david s. maquera @dteenergy
TRANSCRIPT
September 17, 2014
Ms. Mary Jo Kunkle Acting Executive Secretary Michigan Public Service Commission 4300 W. Saginaw Highway Lansing, Michigan 48917
Re: In the matter of the Application of DTE Electric Company for Authority to Implement a Power Supply Cost Recovery Plan In Its Rate Schedules for 2014 Metered Jurisdictional Sales of Electricity MPSC Case No. U-17319 (Paperless e-file)
Dear Ms. Kunkle:
Attached for electronic filing is DTE Electric Company’s Initial Brief, in the above captioned matter. Also attached is a Proof of Service.
Very truly yours, David S. Maquera DSM/lah Encl. c: Service List
DTE Electric Company One Energy Plaza, 688 WCB Detroit, MI 48226-1279
David S. Maquera (313) 235-3724 [email protected]
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the Application of ) DTE ELECTRIC COMPANY for ) Authority to Implement a Power Supply ) Case No. U-17319 Cost Recovery Plan in its Rate Schedules ) For 2014 Metered Jurisdictional Sales ) Of Electricity. ) )
DTE ELECTRIC COMPANY’S
INITIAL BRIEF Dated: September 17, 2014
TABLE OF CONTENTS
I. INTRODUCTION ................................................................................................................. 1
A. HISTORY OF PROCEEDINGS ...................................................................................1
B. OVERVIEW OF DTE ELECTRIC’S DIRECT TESTIMONY AND EXHIBITS .....................................................................................................................2
C. OVERVIEW OF INTERVENORS’ TESTIMONY ......................................................4
D. OVERVIEW OF DTE ELECTRIC’S REBUTTAL TESTIMONY AND EXHIBITS .....................................................................................................................5
II. DISCUSSION ........................................................................................................................ 7
A. APPLICABLE STANDARD FOR “REASONABLENESS AND PRUDENCE” .................................................................................................................7
B. DTE ELECTRIC’S PSCR PROPOSALS SHOULD BE APPROVED BECAUSE THEY ARE REASONABLE AND PRUDENT, CONSISTENT WITH ACT 304, AND LARGELY UNREBUTTED. ..................................................9
1. The Company’s Load Forecast. ............................................................................9
2. The Company’s System Operation. ......................................................................9
3. The Company’s Transmission and MISO Expenses. .........................................13
4. The Company’s Fuel Supply Plan. .....................................................................15
5. The REF Project. .................................................................................................19
6. The Company’s Mercury, Particulate Matter, and Acid Gas Emission-Related Expense for 2015 and Thereafter. ..........................................................25
7. The Company’s Proposed PSCR Factor. ............................................................29
8. The Nuclear Waste Fee. ......................................................................................30
III. RELIEF REQUESTED ........................................................................................................ 30
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I. INTRODUCTION A. HISTORY OF PROCEEDINGS On September 30, 2013, DTE Electric Company (“DTE Electric,” the “Company,” or
“Applicant”)1 filed an application requesting authority to implement a power supply cost
recovery (“PSCR”) Plan and PSCR factors, in accordance with 1982 PA 304, MCL 460.6j et seq
(“Act 304”), in its rate schedules for metered jurisdictional sales of electricity for the 12-month
period ending December 31, 2014. The Company’s filing also included a reasonable and prudent
5-year forecast. DTE Electric seeks Commission approval to include a maximum PSCR Factor
of 1.00 mill per kilowatt-hour (“kWh”) in customers’ bills.
On November 21, 2013, a prehearing conference was conducted by Administrative Law
Judge Sharon L. Feldman (the “ALJ”), who granted petitions to intervene filed by the
Association of Businesses Advocating Tariff Equity (“ABATE”), Attorney General William D.
Schuette (“Attorney General” or “AG”), the Great Lakes Renewable Energy Association
(“GLREA”), and the Michigan Environmental Council and Sierra Club (collectively
“MEC/SC”). The Commission Staff (“Staff”) also participated in the proceedings. The ALJ
heard objections to the Institute for Energy Innovation’s (“IEI”) petition to intervene, and
granted IEI two weeks to file an amended petition (1 T 53).
On December 4, 2013, IEI filed an amended petition to intervene. On December 13,
2013, DTE Electric and the AG filed objections. On December 16, 2013, a second hearing was
held, at which DTE Electric and the AG maintained their objections. The Staff also expressed
concerns. The ALJ granted permissive intervention to IEI (1 T 93).
1 Effective January 1, 2013, The Detroit Edison Company changed its legal name to DTE Electric Company. For simplicity, all non-historical references to the Company will use its current name.
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Subsequently, DTE Electric, the AG and Staff applied for leave to appeal the ALJ’s
ruling. On March 6, 2014, the Commission issued an Order granting the applications for leave to
appeal. The Commission allowed permissive intervention by IEI, but emphasized that its
decision was not an invitation to expand the narrow bounds of this PSCR case, and that this case
should be handled expeditiously for DTE Electric’s PSCR cost recovery and without digression
into other parties’ differing agendas. The Commission stated:
“However, this decision should not be construed as an opportunity to embark on fishing expeditions that stray from the bounds of the issues articulated in MCL 460.6j . . . The Commission emphasizes, however, that a PSCR plan proceeding is a narrow proceeding, limited to the issues prescribed in MCL 460.6j. These issues include the projected sources and costs of anticipated power supply (fuel) during the plan period, the duration of and costs associated with major power supply contracts and arrangements for that period, computation of the PSCR factor, and the reasonableness and prudence of the power supply plan in light of the utility’s existing sources of generation. MCL 460.6j(3). In evaluating the PSCR plan, the Commission will consider the cost and availability of generation available to the utility, the cost of short-term purchases, whether the utility has taken all appropriate actions to minimize the cost of fuel, and the availability of interruptible service, among other relevant factors. MCL 460.6j(6). The Commission expects PSCR plan proceedings to be handled in an expeditious manner to allow for timely recovery of fuel and purchased power expenses. This scope is outlined in the statute and interpreted by the Commission in prior orders and the fact that the plan is limited to the current year make the proceeding an inappropriate vehicle for holistic long-term resource planning. While the review of the utility’s five year forecast filed simultaneously with the PSCR plan can provide insights into load, fuel, and power supply trends and options in a more forward-looking manner, the Commission cautions against protracted litigation of policy and technical matters that would delay the PSCR proceeding and be better handled in a traditional rate case, certificate of need proceeding, or a collaborative planning effort among the Commission and stakeholders” (March 6, 2014 Order in Case No. U-17319, pp 11-12. Emphasis added).
B. OVERVIEW OF DTE ELECTRIC’S DIRECT TESTIMONY AND EXHIBITS On September 30, 2013, DTE Electric filed the direct testimony and exhibits of nine
witnesses: James D. Wines, who is a DTE Electric’s Lead Engineer – Nuclear Generation
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(qualifications and direct testimony at 7 T 890-901; Exhibit A-1);2 Barry J. Marietta, who is the
Supervisor of the Emissions Quality Group, Environmental Management & Resources
(qualifications and direct testimony at 6 T 372-84; Exhibit A-2);3 Kevin L. O’Neill, who is a
Principal Project Manager in the Regulatory Policy & Operations Organization (qualifications
and direct testimony at 7 T 857-78; Exhibits A-3 Revised, A-4 Revised, and A-25);4 Richard I.
Schmelz, Jr., who is DTE Electric’s Manager - Wholesale Market Developments, Generation
Optimization (qualifications and direct testimony at 7 T 820-54; Exhibits A-5 through A-7);5
Markus B. Leuker, who is DTE Electric’s Manager of Corporate Energy Forecasting
(qualifications and direct testimony at 7 T 798-812; Exhibits A-8 through A-12);6 Angela P.
Wojtowicz, who is DTE Electric’s Manager of the Wholesale Power group in the Generation
Optimization department (qualifications and direct testimony at 7 T 564-79; Exhibits A-13
2 Mr. Wines has a Bachelor of Science degree in Nuclear Engineering and the Radiological Sciences from the University of Michigan. Mr. Wines is a qualified Station Nuclear Engineer at Fermi 2 and a Nuclear Fuel Economics Engineer. Mr. Wines has worked for DTE Electric since 1999 in several roles in the Nuclear Engineering field (7 T 891-92). 3 Mr. Marietta has a Bachelor of Science degree in Chemical Engineering. Since being hired by DTE Electric in 2003, Mr. Marietta has held various positions of increasing responsibility related to compliance with environmental regulations. Mr. Marietta currently supervises the Emissions Quality Group, which is responsible for air permits throughout the Company, and providing support for Company facilities and reporting, as well as strategy related to environmental compliance issues (6 T 373-75). 4 Mr. O’Neill holds a Bachelor of Arts degree majoring in Economics and a Master of Science degree in Economics majoring in Econometrics. He has 36 years of experience with DTE Electric in analytical, management and regulatory areas (7 T 858-62). 5 Mr. Schmelz holds Associate and Bachelor of Arts degrees in Business Administration. He has worked for DTE Electric and DTE Energy Trading since 1984 in positions of increasing responsibility. In his current position, he works directly with the Midcontinent Independent System Operator (“MISO”) in support of DTE Electric’s participation in the MISO Energy and Ancillary Services Markets (7 T 821-23). 6 Mr. Leuker holds a Bachelor of Science degree in Business Administration with a concentration in Marketing and Management, and a Master of Business Administration degree. He began working for DTE Electric in 2010 and is responsible for the development of economic and electric sales forecasting (7 T 799-800).
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Revised, and A-14 through A-19);7 Robert E. Palmer, who is the Manager of Asset Optimization
in DTE Electric’s Fossil Generation Organization (qualifications and direct testimony at 6 T 285-
97; Exhibits A-20 Revised, A-21, A-22 and A-23 Revised);8 David C. Milo, who is a Fuel
Resources Specialist in the Planning and Procurement section of DTE Electric’s Fuel Supply
department (qualifications and direct testimony at 7 T 676-91; Exhibit A-24 Revised);9 and
James J. Musial, who is a Manager in Federal Regulatory Affairs, which is a group within the
Regulatory Affairs Organization (qualifications and direct testimony at 7 T 640-56).10
C. OVERVIEW OF INTERVENORS’ TESTIMONY On June 10, 2014, the AG, GLREA, IEI, and MEC/SC filed their direct testimony.
Neither ABATE nor Staff filed any testimony. The AG sponsored Michael J. McGarry, Sr.
7 Ms. Wojtowicz holds both a Bachelor of Science degree and Master of Science degree in Nuclear Engineering and has worked for DTE Electric since 1995 in positions of increasing responsibility in engineering and operations. Ms. Wojtowicz is presently responsible for acquisition of wholesale power electric supply to reliably and economically serve the energy and reliability needs of the Company’s customers. She is also responsible for development of the generation resource plan and procurement of capacity to meet reliability requirements, oversight of DTE Electric’s financial transmission rights (“FTR”) portfolio, management of the Renewable Energy Certificate (“REC”) portfolio for the Company’s voluntary GreenCurrents program, management of the REC portfolio for compliance with Public Act 295 of 2008 (the “clean, renewable, and efficient energy act”), management of emission allowance procurement, oversight of DTE Electric’s generation asset registration with the MISO, participation in MISO Subcommittees, and review and advocacy of Company recommendations regarding proposed MISO rules, regulations, and business practices. (7 T 565-76). 8 Mr. Palmer has Bachelor of Science degree in Chemical Engineering and a Master of Science degree in Finance. He is a registered professional engineer in Michigan. He has worked for DTE Electric since 1970 in positions of increasing responsibility. In his current position, he is responsible for projects that optimize fossil power plant investments, reliability, potential retirements, environmental compliance strategies, operating efficiency and MISO market offerings (6 T 286-88). 9 Mr. Milo has Bachelor of Arts degree in Accounting and Master of Business Administration degree in Finance. He has worked for DTE Electric since 2004 in positions of increasing responsibility. In his current position, he is responsible for the preparation of the budget and forecasts regarding all fossil fuel (coal, natural gas and fuel oil) used by DTE Electric for electric generation (7 T 677-78). 10 Mr. Musial holds an Associate Degree in Civil Engineering, a Bachelor of Science degree in Construction Engineering, and a Master of Arts degree in Economics. He has also completed short courses on power systems engineering, as well as utility accounting and ratemaking. Mr. Musial began working for DTE Electric in 1977 and subsequently joined the Regulatory Affairs organization in 1979 where he has held positions of increasing responsibility within that organization. His present responsibilities include managing the activities and resources pertaining to regulatory filings and proceedings before Federal Energy Regulatory Commission (“FERC”), including monitoring and responding to regulatory developments related to the operation and initiatives of the MISO (7 T 641-42).
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(qualifications and direct testimony at 7 T 754-76) who recommended that the Commission
should disallow Reduced Emissions Fuel (“REF”) Project11 costs in the PSCR Plan, and
recommended that the Company should reduce its 2014 PSCR factor for the suspension of the
nuclear waste fund fee. GLREA sponsored Geoffrey C. Crandall (qualifications and direct
testimony at 6 T 260-77) who addressed DTE Electric’s five-year forecast. IEI sponsored
Douglas B. Jester (qualifications and direct testimony at 6 T 498-523) who also addressed DTE
Electric’s five-year forecast. MEC/SC sponsored George Evans (qualifications and direct
testimony at 7 T 903-25) who suggested that continued operation of some of DTE Electric’s
coal-fueled generating units might not be the lowest-cost option. MEC/SC also sponsored Dr.
Ranajit “Ron” Sahu (qualifications and direct testimony at 7 T 929-64; June 27, 2014
supplemental testimony at 7 T 965-70) who questioned the cost of pollution control for DTE
Electric’s coal-fueled generating units and essentially suggested that they should be retired
instead. MEC/SC also sponsored George E. Sansoucy (qualifications and direct testimony at 7 T
972-94) who addressed DTE Electric’s coal forecast and the REF Project (2 T 381-400).
D. OVERVIEW OF DTE ELECTRIC’S REBUTTAL TESTIMONY AND EXHIBITS On July 25, 2014, DTE Electric filed the rebuttal testimony and exhibits of nine
witnesses:
• John C. Dau (qualifications and rebuttal testimony at 7 T 787-96)12 to address Mr.
Sansoucy’s characterization of the operational effects of REF (7 T 793);
11 The REF Project (sometimes referenced as the “REF Projects”) involves a process of applying chemical additives to coal to produce Reduced Emissions Fuel (a/k/a Refined Coal) burned at the Belle River, St. Clair, and Monroe power plants. Use of REF is expected to reduce SO2, Hg, and NOx emissions and, therefore, the related emission allowance expense as well as the reduced cost of Hg emission compliance incurred by DTE Electric (7 T 684). 12 Mr. Dau is DTE Electric’s Manager – Technical Support. He holds Bachelor of Science and Master of Science Degrees in Mechanical Engineering, and is a Registered Professional Engineer in the State of Michigan. He has 32 years of experience with DTE Electric, primarily in engineering-related areas including Power Generation, Fuel
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• Mr. Leuker (rebuttal testimony at 7 T 813-18) to address Mr. Jester’s claim regarding the
accuracy of DTE Electric’s day-ahead demand bids (7 T 814);
• Mr. Marietta (rebuttal testimony at 6 T 385-91) to address Messrs. Sahu, Sansoucy and
McGarry’s assertions regarding DTE Electric’s compliance with future environmental
regulations, sorbent expenses, and REF effects (6 T 386);
• Ms. Wojtowicz (rebuttal testimony at 7 T 590-97) to address multiple incorrect claims
made by Messrs. Evans, McGarry, Crandall and Jester (7 T 591);
• Mr. Palmer (rebuttal testimony at 6 T 298-312; Exhibits A-26 through A-30) to address
Mr. Evans’ claims regarding the Company’s PROMOD modeling (6 T 299);
• Mr. Milo (rebuttal testimony at 7 T 692-717; Exhibits A-31 through A-33) to rebut Mr.
Sansoucy’s assertions regarding DTE Electric’s coal forecast and resold coal in the REF
Project (7 T 693);
• John A. Wagner (qualifications and rebuttal testimony at 7 T 779-85; Exhibit A-34)13 to
rebut Mr. Sansoucy’s statements regarding REF (7 T 783);
• Kevin J. Chreston (qualifications and rebuttal testimony at 6 T 436-49; Exhibit A-35)14 to
address claims by Messrs. Evans and Sahu regarding Dry Sorbent Injection (“DSI”) (6 T
440); and
Supply and Business Planning. His current responsibilities include strategic management of the technical support program for Fossil Generation, including management of the turbine, boiler, combustion, chemical engineering, and work management groups (7 T 788-92). 13 Mr. Wagner is DTE Electric’s Director – Fuel Supply Manager, IRP & Modeling. He holds Bachelor of Science Degree in Mechanical Engineering, and a Master of Business Administration degree. He has worked for DTE Electric since 1989 in positions of increasing responsibility. In his current position, he is responsible for fossil fuel supply and transportation requirements for DTE Electric’s fossil fuel electric generating assets, as well as the Company’s coal transshipment facility, Midwest Energy Resources Company (MERC) located in Superior, Wisconsin (7 T 780-82).
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• Mr. O’Neill (rebuttal testimony at 7 T 879-88; Exhibit A-36) to address Mr. McGarry’s
criticisms regarding the inclusion of the REF adder in the PSCR, and his recommendation
that the Company should reduce its 2014 PSCR factor for the suspension of the nuclear
waste fund fee. Mr. O’Neill also addressed Mr. Sansoucy’s criticism regarding DTE
Electric’s discussion of REF in its Application for this proceeding (7 T 880).
On August 12 and 13, 2014, the direct and rebuttal testimony of DTE Electric’s witnesses
was bound into the record, Exhibits A-1 through A-3615 were admitted into the record, and the
Intervenors conducted cross-examination of all the Company’s witnesses except for Messrs.
Wagner, Dau, Leuker, Schmelz, O’Neill and Wines, for whom cross-examination was waived (6
T 278; 7 T 778, 786, 797, 819, 856, 889). The record consists of 7 volumes and 996 pages of
transcript and 135 exhibits. Initial Briefs are due September 17, 2014, and Reply Briefs are due
October 15, 2014.
II. DISCUSSION A. APPLICABLE STANDARD FOR “REASONABLENESS AND PRUDENCE” This PSCR plan case is conducted pursuant to Act 304. MCL 460.6j(5) relevantly states:
“If a utility files a power supply cost recovery plan and a 5-year forecast as provided in subsections (3) and (4), the commission shall conduct a proceeding, to be known as a power supply and cost review, for the purpose of evaluating the reasonableness and prudence of the power supply cost recovery plan filed by a utility pursuant to subsection (3), and establishing the power supply cost recovery factors to implement a power supply cost recovery clause incorporated in the electric rates or rate schedule of the utility.” (Emphasis added).
14 Mr. Chreston is DTE Electric’s Manager, IRP & Modeling. He holds Bachelor of Science Degree in Mechanical Engineering, and has worked for DTE Electric since 1982 in positions of increasing responsibility. In his current position, he is responsible for developing and analyzing DTE Electric’s Integrated Resource Plan, which includes the evaluation of environmental plans for the generation portfolio. (6 T 437-39). 15 Exhibits A-3 Revised, A-4 Revised, A-13 Revised, A-20 Revised, A-23 Revised, and A-24 Revised were admitted in lieu of their original counterpart as indicated above.
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“Reasonableness and prudence” is not synonymous with perfection. Attorney General v Public
Service Comm, 161 Mich App 506, 517; 411 NW2d 469 (1987).
In addition, the Michigan Supreme Court has opined that “[t]he proof required in an
administrative proceeding…is the same as that required in a civil judicial proceeding: a
preponderance of the evidence.” See Aquilina v General Motors Corp, 403 Mich 206, 210-211;
267 NW2d 923 (1978). The preponderance of the evidence standard is generally defined as
follows:
“The greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.” Black’s Law Dictionary 1301 (9th ed 2009).
Thus, although the Company bears the burden of proof in this Act 304 proceeding for
demonstrating that its proposed PSCR plan and PSCR factors are reasonable and prudent, the
applicable standard of proof for purposes of determining whether they are reasonable and
prudent is the “preponderance of the evidence” standard,16 which is a much lower standard than,
for example, the “beyond a reasonable doubt” standard that is only applicable to criminal
proceedings. Thangavelu v Dep’t of Licensing & Regulation, 149 Mich App 546, 554-555; 386
NW2d 584 (1986). DTE Electric’s proposed PSCR plan and factors are “reasonable and
prudent” as discussed below and further demonstrated by the record.
16 See MCL 460.6j(5), supra.
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B. DTE ELECTRIC’S PSCR PROPOSALS SHOULD BE APPROVED BECAUSE THEY ARE REASONABLE AND PRUDENT, CONSISTENT WITH ACT 304, AND LARGELY UNREBUTTED.
1. The Company’s Load Forecast.
Mr. Leuker, the Company’s Manager of Corporate Energy Forecasting, explained the
Company’s general forecasting methodology, assumptions, data sources, and reliability (7 T 802-
12), including that DTE Electric uses the Hourly Electric Load Model (“HELM”) to forecast
peak system demand (7 T 811-12). Mr. Leuker also testified that service area electric sales are
forecast to increase from temperature-normalized sales of 47,503 GWh in 2012 to temperature-
normalized sales of 49,618 GWh in 2018, which represents a 0.7% average annual increase in
sales (7 T 804). For the 2014 plan year, the Electric Choice sales forecast was held constant at
the temperature-normalized sales level expected for 2013 at the time the forecast was developed
of 5,170 GWh with one exception. An Electric Choice Industrial customer will be closing in the
spring of 2015. The loss of those sales has been included in the Electric Choice sales forecast.
Market clearing prices are not expected to increase significantly from current levels through
2015, and no additional changes in Electric Choice sales is forecasted (7 T 811; Exhibit A-11).
Mr. Leuker’s testimony was unrebutted.
2. The Company’s System Operation. Ms. Wojtowicz testified that DTE Electric’s projections of generation, purchased power,
emission compliance (NOx, SO2 and Hg)17 and associated expenses in the total amount of
$1,425,258,000 for 2014 are reasonable and prudent (7 T 569, 588-89; Exhibit A-13 Revised,
17 Compliance costs are based upon the consumption of emission allowances, urea, and powdered activated carbon and Trona sorbents. Mercury emission compliance is in the 5-year forecast, but it is presently not required until 2016. Use of REF is expected to reduce NOx, SO2 and Hg emissions and, therefore, the related emission allowance expense as well as the cost of Hg emission compliance incurred by DTE Electric (7 T 587).
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line 52). There is no credible evidence to the contrary under a preponderance of the evidence
standard. Therefore, the Commission should approve DTE Electric’s 2014 power supply plan
and accept DTE Electric’s five-year forecast, as well as all of the costs and actions described in
Ms. Wojtowicz’s testimony and exhibits (7 T 569-89).
More specifically, Ms. Wojtowicz described DTE Electric’s capacity resource plan to
supply its summer full service adjusted peak demand with resources available to DTE Electric,
and additional generation capacity as required for the years 2014 through 2018 (7 T 573-78;
Exhibit A-15). This plan is based on DTE Electric’s load forecast as presented in the testimony
of Mr. Leuker, the Company’s owned generation resources, demand resources, and purchased
capacity that is under contract to DTE Electric (7 T 575-76).18
Ms. Wojtowicz further explained that under the prior MISO resource adequacy construct,
DTE Electric had been procuring any required capacity for single month periods. Under the new
MISO resource adequacy construct approved by the FERC in Docket No. ER11-4081 (7 T 653-
654), capacity used to meet MISO resource adequacy requirements must be offered into the
MISO energy market beginning June 1, 2013 for the entire planning year even though it is
needed for only one or two of the summer months. Therefore, DTE Electric requests that the
Commission provide MCL 460.6j(13)(b) approval for the Company’s capacity purchases to meet
MISO resource adequacy requirements as long as the Company uses one, or a combination, of
the following competitive processes: (1) a competitive auction, similar to the ones held by the
Company for procuring capacity for the summers of 2008 through 2012; (2) a request for
18 In addition to its own generation, the Company has capacity rights from both PURPA/P.A.2 and Renewable Energy Contracts as shown on Exhibit A-16. (7 T 575, 581) The Company expects to have a total of 9,551 MW of planning resources in 2014. DTE Electric also anticipates purchasing power from the wholesale power market to achieve the total resources required to serve the forecasted adjusted full service peak demand (7 T 576).
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proposals; or (3) participation in the MISO Planning Resource Auction (“PRA”), which will
award bids based on least-cost offers, as was done in 2013 (7 T 578-81).
AG witness Mr. McGarry suggested that the Commission lacks authority to grant the
Company’s request, which he characterized as a request for approval of a process to obtain
capacity rather than approval of capacity charges themselves (7 762-63). He relied on MCL
460.6j(13)(b), which relevantly provides that the Commission shall:
“Disallow any capacity charges associated with power purchased for periods in excess of 6 months unless the utility has obtained approval of the commission” (Emphasis added).
Mr. McGarry’s reliance on this provision is misplaced because it concerns Commission
review of long-term purchases of capacity with power, and does not apply to current MISO
market practices. Ms. Wojtowicz explained that the Company was planning to purchase
capacity/PRCs without associated power for the 2014 Resource Adequacy Planning Year (June
1 2014 through May 31, 2015) in the MISO PRA. The MISO PRA clears only capacity/PRCs,
not power. Furthermore, no MISO power purchases made by DTE Electric exceed one hour.
The MISO power market is a short-term power market and no power purchases made by DTE
Electric from MISO will exceed 6 months. Participation in the MISO PRA for the 2014
Resource Adequacy Planning Year is prudent because the MISO PRA provides the most liquid
and competitive process to obtain capacity for the 2014 Resource Adequacy Planning Year (7 T
593-94).
Ms. Wojtowicz further explained how the Company reasonably and prudently developed
its projections for generation and purchased power (7 T 582). Exhibit A-13 Revised reflects the
projected fuel, purchases and sales of power, and PSCR expense forecast for the years 2014
through 2018 (7 T 569). Ms. Wojtowicz also explained and justified related PSCR expenses for
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NOx and SO2 emission allowance costs, and supported the Company’s emission allowance
procurement strategy and projections of emission allowance expenses as reasonable and prudent
(7 T 584-88; Exhibits A-17, A-18, and A-19).19
Mr. Palmer supported DTE Electric’s generation, emissions quantities and urea expenses
as reasonable and prudent (6 T 296-97), and presented the projections of DTE Electric’s
generation, capacity, and emissions, along with the urea expense for NOx control for the
Company’s 2014 PSCR factor. He also supported the 2015 through 2018 projections of the
system capacity, generation, emissions and urea expense for NOx control (6 T 289-97). Exhibit
A-21 is the forecast of the Company’s plant generation for the years 2014-2018 (6 T 293).
Exhibit A-22 displays the projected emissions of SO2, NOx, and Hg for 2014-2018 from the
Fossil Generation Power Plants. Exhibit A-23 Revised displays the Company’s projection of
expense for urea for 2014 through 2018. Urea is used in the operation of the Selective Catalytic
Reduction (“SCR”) systems in the Monroe Power Plant’s Units 1, 3, and 4. The commodity
price of urea has decreased recently, and DTE Electric’s demand for urea is expected to increase
in 2014 due to the scheduled start-up of the Monroe Unit 2 SCR in October 2014 (6 T 295-96).
Mr. Palmer also testified regarding changes in capacity projections of Company-owned
generation resources (6 T 290-93) and explained that as a participant in the MISO market, the
Company cannot unilaterally retire units. The Company must make a request to MISO to study
the system reliability impacts of any retirements, and obtain MISO’s permission to retire units on
a certain date. The Company made such a request for the Harbor Beach Power Plant (“Harbor
Beach”). In response, MISO declared Harbor Beach to be a System Security Resource (“SSR”)
19 NOx and SO2 emission allowance costs have been approved for recovery through the PSCR mechanism in prior proceedings (See, for example, November 23, 2004 Order in Case No. U-13808, p. 112; September 26, 2006 Order in Case No. U-14702, p. 5). The recovery of emission control costs is further discussed below.
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and stated that the earliest date the plant would be allowed to retire would be December 31,
2015, based on the schedule of transmission upgrades being performed in the thumb of Michigan
by ITC Transmission (“ITC”). MISO and ITC subsequently performed a further analysis at the
Company’s request, resulting in Harbor Beach being able to be retired in 2013 based on a partial
completion of the Thumb transmission upgrade (6 T 291-92). MISO has approved DTE
Electric’s request to retire Trenton Channel Unit 8 in 2015 (6 T 290). The Company initially
planned to have Dry Sorbent Injection (“DSI”) / Activated Carbon Injection (“ACI”) technology
installed on Trenton Channel Unit 7 to make the boilers compliant with the Mercury and Air
Toxics Standards (“MATS”) rules by April of 2016 (7 T 293). On August 12, 2014, the
Company submitted a request to MISO to retire Trenton Channel Unit 7 effective April 16, 2016.
The Company expects MISO to approve the requested retirement, but has not received approval
(7 T 634).
Ms. Wojtowicz’s and Mr. Palmer’s testimony was otherwise largely unrebutted with
respect to the reasonableness and prudence of the Company’s power supply plans (and in any
event, there was no meritorious criticism). Therefore, the ALJ should find, and the Commission
should determine, that the Company’s projected PSCR system operation for its 2014 Plan is
reasonable and prudent by a preponderance of the evidence.
3. The Company’s Transmission and MISO Expenses. Mr. Schmelz explained the transmission expenses included in the PSCR, and further
supported DTE Electric’s projected expenses associated with being a network transmission
customer of ITC and a Market Participant in MISO (7 T 824-44). He testified that all of these
MISO/transmission expenses are required in order for DTE Electric to serve the anticipated full
service customer load requirements from the MISO Energy Market and the MISO Ancillary
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Services Market (“ASM”) (7 T 824). The Total Base Transmission and MISO Market Costs,
which are the total costs of procuring transmission services from MISO/ITC and participating in
the MISO Energy and ASM Markets, are estimated to be approximately $276.3 million for 2014
(7 T 851; Exhibit A-5, line 50).20
Mr. Schmelz further testified that there are a number of changes being contemplated to
MISO Energy and ASM Market Rules (7 T 853), and explained:
“When these additional MISO and/or ITC related charges do occur, they should be approved for recovery in this case and future PSCR proceedings, as they are largely beyond DTE Electric’s control and will continue to be incurred by the Company in order to participate in the MISO wholesale energy and ancillary services markets and to provide retail electric service to DTE Electric’s full service customers.” (7 T 853)
Mr. Schmelz also testified that all of the MISO Energy and ASM Market and transmission
expenses that he supported are reasonable and prudent, explaining:
“All of the expense items listed on Exhibit A-5, Exhibit A-6, and Exhibit A-7 are reasonable and prudent because they are necessary and integral to DTE Electric being able to provide retail electric service to its full service customers. The rates upon which the expenses are determined are subject to approval by FERC and comply with FERC’s vision for the operation and expansion of the interconnected electric grid.” (7 T 853).
Mr. Schmelz’ transmission, MISO Energy Market, and ASM Market expense testimony was
unrebutted.
Mr. Musial provided an overview of federal regulatory and appellate issues that may
substantively impact the cost of MISO services received by DTE Electric’s customers during the
2014 through 2018 PSCR forecast period. Mr. Musial addressed various matters pending before
20 Exhibit A-5 reflects DTE Electric’s projected 2014 through 2018 network transmission expense, and MISO Energy Market expense and Ancillary Services Market cost items. Exhibit A-6 reflects actual line items included in a typical MISO Settlement Statement, which are charges that DTE Electric has to pay as a MISO network customer and Market Participant. Exhibit A-7 reflects the Company’s projection of the more significant MISO Energy and Ancillary Services Market-related charges/credits that will apply for the years 2014-2018 (7 T 825).
14
the Seventh Circuit Court of Appeals, FERC and MISO, and explained DTE Electric’s
reasonable and prudent responses to address any new, material rate impacts the Company might
influence, including DTE Electric’s expectation to meet its capacity obligation under MISO’s
new resource adequacy construct (7 T 643-656), as further addressed by Ms. Wojtowicz (7 T
593-94). He concluded that DTE Electric has taken all appropriate legal and regulatory actions
to address issues arising under FERC jurisdiction that may affect its PSCR costs (7 T 656). Mr.
Musial’s testimony was also unrebutted. Therefore, the ALJ should find, and the Commission
should determine, that DTE Electric’s Transmission and MISO expenses for the Company’s
2014 PSCR Plan are appropriate for recovery by a preponderance of the evidence.
4. The Company’s Fuel Supply Plan. Mr. Milo explained the method that DTE Electric used to develop its forecast of fossil
fuel expenses for 2014 through 2018 (7 T 679-684; Exhibit A-24 Revised), and supported DTE
Electric’s fuel supply plan including projected expenses of $884,585,000 for 2014 for all DTE
Electric fossil-fueled plants as reasonable and prudent (7 T 679; Exhibit A-24 Revised, line 37).
Mr. Milo specifically supported the forecast of coal, oil, gas and coke oven gas (“COG”)
prices for 2014 through 2018 (reflected in Exhibit A-24 Revised) as reasonable and prudent (7 T
680-84). He testified that DTE Electric expects to supply its projected coal requirements for the
forecast period through a combination of long-term and spot market purchases. This mix of
purchases provides reliability of supply with sufficient flexibility to meet the needs of DTE
Electric’s electric generating plants, and also serves to mitigate price risk (7 T 681). DTE
Electric expects to supply the No. 2 oil that will be consumed in the forecast period under
agreements that are three years or less in duration, and based on a spot market index price. DTE
Electric expects to supply its No. 6 oil requirements under spot market agreements that are one
15
year or less in duration, which would include the purchase and utilization of used oil that is
generally less expensive when available, and also the utilization of internally-generated waste oil
(7 T 682). DTE Electric expects to supply its natural gas requirements through purchases from
local distribution companies (“LDCs”) under Commission-approved tariffs, and spot market
purchases (7 T 682). In addition, some COG will be burned at DTE Electric’s River Rouge
Power Plant, under an agreement that has been in effect and recoverable through the PSCR
process since June 2009, and that continues to be reasonable and prudent since COG displaces a
portion of higher cost coal and natural gas consumption at DTE Electric’s River Rouge Power
Plant, resulting in lower electric rates for the Company’s customers. Mr. Milo also testified that
the long-term forecast of coal prices assumes that DTE Electric will continue to rely on low
sulfur western (“LSW”) coal for a significant portion of its coal requirements (7 T 683).
MEC/SC witness Mr. Sansoucy attempted to cast doubt on the reasonableness and
credibility of DTE Electric’s coal forecast, which he suggested was 10% to 20% too low (7 T
978-83). In response, Mr. Milo reviewed the factors affecting fuel forecasts and DTE Electric’s
process, discussed errors within Mr. Sansoucy’s Exhibit MEC-61, and explained why coal
expense is forecasted to drop in 2015. Mr. Milo also showed that Mr. Sansoucy’s fuel price
forecasts and DTE Electric’s forecast are more similar than different, and that Mr. Sansoucy
developed misleading fuel expense forecasts by ignoring major known factors in DTE Electric’s
forecast, such as a higher blend of western coal and a significant transportation cost reduction,
during the forecast period. Instead of addressing the various components of DTE Electric’s coal
forecast that were provided to MEC under the Protective Order, Mr. Sansoucy chose to create
erroneous and misleading forecasts from the Ventyx and SNL Energy coal price forecasts by
16
applying an index factor to the 2014 expense as presented in Exhibits MEC-62 and MEC-63 (7 T
693-715; Exhibits A-31, A-32).
Moreover, DTE Electric’s coal forecast was produced according to sound forecasting
methods that DTE Electric has consistently utilized for many years. Mr. Sansoucy’s present
criticisms of DTE Electric’s coal forecast are inconsistent with his reliance on DTE Electric’s
coal forecast in a prior PSCR case. A large portion of DTE Electric’s coal forecast for the 2014
PSCR Plan Year is based on coal and transportation agreements in place where the costs can be
accurately forecasted. Although actual total costs can change from forecast due to many factors,
DTE Electric produced its best coal forecast based on available information at the time the
forecast was created (7 T 714-15).
Mr. Milo also summarized why DTE Electric’s fuel supply plan is reasonable and
prudent:
“I believe that the fuel supply plan I have described meets DTE Electric’s fossil fuel requirements, is consistent with both the Company’s policies and objectives, provides for the delivery of electric generation to customers at a reasonable price given market conditions, and is a reliable supply plan that is both reasonable and prudent. “As discussed above, the Company has tested and burned LSW coal at various Company electric power plants. This supply option is not only economic, but also among the cleanest coals available. “The Company has also continued to expand the “arena of competition” for both eastern and western coals. The ability to blend and burn coals from several coal supply regions along with utilizing multiple transportation options has provided the Company with the leverage to negotiate some of the most competitive delivered fuel prices available. “The Company maintains a railcar fleet, not only to facilitate control over delivery of coal, but also to optimize the cost savings associated with rail transportation in private equipment. “DTE Electric continues to aggressively market coal and transshipment services to third parties through its subsidiary, Midwest Energy Resources Company
17
(MERC). Third party revenues and the equity received from MERC’s joint venture contribute to a reduction in DTE Electric’s fuel expense and, ultimately, the rates for DTE Electric’s electric customers. “The Company is also determined to pursue all reasonable avenues to resolve disputes with its suppliers, including negotiation, arbitration and litigation, when necessary. “Finally [as discussed in section 5 below], except for the minor modification to the REF Adder due to the elimination of the DTE Electric SO2 benefit under the ‘Environmental Benefits’ portion of the REF adder, no portion of the REF Project has been changed or modified since its approval by the Commission in its U-16892 Order. Moreover, the REF project will continue to be operated consistent with the Commission’s approval in the U-16892 Order. “Considering the above, as well as the actions the Company has taken to minimize fuel costs, and given that the Company expects to cover a majority of its fossil fuel requirements with coal, I believe that DTE Electric’s present fuel supply policy, objectives, and strategies (as set forth in my testimony and exhibit) are reasonable and prudent.” (7 T 689-91).
Mr. Wines supported the five-year (2014-2018) projection of DTE Electric’s Fermi 2
nuclear fuel expense presented in Exhibit A-1 (7 T 893, 897-901), and explained the concerted
efforts that contributed to Fermi 2’s reasonable fuel expenses for 2014-2018 (7 T 900-901). He
also supported Fermi 2’s fuel expenses of $58,315,000 for the 2014 PSCR Plan Year (reflected
in Exhibit A-1, column (f)) as reasonable and prudent, explaining:
“Fermi has been successful in managing its ore, enrichment services and fabrication fuel expenses for many cycles. An industry benchmark for Uranium and Enrichment pricing is the long term market indicator. Fermi’s Enriched Uranium price equivalent has been below the long term market indicator for many cycles and this trend is expected to continue. Fabrication pricing does not have an equivalent benchmark. Fermi controls fabrication costs with engineering time, which maintains small reload batch sizes. Thus, the number of fuel bundles remains optimum, which lowers fabrication costs and reduces the required amount of ore and enrichment services. Projected prices and the total unit price are expected to remain below the sum of the component market prices, all of which have experienced significant changes in past years. I am confident the Company can continue to manage these expenses effectively going forward and, therefore, I believe the projected fuel costs for Fermi are reasonable and prudent.” (7 T 900-901).
18
Mr. Milo’s testimony concerning the reasonableness and prudence of the Company’s fuel
supply plan was largely unrebutted and any criticisms were not credible. Mr. Wines’ testimony
was unrebutted. Therefore, the ALJ should find, and the Commission should determine, that
Detroit Edison’s fuel supply plan is reasonable and prudent by a preponderance of the evidence.
5. The REF Project. The REF Project is a process that involves the application of chemical additives to the
coal prior to conveying the coal into the plant coal silos or bunkers. This process produces what
is referred to as a Reduced Emissions Fuel (a/k/a Refined Coal) and is done for the primary
purpose of reducing emissions and their related costs. The Refined Coal reduces SO2, mercury
(Hg), and NOx emissions and, therefore, the related emission allowance expense as well as the
reduced cost of Hg emission compliance incurred by DTE Electric (7 T 684). The Commission
previously approved the REF Project, explaining in part:
“The Commission finds that Detroit Edison’s REF project should be approved and that it complies with the Code of Conduct and Guidelines. The Commission reviewed the company’s testimony and Exhibits A-21 through A-23 and finds that Detroit Edison, in compliance with the directive in the December 6 [2011 Order in Case U-16434], provided the Commission with sufficient additional information to evaluate the reasonableness and prudence of the REF project. “The Commission believes that the REF project is a reasonable means of attaining maximum emissions reductions for minimum cost. As explained by Detroit Edison, at [St. Clair Power Plant] and [Belle River Power Plant], PSCR customers will receive a reduction in annual working capital expense through the sale, at market price, of a portion of the company’s coal inventory to its affiliated fuels companies. The affiliated companies will treat the coal with REF adder and then resell the treated coal to Detroit Edison. The cost of the REF adder will be offset by a corresponding savings in PSCR emissions allowance expense, resulting in a net cost of zero or less to PSCR customers. At [Monroe Power Plant] Detroit Edison receives a coal fee rate from the affiliated fuels company, reducing the cost of every ton of coal treated with the REF adder that is consumed, which translates into credit for the company’s PSCR customers” (June 28, 2013 Order in Case No. U-16892, pp 31-32).
19
Since the Commission has already approved the REF Project, only material changes are
appropriate for Commission review, plus of course review of actual REF-related expenditures in
annual PSCR reconciliation cases, as Mr. O’Neill explained (7 T 888). MEC/SC witness Mr.
Sansoucy, however, attempted to fabricate a basis for the Commission to revisit its decision by
inaccurately asserting that “significant changes to the REF project, such as the time and place at
which untreated coal is sold to the Fuels Companies and the elimination of an SO2 benefit, call
for the Commission to revisit its review of the project in prior cases” (7 T 991).
Messrs. Milo and Wagner explained that no aspect of the REF Project has been changed
since the Commission approved it in Case No. U-16892, except the REF Adder was modified by
amending the agreement with the St. Clair Fuels Company (“SCFC”) to eliminate the DTE
Electric SO2 Benefit from the “Environmental Benefits” portion of the REF Adder. This
modification is actually an improvement over the previously-approved REF Adder because
DTE Electric will no longer pay SCFC the avoided SO2 emission allowance cost, but will
continue retain the value of the reduced SO2 emissions associated with the consumption of REF
(7 T 686, 784-85; Exhibit A-34). The forecasted Refined Coal Adder in the PSCR (associated
with the Commission-approved REF Project at DTE Electric’s St. Clair Power Plant (“SCPP”)
and Belle River Power Plant (“BRPP”) for the 2014 PSCR Plan Year is $0 due to this
elimination of the SO2 benefit portion of the REF Adder for SCPP and while BRFC testing
continues for BRPP (7 T 684, 686; Exhibit A-24 Revised, line 6, column (b)).
Otherwise, nothing about DTE Electric’s sales of coal to the Fuels Companies21 has
changed since the Commission reviewed and approved these types of transactions in Case No.
21 The Fuels Companies are the Belle River Fuels Company (“BRFC”), St. Clair Fuels Company (“SCFC”), and Monroe Fuels Company (“MFC”).
20
U-16892, and the Fuels Companies’ sales of coal to DTE electric remains consistent with the
Commission’s June 28, 2013 Order in Case No. U-16892 (7 T 686-89).22 The forecasted portion
of the Coal Rate Fee (associated with the Commission-approved REF Project at DTE Electric’s
Monroe Power Plant (“MPP”)) is $5.010 million (7 T 684, 688; Exhibit A-24 Revised, line 5,
column (b)). Thus, the Commission-approved REF Project, with the improvement outlined
above, remains reasonable and prudent (7 T 785).
Mr. Marietta explained DTE Electric’s strategy for compliance with mercury control
requirements, and how the REF Project at the St Clair and Belle River Power Plants, combined
with ACI supports compliance with mercury rules at the lowest reasonable cost to customers.
Mr. Marietta also explained and supported the ACI technology, which the Commission
previously reviewed and approved, stating in part that “the company provided sufficient
evidence that ACI is the most efficient and cost effective method for Hg reductions. The EPA
has indicated that ACI is the most successful mercury-specific control technology, and many
power plants around the country have installed and are operating ACI systems” (June 28, 2013
Order in Case No. U-16892, p 31). Mr. Marietta also explained that at the Monroe Power Plant,
REF combined with Flue Gas Desulfurization (“FGD”) supports compliance with mercury rules
at the lowest reasonable cost (6 T 377-79).
As a result of extensive testing, the Company has determined to comply with the EPA’s
Mercury and Air Toxics Standards (“MATS”) (further discussed in section 6) at Monroe Power
Plant by installing and operating FGD and selective catalytic reduction (“SCR”) systems on all
22 MEC/SC witness Mr. Sansoucy suggested that a “major premise of the REF project, as previously presented to the Commission, seems to have changed” based on his misreading of a discovery response (7 T 990; Exhibit MEC-72). Mr. Milo explained the discovery response about how the Company forecasts fuel expense, which did not and could not change the contractual nature of the REF Project, and provided a supplemental discovery response to fully clarify the non-issue (7 T 716; Exhibit A-33).
21
four units by April 2015. REF improves the operation and efficiency of the FGD systems,
avoids capital expenditures to install an additional chemical injection system, and removes the
need for additional costly additives to achieve full compliance with the MATS mercury standard
(6 T 376-78, 383-84).
The remaining coal-fired units in operation, including the Belle River and St Clair Power
Plants will comply with MATS limitations with a combination of DSI and ACI emission control
systems by April 2016 due to receiving MATS compliance extensions from the Michigan
Department of Environmental Quality. REF improves the economics of the operation of these
ACI systems by permitting use of a less expensive form of powdered activated carbon (“PAC”)23
in the operation of the ACI systems (6 T 376-77, 383).
MEC/SC witness Mr. Sansoucy attempted to build on his co-witness Mr. Sahu’s
mischaracterizations (further discussed below in section 6) by asserting that “DTE’s own data
demonstrate that the use of REF will require between a 6.7% and 650% increase in the amount of
sorbent DTE would have to use to achieve MATS compliance through DSI” (7 T 993). Mr.
Marietta explained that current vendor data shows either no increase or a negligible increase in
the amount of sorbent needed with REF. Exhibit A-2 shows that there are no projected increases
in sorbent use with REF at this time. With regard to Mr. Sansoucy’s further suggestion that “the
Commission should require DTE to present an up-to-date assessment of the amount of increase
in DSI needed to achieve MATS compliance when a generating unit is using REF versus when it
is not” (7 T 994), Mr. Marietta explained that the sorbent injection rates provided in this case are
projections for a period beyond the 2014 PSCR plan year. The best information available from
DTE Electric’s internal experts and vendors will be used for projections in the 2015 PSCR plan
23 PAC is available in a variety of forms, including the more expensive Brominated PAC (“BrPAC”) (6 T 383).
22
case (6 T 391), which will be filed on or about September 30, 2014, which is less than two weeks
after the filing of this Initial Brief.
Mr. O’Neill further explained that in addition to the environmental benefits of the
emission reductions, DTE Electric’s use of REF is expected to reduce the need for NOx and SO2
emission allowances, the cost of which are recovered in DTE Electric’s PSCR process. In
addition, mercury emissions will become regulated in 2015, and REF use will also reduce the
expense for reducing mercury emissions.24 The cost of REF is a cost of fuel burned for electric
generation, and constitutes a disposal cost of fuel. Therefore, it is properly recovered in DTE
Electric’s PSCR for the same reasons that urea is recovered in the Company’s PSCR, as there
would be a direct tradeoff between the use of REF and DTE Electric’s consumption of NOx and
SO2 emission allowances, and the reduction of mercury emissions (7 T 685; see also MCL
460.6j(1)(a) permitting “…the utility to recover the booked costs, including transportation costs,
reclamation costs, and disposal and processing costs, of fuel burned by the utility for electric
generation,” and the Commission’s November 13, 2008 Order in Case No. U-15415, pp 11-12).
The REF Project also complies with the Code of Conduct, as the Commission found
previously (June 28, 2013 Order in Case No. U-16892, p 33), and as Mr. O’Neill recounted (7 T
867-69; see Exhibit A-25 “REF Transaction; MPSC Code of Conduct” for a more detailed
explanation). For example, DTE Electric’s sale of coal to the Fuels Companies is consistent with
the coal sales that the Commission reviewed previously. With respect to fully allocated cost, the
price at which DTE Electric is selling the coal is equal to DTE Electric’s fully allocated cost, or
book cost. The Fuels Companies will simply use the coal to produce REF and sell the REF back
24 Mr. Sansoucy inaccurately suggested that REF only reduces emissions minimally (7 T 985). Mr. Dau explained that recent tests in 2012-2013 demonstrated significant reductions in NOx of 22-25% and mercury (Hg) of 42-56%, depending on the amount of additives utilized (7 T 793).
23
to DTE Electric for consumption at the Belle River, St Clair and Monroe Power Plants and any
adjustments to the sale price to reflect any higher market pricing would only serve to increase the
resale price to DTE Electric. Since the asymmetrical pricing provision of the Code of Conduct is
intended to prevent DTE Electric from subsidizing its unregulated affiliates, it is clear that these
types of transactions are consistent with that intent and effectuates the proper outcome (7 T
869).
Mr. Sansoucy suggested that “REF may have significant operational impacts,” which
could increase operating costs, and which he further speculated somehow might not be
reimbursed to DTE Electric (7 T 991). Mr. Dau explained that the reimbursement mechanisms
adequately cover the costs associated with REF (7 T 794-95). There is also no sound basis for
Mr. Sansoucy’s asserted operational concerns about burning REF. The Monroe Power Plant
utilized REF throughout 2012 and 2013 and had its best performance (based on random outage
factor) in the past seven years. No plant derates have been associated with REF for the past two
years, and no additional slagging has been associated with the use of REF. There are similarly
no negative impacts at St Clair and Belle River Power Plants. Regarding calorific value of the
fuel, the addition of the additives cannot change the heating content of the coal. The heating
value of the coal remains unchanged with the additives providing the emission reduction
capability (7 T 794-95).
Mr. Sansoucy suggested that DTE perform a detailed study of the operational impacts of
using REF (7 T 993), but DTE Electric already tested REF at all three plants, and the test results
led the Company to conclude that this fuel is acceptable for use. Further testing continues at the
Belle River 2 unit, and the Company will continue to evaluate the effects of REF on plant
24
equipment and O&M expense, so there is no reason for the Commission to mandate a special
study (7 T 705-96).
There is also no sound basis for any criticisms and recommendations regarding REF
because, at most, they merely offer speculation and innuendo about how they think the Project
should look, but they cannot credibly challenge how it works. The Commission-approved REF
business arrangements at the Belle River and St Clair Power Plants allow DTE Electric’s
customers to receive cost reductions through their base rates without increasing costs to PSCR
customers since the REF adder will never exceed the environmental benefit realized by the
customers. The Commission-approved REF business arrangement at the Monroe Power Plant
allows DTE Electric’s customers to receive cost reductions through their base rates while PSCR
customers realize lower cost through the Coal Fee Rate paid by the MFC and the value of
reduced NOx, SO2 and mercury emissions compliance costs. In all instances, DTE Electric’s
customers benefit without assuming any technology, tax or capital risk (7 T 866-67). Therefore,
the ALJ should find, and the Commission should determine, that the Commission’s approval of
the Company’s REF Project in Case No. U-16892 should not be revisited, that the REF Project
as slightly modified by the improvement of the REF Adder should similarly be approved, and
that any related expenses are recoverable.
6. The Company’s Mercury, Particulate Matter, and Acid Gas Emission-Related Expense for 2015 and Thereafter.
Act 304 relevantly states:
“In its final order in a power supply and cost review, the commission shall evaluate the decisions underlying the 5-year forecast filed by a utility pursuant to subsection (4). The commission may also indicate any cost items in the 5-year forecast that, on the basis of present evidence, the commission would be unlikely to permit the utility to recover from its customers in rates, rate schedules, or power supply cost recovery factors established in the future.” (MCL 460.6j(7)).
25
Accordingly, the Company is requesting that the Commission enter its order pursuant to MCL
460.6j(7) indicating whether based on present evidence the Commission is unlikely to permit the
Company to recover the mercury emission-related expense associated with sorbents (e.g., PAC
and BrPAC) for 2016 and thereafter (Application, p. 7, paragraph D), as well as indicating
whether the Commission is unlikely to permit the Company to recover the trona and sodium
bicarbonate (“SBC”) expense related to control of particulate matter and acid-gas emissions for
2016 and thereafter (Id, paragraph E).25
Mr. Marietta explained that the EPA’s MATS establishes emissions limits for mercury
(as indicated in section 5), as well as particulate matter (“PM” which is a surrogate for certain
non-mercury metals) and HCl (which is a surrogate for certain acid gases). In addition, 2015 is
the first compliance year for Michigan Rule 1503 (R 336.2503 Mercury emission standards for
electric generating units) (6 T 376-77, 382).
Mr. Marietta further explained that the Company plans to use Dry Sorbent Injection
(“DSI”) technology to comply with the MATS HCl emission limitations. DSI is designed to
remove acid gases from the flue gas stream by injecting alkaline sorbents in the flue gas leaving
a coal-fired boiler. The Company’s test program demonstrated that trona and SBC are the most
cost-effective sorbents to use for the MATS requirements. The Company currently forecasts that
it will use trona to control acid gases and PM (6 T 380-82). Exhibit A-2 provides the Company’s
projection of PAC and BrPAC expense associated with mercury emissions reduction starting in
25 AG witness Mr. McGarry found that the evidence did not justify any warning, but recommended “limiting a response to the Company’s proposal to indicate that the Commission has identified no current information that would justify a warning that the Commission would be unlikely to permit recovery of future costs under MCL 460.6j(7).” (7 T 764).
26
2016.26 Exhibit A-2 also provides the Company’s projection of trona expense associated with
acid gas (HCl) reductions from DSI, which are required for MATS compliance beginning in
2016. Each of these chemicals is a reasonable and prudent cost of fuel burned and disposal cost
of fuel (6 T 382).
MEC/SC witness Mr. Evans attempted to cast doubt onto the Levelized Cost of
Electricity (“LCOE”) analysis that the Company provided to MEC through discovery. Mr.
Chreston explained that this analysis was produced as a screening tool to justify the feasibility of
these projects, and has never been intended to justify the capital cost additions of DSI/ACI in the
PSCR proceedings. Mr. Evans’ attempts to improve on the LCOE screening are wrought with
faulty manipulation of the original assumptions that were utilized. Even after his creation of
several misinformed cases, the end result was that the majority of the DSI/ACI installations
compared favorably to the installation of a new combined cycle unit in this screening (6 T 440-
48; Exhibit A-35).
Mr. O’Neill testified that the Company is not requesting recovery in 2014 of the costs of
mercury sorbents, trona or SBC in the Company’s 2014 PSCR Plan. However, for purposes of
providing a complete 5-year power supply forecast, Mr. Marietta provided an estimate of the cost
of mercury sorbents and mercury emission-related expense with and without REF beginning in
2016, which is the first compliance year for both the Michigan Rule 1503 and the MATS. Mr.
Marietta similarly provided an estimate of the cost of trona beginning in 2016 to control acid
26 There is no basis for MEC/SC’ witness Mr. Sahu’s suggestion it is not clear what quantity or type of sorbents will be used to reduce mercury emissions (7 T 938), as Mr. Marietta further explained (6 T 387). Mr. Sahu also inaccurately suggested some uncertainty in the amount of PAC that will be required based on the allegation that “the CaBr percentage in Mer-Sorb alone could vary by a factor of two” (7 T 938, see also 7 T 948). Mr. Marietta explained that the Company uses Mer-Sorb, which contains at or near 51.5% calcium bromide. The term “greater than or equal to” in the Material Safety Data Sheet for Mer-Sorb simply allows for normal variance in the chemical makeup. DTE Electric testing has demonstrated that each of its facilities implementing DSI and ACI will be able to achieve the required mercury reduction for compliance (6 T 388). The estimates of sorbent use and costs are based on the best available information from vendors (6 T 389).
27
gases and particulate matter as required by the MATS. The Company expects to use activated
carbon as the mercury sorbent to address the mercury reduction requirements at several of its
power plants, and that DSI in combination with ACI will allow the Company to meet the MATS
acid gas and particulate matter environmental requirements at some of its coal-fired generating
units (7 T 869-71).
The Company expects to request recovery in 2016 of the cost of mercury sorbents (PAC
and BrPAC) and alkaline sorbents (trona and SBC) used in these processes through the PSCR as
an integral part of the cost of power supply, a cost of fuel burned, and a disposal cost of fuel (7 T
870). MCL 460.6j(1)(a) allows:
“…the utility to recover the booked costs, including transportation costs, reclamation costs, and disposal and processing costs, of fuel burned by the utility for electric generation.”
The Commission approved the recovery of urea as a disposal cost, explaining:
“Just as there is a direct connection between the quantity and type of fuel burned and the need to purchase emissions allowances there is also a direct connection between fuel burned, emissions, and urea expense. Allowing the recovery of urea expense as a disposal cost of the fuel burned by the utility is consistent with the language of MCL 460.6j(1)(a).” (November 13, 2008 in Case No. U-15415, pp. 11-12).27
The use of sorbents to reduce mercury, HCl, and other acid gas emissions is similar to the use of
urea to reduce NOx emissions. Therefore, these sorbent costs are also disposal costs and should
be included in the PSCR process, and as the Commission indicated previously (June 28, 2013
Order in Case No. U-16892, p 30, “The Commission agrees with Detroit Edison, the Staff, and
the ALJ that the sorbent expenses could be considered costs of disposal, because similar to urea,
27 For the 2014 PSCR Plan, the Company is including the total cost of urea in its calculation of the 2014 PSCR factor. The Company has previously included the incremental cost of urea as an integral part of the cost of power supply, a cost of fuel burned and a disposal cost of fuel in PSCR expenses in its 2009, 2010, and 2011 PSCR Plans. Allowing the recovery of urea expense as a disposal cost of the fuel burned by the utility is consistent with the language of MCL 460.6j(1)(a). (November 13, 2008 Order in Case No. U-15415, pp. 11-12).
28
PAC and BrPAC are applied to reduce various emissions”). For clarity, however, the Company
now seeks guidance from the Commission regarding cost recovery for PAC, BrPAC, trona and
SBC beginning as early as the Company’s 2016 PSCR Plan (7 T 871-73).
MEC/SC witness Mr. Sahu inaccurately suggested that “the Company’s interest in
keeping open the option of using SBC instead of trona creates some uncertainty regarding DTE’s
pollution control plans” (7 T 937). Mr. Marietta explained that there is no present uncertainty
about the Company’s plans to inject trona to comply with the MATS limits for acid gases;
however, in order to allow for economical sorbent use in the future, the Company requests that
the Commission indicate under MCL 460.6j(7) whether it is unlikely to approve SBC (sodium
bicarbonate) expense in the future years of the PSCR forecast, since it is possible that SBC could
become a reasonable economic alternative to trona, and the Company’s systems are designed to
use trona and SBC interchangeably (6 T 387).
7. The Company’s Proposed PSCR Factor. Mr. O’Neill calculated a maximum levelized monthly billing factor of 1.00 mill per kWh
for 2014 based upon projected total PSCR expense of $1,425,258,000 (7 T 863; Exhibit A-3
Revised). He also calculated projected average annual PSCR billing factors for 2015 through
2018 (7 T 863; Exhibit A-4 Revised). The calculations are based on the change in the average
unit cost of power supply above or below a base of 31.26 mills per kWh, using a methodology
that is consistent with prior years’ calculations, prior Commission orders (including the January
13, 2009 Order in MPSC Case No. U-15244) and Section C8.1 of the DTE Electric Company
Rate Book for Electric Service (7 T 864).
29
8. The Nuclear Waste Fee. AG witness Mr. McGarry suggested that the Commission reduce the Company’s 2014
PSCR factor to account for the elimination of the nuclear waste fee (7 T 773). The Commission
should reject this suggestion as unreasonable and impractical. Mr. O’Neill explained that the
Department of Energy ceased to collect the Nuclear Waste Fee beginning May 16, 2014, which
was long after the September 30, 2013 filing of this 2014 PSCR Plan case. Mr. McGarry’s
suggestion will also probably be moot since it is unlikely that the Commission’s final order will
be issued for this 2014 PSCR Plan case until after the close of the 2014 PSCR Year. Therefore,
it is more reasonable, as well as more practical, to reconcile the actual Nuclear Waste Fee cost in
DTE Electric’s 2014 PSCR reconciliation, Case No. U-17319-R (7 T 887; Exhibit A-36 provides
the Company’s “Proposal to Implement Fee Adjustment” that was filed with the Commission on
April 23, 2014 in Case No. U-17593 in response to the Commission’s order requiring all affected
electric utilities in Michigan to file a description of the utility’s status with respect to the
collection of the spent nuclear fuel fee, and a description of when and how the utility proposes to
implement the fee adjustment).
III. RELIEF REQUESTED Based on its testimony, exhibits, legal authorities and arguments presented in its
testimony, exhibits, and this Initial Brief, DTE Electric has clearly demonstrated that its PSCR
plan is reasonable and prudent by a preponderance of the evidence. Accordingly, DTE Electric
requests the following relief from the Commission:
A. Enter its Order approving the implementation of the Company’s proposed PSCR
Plan and maximum PSCR Factor in the Company’s rates for 2014 metered jurisdictional sales of
electricity, and otherwise expedite approval of the Company’s request for a levelized 2014
30
maximum PSCR Factor of 1.00 mill per kWh in customers’ bills for the period January 1, 2014
through December 31, 2014, inclusive of DTE Electric’s projection of no PSCR over or under-
recovery for the 2013 PSCR period, which could change based upon actual results for the 2013
PSCR Plan period, and/or the final order in its 2011 PSCR Reconciliation Case No. U-16434-R,
and/or the final order in its 2012 PSCR Reconciliation Case No. U-16892-R;
B. Enter its Order, pursuant to MCL 460.6j(7), providing indication from the
Commission whether based on present evidence it is unlikely to permit the Company to recover
the mercury emission-related expense for Powdered Activated Carbon (“PAC”) and Brominated
Powdered Activated Carbon (“BrPAC”) for 2016 through 2018 and thereafter;
C. Enter its Order, pursuant to MCL 460.6j(7), providing indication from the
Commission whether based on present evidence it is unlikely to permit the Company to recover
the trona and sodium bicarbonate (“SBC”) expense related to control of particulate matter and
acid-gas emissions for 2016 through 2018 and thereafter;
D. Approve the capacity purchases that may be made to meet the Company’s
resource adequacy requirements for the 2014 Resource Adequacy Planning Year and otherwise
grant Commission authority under MCL 460.6j(13)(b) to procure the necessary capacity
resources enabling DTE Electric to comply with FERC’s directive under ER11-4081 as
described in Ms. Wojtowicz’ testimony;
E. Enter its Order accepting the Company’s 5-year PSCR forecast;
F. Enter its Order approving the Transfer Price treatment of renewable energy in
DTE Electric’s PSCR process as proposed, described and explained in its Application and the
Company’s Testimony, and Exhibits;
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G. Enter its Order approving all other proposals made by the Company in its
testimony, exhibits, and in this Initial Brief; and
H. Grant Applicant such further additional relief and authority as the Commission
may deem necessary, suitable and appropriate.
Dated: September 17, 2014
Respectfully submitted, DTE ELECTRIC COMPANY _______________________________________ Legal Department Bruce R. Maters (P28080) Michael J. Solo (P57092) David S. Maquera (P66228) Attorneys for DTE Electric Company One Energy Plaza, 688 WCB Detroit, Michigan 48226 (313) 235-3724
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STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the Application of ) DTE ELECTRIC COMPANY for ) Authority to Implement a Power Supply ) Case No. U-17319 Cost Recovery Plan in its Rate Schedules ) (Paperless e-file) For 2014 Metered Jurisdictional Sales ) Of Electricity ) )
PROOF OF SERVICE
STATE OF MICHIGAN ) ) ss COUNTY OF WAYNE )
Estella R. Branson, being duly sworn, deposes and says that on the 17th day of
September, 2014, she served a copy of DTE Electric Company’s Initial Brief, upon the persons
on the attached service list via e-mail.
Estella R. Branson Subscribed and sworn to before me this 17th day of September, 2014 Lorri A. Hanner, Notary Public Wayne County, Michigan My Commission Expires: 4-20-2020 Acting in Wayne County
MPSC Case No. U-17319 SERVICE LIST
ADMINISTRATIVE LAW JUDGE Judge Sharon L. Feldman Michigan Administrative Hearing System 611 W Ottawa St Fl 2 Lansing, MI 48933 [email protected] ABATE Robert A.W. Strong Clark Hill, PLC 151 S. Old Woodward, Suite 200 Birmingham, MI 48009 [email protected] Leland R. Rosier Clark Hill PLC 212 E. Grand River Avenue Lansing, MI 48906 [email protected] GREAT LAKES RENEWABLE ENERGY ASSOCIATION Don L. Keskey Public Law Resource Center PLLC University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI 48823 [email protected] INSTITUTE FOR ENERGY INNOVATION Bruce Goodman Timothy J. Lundgren 333 Bridge Street P.O. Box 352 Grand Rapids, MI 49501-0352 [email protected] [email protected]
Daniel Collins Scripps 120 North Washington Square Suite 805 Lansing, MI 48933 [email protected] MICHIGAN ENVIRONMENTAL COUNCIL (MEC); THE SIERRA CLUB Christopher M. Bzdok Emerson Hilton Olson, Bzdok & Howard, P.C. 420 E. Front St. Traverse City, MI 49686 [email protected] [email protected] [email protected] [email protected] PRO HAC VICE Susan Laureign Williams The Sierra Club 50 F St. NW, 8th Floor Washington, DC 20001 [email protected] Shannon Fisk Earthjustice 1617 John F. Kennedy Blvd., Suite 1675 Philadelphia, PA 19103-1846 [email protected] MPSC STAFF Anne M. Uitvlugt Lauren D. Donofrio Assistant Attorney General 6520 Mercantile Way, #1 Lansing, MI 48911 [email protected] [email protected]
MICHIGAN ATTORNEY GENERAL Donald E. Erickson John A. Janiszewski 525 W. Ottawa Street Sixth Floor Williams Bldg P.O. Box 30755 Lansing, MI 48909 [email protected] [email protected] DTE ELECTRIC COMPANY David S. Maquera DTE Electric Company One Energy Plaza, 688 WCB Detroit, MI 48226-1279 [email protected] Stephen J. Rhodes Fahey, Schultz, Burzych, Rhodes PLC 4151 Okemos Road Okemos, MI 48864 [email protected]