary performance metrics
14 that would be tied to achievement of metrics, such as low
15 income investment or something of that nature, but
16 primarily the impetus is on driving savings.
17 Q When you say higher savings, higher savings than
18 statutorily required?
19 A Yeah, compared to what we've had in the past under
20 PA 295.
21 Q So I've got to two purposes: To encourage to drive to
22 higher savings than statutorily required; and to achieve
23 secondary performance objectives relative to low income
24 and other considerations?
25 A Correct.
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1 Q And specifically, in A-20, the Company's current proposal
2 in response to the other parties, those other
3 considerations would include the multifamily energy
4 assessments peak demand savings, business energy
5 assessments, as well as the low income and the lifetime
6 energy savings; would you agree?
7 A That is the proposal, correct.
8 Q So I have a couple of discovery responses that I'd like
9 you to look at, and so these are documents that I have
10 marked as proposed Exhibits NRD-14, NRD-15, and NRD 16.
11 And just for the record, they are discovery responses
12 that have been marked, or discovery responses from the
13 Company --
14 MR. BZDOK: And I forgot to ask if I can
15 approach. May I approach?
16 JUDGE MACK: No, feel free.
17 Q (By Mr. Bzdok): NRD-14, NRD-15, and NRD 16, which are
18 discovery responses from the Company, NRDC-CE-59,
19 NRDC-CE-60, and NRDC-CE-61, these are responses by you,
20 correct?
21 JUDGE MACK: Hold on. Let's go off the
22 record.
23 (Documents distributed and marked for identification
24 by the Court Reporter as Exhibit Nos. NRD-14,
25 NRD-15, and NRD-16.)
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1 JUDGE MACK: We're back on the record.
2 Go ahead, Mr. Bzdok.
3 Q (By Mr. Bzdok): So these are all discovery responses
4 signed by you; is that correct?
5 A That is correct.
6 Q So let's look at the first one, NRD-14, which deals with
7 the performance requirement values for low income
8 spending and a comparison of those values of spending in
9 2015 and 2016 to the plan for 2017; is that correct?
10 A That is correct.
11 Q So in -- so here you have a table which includes low
12 income investment actual 2015, 2016, 2017, and then you
13 have the proposed low income investment performance
14 metric 2018, '19, '20, and '21; is that right?
15 A That is correct.
16 Q So the numbers in the lower table correspond with the
17 numbers under line No. 2 of Exhibit A-20; is that right?
18 A That is correct.
19 Q And that's true for page 1 on the electric side of A-20
20 and page 2 on the gas side for A-20; is that right?
21 A That is correct.
22 Q O.K. So to boil this down really, just to streamline it,
23 what these figures represent is that the Company is
24 proposing in its compromise proposal, A-20, that that the
25 minimum amount of low income spend on the electric and
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1 gas side for low income would be the same as the actual
2 amount anticipated to be spent in 2017 on those programs;
3 is that fair?
4 A That is correct.
5 Q So in your opinion, is that incentive for 2018 going to
6 drive higher savings, or is it going to allow the Company
7 to earn a performance incentive for more or less
8 achieving the same thing it achieved this year?
9 A It will actually achieve both, we'll deliver additional
10 savings from increased --
11 THE REPORTER: Additional savings from
12 the what investment?
13 THE WITNESS: Pardon?
14 THE REPORTER: Additional savings from
15 what investment?
16 A ... from the investment that we would make the additional
17 incremental investment in our income qualified program,
18 low income program.
19 Q (By Mr. Bzdok): So when you say drive additional
20 savings, are you -- I'm just trying to understand your
21 testimony, not to argue. When you say it's going to
22 drive additional savings, do you mean it's -- sure, go
23 ahead.
24 A It will provide us an opportunity to deliver additional
25 savings by infusing additional dollars into that program.
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1 Q So do I understand your testimony correctly that at the
2 same actual -- at the same spend in 2018 as 2017 for the
3 low income programs, you're projecting there will be
4 additional savings?
5 A No. I'm suggesting as we move up from the minimum to the
6 maximum, that there will be more.
7 Q O.K. Would it be reasonable to suggest that to start
8 earning a performance incentive in 2018, the investment
9 in low income ought to be at least some degree higher
10 than the actual investment in low income in 2017?
11 A That would be an option to definitely look at, yes.
12 MR. BZDOK: I'll move to admit NRD-14.
13 JUDGE MACK: Any objection to the offer?
14 (No response.)
15 Hearing none, Exhibit NRD-14 is admitted.
16 Q (By Mr. Bzdok): Let's take a look at NRD-15, which is
17 your Discovery Response NRDC-CE-60. This question also
18 deals with the performance metric and the actual
19 activities in recent years, would you agree, just
20 generally speaking? That's a bad question. Let me
21 phrase that question more precisely.
22 NRD-15, which is Discovery Response
23 NRDC-CE-60, makes a comparison of multifamily income
24 qualified assessments in -- I'm going to rephrase it
25 again, and I apologize.
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1 NRD-15, Discovery Response NRDC-CE-60,
2 contains actual figures for income qualified multifamily
3 assessments in the years 2015, 2016, and year-to-date for
4 2017; is that right?
5 A That is correct.
6 Q And what are income qualified multifamily assessments,
7 just for context?
8 A We will go in there and actually perform an audit and
9 provide the customer with a report that shows them what
10 energy saving opportunities they have available to them.
11 Q Is this sometimes just in general common parlance
12 referred to as an energy audit?
13 A Correct.
14 Q The projection for 2017 is that by year-end, 18 to
15 19 percent of all properties participating in this
16 program will receive an energy assessment; is that
17 correct?
18 A That's the projection, correct.
19 Q And the projected minimum amount at which the performance
20 incentive for multifamily energy assessments would be
21 earned in 2018 is 20 percent of participating buildings
22 on both the electric and the gas side in A-20; is that
23 right?
24 A That is correct.
25 Q So again, we have a situation where the performance
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1 incentive will start to be earned at a level very close
2 to the actual amount of activity in this year; would you
3 agree?
4 A That is correct.
5 Q Would it be reasonable, again, to set the performance
6 incentive threshold a little bit higher than the actual
7 activity in 2017 to drive that higher performance on that
8 metric, would that be reasonable?
9 A That option should be explored.
10 MR. BZDOK: Move to admit NRD-15.
11 JUDGE MACK: Any objection? (No
12 response.)
13 Exhibit NRD-15 is admitted.
14 Q (By Mr. Bzdok): Take a look at NRD-16, which is
15 Discovery Response NRDC-CE-61, it's going to be the same
16 line of questioning. Let me know when you're ready.
17 A We're on 41 right now? Or I apologize. 61?
18 Q Yes.
19 A O.K. I'm ready.
20 MR. BZDOK: One second, Judge.
21 JUDGE MACK: Wait. We're on 16, aren't
22 we?
23 MR. BZDOK: We're on NRD-16, which is
24 Discovery Response NRDC-CE-61.
25 JUDGE MACK: Oh, all right.
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1 A My clarification.
2 Q (By Mr. Bzdok): So first -- so my first question is,
3 both this discovery response and Exhibit A-20, line 5,
4 talk about electric assessments, gas assessments, and
5 combination assessments for small business; do you see
6 that?
7 A Yes.
8 Q How do the -- this is just for my understanding. How do
9 the -- so in A-20, on the electric side, there are
10 proposed minimum and maximum performance requirements
11 stated in a number of assessments, correct?
12 A Correct.
13 Q And the assessments on page 1, the electric page, those
14 assess -- so for 2018, on the electric page, 4,000
15 assessments is a number for electric and combination
16 small business customers, correct?
17 A That would be correct.
18 Q Combination would mean customers who have both electric
19 and gas service from Consumers Energy; do I have that
20 right?
21 A That is correct.
22 Q And then on the gas side, again we have 4,000 assessments
23 for gas and combination small business customers,
24 correct?
25 A Correct.
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1 Q And in this situation, the combination small business
2 customer would be a customer who takes gas and electric
3 service from Consumers Energy, correct?
4 A That is correct.
5 Q How is it determined -- for the combination customers,
6 how is it determined which bucket they go in, who is an
7 electric combination, who is a gas combination, for
8 purposes of meeting --
9 A For purposes of meeting that, it would be a combination
10 customer would count in both categories.
11 Q O.K. In looking at NRDC-61 --
12 JUDGE MACK: And just so we're on the
13 same page, that's NRD-16?
14 MR. BZDOK: Thank you. Yes.
15 Q (By Mr. Bzdok): Proposed NRD Exhibit 16, Discovery
16 Response 61, there are data reported for 2016 of 3,424
17 electric, 966 gas, and 1,860 combination assessments in
18 2016; would you agree?
19 A That's correct.
20 Q So for purposes of the electric side, the proposed
21 minimum performance incentive for 2018 of 4,000
22 assessments would represent a decrease in number of
23 assessments from those completed in 2016 using electric
24 and combination assessments together; would you agree
25 with that?
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1 A If you were to use 2016 as the basis, yes, that's
2 correct.
3 Q It would represent an increase on the electric side
4 from -- well, I guess we don't know, right? For 2017,
5 are -- do you have any projection for how many electric
6 and combination assessments are anticipated to be
7 completed by year-end 2017?
8 A I know we intend in total to do about 4,500, so that's --
9 I don't have the split.
10 Q So on the energy assessments question, at least for 2018,
11 it's possible that both the minimum and maximum
12 performance requirement thresholds could be under the
13 level of actual achievement in 2016 and 2017; would you
14 agree with that?
15 A There's a potential, correct.
16 Q Would it be reasonable to expect that those threshold
17 numbers should be higher than the actual achievements in
18 2016 and '17?
19 A I guess that would depend on what the plan was to do
20 originally.
21 Q What do you mean?
22 A The plan in '18 through '21 originally, what the plan was
23 to do versus what you're now increasing it to.
24 Q So if I understand your testimony correctly, you're
25 positing that on Exhibit A-20 represents a higher level
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1 of performance than initially planned for in the original
2 filing for a number of assessments?
3 A That is correct.
4 Q And when we talk about number of assessments originally
5 planned in the filing, that's in the energy efficien --
6 energy waste reduction plan that you're referring to,
7 right?
8 A Correct.
9 Q Because this was not a performance metric in the original
10 plan?
11 A No.
12 MR. BZDOK: Move to admit NRD-16.
13 JUDGE MACK: Any objection to the offer?
14 (No response.)
15 Exhibit NRD-16 is admitted.
16 MR. BZDOK: Due to an error in my ability
17 to count, there will be no NRD-17.
18 JUDGE MACK: O.K.
19 MR. BZDOK: May I approach freely, or
20 would you like me to ask?
21 JUDGE MACK: No, feel free throughout.
22 MR. BZDOK: Thank you.
23 (Document distributed.)
24 Q (By Mr. Bzdok): I'm going to now provide you with a copy
25 of a discovery response which I have marked as proposed
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1 Exhibit NRD-18, which is Discovery Response NRDC-CE-58.
2 (Document marked for identification by the Court
3 Reporter as Exhibit No. NRD-18.)
4 Q (By Mr. Bzdok): This is also a proposed -- excuse me.
5 This is also a discovery response by you; is that
6 correct?
7 A That is correct.
8 Q The question here deals with peak savings metrics; is
9 that right?
10 A Correct.
11 Q And so that's line 4 of Exhibit A-20 on the electric
12 side; is that right?
13 A That is correct.
14 Q And what is the purpose of a peak demand savings metric?
15 A To reduce the capacity, the needed capacity for our grid
16 so we won't, during peak days, won't have to deliver as
17 much energy.
18 Q So is it fair to say that those programs are especially
19 cost-effective because they both reduce energy and also
20 the need for capacity?
21 A Absolutely.
22 Q The question and answer here essentially asks you for
23 your opinion on whether -- well, let me back up.
24 So the peak demand savings metric as
25 stated in A-20 is a first-year peak demand savings
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1 metric, correct?
2 A That is correct.
3 Q And then in Exhibit, proposed Exhibit NRD-18, Discovery
4 58, you're indicating that the Company would consider a
5 lifetime peak savings metric; is that correct?
6 A That is correct.
7 Q And that was something that was proposed by NRDC's
8 witness, Mr. Neme; is that correct?
9 A That is correct.
10 Q In considering such a metric, and I'm just asking you for
11 your sort of I guess impression, would it be similar to
12 or different than what Mr. Neme proposed, are there
13 thoughts you have on that that you could elaborate here
14 today?
15 A No, I mean we would be good with evaluating moving to
16 lifetime peak demand reduction savings metric.
17 Q Based -- with the elements that Mr. Neme proposed?
18 A Sure.
19 MR. BZDOK: Move to admit NRD-18.
20 JUDGE MACK: Any objection? (No
21 response.)
22 Exhibit NRD-18 is admitted.
23 MR. BZDOK: Could we go off the record
24 for a moment?
25 JUDGE MACK: We're off the record.
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1 (Documents distributed and marked for identification
2 by the Court Reporter as Exhibit Nos. NRD-17A and
3 NRD-17B.)
4 JUDGE MACK: O.K. We are back on the
5 record. While we were off the record, Mr. Bzdok, I
6 understand you have now an Exhibit NRD-17?
7 MR. BZDOK: Yes, we have a 17A and a 17B.
8 Q (By Mr. Bzdok): And before that, I want to look at
9 Mr. Neme's prefiled Exhibit NRD-8. Do you have his
10 exhibits with you?
11 A I do not.
12 Q O.K.
13 (Document shown to counsel for Consumers Energy and
14 provided to the witness.)
15 Q (By Mr. Bzdok): So I'm going to just give you one of my
16 copies of Mr. Neme's prefiled testimony and exhibits,
17 which I've opened to Exhibit NRD-8, prefiled, which is
18 Discovery Response NRDC-CE-9. Do you see that?
19 A I do.
20 Q And this was also a discovery response by you; is that
21 right?
22 A That is correct.
23 Q O.K. So let's orient back now to your rebuttal
24 testimony, pages 7 and 8, under heading that says
25 Light-Emitting Diode NTG and Average Life. Let me know
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1 when you're there.
2 A I'm there.
3 Q O.K. So here you are responding to testimony by
4 Mr. Neme; is that correct?
5 A That is correct.
6 Q And that, the testimony that you're responding to has to
7 do with the net-to-gross ratio that is assumed in the
8 plan for Light-Emitting Diodes, or LEDs; is that right?
9 A That is correct.
10 Q And what is a net-to-gross ratio, just for context?
11 A The percentage of participants that you can demonstrate
12 that you've convinced to take that action, and if you
13 were to take one minus the net-to-gross, that would be
14 the -- oh, gees, I'm losing my mind here -- would be the
15 oh, the free riders, I'm sorry, free riders; so yes,
16 that's the customers you convince to actually participate
17 in the program that you can take credit for the savings.
18 Q So and there are three main effects, again, just for
19 context, that impact the NTG right; free ridership,
20 spillover, and market effects, just broadly speaking?
21 A That's correct.
22 Q And what is a free rider, or what is free ridership?
23 A In the absence of the program, they would have
24 participated -- they would have done that action anyways.
25 Q So in this case, they would have bought the LED bulb
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1 whether they were offered an incentive or not?
2 A Correct.
3 Q And what is a spillover?
4 A Spillover is you are promoting a product, but they don't
5 necessarily participate in your program to get a rebate,
6 but they actually like, for example, purchase a furnace
7 but don't get a rebate, that would be spillover; you
8 influence someone, but they didn't participate in the
9 program, but you influenced them to take an action
10 towards energy efficiency.
11 Q How might that come about in the context of LEDs?
12 A To the extent that you were promoting LEDs and the
13 customer went in the store and just bought LEDs on their
14 own that weren't necessarily bought down by Consumers
15 Energy.
16 Q And when you say bought down, that's the program where
17 Consumers pays the retailer to reduce the cost of the
18 item; is that right?
19 A That's correct.
20 Q And what are market effects, broadly speaking?
21 A Market effects are, there could be market effects with
22 respect to like any kind of rules or regulations that the
23 government may have, any kind of supply and demand issues
24 with product availability, those kinds of things.
25 Q So in the context of LEDs, how would that work?
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1 A Just the -- very similar to what we faced with the CFL,
2 the potential when there was a shortage of CFLs in the
3 market several years ago, similarly you may have that
4 situation with LEDs, just the availability.
5 Q O.K. So just to bracket the positions, Consumers'
6 original filing proposed an NTG of .90 for LEDs; is that
7 correct?
8 A That is correct.
9 Q And then Mr. Neme in his testimony proposed that the NTG
10 for LEDs should be set at .70, and then decline by .05
11 each year of the plan following that; is that correct?
12 A That is correct.
13 Q And do you have an understanding of why he was proposing
14 a lower NTG and also one that would decline for LEDs?
15 A Due to the EISA, Energy Independent Security Act,
16 implementation and the phase-out of incandescent and
17 other types of bulbs, minimum efficiency standard set.
18 Q And so how does that impact LEDs?
19 A So on store shelves there may not be as great an
20 abundance of a variety of bulbs, like incandescent
21 and halogen, there just may be more of a preponderance of
22 LEDs on the store shelves.
23 Q And so that would lead a customer to buy an LED
24 irrespective of the incentive because the market is
25 changing and LEDs are primarily what's available?
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1 A There could be a transformation in the market, correct.
2 Q And it would be your expectation, just broadly speaking
3 and not attached to any numbers, that it would be
4 reasonable to expect that EISA will reduce the NTG for
5 LEDs going forward; would you agree with that?
6 A I would agree it would have some impact, yes.
7 Q And would you agree that already we've seen a substantial
8 increase in the market share of LEDs already sitting here
9 today in 2017 compared with, say, you know, 2014?
10 A Yes.
11 Q Would you characterize that as a small increase or a big
12 increase in the market share for LEDs in that time
13 period?
14 A Well, I think back to when we had just CFLs --
15 THE REPORTER: I'm sorry. Just CFLs...?
16 We have no mic and we have a loud fan.
17 THE WITNESS: I'm sorry.
18 THE REPORTER: The mic doesn't work.
19 A Could you please repeat the question again?
20 MR. BZDOK: Can you read that question
21 back?
22 JUDGE MACK: Let's go off the record.
23 (A brief discussion was held off the record.)
24 (The record was read aloud as follow:
25 "Q Would you characterize that as a small increase
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1 or a big increase in the market share for LEDs
2 in that time period?")
3 Q (By Mr. Bzdok): So let me rephrase the question. Would
4 you generally characterize the increase in market share
5 in LEDs between, say, 2014 and now as a small increase or
6 a big increase in market share?
7 A Relative to the base of 2014, there's been, I would --
8 greater than medium; I would wouldn't say it's been a
9 huge increase, but I'd say it's been greater than the
10 middle ground, yeah.
11 Q And an increase in market share -- strike that question.
12 So starting on line 8 of page 7 of your
13 rebuttal testimony, you have a discussion of EISA and
14 sort of an ongoing transformation of the lighting market.
15 Do you see that generally?
16 A Correct.
17 Q And then you have a -- and then you talk about Mr. Neme's
18 testimony about the .90 versus .70, and the 5-percent
19 reduction going forward, correct?
20 A Correct.
21 Q And then you indicate a disagreement with that, and you
22 offer an alternative; is that fair?
23 A That is correct.
24 Q And the alternative that you offer is based upon a study
25 which you sponsor as Exhibit A-21 with your rebuttal
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1 testimony, correct?
2 A Correct.
3 Q And the -- and based upon that study -- well, and then
4 you indicate that study estimated an NTG value of 0.82
5 for standard CFLs through upstream residential retail
6 lighting programs in 2014-2015, correct?
7 A Correct.
8 Q And an upstream program is a buy-down, like we talked
9 about earlier?
10 A That's correct.
11 Q O.K. And so let's take a look at that study of your
12 Exhibit A-21. You have a copy of that, right?
13 A I do.
14 Q O.K. So looking at this study, A-21, Michigan CFL
15 Net-to-Gross Advisory Panel Final Report, this was a
16 joint study on behalf of Consumers and DTE, correct?
17 A That is correct.
18 Q Performed by Cadmus, Navigant, and NMR, correct?
19 A Correct.
20 Q And this date of the study is April 14, 2014, correct?
21 A That is correct.
22 Q And that's a date of publication, right?
23 A Correct.
24 Q So I'm looking at page 1, Executive Summary, very first
25 sentence, the research for this study was done during
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1 2013; would you agree?
2 A Correct.
3 Q And this study concludes that an NTG value of 0.82 for
4 standard CFLs is appropriate for 20 -- the years
5 2014-2015, right?
6 A Correct.
7 Q How is a CFL different than an LED?
8 A Well, based on the, the measure life and the efficiency
9 of the bulb --
10 Q LEDS are -- sorry. Go ahead.
11 A They're more efficient.
12 Q LEDs are more efficient? Is that a yes?
13 A Correct.
14 Q Is it fair to say that the -- so EISA has some new
15 standards that are coming into effect as of 2020; is that
16 right?
17 A That's correct.
18 Q And so is it generally, when you talk about a market
19 transformation, is it generally your perception that the
20 importance of CFLs in promoting energy savings is going
21 to be reduced as a result of the 2020 standards?
22 A I would suspect, yes.
23 Q And that the market share of LEDs is going to continue to
24 increase as a result of the 2020 standard?
25 A Very likely, yes.
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1 Q Would you agree that those effects are going to begin
2 before the standard actually takes effect in 2020 as
3 retailers begin the shift towards more and more LEDs?
4 A I would think so.
5 Q The study on page 3, under Key Findings and
6 Recommendations, second paragraph, says, "The NTGR values
7 found in this study are higher than those found in prior
8 NTGR research conducted in other jurisdictions." Do you
9 see that?
10 A Yes.
11 Q And then there are some bullet point factors to which
12 this higher value of .82 in this study is attributed. Do
13 you see those?
14 A Correct, I do.
15 Q Go ahead. What were you going to say?
16 A I'm just agreeing.
17 Q O.K. One of the factors is the explicit inclusion of my
18 multiyear market effects in the definition of
19 net-to-gross in Michigan. Do you see that?
20 A Where are you? What --
21 Q I'm on the first bullet point factor.
22 JUDGE MACK: And we're going to have to
23 speak up. O.K.
24 THE WITNESS: I'm sorry.
25 JUDGE MACK: That's fine. So do you have
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1 that?
2 A The first bullet point on page 3, yes, I'm there.
3 Q (By Mr. Bzdok): And the second factor talks about the
4 weaker condition of the Michigan economy relative to
5 other regions could have inhibited customer purchases of
6 discretionary products, such as CFLs, correct?
7 A Correct.
8 Q And then the third one is that the Michigan programs had
9 only operated since 2009, a shorter duration than
10 programs in other regions, including Massachusetts,
11 correct?
12 A Correct.
13 Q Is it fair to say that generally that NTGs, all other
14 things being equal, will tend to go down as a program
15 matures?
16 A I'm not an expert in net-to-gross ratios.
17 Q You go on in your testimony, rebuttal testimony on page
18 8, after you've described this study that we've just
19 looked at, to propose that that 0.82 value for standard
20 CFLs for 2014-15 arrived at in the study be used as an
21 NTG value for LEDs for the initial years of this plan,
22 correct?
23 A That is correct.
24 Q And then you say that -- and one of your criticisms is --
25 or one of your responses to Mr. Neme is that you believe
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1 that using this study would be more appropriate than to
2 adopt NTG values used by other utilities outside of
3 Michigan, correct?
4 A Correct.
5 Q And then you indicate that the, starting at line 9, that
6 the NTG for LEDs should be evaluated going forward as
7 part of the 2018 evaluation efforts, right?
8 A Correct.
9 Q In Discovery Response NRDC-CE-9, which was prefiled by
10 Mr. Neme as Exhibit NRD-8, or prefiled by us on his
11 behalf, one of the questions that we asked you at
12 question 9(e) was whether the, Consumers has conducted
13 any market research or sponsored any evaluation work
14 within the last three years that assessed directly or
15 indirectly its program net-to-gross ratio for any
16 lighting products, with a parenthetical; do you see that
17 question?
18 A I apologize, what question was that?
19 Q I'm sorry. So I'm in the Neme Exhibit NRD-8.
20 A One second.
21 JUDGE MACK: Let's go off the record.
22 (At 10:00 a.m., a discussion was held off the
23 record.)
24 (Document distributed and marked for identification
25 by the Court Reporter as Exhibit No. NRD-17C.)
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1 JUDGE MACK: We are back on the record.
2 Mr. Bzdok, you want to address what you handed out?
3 MR. BZDOK: Sure.
4 Q (By Mr. Bzdok): So I have handed you, Mr. Ykimoff, a
5 discovery response that I have marked as proposed Exhibit
6 NRD-17C, which is Discovery Response NRDC-CE-9. Do you
7 see that?
8 A I do.
9 Q And this is also a discovery response by you; is that
10 correct?
11 A It is.
12 Q And question 9(e), we asked you if Consumers had
13 conducted any market research or sponsored any evaluation
14 work within the last three years that assessed directly
15 or indirectly its program net-to-gross ratio for any
16 lighting products, with a parenthetical, and then if so,
17 please provide that research. Do you see that question?
18 A I do.
19 Q And in the response, you provided us with a document
20 listed under (e) as a 2015 CFL NTG study that was
21 provided in an attached file. Do you see that?
22 A I do.
23 Q And that CFL 2015 study is the Cadmus Memorandum dated
24 July 22, 2015, that we've marked as proposed Exhibit
25 NRD-17A; is that correct?
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1 A That is correct.
2 Q And that, so the Cadmus Memo -- is it all right if I just
3 call it that, 17A?
4 A Sure.
5 Q The Cadmus Memo concludes, generally speaking, that the
6 .82 CFL NTG value that was set in Exhibit A-21, the 2014
7 study, that that NTG should be continued for 2016-2017,
8 correct?
9 A That is correct.
10 Q And one of the reasons given for that is that -- is the
11 robustness of the current NTG estimate indicates its
12 continued validity, correct?
13 A Correct.
14 Q And basically -- basically that's an opinion that's given
15 as to the rigor with which the earlier study was done; is
16 that fair?
17 A Yes.
18 Q And then the other reason that's given is that CFL NTG
19 values elsewhere are stable or increasing, correct?
20 A It appears that, yes.
21 Q And there's a table there given for CFL NTG values for
22 four other utilities or locations, ComEd, Ameren
23 Illinois, Efficiency Maine, and Massachusetts, correct?
24 A Correct.
25 Q And these are, at least some of these utilities or
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1 jurisdictions are the same as those relied on by Mr. Neme
2 in his testimony for reasons why NTGs should be
3 considered for lowering below the Company's proposal,
4 correct?
5 A Correct.
6 Q So the -- so it's fair to say that the Cadmus Memo also
7 relies on values from other out-of-state utilities,
8 right?
9 A As a point of comparison, yes.
10 Q The Cadmus Memo also mentions that, on page 4 at the end,
11 recommends that additional research may be warranted in
12 2016 or 2017 to update the NTG estimates for 2018,
13 correct?
14 A Correct.
15 Q And just generally speaking, this is because of this
16 market transformation or market evolution concept that
17 we've talked about, right?
18 A Likely.
19 Q To your knowledge, no additional research was done in
20 2016-17 for NTG values for 2018 and beyond under the
21 recommendations by Cadmus, right?
22 A That is correct.
23 Q Looking back again at -- so NRD-17B proposed, which is
24 NRDC-CE-63, do you have that in front of you as well?
25 A I do.
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1 Q That discovery response just reflects what we've talked
2 about in terms of the Cadmus Memo recommendation,
3 correct?
4 A Correct.
5 MR. BZDOK: So I will move to admit
6 NRD-17A, B, and C.
7 JUDGE MACK: Any objection? (No
8 response.)
9 Hearing none, Exhibits NRD-17A, 17B, and
10 17C are admitted.
11 And, Mr. Bzdok, I don't know if we got
12 into it, but I believe any questions earlier regarding
13 NRD-9 are in fact a reference to NRD-17C?
14 MR. BZDOK: Yes. Thank you.
15 JUDGE MACK: Go ahead.
16 Q (By Mr. Bzdok): In NRD-17C, that Discovery Response
17 NRDC-CE-9?
18 A Yes.
19 Q On question (d), we asked if Consumers had conducted any
20 market research or sponsored any evaluation work within
21 the last three years that analyzed the market for
22 residential lighting products, with a parenthetical, and
23 if so, to provide any of that data or reports; is that
24 correct?
25 A Correct.
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1 Q And the answer to that one, item (d), was, yes, please
2 see the lighting program evaluation study that was
3 attached, correct?
4 A Correct.
5 Q I'm going to hand you what I've marked as proposed NRD
6 Exhibit 20.
7 (Document distributed and marked for identification
8 by the Court Reporter as Exhibit No. NRD-20.)
9 Q (By Mr. Bzdok): Which is titled Energy Star Lighting
10 Program Evaluation Final Report for the 2016 Program
11 Year, dated June 13, 2017, correct?
12 A That's correct.
13 Q And this is the lighting program evaluation study
14 referred to in item (d) of Discovery Response 9, Exhibit
15 NRD-17C, correct?
16 A Correct.
17 Q And this report also discusses the transformation of the
18 lighting market and the impact of that on LED and CFL
19 bulbs, for example, at page 1 under Research Objective?
20 Do you see that?
21 A Yes.
22 Q And then on page 10 under Energy Star Version 2.0,
23 there's a statement under point 1, "Under the new
24 specification, CFL bulbs will be largely excluded from
25 Energy Star Version 2.0 due to increased efficacy
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1 requirements for omnidirectional bulbs." Do you see
2 that?
3 A Uh-huh, I do.
4 Q And then there's a table below that that gives some of
5 the statistics for how that standard is going to change,
6 right?
7 A Correct.
8 Q Do you have any opinion of how the exclusion of CFL bulbs
9 from Energy Star Version 2.0 will affect the market for
10 LEDs?
11 A I do not.
12 MR. BZDOK: I'm going to move to admit
13 NRD-20.
14 JUDGE MACK: Any objection? (No
15 response.)
16 Hearing none, Exhibit NRD-20 is admitted.
17 Q (By Mr. Bzdok): Now, the Pay My Way pilot, which is the
18 last topic that I wanted to discuss with you today, which
19 you discuss in your rebuttal testimony at pages 9 and 10;
20 what is the Pay My Way pilot? If you need another
21 minute, please go ahead. I didn't mean to interrupt.
22 A A program that educates customers, providing them with
23 timely information on their energy consumption, and they
24 pay ahead to the utility and receive daily updates in
25 terms of the energy that they use.
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1 Q So NRDC Witness Chris Neme testified in this case that he
2 did not believe that the Pay My Way Program should be
3 considered an energy efficiency program; is that fair?
4 When I'm asking if it's fair, I'm asking if that's your
5 understanding of what he testified, not whether you agree
6 with it.
7 A That's my understanding.
8 Q And you are responding to that position at pages 9 and 10
9 of your rebuttal and indicating that your opinion is that
10 the Pay My Way pilot should be considered a potential
11 future EE program, correct?
12 A Correct.
13 Q You, among other things, you provide as Exhibit A-23 a
14 report from Duke Energy in which Duke Energy had a
15 prepaid pilot program in which participants experienced
16 energy savings; is that correct?
17 A That is correct.
18 Q And that's your proposed Exhibit A-23, correct?
19 A That is correct.
20 Q And that -- so the Duke Energy report had nothing to
21 do -- let me rephrase that.
22 Consumers Energy did not participate in
23 any way in the Duke Energy report, correct?
24 A Correct.
25 Q Was not a partner or a collaborator or had no visibility
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1 into how that study was done?
2 A No.
3 Q And you personally had no connection or participation in
4 that study, correct?
5 A That is correct.
6 Q Rather than continue to admit more discovery responses
7 and in the interest of time, I'm just going to try to do
8 this as a discussion instead.
9 You would acknowledge that -- well, let
10 me say it a different way. Is it true that Consumers
11 Energy expects that people who are having difficulty
12 paying their monthly energy bill will be a significant
13 portion of the customers who are expected to participate
14 in Pay My Way?
15 A That could be the case, but we're kind of in the early
16 infancy of the program piloting it.
17 MR. BZDOK: This will be my last
18 discovery response, I only have one copy with me today,
19 but I'm going to show it to counsel and we will get
20 additional copies made at the break or at lunch, but
21 before we're done today, we'll have additional copies of
22 this one.
23 JUDGE MACK: And what's that marked?
24 MR. BZDOK: It's marked as proposed
25 NRD-21.
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1 Q (By Mr. Bzdok): And so I've handed you proposed NRD-21,
2 which is Discovery Response NRDC-CE-45; is that correct?
3 A That's correct.
4 Q And this is a discussion of -- well, I guess I would just
5 point you to the paragraph on page 2 wherein the response
6 states that the Company expects those having difficulty
7 paying their monthly energy bills will comprise a
8 significant portion of the participating customers in Pay
9 My Way. Do you see that?
10 A I do.
11 MR. BZDOK: I'll move to admit NRD-21.
12 JUDGE MACK: Any objection?
13 Let's go off the record.
14 (At 10:25 a.m., a discussion was held off the
15 record.)
16 JUDGE MACK: Now we're back on.
17 Q (By Mr. Bzdok): Just to clarify, the document that I had
18 handed you that was marked NRD proposed 21, NRDC-CE-45,
19 is identical to the document which was prefiled with
20 Mr. Neme's testimony and exhibits as Exhibit NRD-10; is
21 that right?
22 A That is correct.
23 Q So my questions to you about proposed Exhibit NRD-21
24 would be the same if we were referring to prefiled
25 Exhibit NRD-10, right, your answers would be the same?
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1 A Correct.
2 MR. BZDOK: That concludes my questions
3 for you. Thank you very much.
4 I will not move to admit NRD-21.
5 JUDGE MACK: Thank you, Mr. Bzdok. And
6 just so we're clear, there was no NRD-19 either, correct?
7 MS. STALEY: Right.
8 MR. BZDOK: Let me just triple check
9 that. All right.
10 JUDGE MACK: Let's go off the record.
11 MR. BZDOK: Correct.
12 (Brief pause.)
13 JUDGE MACK: O.K. We're back on the
14 record. Mr. Bzdok, there was no NRD-19, correct?
15 MR. BZDOK: That is correct.
16 JUDGE MACK: And you are done with your
17 cross-examination?
18 MR. BZDOK: Yes. Thank you very much,
19 Mr. Ykimoff.
20 THE WITNESS: Thank you.
21 JUDGE MACK: Thank you, Mr. Bzdok.
22 Let's take a break, we will come back on
23 the record at 10:45.
24 (At 10:28 a.m., there was a 17-minute recess.)
25 - - -
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1 (Documents marked for identification by the Court
2 Reporter as Exhibit Nos. NHT-10, NHT-11A, and
3 NHT-11B.)
4 JUDGE MACK: O.K. We're back on the
5 record. While we were off the record, Mr. Gallagher has
6 joined us. Mr. Gallagher, would you like to enter your
7 appearance?
8 MR. GALLAGHER: Yes, Judge Mack. Thank
9 you. Sean Gallagher from Clark Hill, PLC, on behalf of
10 the Association of Businesses Advocating Tariff Equity.
11 JUDGE MACK: Thank you.
12 Ms. Barbash-Riley, do you have cross-examination?
13 MS. BARBASH-RILEY: Yes, I do.
14 JUDGE MACK: Go ahead, please.
15 CROSS-EXAMINATION
16 BY MS. BARBASH-RILEY:
17 Q Good morning, Mr. Ykimoff.
18 A Good morning.
19 Q My name is Lydia Barbash-Riley, I'm counsel for the
20 National Housing Trust.
21 MS. BARBASH-RILEY: I have a document
22 here that I have marked as proposed Exhibit NHT-10, these
23 are Mr. Ykimoff's Responses 18261-NHT-CE-67. May I
24 approach?
25 JUDGE MACK: Yes. Feel free throughout.
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1 Thank you.
2 (Document distributed.)
3 Q (By Ms. Barbash-Riley): I've presented to you discovery
4 responses labeled NHT-67, our proposed Exhibit NHT-10,
5 that you indicated you prepared. Do you recognize that
6 these are discovery responses that you have provided in
7 this case?
8 A I do.
9 Q You state in response to NHT-67(a) that, "The Company has
10 benchmarked the percentage of energy savings seen in
11 properties that participate in multifamily programs
12 administered by other utilities and found that limited
13 information is available." Is that correct?
14 A That is correct.
15 Q How was this benchmarking done?
16 A Discussions with other utilities, getting on utility
17 websites, looking at their filings, determining what type
18 of activities that they're doing with respect to their
19 different programs, and also review of evaluation reports
20 specifically around multifamily for other utilities.
21 Q And who did this benchmarking?
22 A We have, typically either have a program manager do
23 benchmarking and/or our evaluation contractor do that.
24 Q So did you personally do this benchmarking?
25 A I did not.
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1 Q Do you know if the team or the people who did the
2 benchmarking found any studies other than the studies you
3 cited in Response NHT-67 indicating that multifamily
4 properties typically achieve energy savings of between 2
5 and 4 percent based on projects they've completed?
6 A I am not aware of any other studies that were performed
7 or evaluated.
8 Q So you have not reviewed any other studies of energy
9 savings achieved by properties participating in
10 multifamily programs?
11 A None that come to mind, no.
12 Q And the team who did the benchmarking did not review any
13 other studies evaluating the savings achieved by
14 properties participating in multifamily programs?
15 A None that I'm aware of, no.
16 Q So is it fair to say that your statement on page 6 of
17 your rebuttal testimony, that the Company has observed
18 that multifamily properties typically achieve energy
19 savings of between 2 percent to 4 percent based on the
20 projects they have completed, is based solely on the
21 benchmarking team's review of the two studies that you
22 produced in response to Discovery Question NHT-67?
23 A That would be correct.
24 Q And do you not expect that any other utility in the
25 nation has reported results on this question?
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1 A I'm certain there are.
2 Q Do you expect that any of these studies could show
3 savings of over 4 percent?
4 A Potentially, yes.
5 MS. BARBASH-RILEY: I'll move to admit
6 NHT-10 at this time.
7 JUDGE MACK: Any objection? (No
8 response.)
9 Hearing none, Exhibit NHT-10 is admitted.
10 MS. BARBASH-RILEY: I have documents that
11 I have marked as proposed Exhibits NHT-11A and 11B, these
12 are two reports that Mr. Ykimoff produced in response to
13 Discovery NHT-CE-67.
14 (Documents distributed.)
15 Q (By Ms. Barbash-Riley): These are the reports you
16 produced in response to the question asking you to
17 produce the sources for the statement that the Company
18 has observed that multifamily properties typically
19 achieve energy savings of between 2 and 4 percent based
20 on projects they have completed, correct?
21 A That is correct.
22 Q Did you review the Rhode Island report that you produced
23 with your response to NHT-67(b)?
24 A I did read it, yes.
25 Q You did read it?
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1 A I did.
2 Q Are you aware of whether the Rhode Island program
3 addressed water heating and HVAC equipment replacement?
4 A I do not recall.
5 Q Are you aware if savings from water heating and HVAC
6 equipment replacement is captured in the program savings
7 total?
8 A I am not aware.
9 Q Would the savings percentages indicated in this report
10 potentially be higher if this program addressed water
11 heating and HVAC equipment replacement?
12 A Assuming it didn't, yes.
13 Q Assuming it didn't?
14 A Yes.
15 Q At this point, please refer to Table 13 of the Rhode
16 Island Multifamily Impact Evaluation Report; this is on
17 page 18, or document No. 26100217.
18 A Which table is that?
19 Q This is Table 13, Program Level Results from Difference
20 of Differences Model with Comparison Group.
21 A You said page 18?
22 Q Yes, page 18, it's also labeled document No. 26100217.
23 JUDGE MACK: In the corner of the
24 document are those numbers --
25 Q (By Ms. Barbash-Riley): In the corner of the document.
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1 JUDGE MACK: -- Bates stamp numbers.
2 A Oh, I see. O.K.
3 JUDGE MACK: Actually, I believe it's
4 Exhibit, proposed Exhibit 11A --
5 MS. BARBASH-RILEY: That's correct.
6 JUDGE MACK: -- page 18. And just so
7 we're clear, Exhibit A and Exhibit B are all together
8 here?
9 MS. BARBASH-RILEY: That's correct.
10 JUDGE MACK: O.K.
11 A Program Level Results?
12 Q (By Ms. Barbash-Riley): Yes.
13 A Yes.
14 Q Does Table 13 indicate that the gas savings for
15 multifamily low income are 6.7 percent?
16 A Yes, for gas, yes.
17 Q And does Table 13 indicate that the electric savings for
18 multifamily low income are 5.4 percent?
19 A It does.
20 Q Now, could you please turn to Table 18 on page 32 of the
21 gas savings report, this is Bates No. 26100260, and this
22 is proposed Exhibit NHT B, 11B.
23 A Table 18?
24 Q Yes.
25 A Yes.
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1 Q Does Table 18 indicate that the gas savings are
2 8.18 percent for all premises?
3 A On Table 18?
4 Q That's correct, on page 32, labeled --
5 A Yep.
6 Q Uh-huh.
7 A Yes.
8 Q So based on these clarifications which -- or these
9 percentage, savings percentages that you just verified,
10 why did you indicate that 4 percent is the upwards limit
11 of the energy savings typically achieved by multifamily
12 properties on page 6 of your rebuttal testimony?
13 A Both those numbers were cited in both of these studies,
14 and I'm looking through my notes to find out the
15 reference page that I had. In the first report, the
16 National Grid --
17 Q This is the Rhode Island report, correct?
18 A Yes. The Rhode Island report, on page 15, paragraph 3,
19 start with Table 11, the bottom, it indicates: During
20 this same period, our electric --
21 THE REPORTER: Our electric?
22 JUDGE MACK: Hold on.
23 THE WITNESS: I apologize.
24 JUDGE MACK: That's O.K. Let's get to
25 that page.
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1 THE WITNESS: Page 15.
2 JUDGE MACK: Proposed 11A, page 15. And
3 everybody there?
4 Q (By Ms. Barbash-Riley): Is this Table 10?
5 A No. This is actually Site-Level Model Results, on the
6 results section on page 15.
7 Q Can you please provide the Bates number that's on the
8 page?
9 A Pardon me?
10 Q Can you please provide the Bates number that is on the
11 page you were reading from; there are multiple page 15s?
12 A I know. I'm actually referencing my attachment because
13 I -- let me find this one, too. I apologize.
14 JUDGE MACK: What table is it?
15 THE WITNESS: There's not a table, it's
16 actually text.
17 JUDGE MACK: Oh, it's text.
18 THE WITNESS: Yes.
19 JUDGE MACK: O.K. Let's go off the
20 record.
21 (A brief discussion was held off the record.)
22 JUDGE MACK: We are back on the record.
23 We, I believe we're all on the same page, literally. Go
24 ahead.
25 Q (By Ms. Barbash-Riley): Go ahead.
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1 A So in the third paragraph in of the, the last sentence in
2 the third paragraph, during this same period, our
3 electric comparison group experienced an increase in
4 normalized consumption of 1.6 percent while the
5 comparison group reduced consumption 2.2 percent. So
6 that was the 2.2-percent reference in that study.
7 Q Can you please reconcile that with the results on Table
8 13 of page 18 indicating that gas savings for multifamily
9 low income are 6.7 percent?
10 A That's likely just the overall impact from the study, the
11 2.2. I'm not -- I don't know for sure.
12 Q So you can't say for certain what accounts for the
13 difference between the 6.7-percent savings indicated in
14 Table 13 and the results described on page 15 of Exhibit
15 NH -- proposed Exhibit NHT-11A?
16 A I can not, I did not perform that evaluation.
17 Q Thank you. Do you have anything further on these
18 reports?
19 A No.
20 MS. BARBASH-RILEY: At this point, I
21 would like to move to admit NHT-11A and NHT-11B.
22 JUDGE MACK: Any objections? (No
23 response.)
24 Exhibits NHT-11A and 11B are admitted.
25 Q (By Ms. Barbash-Riley): Looking again at your Responses
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1 NHT-CE-67, in your response to NHT-67(c)(iv), you
2 indicate that individual multifamily properties may
3 complete multiple projects over time, but that properties
4 typically complete one project during a rolling 12-month
5 time period; is that correct?
6 A That is correct.
7 Q If an individual property completed multiple projects
8 over time, is it possible that the calculation or the
9 counting of the energy savings could differ from your
10 response to NHT-67(c)(ii) in which you stated that the 2-
11 to 4-percent savings are counted per property or per
12 premises, depending on the project?
13 A That's possible, yes.
14 Q Please describe how it could differ.
15 A Dependent upon the timeframe that you're actually looking
16 at the energy savings. So we have annual targets, and if
17 the customer participated in one particular year, they
18 get an energy savings; if they concurrently participated
19 the next year or maybe a couple years later, there could
20 be an opportunity to save even more energy.
21 Q So is it possible that if these savings were calculated
22 in the year or counted in the way in which you just
23 described, that properties could achieve greater than
24 this 2- to 4-percent savings?
25 A Yes.
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1 Q Now I would like to direct your attention to page 6,
2 lines 12 to 14, of your rebuttal testimony, in which you
3 state that, "... requiring 50 percent of eligible
4 customers to receive an energy assessment and report or
5 install multiple measures does not align with the level
6 of customer interest the Company has observed in the
7 past." Is that an accurate restatement of your rebuttal
8 testimony in that section?
9 A That is correct.
10 Q What is your basis for this statement?
11 A The percentage of customers that have typically taken and
12 performed an energy assessment.
13 Q And how does the Company track the level of customer
14 interest?
15 A Could you restate the question?
16 Q Did you not hear or not understand?
17 A No, I guess I don't understand the question.
18 Q So you said that the percentage of -- the basis for your
19 statement is the percentage of customers that typically
20 report or -- ask for an energy assessment or report or
21 install multiple measures. My question is, how does the
22 Company keep track of the -- how does the Company
23 calculate this percentage?
24 A We would take the number of participants in the actual
25 program, that would be the denominator, and we take the
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1 number of those customers that actually opted to have an
2 assessment, and whatever percentage that rendered, that
3 would be the percentage of customers that would have an
4 assessment performed.
5 Q And does the Company keep track of this data over time?
6 A We typically do not, but we have as of recent.
7 Q How recent?
8 A Beginning in 2016.
9 Q So your statement that requiring 50 percent of eligible
10 customers does not align with the level of customer
11 interest, how many years of data is that opinion based
12 on?
13 A It would be last year plus what we've experienced so far.
14 Q At this point, please refer to the chart on page 3 of
15 your rebuttal Exhibit A-22 under the heading Multifamily
16 Low Income Projected Incentive Investment.
17 JUDGE MACK: I'm sorry, what page was
18 that?
19 MS. BARBASH-RILEY: This is page 3 of
20 rebuttal Exhibit A-22.
21 A I apologize, could you please repeat that reference to
22 that?
23 MS. BARBASH-RILEY: Could you please read
24 back my reference?
25 JUDGE MACK: Well, you're asking about
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1 Exhibit A-22.
2 THE WITNESS: O.K.
3 JUDGE MACK: Page 3. Do you have that?
4 THE WITNESS: I think I do, yes.
5 A Multifamily program enhancements page, yes, page 3? I'm
6 there.
7 Q (By Ms. Barbash-Riley): Yes. Could you please tell me
8 what this chart indicates?
9 A That the Company intends to invest in 2018 $4.8 million
10 in the Multifamily Income Qualified Program in just
11 incentives, and then consistent with 2018, we'd invest
12 the same amount in 2019, and then our 2020 and '21 plan
13 would be an investment of $5.8 million each year.
14 Q So these incentive investments represent commitments by
15 the Company to invest in low income multifamily energy
16 efficiency programs from 2018 to 2021?
17 A Yes, they do.
18 Q Will these commitments be reflected in the final energy
19 waste reduction plan as line items on the Company's
20 approved program tables?
21 A We can see that that happens, yes.
22 Q Could you please elaborate on how?
23 A I guess we would update our filing document that shows
24 the detail of programs that, it's actually in our plan
25 filing where we have a summary of all the programs, that
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1 also includes the energy savings as well as the
2 investment, so we would include that as a line item in
3 our summary page.
4 Q Thank you.
5 A Yeah.
6 Q Now please refer to page 1, line 2, of your rebuttal
7 Exhibit A-20, and also page 2, line 2, also of rebuttal
8 Exhibit A-20.
9 A I'm there.
10 Q What portion of these performance requirement minimum and
11 maximum dollar amounts are for multifamily properties?
12 A And we're referencing, so we're still on the exhibit that
13 we were just on, on Exhibit A-22?
14 Q No. Now we are on Exhibit A-20.
15 A Gotcha. Got it right here. O.K. Those would just
16 pertain to the multifamily income qualified metric for
17 both electric and gas.
18 Q Based on what you just stated, what will be the
19 performance requirement minimum and maximum dollar
20 amounts for single-family low income properties?
21 A So it would represent that -- so that the, for 2018, the
22 minimum performance would be 20 percent receive an
23 assessment, and for 2018, the maximum would be
24 25 percent, and that metric could maximize out at
25 10 percent of the utility's overall performance incentive
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1 metric, which is more like, I think it's equivalent to
2 basically 2 percent of the 20 percent the Company's
3 eligible to receive.
4 Q Could you please refer back to line No. 2, the Low Income
5 Programs, and the minimum and maximum expenditures.
6 JUDGE MACK: We're still on A-20,
7 correct?
8 MS. BARBASH-RILEY: That's correct.
9 A O.K.
10 Q (By Ms. Barbash-Riley): So of these dollar amounts, what
11 portion is for multifamily properties, low income
12 multifamily properties?
13 A The 4.8 million in total. O.K. So that would be 4.8
14 million in total, there would be a split between the
15 electric and gas investment, but in total, it would
16 represent the total $4.8 million in multifamily income
17 qualified plus our residential income qualified, so it
18 would be a combination of both.
19 Q Could you please confirm that this 4.8 million has not
20 been broken out into electric and gas?
21 A Broken out in what way?
22 Q The expenditure on the electric and gas programs.
23 A So of that $4.8 million, we do anticipate to invest a
24 percentage of that in electric and a percentage of that
25 in gas, so it will be split, but we still intend to
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1 invest the total 4.8 million specifically for multifamily
2 income qualified.
3 Q And just to reiterate, that 4.8 million is entirely for
4 multifamily, low income multifamily?
5 A Correct.
6 Q And would the Company be amenable to breaking out the
7 percentage investment between electric and gas in the
8 approved plan?
9 A We could certainly -- we'd certainly be open to
10 discussing that, yes.
11 Q Moving back to page 3 of your rebuttal Exhibit A-22,
12 under the heading Multifamily Low Income Projected
13 Incentive Investment --
14 A Yes.
15 Q -- would you agree that the amount for 2018 in this chart
16 on page 3 represents an increase of 3.5 million from the
17 current Multifamily Low Income Program Investment that
18 you indicated on page 1, line 14, of your rebuttal
19 testimony?
20 A I would.
21 Q Will this additional 3.5 million for the multifamily
22 investment be paid for solely by using funds from the Low
23 Income Single Family Program budget?
24 A We will not be using funds from the Residential Income
25 Qualified Program to fund that, no.
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1 Q Now, referring to the points on page 3 of rebuttal
2 Exhibit A-22 under the heading Utility Performance
3 Metrics, is it your understanding that the Company would
4 have to both spend the entire budget as outlined in the
5 Multifamily Low Income Projected Investment chart on this
6 same page and provide an energy assessment to at least
7 the proportion of properties receiving those incentives
8 as described on this page of your exhibit?
9 A Correct.
10 MS. BARBASH-RILEY: No further questions.
11 JUDGE MACK: Thank you. Mr. Gallagher,
12 do you have any cross-examination of this witness?
13 MR. GALLAGHER: I do not, your Honor.
14 JUDGE MACK: Thank you. Ms. Stephens,
15 does Staff have any cross-examination of this witness?
16 MS. STEPHENS: We do not, your Honor.
17 JUDGE MACK: Thank you. Mr. Ykimoff,
18 thank you for your testimony today.
19 MR. GENSCH: Your Honor, can I have a
20 couple minutes with the witness?
21 (At 11:20 a.m., there was an in-place recess.)
22 JUDGE MACK: We're back on the record.
23 Mr. Gensch, do you have any redirect for this witness?
24 MR. GENSCH: No, your Honor. Thank you.
25 JUDGE MACK: O.K. Let's take up the
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1 exhibits. Any objection to the offer of the exhibits?
2 (No response.)
3 Hearing none, Exhibits A-12, A-13, A-14,
4 A-15, A-16, A-19, A-20 Corrected, A-21, A-22, and A-23
5 are admitted.
6 Now, with that, thank you for your
7 testimony today, Mr. Ykimoff.
8 (The witness was excused.)
9 - - -
10 JUDGE MACK: Let's go off the record now.
11 (At 11:23 a.m., a brief discussion was held off the
12 record.)
13 JUDGE MACK: We're back on the record.
14 Mr. Gensch, who's next?
15 MR. GENSCH: Your Honor, the parties have
16 agreed to bind in the testimony and exhibits of the
17 Company's remaining witnesses.
18 JUDGE MACK: O.K. Why don't you list
19 them, and then we'll take them all up together.
20 MR. GENSCH: O.K. Great. These include
21 the Direct Testimony of Alfred A. Alatalo, which consists
22 of a cover page and 14 pages of questions and answers,
23 and he had no exhibits; the Direct Testimony of Eugene
24 M.J.A. Breuring, which consists of a cover page and four
25 pages of questions and answers, and Mr. Breuring
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1 sponsored Exhibits A-1, A-2, A-3, A-4, and A-5; this also
2 includes the Direct Testimony of Svitlana Lykhytska,
3 which was a cover page and six pages of questions and
4 answers, and she sponsored Exhibits A-6 and A-7; there's
5 also the Direct Testimony of Richard A. Morgan, which
6 consists of a cover page and eight pages of questions and
7 answers, and Mr. Morgan had no exhibits; the Direct
8 Testimony of Theresa K. Schmidt, which consists of a
9 cover page and 13 pages of questions and answers, and she
10 had no exhibits; and finally, we have the Direct
11 Testimony of S. Austin Smith -- well, actually he had
12 Direct Testimony, which is a cover page and six pages of
13 questions and answers, and he also had Supplemental
14 Direct Testimony, including a cover page and two pages of
15 questions and answers, and Mr. Smith sponsored Exhibits
16 A-8, A-9, A-10, A-11, A-17, and A-18.
17 JUDGE MACK: Is that it?
18 MR. GENSCH: That's all, your Honor.
19 JUDGE MACK: O.K. Any objection to the
20 offer? (No response.)
21 Hearing none, the testimony that was
22 described by Mr. Gensch is bound into this record, and
23 Exhibits A-1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 17, and 18
24 are admitted.
25 (Testimony bound in.)
Metro Court Reporters, Inc. 248.360.8865
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
ALFRED A. ALATALO
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
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INTRODUCTION AND QUALIFICATIONS 1
Q. Please state your name and business address. 2
A. My name is Alfred A. Alatalo, and my business address is One Energy Plaza, Jackson, 3
Michigan, 49201. 4
Q. Please describe your position and responsibilities. 5
A. As Business Energy Efficiency Operations Director, I am responsible for the 6
development and implementation of Consumers Energy Company’s (“Consumers 7
Energy” or the “Company”) business electric and business natural gas Energy 8
Optimization (“EO”)/Energy Waste Reduction programs. 9
Q. Please describe your educational and professional experience. 10
A. I hold a Bachelor in Mechanical Engineering degree from Michigan Technological 11
University and am licensed as a Professional Engineer in the State of Michigan. I have 12
been employed at Consumers Energy since 1983, where I began my career as a Graduate 13
Engineer in the Nuclear Plant Support Department. For the first ten years of my 14
employment, I held positions of increasing responsibility in the nuclear generation area. 15
In 1993, I transferred to the Demand Side Management area to manage gas energy 16
efficiency programs for businesses. In 1997, I transferred to Marketing, Services and 17
Trading and provided heating, ventilation, and air conditioning (“HVAC”) services to 18
business customers. In 1999, I transferred to the Business Customer Management 19
Department and continued to provide HVAC services until 2001. At that time, I became 20
a corporate account manager for the business customers in the Mid-Michigan area. In 21
this role, I served as the main interface for Consumers Energy with business customers in 22
such facets as billing, rates, reliability, and energy efficiency. In 2003 I was promoted to 23
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Southern Team Lead for Business Customer Management and given the responsibility for 1
managing the corporate account managers and the associated relationships with all 2
business customers from Kalamazoo to Detroit. In 2008, I moved to the Energy 3
Efficiency area as Business Team Lead and was given responsibility for developing and 4
implementing the business portfolio of energy efficiency programs. In 2011, I was 5
promoted to my current position as Business Energy Efficiency Operations Director. 6
Q. Have you previously testified before the Michigan Public Service Commission (“MPSC” 7
or the “Commission”)? 8
A. Yes, I have filed testimony on behalf of the Company in the following cases: 9
• Case No. U-17351 regarding Consumers Energy’s 2014 – 2017 EO Plan; 10
• Case No. U-17601 regarding Consumers Energy’s 2013 EO Reconciliation; 11
• Case No. U-17771 regarding Consumers Energy’s 2016 – 2017 EO Plan; 12
• Case No. U-17831 regarding Consumers Energy’s 2014 EO Reconciliation; 13 and 14
• Case No. U-18025 regarding Consumers Energy’s 2015 EO Reconciliation. 15
Q. What is the purpose of your testimony in this proceeding? 16
A. The purpose of my testimony is to: 17
• Describe the Company’s business programs in its proposed 2018 – 2021 18 Energy Waste Reduction Plan; 19
• Provide the proposed business program costs for 2018 – 2021; and 20
• Provide the resulting business program energy and capacity savings for 21 2018 – 2021. 22
Q. Are you sponsoring any exhibits with your direct testimony? 23
A. No. 24
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CONSUMERS ENERGY’S PROPOSED BUSINESS ENERGY 1 EFFICIENCY/ENERGY WASTE REDUCTION PROGRAMS 2
Q. Does Consumers Energy plan to offer Energy Waste Reduction programs to its business 3
customers? 4
A. Yes. Consumers Energy is proposing to offer the following Energy Waste Reduction 5
programs to its business electric and business natural gas customers: 6
• Comprehensive Business Solutions Program; 7
• Small Business Direct Install Program; 8
• Business Multi-Family Program; and 9
• Business Pilots. 10
Q. Please describe the Company’s Comprehensive Business Solutions Program. 11
A. The Comprehensive Business Solutions Program will generate energy savings for all 12
business customers through the promotion of high-efficiency electric and natural gas 13
equipment. The primary objective of the program is to focus on increasing the market 14
share of commercial-grade, high-efficiency technologies sold through existing market 15
channels, which would result in: (1) increasing the installation rate of high-efficiency 16
technologies in facilities that would not have done so in the absence of the program and 17
(2) improving the operating efficiency of existing long-life equipment. The 18
Comprehensive Business Solutions Program is composed of the following components: 19
• Prescriptive Rebates; 20
• Custom Rebates; 21
• New Construction; 22
• Compressed Air; 23
• Smart Buildings (Retro-Commissioning); 24
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• Agriculture; 1
• Industrial Energy Management; 2
• Building Performance with Energy Star; 3
• Buy Michigan; 4
• Building Operator Certification; 5
• Municipal Facilities; and 6
• Business Energy Efficiency Reports. 7
Q. Please describe the aforementioned components of the Comprehensive Business 8
Solutions Program. 9
A. The Prescriptive Rebates component will offer cash back incentives to customers when 10
they purchase qualifying equipment or services. The program is designed to offer 11
incentives for cross-cutting technologies that address a variety of market sectors and 12
industries by using targeted, proactive outreach efforts to influence specific market 13
sectors including: 14
• Trade allies (wholesalers, distributors, contractors, and retailers that market 15 qualifying technologies); 16
• High-impact/high-need customer sectors (such as schools, municipal 17 buildings, and hospitals); and 18
• Industrial business customers. 19
The program targets measures where the unit energy savings can be reliably predicted 20
and, therefore, standard per-measure savings (“deemed savings”) and incentive levels are 21
established which simplifies the application process and reduces administrative costs. 22
Business customers’ decisions for capital investments are financially driven and 23
often considered on a first-cost option basis. That is, their focus on project payback 24
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related to capital equipment often overlooks long-term operating costs when making 1
choices to replace equipment. Traditionally, energy efficiency equipment is not directly 2
related to the capital investment strategies of business customers. Therefore, it is 3
essential to educate and provide financial incentives to overcome barriers to 4
implementing energy efficiency improvements. Cash-back mail-in incentives equal to 5
20% to 60% of the incremental cost to purchase energy efficient products are offered, and 6
tiered incentive approaches promote investment in high-efficiency equipment and 7
multi-measure projects. 8
The Custom Rebates component will assist larger business customers with the 9
analysis and selection of high-efficiency equipment or processes not covered under the 10
Prescriptive Rebates. Large business customers typically have more complex mechanical 11
equipment supporting facility operations and manufacturing processes. As a result, many 12
barriers prevent projects from being implemented. This component of the program is 13
designed to help large business customers take a project from conception to completion. 14
In particular, the custom component identifies complex energy savings projects, 15
provides economic analysis, and aids in the completion of the incentive application. 16
Incentives are based on energy savings on a per kWh or Mcf basis for installed measures, 17
and emphasis is placed on targeting large customers better-served by a custom approach 18
versus the Prescriptive incentives. Targeted markets include: 19
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• Large manufacturing facilities; 1
• Hospitals; 2
• Schools; and 3
• Lodging/hospitality industry. 4
Technical support is also offered to help customers evaluate comprehensive 5
energy-efficiency opportunities, including walkthrough energy assessments to identify 6
energy savings and to assist in specifying projects. 7
The New Construction component will work with the design community to 8
influence business owners to capture immediate and long-term energy efficiency 9
opportunities that are available during the design and construction phases of new 10
buildings, additions, and renovations in the non-residential market. To secure these 11
opportunities, it is necessary to overcome: (1) any resistance to adopt new practices; 12
(2) reluctance by owners to accept increased upfront costs for efficient options; 13
(3) removing energy efficiency measures through value engineering processes to reduce 14
costs; and (4) the tendency to design individual systems for worst-case conditions rather 15
than efficiency of an integrated system over the range of expected operating conditions. 16
Incentives for both owners and designers will be provided. 17
The Compressed Air component will provide a package of prescriptive incentives 18
including a compressed air system evaluation to improve the overall efficiency of 19
customers’ compressed air systems. This will be marketed directly to customers as well 20
as strongly through trade allies who work in the compressed air field. 21
The Smart Buildings (Retro-Commissioning) component is a systematic facility 22
investigation that identifies low-cost and no-cost facility improvement measures. The 23
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program will utilize operations and maintenance reviews in combination with enhanced 1
energy audits that draw upon existing building commissioning techniques to assist 2
customers to optimize the energy efficiency of their facilities. Providing customers with 3
value-added services, such as energy-saving estimates, and incentivizing engineering 4
studies will allow them to plan a future energy-saving strategy and realize immediate 5
savings through these low-cost/no-cost measure implementations. 6
The Agriculture component will focus on providing technical assistance as well as 7
incentives for participating agricultural customers through Prescriptive and Custom 8
Rebates. Program staff will work directly with agricultural customers to assist them in 9
finding opportunities for energy improvement as well as associated incentives for project 10
completion. In addition, the program collaborates with Michigan State University’s Farm 11
Audit Program to offer incentives to customers who have an audit completed on their 12
facility. 13
The Industrial Energy Management component will work closely with industrial 14
customers in a long-term continuous improvement relationship to help achieve energy 15
savings reductions through ISO50001 and Energy Star methodologies. This includes: 16
training, energy audits, forming energy committees, and assistance in obtaining 17
certification. 18
The Building Performance with Energy Star component will help commercial 19
buildings such as schools and hospitals become more energy efficient through behavioral 20
assessments, benchmarking, energy committees, and energy audits. 21
The Buy Michigan component will provide bonus incentives to customers who 22
choose energy saving equipment manufactured in Michigan. 23
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The Building Operator Certification (“BOC”) component is a competency-based 1
training and certification program for operations and maintenance staff working in 2
commercial, institutional, or industrial buildings. BOC achieves energy savings by 3
training individuals directly responsible for the maintenance of energy-building 4
equipment and day-to-day building operations and maintenance professionals. Classes 5
are designed to improve job skills and lead to improved comfort and energy efficiency in 6
the participant’s facility. More details on the Comprehensive Business Solutions 7
Program are provided in Exhibit A-13 (TAY-2), sponsored by Company witness 8
Theodore A. Ykimoff. 9
The Municipal Facilities component will help customers find energy savings in 10
their water treatment facilities. 11
The Business Efficiency Reports Program is a behavioral program designed to 12
create energy efficiency awareness and engage Consumers Energy’s small- to 13
medium-sized business customers to change their energy consuming behavior as well as 14
participate in other business energy efficiency programs. 15
Q. Please describe the Company’s Small Business Direct Install Program. 16
A. The Small Business Direct Install Program provides direct install energy efficiency 17
services to small businesses and not-for-profit customers typically considered “hard to 18
reach” and who have limited resources to participate in standard business programs. 19
Small business customers with an average 12-month individual facility utility usage of 20
less than 400,000 kWh or 6,000 Mcf are eligible to participate in the program. Eligible 21
participants include owner-occupied or tenant facilities with owner permission. This 22
includes small retail businesses such as convenience and grocery stores, small offices, 23
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service stations, restaurants, hotels/motels, nonprofit organizations, and small 1
manufacturers. 2
This program consists of several components, each targeting small business 3
customers. These small business customers typically lack the technical and financial 4
resources necessary to participate in the larger efficiency programs. Often they are sole 5
proprietorships where the owner or manager cannot commit time and effort to reducing 6
energy usage. Market providers of energy efficiency products and services seldom target 7
these small customers due to higher costs relative to larger customers. To overcome 8
these barriers, several initiatives are offered to this market. 9
Q. Please describe the initiatives of the Small Business Direct Install Program. 10
A. The Small Business Solutions Core Program initiative promotes energy saving 11
opportunities to small businesses through the installation of common lighting and 12
refrigeration measures. Program-approved trade allies provide efficiency audits, 13
customer education, and the installation of cost-effective measures on a turnkey basis. At 14
no charge, customers will receive an energy audit that results in a standardized report 15
detailing costs and potential savings from recommended measures. Customers will be 16
entitled to choose all, some, or none of the eligible recommended measures and schedule 17
installation services with a program-approved trade ally. Incentives will be paid up to 18
100% of the installation costs, up to a $10,000 maximum incentive per premise. 19
The Direct Install initiative is designed to introduce energy efficiency to the 20
smaller businesses. This initiative provides low-flow showerheads, faucet aerators, 21
pre-rinse sprayers, pipe wrap, and Light Emitting Diodes (“LEDs”) to a variety of small 22
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business customers, including hotels, motels, restaurants, retail, nonprofit organizations, 1
and houses of worship. 2
The Assessment initiative targets small businesses specifically to perform an 3
on-site energy assessment along with direct installation of LEDs and other low-cost 4
measures. The teams performing the work are given a schedule and route; perform the 5
assessment; discuss energy efficiency opportunities with the business owner; and install 6
LED’s, showerheads, and faucet aerators where applicable at scheduled locations. As a 7
follow-up to the assessment, customers are e-mailed a report of the measures installed 8
and recommendations on how they can save more energy by installing additional energy 9
efficiency products in their business. 10
The LED Buy-Down initiative provides a discount for the cost of LED bulbs at 11
common retail locations to encourage customers to purchase energy efficient lighting for 12
their businesses. For more details on the Small Business Direct Install Program see 13
Exhibit A-13 (TAY-2). 14
Q. Please describe the Company’s Business Multi-Family Program. 15
A. The Business Multi-Family Program produces immediate electric energy savings in 16
multi-family buildings through the direct installation of energy-saving measures, both in 17
the common areas of the building and in the individual living units. An implementation 18
contractor will dispatch a crew of installers to retrofit living units in targeted buildings. 19
Since this is traditionally a hard-to-reach market, low-cost measures such as lighting and 20
low-flow water devices will be installed free of charge to the property owner. In 21
addition, incentives for both Prescriptive and Custom measures will be offered. For more 22
details on the Business Multi-Family Program, see Exhibit A-13 (TAY-2). 23
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Q. Please describe the Company’s Business Pilot programs. 1
A. The Business Pilot programs are intended to test program concepts prior to full launch. 2
New technologies and marketing methodologies are offered to various customer 3
segments and revised based on results. Pilots being offered may include, but not be 4
limited to, the following: 5
• Business Smart Thermostats; 6
• Advanced Lighting Controls; 7
• Strategic Energy Management K-12; 8
• Steam System Optimization; and 9
• Energy Efficiency Training. 10
CONSUMERS ENERGY’S EXPECTED PERFORMANCE OF 11 BUSINESS EO PROGRAMS 12
Q. What is the expected energy savings from Consumers Energy’s 2018 – 2021 Energy 13
Waste Reduction business programs? 14
A. The expected first-year electric and natural gas energy savings from the Company’s 15
2018 – 2021 business programs are 1,294,583 MWh and 5,334,254 Mcf, respectively. 16
Q. What is the basis for the expected energy savings? 17
A. The basis for expected energy savings is historical performance of past programs, 18
industry trends, market performance, and new initiatives and incentives offered by the 19
Company. The various business programs being proposed in this case are expected to 20
deliver the first-year savings shown in Exhibit A-13 (TAY-2), Table ES-5. 21
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Q. What are the expected capacity savings from the Company’s business programs for 1
2018 – 2021? 2
A. Between 2018 and 2021, Consumers Energy expects to produce net capacity savings of 3
210.5 MWs from its business programs, as shown in Exhibit A-13 (TAY-2), Table ES-5. 4
Q. How does the Company propose to verify these savings? 5
A. Program Evaluation, Measurement, and Verification (“EM&V”) activities are central to 6
the success of Consumers Energy’s portfolio. Consumers Energy’s EM&V processes are 7
based on extensive experience and participation in the EO Evaluation Collaborative 8
established by the Commission. EM&V activities are implemented through a third-party 9
contractor selected through a competitive bid process to verify program savings impacts 10
and monitor program performance. These activities serve as a way to determine the 11
actual program level savings being delivered and to maximize EO investments. 12
Beginning in 2011, the evaluation team began applying two adjustment factors to 13
gross energy savings to derive final verified net energy savings including: (1) verified 14
gross adjustment factor and (2) net-to-gross adjustment factor. The verified gross savings 15
adjustment factors incorporate installation rates and, where applicable, engineering 16
adjustment factors derived from previous program evaluations. The net-to-gross 17
adjustment factor is currently a constant 0.90 across all business programs, but at 0.82 for 18
standard Compact Fluorescent Lamps, as approved by the Commission. Effective 19
EM&V measures ensure that expected results are measurable, achieved results are robust 20
and defensible, program delivery is effective in maximizing participation, and the overall 21
portfolio is cost-effective. 22
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Q. How much does Consumers Energy propose to invest in the business electric and natural 1
gas programs to deliver the aforementioned energy and capacity savings? 2
A. Between 2018 and 2021 Consumers Energy proposes to invest approximately $277 3
million and $72 million in its electric and natural gas business programs, respectively. 4
See Exhibit A-13 (TAY-2), Table ES-5. 5
Q. How did Consumers Energy determine this spending level? 6
A. Investment in the Company’s business programs is based on its commitment to 7
cost-effectively reduce total electric and natural gas energy waste by 1.55% - 1.60% and 8
1.05% - 1.10%, respectively. 9
Q. Is this investment level reasonable? 10
A. Yes. The Company believes this level of electric and natural gas investment in its 11
business programs is reasonable and prudent. The Company desires to exceed the annual 12
savings targets in a cost-effective manner. Cost-effectiveness is measured by the results 13
of the Utility Cost Test (“UCT”) as established in 2008 Public Act (“PA”) 295 and 2016 14
PA 342. If the planned savings can be delivered at a UCT score greater than 1.0, then the 15
planned savings are considered a good investment. The Company expects its proposed 16
electric business programs to achieve a UCT score of 3.82 and its proposed natural gas 17
business programs to achieve a UCT score of 2.72. Individual program UCT scores can 18
be found in Exhibit A-13 (TAY-2), Table ES-5. 19
Q. How will the Company demonstrate that its business investments are achieving the 20
desired results? 21
A. The Company will file annual reconciliation reports with the Commission after the end of 22
each plan year detailing program investment and energy savings achieved for each 23
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program and by customer class in the previous year. Such reports will be in sufficient 1
detail to allow the Commission to determine that the Company is complying with the 2
Commission’s orders and statutory requirements. 3
Q. Does this conclude your testimony? 4
A. Yes 5
136
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
EUGÈNE M.J.A. BREURING
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
137
EUGÈNE M.J.A. BREURING DIRECT TESTIMONY
te0317-emb 1
Q. Please state your name and business address. 1
A. My name is Eugène M.J.A. Breuring, and my business address is One Energy Plaza, 2
Jackson, Michigan. 3
Q. By whom are you employed and in what capacity? 4
A. I am employed by Consumers Energy Company (“Consumers Energy” or the 5
“Company”) as a Senior Rate Analyst II in the Planning, Budgeting & Analysis Section 6
of the Rates & Regulation and Quality Department. 7
Q. Please describe your qualifications. 8
A. In 1992 I graduated from Grand Valley State University with a Bachelor of Business 9
Administration in Accounting. In 1996, I graduated from Thunderbird School of Global 10
Management with a Master of Business Administration International Management. I 11
have also attended trade-specific conferences and seminars related to Michigan and 12
United States economies, Michigan economic forecasts, as well as regression modeling. 13
Prior to joining Consumers Energy in 2013, I worked at the Kellogg Company, 14
Tecumseh Products Company, and Stryker Corporation, mostly in a financial planning, 15
budgeting, and forecasting capacity. In January of 2013, I accepted the position of Senior 16
Rate Analyst II, which is my current position at Consumers Energy. In this capacity, I 17
am responsible for preparing the Company’s official electric and natural gas sales and 18
customer forecasts, sponsoring the sales and customer forecast testimony and exhibits, 19
industry research, and various economic studies. Also, I am responsible for creating the 20
Company’s revenue forecast related to the gas and electric business. 21
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EUGÈNE M.J.A. BREURING DIRECT TESTIMONY
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Q. Have you sponsored testimony in any previous cases before the Michigan Public Service 1
Commission (“MPSC” or the “Commission”)? 2
A. Yes, I have presented the Company’s electric and gas sales forecasts in the following 3
cases: 4
U-17771 2016 – 2017 Energy Optimization (“EO”) Plan; 5
U-17990 General Electric Rate Case; and 6
U-18142 2017 Power Supply Cost Recovery Plan. 7
PART I - INTRODUCTION 8
Q. Please explain the purpose of your direct testimony in this proceeding. 9
A. I am presenting the historical and forecasted sales and revenues used in developing the 10
Company’s 2018-2021 Energy Waste Reduction Plan. 11
Q. Are you sponsoring any exhibits in this case? 12
A. Yes. I am providing the following exhibits: 13
Exhibits Description 14
A-1 (EMB-1) Electric Retail Sales Forecast; 15
A-2 (EMB-2) Gas Retail Deliveries Forecast; 16
A-3 (EMB-3) Billing Determinants Used For Developing The 17 Electric Energy Optimization Surcharges; 18
A-4 (EMB-4) Billing Determinants Used For Developing The 19 Electric Self-Direct Energy Optimization 20 Surcharges; and 21
A-5 (EMB-5) Billing Determinants Used For Developing The Gas 22 Energy Optimization Surcharges. 23
Q. Were these exhibits prepared by you or under your direct supervision? 24
A. Yes. 25
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PART II – ELECTRIC AND GAS RETAIL SALES 1
Q. Please describe Exhibit A-1 (EMB-1). 2
A. Company witness Theodore A. Ykimoff asked that I provide the currently approved 3
weather normal electric sales for use in calculating the electric statutory savings targets. 4
Exhibit A-1 (EMB-1) is a single-page exhibit that shows the electric retail 5
weather-normal sales forecast by class, as well as the previous year’s weather-normal 6
sales for each of the forecasted years. 7
Q. How has the Commission defined electric retail sales for purposes of the Company’s EO 8
Plan? 9
A. The Commission defines electric retail sales in its December 4, 2008 Temporary Order in 10
Case U-15800. In that Order the Commission defined retail sales to include residential, 11
commercial, industrial, street lighting, and interdepartmental electric sales. 12
Q. Please describe Exhibit A-2 (EMB-2). 13
A. Company witness Ykimoff asked that I also provide the currently approved weather 14
normal gas sales for use in calculating the natural gas statutory savings targets. Exhibit 15
A-2 (EMB-2) is a single-page exhibit that shows the gas retail weather-normal deliveries 16
forecast by class, as well as the previous year’s weather-normal sales for each of the 17
forecasted years. 18
Q. How has the Commission defined gas retail sales for purposes of the Company’s EO 19
Plan? 20
A. The Commission defined gas retail sales in its December 4, 2008 Temporary Order in 21
Case No. U-15800. In that Order the Commission defined gas retail sales as gas sales 22
including customer choice and transportation volumes. 23
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PART III – FORECASTED BILLING DETERMINANT FORECASTS 1
Q. Please describe Exhibits A-3 (EMB-3) and A-4 (EMB-4). 2
A. Exhibits A-3 (EMB-3) and A-4 (EMB-4) contain the electric forecasted billing 3
determinants used in developing the proposed electric Energy Waste Reduction Plan 4
surcharges. Exhibit A-3 (EMB-3) provides the forecasted billing determinants for 5
customers participating in the Company’s energy efficiency programs. Exhibit A-4 6
(EMB-4) provides the forecasted billing determinants for those customers electing 7
instead to self-direct. 8
Q. Please describe Exhibit A-5 (EMB-5). 9
A. Exhibit A-5 (EMB-5) is a single page exhibit providing the forecasted gas billing 10
determinants used in developing the proposed gas Energy Waste Reduction Plan 11
surcharges. 12
Q. Does this conclude your testimony? 13
A. Yes. 14
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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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
SVITLANA LYKHYTSKA
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
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Q. Please state your name and business address. 1
A. My name is Svitlana Lykhytska, and my business address is One Energy Plaza, Jackson, 2
Michigan, 49201. 3
Q. Please describe your position and responsibilities. 4
A. I am employed by Consumers Energy Company (“Consumers Energy” or the 5
“Company”) as a Principal Accounting Analyst in the General Accounting Department. I 6
am responsible for analyzing financial results for the Company. 7
Q. Please describe your education and professional experience. 8
A. I received a Bachelor degree and a qualification of engineer – economist (with a 9
specialization in economics and organization of consumer goods industry) from the 10
Technologic Institute of Light Industry of Kiev, Ukraine in 1988. In 2002, I received a 11
Bachelor of Science in Business Administration degree in Accounting from Michigan 12
State University. In 2002, I started my career at Consumers Energy in the General 13
Accounting Department where I progressed from Accounting Analyst in 2002 to Senior 14
Accounting Analyst Lead in 2014 and Principal Accounting Analyst in 2016. I obtained 15
my Certified Management Accountant and Certified Financial Manager certifications in 16
2007. 17
Q. What is the purpose of your testimony? 18
A. The purpose of my testimony is to provide the methodology and calculation of the 19
Company’s accounting process associated with its Electric and Natural Gas Energy 20
Waste Reduction (“EWR”) programs. 21
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Q. Are you sponsoring any exhibits with your direct testimony? 1
A. Yes, I am sponsoring two exhibits: 2
Exhibit A-6 (SL-1) EWR Electric Cumulative Over (Under) Recovery 3 (By Class and Total); and 4
Exhibit A-7 (SL-2) EWR Gas Cumulative Over (Under) Recovery (By 5 Class and Total). 6
Q. Have these exhibits been prepared by you or under your supervision? 7
A. Yes. 8
Q. What information is provided in these exhibits? 9
A. Exhibits A-6 (SL-1) and A-7 (SL-2) provide accounting data (by month and customer 10
class) for the Electric and Natural Gas EWR programs including surcharges billed, costs 11
incurred, and over/under recovery balances with carrying costs. 12
Q. What surcharge amounts were billed to customers in the first ten months of 2016? 13
A. In accordance with the tariff sheets on file with the Michigan Public Service Commission 14
(“MPSC” or the “Commission”), the Company began billing customers in June 2009 for 15
EWR surcharges. In the first ten months of 2016, the Company billed $59,258,116 in 16
total to electric customers (Exhibit A-6 (SL-1), page 1, line 1, column d). These 17
surcharges are split between Residential and Commercial and Industrial (“C&I”) classes 18
in the amounts of $26,854,956 and $32,403,160, respectively. In the first ten months of 19
2016, the Company billed $28,024,974 in total to gas customers (Exhibit A-7 (SL-2), 20
page 1, line 1, column d). These surcharges are split between Residential and C&I 21
customer classes in the amounts of $19,796,998 and $8,227,976, respectively. 22
Q. What program costs were booked in the first ten months of 2016? 23
A. In the first ten months of 2016, the Company booked $61,997,263 of program costs for 24
the Electric EWR Program (Exhibit A-6 (SL-1), page 1, line 2, column d). These costs 25
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are split between Residential and C&I customer classes in the amounts of $27,118,470 1
and $34,878,793, respectively. In the first ten months of 2016, the Company booked 2
$33,095,392 of program costs for the Gas EWR Program (Exhibit A-7 (SL-2), page 1, 3
line 2, column d). These costs are split between Residential and C&I customer classes in 4
the amounts of $24,640,027 and $8,455,365, respectively. 5
Q. What is Low-Income Accounting Adjustment? 6
A. Per the Settlement Agreement in Case No. U-17771 reached between Consumers Energy, 7
the Commission Staff, and other parties, which was approved by the MPSC in its 8
December 22, 2015 Order , levelized surcharges to recover electric and natural gas EWR 9
programs’ costs were approved. The full surcharges include a four-year low-income 10
accounting adjustment. The adjustment is implemented to correctly allocate low-income 11
EWR cost collected from C&I customers in years 2009 – 2014 to residential customers. 12
Q. What information is provided on the Low-Income Accounting Adjustment line in your 13
exhibits? 14
A. Information provided on line 3 of my exhibits shows Low-Income Accounting 15
Adjustment component of the surcharges billed to C&I customers monthly. To 16
accurately match monthly surcharges to approved recovery amounts by customers’ 17
classes, the Low-Income Accounting Adjustment component should be added to 18
residential and subtracted from C&I customers’ surcharge revenue. 19
Q. What information is provided on the Annual Transfer of Low-Income Funding line in 20
your exhibits? 21
A. Public Act 342 of 2016 requires all customer classes to fund their share of the cost of the 22
residential low-income programs. Information provided on line 3 of my exhibits shows 23
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monthly collections from C&I customers on behalf of low-income residential programs. 1
To accurately match monthly surcharges to approved recovery amounts by customers’ 2
classes, the funding amount should be added to residential and subtracted from C&I 3
customers’ surcharge revenue. 4
Q. How are over/under recovery amounts calculated? 5
A. The incremental over/under recovery amount is a difference between lines 1 and 2 with 6
amounts on lines 3 and 4 added to the difference. (Exhibits A-6 (SL-1) and A-7 (SL-2), 7
page 1, line 5). This total is added to the prior year-end over/under recovery amount 8
calculated in the same manner plus the prior year interest recorded on the over/under 9
recovery balance. If, since the program’s inception, the Company has collected more in 10
total surcharges than costs incurred, the Company has over recovered. In that case, 11
excess revenues are deferred and a regulatory liability is recorded. Conversely, since 12
program inception, if the Company has incurred more costs than surcharges collected, the 13
Company has under recovered its costs. In that case, excess costs are deferred and a 14
regulatory asset is recorded. 15
Q. What are the over/under balances in the regulatory asset and/or regulatory liability 16
accounts associated with the EWR Program as of October 31, 2016? 17
A. In the electric EWR Program, for the 2016 reconciliation period, total booked costs 18
exceeded total surcharges resulting in an under recovery in all customer classes in the 19
amount of $2,739,147 (Exhibit A-6 (SL-1), page 1, line 5, column d). The C&I Program 20
resulted in an under recovery in the amount of $5,644,874 and the Residential Program 21
resulted in an over recovery in the amount of $2,905,727. The prior year over recovery 22
balance and interest carried forward into 2016 were $17,640,170 and $96,020 (Exhibit 23
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A-6 (SL-1), page 1, lines 6 and 7, column d). As a result, the total over recovery balance 1
as of the end of October 2016 is $14,997,043 (Exhibit A-6 (SL-1), page 1, line 9, 2
column d) split between Residential and C&I in the amounts of $5,985,860 and 3
$9,011,183, respectively. 4
In the Natural Gas EWR Program, 2016 total booked costs exceeded total 5
surcharges resulting in an under recovery in the amount of $5,070,418 (Exhibit A-7 6
(SL-2), page 1, line 5, column d) split between Residential and C&I in the amounts of 7
$35,444 and $5,034,974 respectively. The prior year over recovery balance and interest 8
carried forward into 2015 was $7,921,899 and $56,696 (Exhibit A-7 (SL-2), page 1, lines 9
6 and 7, column d). As a result, the total over recovery balance as of the end of October 10
2016 is $2,908,177 (Exhibit A-7 (SL-2), page 1, line 9, column d) split between an under 11
recovery of $3,427,752 associated with the Residential Program and an over recovery of 12
$6,335,929 associated with the C&I Program. 13
Q. Have carrying costs on over/under recovery balances been recorded and at what interest 14
rate? 15
A. Yes, the Company records carrying costs on over/under recovery balances per the 16
Commission’s May 26, 2009 Order, page 32, in Case No. U-15805. The carrying cost 17
rate used for both over-and under-recovery balances is the Company’s short-term 18
borrowing rate. In the first ten months of 2016, carrying costs were recorded for the 19
Electric EWR Program in the amount of $84,398 (Exhibit A-6 (SL-1), page 1, line 10, 20
column d). For the same period of 2016, carrying costs were recorded for the Natural 21
Gas EWR Program in the amount of $57,793 (Exhibit A-7 (SL-2), page 1, line 10, 22
column d). 23
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Q. Does this conclude your testimony? 1
A. Yes. 2
148
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
RICHARD A. MORGAN
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
149
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Q. Please state your name, position, and business address. 1
A. My name is Richard A. Morgan. I am President of Morgan Marketing Partners, LLC 2
(“MMP”) and my business address is 6205 Davenport Drive, Madison, Wisconsin, 3
53711-2447. 4
Q. Can you describe MMP? 5
A. MMP is a professional services firm formed in 1995 that partners with utility and 6
governmental clients to provide energy efficiency consulting services including program 7
design and development, cost-effectiveness modeling, strategic marketing consulting, 8
implementation and operations assistance, new product and service development, 9
management assistance, and evaluation and assessments. MMP has worked with clients 10
including, but not limited to: DTE Energy Company, Duke Energy, California Public 11
Utility Commission, Energy Trust of Oregon, Missouri River Energy Services, Kansas 12
City Power & Light, Jacksonville Electric Authority, Rochester Public Utilities, 13
MidAmerican Energy, Hawaii Electric, Northwest Energy Efficiency Alliance, the State 14
of Indiana, and Wisconsin Focus on Energy administered by Wisconsin Energy 15
Conservation Corporation. One of MMP’s longest-term clients is Duke Energy, with 16
whom I worked on program planning and design. One of these programs was recognized 17
by the American Council for an Energy Efficient Economy (“ACEEE”) as an 18
award-winning program for low-income customers. From 2001 to 2011, MMP served as 19
planner and advisor to Wisconsin Energy Conservation Corporation and the State of 20
Wisconsin on the statewide residential and business public benefits efficiency program, 21
Wisconsin Focus on Energy. MMP has also developed comprehensive Energy Efficiency 22
Program portfolios for Kansas City Power & Light, NIPSCO, Vectren, and Missouri 23
River Energy Services. I served as one of two principal auditors to complete a 24
management audit for the Energy Trust of Oregon to review all aspects of the Trust 25
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including organizational structure, program design/delivery, support systems, public 1
involvement, and overall management. The California Public Utility Commission 2
retained MMP to participate on an independent review team to provide advice regarding 3
the portfolio of utility energy efficiency programs developed for 2006-2008. In 2012, I 4
also completed a portfolio program assessment with a team of evaluators to assess all the 5
energy efficiency programs offered by the California utilities. 6
Q. Can you summarize your educational background and professional qualifications? 7
A. I earned a Bachelor of Science degree in Resource Management from Ohio State 8
University, School of Natural Resources in 1976. I am the Past President of the 9
American Marketing Association, Madison Chapter, and a past Board Member and Vice 10
President, Business Development for the Association of Energy Services Professionals 11
(“AESP”). I am currently on the board of the Midwest Energy Efficiency Alliance. I 12
have had numerous papers and research published at AESP and ACEEE. I am also the 13
winner of the 2002 AESP B.H. Prasad Outstanding Contributor of the Year. 14
Q. Can you describe your professional background and experience? 15
A. I have 40 years of management, planning, program design, implementation, low-income 16
program, and marketing experience in the energy field. Prior to starting MMP in 1995, I 17
spent four years as a manager and consultant with A&C Enercom, a leading energy 18
services and consulting company. I was also Marketing Manager for EWI Engineering, a 19
100-person engineering consulting firm. Before joining EWI Engineering, I spent over 20
11 years with Wisconsin Power & Light Company, a combined gas and electric company 21
now a part of Alliant Energy, in its Marketing and Energy Efficiency Department. I held 22
numerous positions managing many different services including: low-income programs, 23
residential services, commercial and industrial gas services, demand-side management 24
programs, and marketing/sales initiatives. Within my various positions my 25
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responsibilities included: program planning, evaluation oversight, new product/service 1
development, program design, market research, advertising/promotion planning, 2
implementation and operations management, evaluation, budgeting, tracking, training, 3
government interface, sales, field customer service support, quality control, and business 4
center operations. Prior to joining Wisconsin Power and Light, I worked for the Oregon 5
Department of Energy and the Western SUN, a federally-funded regional solar center. 6
Q. Have you previously provided testimony before the Michigan Public Service 7
Commission (“MPSC” or the “Commission”)? 8
A. Yes, I testified on behalf of Consumers Energy Company (“Consumers Energy” or the 9
“Company”) for its 2011 Energy Optimization (“EO”) Reconciliation, Case No. 10
U-16736; for its 2012 EO Reconciliation, Case No. U-17281; for its 2013 EO 11
Reconciliation, Case No. U-17601; for its 2014 EO Reconciliation, Case No. U-17831; 12
and for its 2015 EO Reconciliation, Case No. U-18025. I have also sponsored direct 13
testimony on behalf of Consumers Energy for its 2014-2017 EO Biennial Plan filing, 14
Case No. U-17351 and for its 2016-2017 EO Biennial Plan, Case No. U-17771. In 15
addition, I have testified in DTE Energy Company’s EO Plan approved by the 16
Commission in its June 2, 2009 Order in Case No. U-15806 and in Case No. U-15890 on 17
behalf of MichCon. I also filed testimony in support of The Detroit Edison Company’s 18
and MichCon’s 2010 amended plan to expand that program under that same case. 19
Q. What is the purpose of your testimony in this proceeding? 20
A. The purpose of my testimony is to: (1) describe the cost-effectiveness modeling for the 21
Company’s 2018-2021 Energy Waste Reduction Plan (“2018-2021 Plan”) to comply with 22
the statutory requirements in Public Act 342 of 2016 (“Act 342”); and (2) provide the 23
results demonstrating that the energy efficiency portfolio is cost-effective using the 24
Utility System Resource Cost Test (“UCT”) (excluding the low-income customers). 25
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Q. Are you sponsoring any exhibits? 1
A. No. 2
Q. What is the 2018-2021 Plan and what does it contain? 3
A. The 2018-2021 Plan is a roadmap for Consumers Energy to achieve its energy savings 4
goals cost effectively. The 2018-2021 Plan describes the programs and their elements so 5
that they can be implemented by the Company. Although the 2018-2021 Plan provides 6
direction for the Company as it implements the programs, it is important to note that the 7
programs continue to be refined both during the development of the detailed operational 8
plans with the implementation contractors, and during implementation. This is to be 9
expected over multi-year program plans as technologies, markets, and customer 10
opportunities change. The program descriptions include: a summary, target markets, 11
market barriers/theory, initial measures/services recommended, estimated savings, 12
implementation and delivery approach, incentive strategies, participation criteria, quality 13
control, and budgets as described in the testimony of Company witnesses Theresa K. 14
Schmidt and Alfred A. Alatalo. From this program information, a cost benefit analysis is 15
completed to assure that the programs are cost effective. 16
Q. Does the 2018-2021 Plan meet the statutory savings goals? 17
A. Yes. The Consumers Energy 2018-2021 Plan was developed to exceed the statutory 18
goals as set forth in Act 342 described by Company witness Theodore A. Ykimoff. 19
Q. How was cost-effectiveness of these programs determined? 20
A. The DSMore cost analysis tool was used to calculate and report cost-effectiveness for the 21
programs using the UCT as defined by Act 342. Consumers Energy’s programs must be 22
cost-effective utilizing the UCT, but several other cost-effectiveness tests were 23
performed, and their results along with the UCT are tabulated in Exhibit A-13 (TAY-2). 24
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Q. Can you describe the DSMore modeling tool? 1
A. The DSMore tool is award-winning modeling software that is nationally recognized and 2
used in many states across the country to determine cost-effectiveness. Developed and 3
licensed by Integral Analytics based in Cincinnati, Ohio, the DSMore cost-effectiveness 4
modeling tool takes hourly prices and hourly energy savings from the specific 5
measures/technologies being considered for each program, and then correlates both to 6
weather. This tool looks at over 30 years of historic weather variability to get the full 7
weather variances appropriately modeled. In turn, this allows the model to capture the 8
low probability, but high consequence weather events and apply appropriate value to 9
them. Thus, a more accurate view of the value of the efficiency measure can be captured 10
in comparison to other alternative supply options. 11
Q. Can you please describe the various tests run in your DSMore modeling? 12
A. Exhibit A-13 (TAY-2) shows the cost-effectiveness test results for the Consumers Energy 13
Electric and Natural Gas energy efficiency programs in total, by residential and business 14
classes, and for each program. The various test results shown are for the following tests: 15
• UCT: Defined as the ratio of the net benefits of the programs to the program 16 costs incurred by the utility for the programs. For a program to be 17 cost-effective, this ratio needs to be greater than one; 18
• Total Resource Cost Test: Defined as the total avoided cost divided by the 19 program costs plus the participant’s costs. Incentives paid to the customer are 20 in both the cost and benefit sides of the equation, so they cancel each other 21 out; 22
• Rate Impact Measure: Defined as the avoided cost benefits divided by the 23 program costs and lost revenues; and 24
• Participant Test: Defined as the participant’s benefits in energy savings from 25 their bill plus their incentives divided by their costs to participate. 26
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Q. What type of program information is used for model inputs? 1
A. Inputs into the model include participation rates, incentives paid, energy savings of the 2
measure, life of the measure, implementation costs, administrative costs, and incremental 3
costs to the participant of the high efficiency measure. 4
Q. What savings were used for the plans and cost effectiveness calculation? 5
A. Savings for the plans and cost benefit analysis were based on the Michigan Energy 6
Measures Database (“MEMD”). The adopted 2017 MEMD was the basis for the 7
Company’s plans. 8
Q. What freeridership, or Net-to-Gross (“NTG”) values were utilized in the development of 9
the Company’s plans? 10
A. For the planning years 2018-2021, the Company assumed continuation of the current 11
NTG values of 0.82 for Compact Fluorescent Lamps, 1.0 for low-income, and a NTG 12
value of 0.90 for most other programs, consistent with the deemed values granted by the 13
Commission in its December 2015 approval of the 2016-2017 Energy Optimization Plan 14
in Case No. U-17771. 15
Q. How were program costs developed for the 2018-2021 Plan and cost benefit analysis? 16
A. Program costs for the 2018-2021 planning years were based on projected program 17
implementation budgets and costs. These estimates were provided by the current 18
program implementation contractors, reviewed for reasonableness, and adjusted based on 19
program best practices. This assures that the budgets are based on realistic historic 20
operational costs, and incentives based on realistic levels that are proven in the market. 21
Q. What type of utility information is used in DSMore? 22
A. For utility information, DSMore utilizes utility rates, escalation rates, discount rates for 23
the utility, society and the participant, and avoided costs. 24
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Q. What is the source of the utility information used for Consumers Energy’s DSMore 1
inputs? 2
A. The utility inputs provided to me by Consumers Energy reflect data supporting current 3
rate structures and Company forecasts. 4
Q. Within the model how are the avoided electric benefits computed? 5
A. The avoided benefits in the Company’s analysis utilizes historic hourly price data from 6
the Midcontinent Indpendent System Operator, Inc. market and hourly weather data to 7
determine the value of the saved kWh. The savings by measure are applied at specific 8
hours over the year since prices vary by hour. These prices are weighted based on the 9
probability of weather variations over 33 years of weather history so that the full range of 10
weather and prices are properly captured. Each hour has a unique price which is then 11
escalated over time. This assures that the savings reflect the value you would expect to 12
see in the market over time from the avoided energy sales. 13
Q. How are the gas benefits different? 14
A. The avoided benefits for gas are calculated using weather adjusted prices, similar to the 15
electric, but are based on gas prices from the Henry Hub sales market. Gas prices are 16
based on daily gas prices versus hourly prices for electric. Again the purpose is to best 17
represent the value of the energy savings as would be seen in the marketplace. 18
Q. What are net benefits? 19
A. Net benefits are the computed avoided cost benefits, which I described previously, minus 20
the program costs to acquire those benefits. 21
Q. Please describe the cost-effectiveness results for Consumers Energy’s 2018-2021 Plan. 22
A. All Consumers Energy programs are cost-effective with the Gas Program Portfolio UCT 23
score of 1.86 and the Electric Program Portfolio UCT score of 3.68. This means that the 24
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savings benefits are 186% greater than the program cost for Gas and 368% greater than 1
the program cost for Electric. 2
Q. Based on the results of your work, is Consumers Energy’s 2018-2021 Energy Waste 3
Reduction Plan cost-effective? 4
A. Yes. Based on the analysis I performed using DSMore, the Company’s 2018-2021 5
Energy Waste Reduction Plan passes the cost-effectiveness test in accordance with the 6
legislative requirements of Act 342. This analysis was done in accordance with 7
legislative guidelines and did not include low-income programs. The results of my 8
analysis are provided in Exhibit A-13 (TAY-2). 9
Q. Does this complete your testimony? 10
A. Yes, it does. 11
157
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
THERESA K. SCHMIDT
ON BEHALF OF
CONSUMERS ENERGY COMPANY March 2017
158
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Q. Please state your name and business address. 1
A. My name is Theresa K. Schmidt, and my business address is One Energy Plaza, Jackson, 2
Michigan, 49201. 3
Q. Please describe your current position and responsibilities. 4
A. As Residential Energy Efficiency Operations Director, I am responsible for the 5
development and implementation of Consumers Energy Company’s (“Consumers 6
Energy” or the “Company”) electric and gas residential Energy Efficiency/Energy Waste 7
Reduction programs. 8
Q. Please describe your education and professional experience. 9
A. I hold a Bachelor of Business Administration & Organizational Development Degree 10
from Spring Arbor University. In 1990, I began employment at a CMS Energy 11
subsidiary, CMS Accounts Receivable Services, as an Executive Assistant and was 12
promoted to Marketing Coordinator where I was responsible for all aspects of marketing 13
our services, including supervising a marketing and administrative support staff. In 1998, 14
I transferred to CMS Marketing Services & Trading as a Marketing & Sales Associate in 15
the Retail Sales Department, providing research, creating marketing plans, and 16
coordinating outreach efforts in the newly deregulated electric and gas markets. In 2000, 17
I transitioned to Consumers Energy’s Business Customer Operations & Strategy 18
Department supporting initiatives focused on large electric and gas business customers 19
and was promoted to Business Advisor working on the Electric Customer Choice 20
(“ECC”) Program. This included tracking and preparing ECC participation reporting to 21
the Michigan Public Service Commission (“MPSC” or the “Commission”). In 2006, I 22
joined the Customer Care and Services team as a subject matter expert during the mass 23
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conversion of our legacy systems to SAP. During this time, I also managed major 1
projects including the implementation of FACTA and the Company’s eServices web 2
application. After the conversion project, I was promoted to the Company’s Smart Grid 3
project in Customer Value Services Department managing the Direct Load Management 4
Pilot Program until 2011. I was then promoted to Database Analyst for the Energy 5
Efficiency programs and soon transitioned to an Energy Efficiency Residential Program 6
Manager in 2012. While in this role, I have managed many of the residential programs, 7
including: Appliance Recycling; Insulation and Windows; Heating, Ventilation, and Air 8
Conditioning (“HVAC”) and Water Heating; Home Performance with ENERGY STAR®; 9
Efficient Lighting; ENERGY STAR Appliances; and the Think! Energy Education 10
Program. In 2017, I was promoted to Residential Energy Efficiency Operations Director, 11
which expanded my responsibilities to include supervising the development and 12
implementation of the Company’s residential energy efficiency programs. 13
Q. Have you previously testified before the Commission? 14
A. I have not provided direct testimony before the Commission, but have provided 15
supporting analysis used by previous Company witnesses in the Company’s Energy 16
Optimization (“EO”)/Energy Waste Reduction filings. 17
Q. What is the purpose of your testimony in this proceeding? 18
A. The purpose of my direct testimony in this case is to provide: 19
i. A detailed overview of the Company’s residential programs contained 20 in its 2018 – 2021 Energy Waste Reduction Plan (“2018 - 2021 Plan”); 21 and 22
ii. Projected Residential Program energy savings and investments as part 23 of the Company’s energy waste reduction plans. 24
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Q. Are you sponsoring any exhibits with your direct testimony? 1
A. No. 2
Q. Please describe the most significant proposed changes to the residential programs 3
associated with the 2018 - 2021 Plan. 4
A. The Company is proposing minor changes to the residential programs, consistent with its 5
2017 Amended Plan filed on March 13, 2017 in Case No. U-17771, as part of its 2018 – 6
2021 Plan. There are electric and gas funding changes in 2018 – 2021 to the overall 7
residential programs. In particular for 2018, the Company proposes to increase overall 8
residential electric and gas program investment in the currently approved 2017 Plan by 9
$3.5 million to account for updates made to forecasted incentives/rebates and customer 10
participation levels. Although this represents an overall 6% increase in funding, the 11
Company will increase electric and gas energy savings by 44,000 MWh and 231 MMcf 12
to compensate for the removal of the long-life bonuses and market transformation 13
multipliers along with achieving the higher energy savings goals. This is consistent with 14
the additional increase for years 2019 – 2021. 15
Q. What residential programs does the Company propose to provide as part of its 2018 – 16
2021 Plan? 17
A. The following 13 residential programs will be offered: 18
• Appliance Recycling Program; 19
• Efficient Lighting; 20
• ENERGY STAR® Appliances; 21
• Home Energy Analysis; 22
• Home Energy Report; 23
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• Home Performance with ENERGY STAR®; 1
• HVAC and Water Heating; 2
• Income Qualified Energy Assistance; 3
• Insulation & Windows; 4
• Multi-Family Direct Install; 5
• Residential New Construction; 6
• Think! Energy - Energy Education Program Grades 4 through 6; and 7
• Residential Agriculture. 8
Q. Please describe the Company’s Appliance Recycling Program. 9
A. The average household replaces a refrigerator every ten years. Many of the refrigerators 10
and freezers being replaced still function and often end up as energy guzzling back-up 11
appliances in basements and garages, or are sold in a used appliance market. The 12
Appliance Recycling Program targets customers with these “second” refrigerators and 13
freezers, providing the dual benefit of cutting energy consumption and keeping the 14
appliances out of the used market. An appliance recycling contractor provides turnkey 15
implementation services that include verification of customer eligibility, scheduling of 16
pick-up appointments, appliance pick-up, rebate processing, and recycling services. 17
Q. Please describe the Company’s Efficient Lighting Program. 18
A. The Residential Lighting Program will continue to provide incentives and marketing 19
support through major retailers to promote sales and use of ENERGY STAR® lighting 20
products. General advertising, in-store signage, sales associate training, an online 21
Find-a-Retailer tool, and instant customer incentives through price markdowns will drive 22
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participation. The residential program will focus exclusively on Light Emitting Diode 1
(“LED”) technology as it moves away from compact fluorescent bulbs. 2
Q. Please describe the Company’s ENERGY STAR® Appliances Program. 3
A. The ENERGY STAR® Appliances Program employs a Web-based and in-store 4
promotional strategy to influence the purchase of high-efficiency appliances along with a 5
planned online store. Since appliance standards, as well as the market share of 6
high-efficiency appliances, are gradually increasing, the program is specific in its list of 7
qualifying models and marketing emphasis. To increase the opportunity for customer 8
participation, Wi-Fi thermostats are included as eligible measures, including pool pumps, 9
clothes washers, room air conditioners, and dehumidifiers. 10
Q. Please describe the Company’s Home Energy Analysis Program. 11
A. Participating customers receive direct installation of energy-savings measures and a walk 12
through energy inspection of their homes that culminates in a customized summary report 13
with energy saving tips and recommendations. The energy-savings measures include 14
LED bulbs, water heater pipe insulation, low-flow water aerators, showerheads, and 15
programmable thermostats or Wi-Fi enabled thermostats that are installed free of charge 16
for residential customers. Other utility energy efficiency programs are cross-promoted 17
and customers are encouraged to take the next step in their energy efficiency journey by 18
participating in the Home Performance with ENERGY STAR® Program. 19
Q. Please describe the Company’s Home Energy Report Program. 20
A. The Home Energy Report (“HER”) Program provides residential customers with 21
information on their home’s energy use through personalized reports delivered by mail or 22
email to empower them to make informed energy decisions. Behavioral science research 23
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has demonstrated that peer-based comparisons are highly motivating ways to present 1
information; the HER Program will leverage a dynamically created comparison group for 2
each residence based on nearby households. Our Interval Web Portal is the foundational 3
system for reports sent by email, enabling comparisons of interval data, and providing 4
customers access to view additional energy use details online. In addition to presenting 5
energy use information, the reports offer low- or no-cost energy-saving tips and 6
cross-promote other residential energy efficiency programs. 7
Q. Please describe the Company’s Home Performance with ENERGY STAR® Program. 8
A. The Home Performance with ENERGY STAR® Program produced long-term electric and 9
natural gas energy savings in the residential sector by helping customers analyze their 10
energy use and make home improvements that consider the home as a complete system. 11
This was accomplished by emphasizing a holistic approach to making homes safe, 12
healthy, and energy efficient. Building Performance Institute-certified contractors 13
offered Comprehensive Home Assessments at market-based fees that included diagnostic 14
testing and a visual inspection for health and safety issues. Once the inspection was 15
complete, the contractor used energy modeling software to generate a final report that 16
informed the customer of energy savings, costs, and payback. The program targeted 17
residential customers in single-family homes and offered various options to capture 18
savings; financial incentives were available for building shell improvements and 19
energy-efficient heating and cooling equipment. 20
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Q. Please describe the Company’s High-Efficiency HVAC and Water Heating Equipment 1
Program. 2
A. The high-efficiency Heating, Cooling, and Water Heating Program increases demand 3
using a market push and pull strategy. The strategy focuses on educating customers 4
about the economic benefits and increased in-home comfort of high-efficiency heating, 5
cooling, and water heating equipment. The HVAC Program engages contractors to 6
promote the program and ensure equipment purchased is properly sized and correctly 7
installed. Participating HVAC contractors are provided specific value propositions 8
including account management representation, training, educational materials, and 9
marketing collateral. Customers can easily locate a participating contractor through a 10
web-based find-a-contractor tool. Financial incentives paid to customers will reduce the 11
incremental cost of purchasing qualifying high-efficiency models. The program has 12
increased the educational component for Programmable and WiFi thermostats to full set 13
back to assist customers in obtaining the full energy savings from the units. 14
Q. Please describe the Company’s Income Qualified Energy Assistance Program. 15
A. The Income Qualified Energy Assistance Program identifies specific opportunities for 16
low-income customers to lower their energy bills through installation of energy efficient 17
measures, providing financial assistance to cover the full cost of installation, and 18
educating customers with limited income about how to reduce their energy usage and 19
manage their utility costs. The program coordinates low-income services with local 20
weatherization providers and community action agencies to offer comprehensive 21
assistance at lower administrative costs. We have expanded this program to drive more 22
participation with the low-income Manufactured Housing market. 23
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Q. Please describe the Company’s Insulation and Windows Program. 1
A. The Insulation and Windows Program provides incentive rebates to customers to 2
encourage them to install qualified energy saving windows and home insulation. The 3
program is unique in that it allows customers to use the services of a contractor, or to 4
perform the improvements and apply for rebates themselves. This is particularly 5
appealing for the do-it-yourself customers. The program is marketed through a network 6
of contractors and through point of purchase promotional material in “Big Box” retailers 7
throughout the State. 8
Q. Please describe the Company’s Multi-Family Direct Install Program. 9
A. The Multi-Family Direct Install Program produces immediate electric and natural gas 10
energy savings in multi-family buildings through the direct installation of energy-saving 11
measures in individual living units and common areas. Since this is traditionally a 12
hard-to-reach market, the Company’s implementation contractor will dispatch crews of 13
installers to targeted buildings to install low-cost energy saving measures free of charge 14
to the property owner and tenants. The program is also designed to achieve deeper 15
energy savings through the promotion of high efficiency equipment for prescriptive and 16
custom retrofit projects. We will continue to offer a one-stop-shop approach that serves 17
income qualified, residential, and commercial segments through one program, managed 18
by one implementation contractor. 19
Q. Please describe the Company’s Residential New Construction Program. 20
A. The New Construction Program produces long-term electric and natural gas savings by 21
encouraging the construction of single-family homes and duplexes that meet the current 22
ENERGY STAR® standards. Builders who participate are provided rebates that cover 23
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approximately 40% of the cost to certify each home to ENERGY STAR® standards. The 1
program also employs an educational component for builders on the increased value of 2
building energy efficient homes. 3
Q. Please describe the Company’s Think! Energy – Energy Education Program Grades 4 4
through 6. 5
A. The intent of the Think! Energy program is to influence students and their families to 6
take actions that can reduce their home energy use and increase efficiency. The program 7
targets elementary and middle school students in grades 4 through 6. In-class energy 8
efficiency presentations are provided along with a “take-home” kit that raises awareness 9
about how individual actions and low-cost measures can provide reductions in 10
consumption of electricity, natural gas, and water. The program is endorsed by the 11
Michigan Department of Education. 12
Q. Please describe the Residential Agriculture Program. 13
A. The Agriculture Program is designed to offer residential agriculture customers incentives 14
for energy saving measures in retrofit and major renovation projects. It provides 15
participating customers the same level of rebates as the prescriptive and custom 16
incentives from the Business Energy Efficiency Program. 17
Q. Does the Company intend to also make an investment in residential pilot programs? 18
A. Yes. Potential pilot concepts, either being tested or evaluated, include: PrePay, 19
Non-Wire Alternatives (formally Geo-Targeted), and Smart (Learning) Thermostat. 20
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Q. For each of the residential programs and residential pilot programs described above, is 1
there more detailed information available in this filing? 2
A. Yes. The 2018 - 2021 Energy Waste Reduction Plan Report, Exhibit A-13 (TAY-2) 3
sponsored by Company witness Theodore A. Ykimoff’s provides detailed program 4
sections that include: program objective, target market, program duration, program 5
description, program logic, incentive strategy, eligible measures, implementation 6
strategy, marketing strategy, evaluation strategy and requirements, Consumers Energy 7
administrative requirements, estimated participation, estimated investment, energy saving 8
targets, and benefit-cost test results. 9
Q. From the residential programs and pilot programs that the Company plans to implement 10
as part of this filing, what are the projected total annualized MWh, MW, and Mcf savings 11
expected to be delivered for the plan period 2018 - 2021? 12
A. From residential programs, the Company projects to deliver the sum of first-year energy 13
savings of 791,664 MWh, 91.1 MW, and 5,205,606Mcf from 2018 to 2021. Annual 14
energy saving amounts over this time period can be found in the Company’s Plan Report, 15
Exhibit A-13 (TAY-2). 16
Q. How is energy savings calculated in each of the residential programs? 17
A. The base energy savings values for various measures are contained in the Michigan 18
Energy Measures Database (“MEMD”). For any measures that do not have energy 19
savings included in the MEMD, supporting documentation and engineering calculations 20
must be provided to support claimed energy savings. These are then reviewed by our 21
third party evaluation contractors. 22
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Q. For this plan, is there any additional adjustment to these base energy savings used to 1
calculate final energy savings? 2
A. Yes. There are “Net to Gross” adjustments and “installation adjustments.” 3
Q. What is a “Net to Gross” adjustment and “installation adjustment”? 4
A. Net to gross adjustment: These ratios are used to estimate the energy savings achieved 5
by the Company’s programs’ net of that which would have occurred in the absence of the 6
programs, i.e., freeriders. 7
Installation adjustment: Post hoc evaluations conducted by the Company’s 8
evaluation contractors for each program verify the actual installation at customer 9
premises of the energy efficiency measures for which the Company is claiming energy 10
savings. These evaluations sometimes reveal that a small percentage of the installations 11
did not occur, occurred outside the Company’s service territory, and occurred improperly 12
such that the desired energy savings are not being achieved, or were subsequently 13
removed by the customer. To the extent these conditions are found, the Company takes 14
an appropriate adjustment to claimed energy savings. This adjustment is referred to as an 15
“installation adjustment.” 16
Q. What assumption has the Company made with regard to net to gross ratios in the EO Plan 17
presented in this case? 18
A. The Company has assumed a net to gross ratio of 0.90% for each of its residential 19
programs with one exception. 20
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Q. What assumption has the Company made with regard to installation adjustments in the 1
plan presented in the case? 2
A. The Company’s independent residential evaluation contractor, Cadmus Group, provided 3
these adjustments based on evaluation research conducted and they are included as an 4
adjustment to energy savings, where applicable. This detailed information can be found 5
in the Company’s Plan Report, Exhibit A-13 (TAY-2). 6
Q. Is the Company proposing to use market transformations? 7
A. No. 8
Q. Are the Company’s proposed programs and investments sufficient to ensure the 9
achievement of the applicable statutory energy savings target? 10
A. Yes. Many of the programs contained in this filing have been in-market since 2009 and 11
continue to demonstrate strong customer interest and participation that has helped drive 12
performance beyond the statutory energy savings target. 13
Q. What is the projected total residential electric and total gas program investment to deliver 14
these energy savings over the 2018 - 2021 Plan period? 15
A. To deliver the energy savings targets over the 2018 - 2021 Plan period the Company 16
projects it will need $126 million of residential program electric investment and $123 17
million of residential program gas investment. Annual program investment detail over 18
this time period can be found in the Company’s Plan Report, Exhibit A-13 (TAY-2). 19
Q. How did the Company determine the investment level for the residential portfolio? 20
A. Investment for the residential portfolio is based on a number of variables that include: 21
historical investment levels, projected incentives, number of measures installed, industry 22
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trends, market performance, market potential, and new initiatives offered by the 1
Company. 2
Q. Will the Company’s residential programs, excluding low-income residential customers, 3
collectively be cost-effective? 4
A. Yes. The residential electric portfolio is projected to be delivered at an overall Utility 5
Cost Test (“UCT”) score of 3.35 and the residential gas portfolio is projected to be 6
delivered at an overall UCT score of 1.26. The expected benefit-cost test results for each 7
of the residential programs are detailed in the Company’s Plan Report, contained in 8
Exhibit A-13 (TAY-2). 9
Q. How will the Company demonstrate that its investments in the residential programs are 10
achieving the desired results? 11
A. Consistent with the approach used since 2009, the Company will file annual 12
reconciliation reports with the Commission after the end of each plan year detailing how 13
much was invested for each program and energy saved for each program by customer 14
class (residential, non-residential) in the previous year. Such reports will be in sufficient 15
detail to allow the Commission to determine that the Company is complying with the 16
Commission’s orders and statutory requirements. 17
Q. Does that conclude your testimony? 18
A. Yes. 19
171
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
DIRECT TESTIMONY
OF
S. AUSTIN SMITH
ON BEHALF OF
CONSUMERS ENERGY COMPANY
March 2017
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Q. Please state your name and business address. 1
A. My name is S. Austin Smith, and my business address is One Energy Plaza, Jackson, 2
Michigan 49201. 3
Q. By whom are you employed? 4
A. I am employed by Consumers Energy Company (“Consumers Energy” or the “Company”). 5
Q. What is your position with Consumers Energy? 6
A. I am a Rate Analyst I in the Pricing Section of the Rates and Regulation Department. 7
Q. Please state your educational background and work experience. 8
A. In 2014 I graduated from Alma College with a Bachelor of Business Administration Degree 9
with an emphasis in Accounting. 10
From June 2014 to July 2016 I was employed by Alro Steel on the Sales team in 11
Jackson, MI; Charlotte, NC; and Flint, MI. My responsibilities included: (i) managing a 12
portfolio of customer accounts; (ii) customer service and customer relations problem-solving; 13
(iii) delivery scheduling; (iv) logistics planning; (v) inter-company communication; and 14
(vi) face-to-face customer sales visits, tours, and events. 15
In August 2016, I began employment as a Rate Analyst I in the Pricing Section of the 16
Rates and Regulation Department at Consumers Energy. My current responsibilities include 17
rate design, research and development of additional services, analyses for Senior 18
Management, and customer-specific rate analyses. 19
Q. What is the purpose of your testimony in this proceeding? 20
A. The purpose of my testimony in this proceeding is to present the Company’s proposals for: 21
(1) the allocation of the 2018-2021 Energy Waste Reduction Plan (“2018-2021 Plan”) 22
investments between customer groups; (2) the utilization of the monthly billing determinants 23
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for surcharge design; (3) the calculation of the proposed surcharges necessary to recover the 1
proposed investments; and (4) the surcharge tariff sheets for the Company’s 2018-2021 Plan. 2
Q. Are you sponsoring any exhibits? 3
A. Yes, I am sponsoring the following exhibits: 4
Exhibit A-8 (SAS-1) Allocation of the 2018-2021 Energy Efficiency 5 Program Investments- Electric & Gas; 6
Exhibit A-9 (SAS-2) Calculation of Energy Efficiency Plan Surcharges - 7 Electric & Gas; 8
Exhibit A-10 (SAS-3) Proposed Electric Energy Efficiency Surcharge Tariff 9 Sheet; and 10
Exhibit A-11 (SAS-4) Proposed Gas Energy Efficiency Surcharge Tariff 11 Sheet. 12
Q. Were these exhibits prepared by you or under your supervision? 13
A. Yes, they were. 14
Q. Please describe Exhibit A-8 (SAS-1). 15
A. Exhibit A-8 (SAS-1), Allocation of the 2018-2021 Energy Efficiency Program Investments- 16
Electric & Gas, is a two-page exhibit which shows the proposed allocation of the Company’s 17
investment to help its customers reduce energy waste among the various customer groups for 18
both the electric and gas plans. 19
Q. What was the basis for the investment allocations? 20
A. The electric and gas energy waste reduction investments were provided by Company witness 21
Theodore A. Ykimoff. The investments are allocated to the various customer groups based 22
on the additional energy savings being delivered and the relative cost-of-conserved energy 23
for each class, with certain adjustments for the allocation of low income programs in 24
compliance with the provisions of 2016 Public Act (“PA”) 342 (“PA 342”). In addition, 25
Mr. Ykimoff also asked that I provide the allocation of investments based on the level of 26
174
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investment in each class, consistent with prior cases, as an alternative in the event the 1
Commission disagrees with the Company’s proposal. This is represented on Exhibit A-8 2
(SAS-1), page 2, as the status quo method. 3
Q. Please describe Exhibit A-9 (SAS-2). 4
A. Exhibit A-9 (SAS-2), Calculation of Energy Efficiency Plan Surcharges - Electric & Gas, is a 5
two-page exhibit which provides an overview of the calculation of the monthly energy 6
efficiency plan component surcharges by customer group, which will recover the Company’s 7
annual investments. The derivation of the surcharges will be discussed in more detail later in 8
my testimony. 9
Q. Please describe Exhibit A-10 (SAS-3). 10
A. Exhibit A-10 (SAS-3), page 1, Proposed Electric Energy Efficiency Surcharge Tariff Sheet, 11
shows the total energy efficiency electric surcharges by customer group in a rate sheet 12
format. Exhibit A-10 (SAS-3), page 2, Proposed Electric Energy Efficiency Surcharge Tariff 13
Sheet, shows the total energy efficiency electric surcharges by customer group based on the 14
status quo method discussed above. 15
Q. Please describe Exhibit A-11 (SAS-4). 16
A. Exhibit A-11 (SAS-4), page 1, Proposed Gas Energy Efficiency Surcharge Tariff Sheet, 17
shows the total energy efficiency gas surcharges by customer group in a rate sheet format. 18
Exhibit A-11 (SAS-4), page 2, Proposed Gas Energy Efficiency Surcharge Tariff Sheet, 19
shows the total energy efficiency gas surcharges by customer group based on the status quo 20
method discussed above. 21
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Q. What is the basis for the development of the Company’s proposed 2018-2021 Plan 1
investment recovery mechanism? 2
A. The monthly surcharges were designed to recover the Company’s investments in energy 3
waste reduction in accordance with PA 342. 4
Q. Does the Company intend to assess an energy efficiency surcharge to municipal customers 5
with utility owned streetlighting? 6
A. Yes. The Company is proposing to open its Energy Waste Reduction programs for these 7
customers as part of its proposed 2018-2021 Plan. As such, the Company proposes to assess 8
a per light surcharge to recover the expected investments associated with upgrading these 9
projects. 10
Q. Please elaborate on how the Company intends to recover its investment in energy waste 11
reduction from its customers. 12
A. The Company will assess monthly levelized surcharges to recover its proposed investments 13
over the period of January 2018 through December 2021. The Company is proposing to 14
replace its existing energy efficiency surcharges beginning with the first billing cycle of the 15
January 2018 billing month. The surcharges have been designed to recover the investments 16
for each respective customer class (residential and business) as required by PA 342. The 17
surcharges for each customer group calculated on Exhibit A-9 (SAS-2) represent the 18
recovery of the residual 2017 investments plus the $469 million and $219 million of 19
2018-2021 electric and gas investments, respectively. The Company’s combined surcharges 20
(current plus incremental) are displayed on Exhibit A-10 (SAS-3) and Exhibit A-11 (SAS-4). 21
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Q. How did you calculate the proposed 2018-2021 Plan surcharges? 1
A. The annual investments to be collected for each rate category on a 100% expensed basis for 2
the period January 2018 through December 2021 were calculated based on the levelized net 3
present value of incremental plan expenditures provided by Company witness Ykimoff. 4
Q. How will the monthly surcharges be assessed? 5
A. The electric and gas surcharges will be assessed to each customer group as specified in 6
PA 342. Residential electric customers will be charged on a per kWh basis on their monthly 7
bill. Secondary and primary electric customers will be assessed the surcharge on a per meter 8
basis on their monthly bill. All gas customer groups will be charged each month on a per 9
Mcf basis. 10
Q. How are the surcharges for a typical residential customer impacted? 11
A. Under the Company’s proposed allocation, a residential electric customer using 673 kWh per 12
month would see an increase of $2.14 per month, while a residential gas customer using 13
8 Mcf per month would see an increase of $0.24 per month. 14
Q. How will the Company determine the appropriate surcharge category for each customer? 15
A. A new customer with no usage history will initially be assigned to the lowest usage surcharge 16
level for their rate class. Existing customers will be placed in their demarcated subclass 17
based on their 12-month historic usage. An annual review of customers’ average annual 18
consumption levels will be performed each January to determine which usage segment the 19
customers will be assigned to during the next year. 20
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Q. How does the Company propose to recover its plan costs from the Low-Income Residential 1
Program? 2
A. The energy waste reduction investments for the Low-Income Residential Program have been 3
allocated to all customer groups based on the weighting of the customer group’s respective 4
investments to the total investments for a given year. Customers who self-direct their own 5
programs are still responsible for paying their share for these Low-Income Residential 6
Program investments through the appropriate surcharge assigned to their respective customer 7
group in compliance with the statutory requirements. 8
Q. Does this conclude your testimony in this proceeding? 9
A. Yes, it does. 10
178
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 2018 – 2021 Energy ) Case No. U-18261 Waste Reduction Plan ) )
SUPPLEMENTAL DIRECT TESTIMONY
OF
S. AUSTIN SMITH
ON BEHALF OF
CONSUMERS ENERGY COMPANY
June 2017
179
S. AUSTIN SMITH SUPPLEMENTAL DIRECT TESTIMONY
ste0617-sas 1
Q. Please state your name and business address. 1
A. My name is S. Austin Smith, and my business address is One Energy Plaza, Jackson, 2
Michigan 49201. 3
Q. By whom are you employed? 4
A. I am employed by Consumers Energy Company (“Consumers Energy” or the 5
“Company”). 6
Q. What is your position at Consumers Energy? 7
A. I am a Rate Analyst I in the Pricing Section of the Rates and Regulation Department. 8
Q. Are you the same S. Austin Smith who submitted direct testimony in this case? 9
A. Yes. 10
Q. Are you sponsoring exhibits with your supplemental direct testimony? 11
A. Yes, I am sponsoring the following exhibits: 12
Exhibit A-17 (SAS-5) Proposed Electric Energy Efficiency Tariff Sheets; 13 and 14
Exhibit A-18 (SAS-6) Proposed Gas Energy Efficiency Tariff Sheets. 15
Q. Were these exhibits prepared by you or under your supervision? 16
A. Yes, they were. 17
Q. What is the purpose of your supplemental direct testimony? 18
A. The purpose of my supplemental direct testimony is to make changes to tariff language in 19
accordance with Public Act 342 of 2016 (“Act 342”). 20
Q. Please describe the proposed tariff changes in Exhibit A-17 (SAS-5)? 21
A. The term “Energy Optimization” has been substituted with “Energy Waste Reduction” to 22
reflect the new terminology used in Act 342. References to Act 342 have also been 23
added throughout. Section C12.2 has been updated to remove references to previous 24
180
S. AUSTIN SMITH SUPPLEMENTAL DIRECT TESTIMONY
ste0617-sas 2
years that are no longer applicable and to include a reference to the Michigan Public 1
Service Commission’s Order in Case No. U-16563. The surcharge tariff sheets have 2
been revised to simplify the language in footnote 3 by removing unnecessary references 3
to the effective period, the applicable cases, and components of the surcharge. Pages 4 4
and 5 of Exhibit A-17 (SAS-5) replace page 1 of Exhibit A-10 (SAS-3) and page 1 of 5
Exhibit A-11 (SAS-4), respectively, as referenced in my direct testimony in this case. 6
Q. Please describe the proposed tariff changes in Exhibit A-18 (SAS-6)? 7
A. Similar to the changes discussed above, the term “Energy Optimization” has been 8
substituted with “Energy Waste Reduction”, references to Act 342 have been added, and 9
the surcharge tariff sheets have been revised to simplify the language in footnote 3. 10
Pages 2 and 3 of Exhibit A-18 (SAS-6) replace page 2 of Exhibit A-10 (SAS-3) and 11
page 2 of Exhibit A-11 (SAS-4), respectively, as referenced in my direct testimony in this 12
case. 13
Q. Does this conclude your supplemental direct testimony? 14
A. Yes, it does. 15
181
182
1 JUDGE MACK: Anything else on behalf of
2 the Company?
3 MR. GENSCH: No, your Honor.
4 JUDGE MACK: Thank you.
5 Let's go to you, Ms. Barbash-Riley. What
6 do you have?
7 (Documents marked for identification by the Court
8 Reporter as Exhibit Nos. NHT-1 through NHT-9.)
9 MS. BARBASH-RILEY: The National Housing
10 Trust moves to bind in the Corrected Direct Testimony of
11 Annika Brink, which consists of a cover page and 31 pages
12 of questions and answers. We have handed out the
13 corrected pages, they consist of corrections on page 8,
14 lines 10 and 11, which state now in the corrected
15 testimony that, "The Company's dual fuel territory
16 contains approximately 77,083 low-income multifamily
17 households." We've struck out the text "serves", "of
18 these", and "with both fuels". Then on page 17, in the
19 chart under the column labeled Subsidized Affordable
20 Incentive as % of Incentive Cost, under the line DHW
21 Boiler Tune-Up - CA, it was "44" percent, it is now
22 "45" percent.
23 JUDGE MACK: Exhibits?
24 MS. BARBASH-RILEY: This testimony was
25 originally filed with nine exhibits.
Metro Court Reporters, Inc. 248.360.8865
183
1 JUDGE MACK: And those are? Make the
2 offer of the exhibits, NHT?
3 MS. BARBASH-RILEY: Exhibits NHT-1
4 through 9.
5 JUDGE MACK: 1 through 9. Any objection?
6 (No response.)
7 Hearing none, the testimony of Ms. Brink
8 is bound into this record, and Exhibits NHT-1 through
9 NHT-9 are admitted.
10 (Testimony bound in.)
11 - - -
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Metro Court Reporters, Inc. 248.360.8865
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 295 of 2008 and Public Act 342 of 2016.
Case No. U-18261 ALJ Dennis Mack
CORRECTED DIRECT TESTIMONY OF
ANNIKA BRINK
ON BEHALF OF
THE NATIONAL HOUSING TRUST
184
ERRATA to the
DIRECT TESTIMONY OF
ANNIKA BRINK
ON BEHALF OF THE NATIONAL HOUSING TRUST
Page(s) Change
8
The Company’s dual fuel territory contains serves approximately 77,083 of these low-income multifamily households with both fuels.
17 Table 4: Column: Subsidized Affordable Incentive as % of Inc. Cost, Row: DHW Boiler Tune-Up – CA - corrected percentage from 44% to 45%
185
i
Table of Contents
I. Introductions and Qualifications ............................................................................................. 1
II. Testimony Overview ............................................................................................................ 3
III. Testimony ............................................................................................................................ 5
Part 1. NHT’s Involvement in Low-Income Multifamily Program Design Related to Consumers’ Previous EO Case ................................................................................................... 5
Part 2. Opportunities for Low-Income Multifamily Energy Savings in Consumers’ Territory and Barriers to Energy Efficiency Faced by Low-Income Multifamily Properties .................... 8
Part 3. Evolution of Energy Savings Opportunities Over Time and Recommended Incentive Structure Changes Based on this Evolution and Current Needs ............................................... 16
Part 4. Recommended Changes to Consumers’ Low Income Multifamily Program to Align with Best Practices for Serving the Affordable Multifamily Sector ......................................... 23
Part 5. Utility Performance Metrics ....................................................................................... 31
186
1
I. Introductions and Qualifications 1
Q: Please state your name, employer, and business address. 2
A: My name is Annika Brink. I am employed by the National Housing Trust (NHT) as their 3
Energy Efficiency Advisor. In this capacity I work with state and local partners across the 4
country to make multifamily housing healthy and affordable through energy efficiency. I have 5
primary responsibility for NHT’s energy efficiency policy work in the Midwest, including 6
Michigan. My business address is National Housing Trust, 1101 30th Street NW, Suite 100A, 7
Washington, DC 20007. 8
Q: Please describe your educational background. 9
A: I received a Master in Public Policy from Harvard University in 2011, where I focused on 10
energy, sustainability, and social/urban policy and produced research on state and local policy 11
solutions for rental sector energy efficiency. I also received a Bachelor of Arts in History and 12
German Studies from Wesleyan University in 2005 and subsequently spent a year studying 13
Architecture and Urban Planning at the Universität Stuttgart in Stuttgart, Germany. 14
Q: Please summarize your professional experience. 15
A: I have seven years of professional experience with energy policy, affordable housing, and 16
green building, both from an energy and a housing perspective. In my work for NHT, I analyze 17
state, local, and utility efficiency policies and programs; help disseminate best practices; and 18
facilitate coordination among housing and energy stakeholders. I have filed comments with 19
utility regulators in Missouri, Minnesota, and Kansas. From 2011 to 2013, I led the nonprofit 20
Alliance to Save Energy’s engagement of publicly-owned not-for-profit electric power utilities, 21
where I helped utilities share best practices, consider energy efficiency program models, 22
benchmark their energy efficiency portfolios, develop innovative online tools, and achieve 23
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consensus on priority topics. I have been a LEED Green Associate since 2013. I have worked for 1
affordable housing developers in Grand Rapids, Michigan (internship) and Minneapolis, 2
Minnesota, including work on green affordable housing, community development, and 3
multifamily rehabilitation projects. 4
I have additional experience working on energy efficiency issues in Michigan. I regularly 5
participate in Energy Waste Reduction stakeholder meetings and am working with other low-6
income, multifamily, and energy efficiency stakeholders to provide input as part of the Michigan 7
Public Service Commission’s facilitated discussions on Integrated Resource Planning rules under 8
development. Over the last three years, I have worked with local housing and energy 9
stakeholders to convene a diverse cross-section of stakeholders in convenings (five total of 25-45 10
stakeholders each), conversations, work groups, and monthly calls under the umbrella “Michigan 11
Energy Efficiency for All.” Together, on an ongoing basis, we explore and address local 12
multifamily energy efficiency experiences, barriers, solutions, and potential collaborative 13
solutions related to expanding energy efficiency for affordable multifamily housing. A copy of 14
my curriculum vitae is attached as Exhibit NHT-1. 15
Q: Have you previously filed expert witness testimony in other proceedings before the 16
Commission? 17
A: No. 18
Q: Have you testified on energy efficiency matters before other regulatory 19
commissions? 20
A: Yes, I have testified before the Missouri Public Service Commission and the Kansas 21
Corporation Commission. 22
Q: Are you sponsoring any exhibits? 23
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A: Yes. I am sponsoring the following exhibits: 1
• Exhibit NHT-1: Resume of Annika Brink, National Housing Trust 2
• Exhibit NHT-2: Response to 18261-NHT-CE-33, which I am sponsoring on behalf of NHT; 3
• Exhibit NHT-3: Response to 18261-NHT-CE-34, which I am sponsoring on behalf of NHT; 4
• Exhibit NHT-4: Response to 18261-NHT-CE-35, which I am sponsoring on behalf of NHT; 5
• Exhibit NHT-5: Mosenthal, P. and Socks, M., Potential for Energy Savings in 6
Affordable Multifamily Housing, Optimal Energy for NRDC, 2015, which I am 7
sponsoring on behalf of NHT.; 8
• Exhibit NHT-6: February 12, 2016 Michigan EEFA Potential Study Findings Webinar; 9
• Exhibit NHT-7: Response to 18261-NHT-CE-50; 10
• Exhibit NHT-8: Response to 18261-NHT-CE-52; and 11
• Exhibit NHT-9: Response to 18261-NHT-CE-30. 12
Q: On whose behalf are you testifying? 13
A: I am testifying on behalf of the National Housing Trust (NHT). 14
II. Testimony Overview 15
Q: What is the purpose of your testimony? 16
A: The purpose of my testimony is as follows: 17
My testimony will generally focus on the Company’s offerings for low-income multifamily 18
buildings: this is a subset of the Company’s multifamily program, which is funded as 19
“Residential Multifamily” and “Business Multifamily,” but operated as a single multifamily 20
program. I will refer to this program as “the multifamily program.” 21
1. First, I provide additional background on NHT’s history of involvement in low-22
income multifamily program design related to Consumers Energy’s (“Consumers” 23
or “the Company”) previous EO case, U-17771. 24
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2. Second, I outline the opportunities for low-income multifamily energy savings in 1
Consumers’ territory, as well as the barriers to energy efficiency faced by owners 2
of such properties. 3
3. Third, I describe how the market and energy savings opportunities are evolving 4
over time, and recommended program changes based on this evolution. 5
4. Fourth, I recommend changes to Consumers’ incentive amounts and budgets, and 6
changes necessary to more closely match best practices for serving the affordable 7
multifamily sector. 8
5. Fifth, I describe utility performance metrics that will aid Consumers in 9
successfully serving its affordable multifamily customers. 10
Q: Please summarize your recommendations. 11
A: A summary of my recommendations is as follows: 12
• Incentive Structure: I recommend five categories of changes to Consumers’ 13
incentive structure: (1) Increasing incentive levels for non-lighting measures; (2) 14
additional rebates for American Society of Heating, Refrigerating, and Air-15
Conditioning Engineers (ASHRAE) Level II energy audits; (3) allowing applicants 16
for Low Income Housing Tax Credits to reserve rebates for up to 36 months; (4) 17
increasing the budget allocated to low-income multifamily in order to facilitate a 18
move toward deeper savings and to fund the higher incentive levels; and (5) 19
providing the same incentive levels to both subsidized and unsubsidized affordable 20
multifamily housing. 21
• Low Income Multifamily Energy Efficiency Program Design: I recommend seven 22
changes to Consumers’ Low Income Multifamily energy efficiency program design, 23
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including (1) providing more comprehensive, wrap-around services for owners, 1
including intensive support before, throughout, and after the retrofit process; (2) 2
providing every program participant with an energy assessment that meets, at a 3
minimum, standards for an ASHRAE Level I audit; (3) improving linkages to 4
MSHDA and to better financing options; (4) enabling easy proof of eligibility for 5
unsubsidized properties; (5) including additional direct install measures; (6) 6
standardizing procedures for more detailed reporting; and (7) setting utility 7
performance metrics that encourage continued program evolution toward delivering 8
more comprehensive, whole-building savings. 9
• Budget Expenditure: I recommend that Consumers work toward a goal of spending 10
$7.2-$14.7 million annually on low-income multifamily, that they spend their entire 11
low-income multifamily budget, and that this amount be clearly and publicly stated in 12
EWR portfolio documents. 13
• Utility Performance Metrics: Finally, I recommend that for low-income multifamily 14
properties participating in Consumers’ low-income multifamily program, Consumers 15
achieve average energy savings per property of at least 25 percent, deliver an energy 16
assessment and report to at least 50 percent of properties, and have at least 50 percent 17
of properties install multiple measures or receive the multiple measure bonus. 18
I discuss these recommendations in more detail in my testimony below. 19
III. Testimony 20
Part 1. NHT’s Involvement in Low-Income Multifamily Program Design 21 Related to Consumers’ Previous EO Case 22
Q: Please describe NHT’s involvement in low-income multifamily program design 23
related to Consumers Energy’s previous EO case. 24
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A: The National Housing Trust was an intervenor in Consumer’s previous Energy 1
Optimization plan filing, working with the Company to identify incremental improvements that 2
were then applied to its proposed multifamily program as part of a multi-party settlement 3
agreement. NHT’s scope was limited to multifamily energy efficiency. We were pleased with the 4
settlement, because it showed movement toward the type of “one-stop shop” program design that 5
streamlines access to energy efficiency incentives across meters and fuels, providing a whole-6
building picture of energy savings opportunities, as well as support for busy owners of 7
multifamily buildings to move forward with retrofits. Additionally, the Company earmarked 8
funds specifically for low-income multifamily buildings and introduced bonus incentives for 9
these buildings, which we felt was justified based on the moral imperative to serve low-income 10
customers, as well as by the multiple barriers to energy efficiency present in the low-income 11
multifamily sector. 12
Q: What is your assessment of the subsequent implementation of energy efficiency 13
offerings for low-income multifamily buildings? 14
A: Based on information supplied by the Company in response to NHT Discovery Requests, 15
the evolution of the Income-Qualified Multifamily offering toward a comprehensive one-stop 16
shop model has been slower and less complete than hoped for.1 That is, the data show a program 17
that continues to deliver direct install projects and one-off prescriptive rebate projects, rather 18
than a program that delivers deep, whole-building energy savings, which is a best practice for the 19
low-income multifamily sector.2 It is extremely difficult to get affordable multifamily building 20
owners’ attention, and these buildings often operate on periodic financing/re-financing cycles 21
where they are only able to make major building upgrades every 15-20 years. Thus, it is 22
1 Exhibit NHT-2, Response to 18261-NHT-CE-33, and Exhibit NHT-3, Response to 18261-NHT-CE-34, which I am sponsoring on behalf of NHT. 2 Exhibit NHT-4, Response to 18261-NHT-CE-35, which I am sponsoring on behalf of NHT.
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imperative to address all possible energy savings opportunities in an affordable multifamily 1
building at the moment when the utilities have the owner’s attention. 2
It is clear from the Company’s data that the program has not succeeded in encouraging 3
owners to take a more comprehensive approach and move beyond direct install or single 4
prescriptive measures. As of August 2017, only two out of the 575 multifamily projects 5
participating in the program received the multiple measures bonus.3 This indicates that the large 6
majority of projects only complete one measure. It is possible that some projects did more than 7
one measure and did not request the bonus, but if the bonus is not significant enough for owners 8
to bother requesting it, then it is too low to motivate an owner to do a more comprehensive 9
retrofit. The results also show that direct install is not being used as part of pathway to deeper 10
savings. Only 4 percent of projects received both direct install services and prescriptive rebates. 11
27 percent did only direct install and the remaining 68 percent did only prescriptive rebates.4 12
This indicates that the program is not using direct install as a means of engaging owners and 13
encouraging them to pursue deeper savings and that many owners are likely only accessing 14
prescriptive rebates for projects they would have done anyway, rather than because they learned 15
about the full suite of savings opportunities in their properties through participation in the 16
program. 17
Upon review of Discovery Responses provided by the Company, the Company’s current 18
rebate levels, and best practices for serving the low-income multifamily sector, we are hopeful 19
that additional program design changes (as described later in this testimony) will enable the 20
Company’s low-income multifamily offering to continue its evolution toward a more advanced 21
3 Exhibit NHT-3, Response to 18261-NHT-CE-34, which I am sponsoring on behalf of NHT. 4 Exhibit NHT-4, Response to 18261-NHT-CE-35, which I am sponsoring on behalf of NHT.
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one-stop shop model. Throughout the past two years, we have been impressed with the 1
Company’s thirst for improvement and its openness to incorporating ideas for change. 2
Part 2. Opportunities for Low-Income Multifamily Energy Savings in 3 Consumers’ Territory and Barriers to Energy Efficiency Faced by 4 Low-Income Multifamily Properties 5
Q: How many low-income multifamily households live in Consumers’ territories? 6
A: Census and GIS-based analysis conducted for a 2015 Energy Efficiency for All (EEFA) 7
potential study5 reveals that there are approximately 140,513 low-income multifamily 8
households in Consumers’ electric territory and approximately 178,661 low-income multifamily 9
households in Consumers’ gas territory. The Company’s dual fuel territory contains serves 10
approximately 77,083 of theselow-income multifamily households with both fuels. 11
5 Exhibit NHT-5 (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, 2015 (supplementary analysis of Michigan’s natural gas potential completed by Optimal in January-February 2016) (This report was prepared for a group of organizations including the National Housing Trust, to which I contributed as a GIS analyst.); Exhibit NHT-6, 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, 2016 (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).
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Table 1: Affordable Multifamily Unit Counts for Consumers Energy’s Electric and Gas Territories 1
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 4,531,958 695,339 281,053 414,286 205,405 184,739 24,142
Consumers - electric 1,821,915 237,542 97,029 140,513 62,963 70,675 6,875
Consumers - gas 1,994,450 345,640 166,979 178,661 90,053 81,775 6,833
Consumers - overlap of electric and gas
900,237 138,691 61,608 77,083 34,209 39,721 3,153
2
The different types of low-income multifamily housing include public housing (owned by 3
a city, county, or other public entity); subsidized affordable housing (privately owned, but with 4
affordability restrictions in place according to Low Income Housing Tax Credit, HUD, or USDA 5
requirements); and unsubsidized housing (privately owned, but without affordability restrictions, 6
and affordable by virtue of market forces). 7
Q: Is there enough energy savings potential in the low-income multifamily sector to 8
justify a program that seeks to deliver deep, whole-building energy savings? 9
A: Yes, there is. The study cited above and subsequent additional analysis found that if 10
Consumers pursued maximum achievable cost-effective electric and gas savings in the 11
affordable multifamily sector from 2015-2034, the cumulative savings would equate to 26 12
percent to 32 percent lower electric usage and 11 percent to 15 percent lower gas usage sector-13
wide across its respective territories in 2034.6 The low-end estimate represents cost-effective 14
potential without factoring in the substantial non-energy benefits (NEBs) of low-income energy 15
6 Exhibit NHT-5, Mosenthal, P. and Socks, M., 2015-2016.
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efficiency, while the high-end estimate represents cost-effective potential when NEBs are 1
included in cost-effectiveness analysis. I will address NEBs further later in my testimony. It 2
should be noted that these numbers—and the numbers in the two related tables below—apply to 3
buildings with 5+ units, so these numbers are actually an underestimate of the potential for low-4
income multifamily buildings of 3+ units, which is the population eligible for Consumers’ 5
proposed low-income multifamily program.7 6
Table 2: Maximum Achievable Savings Estimates8 7
Cumulative Savings
in Year 20 Savings % of Total Usage
in Year 20
Consumers Energy - electric
Max Achievable, No NEBs (GWh)
180 26%
Max Achievable, High NEBs (GWh)
222 32%
Consumers Energy - gas
Max Achievable, No NEBs (Gas BBtu)
1,052 11%
Max Achievable, High NEBs (Gas BBtu)
1,478 15%
8
Furthermore, the Consumers’ low-income multifamily electric energy efficiency 9
investments outlined here would return $2.60 to $3.40 in benefits for every $1.00 invested, 10
resulting in $125 million to $428 million in net benefits over 20 years. Its investments in low-11
income multifamily gas energy efficiency would return $2.30 to $3.00 in benefits for every 12
$1.00 invested, resulting in $86 million to $230 million in net benefits over 20 years. In total, 13
this is $211 to $658 in possible net benefits. In order to achieve these results, Consumers would 14
need to invest an average of between $7.2 million (for low-end net benefits) and $14.7 million 15
(for high-end net benefits) in low-income multifamily energy efficiency each year for 20 years. 16
7 Company Exhibit A-13 (TAY-2), p. 78. 8 Exhibit NHT-5, Mosenthal, P. and Socks, M., 2015-2016.
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Table 3: Costs and Benefits for Gas Maximum Achievable Savings Scenarios9 1
Total Costs (Million 2015$)
Total Benefits (Million 2015$)
Net Benefits (Million 2015$)
BCR
Consumers Energy - electric
Max Achievable, No NEBs $78 $202 $125 2.6 Max Achievable, High NEBs $181 $610 $428 3.4
Consumers Energy - gas
Max Achievable, No NEBs $66 $152 $86 2.3
Max Achievable, High NEBs $113 $344 $230 3.0
Consumers Energy - electric + gas
Max Achievable, No NEBs $144 $354 $211 n/a
Max Achievable, High NEBs $294 $954 $658 n/a Max Achievable, No NEBs, average annual $7.2 $17.7 $10.55 n/a Max Achievable, High NEBs, average annual $14.7 $47.7 $32.9 n/a
2
Q: What level of investment are you proposing that Consumers undertake annually for 3
low-income multifamily energy efficiency? 4
A: Based partially on this analysis of energy savings potential in the affordable multifamily 5
sector, we propose that Consumers ramp up to an annual investment of $7.2 to 14.7 million. A 6
reasonable ramp-up might occur over the course of 3-4 years, starting from a base of the 7
Company’s 2017 low-income multifamily investment of $2.9 million. 8
Q: What additional reasons do you have for proposing increased investment in low-9
income multifamily buildings? 10
A: There are two additional reasons why the low-income multifamily sector merits increased 11
investment. The first is the overwhelming need in this sector, as well as the wide array of 12
benefits that can follow from energy efficiency investments here. The second is the barriers to 13
energy efficiency investments and unique financing lifecycles faced by low-income multifamily 14
buildings, which are chronically underserved by energy efficiency programs and which 15
9 Exhibit NHT-5, Mosenthal, P. and Socks, M., 2015-2016.
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necessitate a more intensive, hands-on approach to delivering energy efficiency than in other 1
sectors. 2
Q: Please elaborate on the need found in the low-income multifamily sector, as well as 3
the benefits you indicated can follow from energy efficiency investments in this sector. 4
A: Energy efficiency programs are extremely beneficial to low-income tenants and can help 5
owners maintain the buildings they live in, especially in subsidized properties where owners 6
have limited cash flow because of legal obligations to maintain low rents and other restrictions. 7
Retrofits can result in non-energy benefits (NEBs) such as water/wastewater bill savings, 8
reduced maintenance costs, lower turnover rates, increased resident comfort, increased 9
durability, improved safety, and improved health (e.g., less asthma or aggravation of chronic 10
conditions from extreme heat and cold, resulting in fewer sick days from work and school). 11
Utilities can benefit from reduced arrearage carrying costs, reduced customer collection 12
calls/notices, reduced termination/reconnection costs, and reduced bad debt write-offs. 13
Over 92 percent of Michigan’s multifamily households rent and almost half of renters in 14
Consumers’ territories spend more than 30 percent on rent plus utilities, the federal standard for 15
housing unaffordability. The percentage of renters spending more than 30 percent on rent plus 16
utilities is 48 percent in the Company’s electric territory, 47percent in its gas territory, and 49 17
percent in its combined electric-gas territory.10 According to the U.S. Department of Housing 18
10 U.S. Census Table B25070. 2011-2015 American Community Survey 5-Year Estimates. GROSS RENT AS A PERCENTAGE OF HOUSEHOLD INCOME IN THE PAST 12 MONTHS, Universe: Renter-occupied housing units. And U.S. Census Table B25032. 2011-2015 American Community survey 5-Year Estimates. TENURE BY UNITS IN STRUCTURE, Universe: Occupied housing units. Approximately 92.5% of Michigan’s multifamily households rent when considered as buildings with 3+ units and 93.8% do so when a 5+ units definition is used.
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and Urban Development, such households “may have difficulty affording necessities such as 1
food, clothing, transportation and medical care.” 11 2
Low-income multifamily households face a higher energy burden than non-low-income 3
households. A 2016 report by Energy Efficiency for All and the American Council for an 4
Energy-Efficient Economy (ACEEE) that looked at energy burden across 48 metropolitan areas 5
found that low-income multifamily households had a median energy burden of 5.0 percent 6
compared to only 3.5 percent for households generally and a mere 1.5 percent for non-low-7
income multifamily households. This means that the median low-income multifamily household 8
spends 5 percent of its gross income on energy utility spending. The study found that low-9
income multifamily households “faced the highest average energy burdens in the Southeast and 10
Midwest regions” compared to other regions.12 11
Q: Can energy efficiency help alleviate the high energy burdens facing low-income 12
multifamily households? 13
A: Yes. The Energy Efficiency for All/ACEEE report cited above found that energy 14
efficiency was key to alleviating these high energy burdens: 15
[F]or all low-income households and for multifamily low-income households, 16 bringing their housing stock up to the efficiency level of the median household 17 would eliminate 35% of their excess energy burden. As one might expect, the 18 energy burdens of low-income households are driven in large part by their low-19 income status. However more than one-third of their excess energy burden was 20 caused by inefficient housing stock.13 21 22
Therefore, as discussed below, we support increased incentives to help low-income multifamily 23
buildings upgrade the efficiency of their properties. 24 11 Spending 30% 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 http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/affordablehousing/. 12 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 2016, http://www.energyefficiencyforall.org/sites/default/files/Lifting%20the%20High%20Energy%20Burden_0.pdf, p. 4 13 Drehobl, A. and Ross, L., p. 19.
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A historical lack of access to energy efficiency for multifamily rental housing presents an 1
opportunity for the Company to tap latent energy savings. In fact, efficiency measures are far 2
less likely to be installed in multifamily rentals than in any other type of housing. Multifamily 3
units occupied by low-income renters had 4.1 fewer energy efficiency features in 2005 and 4.7 4
fewer in 2009 compared with other households.14 This translates to significant unrealized low-5
income multifamily energy savings. 6
Q: Please elaborate on the barriers to energy efficiency investments and unique 7
financing lifecycles faced by low-income multifamily buildings. 8
A: Low-income multifamily buildings may have difficulty implementing energy efficiency 9
retrofits because programs are not designed with multifamily needs in mind. For example, a 10
program may be geared toward participation by individual tenants, even though owners are the 11
decision-makers for investments in multifamily properties. Or, owners are often asked to apply 12
separately to gas and electric programs, and separately to programs for common area and tenant 13
units. Owners may decide the transaction costs and time commitment of understanding, applying 14
to, and participating in such disjointed programs are not worth the incentives being offered. 15
Other barriers are financial, such as insufficient financial incentives or owners’ lack of 16
access to capital. For affordable buildings financed through the state housing finance agency (the 17
Michigan State Housing Development Authority), utility-sponsored energy efficiency incentives 18
may not be flexible or reliable enough to account for the long planning and construction 19
timelines associated with this process, where time from energy audit to rehabilitation completion 20
may be 24 months or more. 21
14 Pivo, G., Unequal access to energy efficiency in US multifamily rental housing: opportunities to improve, 2014. Building Research & Information, 42:5, pp. 551-573.
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In some cases, contractors are unfamiliar with the multifamily building type and the 1
potential savings it presents, leaving savings on the table. Multifamily buildings, especially 2
subsidized ones, often have complex management and decision-making structures and limited 3
staff time to manage incentive processes, while efficiency programs may allocate insufficient 4
technical assistance to help overcome these barriers and manage owners’ program participation. 5
And, owners often lack access to energy usage data for the tenant meters in their buildings, 6
which can hamper their ability to make well-informed whole-building energy efficiency 7
investment decisions and to prioritize such investments across their property portfolios. 8
Perhaps paramount are the facts that it can be extremely difficult to get affordable 9
multifamily building owners’ attention, and that subsidized affordable multifamily buildings 10
often operate on periodic financing/re-financing cycles where owners are only able to make 11
major building upgrades every 15-20 years. Thus, it is imperative to address all possible energy 12
savings opportunities in an affordable multifamily building at the moment when the utilities have 13
the owner’s attention. Unfortunately, many programs are not designed with this 14
building/financing lifecycle in mind. 15
As a result of these and other barriers, low-income multifamily buildings are typically 16
underserved by existing energy efficiency programs such as the federal Weatherization 17
Assistance Program. This further deepens the importance of free- and low-cost low-income 18
multifamily offerings as an essential part of any equitably designed energy efficiency portfolio. 19
Such programs ensure that low-income multifamily households are able to participate in and 20
directly benefit from a utility’s energy efficiency investments. Because of this sector’s unique 21
needs, offerings that are specifically targeted to and designed for low-income multifamily 22
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buildings are necessary to ensure that such buildings are equitably served with energy efficiency 1
offerings. 2
While the barriers discussed here are significant and complex, there is compelling 3
evidence from the field that programs can be designed to overcome these barriers, including two 4
key best practice reports I will bring to the Commission’s attention later in my testimony. 5
Part 3. Evolution of Energy Savings Opportunities Over Time and Recommended 6 Incentive Structure Changes Based on this Evolution and Current Needs 7
Q: How are the energy savings opportunities and needs of the low-income multifamily 8
sector evolving over time? 9
A: Consumers Energy has been offering some type of multifamily energy efficiency offering 10
since 2009, when it introduced its “Multi-family Direct Install” program.15 It is our 11
understanding from speaking with the Company, and based on a general understanding of the 12
Company’s multifamily offerings and the market that: one, the focus of this program has never 13
been comprehensive, whole-building retrofits; and two, the Company has been successful 14
enough at reaching multifamily properties with direct install offerings that the direct install 15
market is starting to become saturated. 16
We also see evidence that low incentive levels have played a role in depressing owner 17
demand for deeper savings in low-income multifamily buildings. This appears to be the case 18
even with the introduction of 50 percent bonus incentives for low-income multifamily in 2016-19
17. We compared the Company’s current rebate levels to the incremental costs (per the Michigan 20
15 Consumers Energy Company’s Application for approval of its Renewable Energy Plan and Energy Optimization Plan in Cases No. U-15805/U-15889, filed Feb. 17, 2009, pdf pp. 152-157 (labeled 72-77), available at http://efile.mpsc.state.mi.us/efile/docs/15805/0023.pdf.
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Energy Measures Database16) and found very few measures for which current “subsidized 1
affordable housing” rebates (with the 50 percent bonus) cover the incremental cost of the 2
efficiency upgrade.17 In the table below, we have highlighted several non-lighting measures for 3
which we believe current low-income multifamily rebate levels are insufficient to induce owners 4
to act. 5
Table 4: Consumers’ Current Subsidized Affordable Multifamily Rebate Levels vs. Incremental Costs 6
Measure IU = In-Unit
CA = Common Area
Incentive Level Unit
Incremental Cost (from
MEMD)
Subsidized Affordable
Incentive as % of Inc. Cost
Market-Rate
Subs. Affordable
Instant Hot Water Heater - IU $50.00 $75.00 Unit $602.00 12%
Indirect Water Heater (≥90% Eff) - CA
$2.25 $3.38 MBH $18.48 18%
Instant Hot Water Heater - Gas - CA
$175.00 $262.50 Unit $602.00 44%
Furnace Replacement ≥95% - IU or CA - Example: 60 kbtu/hr
$250.00 $375.00 Unit $14.73 kBtu/hr input capacity Example: $884
Example: 42%
Space Heating Boiler Replacement >90% - CA
$5.00 $7.50 MBH $16.33 46%
Boiler Reset Control -CA $0.50 $0.75 MBH $1.68 45% Air Conditioner - <20 Tons - 12 SEER
$30.00 $45.00 Ton $166.48 27%
DHW Boiler Tune-Up - CA $0.25 $0.38 MBH $0.85 454%
Airtight Can Light $5.00 $7.50 Fixture $25.00 30%
Duct Sealing $6.00 $9.00 1,000 Sq Ft $16.67 54%
Roof Insulation $150.00 $225.00 1,000 Sq Ft $564.82 40%
7
For owners of low-income multifamily housing, who already face many barriers beyond 8
cost, rebates that do not even cover the incremental cost are unlikely to spur the type of 9
comprehensive, whole-building upgrades indicated by best practice as appropriate for this sector. 10
Indeed, we see very few multifamily owners leveraging the Company’s program offerings to 11
invest in this manner, as evidenced by the low number of properties taking advantage of the 12 16 Michigan Energy Measures Database, available at http://www.michigan.gov/mpsc/0,4639,7-159-52495_55129---,00.html. 17 Consumers Energy, 2017Multifamily Program Catalog, available at https://www.consumersenergy.com/~/media/CE/Documents/Energy%20Efficiency/multifamily-catalog.ashx?la=en.
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Company’s multiple measure bonus in 2016: zero market-rate properties, zero unsubsidized 1
affordable properties, and only two subsidized affordable properties.18 The multiple measure 2
bonus is awarded when a property installs measures from across two or more of the following 3
categories: in-unit lighting, common area lighting, tune-ups/maintenance, in-unit HVAC/DHW, 4
common area HVAC/DHW, building envelope, and custom.19 The fact that this bonus is so 5
infrequently earned suggests two things to us. First, it seems that owners are coming to the 6
program with specific, limited-scope projects in mind and are not being induced by the 7
Company’s available incentives to pursue further upgrades. And second, the multiple measure 8
bonus level is set too low, at 15 percent. For a $250 rebate on a $3,000 upgrade, this would 9
translate to just $37.50 extra or 1.25 percent of the cost of the upgrade. On its own, this is not 10
enough to make an owner seriously consider additional upgrades, especially when the rebates for 11
those additional upgrades are set so low. 12
Based on the growing saturation of the direct install market, as well as the evidence 13
presented here that the current incentive structure is not inducing more comprehensive upgrades, 14
we feel that changes are needed in order to move beyond direct install and stimulate the market 15
for deeper savings. 16
Q: What changes do you recommend to respond to an evolving market? 17
A: We have five recommendations for restructuring incentives to respond to the evolving 18
market. We will present additional program design best practices later in this testimony. The 19
recommendations for restructuring incentives are: 20
1. Increase incentive levels for non-lighting measures; 21
18 Exhibit NHT-3, Response to 18261-NHT-CE-34, which I am sponsoring on behalf of NHT. 19 Id.
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2. Add rebates for American Society of Heating, Refrigerating, and Air-1
Conditioning Engineers (ASHRAE) Level II energy audits; 2
3. Allow applicants for Low Income Housing Tax Credits to reserve rebates for up 3
to 36 months; 4
4. Increase the budget allocated to low-income multifamily in order to facilitate a 5
move toward deeper savings and to fund the higher incentive levels; and 6
5. Provide the same incentive levels to both subsidized and unsubsidized affordable 7
multifamily housing. 8
Our first incentive structure recommendation is to increase incentive levels for non-9
lighting measures in low-income multifamily buildings. As outlined in Table 4 and the 10
accompanying paragraphs above, incentive levels, especially for non-lighting measures, do not 11
appear sufficient to spur owners to more comprehensive retrofits. For low-income multifamily 12
buildings, we recommend that the Company: 13
• Continue to cover 100 percent of total cost for direct install measures in both common 14
areas and dwelling units; 15
• Cover 100 percent of total cost for in-unit measures where the tenant pays the utility 16
bill, as would be the case if the tenant were served by the Income Qualified Energy 17
Assistance program20; and 18
20 According to the program description in the Company’s application for approval of its 2018-2021 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. 10. 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; Water-saving measures (low-flow showerheads, aerators, pipe wrap, etc.); Furnace/boiler replacements, ECM motor replacements; and Furnace/boiler Tune-ups. Company Exhibit A-13 (TAY-2), p. 65.
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20
• Cover at least 20 percent of total cost (and averaging closer to 40-50 percent of total 1
cost) for common area, envelope, and building systems measures, as well as for in-2
unit measures in master-metered buildings 3
We believe that these rebate levels would, in the majority of cases, be higher than the 4
current rebates available to low-income multifamily buildings, which are currently rebated at a 5
50 percent higher level than the non-low-income multifamily rebate levels. It is our opinion that 6
the rebate levels outlined above would be much more meaningful to owners of low-income 7
multifamily buildings, and therefore much better suited to spurring them to undertake more 8
comprehensive energy efficiency projects, to the benefit of both the building’s residents and its 9
long-term operating costs. 10
Our second incentive structure recommendation is to add a rebate for ASHRAE Level II 11
energy audits for low-income multifamily, which are more intensive and provide more 12
information than the “energy assessments” currently offered by the multifamily program. The 13
ASHRAE has defined three audit types that compose a widely-accepted standard across the field. 14
The table below outlines key differences between different types of assessments and audits, with 15
descriptions drawn from the Company’s discovery responses21 and a U.S. Department of Energy 16
reference document.22 17
21 Exhibit NHT-7, Response to 18261-NHT-CE-50, which I am sponsoring on behalf of NHT. 22 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, 2011, available at http://www.pnnl.gov/main/publications/external/technical_reports/PNNL-20956.pdf.
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Table 5: Key Differences Between Types of Energy Assessments and Audits, Arranged from Left to Right 1 in Order from Least to Most Intensive 2
Consumers Energy’s “Energy Assessment”
ASHRAE Level I Audit
ASHRAE Level II Audit
ASHRAE Level III Audit
Differs from the ASHRAE Level I standard by not including an assessment of energy bills.23
“[Identifies] no-cost 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 I audit activities plus “EEM recommendations in line with your financial plans and potential capital-intensive energy savings opportunities. Level II audits include an in-depth analysis of energy costs, energy usage and building characteristics and a more refined survey of how energy is used in your building.”
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.”
3
The more intensive ASHRAE Level II audits are especially important for multifamily 4
buildings that are applying for Low Income Housing Tax Credits (LIHTC), the largest source 5
annually for new and rehabilitated subsidized multifamily housing units in the country.24 6
Subsidized multifamily buildings are typically re-financed on a cycle of 15-20 years, with tax 7
credits being one of the primary mechanisms for this re-financing. At this point, owners must 8
assemble a complex package of funding from multiple sources in order to make their 9
rehabilitation projects work. This means that there is capital available for improvements that 10
owners have not been able to consider over the past 15-20 years: this provides an excellent 11
opportunity for Consumers to connect with the multifamily housing owners and place a full array 12
of energy efficiency upgrades in front of them. The earlier in the process Consumers can connect 13
with the owner the better, as earlier incorporation makes it less likely energy efficiency upgrades 14
will be value-engineered out of the scope of work. 15
23 Exhibit NHT-7, Response to 18261-NHT-CE-50, which I am sponsoring on behalf of NHT. 24 Joint Center for Housing Studies of Harvard University, The State of the Nation’s Housing, Chapter 6, p. 36, 2017, available at http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_state_of_the_nations_housing_2017_chap6.pdf.
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Our third incentive structure recommendation is to allow applicants for Low Income 1
Housing Tax Credits to reserve rebates for up to 36 months. As noted above, owners must 2
assemble a complex package of funding from multiple sources. This process complicates and 3
slows the typical rehabilitation timeline. Delays in financing, closing, or construction can easily 4
stretch the time between energy audit and rehabilitation construction completion beyond initial 5
timelines. Allowing owners to reserve rebates for the duration of this process provides certainty 6
to the owners and increases the likelihood that energy efficiency upgrades will remain part of the 7
scope of work. This recommendation aligns with the Energy Efficiency for All best practice #7 8
“Assure incentives are reliable at project outset”25 and ACEEE best practice #8 “Align utility 9
and housing finance programs,”26 discussed in the next section. 10
Our fourth incentive structure recommendation is to increase the budget allocated to low-11
income multifamily in order to facilitate a move toward deeper savings and to fund the higher 12
incentive levels. As outlined earlier in this testimony, we recommend a ramp-up to an annual 13
low-income multifamily budget of $7.2 to $14.7 million. 14
Our fifth incentive structure recommendation is to provide the same incentive levels to 15
both subsidized and unsubsidized affordable multifamily housing. Given the Company’s 16
difficulty reaching unsubsidized affordable multifamily buildings, we recommend that the 17
Company raise the incentive levels for this group to match those offered to subsidized affordable 18
multifamily buildings. 19
We also recommend continuous improvement of the low-income multifamily program to 20
work toward realization of best practices. 21
25 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, 2015, available at http://energyefficiencyforall.org/sites/default/files/EEFA%20PROGRAM%20GUIDE.pdf. 26 Johnson, Kate, Apartment Hunters: Programs Searching for Energy Savings in Multifamily Buildings, 2013, available at http://aceee.org/research-report/e13n.
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Part 4. Recommended Changes to Consumers’ Low Income Multifamily Program to Align 1 with Best Practices for Serving the Affordable Multifamily Sector 2
Q: Please outline the best practices for low-income multifamily energy efficiency 3
programs. 4
A: There are two key best practice reports I would like to bring to the Commission’s 5
attention, which were published by Energy Efficiency for All in 2015 and ACEEE in 2013. Both 6
reports focus on streamlining program participation for busy owners, providing additional 7
handholding and project management/technical assistance, and structuring incentives to achieve 8
deeper savings, among their other recommendations. The reports are summarized and linked in 9
the table below along with their checklists of best practices for overcoming multifamily barriers 10
to participation: 11
Table 6: Comparison of EEFA and ACEEE Best Practices Reports for Overcoming Barriers to 12 Participation in Multifamily Efficiency Programs. 13
Energy Efficiency for All (http://www.energyefficiencyforall.org/resources/program-design-guide-energy-efficiency-programs-multifamily-affordable-housing) Program Design Guide: Energy Efficiency Programs in Multifamily Affordable Housing Best Practices Checklist for Policymakers and Program Administrators27
ACEEE (http://aceee.org/research-report/e13n) Apartment Hunters: Programs Searching for Energy Savings in Multifamily Buildings Best Practices for Multifamily Energy Efficiency Programs28
1. Establish a goal to capture all cost-effective efficiency
in multifamily affordable housing (MFAH). 2. Assure coordination and count savings across
electricity, gas, and water utility programs. 3. Assure that cost-effectiveness tests work for MFAH
by accounting for non-energy benefits and applying cost-effectiveness tests across portfolio of programs.
4. Improve building owners’ access to energy usage information.
5. Develop programs specifically targeted to MFAH buildings.
6. Structure incentives for whole-building savings.
1. Provide a one-stop shop for
program services. 2. Incorporate on-bill repayment or
low-cost financing. 3. Integrate direct installation and
rebate programs. 4. Streamline rebates and incentivize
in-unit measures to overcome split incentives.
5. Coordinate programs across electric, gas, and water utilities.
6. Provide escalating incentives for
27 Henderson, P., 2015. 28 Johnson, K., 2013.
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7. Assure incentives are reliable at project outset. 8. Support benchmarking, audits, and other assessments. 9. Support a “one-stop-shop” where building owners can
access integrated program services. 10. Build partnerships with key local market participants. 11. 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.
12. Assure robust quality assurance.
achieving greater savings levels. 7. Serve both low-income and
market-rate multifamily households.
8. Align utility and housing finance programs.
9. Partner with the local multifamily housing industry.
10. Offer multiple pathways for participation to reach more buildings.
1
Q: Given these best practices, to what extent does the proposed Consumers Energy 2
program measure up and which additional program changes are you recommending? 3
A: To answer this question, I will draw on the National Housing Trust’s experience as well 4
as the two best practice reports above. Consumers’ income-eligible multifamily offering (a 5
subset of the Company’s Multifamily Program) represents a solid start in serving this sector, 6
incorporating several best practices for serving low-income multifamily buildings, but leaving 7
room for immediate improvement and future growth. 8
We strongly support the Company’s following program design decisions, which we 9
consider to be best practice: 10
• A program targeted specifically to low-income multifamily buildings; 11
• Joint delivery of electric and gas efficiency offerings; 12
• Provision of an energy assessment; 13
• In-unit and common area upgrades provided via a single program; 14
• Direct install and other rebates provided via a single program; and 15
• Access to custom incentives in order to drive savings regardless of the specific 16
measure. 17
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These are all encouraging pieces. Based on review of discovery documents29 and 1
conversations with Consumers staff and implementers, there is room to more thoroughly 2
implement several of these program components as the program strives for continuous 3
improvement. For example, while the program design contains many key provisions, the 4
program has not necessarily succeeded in driving whole-building savings (EEFA best practice 5
#6) by getting participants to take advantage of the full scope of the program. Thus, while the 6
program offers energy assessments, electric, gas, in-unit, common area, direct install, and 7
prescriptive/custom rebates, the program is not usually successful in getting participants to act 8
beyond a narrower scope of activity. Many of the recommendations below (as well as those 9
made earlier in this testimony) are aimed at helping the program encourage owners to move 10
toward more comprehensive, whole-building retrofit projects. 11
We have several recommendations for how the Company can improve its program design 12
in order to more fully realize the potential of an advanced “one-stop shop” program model 13
(EEFA best practice # 9, ACEEE best practice #1). The following recommendations are specific 14
to low-income multifamily, but some could certainly be applied across non-low-income and low-15
income buildings equally. 16
1. Provide more comprehensive, wrap-around services for owners, including 17
intensive support before, throughout, and after the retrofit process (key 18
component of one-stop shop model); 19
2. Provide every program participant with an energy assessment that meets, at a 20
minimum, standards for an ASHRAE Level I audit. That is, the program should 21
29 See, e.g., Exhibit NHT-2, Response to 18261-NHT-CE-33; Exhibit NHT-4, Response to 18261-NHT-CE-35; Exhibit NHT-8, Response to 18261-NHT-CE-52, which I am sponsoring on behalf of NHT.
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provide benchmarking of the past 12 months of energy usage. At a minimum, this 1
should be required for customers seeking prescriptive or custom incentives; 2
3. Improve linkages to MSHDA and to better financing options; 3
4. Enable easy proof of eligibility for unsubsidized properties (via Census tracts or 4
rent roll verification); 5
5. Include additional direct install measures; 6
6. Standardized procedures for more detailed reporting so that low-income and 7
multifamily stakeholders can track program performance over time; and 8
7. Set utility performance metrics that encourage continued program evolution 9
toward delivering more comprehensive, whole-building savings. 10
Q: Please elaborate on the program design improvements you have recommended 11
above. 12
A: Our first program design recommendation is to provide more comprehensive, wrap-13
around services for owners, including intensive support before, throughout, and after the retrofit 14
process (EEFA best practice #9, ACEEE best practice #1). This is a key component of the one-15
stop shop model and is intended to make it as easy as possible for low-income multifamily 16
owners to participate in the program. We often say that multifamily owners need extra “hand-17
holding,” because they are so busy and the sector, financing, and building types are so complex. 18
The first piece of this is ensuring an easy application process via one streamlined 19
application and assistance with enrollment. A second key piece is holding a call or meeting with 20
the owner to walk through their energy assessment report. It is crucial that this report include 21
recommended upgrades, their installation costs, savings, and ROI (at a minimum, a range of 22
costs is beneficial). It is important to explain what each recommendation is. Also important is 23
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helping connect the owner with contractors helping them select a contractor to do the work. The 1
program should help with creating a scope of work, sending out the scope of work to the 2
contractor pool (if necessary), reviewing bids, selecting a contractor, and facilitating construction 3
scheduling where necessary to ease administrative burdens. The program should also help 4
coordinate with other funding sources and financing: to do so the program should develop 5
relationships with financial institutions, help the owner determine which financing resource they 6
may be eligible for, and connect the owner with these financial institutions as applicable. 7
Our second program design recommendation is to provide every program participant with 8
an energy assessment that meets, at a minimum, the standards for an ASHRAE Level I audit (the 9
least comprehensive of the three ASHRAE audit standards. According to the Company, “[the] 10
major difference between the ASHRAE Level 1 audit and the energy assessment provided by 11
Consumers Energy is that the ASHRAE Level 1 audit includes a Preliminary Energy Analysis 12
(bills, consumption).”30 The reason the Company gives for not providing a bill and consumption 13
analysis (benchmarking over the previous 12 months) is “because of the complexity in 14
accounting for multiple accounts and meters associated with one property.”31 This is exactly the 15
reason the Company should provide a bill and consumption analysis. Because of complex 16
metering arrangements, owners of multifamily buildings regularly experience difficulty 17
accessing energy usage data for their own buildings. The Company is uniquely positioned to 18
provide these data and to provide owners with a more solid understanding of their building’s 19
energy usage and savings opportunities (EEFA best practices #4 and #8). 20
Benchmarking of the previous 12 months of energy usage should be provided, at a 21
minimum, to all customers seeking prescriptive or custom incentives. Alternatively, the 22
30 Exhibit NHT-7, Response to 18261-NHT-CE-50, which I am sponsoring on behalf of NHT. 31 Id.
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Company could benchmark all properties prior to providing energy assessments in order to 1
identify poor performers and then target those properties for delivery of energy assessments. 2
Our third program design recommendation is to improve linkages to MSHDA and to 3
better financing options (EEFA best practice #10 and 11, ACEEE best practice #2 and #8). 4
Better linkage between the Company’s low-income multifamily program and MSHDA will 5
enable the program to seek out buildings that are about to refinance and target these buildings, 6
which are considering major capital improvements, for more focused attention and technical 7
assistance (as well as ASHRAE Level II audits, as outlined in the incentive structure 8
recommendations section of this testimony. Better linkage to better financing options will help 9
owners overcome capital barriers. Two examples of actions the Company could take are: one, 10
buy down interest rates on Michigan Saves loans from 3 percent to 0 percent as the Company 11
currently does for commercial properties and two, develop closer relationships with Michigan’s 12
PACE administrators. 13
Our fourth program design recommendation is to enable easy proof of eligibility for 14
unsubsidized properties, via Census tracts or rent roll verification. While subsidized properties 15
can easily establish their eligibility for low-income multifamily rebates by providing evidence of 16
their participation in federal affordable housing programs, unsubsidized properties have no easy 17
path to establishing eligibility. Unsubsidized affordable housing is privately owned, but without 18
affordability restrictions, and affordable by virtue of market forces. It might be found in older 19
buildings, more poorly maintained buildings, or in less desirable neighborhoods. Given that the 20
Company has had trouble attracting unsubsidized properties to its low-income multifamily 21
program, anything that the program can do to eliminate barriers to enrollment would be 22
welcome. In 2016, the Company served 494 market-rate properties (72,575 units), 81 23
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subsidized properties (6,881 units), and zero unsubsidized properties (zero units) through its 1
multifamily program.32 2
The worst-case scenario for establishing eligibility is to ask an owner to collect income 3
information from each of his or her tenants: unsubsidized properties are not required to collect 4
this information as part of normal business operations, making this an extremely cumbersome, 5
tedious, and time-consuming process. 6
One alternative we support is identifying low-income Census tracts and automatically 7
approving low-income rebate eligibility for any multifamily building in those Census tracts: 8
“Qualified Census Tracts” 33 or “New Market Tax Credit” 34 Census tracts are two possible sets 9
of Census tracts established by the federal government that the Company could use for this 10
purpose. A second alternative we support is asking owners to provide a list of rent prices (or 11
average rent prices for each unit size) for the building. In contrast to tenant income information, 12
price information is easy for owners to produce. If these prices are at or below levels established 13
by the Company, then the building would automatically qualify for low-income rebates. We 14
suggest using the federal government’s HOME low-income affordability rent tables, which are 15
published annually by the U.S. Department of Housing and Urban Development for metropolitan 16
areas and counties, given typical occupancy. The example of Kalamazoo, Michigan is provided 17
below. 18
32 Exhibit NHT-9, Response to 18261-NHT-CE-30, which I am sponsoring on behalf of NHT. 33 U.S. Department of Housing and Urban Development, 2016 and 2017 Small DDAs and QCTs, available at https://www.huduser.gov/portal/sadda/sadda_qct.html. 34 CohnReznick, New Market Tax Credit (NMTC) Interactive Map, available at https://www.cohnreznick.com/NMTC-Mapping-Tool.
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Table 7: HOME Program Rents for Kalamazoo-Portage, Michigan Metropolitan Statistical Area35 1
2
Our fifth program design recommendation is to include additional direct install measures. 3
We suggest the Company consider the following direct install measures for inclusion in its low-4
income multifamily offering: in-unit smart 7 plug power strips, lower DHW temp if higher than 5
130, shower start valves, in-unit refrigerators. 6
Our sixth program design recommendation is to standardize procedures for more detailed 7
reporting so that low-income and multifamily stakeholders can track program performance over 8
time. This is especially important for tracking the growing comprehensiveness of the program, 9
that is, to what extent it is succeeding in delivering deeper, more comprehensive, whole-building 10
savings. 11
Our seventh and final program design recommendation is to set utility performance 12
metrics that encourage continued program evolution toward delivering more comprehensive, 13
whole-building savings. 14
35 U.S. Department of Housing and Urban Development, MICHIGAN -- 2017 HOME PROGRAM RENTS, 2017, available at https://www.hudexchange.info/resource/reportmanagement/published/HOME_RentLimits_State_MI_2017.pdf.
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Part 5. Utility Performance Metrics 1
Q: Which utility performance metrics should the Company be measured against during 2
the period 2018-2021 as relates to low-income multifamily offerings? 3
A: We think the Company should be striving to meet the following benchmarks, at a 4
minimum by the 2021 program year, any of which might be adapted or give guidance to utility 5
performance metrics. First, the Company should spend their entire low-income multifamily 6
budget, the amount of which should be clearly and publicly stated in EWR portfolio documents. 7
Second, for low-income multifamily properties participating in the Company’s low-income 8
multifamily program: 9
• Achieve average energy saving per property of at least 25 percent; 10
• Deliver an energy assessment and report to at least 50 percent of properties; and 11
• At least 50 percent of properties install multiple measures (or receive the multiple 12
measure bonus). 13
Q: Does this conclude your testimony? 14
A: Yes. 15
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1 JUDGE MACK: Anything else on behalf of
2 the NHT?
3 MS. BARBASH-RILEY: No.
4 JUDGE MACK: Thank you. Mr. Bzdok.
5 (Documents marked for identification by the Court
6 Reporter as Exhibit Nos. NRD-1 through NRD-7, and
7 NRD-8 through NRD-13.)
8 MR. BZDOK: Thank you, your Honor. On
9 behalf of the Natural Resources Defense Council, I would
10 move at this time to bind into the record the Direct
11 Prefiled Testimony, Corrected Direct Prefiled Testimony
12 of Chris Neme, which consists of a cover page and 45
13 pages of questions and answers. I would also move to
14 admit into evidence Exhibits NRD-1 through NRD-7, and
15 NRD-9 through NRD-13, because, as was determined in the
16 hearing, NRD-8 was not in fact prefiled and came in
17 through discovery.
18 JUDGE MACK: Thank you. Any objection?
19 (No response.)
20 The testimony of Mr. Neme is bound into
21 this record, and Exhibits NRD-1 through NRD-7, and NRD-9
22 through NRD-13 are admitted.
23 (Testimony bound in.)
24 - - -
25
Metro Court Reporters, Inc. 248.360.8865
1
STATE OF MICHIGAN
MICHIGAN PUBLUC SERVICE COMMISSION
In the matter on the Commission’s own Case No. U-18261 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 295 of 2008 and Public Act 342 of 2016
CORRECTED DIRECT TESTIMONY OF CHRIS NEME ON BEHALF OF THE
NATURAL RESOURCES DEFENSE COUNCIL
September 20, 2017
219
i
Table of Contents
I. Introductions and Qualifications ............................................................................................. 1
II. Testimony Overview ............................................................................................................ 6
III. Consumers Shareholder Incentive Performance Metrics ................................................... 10
IV. Cost Allocation .................................................................................................................. 25
V. Savings Assumptions for Residential LED Light Bulbs.................................................... 32
1. Net-to-Gross (NTG) Assumptions ................................................................................. 32
2. Measure Life Assumptions............................................................................................. 35
3. Combined Effects of Correcting NTG and Measure Life Assumptions ........................ 38
VI. Pre-Pay Pilot Program........................................................................................................ 42
220
1
I. Introductions and Qualifications 1
Q: Please state your name, employer and business address. 2
A: My name is Chris Neme. I am a co-founder and Principal of Energy Futures Group, a 3
consulting firm that provides specialized expertise on energy efficiency and renewable energy 4
markets, programs and policies. My business address is P.O. Box 587, Hinesburg, VT 05461. 5
Q: Please describe your educational background. 6
A: I received a Master of Public Policy (“MPP”) degree from the University of Michigan (Ann 7
Arbor) in 1986. That is a two-year, multi-disciplinary degree focused on applied economics, 8
statistics and policy development. I also received a Bachelor’s degree in Political Science from 9
the University of Michigan (Ann Arbor) in 1985. My first year of graduate school counted 10
towards both my Masters’ and Bachelor’s degrees. 11
Q: Please summarize your business and professional experience. 12
A: As a Principal in Energy Futures Group, I play major roles in a variety of energy efficiency 13
consulting projects. Recent examples include: 14
• Representing NRDC in consultations with utilities and other parties in three Midwestern 15
states – Michigan, Illinois and Ohio – on efficiency program and portfolio design, cost-16
effectiveness screening, evaluation, shareholder incentive structures and other related 17
topics; 18
• Serving as an appointed expert representative on the Ontario Energy Board’s Evaluation 19
and Audit Committee for natural gas demand-side management; 20
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• Serving on the Management Committee and leading strategic planning and program 1
design for a team of firms, led by Applied Energy Group, that was hired by the New 2
Jersey Board of Public Utilities to deliver the electric and gas utility-funded New Jersey 3
Clean Energy Programs; 4
• Serving on a five-person national drafting committee for development of a new National 5
Standard Practice Manual for cost-effectiveness screening of energy efficiency measures, 6
programs and portfolios which was published in May 2017; 7
• Helping the National Association of Regulatory Utility Commissioners and the Michigan 8
Public Service Commission staff assess the relative merits of alternative approaches to 9
defining savings goals for utility efficiency programs (focusing on lifetime rather than 10
just first year savings); and 11
• Drafting policy reports for the Regulatory Assistance Project on a variety of energy 12
efficiency and related regulatory policy issues such as whether 30% electric savings is 13
achievable in ten years, the history of efforts across the United States to use 14
geographically targeted efficiency programs to cost-effectively defer transmission and 15
distribution system investments, the history of bidding of efficiency resources into the 16
PJM and New England capacity markets, and other topics. 17
Prior to co-founding Energy Futures Group in 2010 I worked for 17 years for the Vermont 18
Energy Investment Corporation (“VEIC”), the last 10 as Director of its Consulting Division 19
managing a group of 30 professionals with offices in three states. Most of our consulting work 20
involved critically reviewing, developing and/or supporting the implementation of electric, gas, 21
and multi-fuel energy efficiency programs for clients across North America and beyond. 22
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During my career in energy efficiency I have worked in numerous jurisdictions to develop or 1
review energy efficiency potential studies, develop or review Technical Reference Manuals 2
(“TRM”) of deemed savings assumptions (including the Ohio, Michigan and Illinois TRMs), 3
support utility-stakeholder “collaboratives” (including those in Michigan and Illinois), negotiate 4
or support development of efficiency program performance incentive mechanisms (including the 5
current Michigan and Ontario mechanisms, as well as the mechanism included in recently passed 6
Illinois legislation), and review or develop efficiency programs. All told, I have worked on these 7
and/or other efficiency policy and program issues for clients in more than 30 states and provinces 8
as well as parts of Europe. I have also led courses on efficiency program design, published 9
widely on a range of efficiency topics and served on numerous national and regional efficiency 10
committees, working groups and forums. A copy of my curriculum vitae is attached as Exhibit 11
NRD-1. 12
Q: Have you previously filed expert witness testimony in other proceedings before the 13
Commission? 14
A: Yes. I filed testimony in the following Michigan Public Service Commission Dockets: 15
• U-17771, regarding Consumers Energy Company’s proposed amendment to its 2017 16
energy efficiency programs (Energy Waste Reduction) plan; 17
• U-17762 regarding DTE’s proposed amendment to its 2017 energy efficiency programs 18
(Energy Waste Reduction) plan; 19
• U-17429 regarding Consumers Energy’s estimates of energy efficiency potential in its 20
assessment of alternatives to its proposal at the time to construct a new 700 MW gas-fired 21
power plant (Thetford). 22
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• U-17138, regarding Consumers Energy’s proposed modifications to its 2013-2015 1
Energy Optimization plans; 2
• U-17049, regarding DTE’s proposed modifications to its 2013-2015 Energy Optimization 3
plans; 4
• U-16670, regarding Consumers Energy’s biennial review and Amended Energy 5
Optimization plan; and 6
• U-16671, regarding DTE’s biennial review and Amended Energy Optimization plan; 7
Q: Have you been an expert witness on energy efficiency matters before other regulatory 8
commissions? 9
A: Yes, I have filed expert witness testimony on more than 30 other occasions before similar 10
regulatory bodies in nine other states and provinces, including the neighboring jurisdictions of 11
Ohio, Illinois and Ontario 12
Q: Are you sponsoring any exhibits? 13
A: Yes. 14
Exhibit NRD-1 C. Neme CV 15
Exhibit NRD-2 NRDC-CE-1 16
Exhibit NRD-3 Optimal Energy and Energy Futures Group Final Phase 1 Report 17
Exhibit NRD-4 NRDC-CE-13 18
Exhibit NRD-5 NRDC-CE-16 19
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Exhibit NRD-6 NRDC-CE-11a-e 1
Exhibit NRD-7 NRDC-CE-39 (CECo Response to NRDC-21) 2
Exhibit NRD-8 NRDC-CE-9 3
Exhibit NRD-9 17-0311 Ameren Illinois 2018-2021 Energy Efficiency Plan, 4 Exhibit 1.1, Appendix I, pages 59-60 52-55 (CORRECTED) 5
Exhibit NRD-10 NRDC-CE-45 (CECo Response to NRDC-27a) 6
Exhibit NRD-11 NRDC-CE-46 (CECo Response to NRDC-28) 7
Exhibit NRD-12 NRDC-CE-44 (CECo Response to NRDC-26) 8
Exhibit NRD-13 NRDC-CE-159
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II. Testimony Overview 1
Q: What is the purpose of your testimony? 2
A: My testimony addresses several aspects of Consumers’ proposed 2018-2021 Energy Waste 3
Reduction plan: 4
1. The Company’s proposal to substantially increase the scope – budget and savings – of 5
its efficiency program portfolio; 6
2. The Company’s proposal to change its shareholder performance incentive mechanism 7
from one with multiple performance metrics, of which lifetime savings was most 8
important, to one with a single metric focused on first year savings; 9
3. The Company’s proposal to change the way costs are allocated, from having residential 10
customers pay only for residential programs (and business customers pay only for 11
business programs) to having residential customers pay for both residential programs 12
and a large portion of business program costs; 13
4. Consumers’ estimates of savings from LED light bulbs, particularly its use of a 0.90 net-14
to-gross (NTG) ratio and 15 year measure life assumption; and 15
5. Consumers’ proposal to include a customer PrePay “program” among the pilot 16
programs it plans to test (and potentially transition to include as full-scale programs in 17
the future). 18
Q: Please summarize your response to the first issue – the Company’s proposal to 19
substantially expand its energy efficiency effort. 20
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A: The Company’s proposal to significantly increase the energy savings from its energy 1
efficiency program portfolio is laudable and should be supported by the Commission and other 2
parties because of the enormous benefits the Company’s proposed programs provide to its 3
customers. While an increase in budget is necessary to acquire the increased savings, the 4
benefits of the additional spending far outweigh the costs. Indeed, the Company is forecasting 5
that its efficiency programs will provide $3.68 in benefits for every dollar spent on electric 6
efficiency and $1.86 in benefits for every dollar spent on gas efficiency. In other words, across 7
both fuels, for every dollar that the Company spends on efficiency programs, its customers are 8
saving more than three times as much in avoided investment in energy that would otherwise have 9
been consumed and new power plants that would otherwise have been built. Moreover, the 10
Company’s estimates of its electric and gas system benefits are likely significantly under-11
estimated because they exclude potential benefits from deferred investment in transmission and 12
distribution (T&D) system infrastructure,1 reduced investment in ancillary services, reduced risk, 13
reduced credit and collection costs, avoided renewable portfolio standard compliance costs, 14
avoided future environmental compliance costs.2 Moreover, there are other substantial economic 15
development and environmental benefits not included in the Company’s benefit-cost analysis. 16
Q: Please summarize your responses to and recommendations for each of the other issues 17
you are addressing. 18
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-13 (TAY-2)). However, that statement is likely to be incorrect. Efficiency programs can and do reduce peak demands on the T&D system for 10 to 20 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 13 (TAY-2)) – then its efficiency programs are highly likely to be providing at least some system-wide T&D investment deferral benefits. 2 Discovery Response NRDC-1, which I am sponsoring as Exhibit NRD-2.
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I find each of the other Company proposals to be problematic. My summary responses to each 1
are as follows: 2
• Shareholder incentive mechanism: The Company’s proposal to shift from multiple 3
performance metrics with a primary focus on lifetime savings to a single metric focused 4
on just first year savings will create perverse incentives and undermine Michigan’s long-5
term efficiency goals. The Commission should instead require that the Company (1) 6
retain lifetime savings as its primary performance metric; and (2) include secondary 7
metrics related to comprehensive treatment of energy savings opportunities in low 8
income single family homes and multi-family buildings, the level of savings from small 9
businesses and peak demand savings to ensure that there is adequate attention to all key 10
state efficiency objectives. 11
• Cost allocation: The Company’s proposal to allocate a significant portion of business 12
efficiency program costs to residential customers is inconsistent with the relative 13
magnitude of efficiency benefits realized by each customer group. In fact, the 14
Company’s own analysis suggests that the portion of benefits from efficiency programs 15
that are realized by residential and business customers is similar to the allocation of 16
program budgets. Thus, the Commission should maintain the existing cost allocation 17
mechanism, with residential customers paying for residential programs and business 18
customers paying for business programs. 19
• LED light bulb savings assumptions: The Company’s proposal to use an NTG 20
assumption of 0.90 for LED light bulbs will result in over-stating of the actual annual 21
savings produced by the Company and therefore over-reward the Company’s 22
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shareholders (through its performance incentive mechanism) for its efficiency program 1
results; the Company’s use of a 15 year measure life assumption is far too high for 2
standard LED light bulbs, leading to significant over-estimates of the value of the savings 3
and potentially leading to over-estimates of reductions in future generating capacity 4
needs. The Commission should require use of an NTG of 0.70 in 2018, declining to 0.55 5
by 2021; it should also require a significant downward savings adjustment to the savings 6
assumed for standard LEDs after 2020 (effectively reducing lifetime savings for standard 7
LEDs installed in 2018 by about 80%, with even greater reductions for standard LEDs 8
installed in later years), consistent with national and regional best practices. 9
• PrePay pilot program: The Company’s proposal to include a PrePay pilot in its plan is 10
inconsistent with a focus on energy efficiency programs. PrePay is just a different way of 11
collecting payments from customers – more akin to a change in rate design than a 12
promotion of efficiency. If it is allowed to count towards efficiency savings goals, it will 13
undermine the fundamental purpose of the state’s efficiency programs, resulting in less 14
real savings for consumers and the state’s economy and over-rewarding Company 15
shareholders (through its performance incentive mechanism) in the process. The 16
Commission should make clear that the relative merits of pre-pay should be considered in 17
a different kind of proceeding and that pre-pay is not an “efficiency program” and its 18
effects should not count towards utility savings goals. 19
I discuss each of these issues in more detail in the following sections of my testimony.20
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III. Consumers Shareholder Incentive Performance Metrics 1
Q: What is Consumers proposed shareholder incentive mechanism? 2
A: Consumers is proposing that its shareholder incentive be tied solely to the level of first year 3
savings its efficiency program portfolio produces each year. 4
On the electric side, the Company would earn an incentive equal to 15% of program spending if 5
it achieved first year savings equal to 1.00% of sales, and equal to 20% of program spending if it 6
achieved first year savings equal to or greater than 1.50% of sales. The incentive would be 7
linearly interpolated at all points in between 1.00% and 1.50% of sales. 8
On the gas side, the Company would earn an incentive equal to 15% of program spending if it 9
achieved first year savings equal to 0.75% of sales, and equal to 20% of program spending if it 10
achieved first year savings equal to or greater than 1.00% of sales. The incentive would be 11
linearly interpolated at all points in between 0.75% and 1.00% of sales.3 12
Q: How is that different from the Company’s performance incentive structure in recent 13
years? 14
A: At a high level, it is different in at least three key ways from the performance incentive 15
structure that was in place from 2014 through 2016: 16
1. The Company’s maximum shareholder incentive was historically equal to only 15% 17
of its program spending; the Company is now proposing to increase the maximum to 18
20%; 19
3 Direct Testimony of Ted Ykimoff, pp. 17-18 and Exhibit A-16 (TAY-5).
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2. The Company previously had five or six different performance metrics; the Company 1
is now proposing only one metric; and 2
3. The Company’s primary performance metric – the one to which the largest portion of 3
shareholder incentive was tied – was the amount of lifetime savings its programs 4
produce; the Company is now proposing to shift to a sole focus on first year savings 5
(i.e. the amount of savings efficiency measures installed in a given year will produce 6
during just their first year of operation – making the number of years they would 7
produce savings irrelevant); 8
Q: What is your view regarding Consumers’ proposal to increase the maximum 9
shareholder incentive from 15% to 20%? 10
A: This change is clearly permitted by the new law, PA 342. Further, the Company must 11
achieve a higher level of performance than it has in the past in order to earn the full 20%. Thus, 12
I think the Commission should accept it. 13
Q: What is your view of Consumers’ proposal to replace multiple performance metrics 14
with just one metric? 15
A: Utility shareholder incentives should ideally be based on the policy objectives of a state. If 16
the state has multiple policy objectives for efficiency programs – particularly if some of those 17
objectives compete with each other – then the shareholder incentive structure should ideally have 18
multiple performance objectives tied to those different objectives, encouraging the utility to 19
effectively manage its efficiency programs to achieve each of the competing objectives. 20
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In Case No. U-17771 regarding Consumers’ proposed amendment to its 2017 plan, I testified 1
that though a performance incentive structure should ideally have multiple performance metrics, 2
it would have been too difficult to develop a multi-metric structure that would be appropriate for 3
the 2017 amended plan given that the plan was being considered with much of the year already 4
behind us. However, that is not the case now, for the 2018-2021 plan. Given that there are 5
compelling policy arguments for addressing the energy needs of low income customers; ensuring 6
equitable treatment of all customers (including small businesses which are least likely to 7
participate in business efficiency programs); and reducing peak demand (as well as annual 8
energy use) in order to minimize the need for capital investment in new generation, transmission 9
and distribution system capacity, it would be reasonable to have secondary performance metrics 10
tied to these policy goals. 11
Q: What is your view of Consumers’ proposal to replace the lifetime savings with first year 12
savings as the sole performance metric? 13
A: I have significant concerns about this proposal. First year savings can be a poor indicator of 14
the value of efficiency because it treats the savings from a measure that lasts one year or two 15
years the same as savings from a measure that lasts 10 or 20 years. As a result, it can create 16
perverse incentives for utilities to increase promotion of efficiency measures and/or programs 17
that have relatively low costs per first year MWh saved or per first year therm saved even if they 18
have high costs per unit of lifetime savings and therefore less value to ratepayers. This point was 19
made, with several concrete examples from the Michigan utilities’ efficiency program portfolios, 20
in a report I co-authored several years ago for the National Association of Regulatory Utility 21
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Commissioners (NARUC) and the Michigan Public Service Commission staff.4 It was also the 1
reason that Commission Staff, NRDC and Consumers Energy agreed in a settlement proceeding 2
several years ago to shift to the current lifetime savings metric. Put simply, Consumers’ 3
proposal to revert back to a first year savings metric, if adopted, would represent a significant 4
step backwards for the Commission, the Company and its customers. 5
Q: Has Consumers offered any response to that concern? 6
A: Not really. When asked if he saw any disadvantages – from the perspective of its customers 7
– to the Company having a first year savings metric instead of a lifetime savings metric, Mr. 8
Ykimoff said that he did not because too much emphasis on short-lived measures “would 9
jeopardize the cost-effectiveness of the portfolio.”5 However, that response does not really 10
address my concern. 11
Q: Why does it not address your concern? 12
A: Consumers’ proposed program portfolio is so cost-effective – a UCT benefit-cost ratio of 13
3.68 for electric customers and 1.86 for gas customers – that the only way increased focus on 14
short-lived savings could “jeopardize the cost-effectiveness of the portfolio” is if short-lived 15
measures or programs had extremely low benefit-cost ratios (i.e. well below 0.5) and could be 16
ramped up to account for extremely large portions of total program savings (i.e. 50% or more). 17
However, neither of those things is possible (let alone both at the same time). Very few 18
programs in Consumers’ portfolio – and none of the programs emphasizing short-lived savings – 19
4 Exhibit NRD-3, 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 13, 2013. (http://www.dleg.state.mi.us/mpsc/electric/workgroups/progdesign/final_phase1_report.pdf). 5 Discovery Response NRDC-13(a), which I am sponsoring as Exhibit NRD-4.
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fail cost-effectiveness screening. Most notably, the Company’s Home Energy Analysis program, 1
which has a one year measure life, has a UCT benefit cost ratio of 1.00 for electric customers and 2
1.09 for gas customers. While it is possible that those cost-effectiveness ratios could go down 3
somewhat if the programs were expanded (e.g. to serve customers with lower average energy 4
use), the cost-effectiveness ratios could not go down nearly enough and the participation levels 5
could not go up nearly enough to create any risk of Consumers’ program portfolio no longer 6
being cost-effective. In other words, Consumers’ suggestion that fear of jeopardizing portfolio 7
cost-effectiveness will stop it from over-emphasizing short-lived measures just does not comport 8
with the facts in this case. On the other hand, expansion of programs with short-lived savings 9
could materially affect the amount of lifetime energy savings the Company’s program portfolio 10
will produce. 11
Q: Would it be easy to translate Consumers’ proposed first year savings metrics to lifetime 12
savings metrics for 2018-2021? 13
A: Yes. Consumers has already estimated the lifetime savings associated with each year of its 14
program plan.67 Based on those estimates, I have computed the lifetime savings that the 15
Company would need to achieve to reach the minimum levels of savings required to earn a 16
shareholder incentive (i.e. equivalent to 1.00% electric first year savings and 0.75% gas first year 17
6 These averages include an assumption that all LED light bulbs have a savings life of 15 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. 7 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.
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savings) as well as the lifetime savings that the Company would need to earn the maximum 1
shareholder incentive. Those values are presented in rows (f) and (h) in Table 1 below. 2
Table 1: Lifetime Savings Equivalents for Shareholder Incentives 3
4
Q: Why has Consumers proposed reverting back to a first year savings metric? 5
A: The Company has not offered a detailed explanation for this proposed change. It simply 6
states that its proposal is consistent with the language of the new law, PA 342.8 7
8 Direct Testimony of Theodore A. Ykimoff, p. 16 lines 20-23 and Exhibit A-16 (TAY-5).
Electric Savings Targets2018 2019 2020 2021 Source
a 1st Year Savings (MWh) 558,266 528,556 531,572 532,376 NRDC-CE-2 Attachmentb Avg Measure Life (Years) 12.00 11.83 11.77 11.75 (c) / (a)c Lifetime Savings (MWh) 6,698,324 6,251,127 6,254,648 6,255,452 NRDC-CE-2 Attachmentd 1st Year Savings % of Sales 1.68% 1.58% 1.59% 1.58% Exh A-13 p. 7
e 1st Year Savings (MWh) 332,600 334,979 334,473 336,775 Exh A-13 p. 7f Lifetime Savings (MWh) 3,990,681 3,961,731 3,935,518 3,957,130 (e) * (b)
g 1st Year Savings (MWh) 498,900 502,469 501,710 505,163 (e) * 1.5h Lifetime Savings (MWh) 5,986,022 5,942,597 5,903,277 5,935,695 (g) * (b)
Gas Savings Targets2018 2019 2020 2021 Source
a 1st Year Savings (Mcf) 2,709,822 2,725,765 2,709,413 2,720,836 NRDC-CE-2 Attachmentb Avg Measure Life (Years) 11.71 11.64 11.70 11.72 (c) / (a)c Lifetime Savings (Mcf) 31,720,325 31,726,836 31,711,376 31,893,462 NRDC-CE-2 Attachmentd 1st Year Savings % of Sales 1.06% 1.06% 1.04% 1.04% Exh A-13 p. 8
e 1st Year Savings (Mcf) 1,923,737 1,936,102 1,948,773 1,961,895 Exh A-13 p. 8f Lifetime Savings (Mcf) 22,518,664 22,535,470 22,808,730 22,997,204 (e) * (b)
g 1st Year Savings (Mcf) 2,564,983 2,581,469 2,598,364 2,615,860 (e) * 1.00 / 0.75h Lifetime Savings (Mcf) 30,024,886 30,047,293 30,411,640 30,662,939 (g) * (b)
Consumers Plan
Savings at 0.75% of Sales
Savings at 1.00% of Sales
Consumers Plan
Savings at 1.00% of Sales
Savings at 1.50% of Sales
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Q: Would the language of the new law prohibit adoption of lifetime savings metric? 1
A: I am not an attorney, so I cannot offer a legal opinion. However, my general understanding 2
of both the old law, PA 295, and the new law, PA 342, is that they already establish minimum 3
savings requirements in terms of first year savings. And other than the fact that PA 342 4
establishes three different incentive amounts for three different levels of savings, the language in 5
both statutes regarding shareholder incentives is very similar. In developing my understanding 6
of this issue, I have had the opportunity to review two settlement agreements from two cases in 7
which I participated as an expert witness. First, I reviewed a partial settlement agreement 8
approved by the Commission under PA 295, in which Consumers and other parties all agreed to 9
translate first year savings requirements into lifetime savings performance metrics for the 10
purpose of determining the value of shareholder incentives.9 It is not clear to me why the 11
Commission would not have the same discretion under the new law. Indeed, I also reviewed a 12
partial settlement in Consumers 2017 plan amendment case (U-17771) under the new law that 13
included a lifetime savings (instead of first year savings) shareholder incentive performance 14
metric.10 My review of this latter agreement further informs my opinion in this regard.11 15
Q: Are there other aspects of the PA 342’s language regarding shareholder incentives that 16
also require Commission interpretation in this case? 17
9 Case No. U-17138, Commission Order Approving Partial Settlement Agreement (January 31, 2013), p 2; and Exhibit A to the Order, p 2, paragraph 1(b). 10 Case No. U-17771, Commission Order Approving Partial Settlement Agreement (July 31, 2017), p 3. 11 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.
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A: Yes. Consumers is itself arguing for the Commission to use discretion in translating a 1
different aspect of the shareholder incentive provisions of the new law. As I just noted, the new 2
law, PA 342, describes three tiers of shareholder incentive: 3
1. 15% of spending for achieving 1.00% to 1.25% electric savings and/or 0.750% to 0.875% 4
gas savings; 5
2. 17.5% of spending for achieving 1.26% to 1.50% electric savings and/or 0.876% to 6
1.000% gas savings; and 7
3. 20% for achieving greater than 1.50% electric savings and/or 1.000% gas savings.12 8
Consumers is asking that the Commission make the incentives within those tiers a linear sliding 9
scale rather than a “step function”, even though the law is silent on that issue. I support that 10
request, as it would also eliminate a perverse incentive. For example, rather than making a 11
utility indifferent between achieving 1.30% and 1.40% electricity savings, as would be the case 12
if a three-tiered incentive structure without a sliding scale were adopted, a sliding scale would 13
give a utility an incentive to continuing improving its performance at every level of electric 14
savings up to 1.50%. 15
Q: Given the two major concerns you have raised in this section of your testimony – (1) the 16
significant advantage of making lifetime savings, rather than 1st year savings, the primary 17
performance metric, and (2) the value of having a portion of shareholder incentives tied to 18
12 As under PA 295, the performance incentive structure under PA 342 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 15% of spending or 25% 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.
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other, secondary performance objectives – how would you recommend structuring 1
Consumers total shareholder incentive? 2
A: For both electricity and gas, I would recommend 80% of the shareholder incentive weight 3
(i.e. a maximum incentive equal to 16% of efficiency program spending) be tied to performance 4
relative to total portfolio lifetime savings. For electric programs, I would recommend an 5
additional 10% weight (i.e. a maximum incentive equal to 2% of program spending) be assigned 6
to each of three additional performance metrics: (1) the number of low income housing units 7
receiving comprehensive “whole building” assessments and retrofits; (2) the portion of business 8
lifetime energy savings produced by small businesses and (3) total peak demand savings. For 9
gas programs, I would recommend an additional 15% weight (i.e. a maximum of 3% of program 10
spending) be assigned to each of two additional metrics (in addition to the primary lifetime 11
savings metric): (1) the number of low income housing units receiving comprehensive “whole 12
building” assessments and retrofits; and (2) the portion of business lifetime energy savings 13
produced by small businesses. 14
Note that the sum of my proposed weights is equal to 110%. By definition, the Company should 15
not be permitted to earn more than 100% of a maximum portfolio incentive of 20% of program 16
spending. Having the sum of the maximums that can be earned for each individual metric 17
exceed 100% simply means that the Company would not have to achieve the maximum level of 18
performance on every single metric in order to earn the maximum portfolio incentive. This 19
provides some risk mitigation for the Company, allowing achievement of the maximum 20
rewardable performance in some metrics to offset somewhat less than maximum performance on 21
others. This is conceptually the same as the structure that was in place in recent years. 22
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As in the past, for each metric there should be “threshold level” of performance at which the 1
Company would begin to earn an incentive, a specific amount that the Company would earn for 2
attaining that threshold (“threshold incentive”) and a “maximum level” of performance at which 3
the maximum incentive would be earned. The incentive earned at any point between the 4
“threshold level” and the “maximum level” would be linearly interpolated between the 5
“threshold incentive” and the “maximum incentive”. 6
Q: What might that look like? 7
A: Tables 2 and 3 shows what this might look like for the 2018 electric and gas efficiency 8
portfolios, respectively. 9
Table 2: Conceptual Lay-Out of 2018 Electric Performance Incentive Structure 10
11
Concept Threshold Maximum Threshold Maximum
Lifetime Energy Savings (MWh) 80%Lifetime savings equivalent to 1.0% and 1.5% first year savings per Consumers Plan
3,990,681 5,986,022 12.00% 16.00%
Low Income Housing Units Receiving Comprehensive "Whole Building" Retrofits
10%
Number of housing units - single family or multi-family - for which assessments and retrofits of all cost-effective measures (including HVAC equipment and envelop measures) are provided. Must achieve at least 15% total energy savings per building to be counted. At least 30% must be multi-family to earn anything.
3333 5000 1.00% 2.00%
Proportionality of Business Lifetime Energy Savings (MWh) from Small Businesses
10%
Lifetime savings from small businesses (<400 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. 100% proportionality is when % of lifetime savings = % of electric sales). Savings from all Business programs count.
67% of Business Sales %
100% of Business Sales %
1.00% 2.00%
Peak Demand Savings (MW) 10%
Lifetime coincident peak demand savings (1st MW savings multiplied by measure life) associated with 1.0% and 1.5% first year savings per Consumers' Plan
625 937 1.00% 2.00%
Performance Incentive (% of EE Spend)Performance Levels
Metric Weight
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Table 3: Conceptual Lay-Out of 2018 Gas Performance Incentive Structure 1
Q: In these two tables you provide not only the metrics and suggested weights, but also 2
specific performance levels for each metric. What is the basis for those performance 3
levels? 4
A: The specific performance levels in these tables were developed as follows: 5
• Lifetime savings: These are based on the Company’s own estimates of lifetime savings 6
from its plan, adjusted down to the statutory 1st year performance targets (i.e. 1.00% to 7
1.50% of electric sales and 0.75% to 1.00% of gas sales) as shown in Table 1 of my 8
testimony above. Note that as discussed further below, a modest downward adjustment 9
of these lifetime electric savings targets – to reflect more accurate assumptions regarding 10
residential LED light bulb savings – should be considered. 11
• Low Income Housing Units Receiving Whole Building Retrofit: The maximum target 12
is roughly equal to 1% of the number of low income households in Consumers electric 13
Concept Threshold Maximum Threshold Maximum
Lifetime Savings (Mcf) 80%Lifetime savings equivalent to 0.75% and 1.00% first year savings per Consumers Plan
22,518,664 30,024,886 12.00% 16.00%
Low Income Housing Units Receiving Comprehensive "Whole Building" Retrofits
15%
Number of housing units - single family or multi-family - for which assessments and retrofits of all cost-effective measures (including HVAC equipment and envelop measures) are provided. Must achieve at least 15% total energy savings per building to be counted. At least 30% must be multi-family to earn anything.
3333 5000 1.50% 3.00%
Proportionality of Business Lifetime Energy Savings (Mcf) from Small Businesses
15%
Lifetime savings from small businesses (<6000 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. 100% proportionality is when % of lifetime savings = % of gas sales). Savings from all Business programs count.
67% of Business Sales %
100% of Business Sales %
1.50% 3.00%
Metric WeightPerformance Levels Performance Incentive
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service territory.13 In my experience, that it is a reasonably aggressive target. However, 1
depending on how many comprehensive retrofits the Company is currently supporting 2
each year, it may be appropriate to start a little lower in 2018 and ramp up to that level in 3
2019. It should be noted that Consumers has estimated that it will treat approximately 4
7600 single-family homes and 9800 multi-family housing units through its income 5
qualified program offerings.14 However, it appears that those customers (or at least most 6
of them) are not receiving comprehensive retrofits.15 7
• Portion of business savings from small businesses: The maximum incentive would be 8
earned if the portion of business savings acquired from small businesses was equal to the 9
portion of business energy sales made to small businesses. That would be true equity. 10
However, understanding it is harder to reach and treat small businesses, the threshold 11
level is one-third less than that. Depending on the portion of savings Consumers is 12
currently acquiring from small business customers, it may be appropriate to start with 13
targets a little lower for 2018 and ramp up to these levels in two or three years. 14
• Lifetime peak demand savings: These are based on the Company’s own estimates of 15
the peak demand savings by program from its plan, multiplied by the Company’s own 16
13 Consumers serves approximately 1.6 million residential customers (U.S. Energy Information Administration data for 2016 which can be accessed from files available at https://www.eia.gov/electricity/data/eia861m/index.html). Statewide, approximately 29% of households are at or below 200% of the federal poverty guideline (http://www.kff.org/other/state-indicator/population-up-to-200-fpl/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D). If that percentage applied to Consumers’ territory, it would mean that between 450,000 and 500,000 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. 14 Discovery Response NRDC-16(b) and (d). I am sponsoring Discovery Response NRDC-16 (including all sub-parts) as Exhibit NRD-5. 15 The Company estimates that its average financial incentive is about $800 for single family homes and $127 per dual fuel multi-family housing unit (Exhibit NRD-5, response to NRDC-16(e) and (f)). That level of incentive is nowhere close to high enough to comprehensively retrofit residential low income buildings.
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estimates of the average electric savings life for each program, then adjusted to levels 1
consistent with the 1.00% and 1.50% first year threshold and maximum statutory savings 2
standards. 3
Q: Would the Company be able to earn the maximum incentives for each of these metrics 4
under its Plan as filed? 5
A: The Company would be able to achieve the maximum incentive level for the lifetime savings 6
metrics, as well as the electric peak demand metric, with its plan as filed, since all of those 7
metrics are pegged to the Company’s own forecast performance in its plan. However, the 8
metrics regarding low income comprehensive retrofits and small business savings may not be 9
achievable without some modification to the Company’s plan – including the addition of some 10
budget for programs targeting such customers. 11
Q: Have you estimated how much additional budget would be required? 12
A: No, I have not. 13
Q: What would you suggest that the Commission do in the absence of an estimate of the 14
level of additional budget required to achieve the metrics you have proposed? 15
A: I am advised by counsel that in Consumers Energy’s first Energy Optimization Plan Case, 16
the Commission found the Company’s incentive proposal to be insufficient and ordered that new 17
incentive proposals could be filed within 30 days of the order that otherwise approved the 18
Company’s EO Plan.16 In this case, I would suggest that the Commission could similarly instruct 19
16 Case No. U-15805, Commission Order dated May 26, 2009, pp 31-32 and item I on p 33. http://efile.mpsc.state.mi.us/efile/docs/15805/0177.pdf
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the Company to consult with interested parties and develop a modified incentive proposal 1
necessary to meet these proposed targets, or alternative targets for the same metrics if the 2
Company can present compelling evidence that it is not possible or reasonable to reach the 3
specific targets I have proposed. As part of the order directing the development of the modified 4
proposal, the Company could be instructed to provide information regarding trade-offs (i.e. how 5
much more or less it would cost to lower or increase each target by 10% or 20%) so that the 6
Commission and other parties can then fully judge the reasonableness of the targets. 7
Q: Tables 2 and 3 represent a proposal for 2018. What about 2019, 2020 and 2021? 8
A: My suggested structure – i.e. the performance metrics, their weights and the portion that can 9
be earned at the threshold and maximum levels – be the same for all four years. 10
That said, some of the specific performance targets should vary a little. My specific suggestions 11
are as follows: 12
• Lifetime energy savings: my suggested lifetime savings targets are provided for all four 13
years in Table 1.17 14
• Low income comprehensive retrofits: I would recommend that the low income 15
comprehensive retrofit performance targets increase such that the threshold target would 16
be 5000 units (and the maximum target would be 7500 units) by 2020 and then level off 17
for 2021. 18
17 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.
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• Small business portion of business savings: I would recommend that the small 1
business targets be the same for all four years. 2
• Lifetime peak demand savings: Based on the Company’s forecast of peak demand 3
savings by year, I would recommend that the lifetime peak demand savings metric 4
decline by about a little more than 2% for 2019 (to a threshold level of 610 MW and a 5
maximum level of 914 MW) and remain at about level for 2020 and 2021. 6
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IV. Cost Allocation 1
Q: How have energy efficiency portfolio costs historically been allocated to different rate 2
classes? 3
A: As I understand it, they have been allocated to the rate classes on which the funds were spent. 4
For example, the costs of residential efficiency programs were allocated to residential customers; 5
the costs of secondary commercial energy efficiency programs were allocated to secondary 6
commercial customers; the costs of primary customer energy efficiency programs were allocated 7
to primary customers; and so on. 8
Q: Is Consumers proposing to change that way of allocating costs in this case? 9
A: Yes. The Company is proposing that increases in costs of its efficiency programs, relative to 10
its original U-17771 costs (i.e. the U-17771 costs prior to approval of its increased spending 11
levels in July of this year), be disproportionately allocated to residential customers. Put another 12
way, as Table 4 shows, Consumers is suggesting that residential customers should pay for all of 13
the increased spending on residential programs, plus about 80% of the increase in business 14
electric efficiency program costs and 30% of the increase in business gas efficiency program 15
costs over the 2018 to 2021 plan period. 16
Table 4: Consumers’ Allocation of Increased Business Program Costs to Residential 17
Customers18 18
18 Exhibits A-14 (TAY-3) and A-15 (TAY-4).
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1
Q: How did Consumers determine how much residential customers should pay for 2
business efficiency programs? 3
A: Consumers states that it is less expensive to acquire its proposed increase in savings from 4
business customers than from residential customers. It then suggests that residential customers 5
should pay for that cost savings. Or, put another way, Consumers is suggesting that residential 6
customers should incur an increase in cost equal to the cost they would have incurred had all of 7
the increase in lifetime savings the Company is proposing been acquired from residential 8
efficiency programs (rather than most of it coming from less expensive business efficiency 9
programs). 10
Q: What rationale does Consumers offer for this new approach to cost allocation? 11
A: The Company suggests that this approach to allocation of costs is appropriate because its 12
proposed increase in energy savings provides “overall system benefits”, that all customers 13
benefit from those increased system benefits and those additional system benefits can be 14
acquired through business efficiency programs at less than half the cost of acquiring them 15
2018 2019 2020 2021 Total
Bus Program Cost Increase $39,095,624 $35,315,266 $36,197,613 $37,104,870 $147,713,373Bus Program Cost Savings Adjustment $36,361,348 $28,280,122 $27,189,225 $26,124,972 $117,955,667% of Bus Cost Increase Allocated to Res 93% 80% 75% 70% 80%
Bus Program Cost Increase $7,274,301 $7,395,470 $7,519,274 $7,708,478 $29,897,523Bus Program Cost Savings Adjustment $2,432,462 $2,324,885 $2,227,645 $2,133,092 $9,118,084% of Bus Cost Increase Allocated to Res 33% 31% 30% 28% 30%
Electric Programs
Gas Programs
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through residential programs.19 Mr. Ykimoff also suggests that its proposed approach to cost 1
allocation is consistent with how costs of supply resources are allocated.20 2
Q: Is Consumers’ proposal for how to allocate costs between residential and business 3
customers reasonable? 4
A: No. It is problematic in at least two key ways. 5
First, the Company has calculated the cost shift based on the incremental costs and savings 6
relative to the old U-17771 plan. However, it is keeping the old cost allocation mechanism (i.e. 7
the sector on which program dollars are spent will incur those costs) for the first two-thirds of the 8
electric spend and the first ~80% of the gas spend. In essence, they are suggesting that there 9
should be one method for allocating cost for the first portion of their proposed budget (i.e. based 10
on program spending by customer class) and a different method for the last portion. It is hard to 11
see what the rationale for simultaneously using two different cost-recovery methods would be. 12
Either the policy rationale the Company offers makes sense for the entire portfolio of programs 13
and savings, or it makes no sense at all. As discussed below, I do not think it should be used at 14
all. However, it is worth noting that when I apply Consumers’ mathematical method for cost 15
allocation to the entire electric portfolio budget, rather than just to the incremental budget 16
relative to the old U-17771 plan, the resulting cost shift from business customers to residential 17
customers is only about half as big as Consumers is proposing in this case.21 18
19 Ykimoff testimony, p. 15, lines 18-20. 20 Discovery Response NRDC-CE-11(a), which I am sponsoring as Exhibit NRD-6. 21 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. $0.014/kWh difference for 2018) by the difference in amount of additional lifetime savings being acquired from the residential and business sectors (2.57 million MWh). I multiplied the difference in residential and business cost of acquisition for the entire portfolio of
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Second, and more importantly, I see no reasonable policy rationale for making residential 1
customers pay for the difference in cost of acquiring savings between residential and business 2
efficiency programs. While Consumers is correct that residential customers will pay less if 3
savings are acquired through less expensive business efficiency programs, residential customers 4
also realize far fewer benefits under that scenario. It is inappropriate to allocate costs on the first 5
part of that statement (paying less) while ignoring the second part (benefiting less). 6
Q: Why do residential customers benefit less when more savings are acquired through 7
business efficiency programs? Aren’t the benefits of efficiency programs shared by all 8
customers? 9
A: Not exactly. While it is true that all customers benefit to some degree from efficiency 10
investments of others, the benefits of efficiency investments are not shared equally. Those 11
customers who make the efficiency investments benefit more than those who do not. Indeed, as 12
Table 5 shows, based on the Company’s estimates of the impacts of both (1) allocations of 13
avoided costs resulting from its proposed electric efficiency programs and (2) redistribution 14
(between residential and business customers) of existing production costs resulting from its 15
proposed electric efficiency programs, I calculate that residential customers receive 65% of 16
residential electric program benefits and business customers receive 74% of business electric 17
program benefits. Again, those calculations are based on the Company’s calculations of 18
residential and business sector impacts. I have not examined the Company’s underlying 19
assumptions in detail. Moreover, as discussed further below, I see some potential problems with 20
some elements of the Company’s calculations of benefits by sector. Nevertheless, the results are 21
lifetime savings (about $0.005/kWh, according to data from NRDC-CE-2 Attachment) by the difference in total portfolio lifetime savings (3.28 million MWh).
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at least directionally what I would have expected them to be – residential customer receive a 1
large majority of residential program benefits and business customers receive an even larger 2
majority of business program benefits. 3
Table 5: Benefits of Efficiency Programs by Customer Group22 4
5
Q: What portion of the total portfolio of electric program benefits would residential 6
customers receive? 7
A: As shown in Table 5, the Company’s own analysis suggests that residential customers would 8
receive about 37% of the total electric system benefits from its proposed portfolio of programs. 9
However, there are at least a couple of reasons to believe that percentage is too high. For 10
example, in calculating the amount of current system costs that would be redistributed as a result 11
22 Based on data and analysis provided in response to NRDC-CE-11(d), which I am sponsoring as Exhibit NRD-6.
Residential Customers
Business Customers Total
From Res Programs $35,968 $64,556 $100,524From Bus Programs $102,245 $161,268 $263,513Total $138,213 $225,824 $364,038
From Res Programs -$29,483 $29,483 $0From Bus Programs $33,875 -$33,875 $0Total $4,393 -$4,393 $0
From Res Programs $65,451 $35,074 $100,524From Bus Programs $68,370 $195,143 $263,513Total $133,821 $230,217 $364,038
From Res Programs 65% 35%From Bus Programs 26% 74%Total 37% 63%
Total Benefits
% of Program Benfits
NPV Total Benefits Received (Thousands of $/Year)
Avoided costs
Redistributed Current Costs
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of residential and business programs, Consumers used the first year savings that the residential 1
and business programs would produce. However, the savings estimated for its business 2
programs are forecast to last 66% longer than the savings from its residential programs.23 That 3
effect is not captured in the Company’s analysis. If that effect were captured in the analysis, the 4
portion of total benefits estimated to accrue to residential customers over the life of the 5
efficiency savings would go down. In addition, the Company’s analysis includes the net present 6
value of avoided costs over the full life of the efficiency measures installed, but appears to 7
capture only one year’s worth of redistribution of current costs rather than the amount of costs 8
that would be redistributed over the full life of the savings. Because the net effect of 9
redistribution of current costs is negative for residential customers (i.e. the amount redistributed 10
to residential customers as a result of business programs exceeds the amount redistributed away 11
from residential customers as a result of residential programs), accounting for the amount of 12
costs redistributed over the full life of the installed efficiency measures (rather than just one 13
year’s worth) would reduce the estimated portion of total benefits accruing to residential 14
customers. 15
Q: Putting aside the reasons that the 37% is likely to be a high estimate of the portion of 16
benefits accruing to residential customers, how does that number compare to the portion of 17
costs that Consumers’ new cost recovery would have them incur? 18
A: It is much lower. As Table 6 shows, Consumers is proposing that residential customers incur 19
57% of electric program costs over the 2018-2021 planning period. 20
23 Consumers estimates that the average measure life for its residential electric programs is 8.62 years and the average for its business electric programs is 14.34 years (Response to NRDC-2 Attachment).
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Table 6: Consumers Proposed Allocation of Electric Efficiency Program Costs 1
2
Q: Are you aware of any other jurisdiction that has adopted an approach to efficiency 3
program cost recovery similar to what Consumers is proposing? 4
A: No, I am not. 5
Q: Given the concerns you have raised, how do you recommend the Commission address 6
Consumers’ proposed change in approach to cost recovery? 7
A: The evidence available in this case suggests that the portion of efficiency program benefits 8
that will accrue to residential customers is nowhere close to the portion of the costs Consumers is 9
proposing that residential customers bear. Furthermore, the available evidence does not suggest 10
that the portion of benefits accruing to residential customers is appreciably different from the 11
portion of costs that would be allocated to residential customers under the current cost recovery 12
structure (i.e. with residential customers paying for just residential programs). Thus, I 13
recommend that the Commission reject Consumers proposed approach to cost recovery and 14
maintain the current approach to cost recovery. 15
2018 2019 2020 2021 TotalResidential Allocated Cost Recovery $73,653,198 $65,996,738 $65,277,592 $64,656,696 $269,584,224Business Allocated Cost Recovery $45,137,283 $49,438,152 $51,411,395 $53,382,905 $199,369,735Total Cost Recovery $118,790,481 $115,434,890 $116,688,987 $118,039,601 $468,953,959Residential Portion of Cost Recovery 62% 57% 56% 55% 57%
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V. Savings Assumptions for Residential LED Light Bulbs 1
1. Net-to-Gross (NTG) Assumptions 2
Q: What NTG assumption is Consumers proposing to use for residential LED light bulbs? 3
A: Consumers is proposing to use an NTG of 0.90. 4
Q: What is the basis for that assumption? 5
A: Consumers states that the basis for the assumption is the Michigan Energy Measures 6
Database (MEMD).24 Ultimately, it is the assumption the Company has historically been using 7
for most measures other than CFLs and low income measures, consistent with deemed values the 8
Commission approved in 2015.25 I am not aware of any empirical or other evidentiary basis the 9
Company is using for the assumption. 10
Q: Do you agree this is a reasonable assumption? 11
A: No. It is unrealistically high. 12
Q: What is the basis for your conclusion that 0.90 is an unrealistically high NTG 13
assumption for residential LEDs? 14
A: First, the market for residential lighting has changed dramatically in recent years – a 15
conclusion with which Consumers itself concurs.26 The changes have been most dramatic for 16
LEDs, with both significant improvements in availability and significant cost reductions. The 17
result is that LED sales have grown quickly. Indeed, as Figure 1 shows, between the end 4th 18
24 Response to NRDC-21(a), which I am sponsoring as Exhibit NRD-7. 25 Richard Morgan testimony, lines 11-15. 26 Response to NRDC-9(h), which I am sponsoring as Exhibit NRD-8.
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quarter of 2014 and the first quarter of this year, the national market share for LED light bulbs 1
increased from a little under 5% to about 32%. 2
Figure 1: National Market Share Trends for Light Bulbs27 3
4
Second, of all the other jurisdictions focused on net savings with which I am aware, none are 5
currently using an NTG as high as 0.90 for broad-based buy-downs of LEDs sold through 6
27 Data from the National Electrical Manufacturers Association (NEMA) (http://www.nema.org/Intelligence/Pages/Lamp-Indices.aspx).
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national or regional retailers.28 Consider Table 7, which shows current NTG assumptions for 1
normal retail sales for each of the four jurisdictions referenced in the last memo on residential 2
lighting NTGs by Consumers evaluators. The 2018 values range from 0.42 for standard LEDs 3
with less than 20,000 hours of life in Maine to 0.70 in Massachusetts and southern Illinois to 4
0.75 for long-life standard LEDs in Maine. In all cases, the 2018 NTG assumptions are lower in 5
2018 than in 2016. It is also worth noting that in every case but Maine, the NTG values include 6
both free rider and spillover effects. 7
Table 7: Residential Retail LED NTG Assumptions in IL, ME, MA29 8
9
Q: What would be a reasonable NTG assumption for Consumers for LEDs? 10
28 When asked if it new of any jurisdictions using an NTG as high as 0.90, Consumers identified Massachusetts, suggesting that its utilities were using NTG assumptions ranging from 0.80 to 0.99 for the 2016 through 2018 plan years (response to NRDC-21(b)), Exhibit NRD-7. However, that response is both incorrect and misleading. To begin with, as Table 7 notes, the assumption for territory-wide promotions through retail channels was 90% in 2016, but declines to 70% by 2018. Second, while it is true that Massachusetts does currently use NTGs of as high as 0.99 this year and 0.98 in 2018, 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. 29 For both Illinois utilities the lower 2017 value is for omni-directional LEDs; the higher is for directional LEDs. For detail on Com Ed values see: http://ilsagfiles.org/SAG_files/NTG/2017_NTG_Meetings/Final/ComEd_NTG_History_and_PY10_Recommendations_2017-03-01.pdf. For detail on Ameren values see: http://ilsagfiles.org/SAG_files/NTG/2017_NTG_Meetings/Final/AIC_PY10_NTGR_Recommendations_Summary_FINAL_2017-03-01.pdf. For Efficiency Maine, separate values for 2017 could not be found. For 2016 values see: https://www.efficiencymaine.com/docs/EMT-TRM_Retail_Residential_v2016_3.pdf. For 2018 values see: https://www.efficiencymaine.com/docs/EMT-TRM_Retail_Residential_v2018_1.pdf. Note that range for 2018 covers standard bulbs through normal retail sales channels (0.75 NTG for lamps rated at more than 20,000 hours; 0.59 for those rated at less than 20,000 hours) and specialty reflector lamps promoted through normal retail sales channels (NTG of 0.42). There is also a 92% NTG for standard LEDs discounted through special promotions. For Massachusetts’ utilities see: http://ma-eeac.org/wordpress/wp-content/uploads/2016-2018-Plan-1.pdf.
2016 2017 2018Com Ed (Illinois) 0.73 0.58 to 0.60 0.58Ameren Illinois 0.73 0.58 to 0.61 0.70Efficiency Maine 0.77 0.42 to 0.75Massachusetts 0.90 0.80 0.70
YearUtility & State
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A: I would suggest that the NTG should be no lower than 0.70 for 2018, and declining five 1
percentage points per year down to 55% by 2021. That is consistent with assumptions recently 2
made by Ameren Illinois in its 2018-2021 Plan filing.30 3
2. Measure Life Assumptions 4
Q: What measure life assumption is Consumers using for LEDs? 5
A: Consumers appears to be assuming that all LED light bulbs have a life of 15 years. 6
Q: What is the basis for that assumption? 7
A: The assumption is derived from the Michigan Efficiency Measures Database (MEMD). 8
Q: Is 15 years a reasonable assumption for the measure life of an LED light bulb? 9
A: Depending on the specific products Consumers will be promoting, it could be a reasonable 10
assumption regarding how long the LED light bulb will last – i.e. the equipment life. However, 11
at least for standard LEDs, it is not a reasonable assumption regarding the average life of the first 12
year savings – i.e. the savings life. Put another way multiplying the first year savings of a 13
standard LED by its assumed 15 year measure life will be produce an unrealistically high 14
estimate of lifetime savings for the measure. 15
Q: Why is the savings life shorter than the equipment life? 16
A: For most measures they are the same. However, they can be different in cases in which the 17
equipment life of the efficiency measure and the equipment life of the baseline measure being 18
replaced are different. That is the case with LED light bulbs. 19
An LED light bulb that is purchased today – or next year – is assumed to be purchased instead of 20
a halogen light bulb. The electricity savings produced by an LED in its first year of operation 21
30 Ameren Illinois 2018-2021 Energy Efficiency Plan, Exhibit 1.1, Appendix I, pages 59-60 52-55 which I am sponsoring as Exhibit NRD-9.
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will therefore be equal to the difference between its electricity consumption and that of the 1
halogen that would have otherwise been purchased and installed. In addition to consuming less 2
energy, LEDs last a lot longer than halogens. Depending on the product and other factors, LEDs 3
can last 15 years. In contrast, halogens that are replaced by LEDs typically last only a year or so. 4
Thus, in the baseline scenario, the customer would be buying a new light bulb roughly every 5
year, for as long as the baseline product remains a halogen bulb. The result will be the same 6
level of savings in each year for which the baseline product remains a halogen bulb. If it was 7
reasonable to assume that the baseline product would remain a halogen bulb for the next fifteen 8
years, the savings in each of the next fifteen years of the LED equipment life would be the same 9
as in the first year. In that case, the LED savings life would be equal to the LED equipment life. 10
However, that is not a reasonable assumption for standard LEDs because Federal efficiency 11
standards under the Energy Independence and Security Act (EISA) that will go into effect in 12
2020 will effectively require all new general service screw-based lamps – i.e. those which 13
“standard LEDs” would replace – to be as efficient as compact fluorescent light bulbs (CFLs).31 14
Thus, the annual savings estimated for standard LEDs will decline significantly starting in 2020. 15
Put another way, rather than assuming that the current annual savings of an LED will last 15 16
years, the annual savings for an LED installed in 2018 should be assumed to last only two years, 17
followed by 13 years of much lower levels of savings.32 18
Q: Is that kind of adjustment appropriate for all LED light bulbs? 19
31 Note that Consumers agrees with this assertion (response to NRDC-9(i)), Exhibit NRD-8. 32 Similarly, for a standard LED installed in 2019, the current annual savings estimate would be appropriate for only one year, followed by 14 years of much lower levels of savings. And the savings for any standard LED installed in 2020 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).
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A: No, only for the kinds of light bulbs whose efficiency is governed by the EISA product 1
efficiency standards. That means all of what are commonly known in the industry as “standard 2
LEDs” or “A-Line LEDs”. Consumers’ plan includes savings from both standard LEDs and 3
specialty LEDs. The savings from the specialty LEDs would be unaffected by my proposed 4
change. 5
Q: Is the kind of adjustment to standard LED measure lives that you are suggesting 6
consistent with national best practice? 7
A: Yes. This is kind of savings adjustment was recommended a couple of years ago by the 8
national “Uniform Methods Project,” a national effort designed to bring best practice consistency 9
to energy savings estimation and evaluation: 10
“Bulbs expected to be in use in 2020 and beyond will be affected by the EISA backstop 11 provision mentioned in Section 1. The life cycle savings of CFLs, therefore, should either 12 terminate for any remaining years in the expected life beginning in mid-2020, or be 13 substantially reduced after 2020 to account for the backstop provision. Similarly, the life 14 cycle savings for LEDs should incorporate this upcoming baseline change.”33 15
Q: Are there other states that make such savings adjustments for standard LEDs starting 16
in or around 2020? 17
A: Yes. Illinois is an example of a neighboring state that makes this adjustment. The Illinois 18
TRM explains the LED “mid-life baseline adjustment” as follows: 19
“During the lifetime of a standard Omnidirectional LED, the baseline 20 incandescent/halogen bulb would need to be replaced multiple times. Since the baseline 21 bulb changes over time (except for <300 and >2600+ lumen lamps) the annual savings 22 claim must be reduced within the life of the measure to account for this baseline shift. 23
33 Dimetrosky, Scott, Katie Parkinson and Noah Lieb, “Chapter 21: 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 2015. Available at: http://energy.gov/sites/prod/files/2015/02/f19/UMPChapter21-residential-lighting-evaluation-protocol.pdf.
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For example, for 60W equivalent bulbs installed in 2014, the full savings…should be 1 claimed for the first six years, but a reduced annual savings (…[initial first year energy 2 savings]…multiplied by the adjustment factor in the table below) claimed for the 3 remainder of the measure life.”34 4
5
6
As you can see from the table, the portion of initial LED savings that no longer applies after 7
2020 varies by lamp light output level. The average remaining savings across the four categories 8
shown is 16%, representing an 84% reduction from pre-2020 annual savings levels. 9
3. Combined Effects of Correcting NTG and Measure Life Assumptions 10
Q: What would be the effect of changing both the NTG assumption for LEDs and the 11
measure life assumptions for standard LEDs? 12
A: As Table 8 shows, the combined effect of these two changes would be to reduce total first 13
year LED savings from the Company’s Residential ENERGY STAR® Lighting program by 14
about one-quarter in 2018 and 2019 and by more than 60% in 2020 and 2021. More 15
significantly, it would reduce lifetime savings by more than 50% in 2018 and 2019 and by more 16
than 60% in 2021. 17 34 Illinois Statewide Technical Reference Manual for Energy Efficiency, Version 5.0, Volume 3: Residential Measures, Final; February 11th, 2016; effective June 1st, 2016; p. 261. Available at: http://ilsagfiles.org/SAG_files/Technical_Reference_Manual/Version_5/Final/IL-TRM_Effective_060116_v5.0_Vol_3_Res_021116_Final.pdf.f
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Table 8: Savings Impacts of Correcting LED NTG and Lifetime Assumptions35 1
2
Q: How would those reductions in savings affect your proposed electric performance 3
metrics? 4
35 Consumers forecast first year savings for standard and specialty LEDs from response to NRDC-9(b). Consumers forecast lifetime savings based on average measure life from response to NRDC-2 Attachment. Consumers assumed NTG assumption from response to NRDC-9(a), Exhibit NRD-8.
2018 2019 2020 2021
Consumers Estimated MWh 1st Year 39,192 39,192 39,192 39,192 Consumers Estimated Lifetime MWh 587,880 587,880 587,880 587,880
Adjusted NTG 70% 65% 60% 55%Adjustment to Post 2020 SavingsAdjusted 1st Year MWh 30,483 28,305 4,180 3,832 Adjusted Lifetime Savings (MWh) 124,369 91,709 62,707 57,482 Change in 1st Year Savings -22% -28% -89% -90%Change in Lifetime Savings -79% -84% -89% -90%
Consumers Estimated MWh 1st Year 34,863 34,863 34,863 34,863 Consumers Estimated Lifetime MWh 522,945 522,945 522,945 522,945
Adjusted NTG 70% 65% 60% 55%Adjustment to Post 2020 SavingsAdjusted 1st Year MWh 27,116 25,179 23,242 21,305 Adjusted Lifetime Savings (MWh) 406,735 377,683 348,630 319,578 Change in 1st Year Savings -22% -28% -33% -39%Change in Lifetime Savings -22% -28% -33% -39%
Consumers Estimated MWh 1st Year 74,055 74,055 74,055 74,055 Consumers Estimated Lifetime MWh 1,110,825 1,110,825 1,110,825 1,110,825
Adjusted 1st Year MWh 57,598 53,484 27,422 25,137 Adjusted Lifetime Savings (MWh) 531,104 469,392 411,337 377,059 Change in 1st Year Savings -22% -28% -63% -66%Change in Lifetime Savings -52% -58% -63% -66%
Consumers Savings Estimates
Proposed Savings Adjustments
Standard LEDs
Specialty LEDs
Total LEDs
Consumers Savings Estimates
Proposed Savings Adjustments
Consumers Savings Estimates
-84%
0%
Proposed Savings Adjustments
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A: As Table 9 shows, they would lower Consumers’ forecast first year electric savings estimates 1
by about 3% in 2018, 4% in 2019 and 9% in 2020 and 2021. Notably, it would drop the 2
Company’s forecast first year savings in 2020 and 2021 just below the 1.50% of sales level at 3
which it could earn its maximum shareholder incentive, so the Company would need to find a 4
modest level of additional savings to get to that maximum level. The reductions would represent 5
about 9% of Consumers’ total forecast lifetime savings in 2018, increasing gradually to 12% in 6
2021.36 7
My calculations of a lifetimes energy (MWh) savings metric in Table 1 above simply accepted 8
Consumers forecast average measure life as a reasonable one. The weighted average electric 9
savings measure life for the entire portfolio with the LED adjustments that I am suggesting 10
would decline about 6% in 2018 and 2019 and by about 2% in 2020 and 2021. However, it 11
would still range between 11.04 years (in 2019) and 11.46 years (in 2021) which, in my 12
experience, would still represent a reasonable commitment to long-lived savings. Thus, I would 13
support a lifetime savings metric based on those adjusted portfolio average measure lives. The 14
resulting change in lifetime savings targets for both the threshold shareholder incentive 15
performance level (i.e. lifetime savings equivalent to 1.00% first year savings) and the maximum 16
shareholder incentive performance level (i.e. lifetime savings equivalent to 1.50% first year 17
savings) – as shown in Table 9 below – would be reasonable. 18
36 Similar adjustments would need to be made to standard LEDs forecast to move through all other residential and business efficiency programs, though I would expect to the magnitude of the effects in those programs – in terms of absolute reductions in MWh savings – to be much smaller.
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Table 9: Lifetime Electric Savings Targets with LED Savings Adjustments 1
2
My proposed lifetime peak demand (MW) savings metric would change slightly. At the 3
threshold level, the revised targets would be 609 lifetime MW in 2018, 593 MW in 2019, 617 4
MW in 2020 and 621 MW in 2021. The maximum level targets would all be 50% higher than 5
those threshold values. 6
2018 2019 2020 2021 Source
a 1st Year Savings (MWh) 541,810 507,985 484,939 483,458 Table 1 w/LED Adjustmtb Avg Measure Life (Years) 11.29 11.04 11.46 11.42 (c) / (a)c Lifetime Savings (MWh) 6,118,604 5,609,694 5,555,160 5,521,686 Table 1 w/LED Adjustmtd 1st Year Savings % of Sales 1.63% 1.52% 1.45% 1.44% (a) / (e)
e 1st Year Savings (MWh) 332,600 334,979 334,473 336,775 Exh A-13 p. 7f Lifetime Savings (MWh) 3,756,020 3,699,183 3,831,512 3,846,386 (e) * (b)
g 1st Year Savings (MWh) 498,900 502,469 501,710 505,163 (e) * 1.5h Lifetime Savings (MWh) 5,634,030 5,548,774 5,747,268 5,769,579 (g) * (b)
Consumers Plan
Savings at 1.00% of Sales
Savings at 1.50% of Sales
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VI. Pre-Pay Pilot “Program 1
Q: What is the Company’s proposal with regard to a PrePay pilot program? 2
A: PrePay is a process through which customers pre-pay for their energy consumption. As 3
Consumers explains in its plan: 4
“Customers pay an amount they can afford prior to consumption and reload as needed. 5 Customers choose a communication channel to receive notifications on how much money 6 is left on the account with an estimated number of days associated with the dollars.”37 7
The Company is proposing to pay for a piloting of a PrePay initiative through its efficiency 8
portfolio budget on the grounds that such an initiative should be considered an efficiency 9
program. 10
Q: What are your views on the concept of PrePay? 11
A: I do not have a position on the concept of PrePay. It has both potential pros and cons as an 12
instrument for collecting payments from customers for their energy consumption. I have not yet 13
fully explored the net impact of those trade-offs. 14
That said, I have grave concerns about Consumers’ proposal to consider PrePay an “efficiency 15
program” whose “savings” would ultimately count towards statutory energy savings goals. 16
Q: What is the nature of those concerns? 17
A: I see PrePay as more akin to a change in rate design than an efficiency program. While it is 18
possible that it could result in lowering participating customers’ energy consumption, those 19
reductions could be the result of customers’ inability to pay – and sacrificing comfort or other 20
37 Exhibit A-13 (TAY-2), p. 92 of 251.
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amenity – rather than as a result of efficiency investments or efforts to reduce energy waste. 1
Indeed, the Company acknowledges that a significant portion of the participating customers will 2
be “those having difficulty paying their monthly energy bills”.38 It would be inappropriate to 3
count such reductions in consumption towards statutory savings targets. To allow such 4
reductions in consumption towards statutory savings targets would be tantamount to allowing 5
reductions in consumption resulting from rate increases – or even customer shut-offs (from 6
inability to pay) – towards the same targets; it would also suggest that any changes in rates or 7
rate design that lead to increases in consumption should be counted as “negative savings” when 8
computing progress towards utility savings targets. 9
Q: Could some of the savings from PrePay result from actual efficiency investments and/or 10
reductions in energy waste? 11
A: Yes, potentially. However, the only feature of PrePay that would produce such effects is 12
customers’ increased awareness of their consumption resulting from more regular receipt of 13
information on their energy use. And that additional information could be provided to customers 14
through means entirely separate from how the customers pay their bills. Indeed, the Company 15
has acknowledged that customers with smart meters can already get hourly information about 16
their energy use through the Company’s web portal.39 The Company has suggested that PrePay 17
is different because it provides that information in terms of dollars and the number of days before 18
the customers’ pre-payment will run out.40 However, the Company should be able to translate 19
the information it provides through its web portal into equivalent forms. 20
38 Response to NRDC-27(a), Exhibit NRD-10. 39 Response to NRDC-28(b), Exhibit NRD-11. 40 Response to NRDC-28(a), Exhibit NRD-11.
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Q: Do you have any other concerns regarding PrePay? 1
A: Yes. I have several other concerns. They are as follows: 2
• The reductions in consumption resulting from PrePay are likely to be very short-lived. 3
Consumers is currently assuming that the savings last only one year.41 This raises serious 4
questions about why PrePay would be a priority for limited pilot program dollars. 5
• The total first year impacts could be very large.42 If such impacts are allowed to count 6
towards Consumers’ savings target, the Company would be able to reduce investments in 7
real and much longer-lived energy savings while still earning its maximum shareholder 8
incentive. That would be a disservice to its customers. 9
• Any funds diverted from other efficiency investments to investigate and/or to ultimately 10
implement PrePay also deprive Consumers’ customers of long-term benefits. 11
Q: Isn’t the fact that the reductions in consumption could be very large a good thing? 12
A: Not if the reductions are largely the result of sacrifice (rather than waste reduction) by 13
customers, especially by low income customers. And not if the reductions are short-lived and 14
considered alternatives to – thereby reducing investment in – longer-term savings from 15
investments in efficiency and waste reduction. 16
41 Response to NRDC-26(c) Exhibit NRD-12 42 Consumers has suggested that the reduction in consumption can between 5% and 15%. Discovery response NRDC-15(a), Exhibit NRD-13. Taking the mid-point of that range (i.e. 10%) and assuming that 38% of Consumers electricity sales are to residential customers (U.S. Energy Information Administration data for 2016 which can be accessed from files available at https://www.eia.gov/electricity/data/eia861m/index.html), if only 10% of Consumers residential customers participated the reduction in consumption would be equal to 0.38% of total sales – or about one-quarter of the total savings the Company would need to achieve the 1.5% of sales at which it maximizes its shareholder incentive.
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Q: Are you aware of any investor-owned utility that is claiming savings from PrePay 1
towards statutory savings targets? 2
A: No. The Company is also unaware of any such cases.43 3
Q: Does this conclude your testimony? 4
A: Yes. 5
43 Response to NRDC-26(d), Exhibit NRD-12.
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1 JUDGE MACK: Anything else, Mr. Bzdok?
2 MR. BZDOK: No. Thank you.
3 JUDGE MACK: Thank you. Mr. Gallagher.
4 (Documents marked for identification by the Court
5 Reporter as Exhibit Nos. AB-1 and AB-2.)
6 MR. GALLAGHER: Thank you, Judge Mack.
7 On behalf of ABATE, the Association of Businesses
8 Advocating Tariff Equity, I move at this time for
9 admission to evidence of the Direct Testimony of Michael
10 P. Gorman, Rebuttal Testimony of Michael P. Gorman, and
11 ABATE Exhibits AB-1 and AB-2, all prefiled in this
12 matter. Mr. Gorman's direct testimony consists of a
13 cover sheet, table of contents, 11 pages of testimony, an
14 appendix A, his qualifications and background of 4 pages;
15 his rebuttal testimony consists of 6 pages of testimony
16 in addition to a cover sheet and table of contents. And
17 with that, I move admission of those documents.
18 JUDGE MACK: Thank you, Mr. Gallagher.
19 Any objection to the offer? (No response.)
20 Hearing none, the Direct and Rebuttal
21 Testimony of Mr. Gorman is bound into this record, and
22 Exhibits A-1 -- I'm sorry -- AB-1 and AB-2 are admitted.
23 (Testimony bound in.)
24 - - -
25
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1 JUDGE MACK: Anything else,
2 Mr. Gallagher?
3 MR. GALLAGHER: No. Thank you, your
4 Honor.
5 JUDGE MACK: Thank you. Ms. Stephens.
6 (Documents marked for identification by the Court
7 Reporter as Exhibit Nos. S-1 through S-7.)
8 MS. STEPHENS: Thank you, your Honor. On
9 behalf of Staff, we move to bind into the record the
10 prefiled Direct Testimony of Karen Gould; this consists
11 of a cover page and 15 pages of questions and answers, it
12 was filed on September 21, 2017. We also move to admit
13 the Exhibits S-1 and S-2 that were prefiled September 21,
14 2017, by Ms. Gould. In addition, we move to admit into
15 the record Ms. Gould's rebuttal testimony, which consists
16 of a cover page and three pages of questions and answers,
17 filed on September 25, 2017.
18 Finally, we move to admit into the record
19 the prefiled Direct Testimony of David Walker, which
20 consists of one cover page, 14 pages of questions and
21 answers, this was prefiled September 11, 2017. In
22 addition to the exhibits he sponsored, which are S-3,
23 S-4, S-5, S-6, and S-7, we move to admit as well. Thank
24 you.
25 JUDGE MACK: Thank you. And I'm sorry,
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1 the exhibits for Mr. Walker, were those 3 through 7?
2 MS. STEPHENS: Correct.
3 JUDGE MACK: Thank you. Any objection to
4 the offer? (No response.)
5 Hearing none, the Direct and Rebuttal
6 Testimony of Ms. Gould is bound into this record, as is
7 the Direct Testimony of Mr. Walker; and Exhibits S-1
8 through S-7 are admitted.
9 (Testimony bound in.)
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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 2018 – 2021 Energy )
Waste Reduction Plan ) Case No. U-18261
)
QUALIFICATIONS AND CORRECTED DIRECT TESTIMONY OF
KAREN M. GOULD
MICHIGAN PUBLIC SERVICE COMMISSION
September 11, 2017
294
QUALIFICIATIONS OF KAREN M. GOULD
CASE NUMBER U- 18261
PART I
1
Q. Please state your full name, business address and occupation. 1
A. My name is Karen M. Gould, and my business address is 7109 W. Saginaw, Lansing, MI 2
48917. I am employed by the Michigan Public Service Commission (MPSC or 3
Commission) as an Auditor in the Energy Waste Reduction Section of the Electric 4
Reliability Division. 5
Q. Describe your education and professional background. 6
A. I graduated from Davenport University with a Bachelor’s of Science degree in Accounting. 7
I commenced employment with the Commission in 2006. From 2006 until 2009 I was 8
charged with auditing the expenditures of the Low Income Energy Efficiency Fund 9
(LIEEF). Projects included the selection of grantees, audits of each individual grantee who 10
was awarded funding through the LIEEF program, and payment processing. 11
In 2009, I began my current position working for the Energy Waste Reduction section 12
(formerly Energy Optimization) as the financial auditor of the Energy Waste Reduction 13
(EWR) program expenditures. In this position I am responsible for the auditing of rate 14
regulated utilities annual reconciliation of their EWR program expenses and annual reports. 15
I also work on the review of utility plan filings for their Energy Waste Reduction biennial 16
plans and amendments. In this position I have taken on several special projects such as 17
grant administrator of the Michigan Saves Energy Efficiency Financing program. From 18
2009 through present I have annually attended the Institute of Public Utilities Regulatory 19
Studies Program. The course work is designed specifically and exclusively to meet the 20
needs of public-sector regulatory professionals. Also, in 2009, I spent a week in Nigeria 21
with the Nigerian Electricity Regulatory Commission through NARUC where I prepared 22
and presented sessions to the Nigerian Federal Electricity Regulatory Commission Staff on 23
295
QUALIFICIATIONS OF KAREN M. GOULD
CASE NUMBER U- 18261
PART I
2
the topics of 2008 Public Act 295 (PA 295) and other regulated energy issues. In 1
September of 2009, I attended Building Financial Institute’s Building Analyst Training. 2
This was a comprehensive home energy assessment with coursework in building envelope 3
evaluation, thermal and pressure boundaries, air sealing and building airflow standards and 4
calculations. 5
From 2009-2011, I was the Chair of the EO Evaluation Collaborative Workgroup. This 6
Collaborative, created in Case No. U-15805 et al., consisted of all electric and natural gas 7
utilities subject to the MPSC’s jurisdiction under PA 295, as well as State-wide 8
participation of non-profit organizations, environmental groups, and other State of 9
Michigan government departments. 10
In April of 2017, PA 295 was amended by Public Act 342 (PA 342) which continues the 11
requirements for energy efficiency programs with specific savings targets by all electric 12
and gas utilities in Michigan. 13
Q. Have you ever testified before the Michigan Public Service Commission? 14
A. Yes, I have testified in Case No. U-15806 and in Case No. U-15890. I have also provided 15
written testimony for Case No. U-16412, U-17049, and U-17050. 16
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CORRECTED DIRECT TESTIMONY OF KAREN M. GOULD CASE NUMBER U- 18261
PART II
3
Q. What is the purpose of your testimony in this proceeding? 1
A. The purpose of my testimony is to provide recommendations regarding the proposed 2
financial incentive mechanism. 3
Q. Are you sponsoring any exhibits in this proceeding? 4
A. Yes. I am sponsoring the following exhibits? 5
Exhibits Description 6
Exhibit S-1 (KMG-1) Electric Financial Incentive Mechanism Calculation 7
Exhibit S-2 (KMG-2) Gas Financial Incentive Mechanism Calculation 8
Q. Were these exhibits prepared by you? 9
A. Yes. 10
Q. Please describe exhibit S-1 (KMG-1). 11
A. Exhibit S-1 (KMG-1) depicts a sliding scale method for determination of an award by the 12
commission for a financial incentive payment for exceeding electric savings goals in the 13
areas of first year savings, lifetime savings goal, and increased low income spending for 14
the electric program portfolio. All three metrics must meet the minimum required 15
percentage at Tier 1 to be eligible for the minimum anticipated financial incentive award. 16
The mechanisms are structured to have the Company meet criteria in all three metrics, and 17
the potential award possible would be based on the percentage of the lowest metric 18
percentage reached. For example, if the Company reached 1.40% of their 1st year savings 19
goal, 136% of their lifetime savings goal, and spent 4.50% saved 4.48% of their total spend 20
program portfolio savings on IQ programs, the Company would be eligible for a possible 21
financial incentive award of 17.50% 18.50% of their total spend. 22
Q. Please describe exhibit S-2 (KMG-2). 23
297
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CASE NUMBER U- 18261
PART II
4
Exhibit S-2 (KMG-2) depicts a sliding scale method for determination of an award by the 1
commission for a financial incentive payment for exceeding gas savings goals in the areas 2
of first year savings, lifetime savings goal, and increased low income savings for the gas 3
program portfolio. 4
Q. Does PA 342 require the Commission to authorize a financial incentive payment for utility 5
performance of their EWR plan implementation? 6
A. No. Pursuant to PA 342, Section 75, (1), an energy waste reduction plan of a provider 7
whose rates are regulated by the commission may authorize a commensurate financial 8
incentive for the provider for exceeding the energy waste reduction standard. Payment of 9
any financial incentive authorized in the energy waste reduction plan is subject to the 10
approval of the commission.11
Q. Has the Commission provided guidance on the structure of a financial incentive 12
mechanism? 13
A. Yes. Order No. U-18260 et al, on page 11, states, 14
15
“….the Commission has made the achievement of the full financial incentive contingent 16
upon meeting certain program goals such as expanding low-income programs and 17
coordinating offerings with low-income agencies to leverage funding, matching programs 18
with other utilities’ programs to provide consistency in rebate amounts, promoting deep 19
energy savings, and reducing peak demand. While the Commission expects that EWRPs 20
[Energy Waste Reduction Plans] will continue to focus on these areas, in light of the 21
significant changes in EWR technologies, the substantial increase in the maximum 22
amount of the financial incentive, along with the other changes to EWR in Acts 341 and 23
342, the Commission finds that these additional performance metrics should be 24
reevaluated. Thus, in their 2017 plan cases, for the incentive for the period after the 25
effective date of Act 342, the parties may propose mechanisms that include the same or 26
additional program goals as part of the financial incentive. Eligibility for receiving a 27
financial award depends upon achieving the specified net energy savings indicated in Act 28
342, but the details of the incentive structure will continue to be developed in EWRP 29
cases.” 30
31
298
CORRECTED DIRECT TESTIMONY OF KAREN M. GOULD
CASE NUMBER U- 18261
PART II
5
Q. Has Consumers Energy Company (the Company) clearly defined its proposal for a 1
financial incentive mechanism? 2
A. Yes 3
Q. What financial incentive mechanism is the Company proposing? 4
A. Company witness Theodore Ykimoff provides in his testimony, Exhibit A-16 (TAY-5), an 5
illustrative gas and electric financial incentive mechanism that is built on a sliding scale 6
incentive mechanism based on savings tiers. Mr. Ykimoff testifies that the sliding scale 7
financial incentive will encourage the utilities to invest beyond the minimum levels 8
necessary for each step rather than specific targets that jump from tier to tier based on a 9
specific percentage of savings. 10
Q. Does Staff agree with the Company proposed financial incentive mechanism? 11
A. Yes, Staff agrees with a portion of this approach. Staff agrees that the sliding scale provides 12
stronger incentive to reach as far above the target as possible rather than hard stops that 13
may occur if the Company does not believe it could reach the next tier. Staff does not 14
agree that the award of a financial incentive should be based solely on exceeding the energy 15
waste reduction standard. 16
Q. Why does Staff recommend the Commission should consider other criteria for the purposes 17
of awarding a financial incentive payment? 18
A. In 2009, in Cases Nos. U-15805 and U-15889, a financial incentive mechanism was 19
approved based solely on a sliding scale where the Company was to achieve the maximum 20
incentive award if they were to demonstrate they had exceeded the target by up to 15% 21
with a Utility Cost Test (UCT) score of at least 1.25. In 2012, in Case No. U-17138, it was 22
determined the existing financial incentive mechanism was deficient in that it only incented 23
299
CORRECTED DIRECT TESTIMONY OF KAREN M. GOULD
CASE NUMBER U- 18261
PART II
6
the utility to maximize first-year savings irrespective of whether the energy efficiency 1
measures have a longer life cycle. Basing the financial incentive award solely on exceeding 2
the target creates a bias against the longer life measures that, although can be initially more 3
costly, would allow utility customers greater benefit for the long term. As I will explain 4
later, this is particularly important if EWR programs are to serve as a true utility system 5
resource. 6
Q. What are the benefits of longer life measures? 7
A. Longer life measures provide more substantial energy savings, which will deliver more 8
meaningful energy saving changes to a customer’s overall energy bill. They can include, 9
but are not limited to, measures such as insulation, windows, Energy Star appliances and 10
lighting. These measures individually will offer long-term savings (10 + years or more), 11
but can be most efficient and effective when incorporated together. By providing a diverse 12
program for its customers, the Company would be insuring it is fulfilling the intent of the 13
law which is to help provider’s customers reduce energy waste and to reduce the future 14
costs of provider service to customers. Although there are some programs that can be 15
implemented more quickly and more cheaply, these programs only offer energy saving 16
benefits for one or two years, such as Home Energy Reports (or behavioral programs). It 17
is the measures that offer energy waste reduction with multiple year endurance that can 18
provide the utility system cost savings envisioned in the legislation. The customer is able 19
to realize greater benefit, which optimizes the potential higher costs of these programs and 20
measures. Other benefits will be realized not only monetarily, but also environmentally, 21
through increased customer comfort, and by providing increased reliability for Michigan’s 22
energy future. 23
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CASE NUMBER U- 18261
PART II
7
Q. What is the goal of the financial incentive mechanism? 1
A. A financial incentive mechanism should be devised to compensate for the potential reduced 2
opportunity for the provider to invest in utility infrastructure. PA 295, as amended by PA 3
342, identifies energy waste reduction programs as being designed to reduce the future cost 4
of service to customers, to delay the need to construct new electric generating facilities, 5
and to protect customers from incurring the costs of construction. The incentive structure 6
should balance the risks and rewards in a way that provides a greater opportunity to earn 7
its maximum incentive with a better balanced portfolio. Most importantly, the goal of a 8
financial incentive in this case is to incentivize the Company to achieve good performance 9
in meeting the objectives of the EWR policy and programs. 10
Q. Does Staff recommend a specific incentive mechanism for the Company’s plan? 11
A. Yes. Because there are other objectives mentioned or implied in the statute, such as 12
providing EWR programs for low-income customers and reducing overall energy waste in 13
Michigan, Staff recommends a well-designed incentive mechanism that will incentivize 14
good performance in meeting the various objectives established for the EWR programs. 15
Staff proposes a specific overall framework and two specific component areas should be 16
included in the incentive mechanism. Although exceeding the target should still be a 17
baseline criteria when the Commission approves and awards a financial incentive, adding 18
performance metrics will improve the chances of the EWR programs becoming a true 19
utility system resource. This will allow the customers to realize greater and more 20
meaningful energy waste reduction. These metrics should be unique to the provider’s fuel 21
source and service territory. In the past, financial incentive metrics included longer life-22
time savings goals, cross utility coordination, increased effort to provide more robust 23
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services to the income qualified (IQ) along with more innovative ways to reach this sector, 1
reduction of total coincident peak savings, geo-targeting, and an increased number of 2
multi-measure participation, just to name a few. These metrics should be individualized 3
criteria that encourage the utility to build meaningful EWR program portfolios. 4
Q. Is Staff recommending the same financial incentive mechanism introduced in 2012 in case 5
no. U-17138 and utilized through the beginning of April 2017? 6
A. No. Staff proposes to revise the incentive mechanism to reflect the evolving program goals 7
and align more closely with the new energy legislation. 8
Q. What is Staff’s recommendation for a financial incentive mechanism? 9
A. First, Staff is recommending that a financial incentive mechanism incorporate a sliding 10
scale concept, along the lines of what was introduced in Company witness Ykimoff’s 11
testimony. It is recommended that the Company meet at least 100% of their savings target 12
to be eligible for a financial incentive award. Second, Staff does not recommend putting 13
any emphasis on the UCT score other than programs should meet the legislative required 14
UCT score of 1.0 or greater (except for IQ programs). The charts labeled Overall 15
Framework, in exhibits S-1 (KMG-1) and S-2 (KMG-2), represent the percentage of the 16
proposed financial incentive award possible based on the percentage of 1st year savings 17
goal achieved. 18
Q. Why is Staff recommending elimination of the UCT score as a criteria for the financial 19
incentive award? 20
A. Focusing too much on achieving very high UCT scores can result in shallow programs that 21
just focus on the simplest and cheapest measures, and deliver much smaller overall savings. 22
Programs that feature comprehensive measures with deeper savings will tend to have 23
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somewhat lower UCT scores, albeit still cost-effective, and still much cheaper than supply 1
side resources. These relatively higher cost programs tend to be the more robust, longer 2
life measures that have the ability to be a substantial utility system resource and actually 3
displace supply-side investments, and have the ability to make a real difference on reducing 4
a customer’s energy usage and costs. A financial incentive mechanism based even partially 5
on the UCT score would incentivize the Company to pursue low cost, short measure life 6
program offerings. 7
Q. What other criteria is Staff recommending the Commission consider for the purposes of 8
awarding a financial incentive award? 9
A. Staff is recommending the financial incentive award be based partially on the Company 10
implementing a robust IQ program that displays the Company is aggressively promoting 11
healthier building stock while simultaneously reducing the burden of home energy bills for 12
this underserved customer segment. The Company’s efforts applied toward their low- 13
income customers would be reflective of the types of meaningful programs offered, amount 14
of program spend toward this segment, total MWh savings, and number of IQ households 15
served in their service territory. 16
Q. Why does Staff propose utilities be obligated to offer robust IQ programs for Commission 17
consideration of a financial incentive award? 18
A. Act 342 Sec. 71 (4) (a) states, “Propose a set of energy waste reduction programs that 19
include offerings for each customer class, including low-income residential. The 20
commission shall allow a provider flexibility to tailor the relative amount of effort devoted 21
to each customer class based on the specific characteristics of the provider’s service 22
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territory.” Michigan’s poverty rate is at 15.8%1, and because Consumers Energy electric 1
and/or gas service territory includes, at some point, around 67 out of the 68 counties2 in 2
Michigan’s Lower Peninsula, it would be reasonable to assume the specific characteristics 3
of the Company’s service territory would populate IQ at a rate close to the state average of 4
15.8%. Historically, Consumers Energy has attributed around 3% of their electric program 5
spend (2011 through 2016) toward IQ programs, and around 19% of their gas program 6
spend toward IQ programs. This has only equated to about an average of 3% of the 7
Company’s total gas and electric savings target. Staff feels the Company should devote 8
effort toward their IQ programs that is more reflective of Michigan’s low income 9
population average. 10
Q. What percentage of IQ customers and subsequent savings targets are you recommending 11
the Company meet for consideration of a financial incentive award? 12
A. IQ customers are responsible for paying monthly EWR surcharges equal to other 13
residential customers who do not fall in this low income sector. IQ customers spend a 14
much larger percentage of their household income on energy bills not only due to the fact 15
they have a lower monthly income, but also because the housing stock, commonly multi-16
family housing, is usually not as efficient as homes inhabited by residential customers of a 17
higher median income. Staff would like to see a gradual uptick in the IQ target savings 18
until the company has reached an IQ savings percentage equal to the percentage of the low-19
income population in Michigan. Staff recommends that the Company strive for a 3.7% 20
1 https://www.census.gov/quickfacts/fact/table/MI/HSG030210
2 https://www.consumersenergy.com/company/what-we-do/service-territories
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annual increase from previous years, as a percentage to their total portfolio savings goal, 1
in their electric IQ savings for the 4 year duration of this plan. Correspondingly, Staff is 2
recommending a 2.81% annual increase from previous years, as a percentage to their total 3
portfolio savings goal, in their gas savings for IQ programs annually throughout the 4
program plan of 4 years. These annual incremental increases would bring the IQ program’s 5
savings projections closer to a proportionate level of the low income population percentage 6
in the state. The gradual annual uptick will allow the Company to make the changes 7
necessary to build a more robust and meaningful IQ program, and the elimination of 8
collection and spending caps will insure no disruption to other sector program offerings. 9
Exhibits S-1 (KMG-1) and S-2 (KMG-2), detail the percentage increases required for both 10
the electric and gas savings goal for IQ programs under Component 2. The increase in IQ 11
savings for electric programs is based on a starting point of the average IQ savings achieved 12
as a percent of total savings from the Company’s annual reports 2014, 2015, and 2016. 13
Similarly, the gas savings increase is also based on a starting point of the average IQ 14
savings achieved as a percent of total savings from the Company’s annual reports 2014, 15
2015, and 2016. Each year these increases should be graduated by 3.7% for electric, and 16
2.81% for gas on a sliding scale method in line with the Tiers for both Overall Framework 17
and Component 1. By the end of 2021, the Company should be implementing IQ programs 18
for their customers which will provide 15.8% of their total program portfolio savings. 19
Q. What other recommendations does Staff have regarding qualitative measures for 20
consideration of a financial incentive award? 21
A. The second recommendation Staff has regarding a qualitative measure for consideration of 22
a financial incentive award is an overall portfolio lifetime savings goal. 23
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Q. Why does Staff insist it is important for the Company to have a lifetime savings goal? 1
A. There are several reasons for encouraging long-lived EWR measures that deliver strong 2
lifetime savings. First and foremost, if EWR programs are to be a real utility system 3
resource, then it will be necessary to achieve substantial, enduring energy efficiency 4
measures capable of reliably displacing other supply resources over the planning period. 5
Second, a strong lifetime savings goal will provide programs that would allow customers 6
to reduce their energy waste for a prolonged period of time. Short lifetime measures can 7
have an immediate impact on a customer’s bill, but it’s the long life measures that 8
incorporate multiple home or business efficiency measures or whole home retrofits that 9
provide much deeper and more enduring cost savings for customers. Finally, Staff notes 10
that PA 342 established an important goal for Michigan of having energy waste reduction 11
and renewable energy provide 35% of Michigan’s electric needs by 2025. Therefore, it is 12
appropriate and important to incentivize EWR measures that will, at a minimum, still be 13
providing energy savings in 2025. 14
Q. How are lifetime savings goals calculated? 15
A. Lifetime savings goals can be calculated simply by taking the average measure life of the 16
Company’s entire program portfolio and multiply it by the 1st year’s savings goal. But, a 17
more accurate calculation would be to take each measure anticipated to be installed, 18
multiply it by its actual measure life and then summate those figures. Once you have those 19
figures you will have the true portfolios lifetime savings goal. 20
Q. Which method does staff prefer? 21
A. Staff prefers the latter as it is a true reflection of the actual savings the Company’s 22
customers would realize from EWR programs throughout the lifetime of the measures they 23
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have implemented in their homes and businesses. This method should also be utilized to 1
calculate the actual lifetime savings achieved. Both first year savings and lifetime savings 2
should be adjusted by the appropriate Net to Gross (NTG) value and according to the post 3
evaluation, measurement and verification (EMV) process. 4
A. What lifetime savings goal is Staff recommending the Company meet for both their electric 5
portfolio and gas portfolio? 6
A. Staff is recommending the company base their minimum lifetime savings goal on a basis 7
of an average over the previous year’s average weighted measure lives times the projected 8
1st year savings for the future program year. For the Company’s program year’s 2014 9
through 2016 the electric program has had an average measure life of 13.34 years. The 10
Company’s gas programs have had an average measure life of 12.55 years for the same 11
time period. Staff recommends these figures be the beginning point, or “status quo” 12
figures. If the programs anticipate reaching at least the statutory required 1.0% savings, or 13
332,600 MWh for program year 2018, this equates to a minimum lifetime savings goal of 14
4,436,884 MWh for program year 2018. The 4,436,884 would represent 100% of the 15
lifetime savings goal indicated on Exhibit S-1 (KMG-1), under Component 1. In the 16
Company’s plan, the gas program has a 1st year’s savings target at 0.75%, or 1,923,737 17
Mcf. This would equate to a lifetime savings goal of 24,142,899 Mcf for 2018. To reach 18
the 3rd tier of the incentive award of Component 1, the Company would need to achieve 19
150% of these starting goals. Subsequent years would utilize the next projected 1st year 20
savings goal reported in the plan for 2019, 2020, and 2021; or updated savings goals 21
reported in annual reconciliations based on actual sales. The actual end of the year lifetime 22
savings goal should be calculated using the actual 1st year savings per measure times the 23
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measure life. These lifetime savings starting points are not what Staff would consider 1
“stretch” goals, but are representative of similar lifetime savings goals the Company has 2
been able to reach in the past. These lifetime savings goals would ensure the Company is 3
continuing to offer a program portfolio inclusive of the valued long life measures which 4
provide the customer benefits discussed above. 5
Q. Are there other qualitative measures that Staff would recommend for the approval of a 6
financial incentive award? 7
A. Not at this time. We are open to hearing proposals for additional metrics from other parties, 8
but believe the two metrics we have outlined here are the most important and should be a 9
part of any approved mechanism. Staff maintains implementing these two very important 10
requirements from the Company for consideration of a financial incentive award would (a) 11
help the Company’s EWR programs realize their potential as a utility system resource, and 12
(b) help create robust program offerings for all of its customers - including those 13
households that fall at or below low-income levels. Staff would like the option to reassess 14
these qualitative metrics during the Company’s future biennial plan filings. Allowing 15
future assessment of this mechanism will provide assurance the specified metrics and the 16
financial incentive award are in fact working as designed, and that the Company is 17
proactively working toward utilizing EWR as a resource and achieving the important 18
benefits from EWR programs envisioned in the Act. 19
Q. Does Staff believe these qualitative measures along with the increased annual savings goal 20
are attainable for the Company? 21
A. Yes. Staff ascertains the Company is capable of putting forth the necessary effort to attain 22
these objectives. Historically, the Company has been able to meet and/or exceed the 23
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legislative target along with the qualitative measures required of them to receive full 1
financial incentive payments since 2009 when they began the implementation of the energy 2
efficiency programs required by PA 295. With the enactment of Act 342, both spending 3
and collection caps were removed. This allows the Company to pursue all means possible 4
to reach these EWR goals. As long as EWR is the least cost option, the Company should 5
pursue the greatest amount of EWR in concert with other supply-side energy resources to 6
allow for provision of reliable energy for the needs of the citizens and businesses of 7
Michigan at a reasonable cost. 8
Q. Does this conclude your testimony? 9
A. Yes. 10
309
September 25, 2017
S T A T E OF M I C H I G A N
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
* * * *
In the matter of the application of ) Case No. U-18261
CONSUMERS ENERGY COMPANY )
for Approval of its 2018 - 2021 Energy )
Waste Reduction Plan )
__________________________________________)
REBUTTAL TESTIMONY OF
KAREN M. GOULD
MICHIGAN PUBLIC SERVICE COMMISSION
310
REBUTTAL TESTIMONY OF KAREN M. GOULD
CASE NUMBER U-18261
2
Q. Please state your name and business address. 1
A. My name is Karen M. Gould. My business address is 7109 W. Saginaw, Lansing, 2
MI 48917. 3
Q. Are you the same Karen M. Gould who presented direct testimony in this case 4
regarding the Financial Incentive Mechanism Calculation for the Company’s 5
electric Energy Waste Reduction Plan? 6
A. Yes. 7
Q. What is the purpose of your rebuttal testimony? 8
A. The purpose of my rebuttal testimony is to rebut a portion of the testimony of Mr. 9
Chris Neme regarding the introduction a secondary metric related to peak demand 10
savings 11
Q. What does Mr. Neme’s testimony state? 12
A. Mr. Neme’s testimony states: 13
“Shareholder incentive mechanism: The Company’s proposal to shift from multiple 14
performance metrics with a primary focus on lifetime savings to a single metric 15
focused on just first year savings will create perverse incentives and undermine 16
Michigan’s long term efficiency goals. The Commission should instead require 17
that the Company (1) retain lifetime savings as its primary performance metric; 18
and (2) include secondary metrics related to comprehensive treatment of energy 19
savings opportunities in low income single family homes and multi-family 20
buildings, the level of savings from small businesses and peak demand savings to 21
ensure that there is adequate attention to all key state efficiency objectives.” 22
23
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REBUTTAL TESTIMONY OF KAREN M. GOULD
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3
Q. What is your concern regarding Mr. Neme’s testimony? 1
A. Staff credits peak reduction savings as a valuable result of some energy waste 2
reduction measures and programs. But, staff holds firm that the electric incentive 3
mechanism introduced in my direct testimony is the most prudent and effective 4
way to incentivize the Company to implement robust and meaningful energy 5
efficiency measures and programs that align with the objectives of Act 342 6
regarding energy waste reduction. 7
Q. Why does staff dispute the introduction of the metric regarding peak demand 8
savings at this time? 9
A. Staff believes that Public Act 341 of 2016 (Act 341) effectively addresses demand 10
response (DR), load management and the reduction of peak demand. Act 341, 11
along with the provisions for reducing the annual demand for energy, requires all 12
rate regulated utilities to not only include their load management efforts within 13
their integrated resource plans (IRP’s), but also allows for recovery of costs for 14
these load management programs. Annual reports and reconciliations for these 15
programs will be submitted in concert with EWR annual reports and 16
reconciliations. 17
Q. Are there other reasons for not including a peak demand savings metric? 18
A. Yes. The Commission recently issued an order (September 15, 2017 in docket U-19
18369) which approved a process for addressing demand response issues for 20
electric utilities. In this order, the Commission approved a separate three-phase 21
framework for addressing demand response resources. This framework 22
recognizes not only the timing gap between the early 2019 required IRP filing by 23
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4
proposing a separate reconciliation process for demand response costs, but also 1
acknowledges the potential for double recovery of costs for programs which span 2
multiple dockets (page 9). In addition, the Commission agreed that appropriate 3
financial incentives may be proposed for commission consideration as part of 4
these proceedings (page 10). In light of this recently established DR framework, 5
Staff believes that the metric rewarding lifetime peak demand reduction savings 6
achieved as a result of EWR programing is more appropriately evaluated within 7
the context of the DR framework process than in a EWR case. 8
Q. Does Staff believe peak reduction is a component of EWR? 9
A. Yes, Staff believes there are certain measures and programs which have an 10
associated peak demand reduction. While Staff confers peak demand reduction is 11
a positive result from some EWR programs and measures, Staff opines this is an 12
objective of Act 341 and will be handled appropriately within that framework. 13
These two programs can be intertwined at times, a separation of the reporting and 14
outcomes from both activities will be required to meet separate specific goals. 15
Q. Does this conclude your rebuttal testimony? 16
A. Yes. 17
18
313
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 2018 – 2021 Energy )
Waste Reduction Plan . ) Case No. U-18261
)
QUALIFICATIONS AND DIRECT TESTIMONY OF
DAVID S. WALKER
MICHIGAN PUBLIC SERVICE COMMISSION
September 11, 2017
314
QUALIFICIATIONS OF DAVID S. WALKER
CASE NUMBER U- 18261
PART I
1
Q. Please state your full name and business address for the record. 1
A. My name is David S. Walker and my business address is 7109 W. Saginaw Highway, 2
Lansing, Michigan 48909. 3
Q. By whom are you employed and in what capacity? 4
A. I am employed by the Michigan Public Service Commission (MPSC) as a Public Utilities 5
Engineer in the Energy Waste Reduction Section of the Electric Reliability Division, 6
providing staff assistance as the MPSC fulfills regulatory responsibilities under Public Act 7
295 of 2008 as amended by Public Act 342 of 2016 (Act 295). 8
Q. What is your educational and professional background? 9
A. I earned a Bachelor of Science in Civil Engineering from Michigan State University. I 10
have held a Professional Engineering license from the State of Michigan continuously since 11
2001. From 1995 until 2000, I was the Assistant City Engineer for the City of South Haven, 12
Michigan. From 2000 through 2008, I was a Project Engineer at a private civil engineering 13
firm. I joined the MPSC Staff in 2008, and have since completed the Regulatory Studies 14
Program of the Institute of Public Utilities. 15
Q. What are your responsibilities in your current position? 16
A. My duties include: serving as case coordinator and providing engineering review and 17
analysis of energy efficiency filings to determine compliance with Act 295; assisting 18
managers in preparation of written expert testimony and briefs; filing testimony; assisting 19
the manager of the contract for the state-selected administrator (Efficiency United) of 20
utility energy optimization programs; serving as Chair of the EWR Collaborative Program 21
Design and Implementation Workgroup; and serving as Chair of the MEMD Technical 22
Subcommittee. These duties will continue to expand as we implement 2016 PA 342 and 23
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QUALIFICIATIONS OF DAVID S. WALKER
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PA 341, including support for providers, determination of statewide integrated resource 1
planning parameters, initiating rule making for residential on-bill financing for rate 2
regulated utilities, and implementing Energy Waste Reduction (EWR) (formerly Energy 3
Optimization (EO)) program changes. 4
Q. Have you previously testified before the Commission? 5
A. Yes. I have filed testimony in: U-15890-EO-A, The Detroit Edison Company’s energy 6
optimization (EO) plan amendment in 2010; U-16671, the Detroit Edison Company’s EO 7
biennial review; U-16730, Michigan Consolidated Gas Company’s EO biennial review; U-8
16302, Consumers Energy Company’s 2009 EO plan reconciliation; U-17050, Michigan 9
Consolidated Gas Company’s amended EO plan; U-17762, DTE Electric Company’s 10
amended EO plan; U-17763, DTE Gas Company’s amended EO plan; and U-18824, Upper 11
Michigan Energy Resources Corporation Certificate of Necessity.12
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DIRECT TESTIMONY OF DAVID S. WALKER
CASE NUMBER U- 18261
PART II
3
Q. What is the purpose of your testimony? 1
A. The purpose of my testimony is to provide recommendations regarding the reasonableness 2
of the energy waste reduction (EWR) plan for 2018-2021 filed by Consumers Energy 3
Company (Consumers or Company) to comply with 2008 Public Act (PA) 295 (Act 295), 4
as amended by 2016 PA 342. 5
Q. Are you sponsoring any exhibits? 6
A. Yes, I am sponsoring the following exhibits which were prepared by me: 7
Exhibits Description 8
Exhibit S-3 (DSW-1) Company work paper, WP-TAY-1, provided in 9
discovery response 18261-NRDC-CE-17 10
Exhibit S-4 (DSW-2) Company audit response to question 7, 8/02/17 11
Exhibit S-5 (DSW-3) Home Energy Report Annual Savings & Total 12
Investments 13
Exhibit S-6 (DSW-4) Company discovery response, 18261-NRDC-CE-15 14
Exhibit S-7 (DSW-5) Company discovery response, 18261-NRDC-CE-45 15
16
Q. Does Staff believe the Company 2018 – 2021 EWR plan is reasonable? 17
A. Not entirely. Staff will provide recommendations in three areas: 1) cost allocation design, 18
2) behavior programs and 3) pre-pay pilot program. 19
20
COST ALLOCATION 21
Q. What significant change to the cost allocation method has been proposed by the company? 22
A. The company has proposed to increase investments, over 2017 levels, in programs for 23
commercial and industrial (C&I) customers but collect the extra revenue needed for the 24
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investment, in large part, from increased surcharges to residential customers. As shown in 1
company Exhibit A-14 (TAY-3), the increased C&I electric investment over the four plan 2
years totals $147.7 million1, with $118.0 million2 of that investment being charged to the 3
residential customer class. Corresponding gas plan values are $29.9 million3 of increased 4
C&I program investments over the four plan years, with $9.1 million4 of this charged to 5
the residential class. Exhibit A-15 (TAY-4). 6
Q. How does the company justify this cost allocation method? 7
A. The company implies that the cost of conserved energy for C&I programs is less than that 8
of the residential programs, therefore it is a better option to invest more heavily in C&I 9
programs than residential programs, thereby increasing system benefits that benefit all 10
customers at a reduced cost. Witness Ykimoff further testifies on page 15 “By allowing 11
the Company to optimize (emphasis added) the recovery of its investments in energy waste 12
reduction, it can continue to offer both residential and business customers a comprehensive 13
set of programs but at a much lower total cost.” 14
Q. Does Staff agree that recovery “optimization” is a valid rationale for shifting costs from 15
C&I to residential customers? 16
A. No. Optimizing implies that there is a constraint to be met. However, 2016 PA 342 (PA 17
342) lifted the collection caps that were previously imposed by 2008 PA 295 (PA 295), 18
1 Exhibit A-14 (TAY-3) Found by summing the business values, line 2, column c, pages 1-4: 39,095,624 + 35,315,266
+ 36,197,613 + 37,104,870 = 147,713,373. 2 Exhibit A-14 (TAY-3) Found by summing the residential values, line 1, column e, pages 1-4: 36,361,348 +
28,280,122 + 27,189,225 + 26,124,972 = 117,955,667. 3 Exhibit A-15 (TAY-4) Found by summing the business values, line 2, column c, pages 1-4: 7,274,301 + 7,395,470
+ 7,519,274 + 7,708,478 = 29,897,523. 4 Exhibit A-15 (TAY-4) Found by summing the residential values, line 1, column e, pages 1-4: 2,432,462 + 2,324,885
+ 2,227,645 + 2,133,092 = 9,118,084.
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therefore, there is not a legislated maximum budget for EWR programs in general, nor for 1
C&I in particular, that needs to be optimized. The Company may spend as much as is 2
reasonable, prudent, and cost-effective to obtain the increased system benefits it seeks 3
through the increased C&I program funding, without shifting costs to residential 4
customers. In other words, the Company may spend the proposed increase of $147.7 5
million on C&I programs, collect it from C&I customers instead of the residential 6
customers, and obtain the same system benefits while not increasing the total cost of the 7
savings achieved. While it is admirable to seek to reduce costs, any C&I budget limit is 8
self-imposed. 9
Q. Which C&I programs will be expanded under the proposed EWR plan? 10
A. The majority of the additional investments are earmarked for the Business Solutions 11
program, which is a collection of 13 different C&I sub-programs. The Company does not 12
individually monitor the cost effectiveness of each sub program, nor provide information 13
on the allocation of funds within the Business Solutions program. 14
Q. How are Residential programs expanded under the proposed EWR plan? 15
A. Various smaller incremental spending adjustments were made to residential programs 16
relative to previous plan spending levels. However, the low-income program spending was 17
not increased. 18
Q. How did the Company determine how much of the cost to shift to the residential class? 19
A. The Company calculated the expected first year savings expected from the program 20
adjustments to the C&I and R classes and converted these into lifetime savings, which 21
yielded a cost of conserved energy (CCE) rate ($/kWh) at the program level and class level. 22
The Company then indicates that because the residential class has a higher cost of 23
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6
conserved energy compared to the C&I (business) class, this difference equates to a net 1
benefit to the residential class. The Company then applied the cost of conserved energy 2
for the business class to the incremental lifetime savings from the incremental program 3
expansions in the business class and labeled this the “residential avoided program costs.” 4
This is the amount of the business class costs shifted to the residential class. 5
Q. Did Staff find a problem upon reviewing the “residential avoided program costs” 6
calculation? 7
A. Yes. The CCE values used in the Company’s example (Ykimoff, page 15) to illustrate that 8
residential programs cost more, compared to C&I programs, to yield the same kWh savings 9
are not representative of the Company’s total portfolio. These CCE values, $0.025 per 10
kWh for residential and $0.012 per kWh for business, are derived in WP-TAY-1 (Exhibit 11
S-3 (DSW-1)) by selectively using only three residential programs and one business 12
program, which the Company used to imply a $0.013 higher cost of conserved energy for 13
residential programs. However, the Company shows on page 11, Exhibit A-13, Table ES-14
6, that the actual values are $0.014 for the entire residential portfolio and $0.013 for the 15
entire business portfolio. The Company’s implication that business programs can deliver 16
system benefits “at half the cost” of residential programs is, therefore, misleading. Using 17
the actual difference of $0.001, there is no justification for a cost reallocation of the 18
magnitude envisioned by the Company, if any at all. Furthermore, it is not appropriate to 19
allocate business program costs to the entire residential class, including low-income 20
ratepayers, based on the cost comparison of a select few residential programs to a select 21
business program. For example, selectively comparing a single high cost business program 22
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7
to three low cost residential programs would yield a conclusion, contrary to the Company’s, 1
that residential costs should be reallocated to the business class. 2
Q. Does the Company’s proposed cost allocation method satisfy Sec. 71 (4)(d) of Act 295? 3
A. No. That section requires that an EWR plan “Ensure, to the extent feasible, that charges 4
collected from a particular customer rate class are spent on energy waste reduction 5
programs that benefit that rate class” (emphasis added). The success of EO/EWR programs 6
since 20095, clearly indicate that it is currently feasible to utilize surcharges collected from 7
each rate class to fund programs for that rate class, which the Company referred to as status 8
quo, and should continue unless it can be shown that it is infeasible to do so. The 9
emphasized phrase is recognition that absolute compliance may not be possible with 10
overlapping implementation and administration costs, therefore, giving some leeway in 11
tracking costs and allocating benefits. However, it should not be taken as broad permission 12
to shift funds to a customer class that does not receive the direct benefit of additional 13
programs in which that customer class may participate, as is proposed by the Company. 14
Q. What are the surcharge impacts of the Company’s proposed cost allocation method on 15
residential customers? 16
A. Under the status quo method, a residential customer using 673 kWh per month would see 17
a surcharge decrease of $0.04, whereas the Company’s proposal results in an increase of 18
$2.14 per month. See Exhibit S-4 (DSW-2). The currently approved surcharge for the 19
same customer is $1.97 per month (673 * 0.00292, per U-17771). Therefore, the proposed 20
surcharge more than doubles for the residential customers, including the low-income class, 21
5 Consumers and DTE have surpassed not only the EO/EWR savings standard, but have exceeded the energy savings
required to earn maximum financial incentives in 2009 – 2015, with similar results pending approval for 2016.
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for which increases may be more detrimental because energy bills are typically a higher 1
proportion of income. Again, these increases will come with no additional residential or 2
low-income programming. 3
Q. What is Staff’s recommendation regarding cost allocation? 4
A. Staff recommends continuation of the status quo method of allocation of costs to the rate 5
class receiving the EWR programs. 6
7
BEHAVIOR PROGRAMS 8
Q. How are educational programs used in EWR programs? 9
A. Educational programs deliver information to customers about their energy use, the benefits 10
of using less energy, and methods to accomplish lower energy use. The premise is that this 11
information will equip and motivate customers to use energy more efficiently. 12
Q. What is a home energy report (HER)? 13
A. A very common educational program involves sending a HER to customers informing 14
them of their energy use, how it compares to similar customers, and various ways to lower 15
their energy use. The comparison to other customers is thought to elicit competition and 16
drive behavioral changes in energy consumption. 17
Q. How are HERs and other behavioral measures different from traditional energy efficiency 18
measures? 19
A. One difference is the lack of the “persistence” of energy savings from behavior programs. 20
Traditional measures include devices, equipment, structures, or retrofits whose installation 21
results in more efficient energy use lasting as long as the useful life of the product. HERs 22
are designed to motivate changes in a customer’s energy use behavior, but energy savings 23
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rely on the continued encouragement the customer receives via the report, such that if the 1
reports stop, the energy savings will decline or cease altogether. The EWR Collaborative6 2
recognized this lack of persistence in savings and reached agreement that, unlike traditional 3
measures, behavioral programs must be evaluated annually. 4
Q. Are there other differences? 5
A. Yes. Traditional measures involve the sale and installation of purchased goods, which 6
results in economic activity and jobs creation within the state, as envisioned in Act 295 7
Section 1(2)(c) which states that one of the purposes of the act is to “Encourage private 8
investment in renewable energy and energy waste reduction.” Behavior changes do not 9
encourage private investment in energy waste reduction. 10
Q. Are there limitations currently placed on educational programs? 11
A. Yes. Section 71(5)(a) stipulates that EWR plans may reasonably “Utilize educational 12
programs designed to alter consumer behavior…” to meet the goals of the act. However, 13
the act then limits the expenditures with Section 71(6), stating “Expenditures under 14
subsection (5) shall not exceed 3% of the costs of implementing the energy waste reduction 15
plan.” 16
Q. What other guidance pertains to educational programs? 17
A. The December 4, 2008 Temporary Order in U-15800 (Temporary Order) contained 18
provisions for all initial energy optimization plan filings, including the statements on pages 19
6 and 7 of Attachment E that “Up to three percent of the…budget may be used for the cost 20
of…education programs” and “These budget funds will be deemed to generate a 21
6 The EWR Collaborative is a group of PA 295 stakeholders, formed pursuant to MPSC orders in cases U-15805, May
26, 2009, and U-15806, June 2, 2009 to provide program evaluation support.
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proportional amount up to three percent of the required energy savings for the program 1
year during which the money was spent.” And in the March 28, 2017 order, Case No. U-2
18260 et. al (page 8-9), the Commission reiterated the limitation on program spending for 3
behavior programs and provided a caution that “providers should nevertheless be mindful 4
that the 3% limitation on spending for educational/behavioral programs continues and that 5
significant reductions in low-income program funding could render a plan unreasonable 6
under MCL 460.1073(2)(d).” 7
Q. Are HERs included in the Company’s EWR Plan? 8
A. Yes, the Company plans to distribute HERs to approximately 800,000 customers per year. 9
Exhibit A-13 (Pages 190, 191). Savings expected from this program will amount to 32.5% 10
of the Company’s residential electric portfolio and 20% of the residential gas portfolio, as 11
shown in Exhibit S-5 (DSW-3). 12
Q. Please discuss Staff’s opinion of the reasonableness of the percentage of behavior-based 13
educational programs in the Company’s residential EWR plan. 14
A. The Temporary Order’s provision to deem a proportional amount of savings (up to 3%) 15
based upon spending on educational programs designed to alter customer behavior, was a 16
reasonable, pragmatic solution to attributing savings to various, incidental elements that 17
would be considered educational components of an EWR program, yet which provide 18
benefits that are impractical to measure. However, imposing a 3% savings limit would 19
seem to be an unreasonable limitation on behavior programs currently in place with an 20
established means to measure the resulting savings. Home energy reports have been 21
evaluated annually for five years as part of Michigan EWR programs, and will continue to 22
be, per guidance of the EWR Collaborative. While Staff continues to have concerns that 23
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these evaluations can be improved and/or supplemented, the underlying methods are well 1
established. Therefore, a 3% limit on the savings contributed from these programs seems 2
impractically low. Conversely, it does seem appropriate to place a limit on the proportion 3
of savings from programs rooted in human behavior for two main reasons. First, as stated 4
earlier, behavior programs do not share the same characteristics of more traditional 5
measures such as installation of physical measures with energy efficient properties, job-6
creating benefits created by employing contractors for installation of physical measures, 7
and longer term persistence that does not require annual evaluation. Second, Staff sees 8
benefit in maintaining a diverse portfolio in order to provide all customers a greater 9
opportunity to participate. Customers have varying needs, interests, and budgets, therefore, 10
portfolios that offer more variety in programs and energy efficient measures offerings will 11
reach more customers. Staff is concerned the current proportion of savings from these 12
programs, already at 32.5% of the Company’s residential electric portfolio and 20% of the 13
gas portfolio, is unreasonable, and any expansion, more so. If the Company were to 14
increase spending to the 3%, from the current 2%, of the total portfolio spending limit 15
imposed by Section 71(6), this may result in the proportion of residential savings increasing 16
to nearly 50% of the residential electric savings goal and 30% of the gas savings goal, 17
reducing the need for the other program offerings that provide longer term and more 18
diverse benefits. 19
Q. What is Staff’s recommendation for limiting the proportion of residential behavior-based 20
education programs? 21
A. Staff feels it reasonable to limit the proportion of savings to 15% of the residential portfolio. 22
This would require a reduction in the Company’s current electric portfolio of behavior 23
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programs to nearly 50% of the difference between 3% and 32.5%. The reduction in 1
behavior programs for the gas portfolio would be roughly 25% below where it is now. 2
This recommendation represents a reasonable compromise between the current high level 3
of 32.5% of residential electric savings attributed to behavior programs, and the very low 4
3% provision in the Temporary Order. The staff recommendation for a smaller decrease in 5
behavior programs for the gas portfolio acknowledges that it is typically less cost effective 6
and more challenging to obtain savings. 7
Q. Does Staff have any other concerns regarding behavior-based programs? 8
A. Yes, Staff believes it is appropriate to measure the benefit-cost ratio of these programs by 9
considering the required ongoing, annual evaluation expenditures to verify savings as part 10
of the program cost and including them in the calculation, rather than including these 11
expenditures in the overall evaluation budget. Leaving these costs in the overall budget 12
unfairly inflates the Utility Cost Test (UCT) results of the behavior-based programs. 13
Q. Does Staff have additional concerns with the heavy weighting of behavior programs in the 14
residential portfolio of programs? 15
A. Yes. Additionally, the aforementioned lack of a physical installation and persistence raises 16
concerns that behavior-based programs may not fulfill the long-term resource planning 17
requirements of the upcoming Integrated Resource Planning (IRP) process imposed by 18
2016 PA 341, nor the goal set by 2016 PA 342, Section (3), to meet not less than 35% of 19
the state’s electric needs, by 2025, with a combination of renewable energy and energy 20
waste reduction. For this reason, the limits suggested above should continue to be revisited 21
in future proceedings. 22
23
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PRE-PAY PROGRAM 1
Q. Does Staff support the Company’s prepay program, Pay My Way, in which customers pay 2
up front for the amount of energy they can afford and purchase more when needed, if 3
operated as a residential pilot program? 4
A. Yes. In the prepay program, residential customers would opt-in and pay upfront for a 5
specified amount of energy and purchase more when needed, so it is reasonable to expect 6
that these customers would be motivated to use energy more efficiently in order to make 7
the energy purchase last longer. It is therefore appropriate to explore the nature and amount 8
of the savings in a pilot program. As a pilot program the Company would be able to claim 9
the stipulated savings amount, in proportion to the pilot’s budget, per the Temporary Order, 10
which set a maximum of five percent of the EWR standard for the entire pilot portfolio. 11
Q. Would Staff support moving a prepay program to full-program status and allowing the 12
Company to claim 100% of the energy savings, as described in the discovery response 13
18261-NRDC-CE-15? Exhibit S-6 (DSW-4). 14
A. No, Staff is not convinced 100% of the energy savings resulting from prepay programs are 15
attributable to energy efficiency. As part b of the discovery question suggests, it is also 16
reasonable to expect that some of the energy savings would derive from customers 17
sacrificing services and/or comfort due to lack of funds. Indeed, this would be a logical 18
result of a program in which the Company expects a significant portion of participants will 19
be “those having difficulty paying their monthly energy bills.” 18261-NRDC-CE-45, 20
included here as Exhibit S-7 (DSW-5). A reasonable and accurate determination would 21
have to be made of the relative weight of the different drivers of energy use reduction 22
before a prepay program should be included in energy waste reduction portfolios. Staff 23
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recommends the Company withhold full-program status for a prepay program until the 1
findings of the pilot can be presented in a future plan amendment proceeding or the EWR 2
Collaborative MEMD update process, whichever is appropriate for the savings method 3
proposed. Given the potential for a pre-pay program to disproportionately impact low-4
income customers, Staff would be interested in an independent evaluation and analysis of 5
this issue. 6
Q. What is the final Staff recommendation? 7
A. Staff recommends the Commission determine the plan to be reasonable as revised by Staff 8
witnesses. 9
Q. Does that conclude your testimony? 10
A. Yes. 11
12
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1 JUDGE MACK: Anything else, Ms. Stephens,
2 for Staff?
3 MS. STEPHENS: No, your Honor. Thank
4 you.
5 JUDGE MACK: Thank you.
6 Prior to closing the record, is there
7 anything from the Company?
8 MR. GENSCH: No, your Honor.
9 JUDGE MACK: NHT?
10 MS. BARBASH-RILEY: No, your Honor.
11 JUDGE MACK: Mr. Bzdok?
12 MR. BZDOK: I just want to make sure the,
13 how the brief deadline is going to jive with the public
14 availability of the transcript.
15 JUDGE MACK: Let's go off the record.
16 (At 11:32 a.m., a discussion was held off the
17 record.)
18 JUDGE MACK: We're back on the record.
19 Mr. Bzdok, while we were off the record, there was some
20 discussion that perhaps the post-hearing schedule may be
21 modified, the parties will discuss that matter.
22 Is there anything else, Mr. Bzdok?
23 MR. BZDOK: No, sir.
24 JUDGE MACK: Thank you. Mr. Gallagher,
25 anything on behalf of ABATE?
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1 MR. GALLAGHER: No, sir. Thank you.
2 JUDGE MACK: Thank you. And
3 Ms. Stephens, anything on behalf of Staff?
4 MS. STEPHENS: No, sir.
5 JUDGE MACK: Thank you. I'd like to
6 thank the parties for their time and attendance today,
7 and we will close this record.
8 (At 11:35 a.m., the hearing concluded.)
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1
2 C E R T I F I C A T E
3
4 I, Lori Anne Penn (CSR-1315), do hereby
5 certify that I reported in stenotype the proceedings had
6 in the above-entitled matter, that being Case No.
7 U-18261, before Dennis W. Mack, J.D., Administrative Law
8 Judge with Michigan Administrative Hearing System, at the
9 Michigan Public Service Commission, 7109 West Saginaw
10 Highway, Lansing, Michigan, on Wednesday, October 4,
11 2017; and do further certify that the foregoing
12 transcript constitutes a true and correct transcript of
13 my stenotype notes.
14
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17 ______________________________________
18 Lori Anne Penn, CSR-1315
19 33231 Grand River Avenue
20 Farmington, Michigan 48336
21
22
23 Dated: October 5, 2017
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