STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
*****
In the matter of the application of
)
THE DETROIT EDISON COMPANY for
)
authority to increase its rate for the generation
)
and distribution of electricity and for other relief
)
________________________________ __________ )
AMI REMAND
Case No.
U-16472
NOTICE OF PROPOSAL FOR DECISION
The attached Proposal for Decision is being issued and served on all parties of
record in the above matter on July 17, 2014.
Exceptions, if any, must be filed with the Michigan Public Service Commission,
4300 West Saginaw, Lansing, Michigan 48917, and served on all other parties of record on
or before August 7, 2014, or within such further period as may be authorized for filing
exceptions. If exceptions are filed, replies thereto may be filed on or before August 21, 2014.
The Commission has selected this case for participation in its Paperless Electronic
Filings Program. No paper documents will be required to be filed in this case.
At the expiration of the period for filing exceptions, an Order of the Commission will
be issued in conformity with the attached Proposal for Decision and will become effective
unless exceptions are filed seasonably or unless the Proposal for Decision is reviewed by
action of the Commission. To be seasonably filed, exceptions must reach the Commission
on or before the date they are due.
MICHIGAN ADMINISTRATIVE HEARING
SYSTEM
For the Michigan Public Service Commission
Theresa A.G.
Staley
_____________________________________
Digitally signed by Theresa A.G.
Staley
DN: cn=Theresa A.G. Staley, o, ou,
[email protected], c=US
Date: 2014.07.16 16:19:45 -04'00'
Theresa A.G. Staley
Administrative Law Judge
July 17, 2014
Lansing, Michigan
STATE OF MICHIGAN
MICHIGAN ADMINISTRATIVE HEARING SYSTEM
FOR THE MICHIGAN PUBLIC SERVICE COMMISSION
*****
In the matter of the application of
)
THE DETROIT EDISON COMPANY for
)
authority to increase its rate for the generation
)
and distribution of electricity and for other relief
)
________________________________ __________ )
AMI REMAND
Case No.
U-16472
PROPOSAL FOR DECISION
I.
BACKGROUND
This case is before the Commission on remand from the Michigan Court of
Appeals. The portion of the case on remand involves DTE Electric Company’s (“DTE,”
“Company” or “Detroit Edison”) request for funding for its advanced metering
infrastructure program (“AMI” or “smart meter”). The AMI program is a program which
utilizes new electric meters that use wireless technology to transmit meter reads and
other information to the Company’s offices.
Although the Michigan Public Service
Commission (“Commission” or “PSC”) approved funding in Case No. U-16472, the
Michigan Court of Appeals reversed this decision. In its analysis, the Michigan Court of
Appeals referenced and relied on a previously reviewed case, In re Application of
Detroit Edison, 296 Mich App 101 (2012) (“Detroit Edison I”), which addressed issues
substantially similar to those at issue in this matter (hereinafter referred to as “Detroit
Edison II” or “this matter”).1 See In re Application of Detroit Edison Company, 2013 WL
3942468 (Mich App 2013). The Court of Appeals noted in its July 30, 2013 Order in this
matter that it previously determined that the AMI program “was expensive and
commercially untested, exposed ratepayers to significant economic risk, while the
evidence to justify the expense consisted of mere ‘aspirational testimony’ concerning
expectations for the project.” Detroit Edison II, p 2, citing Detroit Edison I, pp 114-115.
The Court of Appeals in Detroit Edison II went on to say that its concern was, “whether
the evidence of record in this case better justified the AMI funding involved than was the
case in [Detroit Edison I].” It answered: “we think not.” Detroit Edison II, p 2.
The Court of Appeals in this matter determined,
Detroit Edison does not offer any basis for concluding specifically that the
evidence available to the PSC in this case went beyond the merely
“aspirational” and speculative testimony found wanting in [Detroit Edison
I]. Indeed, Detroit Edison likened the evidence supporting the AMI funding
in this case to that presented in the earlier one that led to this Court’s
disapproval and remand, thus, seemingly conceding that the result is
equally appropriate here, given the binding authority of [Detroit Edison I].
See MCR 7.215(J)(1).
Detroit Edison II, p 3.
As a result, the Court of Appeals in this matter stated,
For these reasons, we follow the example of [Detroit Edison I], and
remand this case to the PSC for further hearing on the AMI program, with
instructions to consider “evidence related to the benefits, usefulness, and
potential burdens of the AMI , specific information gleaned from pilot
phases of the programs regarding costs, operations, and customer
response and impact, an assessment of similar programs initiated here or
in other states, risks associated with AMI, and projected effects on rates.”
Detroit Edison II, p 4, citing Detroit Edison I, p 116.
1
Detroit Edison I was the remand of issues related to AMI in MPSC Case No. U-15768.
U-16472 On Remand
Page 2
The following is a detailed analysis of the information and evidence presented by
the parties on remand.
II.
HISTORY OF PROCEEDINGS
This is the second case on remand from the Michigan Court of Appeals related to
DTE’s request for funding for the AMI program. The first involved MPSC Case No.
U-15768. In that case, the Commission decision regarding AMI funding was reversed
and remanded for further proceedings (Detroit Edison I). After remand proceedings
were concluded, the Commission issued its Order on October 17, 2013, again
approving cost recovery to DTE for its AMI program.
A petition for rehearing was
denied by the Commission in that matter on December 19, 2013, and was not appealed
further by the parties.
In this matter, the Commission issued an order on October 20, 2011, approving
DTE’s request to recover its costs associated with its AMI program. The Michigan Court
of Appeals, in an unpublished opinion dated July 30, 2013, relied heavily on its decision
in Detroit Edison I and reversed that decision. Again, the Court of Appeals remanded
this matter to the Commission for a full hearing on the AMI program. Detroit Edison II,
p 4.
In its Order Reopening Proceeding issued on August 29, 2013, the Commission
found that MPSC Case No. U-16472 should be reopened and directed the reopening of
the case “for the limited purpose of addressing the Court of Appeals’ opinion and order
in [Detroit Edison II].”
U-16472 On Remand
Page 3
Order Reopening Proceeding, p 3.
In that Order, the
Commission established a prehearing conference before ALJ Theresa A. Sheets (n/k/a
ALJ Theresa A. G. Staley) for September 16, 2013, to set an appropriate schedule for
the remainder of the proceedings.
On September 16, 2013, a prehearing conference was held. At the prehearing
conference, a schedule was established for the within proceedings. On October 30,
2013, the Company filed its the testimony and exhibits.
On December 11, 2013, Staff
and the AG filed testimony and exhibits. On January 10, 2014, the Company, Staff, and
AG filed rebuttal testimony.
Cross examination was conducted on February 11, 2014, and February 28,
2014. On February 11, 2014, the Company’s witnesses, Paul G. Horgan and Robert E.
Sitkauskas, were subject to cross-examination and their prefiled testimony and exhibits
were bound into the record and received into evidence. On that same day, Staff’s
witnesses, Nicholas M. Evans and Daniel M. Birkam, were subject to cross-examination
and their prefiled testimony and exhibits were bound into the record and received into
evidence.
On February 28, 2014, the AG’s witness, Michael J. McGarry, Sr., was
subject to cross-examination and his prefiled testimony was bound into the record. The
parties submitted briefs on March 26, 2014, and reply briefs on April 14, 2014.2
The evidentiary record is contained in 302 pages of transcribed testimony and
5 exhibits.
2
The AG’s Initial Brief was officially filed to the e-docket on March 27, 2014, and his Reply Brief was filed
to the e-docket on April 15, 2014.
U-16472 On Remand
Page 4
III.
TESTIMONY
A.
DTE’s Position
DTE’s witness, Robert E. Sitkauskas, Manager of the Advanced Metering
Technology, testified on behalf of the Company.
Mr. Sitkauskas testified that the
purpose of his testimony was to support DTE’s AMI project, including, (1) providing
information regarding projected operation and maintenance (O&M) expenses and
capital expenditures, (2) providing a brief background on AMI efforts at DTE,
(3) explaining the benefits realized to date by the Company’s ratepayers, (4) explaining
the expected benefits in the future to utility ratepayers, (5) reporting on the progress
made with AMI resulting from the pilot programs (including both successes and
challenges), and (6) providing a detailed cost/benefit analysis regarding AMI. 2 Tr 43.
In support of his testimony, Mr. Sitkauskas sponsored Exhibits A-2 (AMI-Cost/Benefit
Analysis), A-3 (AMI-Savings Categories), and A-4 (AMI-Financial Summary).
1. Background of AMI
As background regarding AMI, Mr. Sitkauskas testified that, in the AMI project,
there are three (3) distinct areas of operation. The first is territories serving only DTE
Electric customers (“Electric Only” territories), the second is territories that have both
DTE Electric and DTE Gas customers (“Overlap” territories), and the third is territories
serving only gas customers (“Greater Michigan” territories). 2 Tr 44. According to Mr.
Sitkauskas, all three (3) areas have historically been serviced by meter readers that
manually read the electric and gas meters. 2 Tr 44-45.
U-16472 On Remand
Page 5
Mr. Sitkauskas testified that AMI is a two-way fixed communication network that
is constructed using proven technology to automatically read and monitor all electric
and gas meters and control electric meters instead of relying on manual actions.
2 Tr 45. For Electric Only and Overlap territories, the AMI system allows for remote
reading of meters, and in Greater Michigan territories, or gas only territories, the AMR (a
module similar to the one installed for the AMI solution)
allows for drive-by meter
reading, but lacks the two-way communication functionality. 2 Tr 45.
Mr. Sitkauskas testified that before deploying the AMI system for both DTE
Electric and DTE Gas, it assembled a team in 2006 to review the possible deployment
of an AMI system. 2 Tr 45-46. The team visited vendor sites, utilities with completed
installations, and attended various seminars and learning sessions within the industry.
2 Tr 46. In December 2006, a RFP was issued and vendor proposals were received in
February 2007. Id. Mr. Sitkauskas testified that a detailed and thorough review of the
proposals followed by an “intense negotiation period,” was conducted, after which Itron,
a “leader in the AMI and meter industry,” was selected as the vendor. Id. A contract
was signed with Itron on July 16, 2008, which provided for an initial pilot program
entailing the installation of approximately 10,000 meters (4,000 gas and 6,000 electric)
in Gross Ile (an Overlap territory). 2 Tr 45-46.
2. Development of Pilot Program
Mr. Sitkauskas then testified to the first phase of the pilot program conducted in
the community of Grosse Ile, selected because it was a community with “distinct
boundaries” from which the Company could test. 2 Tr 49. He testified to installation of
AMI meters in the pilot area and indicated that DTE has been using AMI reads in its
U-16472 On Remand
Page 6
billing system since about February, 2009, and the customers have “received the
benefit of AMI technology since that time.” Id.
Mr. Sitkauskas testified that the three (3) major areas focused on in the pilot
program -- meter reading and bill accuracy, identification of unauthorized use of
electricity, and remote disconnect and reconnect -- have all demonstrated improvement.
Specifically, meter reading and bill accuracy were “markedly” improved, accurate
remote meter reads for both gas and electric were very successful, manual reading
performance was surpassed by the AMI system, read rate averages were steadily over
98% daily and over 99% on the monthly billing reads, monthly read rates exceeded the
MPSC standard of 85% and further enhanced by the daily reads, the AMI system
continued to read meters at a rate of nearly 99% when a significant snow storm
occurred, and no bill complaints were received. 2 Tr 49-50. Additionally, the AMI
facilitated the identification of unauthorized use of electricity, allowing the Company to
initiate remote disconnect. 2 Tr 50. Finally, during the pilot, remote disconnects and
reconnects for collection purposes were performed; reducing costs and resources
related to these activities, and allowed the Company to quickly restore service to
customers who completed requirements for reconnect. Id.
Overall, Mr. Sitkauskas testified that the Company had deemed the pilot program
a success because it believes, first, that the base functionality of the technology was
proven, including number of meter reads, meter accuracy, and the meter reads being
used directly for billing.
2 Tr 50-51.
Second, Mr. Sitkauskas indicated that the
Company’s emphasis on customer communication was a strong facet of the pilot’s
success. 2 Tr 51.
U-16472 On Remand
Page 7
Mr. Sitkauskas also discussed the second phase of the pilot which included
installation in the summer of 2009 in Harsens Island, Milford, and West Bloomfield. Id.
According to Mr. Sitkauskas, as of August 31, 2013, the Company has installed one
million electric AMI meters, 156,000 gas AMI modules, and 107,000 gas AMR modules.
2 Tr 52. By the end of 2013, the Company expects to have installed 1,125,000 electric
AMI meters, 200,000 gas AMR modules and 115,000 gas AMI modules, comprising
about 35% of the Company’s total project. Id.
3. Overall Operational Benefits and Problems with Pilot
Mr. Sitkauskas describes the benefits DTE customers enjoy as including the
following:
a.
Meter reading: the elimination of the need to gain access for inside
meters (reducing cost), daily reads (eliminating miscellaneous and
off-cycle reading of customer meters and assisting landlords),
combination of multiple homes into one bill with readings on the
same day, and the ability to readily start and stop billing services
with the actual reads.
b.
Bill accuracy: near elimination of estimated customer bills and
elimination of transposition of numbers which result in errors.
c.
Theft and tampering notice: the system notes tampering at the
meter any time it occurs, which promotes quicker discovery of theft
events.
d.
OSHA recordable injury rate: the system negates the risk of winter
slip and fall accidents by employees and injuries resulting from
efforts to avoid dogs and dog bites to meter readers.
e.
Turn on/turn off/restore: the system provides the capability to affect
the remote disconnects and reconnects over the airwaves in
minutes, which provides efficiencies to all involved.
f.
Outage efficiency:
the system allows information regarding
outage to be received in a timely fashion, which is the most
important at the end of a storm. While the AMI does not replace
U-16472 On Remand
Page 8
the customer call regarding outages, it enhances operation. AMI
will only be able to tell the Company the condition at the meter and
not the source of the outage (i.e. the AMI cannot determine if an
energized wire is down or the area, it can only tell the Company
that the meter is not energized for the customer – requiring the
customer to continue to report downed wires).
g.
Power quality: the system will be able to record instances of
voltage problems at customer locations, enhancing the engineering
design process of the electric infrastructure.
2 Tr 46-49.
Mr. Sitkauskas testified that all of the units have been installed, “without a safety
OSHA recordable incident.” 2 Tr 52. He also indicated that all of the installed meters
and modules are tied to the Company’s billing system and provide reads, that AMI
reads are gathered daily by the network, that AMR reads are gathered monthly in their
drive by methodology, that reads are continually above 99% daily, and the reads are
promoted to the monthly billing systems providing customers with actual and accurate
billing. Id.
Mr. Sitkauskas testified that customer representatives can retrieve meter data on
demand online from the customer site directly to their desktops, which facilitates
conversations about billing issues. Id. He also indicated that the customer with an AMI
electric meter can logon to their specific DTE account and view their monthly, daily, and
hourly home energy use. 2 Tr 52-53.
From an operational standpoint, Mr. Sitkauskas testified that “our ability to
disconnect and reconnect service remotely is functioning well.” 2 Tr 53. Mr. Sitkauskas
testified that this technology has been used when customers move in and out, and to
restore customers who have made payment arrangements without the need for a
scheduling appointment or a field visit. Id. He indicated that on multiple occasions,
U-16472 On Remand
Page 9
there have been customer-reported gas leaks to Consumers Energy at locations where
DTE has had an electric meter with the remote disconnect switch. 2 Tr 53-54. He
testified that instead of waiting for a crew to arrive to cut power, the disconnect switch
was operated over the air. 2 Tr 54. He stated that “quick use of technology may readily
save lives.” Id.
Finally, Mr. Sitkauskas testified that the Company has successfully
integrated the AMI power outage and restoration alarms and noticing to its Outage
system. Id. He indicated that power outages are being reported if the meter sends a
message that power has been lost. Id. He stated that “data is fed into our outage
systems effectively starting the outage restoration process without a customer call.” Id.
He further indicated that outage systems have been updated to show the jobs where
AMI meters are located on the circuits, and maps are now available which show which
meters are out of power as well as which meters have been restored. Id.
Mr. Sitkauskas testified that there have been problems with integrating the power
outage system with AMI. For instance, Mr. Sitkauskas pointed out that customers often
have electrical work being performed at their homes which require a meter
disconnection. When this occurs, AMI sends an outage message to the Company’s
system where its dispatchers are reacting to the outage. 2 Tr 54-55. He noted that
dispatch crews either call the customers or respond by sending a crew to the site in
error. 2 Tr 55. To resolve this issue, the Company has been communicating with local
electrician groups to explain the situation and how everyone involved can avoid
unnecessary work. Id. Additionally, crews in the field sometimes have a need for an atthe-moment intentional customer interruption. Id. In those cases, some crews in the
field notify the customer, but have failed to notify the Company’s operations center,
U-16472 On Remand
Page 10
triggering the AMI system to send out an outage message to the outage system.
Id.
The Company corrected those errors internally. Id.
4. Cost Benefits of AMI
Mr. Sitkauskas went on to discuss the cost-benefit analysis of the AMI program.
Specifically, he addressed Exhibits A-2, A-3, and A-4. The costs or capital expenses for
the AMI project are more thoroughly set forth in Exhibit A-2. Exhibit A-2, lines 1-36
summarize the cost per company from the year 2008 through the year 2030. 2 Tr 57;
Exhibit A-2, p 1 and 2 of 8. Capital expenditures for DTE for its AMI program are set
forth in Exhibit A-2. Lines 1-9. Data through 2012 is actual data, whereas data noted for
2013 and beyond is projected or forecasted.
comprised of seven (7) line items:
2 Tr 56.
Capital expenditures are
Meters (purchase and installation of meters),
Network (cost of installation and infrastructure to access meters), Disconnect Modules
(cost of the remote disconnect/reconnect module for the electric meter), PMO (the cost
of the personnel required to manage the project), IT (the cost of system changes
required for an attributed to the AMI program), Pole Mounted Cell Relays (cost of the
network
components
used
to
gather
reads
in
the
mesh
network),
and
Contingency/Corporate Overhead (costs to provide resources for items that were
underfunded at the onset or to provide resources to address new issues that the
Company was not aware of now). 2 Tr 57-59.
Line 10 sets forth DTE’s Avoided
Capital or DTE’s costs of items reduced with the AMI implementation (derived from lines
113-117), line 14 sets forth capital funds being provided through the DOE Grant, and
line 15 sets forth additional credits the Company receives from third-party vendors.
2 Tr 59.
U-16472 On Remand
Page 11
In all, according to Mr. Sitkauskas, benefits are generated either through O&M
savings or through avoided capital investments. 2 Tr 60. The benefits of the AMI
program are summarized in lines 39-71 (on a per company basis), with DTE Electric’s
benefits being set forth on lines 39-50. See Exhibit A-2, pages 3 and 4 of 8. Again,
data through 2012 is actual data, whereas data noted for 2013 and beyond is projected
or forecasted. 2 Tr 56. The Benefits are further detailed on lines 72 through 131 of
Exhibit A-2 and are described in detail in Exhibit A-3. 2 Tr 60; Exhibit A-2, Exhibit A-3.
Finally, Exhibit A-2 sets forth avoided capital on pages 7 and 8, by company.
DTE avoided capital expenditures are set forth on lines 113-118.
Avoided capital
includes items such as Meter Replacement (reduced capital budget of meter
replacements as AMI is installed), Handheld Replacement (cost for items such as
handheld meter reading units which will not have to be replaced), Meter Credit/Salvage
(the salvage received when an old electric meter is replaced), Avoided Load Research
Capital (the cost of capital avoided negating the need for specific Load Research
meters), and Avoided Corporate OH (the avoided corporate overhead associated with
the reduction in capital expenses as listed in lines 113-116). 2 Tr 63.
Mr. Sitkauskas testified that the Company determined the AMI cost savings as
follows:
For each of the above listed savings, the volumes and unit costs, where
applicable, were obtained. For those savings that might be variable in a
given year, multiple years were taken into account to better reflect a
normalized annual savings patterns. This method was used to establish a
steady state saving for AMI once all of the meters have been installed.
The benefits are not all uniformly recognized, however, and have a varied
path to steady state. For example, for meter reading locations where
contractors are paid by the route, savings are achieved as routes are
automated. In contrast, for the areas where DTE employees read meters,
DTE must automate one route from each of the 20 monthly read cycles to
U-16472 On Remand
Page 12
realize the savings. Other savings categories must be held back until a
mass of meters are installed. This is especially true for those areas where
direct manpower is involved as reductions cannot be made with partial full
time equivalents. All of the savings and costs in the business case reflect
an inflation factor of 3.5% year-over-year.
2 Tr 64.
5. Present Value of Revenue Requirement (PVRR)
As a final matter, Mr. Sitkauskas testified to the PVRR metric used in Exhibit A-4.
Mr. Sitkauskas testified that, as a result of MPSC Case No. U-16472, and the concerns
expressed by Staff in that case,
DTE Energy has adopted the use of a related metric, the PVRR. The
PVRR is a standard measure used to evaluate investments in the
regulated utility industry. PVRR is the discounted value of the stream of
annual revenue requirements resulting from capital expenditures and
related expenses. If an investment yields a negative PVRR, then the
benefits of the investment to customers outweighs the incremental costs
to customers. In the AMI cost-benefit analysis we have multiplied the
PVRR by -1 in order to present the data in a more intuitive fashion that is
consistent with the NPV presentation (i.e. that a positive PVRR is a benefit
to the customer). The cost of capital used to calculate the PVRR for
Edison is 7.03% through 2011 and 6.59% starting in 2012 with a 30-year
projected life.
2 Tr 65.
As set forth in Exhibit A-4, Mr. Sitkauskas testified that the PVRR for DTE
Electric is $19.4 million. 2 Tr 65; Exhibit A-4. According to Mr. Sitkauskas, this “affirms
that the benefits of the AMI program exceed the incremental costs to customers to
implement the program.” Id.
In addition to the testimony and exhibit of Mr. Sitkauskas, DTE also proffered the
testimony and exhibits of Paul G. Horgan, Manager of Revenue Requirements within
DTE’s Regulatory Affairs organization, in support of its position. Mr. Horgan testified
U-16472 On Remand
Page 13
that his testimony was meant to provide the actual incremental revenue requirement
amount associated with DTE Electric’s AMI program expenditures and provide
testimony concerning the impact of his U-16472 AMI incremental revenue requirement
on customer rates. 2 Tr 21.
Mr. Horgan began by discussing Exhibit A-1, entitled “AMI Incremental Revenue
Requirement.”
According to Mr. Horgan, Exhibit A-1, for the projected test period,
shows the calculation of the Company’s AMI revenue requirement to be approximately
$10.7 million, on a Jurisdictional Electric basis. 2 Tr 22. He testified that the sources
for the data reflected on Exhibit A-1 are the Commission Order, witness exhibits,
witness workpapers, and/or derived amounts based on any of the previously referenced
sources as noted in the Exhibit. He detailed the calculations set forth in Exhibit A-1 at
2 Tr 22-23. Mr. Horgan testified that “Lines 1 through 6, of Exhibit A-1, capture and
calculate DTE Electric’s Gross and Net AMI plan investment at the end of the defined
historical year (12/31/09) and for the next two years through the end of the defined
projected test year (3/31/12).” 2 Tr 22. He testified that “[a]t the end of the defined
projected test year (3/31/12), DTE Electric’s Net AMI Plan investment was $66.9
million.” Id. He went on to describe the calculation which resulted in the average Net
AMI Plan Investment of $52.8 million, which was “incorporated as part of the Company’s
authorized overall average rate base amount.” 2 Tr 22-23.
“Lines 12 through 24, of
Exhibit A-1, calculate the incremental U-16472 AMI authorized revenue requirement.”
2 Tr 23. Mr. Horgan stated that the calculation of lines 12 through 24 of Exhibit A,
“results in a jurisdictional AMI revenue requirement (line 24) of $10.7 million that is
included in the Company’s U-16472 authorized revenue requirement.”
U-16472 On Remand
Page 14
2 Tr 23.
Mr. Horgan characterized $10.7 million of incremental jurisdictional AMI revenue
requirement as “truly de minimis when compared to DTE Electric’s authorized
jurisdictional electric total Revenue Requirement of $4.5 billion.” 2 Tr 24. He further
indicated that residential customer use on average is 651 KWh per month.
Id.
According to Mr. Horgan, this average use applied against the embedded incremental
AMI 0.058¢ per kWh translates to a monthly cost of 38¢ to the average Residential
customer. Id.
B.
Staff’s Position
In support of its position, Staff presented the testimony and exhibits of Nicholas
M. Evans, Public Utilities Engineer in the Generation and Certificate of Need Section of
the Electric Reliability Division, and Daniel M. Birkam, Auditor in the Revenue
Requirements Section of the Financial Analysis and Audit Division.
Mr. Evans testified that the purpose of his testimony is to present Staff’s position
regarding the justness and reasonableness of the amounts included in rates in Case
No. U-16472 for the DTE Electric AMI expense, including the capital costs of meters
and associated software and any Operations and Maintenance expense. 2 Tr 131.
Overall, Staff concluded that DTE’s rates, as approved in Case No. U-16472, were just
and reasonable with respect to the AMI costs included in rates. Id. In support of this
position, Mr. Evans testified as follows:
1. Benefit of the AMI Included in Rates
According to Mr. Evans, Staff agrees with the Company’s testimony regarding
the major benefits of the new meters. 2 Tr 132. Mr. Evans testified that Staff agrees
U-16472 On Remand
Page 15
with the company’s PVRR calculation and that the PVRR of installing new meters is
negative $19.4 million, meaning that the benefits of the new meters are expected to
exceed the costs. 2 Tr 132-133. Mr. Evans went on to say that there are benefits
beyond those included in the PVRR and that “customers will experience these benefits
as a result of the Company’s installation of the new meters.” 2 Tr 133. Specifically, Mr.
Evans pointed to four (4) additional benefits to customers. First, he indicated that the
new meters will be able to immediately detect an outage which will enable the utility to
know immediately that the service is out and where it is out. Id. He felt that this would
shorten the time needed to restore electricity to customers whose power is out and
would also be valuable to vulnerable customers, such as the elderly or those using inhome medical equipment. Id. Second, Mr. Evans testified that the new meters will add
convenience for customers by nearly eliminating estimated bills and incorrect meter
reads. Id. Third, Mr. Evans stated that customers with new electric meters will be able
to log in to the DTE Energy website and view their daily or hourly electricity
consumption. 2 Tr 133-134. He indicated that this will permit customers to be aware of
their energy consumption at any given point and adjust their usage to meet their
budgetary needs. Id. Fourth, Mr. Evans testified that the new meters have permitted
enrollment in the Company’s Experimental Dynamic Peak Pricing Rate, which varies the
charge for electric service during different time periods of the day. Id. He said that,
“[s]ince enrolled customers are charged less during some parts of the day, this rate can
create savings for these customers if they shift enough of their electricity usage into
these cheaper periods.” Id.
U-16472 On Remand
Page 16
2. Usefulness of the AMI Included in Rates in Case No. U-16472
According to Mr. Evans, Staff considers the new meters to be “used and useful”
utility equipment. Id. Mr. Evans pointed to the testimony of Mr. Sitkauskas in support of
his testimony. Specifically, Mr. Evans testified that the daily reads that tie into the billing
system, the remote connect and disconnect, the customers’ ability to view DTE’s
website for electricity consumption, and the power outage and restoration alarms and
noticing being integrated into the Company’s outage systems all make the new meters
“used and useful.” 2 Tr 134.
3. Potential Burdens of the AMI
Mr. Evans testified that Staff agrees with the testimony of Mr. Horgan, wherein
Mr. Horgan characterizes the rate impacts from the pilot program as “minimal.”
2 Tr 135. He testified that the annual cost per customer for the new meters is $4.38 for
residential customers, $10.35 for commercial secondary customers and $86.76 for
commercial primary customers. Id.
4. Specific Information Gleaned from Pilot Phases
a. Costs
Mr. Evans testified that he agreed with Company witness Paul Horgan and Staff
witness Daniel M. Birkam regarding the actual revenue requirement for the new pilot
program. 2 Tr 135; 2 Tr 159-160.3
3
On cross-examination, Mr. Evans testified that the $8.276 million revenue requirement discussed and
approved in U-15768 is not a separate revenue requirement from that in this matter ($10.7 million), but is
part of the overall revenue requirement of $10.7 million in this case. 2 Tr 159-160.
U-16472 On Remand
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b. Operations
Mr. Evans agreed again with the testimony of Mr. Sitkauskas and testified that
the pilot on Grosse Ile demonstrated that the new meters could improve numerous
aspects of utility operation, including meter reading and billing accuracy, detection of
electricity theft, electric service reconnections, and outage detection and restoration.
2 Tr 136.
c. Customer Response and Impact
According to Mr. Evans, and as shown on Exhibit S-1, less than 0.20% of
customers have elected to have the transmitting function of their new meter disabled as
of mid-November 2013. 2 Tr 136. He reiterated that the new meters increase the
accuracy of meter reading and billing, allow the utility to reconnect a customer faster,
and shorten outage times by improving outage detection. Id. He testified that “[a]ll of
these benefits improve electric service for DTE Electric customers and the resulting
shorter outage times may be lifesaving for utility customers who have lost their electric
power.” Id.
5. Assessment of Similar Programs Initiated Here or in Other States
Mr. Evans compared the DTE AMI program to the CenterPoint Energy project in
Texas, The Southern California Edison project (“SCE”), and the Sacramento Municipal
Utility District (“SMUD”) project in California. Mr. Evans testified that CenterPoint and
SCE also use Itron Openway system, and the functions and benefits of their new meters
U-16472 On Remand
Page 18
are identical to DTE’s, but DTE has lower costs than both.4 2 Tr 137. Similarly, Mr.
Evans said that the SMUD project offers many of the same benefits as DTE’s AMI
program, but DTE’s costs are, again, lower than SMUD’s.5 2 Tr 137-138.
6. Risks
Mr. Evans testified that, as with any new technology, meters may need to be
replaced sooner than anticipated due to technological obsolescence and additional
funds may be necessary in the future for software upgrades or to replace obsolete
equipment. 2 Tr 138.
7. Projected effects on Rates
Mr. Evans testified that the new meters should result in a lower cost of service
relative to if the meters had not been installed. 2 Tr 138. He testified that the total
revenue requirement is a negative $19.4 million, which indicates savings for customers;
he further pointed out that this calculation does not include non-qualified benefits. Id.
In support of its position, Staff also presented the testimony of Daniel M. Birkam,
Auditor in the Revenue Requirements Section of the Financial Analysis and Audit
Division of the MPSC.
Mr. Birkam first responded to the Court of Appeals’ July 30,
2013, decision in which it accepted the assertion that
the MPSC allowed “Detroit
Edison to recover from its ratepayers nearly $80 million in funding for its advanced
metering infrastructure (AMI) program . . . “ 2 Tr 183, citing Detroit Edison II, p 2. Mr.
4
DTE is proposing to spend $443 million in capital ($56.8 million of that from federal stimulus fund and inkind contributions) to replace 2.6 million meters from 2008 to 2019, while CenterPoint required $639
million to replace 2.2 million meters. SCE will require $1.645 billion, or over 3.5 times as much as DTE, to
install 5.3 million meters. 2 Tr 137.
5
SMUD required $307.7 million to install a quarter as many meters as DTE and installed over 100 electric
vehicle charging stations in its territory. 2 Tr 137-138.
U-16472 On Remand
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Birkam testified that “rate impact associated with AMI expenditures increasing rates by
$80 million reflects a misunderstanding of the ratemaking process.” Id.
He went on to
say, “[m]y testimony presents Staff’s position on DTE Electric Company’s . . .
presentation regarding the revenue requirement impact of the AMI expenditures on the
Company’s rates in Case No. U-16472 and explains how the revenue requirement in a
rate case is typically calculated in Michigan.” Id. Mr. Birkam agreed with the testimony
of Mr. Horgan, that the AMI incremental revenue requirement is $10.7 million as set
forth on Exhibit A-1. Id. He went on to say that Staff finds that the method DTE used to
calculate the AMI incremental revenue requirement is reasonable. Id.
Mr. Birkam continued his testimony by giving a lengthy, detailed description of
the manner in which the revenue requirement is typically calculated in a rate case in
Michigan. With this testimony, he gave detailed definitions of all terms used in the
methodology, compared different methodologies and formulas, and walked through the
procedure generally utilized by the Commission to establish a revenue requirement.
See 2 Tr 184-210.
C.
AG’s Position
In support of its position, the AG presented the testimony and exhibits of Michael
J. McGarry, Sr., President and Chief Executive Officer of Blue Ridge Consulting
Service, Inc.
Mr. McGarry summarized his findings, conclusions, and recommendations in this
case as follows:

The Company’s cost benefit analysis is flawed. It projects ratepayer
benefits for 30 years, but does not include expenses related to
significant additional costs needed to replace AMI capital assets as
U-16472 On Remand
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they fail or wear out during the 30 years. Unless replacement costs
are included in the cost benefit model, projected savings will not only
decline, they would reverse. In other words, the total net present value
of projected ratepayer benefits calculated by Detroit Edison’s model
during the last 10 years is overstated because Detroit Edison’s present
value revenue requirement (PVRR) model omits replacement
investments needed to continue to provide metering service and
projected savings for customers.

Assuming only for the sake of argument that the net present value of
Detroit Edison’s proposed plan for cost recovery would be cheaper
than the net present value of ratepayer benefits by the end of the
projected 30 years, the Company’s plan creates a substantial intergenerational inequity problem because the majority of the total
recovery will be charged to ratepayers who are customers during the
earlier years, while ratepayers who are customers during the later
years will receive the majority of the projected benefits. Therefore,
until the Commission can obtain more certain and better information
regarding the actual realization and value of projected benefits
received by ratepayers, I recommend requiring the Company to book
prudently incurred capital expenditures related to the AMI programs as
deferred regulatory assets and subsequently determine how to match
costs and benefits as time goes by. That way the benefits can be
matched with deferred costs, or the Commission can make ratemaking
adjustments to disallow any costs that exceed actual benefits.
3 Tr 252-253.
As a result of these findings, Mr. McGarry concluded the following:

The Company did not address all of the areas that the Michigan Court of
Appeals ordered in its majority remand decision.

Detroit Edison is spending millions of dollars on AMI and asking for recovery
of those costs well in advance of having all the necessary components in
place to ensure that the customers’ side of the benefits is realized.

In addition to the risk that the projected benefits may not materialize, another
real risk for customers from whom Detroit Edison is seeking recovery is that
the Company’s AMI implementation plan does not include adequate plans to
U-16472 On Remand
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educate customers and ensure ratepayers will actually receive the projected
benefits.
3 Tr 253.
Mr. McGarry testified that the scope of his testimony focuses on six (6) areas
addressed in the Michigan Court of Appeals’ decision, including:

Benefits, Usefulness, and Potential Burdens of AMI

Specific information gleaned from pilot phases of the program regarding
costs, operations, and customer response and impact

An assessment of similar programs initiated here or in other states

Risks associated with AMI

Necessity of the AMI Program

Net Benefits and Costs as Proposed by Detroit Edison.
3 Tr 254-255.
1. Benefits, Usefulness, and Potential Burdens of AMI
Mr. McGarry began by expressing concern that it is “just as important to consider
what information ratepayers will need to realize the projected benefits and the
information Detroit Edison must provide to them to ensure that ratepayers not only can
but will realize the projected benefits.” 3 Tr 255. Pointing to Mr. Sitkauskas’s testimony
regarding customer ability to logon to their individual accounts to view energy use,
thereby giving them the opportunity to make changes that afford them better energy
savings, Mr. McGarry criticizes the Company’s evidence regarding educating customers
to do so. 3 Tr 256. He said, “the Company’s testimony fails to demonstrate how its
implementation plans include any means for the customers to receive the education
U-16472 On Remand
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necessary to benefit from the AMI program, and Detroit Edison has not attempted to
determine whether its customers will have time and money needed to achieve the
projected savings.” Id.
He pointed out that while the Company has indicated the
manner in which the Company will benefit from efficiencies such as meter reading,
identification of unauthorized use, etc., “this testimony does not quantify any actual
customers’ savings; furthermore these cost savings for the Company have yet to be
credited to ratepayers via rate reductions.” 3 Tr 256-257.
Mr. McGarry criticized the
Company for its failure to implement a customer education plan related to AMI,
particularly in light of the fact that customers who are not tech-savvy may have difficulty
in using the website and thereby implementing cost savings measures based on energy
use. 3 Tr 259-260. Mr. McGarry, thus, “respectfully request[ed] the Commission to
reconsider [its] position and direct the Company to include a customer education plan
before it concludes that customers will receive the related benefits projected by Detroit
Edison.” 3 Tr 260.
Mr. McGarry criticized the Company’s testimony because, according to him, they
did not candidly quantify the profit the Company expects to earn on its AMI investments
and does not identify real net savings results for customers. 3 Tr 257.
While Mr.
McGarry did not dispute the accuracy of the $10.7 million revenue requirement
promoted by witness Horgan, he noted that “the real dispute concerns whether an
increase is justified – not whether the amount approved is only a small percentage of
the MPSC-approved total revenue requirement.” 3 Tr 257-258. He pointed out that
Horgan’s testimony that indicates the revenue requirement increase for AMI is only
0.24% of the Company’s overall revenue requirement, begs the question of whether
U-16472 On Remand
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recovery of AMI costs is ultimately just and reasonable because the increased charges
to ratepayers will be offset by equal or larger savings benefits. Id. In that same vein,
Mr. McGarry went on to testify that the testimony of Mr. Sitkauskas does not address
the likelihood that the projected benefits will be realized or quantify how related savings
for customers will equal or offset the MPSC-approved AMI charges. 3 Tr 258.
Mr. McGarry’s overall opinion regarding the benefits, usefulness, and burdens of
AMI was, “potential benefits and usefulness of AMI in the utility industry may have been
identified. However, the burdens customers face to be able to take advantage of this
new technology are still being studied and, as such, the Commission should not decide
that recovery now is justified because customers can potentially use AMI technology to
save themselves money.” 3 Tr 260-261.
2. Specific Information Gleaned from Pilot Phases
Mr. McGarry testified that “[i]f the purpose of the pilot was to prove that the AMI
meters could be installed and work from a technical standpoint, the Company identified
information from the pilot showing that installation and operation will work. The Grosse
Ile pilot provided the company with operational experience for installing AMI and using
the technology to move ahead with the larger project.” 3 Tr 261. He went on to say,
“[b]ut for purposes of approving AMI cost recovery, the information Detroit Edison has
provided from the pilot fails to quantify or show that the value of benefits will equal or
exceed the rate increases related to the new AMI charges.” Id.
U-16472 On Remand
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3. Assessment of Similar Programs in Michigan and Other States
Mr. McGarry testified that DTE did not address the issue of similar programs in
Michigan or other states, despite the Court of Appeals’ directive to do so. 3 Tr 261. Mr.
McGarry pointed out that it is DTE’s “burden of going forward with the evidence as well
as the burden of proving whether an assessment of similar programs provides sufficient
evidence to prove by a preponderance of the evidence that the value of customer
benefits from Detroit Edison’s program will equal or exceed the value of costs from
added AMI charges.” 3 Tr 261-262. He went on to say, “[s]ince Detroit Edison has not
presented testimony regarding this issue, I will not attempt to draw concrete conclusions
in this case from similar programs regarding whether Detroit Edison’s customers will
receive net benefits.” 3 Tr 262.
4. Risks of AMI
Mr. McGarry testified that the risk of AMI is “that it will not achieve the desired
goal of improving the grid.” 3 Tr 263. He went on to say the real risk for customers is
that if an AMI implementation plan is not well planned and does not adequately protect
and educate customers, then it is not likely to achieve the objectives and can cost
ratepayers millions of dollars. Id. Mr. McGarry then said that “while the impact on rates
may seem small from an individual perspective, ratepayers will pay nearly $111 million
for AMI-related investments before the projected benefits outweigh the costs in 2020.
This creates, at the very least, an intergenerational equity issue that should be
addressed.” Id.
U-16472 On Remand
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5. Necessity of the AMI Program
According to Mr. McGarry, “[n]ecessity is not the real question.” 3 Tr 264. Mr.
McGarry testified that DTE has already begun to implement AMI; thus, the real
question, according to him, is whether it would be just and reasonable to reaffirm based
upon more complete evidence regarding the nature and value of the benefits from AMI.
Id.
6. Net Benefits and Costs as Proposed by DTE
According to Mr. McGarry, in its filings, DTE identified nearly $123 million for AMI
net of the DOE grant, other “in-kind” contributions, and avoided capital that the
Company has spent through 2013 (Exhibit A-2, page 1 of 8). 3 Tr 265-266. Aside from
the projected savings benefits that Mr. McGarry believes may never actually materialize,
he expressed concern that DTE’s proposed plan for cost recovery creates a substantial
intergenerational inequity problem. 3 Tr 266. By this, he explained, ‘[t]his means that
customers will pay more of the total projected AMI costs and will receive fewer of the
total projected benefits in the early years starting with 2008.” Id. He continued by
saying, “[o]n the other hand, during the last 10 or so years customers will receive more
of the projected total benefit and will pay less of the projected total AMI charges.” Id.
Because of this projected result, Mr. McGarry recommended “requiring the Company to
book capital expenditures related to the AMI programs as deferred regulatory assets
(including carrying costs related to the unamortized balance at the Company’s approved
weighted cost of capital) until the AMI program has been fully implemented and until the
Commission can obtain more certain and better information demonstrating actual costsaving benefits as Detroit Edison has projected through 2030.” Id. See also 3 Tr
U-16472 On Remand
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271-274. He testified that “[t]his deferral should also include an assessment of the
likelihood that benefits will exceed costs.” Id. He indicated that his “recommendation is
based on my opinion that charges to recover projected costs over time should be
matched with projected benefits during the same time because that is how rates should
be designed to recover costs on a just and reasonable basis.” 3 Tr 266-267.
In response to previous criticism by the Company and Staff in the similarly
addressed U-15768, that this position is unnecessary because the ratemaking process
takes care of matching costs with benefit, Mr. McGarry disagreed with this criticism.
First, Mr. McGarry disagreed with Mr. Sitkauskas’s model because he “could not
duplicate the results that Mr. Sitkauskas identified in his rebuttal testimony in U-15768.”
3 Tr 267-268. Further, Mr. McGarry testified that “[b]y using the information provided in
this case, what becomes clear is that if the Company invests in AMI as it projects in the
model, then customers now are paying for a higher share of Detroit Edison’s investment
than the value of the benefits that AMI implementation is generating for them.”
3 Tr 268. He went on to say, “current customers are paying costs that will only be
matched by benefits that future customers will enjoy.” Id. Mr. McGarry testified that the
Company’s .005 replacement rate during the study period is not realistic and is very
counter-intuitive because this suggests that the service life of an AMI meter is 200 years
(1÷.005) since the replacement rate is a straight line rate at which 100 percent of the
meters would be replaced during the 20-year service life cycle of the meters. 3 Tr 269.
Further, he testified that,
There is a more critical flaw in the model, and it exacerbates the
replacement rate error I just described. In the Company’s model,
beginning in 2029, the inputs to the Company’s model assume the
originally purchased AMI meters would reach the end of their useful lives,
U-16472 On Remand
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so the model begins to project declining benefits. At the most practical
level, assuming that the service life of AMI meters end and savings
decline, this would mean Detroit Edison could no longer meter the service
provided to customers beginning when their meters would no longer
operate correctly. In turn, this would mean not only that AMI savings
would end, but that Detroit Edison would need to increase its costs to buy
and install a new AMI meter or would need to buy and install an analog
meter and hire or contract for new meter readers. In other words, the
model does not project real world costs and benefits.
3 Tr 270.
Based on this, Mr. McGarry disagreed with the Company that “a new round of
benefits would have to be generated,” and argues that “[r]eplacement of AMI meters as
their service lives end would only maintain the level of benefits generated by the initial
installation.”
Id.
Thus, Mr. McGarry concluded that the “Company’s model as
presented does not reflect real world projections of costs and benefits where
replacement meters are installed to maintain the level of savings and benefits achieved
as a result of the initial installation.” 3 Tr 271. Mr. McGarry recommended that the
Commission require the Company to present a revised model that incorporates costs for
a reasonable replacement rate of the meters after the useful life and include the related
benefits of AMI that the initial meter produced. Id.
Ultimately, Mr. McGarry recommended that the Commission,
a.
Direct
the Company to produce a model that calculates costs for a
reasonable replacement rate for the initial AMI meters and reflects
continuing benefits through the PVRR period (through 2029).
b.
Defer the projected AMI costs as regulatory assets and allow recovery in
set increments when the verifiable accumulated benefits are reached as
points of 20, 40, 60, 80, and 100 percent.
U-16472 On Remand
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O&M expenses should be
included in current rates, but depreciation expense should also be
deferred. This will also allow ample time to validate the savings and verify
that the Company is effectively managing the implementation.
c.
Conduct an operational review of the project.
d.
Direct the Company to validate savings.
e.
Hold additional remand hearings to correct the current rates for AMI
recovery to levels that will minimize the intergenerational inequities for
ratepayers.
3 Tr 275.
D.
Company’s Rebuttal
Mr. Sitkauskas began by addressing Mr. McGarry’s claim that the Company
failed to address the likelihood that projected benefits will be realized and whether
savings for customers will equal or offset the AMI charges to be recovered.
Mr.
Sitkauskas testified that the Company has included in its cost benefit analysis and
described in direct testimony real benefits realized from implementing AMI and points to
his testimony beginning on page 6.
2 Tr 69.
He disagreed with Mr. McGarry’s
assessment that the AMI benefits have not been proven and discussed other savings
and customer benefits not addressed in the cost benefit analysis such as customers’
ability to select their own billing cycles or request to receive usage alerts. 2 Tr 69-70.
He continued by pointing to the savings for customers as evidenced by the PVRR, as
support for the Company’s position that savings for customers will equal or offset the
AMI charges to be recovered.
2 Tr 70-71.
Mr. Sitkauskas also denied that the
Company does not have an educational plan in place and indicates it has such a plan in
U-16472 On Remand
Page 29
place which includes communications with city leaders, DVDs on meter installation,
customer letters and magnets, brochures, websites and specific responses to individual
customer requests. 2 Tr 72. Mr. Sitkauskas described additional requirements to file a
customer education plan as “redundant and unnecessary.” Id.
Mr. Sitkauskas responded to Mr. McGarry’s assertion that the benefit analysis is
flawed because as the AMI meters reach the end of their useful lives, the model begins
to project declining benefits and that the model is mathematically flawed because the
Company used a .005 replacement rate.
Mr. Sitkauskas testified that the financial
model specifically assesses the benefits of the AMI program as an independent project
and not an infinite operation that would have necessitated the calculation of a terminal
value. 2 Tr 73. He went on to say that the model examines costs savings from one
period of AMI installation (the initial period to replace old analog meters), and then
assumes the savings resulting from this period of installation end in 2039. Id. He
testified,
The model reflects a 20-year benefit calculation for meters installed over a
10-year period, resulting in a 30-year calculation. A basic analysis of the
model shows that the benefits of meters installed in 2009 expire in 2029
while the benefits of meters installed in 2019 expire in 2039. The .005
replacement rate addressed by Mr. McGarry is for replacements for the
duration of this business case. This replacement rate is considered to be
the replacement of meters due to operational failures such as vehicle
accidents or individual component failures. The rate is not for the
replacement of meters once their useful or accounting life has ended. We
surely do not project a 200 year life of a meter as Witness McGarry
suggests. However, if the model did include replacement costs for the
AMI meters, as Witness McGarry suggests it should, then the model
would also need to include calculations for a second period of savings and
benefits that would extend to beyond the years of this business model.
The Company believes that demonstrating the net benefit of the initial
installations of AMI as a standalone project is sufficient, and recreating the
cost benefit analysis for a period starting around 2039 and continuing for
200 years or an infinite period is impractical.
U-16472 On Remand
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2 Tr 73-74.
In response to Mr. McGarry’s concern regarding intergenerational inequity, Mr.
Sitkauskas testified that the calculation of the PVRR helps to address Mr. McGarry’s
concern by demonstrating the matching principle. 2 Tr 76. He further testified that Mr.
McGarry’s assertion of intergenerational inequity completely disregards the matching
principle and regulatory recovery mechanism for the return on and return of capital. Id.
Mr. Sitkauskas argued that Mr. McGarry’s proposal would be creating a complicated
and duplicative step in the rate recovery process. 2 Tr 77. He testified that “[r]ate
recovery of AMI should be treated the same as other utility capital projects, through a
general rate case proceeding.” Id. He went on to say, “[i]n subsequent general rate
case filings, the Company will file testimony supporting the recovery of future AMI
expenditures with corresponding operational benefits. During those proceedings, the
MPSC staff would have an opportunity to review the financial records of the Company
for reasonableness and prudency.” Id
Mr. Sitkauskas also responded to Mr. McGarry’s suggestion that the capital costs
for the implementation should be deferred as a regulatory asset and then moved to rate
base via rate case at specific intervals as the net benefits start to accumulate. Mr.
Sitkauskas disagreed with this recommendation because, he testified, it is common for
utility investments to have a profile where capital costs are early in the program and
benefits are realized over the life of the program, and the cost/benefits shown in this
care are not indicative of an “inter-generational inequity problem,” let alone one that
requires the use of a regulatory asset. 2 Tr 76.
U-16472 On Remand
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Finally, Mr. Sitkauskas responded to Mr. McGarry’s recommendation that the
Commission should request Staff to conduct an operational review of the program to
ensure that the Company’s AMI program is being administered effectively and efficiently
and that the project costs are reasonable and prudent.
Mr. Sitkauskas rejected this
recommendation and testified that the Company will be requesting approval for capital
investments in subsequent rate case proceedings, which will provide updates of the
cost-benefit analysis and that an additional operational review would be redundant.
2 Tr 77-78.
E.
Staff’s Rebuttal
Mr. Evans testified on behalf of Staff in rebuttal of the testimony of Mr. McGarry.
With regard to Mr. McGarry’s position regarding customer energy savings, Mr. Evans
testified that Staff does not agree with Mr. McGarry’s belief that achieving a certain level
of projected energy savings is critical in order for the new meters to be considered a
success. 2 Tr 141. As Mr. Evans pointed out, the “cost-benefit analysis relies on
operational and avoided capital benefits that in total are expected to exceed costs by
$19.4 million on a discounted dollar basis.
Customer energy savings are a non-
quantified benefit of the new meters and should be considered in addition to the $19.4
million net benefit.” 2 Tr 142. With regard to intergenerational inequity, Mr. Evans
testified that there are two (2) reasons why intergenerational inequity is not a factor in
the instant case: 1) DTE Electric customers are already receiving benefits from the new
meters, and 2) the traditional regulatory principles that govern cost recovery are being
applied to the new meters. 2 Tr 142-143. He testified that,
U-16472 On Remand
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[t]he traditional regulatory principles that govern cost recovery allocate
costs over a period of time to match them with the benefits the costs
produce. Customers therefore only pay a small portion of the capital
outlays for the new meters in any given year – 5% or 1/20th of their 20year life – while receiving benefits that the meters provide. This
distribution of costs over the life of the asset helps eliminate
intergenerational inequity.
2 Tr 143.
With regard to meter replacement costs, Mr. Evans testified that witness
McGarry’s assertions regarding the incomplete nature of the Company’s business
model are incorrect.
He testified that the Company’s model examines costs and
benefits resulting from the initial installation of new meters that replace the old analog
meters, and assumes the benefits resulting from these initial installations end in 2039.
2 Tr 144. As Mr. Evans pointed out, the model contains only one period of meter
installation and retirement. 2 Tr 145. He further testified,
If the model did directly include replacement costs for the meters, as Mr.
McGarry has suggested it should, then the model would also need to
include calculations for a second period of costs and benefits that would
start in 2029, overlap with the first period until around 2039, and then
extend to 2059 (or possibly later), with meter retirements and associated
benefit reductions taking place during the last ten years (from 2049 to
around 2059). The 2029-2039 overlap between the two periods would
complicate the model and inclusion of the second period would only
postpone the inevitable termination point.
***
If the model extended past 2039 but cut off at an arbitrary point in the
second period, there is a risk of creating an inaccurate picture of the
meters’ costs and benefits, since meter costs may be included without all
of their corresponding benefits. The best solution is to use one period of
installation and retirements, as the Company has done in its model. Using
only one period avoids the 2029-2039 overlap discussed earlier and yet
still demonstrates the costs and benefits of installing new meters.
2 Tr 145-146.
U-16472 On Remand
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Mr. Birkam also testified on behalf of Staff in rebuttal of the testimony of Mr.
McGarry. Specifically, Mr. Birkam disagreed with Mr. McGarry’s position that savings
must be in excess of costs before rate recovery is allowed. 2 Tr 213. He testified that
“[w]hile net benefits test can be considered in determining whether something is
reasonable and prudent, the idea that something does not provide benefits in excess of
its costs does not automatically exclude it from rate recovery. Id. In fact, Mr. Birkam
testified that the Commission asked for a cost benefit analysis in its October 20, 2011,
Order in Case No. U-16472. 2 Tr 213-214. He went on to say that,
Staff finds that a cost benefit analysis that yields a net present value and
the various tools and models that can be used in its calculations can
provide useful information and insight into whether utility operating
expenditures are “reasonable and prudent.” However, Staff would also
make clear that tools and models utilizing net present values, cost benefits
analyses, and the combination of the two are not the only tools available
to the Commission to make these determinations.
As such, the
Commission is not bound to these tools and models when determining
whether or not expenditures are “reasonable and prudent.”
2 Tr 214.
With regard to AMI average meter service life, Mr. Birkam disagreed with Mr.
McGarry’s contention that service lives are not calculated from replacements, but from
retirements. 2 Tr 215. He said that replacements are not identical to retirements and
cannot be substituted for them in calculating the average service lives of plan in service.
Id. He continued by saying that even if the retirement rate of AMI meters was .005%,
and continued as such for several years, it still would not preclude a 20 year average
service life. Id.
With regard to indirect financing of AMI meter replacement, Staff disagrees with
Mr. McGarry’s contention that the replacement of the AMI meters is not included in the
U-16472 On Remand
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model. 2 Tr 215-216. Mr. Birkam testified that the financing of the replacement of the
AMI meters is included indirectly because the depreciation expense of the AMI meters
is included in the Revenue Requirement calculations. 2 Tr 216.
F.
AG’s Rebuttal
In the AG’s rebuttal testimony, Mr. McGarry highlights portions of his previous
testimony and again argues that there is no independent factual analysis to support
Staff’s conclusion that the Company’s projected benefits will equal or exceed the
projected costs. 3 Tr 282.
IV.
BRIEFS AND POSITIONS OF THE PARTIES
A.
Company’s Position
In its briefs, the Company summarizes its evidence in support of its position that
there is competent, material, and substantial evidence that satisfies the COA’s
cost/benefit concerns, and supports DTE’s recovery of costs of its pilot AMI program. In
response to the AG’s witness, the Company again challenges the proposal that costs
should be treated as deferred regulatory assets and then moved to ratebase at specific
intervals. The Company argues that the AG’s witness “ignored the principles behind
return of capital, which allocate costs over a period of time to link them with the benefits
they generate.” DTE Initial Brief, p 9. The Company continues by saying that, “as
demonstrated by the PVRR calculation, DTE’s cost-benefit analysis appropriately
applies the matching principle by allocating cost over 20 years to correspond with the
project benefits.” DTE Initial Brief, p 9-10. The Company also argued that it is common
U-16472 On Remand
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for utility investments to have a profile where capital costs are incurred early in the
program and benefits are realized over the life of the program, without the use of
regulatory assets. DTE Initial Brief, p 10.
The Company goes on to say that Staff
recognized that Mr. McGarry’s intergenerational inequity position lacks merit and that
Mr. McGarry himself acknowledged that his proposal would impose carrying costs on
customers. DTE Initial Brief, p 10. The Company said, “[t]o the extent Mr. McGarry’s
(sic) further suggested to defer costs in this proceeding and deny them in future
proceedings, that suggestion should be rejected as illegal.”
Id. citing Consumers
Energy Co v Public Service Comm, 261 Mich App 455, 459-460 (2004). DTE also
argues that its implementation of its program is at a significantly lower cost than many
other utilities that have implemented smart meter programs with similar benefits. DTE
Initial Brief, p 10-11.
In its Reply Brief, DTE argues that the Commission should issue a decision
tailored to the Court of Appeals’ remand directive. DTE further argues that the “Court of
Appeals remanded this case for development of a record. That record has now been
developed, and it fully supports AMI cost recovery.” DTE Reply Brief, p 4. DTE then
goes on to highlight testimony and arguments made by witnesses and in its Initial Brief
in support of its requested relief.
DTE concludes by requesting that the Commission reaffirm its recovery of AMI
expenses, adopt its position with respect to capital investments, operation and
maintenance expenses and operational and maintenance savings, and approve its AMI
program based on the cost-benefit analysis, successes during the pilot phase of the
project, and the benefits to customers from deployment. DTE Reply Brief, p 17.
U-16472 On Remand
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B.
Staff’s Position
Staff begins by pointing out that there is “no doubt that this proceeding is closely
tied to the previous Commission case” U-15768. Staff Initial Brief, p 2. Staff notes that
the Commission “discussed the evidentiary standard applicable to the proceeding
[U-15768]; and reviewed the testimony, exhibits, and briefs submitted in this remand
proceeding.” Id. Staff, referencing the Commission’s order in U-15768 after remand,
further notes that “[b]ased on the evidence, the Commission concluded that Detroit
Edison’s request to increase its rates to pay for the AMI pilot program is reasonable and
prudent, in the public interest, and should be approved.” Staff Initial Brief, p 2-3. Staff
then addresses the determinations of the Commission as it relates to substantial
evidence showing that the benefits of AMI exceeded the costs, evidence concerning
similar AMI projects in other states, and the risks of AMI in the Commission’s order after
remand in U-15768. Staff Initial Brief, p 3-4. Staff also discusses the Commission’s
view of the AG’s arguments from its Order on remand in U-15768 and how the
Commission
was
not
persuaded
by
and
rejected
its
positions
regarding
intergenerational inequity and the use of a cost/benefit analysis. Staff Initial Brief p 4-5.
Staff then argues that it does not view this case as an opportunity to re-litigate
the merits of DTE’s transition to AMI and noted that the Commission is “not re-opening
Case No. U-16472.”
Staff Initial Brief, p 5.
Instead, Staff argues that “in this
proceeding, the Commission must determine whether the decision it made in its original
rate order regarding meter costs supports a finding that the rates were just and
reasonable as originally approved.” Id. While Staff indicates that it has evaluated the
meter costs based on what was known when the Commission first approved the costs in
U-16472 On Remand
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this case, Staff has also taken a global outlook, considering additional information that
has been gathered since the new meters were installed. Staff Initial Brief, p 7.
After citing case law in support of its position that the cost of new meters is just
and reasonable, Staff highlights the testimony of its witnesses in support of the same.
Staff Initial Brief, p 7-13.
Staff goes on to say that it is the utility’s responsibility to provide and maintain the
equipment necessary to measure that usage and that the electric meters are a
reasonable cost of doing business.
Staff Initial Brief, p 13.
Staff points to the
Company’s obligation to measure customer usage and its responsibility to maintain
necessary equipment to measure that usage. Id.
Staff then discusses rules under
which the Company must operate in providing utility service and how the meters
enhance the Company’s ability to meet its obligations. Staff Initial Brief, p 13-18.
Staff agreed with the Company regarding all of the benefits the AMI meters
provide and noted that for commercial primary customers, the monthly rate impact has
actually decreased. Staff Initial Brief, p-p 18-20.
Staff also argues that the new meters are not burdensome and that DTE had
lower costs than other AMI programs in the United States. Staff Initial Brief, pp 20-22.
Staff went on to say that based on the testimony of Mr. Evans, the new meters should
lower DTE’s cost of service compared to what it would have been if the meters had not
been installed, as evidenced by the negative PVRR of $19.4 million, which indicates
savings for customers. Staff Initial Brief, p 22.
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Staff points out that the AG’s witness, Mr. McGarry, appears to support installing
new meters, despite proposing a regulatory asset to defer their costs. Staff Initial Brief,
p 23.
Staff summarizes the AG’s witness as concerned about the timing of recovery.
Staff Initial Brief, p 23.
Citing the testimony of witness Evans, Staff argues that
intergenerational inequity is not occurring in this case. Staff Initial Brief, p 24. Staff
argues that “[f]or one, Detroit Edison customers are already receiving benefits from the
new meters. Two, the traditional regulatory principles that govern cost recovery are
being applied to the new meters.” Id.
Staff goes on to say that “the Attorney General
fails to understand that the costs and benefits of the AMI transition are already being
matched,” and discusses that the matching principle the AG is advocating already exists
in utility regulation and is currently being applied to DTE’s AMI transition. Staff Initial
Brief, p 25-26.
Finally, Staff reiterates it position that the Company’s AMI net benefit calculation
model is not flawed and disagrees with the AG’s position that “a certain level of
projected energy savings is critical in order for the new meters to be considered a
success.” Staff Initial Brief, p 28-31.
Staff requests that the Commission find that the parties to the case have satisfied
the COA’s remand instruction to develop a complete record, find that the benefits
evidenced on the record are real and not speculative, find that the meters are as
essential to utility service as any other capital expenditure, and find that the cost of the
meters are a reasonable cost of doing business. Staff Initial Brief, p 31.
U-16472 On Remand
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C.
AG’s Position
The AG contends that DTE did not satisfy its burden of going forward during this
remand phase with additional evidence (beyond that presented in the original case) and
did not satisfy its burden to prove by a preponderance of the evidence that additional
evidence justified a conclusion that the net present value of the benefits ratepayers will
receive justifies recovery of the investment costs DTE has been recovering and is
seeking to recover from ratepayers. AG Initial Brief, p 3-5. See also, AG Reply Brief,
p 7-9 The AG argues that the evidence shows that AMI costs are being incurred to
replace costs previously charged to customers for metering service provided via
different equipment, so proof of net present value benefits is essential to demonstrate
that recovery of AMI investment are just and reasonable. AG Initial Brief, p 5.
The AG argues that the testimony of Mr. Horgan should be ignored because
(i) his testimony implies a misleading
conclusion that the Court of Appeals
misunderstood the Commission’s AMI decision, (ii) his analysis of annual revenue
requirements and the impact of approved rates on customers rests upon his analysis
from the evidence in the original record, and (iii) his testimony and exhibits are not
mathematically or otherwise related to the remand testimony and exhibits sponsored by
Mr. Sitkauskas. AG Initial Brief, p 15-17.
The AG also takes issue with the three-line present-value conclusions on the
bottom of Exhibit A-4 which say that the net present value of ratepayer benefits from
AMI investments will exceed costs over the next 30 years. AG Initial Brief, p 17-18.
The AG asserts that no witness refuted Mr. McGarry’s analysis that the DTE model
includes benefits over a 30-year period that cannot be delivered to ratepayers unless
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DTE replaces AMI investments that can no longer provide the total benefits that the
original investment might provide. Id.
The AG also argues that the projected recovery of AMI costs are being charged
now and will be capped when all meters are replaced by AMI meters, but the projected
value of the benefits depends upon many uncertainties.
AG Initial Brief, p 18.
According to the AG, this means that an intergenerational inequity can arise because
recovery of AMI costs will be charged to ratepayers sooner than they will receive the
projected benefits. Id.
Finally, the AG argues that Mr. Birkam’s discussion regarding the details of
calculating revenue requirements are not relevant to the issue identified by the Court of
Appeals regarding net benefits. AG Initial Brief, p 18-19.
In its Reply Brief, the AG asserts that the arguments presented in the initial briefs
filed by DTE and Staff are based on testimony that remains essentially the same as the
testimony submitted by those parties in the original phase of this case. AG Reply Brief,
p 5-6. The AG continues to argue that DTE has not demonstrated, by a preponderance
of the evidence, that recovery of the costs for its AMI program is just and reasonable.
AG Reply Brief, p 7-9. The AG argues that DTE’s analysis of the benefits of the AMI
program ignores the potential that the value of alleged benefits will not be realized. AG
Reply Brief, p 9-12.
Finally the AG replies to Staff’s arguments by saying that most are not
responsive to the question concerning whether recovery of AMI expenses will or will not
exceed the value of resulting benefits. AG Reply Brief, p 12.
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As a result, the AG requests that the Commission reject the PVRR analysis
because the analysis does not adequately project reasonable and prudent AMI
replacement expenses. In the alternative, the AG requests that the Commission require
the deferment of DTE’s AMI expenses as regulatory assets and to match those
regulatory assets with future benefits. Finally, the AG requests that the Commission
defer recovery until more evidence is available to confirm projected matching benefits.
V.
DISCUSSION AND FINDINGS
As stated above, this matter is on remand from the Michigan Court of Appeals.
This is also the second case relating to the recovery of costs for DTE’s AMI program.
As also discussed above, the Court of Appeals noted in its July 30, 2013 Order in this
matter that it previously determined that the AMI program “was expensive and
commercially untested, exposed ratepayers to significant economic risk, while the
evidence to justify the expense consisted of mere ‘aspirational testimony’ concerning
expectations for the project.” Detroit Edison II, p 2, citing Detroit Edison I, pp 114-115.
The Court of Appeals in Detroit Edison II went on to say that its concern was, “whether
the evidence of record in this case better justified the AMI funding involved than was the
case in [Detroit Edison I].” It answered: “we think not.” Detroit Edison II, p 2.
The Court of Appeals in this matter determined,
Detroit Edison does not offer any basis for concluding specifically that the
evidence available to the PSC in this case went beyond the merely
“aspirational” and speculative testimony found wanting in [Detroit Edison
I]. Indeed, Detroit Edison likened the evidence supporting the AMI funding
in this case to that presented in the earlier one that led to this Court’s
disapproval and remand, thus, seemingly conceding that the result is
U-16472 On Remand
Page 42
equally appropriate here, given the binding authority of [Detroit Edison I].
See MCR 7.215(J)(1).
Detroit Edison II, p 3.
As a result, the Court of Appeals in this matter stated,
For these reasons, we follow the example of [Detroit Edison I], and
remand this case to the PSC for further hearing on the AMI program, with
instructions to consider “evidence related to the benefits, usefulness, and
potential burdens of the AMI , specific information gleaned from pilot
phases of the programs regarding costs, operations, and customer
response and impact, an assessment of similar programs initiated here or
in other states, risks associated with AMI, and projected effects on rates.”
Detroit Edison II, p 4, citing Detroit Edison I, p 116.
It is important to note that this remand is based on an appeal taken of the
October 20, 2011 Order of the Commission for DTE’s rate case, filed by DTE on
October 29, 2010. It is also important to note that this is the second remand which
addresses this issue. By the time this matter was remanded back to the Commission
on July 30, 2013, for review of the requested recovery of AMI costs, the Company had
almost four (4) years’ experience in implementing its AMI program and experience with
the benefits and problems of the same. This additional time allowed DTE to update its
figures and use actual data from 2008 through 2012 in its Exhibit A-2 cost-benefit
analysis and projected for forecasted data for 2013 forward. 2 Tr 56.
A.
Benefits and Usefulness and Burdens
1. Operational Efficiencies
Testimony of the Company and Staff in this matter largely begins with an
evaluation of the day-to-day benefits and usefulness of the AMI technology to its
customers. That is not to say that these benefits are not also benefits to the Company,
U-16472 On Remand
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but there is no requirement that benefits be exclusive to the customers. These benefits
and usefulness range from accuracy and ease of meter reading to efficiency in
responses to outages. From the customer perspective, having daily meter reads versus
estimated bills, having billing errors nearly eliminated, having service remotely
connected, and having faster outage reporting via the AMI system all appear to be
beneficial to customers. Similarly, for the Company, notices of tampering and theft
noted on the system, reduction in injury rates to meter readers, the ability to disconnect
and connect service remotely, the ability to more quickly receive outage information
through the system, and the ability to obtain information regarding voltage problems via
the system are all beneficial to the Company.
Staff agreed with the Company’s
testimony regarding the major benefits of the new meters as set forth in the Company’s
testimony. 2 Tr 132. To some extent, this ALJ believes that these operational benefits
to the Company and customer overlap.
The AG characterized the Company’s description as merely addressing its
experience thus far with issues such as remote connect/disconnect, safety, and
customer outages. The AG, however, criticizes that testimony as failing to address the
likelihood that projected benefits will be realized or quantify how related savings for
customers will equal or offset the MPSC-approved AMI charges. 2 Tr 258. Thus, while
he felt that the potential benefits and usefulness of AMI in the utility industry may have
been identified, he was more interested in the Company quantifying actual customer
savings. 2 Tr 258, 260. The AG did, however, push for a higher level of customer
education to allow those who are not tech-savvy to be able to use the benefits of the
AMI technology, such as monitoring their own energy usage, more easily. 2 Tr 258-260.
U-16472 On Remand
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Based on the testimony and exhibits of the parties as a whole, this ALJ finds that
there are benefits and usefulness of the AMI technology as it relates to day-to-day
operations for both the customer and the Company.
B.
Rate Benefits
According to the Company, savings benefits of AMI are generated either through
O&M savings or through avoided capital investments. 2 Tr 60; See also Exhibits A-2
and A-3. As set forth in Exhibit A-4, DTE expects CS O&M Savings, DO O&M Savings,
Uncollectable Savings, and Theft savings. As for avoided capital, DTE itemizes the
areas where it will find savings in Exhibit A-3 and depicted in Exhibit A-2.
These
avoided capital expenditures include reduced meter replacement, elimination of
handheld meter reading units, salvage received when an old electric meter is replaced,
avoided load research capital, avoided corporate overhead associated with reduction in
capital expenses, and numerous others. The Company testified that it determined AMI
cost savings by taking the savings listed on Exhibit A-3, and volumes and costs, where
applicable, were obtained. For those savings that might be variable in a given year,
multiple years were taken into account to better reflect a normalized annual savings
pattern. 2 Tr 64. This method was used to establish a steady state savings for AMI
once all of the meters have been installed. Id.
Both the Company and Staff agreed with the Company’s calculation that the
Present Value Revenue Requirement (PVRR) of installing the new meters (which
calculation includes, among other figures, the savings set forth above), is negative
$19.4 million, meaning that the benefits of the new meters are expected to exceed the
costs, thereby benefitting ratepayers.
U-16472 On Remand
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The AG, however, argues that DTE’s factor of .005 to calculate meter
replacement costs in its calculation of PVRR is in error. Instead, the AG states that to
decimalize a 20-year service life, the calculation should be 1 year divided by 20 years or
.05 and asserts that a .005 factor effectively creates a model using a 200-year service
life for the replacement costs. 2 Tr 267-270
The Company responded by saying that,
The financial model [cost-benefit analysis] is not flawed because it
specifically assesses the benefits of the AMI program as an independent
project and not infinite operation that would have necessitated the
calculation of a terminal value. The model examines costs savings from
one period of AMI installation (the initial period to replace old analog
meters), and then assumes the savings resulting from this period of
installation end in 2039. The model reflects a 20-year benefit calculation
for meters installed over a 10-year period, resulting in a 30-year
calculation. A basic analysis of the model shows that the benefits of
meters installed in 2009 expire in 2039. The .005 replacement rate
addressed by Witness McGarry is for replacements for the duration of this
business case. This replacement rate is considered to be the replacement
of meters due to operational failures such as vehicle accidents or
individual component failures. This rate is not for the replacement of
meters once their useful life has ended. We surely do not project a 200
year life of a meter as Witness McGarry suggests. However, if the model
did include replacement costs for the AMI meters, as Witness McGarry
suggests it should, then the model would also need to include calculations
for a second period of savings and benefits that would extend to beyond
the years of this business case
2 Tr 73-74.
The AG argues that the benefit articulated by the Company “simply does not
provide a concrete way for customers to know how they can and will save money . . .
customers will not receive any savings from lower meter reading costs unless and until
Detroit Edison proposes and the MPSC approves related rate reductions.” 3 Tr 259.
The AG goes on to say,
U-16472 On Remand
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Until such time as quantified evidence shows that customers will shift the
pattern of how they consume electricity, the Commission should not rely
on the presumed savings that customers might enjoy from AMI. The
benefits of AMI may come through reduced cost and improved efficiencies
to the utility but only indirectly to the customer. . . . the burdens customers
face to be able to take advantage of this new technology are still being
studied and, as such, the Commission should not decide that recovery
now is justified because customers can potentially use AMI technology to
save themselves some money.
3 Tr 260-261.
This ALJ is not persuaded by the arguments of the AG and agrees with the
position and calculations of the Company and Staff in this matter. Although the AG
accuses the Company of failing to candidly identifying the real savings for customers,
Exhibit A-2 (and Exhibit A-3) identify the areas of savings, set forth actual numbers for
the years 2008 through 2012, and project cost savings for the years 2013 forward.
Thus, to the extent the actual figures for cost savings are available, the Company
provided them in Exhibit A-2. This ALJ, based on those calculations, finds that the
information provided by the Company demonstrates that the benefits of the AMI
technology will outweigh that of the costs and that the replacement factor of .005 is
appropriate.
C.
Specific Information Gleaned From Pilot Phases
The Company has engaged in two (2) separate phases for its pilot program. The
first was in Grosse Ile and the other was held in three (3) areas – Harsens Island,
Milford, and West Bloomfield.
According to the Company, the pilot for Grosse Ile was
successful because the functionality of the technology was proven (meter reads, meter
read accuracy, meter reads used directly for billing, etc.), and the customer
U-16472 On Remand
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communication was a strong facet of the pilot (AMI team met with city officials, city
council, police departments, attended open houses at city hall, etc.). The Company
also conducted meetings with DTE employees who reside in Grosse Ile to engage them
more in the process. 2 Tr 50-51. The same benefits were seen for the second phase.
DTE also reports that on two occasions there were customer reported gas leaks to
Consumers Energy at locations where DTE had an electric meter with remote
disconnect switch. Instead of waiting for a crew to arrive to cut power, the disconnect
switch was operated over the air – which may have saved lives. 2 Tr 53-54. While the
Company cited a few problems that it has encountered, communicating with staff and
other groups had alleviated those problems. Staff agreed with the Company.
The AG argues that while the pilot program may have proven that the AMI
meters could be installed and work from a technical standpoint, and the Grosse Ile pilot
provided the Company the operational experience for installing AMI and using the
technology to move ahead with the larger project, for purposes of cost recovery, the
information fails to quantify or show that the value or benefits will equal or exceed the
rate increases related to the new AMI charges. 3 Tr 261.
Staff agreed with the Company that the pilot phase demonstrated that the AMI
meters improve utility operations and benefit electric service customers. 2 Tr 135-136.
Further, Staff notes that, as demonstrated in its Exhibit S-1, less than 0.20% of
customers have elected to have the transmitting function on their new meter disabled as
of mid-November 2013. 2 Tr 136.
It is important to note, again, that the Company has had more than four (4) years’
experience with its AMI program since its initial Application was filed. As of August 31,
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2013, the Company had installed one million electric AMI meters, 156,000 gas AMI
modules, and 107,000 gas AMR modules. 2 Tr 52. By the end of 2013, the Company
expects to have installed 1,125,000 electric AMI meters, 200,000 gas AMR modules,
and 115,000 gas AMI modules, comprising about 35% of the total project. Id. While
there have been some operational problems experienced by the Company, those
problems appear to be temporary and ones that were remedied along the way. For
these reasons, this ALJ finds that the Company has demonstrated success for itself and
customers in its pilot program, which further demonstrates the benefit to the Company
and ratepayer of the AMI technology.
D.
Assessment of Similar Programs
In its testimony, Staff presented an assessment of what it considered three (3)
similar programs initiated in other states; specifically Texas and California.
The three
(3) programs were the CenterPoint Energy project in Texas, the Southern California
Edison (SCE) project, and the Sacramento Municipal Utility District (SMUD) project in
California. Two (2) of the three (3) use the same Itron Openway system used by DTE in
its pilot program, and all three (3) appear to experience the same benefits that have
been demonstrated in DTE’s pilot program, including wireless meter reading, remote
disconnect and reconnect, outage detection, presentation of detailed electric usage on a
web portal, and use of Home Area Networks (HANS). 2 Tr 136-138. The difference
between these three (3) programs and that of DTE in this matter is that all three have a
significantly higher cost than that proposed by DTE. Id.
The AG also presented testimony regarding AMI programs in other jurisdictions.
The AG criticizes the Company for failing to address this issue. The AG further argues
U-16472 On Remand
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that, based on its review of other similar programs and studies, there is support for the
AG’s suggested deferred recovery of DTE’s AMI investment.
3 Tr 262.
The AG,
however, provides no specific supporting evidence demonstrating the programs,
studies, or jurisdictions upon which he relies.
It appears from the information provided by Staff that the same benefits other
jurisdictions tout for their AMI programs are the same as those espoused by DTE in this
matter.
Thus, this ALJ finds that Staff has sufficiently presented evidence of the
activities in other jurisdictions as it relates to AMI and, further, finds that the information
presented appears to support DTE’s use of the same as it updates its technology with
an eye to the future.
E.
Potential Burdens of AMI, Risks Associated with AMI, and Projected Effects on
Rates
This ALJ believes that the remaining issues as they relate to the information
requested by the COA, including the potential burdens of AMI on ratepayers, the risks
associated with AMI, and the projected effects on rates all relate to the negative effect
AMI may or may not have on the rates and the ratepayers.
Company witness Horgan testified that the $10.7 million of incremental
jurisdictional AMI revenue requirement is “truly de minimus when compared to Detroit
Edison’s authorized jurisdictional electric total Revenue Requirement of $4.5 billion.”
2 Tr 24. The rate impact from the pilot resulted in monthly pilot costs of $0.38 for the
average residential customer. Id.
According to Mr. McGarry, the risk of AMI is that it will not achieve the desired
goal of improving the grid. 3 Tr 263. He also testified that “the real risk for customers
U-16472 On Remand
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from whom Detroit Edison is seeking recovery is that if an AMI implementation is not
well planned and does not adequately protect and educate customers, then it is not
likely to achieve the objectives while still costing ratepayers millions of dollars.” Id.
According to AG witness McGarry, “[w]hile the impact on rates may seem small from an
individual perspective, ratepayers will pay nearly $111 million for AMI-related
investments before the projected benefits outweigh the costs in 2020.” Id.
This,
according to AG witness McGarry, “creates, at the very least, an intergenerational
equity issue that should be addressed.” Id.
Mr. McGarry recommended that, if the Commission finds the project costs
reasonable and prudent, the capital costs for the implementation should be reclassified
and treated as deferred regulatory asset and then moved to ratebase via a rate case at
specific intervals as the net benefits start to accumulate. 3 Tr 273.
Company witnesses strenuously disagree with the AG’s position by saying that
Mr. McGarry “ignored the principles behind return of and on capital, which allocate costs
over a period of time to link them with benefits they generate.” DTE Initial Brief, p 9.
The Company points out that Mr. Sitkauskas explained, “as demonstrated by the PVRR
calculation, DTE Electric’s cost-benefit analysis appropriately applies the matching
principle by allocating costs over 20 years to correspond with the project benefits.” DTE
Initial Brief, p 9-10. The Company goes on to say that the “financial profile of the AMI
project does not indicate that an inter-generational inequity problem exists, let alone one
that requires the use of a regulatory asset,” and further says that it is common for utility
investments to have a profile where capital costs are incurred early in the program and
U-16472 On Remand
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benefits are realized over the life of the program, without the use of regulatory assets.
Id.
Staff also took issue with AG witness McGarry’s position saying that his proposal
demonstrates that he does not understand that the AMI project costs and benefits are
already matched. Staff Initial Brief, pp 25-27.
This ALJ is not persuaded by the position of the AG, which would, admittedly,
impose carrying costs on ratepayers.
This ALJ finds that the Company has
demonstrated that the impact on ratepayers will be minimal and that the program will
result in savings for ratepayers.
VI.
CONCLUSION
This ALJ notes that Staff has made an important point in its briefs -- that the
Company has an obligation to measure energy use and accurately bill for the same. In
doing so, it is responsible for providing and maintaining the equipment necessary to
measure that usage. This ALJ agrees that equipment purchased by the Company, i.e.
AMI meters, to comply with their obligations are “a reasonable cost of doing business,”
and, as a percentage of total costs, are just and reasonable. This ALJ also agrees that
as DTE has presented the Commission with four (4) years of data to support the
success of its AMI program and, consistent with this four (4)-year period, projected
costs thereafter.
This ALJ finds that DTE has provided competent, material, and
substantial evidence in support of its request for cost recovery for its AMI program and
that the demonstrated benefits are tangible and not just aspirational as customers are
U-16472 On Remand
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realizing the benefits at the present time. Whether the COA’s remand is characterized
as re-opening the AMI cost recovery as a whole or a remand for the purpose of
determining whether the original rate order regarding AMI was correct, this ALJ finds,
either way, that the recovery of AMI costs as requested by DTE, which remains
consistent with this original request, is just and reasonable. In fact, this ALJ finds that
no other or alternative recovery amount was suggested, but only an alternative manner
of recovery (booking capital expenditures as deferred regulatory assets), which is
rejected by this ALJ. This ALJ finds that the Company has fulfilled its requirement to
prove that the recovery of costs for its AMI program is just and reasonable, and that it
has demonstrated that the benefits, usefulness, and costs of the AMI program justify
recovery.
Therefore, this ALJ recommends that the Commission reaffirm DTE’s recovery of
AMI expenses, and approve DTE’s AMI program.
MICHIGAN ADMINISTRATIVE HEARING
SYSTEM
For the Michigan Public Service Commission
Theresa A.G. Staley
Digitally signed by Theresa A.G.
Staley
DN: cn=Theresa A.G. Staley, o, ou,
[email protected], c=US
Date: 2014.07.16 16:19:33 -04'00'
_____________________________________
Theresa A. G. Staley
Administrative Law Judge
Issued and Served: 7/17/14
drr
U-16472 On Remand
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