AMENDED TESTIMONY OF JERRY E. MENDL

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

In the matter of the application of INDIANAMICHIGAN POWER COMPANY for aPower Supply Cost Reconciliation proceedingfor the 12-month period ended December 3 1,1997.

Case No. U-l 1181-R

In the matter of the application of INDIANAMICHIGAN POWER COMPANY for aPower Supply Cost Reconciliation proceedingfor the 12-month period ended December 3 1,1998.

Case No. U-l 1531-R

In the matter of the application of INDIANAMICHIGAN POWER COMPANY forapproval of a power supply cost recovery planfor 1999.

Case No. U- 11792

AMENDED TESTIMONY OFJERRY E. MENDL

In Support of MCAAA’s Objections to the JointMotion of Indiana Michigan Power Company

and Michigan Public Service Commission Staffto Approve Settlement

On Behalf of:Michigan Community Action Agency Association

Filed July 29,1999

1 Q- Please state your name and business address.

2 A. My name is Jerry E. Mendl. My business address is 7507 Hubbard Avenue, Middleton,

3 Wisconsin 53562.

4 Q.5 A.

On whose behalf are you testifying today?

I am testifying on behalf of the Michigan Community Action Agency Association.

6 Q- Please describe your background and experience in the field of electric utility

7 regulation.

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I have 25 years of experience in utility regulatory issues, including fuel and purchase power

assessments, resource planning, environmental impact, customer impact, mergers,

restructuring and other issues. I have conducted technical analyses, developed policy

positions, developed administrative codes, written technical reports and provided expert

testimony. I am a Professional Engineer registered in the State of Wisconsin. I have filed

testimony before the Michigan Public Service Commission in Dockets U- 11180-R, U- 1118 1,

U-10971, U-10971-R, U-10966 and U-10640-R. My vita is attached as Exhibit I- - (JEM-

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What is the purpose of your testimony today?

I am testifying to support MCAAA’ s Objections to the proposed settlement between Indiana-

Michigan Power Company (I&M) and the staff of the Michigan Public Service Commission.

In its current form, the proposed settlement will result in the overcollection of revenues

related to D. C. Cook through the power supply cost recovery (“PSCR”) factor, including

allowing I&M to simply retain excessive PSCR amounts collected in 1999 pursuant to an

unreconciled 1999 plan factor which exceeds by far the factor assigned by the settlement for

all other years. It will also suspend the PSCR in a manner that is heavily weighted to I&M’s

advantage and results in customers bearing excessive risk of overpaying for electric power.

Finally, I am recommending some improvements to the settlement to better balance the

utility’s and ratepayers’ interests.

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Q.A.

What is your overall recommendation with regard to the proposed settlement?

I believe the Commission should reject the proposed settlement. I do not believe the

settlement provides benefits to the ratepayers equivalent or greater than the benefits under

the existing PSCR plan and reconciliation process. I believe that suspending the cases and

freezing the rates is likely to result in I&M collecting unjustified and excessive revenues

from ratepayers. I believe there should be continued monitoring, review and reconciliation

of I&M’s allowable expenses and revenues.

Q.A.

Why?

The proposed settlement between I&M and Staff looks at a small piece of the overall puzzle.

In proposing to suspend the PSCR plan and reconciliation cases and freeze rates, the

proposed settlement fails to provide ratepayers with the benefit of declining fossil fuel costs

projected over the settlement period (through 2003). Nor does it allow the ratepayers to share

in the cost savings that would be expected to result from the proposed merger of AEP and

Central & South West Corporation. It does not account for interest earned on over- or

undercollections. It does not share with the ratepayers any savings that may result from

lowered electricity prices due to restructuring and wholesale competition. It takes away the

benefit to ratepayers of the Cook plant operating at its pre-shutdown expectations, while

crediting them with a Cook plant operating at only 80 percent of its former projections (equal

to a plant capacity factor of 72.5 percent) despite the investment of $574 million to restart

it. It forces all parties and the Commission to take irreversible guesses today at the

parameters of Cook operation, as well as fossil fuel and electric power costs over the next

four years rather than using the existing and proven system of making adjustments through

the existing plan and reconciliation process.

Q*

A.

If the Commission chooses to accept a settlement at this time, do you have further

recommendations regarding the specifics of the settlement?

Yes. In the event the Commission decides that a settlement is appropriate, the settlement

should be based upon the four modifications that I recommend later in my testimony. These

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include modifying the PSCR for the period through 2003 to: 1) adjust the PSCR for 1999

through the effective date of the Commission order; 2) be contingent upon the use of a 90

percent capacity factor for the Cook plant; 3) deny any recovery of replacement power costs

associated with the extended outage of Cook; and 4) reflect a 40-day refueling for Cook Unit

2 in 1997. In addition, I would recommend that there at least be limited monitoring and

review of I&M expenses, revenues, and earnings, with the opportunity to perform a final

reconciliation for the settlement period (even if the annual reconciliation process is

suspended).

Q.

A.

As the starting point for your analysis, do you accept I&M’s claims and calculations

indicating an underrecovery under its PSCR clause for the years shown on Exhibit B

to the settlement?

No. Since there have been no proceedings for the 1998 and 1999 years to reconcile I&M’s

PSCR costs and revenues for those years, there is no basis to conclude that I&M is

underrecovering any costs in those years. Moreover, in view of the many changing factors

noted above, there is even less chance that I&M will face an under-recovery of PSCR costs

in any future year. Nevertheless, because there have been no meaningful reconciliation

procedures for either 1998 or 1999, and because the present framework involves reviewing

the Staff and company settlement in a factual vacuum, I have, of necessity, used the data

supplied in the proposed settlement (e.g., replacement power costs) without attempting

independent verification of those values. The modifications are different applications of

those data rather than an assessment of the quality of the underlying data. Coal price declines,

improved efficiencies from the merger, price of available capacity and other factors could

affect whether over or underrecoveries are occurring, but cannot be determined without a full

review in the PSCR plan and reconciliation processes.

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Q*

A.

Overcollection of Revenues Related to Cook Nuclear Plant

Why does the proposed settlement result in the overcollection of revenues related to the

D. C. Cook Nuclear Plant?

Overcollection occurs primarily because the proposed settlement develops the proposed

PSCR factors on the assumption that Cook’s performance after the plant returns to service

will be considerably worse than it was before the outage and that 15 percent of the

replacement power costs associated with the extended outage of the Cook plant will be

recovered from ratepayers. The problem is compounded by the settlement’s proposed

suspension of the PSCR Plan and Reconciliation cases, which has the effect of locking in the

effects of bad assumptions over a long period of time. The settlement also does not refund

all of the excess revenues collected under 1999 plan factor.

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How does the nuclear plant capacity factor affect the cost of electricity and the PSCR

rates paid by ratepayers?

The higher the actual capacity factor, the more energy is produced by the unit. Because

nuclear units often have the lowest fuel and operating costs of any plant on the utility system,

higher nuclear plant capacity factors mean that a greater fraction of the total electrical energy

supplied by the system comes from the lowest cost source. Lower nuclear plant capacity

factors mean that more costly replacement power will have to be obtained from other

sources, increasing the power supply cost.

20 Assuming a lower nuclear plant capacity factor on a prospective basis has the effect of

2 1 increasing, or setting a higher PSCR factor, because the factor is designed to recover the

22 power supply costs which now reflect more dependence on supplies with higher production

23 costs. Ratepayers will pay more PSCR revenues, and if the actual nuclear plant capacity

24 factor is greater than the one assumed in developing the PSCR factor, customers will overpay

25 (i.e., excess revenues will be collected from ratepayers).

1 In the case of an extended nuclear outage, retroactively decreasing the capacity factor from

2 the values used in setting the pre-outage PSCR will reduce the amount of power classified

3 as replacement power. Although it does not affect the amount of power actually purchased

4 from or produced by other sources, retroactively decreasing the nuclear capacity factor does

5 allow the utility to recover more of those costs from ratepayers. I discuss this further later in

6 my testimony.

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Upon what level of performance for the Cook plant is the proposed settlement based?

The Cook plant is assumed to operate at a 72.5 percent capacity factor in 1999 through 2003,

part of the time period covered by the proposed settlement. However, in its current form, the

proposed settlement also allows I&M to retain revenues collected under a PSCR factor based

upon an assumed 55 percent capacity factor for the period beginning May 1999 through when

the settlement takes effect.

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The Commission-approved settlement in I&M’s 1999 PSCR Plan Case U-11792 used

the PSCR factors based on Cook Nuclear Plant operating at a 55 percent capacity

factor in 1999. Doesn’t the proposed settlement, being based on a 72.5 percent nuclear

capacity factor, reflect a favorable outcome for ratepayers?

No. While the proposed settlement improves upon the Cook capacity factor assumption in

U- 11792 (and contributes to reducing the settlement PSCR factor), the proposed settlement

still falls short of the expectations for Cook Nuclear Plant. It is clear from the approved

settlement in U-l 1792 that I&M and Staff explicitly agreed that the capacity factor issue

could be raised in the 1999 PSCR reconciliation proceeding, suggesting that the 55 percent

capacity factor was a negotiated “temporary” number, not necessarily the best estimate of

Cook’s long term performance. After all, a reconciliation case would allow for corrections

based upon expected compared to actual experience. The 55 percent capacity factor adopted

in U-l 1792 for the 1999 plan case is not a good benchmark from which to assess the

proposed settlement.

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1 8 The settlement in U-l 1792 also contemplated that this would be subject to refund pursuant

1 9 to a 1999 reconciliation case. Yet, the present settlement retracts this arrangement by

20 proposing to cancel any 1999 reconciliation case, to deny any refunds, and to deem these

2 1 excessive 1999 collections as being “reasonable and prudent.” The settlement should be

22 modified to keep the 1999 reconciliation case, and to require refunds for all of 1999 as

23 measured against the Cook capacity factor ultimately deemed appropriate for 1997, 1998,

2 4 and years beyond 1999. There is no basis to exempt any part of 1999 from the plant capacity

25 factor and PSCR factors deemed appropriate for the other years, and to allow I&M merely

2 6 to retain the refundable monies collected under the excessive and “temporary” 1999 plan

27 case.

The 72.5 percent Cook capacity factor in the proposed settlement also appears to be a

negotiated figure. According to Staff workpapers provided in response to discovery, I&M

tirst’proposed 65 percent and Staff 75 percent, and after three sets of proposals and counter-

proposals, arrived at 72.5 percent. I believe that a 72.5 percent capacity factor for Cook

should be viewed as an overly conservative estimate of its performance when it returns to

service.

Q*

A.

Should the settlement be modified to require a 1999 reconciliation case, or stipulation,

to refund excess 1999 PSCR collections as measured against the PSCR factor deemed

appropriate for 1997,1998, and years beyond 1999?

Yes. The current PSCR factor being temporarily collected in 1999 pursuant to a settlement

between only I&M and Staff in U- 11792 utilized a “temporary” PSCR factor assuming a

Cook capacity factor of only 55 percent. The use of any capacity factor for Cook less than

I&M’s pre-shutdown expectations for Cook (about 90 percent) is unjustified. By lowering

the expectation for Cook’s performance, the Commission also reduces the amount of power

that will be classified as replacement power for the downed Cook plant, and hence the

replacement power costs. This allows I&M to recover from ratepayers some of the costs

associated with Cook’s extended outage in contradiction to the intent of Act 304.

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1 Q- Upon what do you base your view that the settlement’s plant capacity factor for Cook

2 is an overly conservative estimate?

3 A. Recent operating experience before the shutdown of Cook and I&M’s own projections of

4 Cook’s performance both suggest a much higher capacity factor is a reasonable expectation

5 at Cook. In 1996, Cook’s capacity factor was about 90 percent. In the 1996, 1997 and 1998

6 PSCR plan cases, I&M projected annual capacity factors in excess of 90 percent over much

7 of the 5-year plan period. I&M testified regarding its programs and actions to reduce

8 scheduled outage time at Cook and to increase Cook’s availability.

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What would you consider to be a reasonable upper end of the range of expectations for

Cook capacity factor?

I would consider 90 percent to be within a reasonable range of capacity factors for Cook.

Certainly that is consistent with I&M’s own expectation for Cook’s performance as reflected

in I&M’s testimony to the Commission. I&M projected these capacity factors specifically

for the purposes of setting the PSCR factors, and thus those projections should be applied

to set the PSCR factors for this settlement. Importantly, these projections were made by I&M

prior to the extended outage at Cook, and thus before I&M bargained to lower the capacity

factor estimates to serve its own interests in the proposed settlement.

1 8 I&M achieved nearly 90 percent capacity factor at Cook in the year prior to the shutdown,

1 9 so it was within I&M’s capability to operate at those levels even before investing $574

20 million to refurbish the plant. I also believe it is reasonable to expect that Cook, after the

2 1 extended outage and refurbishment, should not operate worse than before the outage. For

22 all these reasons, I believe that a 90 percent capacity factor at Cook when it returns to service

2 3 is an appropriate expected level of performance.

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1 Q- What is the effect on ratepayers of the difference between assuming a 72.5 and 90

2 percent capacity factor at Cook?

3 A. Using the methods set out in Exhibit B of the proposed settlement, I&M will collect about

4 $10 million more in PSCR factor revenues in the Michigan jurisdiction over the period of

5 the settlement from January 1999 through December 2003 as a result of the lower nuclear

6 capacity factor assumption. Exhibit I- (JEM-2) sets forth the calculations underlying that

7 conclusion.

8 Q- Please describe Exhibit I-- (JEM-2).

9 A. Exhibit I-- (JEM-2) is patterned after Exhibit B attached to the proposed settlement. I

1 0 have prepared four PSCR tables reflecting four modifications to Exhibit B. Modification 1

11 recognizes that the current rates will remain in place beyond April 1999 and adjusts Exhibit

1 2 B to reflect current rates being collected through August. Modification 2 additionally

1 3 eliminates the recovery of 15 percent of the replacement costs. Modification 3 adds the

1 4 further assumption that the Cook capacity factor is 90 percent. Finally, Modification 4 bases

1 5 replacement costs on a 48 day refueling outage for Cook Unit 2 in 1997. For each

1 6 modification, I have calculated revised proposed PSCR factors separately for St. Joseph and

1 7 Three Rivers. I have also calculated factor revenues collected from September 1999 through

1 8 December 2003, defining them as the product of the PSCR factor and the electricity sales

1 9 over that period. Each modification includes the cumulative effect of prior modifications

20 (e.g., Modification 4 includes the cumulative effect of Modifications 1 through 4).

2 1 Comparing the combined factor revenues for Modification 2 and Modification 3 shows the

22 impact of the capacity factor assumption.

23 Q.

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Why is Modification 1 necessary?

Modification 1 is necessary if the Commission adopts the proposed settlement. The proposed

settlement adjusts for the overcollection occurring under the current PSCR factor from the

period January 1 - April 30,1999. The proposed settlement does not adjust for overcollection

beyond April 30,1999, and would allow I&M to retain excess revenues collected from May

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1 until the effective date of the settlement. Modification 1 extends the period of adjustment

through August 30,1999 assuming the Commission approves a settlement with an effective

date of September 1. If the Commission decision becomes effective on another date, the

Commission should recalculate Modification 1 to correspond to the actual effective date.

Q*

A.

What is the interpretation of the $10 million difference between Modification 2 and

Modification 3?

While it clearly shows the difference the assumption of the Cook capacity factor makes on

the PSCR factor and revenues, it also is a measure of the risk involved in setting and

suspending the PSCR factors through 2003. Money will be collected from ratepayers in

accordance with the PSCR factor. All else equal, if the settlement’s overly conservative

estimate of capacity factor is used and I&M is able to operate Cook nearer to the 90 percent

level it had previously estimated, I&M will overcollect $10 million from ratepayers. In fact

I&M will be overcollecting whenever Cook’s capacity factor exceeds 72.5 percent.

Conversely, I&M will be undercollecting if Cook’s capacity factor is less than 72.5 percent.

Q*

A.

Have you a recommendation concerning the choice of the Cook capacity factor for the

proposed settlement?

Yes. I recommend that the Commission use the 90 percent capacity factor for the purposes

of the settlement. To mitigate potential risks of overcollection for ratepayers (and

undercollection for I&M), I recommend that the Commission reject the proposal to suspend

the PSCR proceedings and leave open the option to reconcile expenses and revenues.

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1 Q. You had earlier indicated your concern that the proposed settlement would result in

2 the overcollection of revenues because the proposed settlement allows I&M to collect

3 from ratepayers some of the replacement power costs associated with the extended

4 outage of the Cook plant. Why is that?

5 A. The facts surrounding the extended Cook outage were extensively litigated and thoroughly

6 examined in this docket. On April 22,1999, Administrative Law Judge (“ALJ”) Mace issued

7 a Proposal for Decision (“PFD”) concluding:

8 that IM Power/AEP has not met its burden of proof to show by clear9 and satisfactory evidence that an outage longer than 90 days that

1 0 occurred in 1997 was not the result of unreasonable and imprudent11 management actions. She recommends that the replacement cost of1 2 power for that outage should be disallowed in the reconciliation of1 3 revenues and expenses.. .

1 4 I urge the Commission to not disregard the record, work, and effort that support the PFD.

1 5 Under the PFD, no replacement power costs would be recovered from ratepayers. Yet the

1 6 proposed settlement allows for recovery of 15 percent of the replacement power cost related

1 7 to the Cook outage for the years 1997 and 1998, and as such, provides substantial relief to

1 8 I&M which is contrary to the record in U-l 118 1 -R and Act 304.

1 9 The proposed settlement also lowers the expectation for future operation of Cook (from 90

20 percent to 72.5 percent capacity factor) as previously discussed. By arbitrarily lowering the

2 1 expected energy output from Cook, it also lowers the amount of replacement power needed

22 during its continued outage in 1999 and 2000 and for potential outages beyond that. By

23 arbitrarily lowering Cook’s expected energy production by about 20 percent, I&M is able to

24 recover from ratepayers about 20 percent of Cook replacement costs during the extended

25 outage in 1999 and 2000. The capacity factor adjustment to the proposed settlement is made

2 6 in Modification 3 as previously discussed. I bring it up here to point out that it is the same

27 as allowing recovery of a portion of the replacement power costs and is done simply by

28 redefining the expectations for Cook’s performance.

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1 In addition, the proposed settlement utilizes a methodology for calculating the replacement

2 power cost different from that approved by the ALJ. The result is to lower the replacement

3 power cost, which offers further relief from the PFD to I&M.

4 Q- Is it appropriate for I&M to recover 15 percent of the replacement power cost for 1997

5 and 1998 as is contained in the proposed settlement?

6 A. No. The replacement power costs should not be recovered, even in part.

7 . I&M failed to meet its burden to show that the outage was not due to8 imprudence or unreasonable actions on the part of I&M.

9 . The ratepayers are already paying for the capital and other fixed costs through1 0 the base rates, and for production costs through the PSCR (which was set11 based on I&M’s expectations about the capacity factor).

1 2 . Michigan law does not permit the recovery of replacement costs for outages1 3 longer than 90 days, which is the circumstance with the Cook plant, unless1 4 the utility demonstrates that the outage was not caused or prolonged by1 5 negligence or unreasonable or imprudent management.

16 Q. To what extent does the recovery of 15 percent of the replacement power costs for 1997

1 7 and 1998, as contained in the proposed settlement, affect Michigan ratepayers?

18 A. Using the methods set out in Exhibit B of the proposed settlement, I&M will collect about

1 9 $2.5 million more in PSCR factor revenues in the Michigan jurisdiction over the period of

20 the settlement (through December 2003) as a result of recovering 15 percent of the

2 1 replacement power costs for 1997 and 1998 as allowed by the proposed settlement.

22 Modification 1 and Modification 2 of Exhibit I-__ (JEM-2) set forth the calculations

2 3 underlying that conclusion.

24 Q. Have you quantified the effect on PSCR revenues based on the different methods for

25 calculating the replacement power costs in the PFD and the proposed settlement?

26 A. No.

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Q.

A.

Have you calculated the effect on the 1997 replacement power cost estimates of

adopting a 40 day refueling outage for Cook Unit 2 rather than the 80 day outage

allowed by the Proposal for Decision?

No. Staff calculated a value for replacement power cost based on a 48 day refueling outage.

The MCAAA believes the appropriate refueling outage to be 40 days, inasmuch as I&M

informed the NRC of that expected schedule. However, Staff based its analysis on 48 days,

but recognized that 48 days added conservatism to the calculation. The effect of using a 48

day refueling outage is to reduce PSCR revenues collected by I&M in Michigan by about

$1.26 million. Modification 3 and Modification 4 of Exhibit I-- (JEM-2) set forth the

calculations underlying that conclusion, The effect of using a 40-day refueling outage is to

reduce PSCR revenues by a larger amount, probably in excess of $1.5 million.

Q.

A.

Have you a recommendation concerning PSCR factors as calculated under the

proposed settlement?

Yes. If the Commission adopts a settlement, I recommend that the Commission approve

PSCR factors: 1) that adjust the PSCR for 1999 through the effective date of the Commission

order; 2) contingent on the use of the 90 percent capacity factor for Cook; 3) denying any

recovery of replacement power costs; and 4) premised on a 40 day refueling outage for Cook

Unit 2 in 1997 in its approval of a modified settlement. These factors and their combined

impact are estimated in Modification 4 of Exhibit I-- (JEM-2), and represent nearly a $14

million savings to ratepayers compared to the proposed settlement. To mitigate potential

risks of overcollection for ratepayers (and lower potential risk of undercollection for I&M),

I recommend that the Commission reject the proposal to suspend the PSCR proceedings and

leave open the option to reconcile expenses and revenues.

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1 Suspending the PSCR Process

2 Q. Are you familiar with the Commission’s decisions to suspend PSCR clauses in

3 Michigan?

4 A. Yes. I offered testimony in Consumers Energy Company’s 1997 PSCR Case No. U-l 1180-

5 R, a case designated to determine Consumers’ PSCR factor during its suspension period and

6 in a Wisconsin Electric Power Company (“WEPCo”) case which resulted in the Commission

7 suspending its PSCR clause.

8 Q. What do you believe has been the Commission’s rationale for suspending PSCR

9 clauses?

10 A. There may be several reasons, but principally the Commission appears to be clearing the way

11 for electric restructuring in Michigan and allowing markets to allocate the benefits and risks,

1 2 rather than regulation. With a PSCR clause suspended, the utility would theoretically bear

1 3 the risk of increasing power supply costs and, conversely, take the benefit of decreasing

1 4 power supply costs.

15 Q. Does the PSCR clause suspension in the proposed settlement fairly allocate risks and

1 6 benefits among I&M’s shareholders and ratepayers?

17 A. No. This proposed suspension will freeze rates at a time when fuel costs are declining,

1 8 meaning that ratepayers will not benefit from those decreases. Competitive new supplies

1 9 should similarly drive down purchase power costs during the freeze period.

20 In addition, the proposed suspension contains force majeure clauses that allow I&M to

2 1 escape the rate freeze. Thus, downside risk to I&M is reduced because it has a mechanism

22 in place to protect itself. A similar mechanism for ratepayers or other parties is not specified

23 in the proposed settlement.

2 4 Finally, the nature of the I&Mforce majeure clauses is such that they increase the risk to

25 ratepayers or are within I&M’s control. Force majeure usually applies to events beyond the

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control of the utility which could not be avoided and do not permit the utility to perform. The

force mujeure provisions in the settlement give I&M a degree of latitude not available to the

ratepayers and further bias the settlement in I&M’s interest.

Please explain further your concerns withforce majeure provisions contained in the

settlement.

Paragraph 6 in the proposed settlement agreement identifies two such provisions. First, a

significant decline in I&M’s bond rating would constitute aforce majeure and permit I&M

to reinstitute the PSCR process. But such a decline in bond rating could be caused by I&M’s

or AEP’s mismanagement, or otherwise be associated with events not directly related to fuel

costs. In response to discovery, Staff indicated that the MPSC has never issued an order

utilizing bond rating as aforce majeure provision.

Second, the proposed settlement arbitrarily selects a 3 percent change in Michigan

jurisdictional operating revenues associated with costs “related to” new environmental

regulations or “laws first promulgated or enacted after March 1, 1999, including but not

limited to costs associated with compliance with new regulatory requirements for continuing

operations, maintenance and licensing of nuclear generating stations.” However, these

environmental regulations are unspecified, are not linked to a PSCR case in the proposed

settlement, and there is the strong possibility that I&M intends that its non-fuel operation and

maintenance costs associated with refurbishing the D.C. Cook plant could trigger aforce

majeure (I&M in response to discovery would not specify the costs that are contemplated to

be addressed by this provision, and did not commit to excluding non-fuel O&M expenses as

aforce majeure trigger). Moreover, the links between these causes, “operating revenues,”

and a PSCR case are unspecified. The clause is ambiguous. I&M will have significant

latitude recording expenses and revenues to trigger the provision, and is likely utilize these

one-sided provisions to its self-interest, unless some balanced protection for ratepayers is

provided.

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2 4 Second, suspending the PSCR process, particularly the reconciliation of revenues and

25 expenses, would put I&M and ratepayers at some jeopardy. With the PSCR process

26 suspended, parties must try to determine today what the circumstances will be four years

27 from now in 2003, and be willing to base utility rates on those forecasts. Anyone having

Q*

A.

What do you recommend to create such a balance for ratepayers, in the event that the

Commission suspends I&M’s PSCR clause and adopts theforce majeure provisions in

the proposed settlement?

The Commission should adopt provisions, paralleling the protection provided to I&M, by

establishing mutually broad protections to ratepayers, such as requiring I&M to file a PSCR

case in the event I&M earns in excess of its authorized rate of return or experiences an

increase, for example, of 3 percent or more in gross operating income. Such a provision

would be analogous to the proposed settlement agreement’s protection for I&M and could

involve a partial suspension of the PSCR clause. I&M would make annual reports to the

Commission and intervening parties (the MCAAA) and file a PSCR reconciliation only when

one of the force majeure provisions applies. In addition, the Commission could retain a

limited PSCR procedure to monitor results under the settlement, and to exchange

information, in order to keep the Commission and parties fully abreast of I&M’s situation

in the event a full PSCR case is initiated under the settlement. The Commission could also

adopt a requirement that the expenses and revenues be reviewed at the end of the settlement

period to ensure that ratepayers were not overcharged, and to refund any overcharges to the

ratepayers with interest.

Q.

A.

Why do you believe that suspending the PSCR process, as required by the proposed

settlement, may result in customers overpaying for their electric power?

First, as indicated, suspension of the PSCR process set forth in the proposed settlement

contains several escape clauses permitting I&M to seek adjustments without like

opportunities for ratepayers to do so. I&M may be able to seek adjustments when it is in its

self-interest, but other parties may be precluded even if I&M is earning excessively.

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1 0 Third, the freezing of rates attendant to the suspension of the PSCR processes works to the

11 advantage of ratepayers only when costs are increasing. If power supply costs are decreasing,

1 2 the utility will benefit from frozen rates. The later scenario appears the most likely at this

1 3 time and for the future period contemplated by the settlement.

1 4

1 5

1 6

1 7

1 8

1 9

20

Q.A.

Are fuel and power costs that would reduce the PSCR factors decreasing at this time?

Yes. Coal prices have generally been declining over the past decade. US DOE/EIA’s

“Annual Energy Outlook 1998” foresees an annual decline in 1.4 percent for mine mouth

coal prices and a 0.8 percent annual decline in coal transportation costs between 1996 and

2020. Both price declines are the result of increased productivity. With frozen rates, the cost

reductions that are likely to occur over the next four years would accrue to I&M, not the

ratepayers.

2 1

22

23

experience with forecasting knows that there is a high probability that the forecasts will be

wrong, especially with longer-term forecasts and in periods of increasing uncertainty, both

of which apply to this proposed settlement. An example of the uncertainty discussed earlier

in this testimony is the Cook Nuclear capacity factor after restart. With increased competition

and other changes in the electric marketplace, ratepayers and the utilities alike face

uncertainties unprecedented at any time in my 25 years dealing with electric utility issues.

I do not believe that we know enough about these kinds of uncertainties to make the

judgement at this time, in the context of a settlement in a case which did not specifically

address these issues, to set rates fixed through 2003 “not subject to refund for any reason.”

Q*

A.

Have you reviewed the order and settlement in Cause No.38702-FAC40-Sl, the

Settlement Agreement with I&M in Indiana?

Yes, I have. It is offered as Exhibit I- __ (JEM-3).

1 7

1 Q* How is the Indiana settlement relevant in Michigan?

2 A. I&M operates in both Michigan and Indiana as one company, which is part of the AEP

3 system, and Indiana is in the process of restructuring its electric industry, as is Michigan.

4 Further, the Indiana settlement allocates costs among I&M and ratepayers for the net

5 replacement power costs associated with the D.C. Cook outage and has provisions which

6 generally parallel those in the proposed Michigan settlement.

7 However, there are differences in the terms reached in the settlement agreements which favor

8 Indiana ratepayers over Michigan ratepayers. In Indiana, I&M has agreed to a settlement with

9 differentforce majeure clauses. In addition, I&M has agreed to refund amounts collected if

1 0 I&M’s actual incurred fuel costs were less than the revenues collected under the fixed fuel

11 adjustment surcharge.

12 Q.

13 A.

1 4

1 5

1 6

1 7

1 8

Please describe the terms of the Indiana settlement regardingforce majeure provisions.

These Indianaforce majeure clauses are described in Paragraph 10 as circumstances where:

1) the Commission finds an emergency; 2) one or both units of Cook are permanently closed;

or 3) there is a substantial and material increase in costs related to compliance with new

federal or state environmental regulations or laws. The Indiana settlement does not give I&M

the escape based upon bond ratings as proposed in Michigan. The Indiana Commission must

determine that circumstances are in factforce majeure after an evidentiary hearing.

19 Q.

20

21 A.

22

23

2 4

25

26

In the event that the Commission suspends the PSCR processes and adopts force

majeure provisions, do you have any recommendations?

Yes. The determination of whetherforce majeure conditions in fact exist should not be left

to I&M. Leaving it to I&M to simply file an application for rate adjustment would

disadvantage other parties and the ratepayers because I&M could control the timing of the

case and potentially limit their preparation time. Since the annual review would no longer

be performed, it would take longer for the ratepayers and parties to collect data and gear up

for the case. The Commission should adopt a requirement that the Commission determines

1 8

1 whether aforce majeure condition actually exists following an evidentiary hearing, as is the

2 case in Indiana. Until the determination is made thatforce majeure conditions exist, I&M

3 would not be allowed to seek a rate adjustment.

4

5

6 Michigan settlement?

7 A. No. It appears to preclude the member parties from initiating or participating in proceedings

to change rates, but Paragraph 6 of the Indiana settlement states:8

9 In each semi-annual FAC filing AEP shall calculate the difference1 0 between AEP’s actual incurred fuel costs in mills per kWh and 9.21 1 mills per kWh [the authorized rate]. . . .If at the end of the fixed fuel1 2 adjustment period, the weighted average of AEP’s actual incurred1 3 fuel cost . . .is less than 9.2 mills per kWh for the period of April 1,1 4 1999 through December 3 1, 2003, (or the fixed fuel adjustment1 5 period) then the dollar amount equal to the product of such difference1 6 in mills per kWh times the total kWh consumed during the period1 7 will be credited to customers.. .

1 8

1 9

20

2 1

22

23

2 4

25

26

2 7

28

2 9

30

3 1

Q. Does the Settlement Agreement in Indiana pertaining to the Cook outage specifically

suspend the fuel adjustment clause and reconciliation cases as does the proposed

Clearly the Indiana Settlement Agreement requires a final reconciliation, despite the fact that

it also limits the opportunities of parties to initiate or participate in proceedings to change

rates.

Q*

A.

Have you any recommendations for the Commission regarding the suspension of

I&M’s PSCR cases?

I recommend that the Commission not suspend the PSCR cases or the freeze the rates as part

of the settlement. That will allow continuing scrutiny of I&M’s fuel-related revenues and

expenses, and give the opportunity to address issues affecting ratepayer bills. In the event

that the Michigan Public Service Commission suspends the PSCR plan and reconciliation

cases and freezes rates, I strongly recommend that it institute, at a minimum, a limited

monitoring procedure and a final reconciliation process. Having a final reconciliation

process ensures that neither I&M nor the parties have to make irreversible guesses about how

circumstances and costs may evolve - adjustments can be made when warranted.

1 9

1

2

3

4

5

6

7

8

9

1 0

1 1

1 2

1 3

1 4

1 5

1 6

1 7

1 8

1 9

20 Q. Does this complete your testimony?

2 1 A. Yes, it does.

Q*

A.

Are there other provisions in the proposed settlement agreement which should be

modified or improved?

Yes. Among these are the rate impacts of amortization treatments of power supply cost

revenues and non-fuel nuclear plant operation and maintenance costs proposed by the

settlement agreement which are addressed by MCAAA witness Dennis Ray. In addition,

I&M agreed in Indiana to pay ratepayers’ litigation expenses up to $800,000, something I&M

has not agreed to in Michigan. Without such agreement in Michigan, MCAAA witness

Martin Kushler proposes a modest, mutually beneficial, and proportional energy efficiency

program for I&M’s low-income ratepayers. Finally, I&M agreed in Michigan to reduce rates

by $2 million in its Three Rivers rate area on January 1,200O.

Q.A.

Do you support the rate reduction in I&M’s Three Rivers rate area?

Yes to the extent that the proposed settlement advances rate parity between St. Joseph and

Three Rivers, MCAAA supports the rate reduction. MCAAA also proposed that a uniform

PSCR factor be established for the two rate areas as early as I&M’s 1996 PSCR plan case,

U-10971, and continues to support that change. However, nothing provided by I&M or Staff

indicates why rates should not be reduced by more than $2 million in the Three Rivers rate

area. There is also nothing to indicate why I&M should not reduce rates in its Three Rivers

rate area on an immediate basis rather than waiting until January 1, 2000. And there is

nothing to indicate why rates should also not be reduced in I&M’s St. Joseph rate area.

2 0

Exhibit I- (JEM- 1)

JERRY E. MENDLPresidentMSB Energy Associates

EDUCATION

1973 B.S. Degree in Nuclear Engineering, With Very High Honors, from theUniversity of Wisconsin, Madison, Wisconsin

1974 M.S. Degree in Nuclear Engineering from the University of Wisconsin, Madison.Wisconsin.

EXPERIENCE

1987-PresentPresidentMSB Energy Associates, Inc.Middleton, Wisconsin

Since co-founding MSB Energy Associates in 1988, Mend1 has served public-sectorclients in California, Iowa, Illinois, South Carolina, Connecticut, Massachusetts,Vermont, Maryland, Michigan, Missouri, Minnesota, Louisiana, Pennsylvania, Georgia,Hawaii, Ohio, New Jersey, the District of Columbia and Ontario. He evaluates electricutility restructuring alternatives and prepares restructuring policy recommendations andsupporting technical information. He analyzes avoided costs, long-range plans andplanning methods used by gas and electric utilities, and prepares reports,recommendations and testimony. He conducts engineering, economic and life-cycle costanalyses of alternate energy resource options, including improved end-use energyefficiency. Mend1 develops state regulatory commission codes for implementingintegrated resource planning and evaluates the adequacy of existing and proposed codes.Mend1 was both organizer and presenter for a series of five least-cost planning workbopsacross the U.S. sponsored by the National Association of Regulatory Utility .

Commissioners (NARUC). He also participated in four Conservation Law Foundationcollaborative projects in the northeastern states. ,I’

1974-1988

Administrator, Division of Systems Planning, Environmental Review and ConsumerAnalysis (1979- 1988)Director, Bureau of Environmental and Energy Systems (1976-l 979)

1

Public Service Engineer (1974- 1976)State of Wisconsin, Public Service CommissionMadison, Wisconsin

Mend1 was employed by the Wisconsin Public Service Commission for 14 years (1974-1988), and was responsible for the development and evolution of Wisconsin’s long-rangeplanning process for electric utilities. He had overall responsibility for directing theCommission’s activities concerning utility long-range plans. In addition, Mend1 hadoverall responsibility for and directed the preparation of environmental impact statementsand environmental assessments, identifying expected impacts as well as evaluatingalternatives, for five large power plants, numerous transmission lines, a major natural gaspipeline, and many policy issues including Electric Space Heat, Electric Utility Tariffs,Electric Sales Promotion, Small; Power Production and Cogeneration, and Extension ofService. Mend1 was also responsible for directing the preparation of major studies,including The Alternative Electric Power Supply Study, Alternative Electric PowerSupply - Update, and Utility SO* Cleanup - Cost and Capability. Mend1 testified beforethe Wisconsin Commission in rate cases, planning cases, certification cases and policycases. He also appeared before other state Commissions and the Federal EnergyRegulatory Commission.

OTHER DISTINCTIONS

Mend1 staffed the NARUC Subcommittee on Energy Conservation for two and one-halfyears, and was closely involved with the preparation of the Least-Cost PlanningHandbookfor Public Utility Commissioners.

Mend1 also was appointed to serve a four-year term on the Research Advisory Committeeof the National Regulatory Research Institute (NRRI). One of seven regulatory staffselected nationally, Mend1 helped NRRI to shape its research agenda to be more usefuland responsive to the regulatory community.

Mend1 is a Registered Professional Engineer in the State of Wisconsin.

2

TESTIMONY

Mendl, since co-founding MSB Energy Associates in 1988, has testified in the followingproceedings:

Submitted To:

Michigan Public ServiceCommission

Wisconsin Public ServiceCommission

Pennsylvania Public UtilityCommission




Pennsylvania Public UtilityCommission



Minnesota House Committeeon Taxes

Minnesota Senate Committeeon Jobs, Energy andCommunity Development


City Public Service Board ofSan Antonio

Subject

Fuel and purchase power surcharge,coal costs

IEC merger (of WPL/IES/IPC), needand environmental issues regardingproposed Mississippi Rivertransmission crossings

Restructuring, stranded cost, andsecuritization -- economic andenvironmental issues

Fuel and purchase power surcharge,impact of sales promotion

Primergy merger (of WEPCO/NSP),impact on state regulatory authority

Gas cost recovery adjustments

Electric discounted rates, gas/electriccompetition

Fuel and purchase power surcharge,impact of WEPCO/NSP merger

Fuel and purchase power surcharge,impact of energy efficiency

Impact of cogeneration project onNSP ratepayers

Impact of cogeneration project onNSP ratepayers

Role of DSM in Advance Plan-7 inlight of potential restructuring

Integrated resource planning process(1992 EPAct hearings)

DocketNo.

U-11180-R

6680-UM-100

R-00973877

U-11181

6630~UM-100/4220-UM-IO1

U-10640-R

R-943280C0001

U-l 0966

u-10971

-*?$

HF637 ’

*SF1 147

0%EP-7‘::”

NA

Date

1998

1997

1997

1997

1996 ‘:.

1996

1996

1996

1996

1996 .’

1 9 9 6

1 9 9 5

1994

3

Submitted To: Subject

Maryland Public ServiceCommission

Georgia Public ServiceCommission

Public Utilities Commission ofOhio


New Orleans City Council

District of Columbia PublicService Commission

Massachusetts Department ofPublic Utilities

Massachusetts Department ofPublic Utilities

Hawaii Public ServiceConunission


New Jersey Board of PublicUtilities Connnissioners

South Carolina Public ServiceCommission

Vermont Public Service Board

D.C. Public ServiceCommission

1992 EPAct rules

Commercial and Industrial DSMprograms for Savannah Electric

Analysis of forecasts and long rangeplans for Ohio Power and ColumbusSouthern (case settled)

Integrated resource plan analyses forGeorgia Power and SavannahElectric

Least-cost planning rules

Potomac Electric least-cost plananalysis

Boston Gas plan integrated resourceplans

Boston Gas commercial andindustrial DSM, cost recovery

Least-cost resource planning

Least-cost planning and facilitycertification rules

Transmission line certificate (casesettled)

Transmission line certificate

Least-cost planning

Least-cost planning

DocketNo.

8630

Date

1994

4135-u 1993

90-659-EL-FORand 90-660-EL-F O R

1990

4131-u 1992and 4134-U

14629 1991M C S

834 Phase 1990II

90-55 1990

1991

4047-u 1991

NA 1990

88-5 19-E 1988. ..l.._. \

5270 1988

‘634 1 9 8 7

.* ,

Mend1 also assisted in preparing testimony and testified in numerous cases as a seniorstaff witness at the Wisconsin Public Service Commission. Dates are approximate.

. Advance Plans 1 through 4 (Dockets 05-EP-1 through 0%EP-4 -- on variousoccasions between 1977 and 1988) before the Wisconsin Public ServiceCommissionA wide variety of planning issues including forecasts, nuclear vs coal power,alternative energy, load management, transmission planning, demand-sidemanagement resources, principles and methods of integrated resource planning

. Rate Cases (various occasions between 1976 and 1988) including landmark time-of-use rate case (6630-ER-2) for Wisconsin Electric PowerEnvironmental and consumer impacts of rate levels and alternative rate designsbefore the Wisconsin Public Service Commission

. Construction Cases before the Wisconsin Public Service CommissionPleasant Prairie Power Plant (1976- 1978)Germantown Combustion Turbines (1976- 1977)Weston 3 (1979)Edgewater 5 (1980)Apple River -- Crystal Cave Transmission Line (1980)Prairie Island -- Eau Claire Transmission Line (198 l-l 982)North Madison -- Huiskamp -- Sycamore Transmission Line (1982)Point Beach Nuclear Plant Steam Generator Replacement (1982)Wisconsin Natural Gas Pipeline (1986)

Need for power, appropriateness of the utility proposals, and the comparativeeconomics of alternatives, environmental impacts

. Other Appearances while employed at the Wisconsin Public Service CommissionPlanning investigation before the Connecticut Department of PublicUtilities Control Authority (1975); uranium availability and resourcealternativesRulemaking proceedings before Wisconsin Legislative Committees (1975-1982); planning, siting, and environmental impact analysis rulesTyrone Nuclear Project Termination cost recovery hearing before theFederal Energy Regulatory Commission (1980) .i+

Acid Rain legislation before Wisconsin Legislative Corm&tees (1984- ’1985)

5

SELECTED CLIENTS

Mend1 has served the following public sector clients since 1988.

Client

Germantown Settlement,Philadelphia

Low-Income GoverningBoard, California

Alaska Housing FinanceCorporation

City of Chicago

Citizen’s Utility Board ofWisconsin

Conservation LawFoundation of New England

District of Columbia EnergyOffice

District of Columbia PublicService Commission

Environmental Law andPolicy Center

Environmentalists/Penn.Energy Project


Nature of Service

Advise regarding business structure and market to aggregateload and/or provide energy efficiency, load management,renewable and other options

Advising the Board in creating a new organizational structurefor delivery of energy efficiency and energy assistanceservices to low-income households

Analysis of applicability of EPAct standards to Alaskaresource selection process.

Evaluate municipalization, especially regarding poweravailability and cost, transmission constraints, cogenerationpotential.

Evaluate energy efficiency and load management programs inlight of possible industry restructuring.

Collaboratives with Boston Edison, United Illuminating,Eastern Utilities Association, and Nantucket Electricregarding system planing approaches, avoided costs, resourcescreening.

Analysis of DC Natural Gas’ and PEPCo’s integrated resourceplanning.

Testimony regarding least cost planning principles and rules..

Analyzed potential impacts of proposed merger of WisconsinElectric Power Company and Northern States PowerCompany on state regulatory authority in Wisconsin andMinnesota. Analyzed environmental impacts related toproposed merger of WPL and two Iowa utilities (IES andIPC), including the proposed transmission line crossings ofMississippi River and changes in air pollutant emissions.

Analyzed PECO application to securitize stranded &st,s,especially on economic and environmental impacts that couldresult from authorizing overestimated stranded costs.Analyzed utility retail access pilot programs. Analyzedrestructuring plans for PECO and PP&L.

Developed integrated resource planning and.facilitycertification rules. Developed integrated resource plans and

-*.

,.ii-

..l . .

. .’

. ’

6

reviewed utility filings. Monitored utility DSM programs.

Client Nature of Service

Hawaii Division of Consumer Developed integrated resource planning rules.Advocacy

Iowa Department of Natural Developed and implemented workshops to train buildingResources operators and architects in energy efficiency and renewable

energy resource opportunities.

Maryland Public ServiceCommission

Massachusetts Division ofEnergy Resources

Reviewed two utility long range plans and suggestedimprovements.

Analysis of Boston Gas Co. integrated resource plans andresidential energy efficiency programs. Analysis of BostonGas’s commercial and industrial energy efficiency programs.

Michigan Community Action Analysis of Michigan electric utility restructuring proposalsAgency Association and impacts on retail prices. Analysis of MichCon gas cost

recovery case and factor. Analyses of Indiana-Michigan,Wisconsin Electric and Northern States Power-Wisconsinpower supply cost recovery cases and factors. Analysis ofNorthern States Power/Wisconsin Electric Power Co.proposed merger.

Missouri Public ServiceCommission

Developed rules for electric resource planning and gasresource planning. Evaluated three electric utility plans filedpursuant to rules.

National Association ofRegulatory UtilityCommissioners

Organized, prepared and presented at five workshopsthroughout the U.S. sponsored by NARUC/DOE.

New Jersey Department ofthe Public Advocate

Analyzed a transmission line application.

City of New Orleans Developed least cost planning rules, guided a public workinggroup to- develop demand-side programs.

Northeast States forCoordinated Air UseManagement

Ohio Office of ConsumerCouncil

Ontario Energy Board

Electric vehicle analysis.

Analyzed two utilities’ long range plans and enermsfficiencyresource options. \

Evaluated need for natural gas integrated Fume planningrules.

Client

Pennsylvania Office ofConsumer Advocate

South Carolina Office ofConsumer Advocate

Texas ROSE

U. S . EnvironmentalProtection Agency

U.S. EnvironmentalProtection Agency and U.S.Department of Energy

Vermont Natural ResourcesCouncil and Vermont PublicInterest Research Group

Nature of Service

Evaluated demand-side management programs for severalelectric utilities. Investigated causes of Winter Emergency of1994. Analyzed electric “flexible rates” and gas/electriccompetition issues.

Analyzed a transmission line application.

Developed electric planning rules. Analyzed city of SanAntonio resource plan.

Developed handbook, “Energy Efficiency and RenewableEnergy: Opportunities from Title IV of the Clean Air Act”,which focuses on how energy efficiency and renewablesrelate to acid rain compliance strategies.

Analyzed and compared utility supply- and demand-sideresource selection for Clean Air Act compliance on thePennsylvania-New Jersey-Maryland (PJM) interconnection.

Testimony regarding least cost planning principles and rules.

:;s... . .\

8

Exhibit I-- (JEM-2)Modification 1

I&M Michgan Jurisdiction - Alternate Exhibit B to ILMlMPSC Staff Proposed SettlementModification for PSCR Effective Date

Total Underrecoveries (Excl. Interest)19971998Total

2,713,213 1,638,758 4,351,97113,497,319 4,731,246 18228,56516210,532 6,370,004 22580,536

Less Replacement Costs19971998Total

2,040,515 738,271 2,778,78610,048,548 3,762,906 13,811,45412,089,083 4.501,177 16,590,240

Equals Underrecovery of Other Variances19971998Total

672,698 900,487 1,573,1853448,771 968,340 4,417,lll4,121,469 1868,827 5,990,296

15% of Replacement Costs19971998Total

306,077 110,741 416,8181,507,282 564,436 2,071,7181,813,359 675,177 2,488,536

Equals Total to be Recovered19971998Total

978,775 I,01 1,228 1,990,0034,956,053 1,532,776 6,488,8295,934,828 2544,004 8,478,832

Less Estimated 1999 OverrecoveriesApproved PSCR Factor $/MWh at CF of 55%Estimated PSCR Factor $/MWh at CF of 73%Jan-April 1999 MWHJan-April 1999 RevenuesMay-August 1999 MWHMay-August 1999 RevenuesEstimated Total 1999 Overrecoveries

3.04 -0.231 .68 -1.15

660,700 295,400766,577 272,507629,000 301,500729,797 278,134

1,496,374 550,640

1,039,084

1,007,9312,047,015

Balances to be Recovered 4438,454 I,993363 6,431,817

Divided By MWh Subject to PSCR1999 (Sept-Dee)20002 0 0 120022003

Total MWH

672,000 315,1001968,000 939,0001,989,OOO 984,0002,014,OOO 985,0002640,000 1,006,0008,683,ooO 4,209,lOO

Increment to Recover Other Variances and15% of Replacement Power Costs ($/kWH)

Plus PSCR Factors ($/ltWH) with Cook at73% Capacity Factor

0.00051

0.00188

0.00047

-0.00115

TOTAL PSCR Factors Proposed ($/kWH)

Factor Revenues Collected September 1999through December 2003

0.00239 -0.00068

Combined20,766,323 (2,857,624) 17,902,699

st.Joe Three Rivers Total

Note: The utility/staff data in this table, including total underrecoveries, replacement costs, PSCR MWh, came fromsettlement Exhibit B and have not been independently vertfted. Full consideration of fuel cost changes, purchase powerprices, merger efficiency savings and other factors may result in modifications to the underlying data.

I&M Michgan Jurisdiction - Alternate Exhibit B to I&M/MPSC Staff Proposed SettlementModification for Replacement Costs

Total Underrecoveries (Excl. Interest)19971998Total

2,713,213 1‘638,758 4,351,97113,497,319 4,731,246 18,228,56516,210,532 6,370,004 22,580,536


2640,515 738,271 2,778,786IO,048548 3,762,906 13,811,45412,089,063 4,501,177 16,590,240


672,698 900,487 1,573,1853448,771 968,340 4,417,1114,121,469 1,868,827 5,990,296



672,698 900,487 1,573,1853448,771 968,340 4,417,1114,121,469 1868,827 5,990,296


3.04 -0.231.88 -1.15

660,700 295,400766,577 272,507629,000 301,500729,797 278,134

1,496,374 550,640

1,039,084

1,007,9312,047,015

Balances to be Recovered 2,625,095 1,318,187 3943,281

Divided By MWh Subject to PSCR1999 (Sept-Dee)2000200120022003

Total MWH

672,000 315,1001968,000 939,0001,989,OOO 964,0002,014,OOO 985,0002,040,OOo 1,006,0008683,000 4,209,100

Increment to Recover Other Variances and0% of Replacement Power Costs ($/kWH)

Plus PSCR Factors ($/kWH) with Cook at73% Capacity Factor

0.00030

0.00188

0.00031

-0.001 Is’

TOTAL PSCR Factors Proposed ($/kWH) 0.00218 -0.00084

Factor Revenues Collected September 1999through December 2003 18946,964 (3,532,801)

Combined15,414,163

St. Joe Three Rivers


Total

Note: The utility/staff data in this table, including total underrecoveries, replacement costs, PSCR MWh, came fromsettlement Exhibit B and have not been independentty verified. Full consideration of fuel cost changes, purchase powerprices, merger efficiency savings and other factors may result in modifications to the underlying data.

I&M Michgan Jurisdiction - Alternate Exhibit B to I&M/MPSC Staff Proposed SettlementModification for Capacity Factor


St. Joe Three Rivers TotalTotal Underrecoveries (Excl. Interest)

19971998Total

2,713,213 1,638,758 4,351,97113,497,319 4,731,246 18,228,56516210,532 6,370,004 22,580,536


2640,515 738,271 2,778,786IO,048548 3,762,906 13,811,45412,089,063 4,501,177 16,590,240


672,698 900,487 1573,1853448,771 968,340 4,417,1114,121,469 1868,827 5,990,296



672,698 900,487 1,573,1853448,771 968,340 4,417,1114,121,469 1,868,827 5,990,296


3.04 -0.231.13 -1.66

660,700 295,4001,262,598 422,422

629,000 301,5001,202,019 431,1452464,617 853,567

1,685,020

1,633,1&l3,318,184

Balances to be Recovered 1,656,852 1,015,260 2,672,112

Divided By MWh Subject to PSCR1999 (Sept-Dee)2000200120022003

Total MWH

672,000 315,1001968,000 939,0001,989,OOO 964,0002,014,OOO 985,0002,040,OOO 1,006,0008,683,OOO 4,209,100

Increment to Recover Other Variances and0% of Replacement Power Costs ($/kWH) 0.00019 0.00024


0.00113 -0.0016d


Factor Revenues Collected September 1999through December 2003 11,459,959 (5,971 ,w

Combined5,488,113

Note: The utility/staff data in this table, including total underrecoveries, replacement costs, PSCR MWh, came fromsettlement Exhibit B and have not been independently verified. Full consideration of fuel cost changes, purchase powerprices, merger efficiency savings and other factors may result in modifications to the underlying data.

Exhibii I-- (JEM-2)Modification 4

l&M Michgan Jurisdiction - Alternate Exhibit B to I&M/MPSC Staff Proposed SettlementModification for 48 Day Refueling Outage

St. JaeTotal Underrecoveries (Exct. Interest)

19971998Total

2,713,213 I,638758 4,351,97113,497,319 4,731,246 18228,56516,210,532 6,370,004 22580,536


3,021,777 1,023,996 4845,773IO,048548 3,762,906 13,811,45413,070,325 4,786,902 17,857,227


(308,564) 614,762 306,1983,448,771 968,340 4,417,1113.140,207 1,583,102 4,723,309



(308,564) 614,762 306,1983448,771 968,340 4,417,1113,140,207 1,583,102 4,723,309

Less Estimated 1999 OverrecovedesApproved PSCR Factor $/MVVh at CF of 55%Estimated PSCR Factor $/MWh at CF of 90%Jan-April 1999 MWHJan-April 1999 RevenuesMay-August 1999 MWHMay-August 1999 RevenuesEstimated Total 1999 Overrecoveries

3.04 -0.231.13 -1.66

660,700 295,4001,262,598 422,422

629,000 301,5001,202,019 431,1452464,617 853,567

1,685,020

1,633,1643,318,184

Balances to be Recovered 675,590 729,535 1,405,125

Divided By MWh Subject to PSCR1999 (Sept-Dee)20002 0 0 120022003

Total MWH

672,000 315,1001968,000 939,0001,989,OOO 964,ooo2,014,OOO 985,0002640,000 1,006,0008,683,OOO 4,209,100

Increment to Recover Other Variances and0% of Replacement Power Costs (!$/kWH)


0.00008 0.00017

0.00113 -0.00166


Factor Revenues Collected September 1999through December 2003 lo,478697 (6,257,571)

Combined.4,221,126

Three Rivers Total

Note: The utility/staff data in this table, including total underrecoveries, replacement costs, PSCR MWh, came fmmsettlement Exhibit B and have not been independently verified. Full conskteration of fuel cost changes, purchase powerprices, merger efficiency savings and other factors may resutt in modifications to the underlying data.

Exhibit I-- (JEMa).

Exhibit I-- (J-EM-a.

..

. .

.

*.‘.

Exhibit I-- ww3)

Exhibit I-- (JEM-3)

.

Exhibit I-- (JEW)

Based up al1 the fomgctiug, rhc Commission Euds that SDTs Pccitioa to Intcn~~ Mbe tied

Exhibit I-- (JEM-3)

.

Exhibit I-- (JEM3)

Exhibit I-- WM;3)

3 . The P&ion to fnm~cnc f?kd by SDIshaU be and hurcby is DENIED.

d

..i .

..

l

.

Exhibit I--(JEMS

STIP!,kATION ~i+4D SFflZEMErNT AGRXEMENT

ptia IO Case No. ~&~oz-FACU)(S!) astd having hem duly advIsed by Thor rupestk M/

Exhibit I-- @MS)

Srzus md ConcUrions of &reed FInal Order

:

Exhibit I-- (JEMS)

Exhibit I--ww3

Exhibit I-- (JEM3)

Exhibit I-- (JEW31.

.

Exhibit I-- (JEW)

.

Exhibit I-- (JEM3)

21. EP will be au~huriad. to cminuc the fludhle finsding m pnviwsry

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Exhibit I-- (JEW)

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Documents

AMENDED TESTIMONY OF JERRY E. MENDL