S T A T E O F ... BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * *

STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
*****
In the matter, on the Commission’s own motion,
to require WISCONSIN ELECTRIC POWER
COMPANY to show cause why it should not be
prohibited from suspending operation of or retiring
the Presque Isle Power Plant.
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Case No. U-17829
At the February 10, 2015 meeting of the Michigan Public Service Commission in Lansing,
Michigan.
PRESENT: Hon. John D. Quackenbush, Chairman
Hon. Greg R. White, Commissioner
Hon. Sally A. Talberg, Commissioner
ORDER AND NOTICE OF HEARING
Wisconsin Electric Power Company (Wisconsin Electric) is a public utility that serves electric
customers in the states of Wisconsin and Michigan. Wisconsin Electric’s retail electric utility
operation generates, distributes, and sells electric energy to more than 1.1 million retail customers
in southeastern, east central, and northern Wisconsin, and in the Upper Peninsula of Michigan.
Wisconsin Electric is the largest electric utility in the state of Wisconsin, with a service territory
that includes the metropolitan Milwaukee area. Wisconsin Electric’s Michigan service territory
includes the Upper Peninsula counties of Alger, Baraga, Delta, Dickinson, Gogebic, Houghton,
Iron, Marquette, Menominee, and Ontonagon.
Wisconsin Electric’s retail operations in Wisconsin are subject to regulation by the Public
Service Commission of Wisconsin (PSCW). This Commission regulates Wisconsin Electric’s
retail operations in Michigan. In addition, the company serves wholesale customers in both
Wisconsin and Michigan. The utility’s wholesale operations in both states are subject to
regulation by the Federal Energy Regulatory Commission (FERC).
Currently, PSCW and the Commission share the regulation of Wisconsin Electric’s retail
electric operations via a “slice of system” approach. Each regulatory body looks at the company’s
operations as a whole, and then through traditional rate case functionalization,1 classification,2 and
allocation3 processes, each jurisdiction’s share of the company’s revenue requirement is
determined. Both the PSCW and this Commission have used demand and energy allocators to
determine each state’s share of Wisconsin Electric’s fixed production costs. Under this
methodology, each state’s share of fixed production costs has been determined by its proportional
contribution to Wisconsin Electric’s total system demand and energy sales. As one state’s demand
and energy usage increased or decreased relative to the other state, and relative to the utility’s total
system demand and energy, that state’s share of Wisconsin Electric’s fixed production costs have
correspondingly increased or decreased.
The existing paradigm under which Wisconsin Electric, PSCW, and the Commission had been
operating started to come under stress in 2013 due to some substantial changes to Wisconsin
Electric’s Michigan customer base. Prior to May 2013, none of Wisconsin Electric’s Michigan
retail customers had opted to become a retail access service (RAS or choice) customer. In May
2013, Wisconsin Electric began to receive notifications from small primary customers that they
1
Functionalization is the process of categorizing costs based on their function within the
utility. Generally, costs are functionalized as production, transmission, or distribution.
2
Classification is the process of categorizing costs based on whether they are related to
demand, energy, or customers.
3
Allocation is the process of assigning costs to certain groups of customers based on how
these costs are functionalized and classified.
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U-17829
intended to switch from being full requirements customers of Wisconsin Electric to receiving
service from alternative electric suppliers (AESs) under Michigan’s choice provisions in Public
Act 286 of 2008; MCL 460.10 et seq. By July 21, 2013, Wisconsin Electric had received
enrollment forms from customers whose annual loads comprised approximately 173,731
megawatt-hours (MWh) of the total projected Michigan usage of 2,547,768 MWh from the
company’s most recent rate case order. Then, its two largest customers, Tilden Mining Company
L.C. and Empire Iron Mining Partnership (the Mines), both of which are Upper Peninsula iron ore
mining facilities that collectively account for around 80% of Wisconsin Electric’s Michigan load,
submitted choice enrollment forms.
The timing and order of the departures of these customers to choice service was critical.
Under Michigan law, only 10% of an electric utility’s load could select to switch to choice
service.4 However, an unlimited amount of load of a customer operating an iron ore mining
facility, iron ore processing facility, or both, located in Michigan’s Upper Peninsula is authorized
to be served by an AES.5 Combined, the customer losses to choice providers reduced Wisconsin
Electric’s full service Michigan load by over 85%.
On August 1, 2013, Wisconsin Electric submitted an Attachment Y notification to
Midcontinent Independent System Operator, Inc. (MISO), for the suspension of facilities at its
Presque Isle Power Plant (PIPP) located in Marquette, Michigan, beginning on February 1, 2014,
with operations resuming June 1, 2015. Under the August 1, 2013 Attachment Y notification, the
PIPP’s operations would have resumed before the Mercury and Air Toxics Standards (MATS)
would go into effect. After completing its Attachment Y analysis, on October 16, 2013, MISO
4
MCL 460.10a(1)(a).
5
MCL 460.10a(1)(d).
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U-17829
notified Wisconsin Electric that the PIPP would be designated a System Support Resource (SSR),
and indicated that the proposed suspension of the PIPP would result in violations of specific
applicable reliability standards. Wisconsin Electric and MISO negotiated an SSR agreement for
keeping the PIPP in operational status for grid reliability purposes.6 MISO filed the original SSR
suspension agreement with the FERC in Docket Nos. ER14-1242 and ER14-1243.
On August 13, 2013, Wisconsin Electric sought accounting authority from this Commission in
an effort to obtain approval to use deferred accounting for all of the PIPP’s production costs,
except variable costs related to fuel, that were intended to be recovered via demand and energy
rates applicable to energy sold to Michigan customers that switched to choice service and no
longer purchase energy directly from Wisconsin Electric. On August 29, 2013, the Commission
issued an order in Case No. U-17463 granting the company’s application subject to limitations
“consistent with the manner in which the “slice of system” regulation of Wisconsin Electric has
been conducted in the past.” Order, p. 10.
After approval of the SSR agreement by the FERC, PSCW filed an action at the FERC, which
was docketed as Docket No. EL14-34-000, challenging provisions for the assignment of costs
associated with the SSR agreement. By this action, PSCW was seeking to change the existing
allocation of costs between Wisconsin Electric’s Michigan and Wisconsin service territories for
the SSR payments.7
6
The annual payment to Wisconsin Electric was established as $52.23 million for the plant’s
operational costs. Some of this amount was for capital improvements and other fixed costs
associated with the plant.
7
PSCW urged FERC to adopt a 58% (Michigan) to 42% (Wisconsin) split rather than the 8%
(Michigan) to 92% (Wisconsin) split embedded in MISO’s tariffs. The percentage cost sharing
under the slice of system approach followed in Michigan and Wisconsin for ratemaking is
remarkably similar to the 8% versus 92% split embedded in MISO’s tariffs. On July 29, 2014, the
FERC granted that request. The effect of the FERC’s July 29 decision is to radically reallocate the
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U-17829
On May 13, 2014, the Commission issued an order finding that Wisconsin Electric failed to
comply with the reporting requirements contained in the December 19, 2013 order in Case
No. U-17523, which the Commission had opened for the purpose of directing electric utilities
regulated by the Commission to submit a self-assessment of their respective abilities to meet their
customers’ expected electric requirements during the three-year period of 2014 through 2016.
The Commission directed the company to file additional information by June 2, 2014. In the event
that the newly filed information was determined to be inadequate, the Commission set a
prehearing conference to be held on June 26, 2014, in a proceeding directing Wisconsin Electric to
show cause why it should not be fined or sanctioned for violation of the December 19 order. In
particular, the Commission directed Wisconsin Electric to file information regarding its plans for
retrofitting the PIPP, and to disclose any plans for adding generation in the transmission
constrained Upper Peninsula region. On June 2, 2014, Wisconsin Electric submitted 339 pages of
documentation in response to the Commission’s May 13 order. At that time, the Commission
Staff (Staff) found the submission to be adequate as it was predicated on Wisconsin Electric
continuing to run the PIPP. As a result, on June 19, 2014, the Commission issued an order
terminating the show cause proceeding and canceling the prehearing conference.
Subsequent to June 19, 2014, numerous new filings, and a few decisions, have been made in
myriad proceedings before the FERC addressing the severity of the situation in the Upper
Peninsula with regard to the distribution and reliability of electric supply, and the future role of the
PIPP in that supply. See, e.g., Minute Action re Wisconsin Public Service Commission,
Midcontinent Independent System Operator, Inc., North American Electric Reliability
recovery of these costs. See, Midcontinent Independent System Operator, Inc., 148 FERC ¶
61,071 (2014) (July 29 Order).
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Corporation, and Wisconsin Electric Power Company, September 26, 2014, and Minute Action re
federal interventions, complaints, and protests, November 24, 2014. On September 12, 2014,
Wisconsin Electric revised its Attachment Y notice to MISO changing the suspension of the PIPP
to a retirement for the period October 15, 2014 to February 1, 2016.
All of the matters involving the PIPP raise issues of grave concern to Upper Peninsula
ratepayers. Wisconsin Electric’s own prepared direct testimony in Case No. U-17213 raised
serious questions about the utility’s ability to serve the needs of customers in the Upper Peninsula.
Indeed, Wisconsin Electric specifically averred in Paragraph 7 of the application in Case No.
U-17213 that “[t]hus, retiring the PIPP units without first significantly upgrading the transmission
system in the Upper Peninsula or and/or installing appropriate replacement generation resources
would violate reliability standards.” Application, Case No. U-17213, pp 5-6. Additionally,
MISO’s determination through the Attachment Y process and American Transmission Company’s
(ATC) recent modeling of the transmission system verify that Wisconsin Electric cannot serve
customers without the PIPP in service.8 The Mines returned to full requirements electric service
provided by Wisconsin Electric on February 1, 2015, which raises even more serious concerns
about the utility’s ability to serve its customers.
Electric utilities regulated by the Commission are legally required to plan to meet the needs of
their customers. MCL 460.6j, R 460.3503, and R 460.721 speak to this duty. For example,
R 460.721 provides:
An electric utility shall plan to operate and maintain its distribution system in a
manner that will permit it to provide service to its customers without experiencing an
unacceptable level of performance as defined by these rules.
R 460.3503 provides:
8
ATC Presentation, U.P. Energy Summit, Marquette, Michigan, October 28, 2014, a copy
can be downloaded at http://www.atcllc.com/oasis/Customer_Notices/PresentationFrench.pdf.
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U-17829
The electric capacity regularly available from all sources shall be large enough to
meet all normal demands for service and to provide a reasonable reserve for
emergencies.
Indeed, at the heart of the relationship between a public utility and its customers is an obligation to
serve those customers through the provision of safe and adequate service at just and reasonable
rates. “The duty to serve is a cardinal obligation imposed upon all public utilities.”9 The duty to
serve was statutorily established in Michigan for railroads through adoption of Section 4(a) of
1909 PA 300 (Act 300), which created the Michigan Railroad Commission:
Every common carrier is hereby required to furnish reasonably adequate service and
facilities and shall provide and furnish transportation of passengers and property upon
reasonable requests thereof.
MCL 462.4(a). In 1919, the Michigan Railroad Commission’s authority was transferred to the
newly-created Michigan Public Utilities Commission (MPUC), which was vested with “the same
measure of authority with reference to such utilities” as the Railroad Commission once had over
railroads.10 In 1939, the current Commission replaced the MPUC, but retained “all rights,
privileges, and the jurisdiction in all respects” as had been conferred upon the MPUC.11
Numerous court decisions establish that, whether it be by extension of Act 300, or on other
bases, public utilities in Michigan have an obligation to serve their customers. For example, the
Michigan Supreme Court cited with approval a trial court’s opinion regarding the grant to a public
utility of the right to use the streets and the corollary obligation to serve the public:
In granting the use of the streets for public utility purposes, the legislature recognized
the public purpose to be subserved through such use. The legislature tendered the use
of the streets for public utility purposes to such individuals and corporations as would
9
The Economics of Public Regulation, Irston R. Barnes, Yale University; F.S. Crafts & Co.,
New York, New York, 1942.
10
Section 4 of 1919 PA 419, MCL 460.54.
11
Section 4 of 1939 PA 3, MCL 460.4.
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provide the public with a necessary utility service, knowing that the creation of such a
utility and its service would entail the expenditure of large sums of money and benefit
the public by providing a common service of the utility, knowing also that as soon as
it should be installed in the public streets it would become affected with a public
interest, and that its owner would have to surrender the right to serve whom and where
it willed, or to charge as it willed, and that it would become subject to the laws
regulating public service corporations.12
The Michigan Supreme Court has also held that, where regulation applies:
In such case the company whose business is subjected to the regulation is not deprived
of the title to or possession of its property, but it may be required to forego profits
which it might otherwise receive; to apply its property, within the dedicated use, to
some purpose contrary to its wishes; to expend its money as it would not otherwise
expend it; to perform service it would not perform except for the regulation; and to
submit to losses which it would prefer to avoid.13
It should be noted that the United States Supreme Court has concluded that the enforcement of
the obligation to serve is one of the primary purposes for state regulatory commissions:
Corporations which devote their property to a public use may not pick and choose,
serving only the portions of the territory covered by their franchises which it is
presently profitable for them to serve, and restricting the development of the
remaining portions by leaving their inhabitants in discomfort without the service
which they alone can render. To correct this disposition to serve where it is profitable
and to neglect where it is not is one of the most important purposes for which these
administrative commissions, with large powers, were called into existence, with an
organization and with duties which peculiarly fit them for dealing with problems such
as this case presents.14
Finally, the Commission has held that an electric utility has an obligation to ensure that its
customers’ electricity needs are reliably met, with the exception of areas where the loss would be
excessive and unreasonable. November 28, 1977 order in Case No. U-5483, pp. 11-12; June 3,
2004 order in Case No. U-14109, pp. 3-6.
12
City of Lansing v Michigan Power Co, 183 Mich 400, 410; 150 NW 250 (1914).
13
Michigan State Telephone Co v Michigan Railroad Comm, 193 Mich 515, 524 (1916).
14
People ex rel New York and Queens Gas Co v McCall, 245 US 345, 351; 38 S Ct 122; 62 L
Ed 337 (1917).
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The law demonstrates that Wisconsin Electric has an obligation to serve the customers in its
territory; but, at present, Wisconsin Electric is unable to provide the Commission with assurance
of a reliable supply of electric service given it has announced its intention to retire the PIPP
despite the Mines’ February 1, 2015 return as customers of Wisconsin Electric. In particular, the
Commission emphasizes that the urgent problem of constrained capacity in the Upper Peninsula
will continue for multiple years. In light of the events described above, the Commission directs
Wisconsin Electric to show cause in this docket why it should not be prohibited from suspension
or retirement of the operation of the PIPP.
Toward this end, the Commission orders Wisconsin Electric to appear at a 10:00 am
prehearing conference on February 25, 2015, at the Commission’s Lansing offices, 7109 West
Saginaw Highway, Lansing, Michigan, 48917. The prehearing conference will be conducted by
Administrative Law Judge Suzanne D. Sonneborn (ALJ). At the prehearing conference, the ALJ
shall rule on petitions to intervene, if any, and establish a schedule for the progress of this
proceeding, which should be conducted on an expedited basis. For guidance, the Commission
suggests that the ALJ adhere to the following proposed schedule, if possible:
Prepared direct testimony from all parties – March 4, 2015.
Rebuttal testimony from all parties – March 11, 2015.
Motions to strike – March 16, 2015.
Evidentiary hearing – March 19, 2015.
Briefs – March 26, 2015.
Reply briefs – April 2, 2015.
No Proposal for Decision need be prepared because the Commission intends to read the
record.
Page 9
U-17829
The ALJ shall be free to modify and/or lengthen the schedule, if necessary, to ensure meaningful
participation by all parties without obtaining permission from the Commission to do so.
Wisconsin Electric’s direct testimony shall explain how the utility can fulfill its obligation to
serve its customers, including the Mines, if the PIPP is retired or suspended.
All documents filed in this case shall be submitted electronically through the Commission’s
E-Dockets Website at: michigan.gov/mpscedockets. Requirements and instructions for filing can
be found in the User Manual on the E-Dockets help page. Documents may also be submitted, in
Word or PDF format, as an attachment to an e-mail sent to [email protected]. If you
require assistance prior to e-filing, contact the Commission Staff at (517) 284-8100 or by e-mail at
[email protected]. All information received by the Commission will become public.
THEREFORE, IT IS ORDERED that:
A. Wisconsin Electric Power Company shall appear at a 10:00 am prehearing conference on
February 25, 2015, at the Commission’s Lansing offices, 7109 West Saginaw Highway, Lansing,
Michigan, 48917, to show cause why it should not be prohibited from suspending operation of or
retiring the Presque Isle Power Plant.
B. Administrative Law Judge Suzanne D. Sonneborn shall rule on petitions to intervene and
establish a schedule for the remainder of the proceeding at the February 25, 2015 prehearing
conference. The schedule outlined in the body of the order is illustrative, and may be modified, if
necessary.
C. The Commission’s Executive Secretary shall serve copies of this order on Wisconsin
Electric Power Company, and on all intervenors in Wisconsin Electric Power Company’s most
recently completed rate case, Case No. U-16830, and on all intervenors in the utility’s most
recently filed power supply cost recovery plan and reconciliation proceedings.
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D. Interested persons shall file petitions to intervene in this proceeding no later than
February 18, 2015.
E. The Commission’s Executive Secretary shall arrange for expedited transcripts of the
hearings.
The Commission reserves jurisdiction and may issue further orders as necessary.
MICHIGAN PUBLIC SERVICE COMMISSION
________________________________________
John D. Quackenbush, Chairman
________________________________________
Greg R. White, Commissioner
________________________________________
Sally A. Talberg, Commissioner
By its action of February 10, 2015.
________________________________
Mary Jo Kunkle, Executive Secretary
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U-17829
PROOF OF SERVICE
STATE OF MICHIGAN )
Case No. U-17829
County of Ingham
)
Joanna Klein being duly sworn, deposes and says that on February 10, 2015 A.D. she
served a copy of the attached Commission order by first class mail, postage prepaid, or by
inter-departmental mail, to the persons as shown on the attached service list.
_______________________________________
Joanna Klein
Subscribed and sworn to before me
th
This 10 day of February 2015
_________________________________
Steven J. Cook
Notary Public, Ingham County, Michigan
As acting in Eaton County
My Commission Expires: April 30, 2018
Service List U-17829
Amit T. Singh
Michigan Dept. of Attorney General
Public Service Division
7109 W. Saginaw Hwy.
Lansing MI 48917
Ronald W. Bloomberg
Miller, Canfield, Paddock & Stone, P.L.C.
One Michigan Avenue, Suite 900
Lansing MI 48933
I. D. M A I L
Suzanne D. Sonneborn
DLARA/MAHS - MPSC Hearings
7109 W. Saginaw Hwy.
Lansing MI 48917
Heather M. S. Durian
Michigan Dept. of Attorney General
Public Service Division
7109 W. Saginaw Hwy.
Lansing MI 48911
I. D. M A I L
I. D. M A I L
Jennifer U. Heston
Fraser Trebilcock David & Dunlap PC
124 W. Allegan Street, Suite 1000
Lansing MI 48933
Michael G. Oliva
Loomis Ewert Parsley Davis & Gotting PC
124 W. Allegan Street, Suite 700
Lansing MI 48933
Michael C. Rampe
Miller Canfield Paddock & Stone PLC
One E. Michigan Avenue, Suite 900
Lansing MI 48933
Leland R. Rosier
Clark Hill PLC
212 E. Grand River Avenue
Lansing MI 48906
Sherri A. Wellman
Miller Canfield Paddock & Stone
One Michigan Avenue, Suite 900
Lansing MI 48933
Wisconsin Electric Power Company a/k/a
Wisconsin Energy Corporation
Mr. Gale Klappa
231 W. Michigan Street, P440
Milwaukee WI 53203
Service List U-17829
Constance DeYoung Groh
John R. Liskey Attorney at Law, PLLC
921 N. Washington Avenue
Lansing MI 48906
Bryan A. Brandenburg
Michigan Dept. of Attorney General
Public Service Division
7109 W. Saginaw Hwy.
Lansing MI 48917
I. D. M A I L
John R. Liskey
Attorney at Law, PLLC
921 N. Washington Avenue
Lansing MI 48933
PROOF OF SERVICE
STATE OF MICHIGAN )
Case No. U-17829
County of Ingham
)
Lisa Felice being duly sworn, deposes and says that on February 10, 2015 A.D. she
electronically notified the attached list of this Commission Order (Commission’s Own
Motion) via e-mail transmission, to the persons as shown on the attached service list
(Listserv Distribution List).
_______________________________________
Lisa Felice
Subscribed and sworn to before me
this 10th day of February 2015
_____________________________________
Steven J. Cook
Notary Public, Ingham County, Michigan
As acting in Eaton County
My Commission Expires: April 30, 2018
[email protected] Mid American
[email protected] Noble Americas
[email protected]
Village of Baraga
[email protected]
Linda Brauker
[email protected]
Village of Clinton
[email protected]
CMS Energy Resource Mgt Co
[email protected]
Tri-County Electric Co-Op
[email protected]
Tri-County Electric Co-Op
[email protected]
Tri-County Electric Co-Op
[email protected]
Aurora Gas Company
[email protected]
Citizens Gas Fuel Company
[email protected]
Consumers Energy Company
[email protected]
Consumers Energy Company
[email protected]
SEMCO Energy Gas Company
[email protected]
Superior Energy Company
[email protected]
Upper Peninsula Power Company
[email protected] Wisconsin Electric Power Company
[email protected]
Midwest Energy Coop
[email protected]
Midwest Energy Coop
[email protected]
Alger Delta Cooperative
[email protected] Bayfield Electric Cooperative
[email protected]
Cherryland Electric Cooperative
[email protected]
Cloverland Electric Cooperative
[email protected]
Great Lakes Energy Cooperative
[email protected]
Liberty Power Deleware (Holdings)
[email protected]
Stephson Utilities Department
[email protected]
Ontonagon Cnty Rural Elec
[email protected]
Presque Isle Electric & Gas Cooperative, INC
[email protected]
Thumb Electric
[email protected]
Bishop Energy
[email protected]
BlueStar Energy
[email protected]
CMS Energy
[email protected]
Commerce Energy
[email protected]
Constellation Energy
[email protected] Constellation Energy
[email protected] Constellation Energy
[email protected]
Constellation New Energy
[email protected]
Constellation New Energy
[email protected]
DTE Energy
[email protected]
DTE Energy
[email protected]
Duke Energy
[email protected]
Duke Energy
[email protected]
First Energy
[email protected]
Lakeshore Energy
[email protected]
MidAmerican Energy
[email protected]
My Choice Energy
[email protected]
Noble American Energy
[email protected]
Santana Energy
[email protected]
Spartan Renewable Energy, Inc. (Wolverine Po
[email protected]
Xcel Energy
[email protected]
City of Escanaba
[email protected]
City of Crystal Falls
[email protected]
Lisa Felice
[email protected]
Michigan Gas & Electric
[email protected]
City of Gladstone
[email protected]
Integrys Group
[email protected]
Lisa Gustafson
[email protected]
Tim Hoffman
[email protected]
Interstate Gas Supply Inc
[email protected]
Thomas Krichel
[email protected]
Bay City Electric Light & Power
[email protected]
Grand Haven Board of Light & Power
[email protected]
Lansing Board of Water and Light
[email protected]
Marquette Board of Light & Power
[email protected] Premier Energy Marketing LLC
[email protected] City of Marshall
[email protected]
Doug Motley
[email protected]
Mary Jo Kunkle - MPSC
[email protected]
Nicholas Nwabueze
[email protected]
Marc Pauley
[email protected] City of Portland
[email protected]
Alpena Power
[email protected]
Liberty Power
[email protected]
Wabash Valley Power
[email protected]
Wolverine Power
[email protected]
Lowell S.
[email protected]
Integrys Energy Service, Inc WPSES
[email protected]
Realgy Energy Services
[email protected]
Volunteer Energy Services
[email protected]
First Energy Solutions
[email protected]
Noble Energy Solutions
[email protected]
Coldwater Board of Public Utilities
[email protected]
Hillsdale Board of Public Utilities
[email protected]
Hillsdale Board of Public Utilities
[email protected]
Mich Gas Utilities/Upper Penn Power/Wisconsi
[email protected] Mich Gas Utilities/Qwest
[email protected]
Zeeland Board of Public Works
[email protected]
Grand Haven Board of Light & Power
[email protected] Direct Energy
[email protected] Direct Energy
[email protected] Direct Energy
[email protected]
Direct Energy