September 28, Additionally, a marked-up notice of hearing is being ed to Gloria Jones at

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1 Founded in 8 by Sidney Davy Miller RONALD W. BLOOMBERG TEL (7) 8-97 FAX (7) 7-0 bloomberg@millercanfield.com Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan 89 TEL (7) FAX (7) September 8, 0 MICHIGAN: Ann Arbor Detroit Grand Rapids Kalamazoo Lansing Saginaw Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cincinnati CANADA: Toronto Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw Wrocław Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission Mercantile Way, Ste 7 Lansing, MI 89 Re: Wisconsin Electric Power Company 0 PSCR Plan MPSC Case No. U-709 Dear Ms. Kunkle: Enclosed for electronic filing are Wisconsin Electric Power Company s Application with supporting Testimony and Exhibits of Thomas P. Lorden and Mary L. Wolter. Additionally, a marked-up notice of hearing is being ed to Gloria Jones at jonesg@michigan.gov. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. RWB/cla cc: Robert Garvin Ronan Patterson Roman Draba Becky Valcq Mary Wolter Thomas Lorden Vicki Nugent Amy Winkler By: Ronald W. Bloomberg 0,9,78.\

2 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) WISCONSIN ELECTRIC POWER COMPANY ) d/b/a We Energies for approval of a power ) supply cost recovery plan and authorization ) Case No. U-709 of monthly power supply cost recovery factors ) for the calendar year 0 ) APPLICATION WISCONSIN ELECTRIC POWER COMPANY d/b/a We Energies ( Wisconsin Electric or the Company ) applies for approval, pursuant to 98 PA 0 ( Act 0 ) of its Power Supply Cost Recovery ( PSCR ) plan and five-year forecast and for authority to implement PSCR factors for the calendar year 0. In support thereof, Wisconsin Electric respectfully represents to the Michigan Public Service Commission ( Commission ) as follows:. Wisconsin Electric is a public service corporation organized under the laws of Wisconsin with its principal offices located in Milwaukee, Wisconsin, and is engaged primarily in public utility operations. Wisconsin Electric is also authorized to do business in Michigan and provides retail electric service to the public in service areas located in the Upper Peninsula, including the Counties of Alger, Baraga, Delta, Dickinson, Gogebic, Houghton, Iron, Marquette, Menominee and Ontonagon.. Wisconsin Electric s retail electric business in Michigan is subject to the Commission s jurisdiction pursuant to 909 PA 0 as amended, MCL 0. et seq.; 909 PA 00, as amended, MCL. et seq.; 99 PA 9, as amended, MCL 0. et seq.; and 99 PA, as amended, MCL 0. et seq.

3 . Incorporated in Wisconsin Electric s rate schedules is a PSCR clause as authorized by the Commission pursuant to Section j() of Act 0 in its Opinion and Order, dated March 0, 98, in Case No. U-7.. Pursuant to Section j() of Act 0, Wisconsin Electric seeks to implement its PSCR clause for the calendar year of 0 by filing its 0 PSCR plan and factors, together with its five-year forecast, contemporaneously with this application. Wisconsin Electric is seeking approval of maximum authorized PSCR factors of $0.00/kWh to be implemented on customer s bills for the calendar months of January 0 through December 0. The proposed factor is calculated based upon: (i) the cost base of power supply included in base rates of $.7 per MWh at the customer level; (ii) a 0 PSCR factor of $0.009/kWh; and (iii) a prior year reconciliation surcharge of $0.000/kWh. The 0 PSCR plan and factors and the five-year forecast are described in and supported by the testimony and exhibits of Thomas P. Lorden and Mary L. Wolter.. Wisconsin Electric represents that its proposed 0 PSCR plan and factors and five-year forecast are reasonable, prudent and in the public interest.

4 WHEREFORE, Wisconsin Electric prays that this Commission:. Make and issue a Notice of Hearing, and after notice of hearing;. Determine that decisions underlying Wisconsin Electric s PSCR plan are reasonable and prudent;. Approve the PSCR plan as proposed by Wisconsin Electric;. Approve the twelve monthly PSCR factors of $0.00 per kwh based upon: (i) a current base cost of power supply included in base rates of $.7 per MWh at customer level; (ii) a proposed 0 PSCR factor of $0.009/kWh; and (iii) the prior year reconciliation surcharge of $0.000/kWh;. Determine that the decisions underlying the five-year forecast are reasonable and prudent; and. Grant Wisconsin Electric such other and further authority as may be lawful and proper. Respectfully submitted, WISCONSIN ELECTRIC POWER COMPANY d/b/a We Energies Dated: September 8, 0 By: Ronald W. Bloomberg (P00) Sherri A. Wellman (P8989) Michael C. Rampe (P889) MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. One Michigan Avenue, Suite 900 Lansing, MI 89 (7) ,,097.\

5 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) WISCONSIN ELECTRIC POWER COMPANY ) d/b/a We Energies for approval of a power ) supply cost recovery plan and authorization ) Case No. U-709 of monthly power supply cost recovery factors ) for the calendar year 0 ) DIRECT TESTIMONY OF THOMAS P. LORDEN ON BEHALF OF WISCONSIN ELECTRIC POWER COMPANY September, 0

6 MPSC Case No. U-709 Thomas P. Lorden WISCONSIN ELECTRIC POWER COMPANY Before the Michigan Public Service Commission Direct Testimony of Thomas P. Lorden Q. Please state your name and business address. A. Thomas P. Lorden, West Michigan Street, Milwaukee, Wisconsin 0. Q. What is your present employment? A. I am employed by Wisconsin Electric Power Company, d/b/a We Energies ("Wisconsin Electric" or "Company") as a Senior Project Specialist in the Regulatory Affairs and Policy Department. In this position, I am responsible for fuel filings and reporting to the various regulatory agencies. Q. Please describe your qualifications and background. A. I earned a Bachelor of Arts Degree in Business Administration from Marquette University with a specialization in finance in 980. I joined Wisconsin Electric in 98. From 98 to 97, I worked in the Plant Accounting Division. From 97 until 980, I held various positions in the Load Research area of the Corporate Planning Department. From 980 to 998, I was in the Rates Section. While in the Rates Section, I was involved in the development of numerous cost-of-service studies to support the Company's rate and regulatory needs. In my previous position, as Team Leader for 7 8 Fossil Fuel, Nuclear and Purchase Power Accounting, I was responsible for fuel accounting and reporting. I have previously testified before the Michigan Public Service

7 MPSC Case No. U-709 Thomas P. Lorden Commission ("MPSC" or "Commission") on cost-of-service in Case Nos. U-79, U and U-08. I have also provided testimony for the 0 Power Supply Cost Recovery ( PSCR ) plan in Case No. U-88, 0 PSCR reconciliation in Case No. U- -R, 0 PSCR plan in Case No. U-, 00 PSCR reconciliation in Case No. U-0-R, 00 PSCR plan in Case No. U-0, 009 PSCR reconciliation in Case No. U--R, 009 PSCR plan in Case No. U-, 008 PSCR reconciliation in Case No. U-0-R, 008 PSCR plan in Case No. U-0, 007 PSCR reconciliation in Case No. U-007-R, 007 PSCR plan in Case No. U-007, 00 PSCR reconciliation in Case No. U-707-R, 00 PSCR plan in Case No. U-707, 00 PSCR reconciliation in Case No. U--R, 00 PSCR plan in Case No. U-, 00 PSCR reconciliation in Case No. U-907-R, 00 PSCR plan in Case No. U- 907, 00 PSCR plan in Case No. U-, 00 PSCR reconciliation in Case No. U- -R, 00 PSCR plan in Case No. U-07, 00 PSCR reconciliation in Case No. U-07-R, 00 PSCR plan in Case No. U-, 00 PSCR reconciliation in Case No. U--R, 99 PSCR plan in Case No. U-0707 and the 99 PSCR reconciliation in Case No. U-08-R. Additionally, I have provided testimony in the 00 Renewable Energy plan in Case No. U-8, the 00 Renewable Energy reconciliation in Case No. U-7, the 0 Renewable Energy plan in Case No. U- 88, the 0 Renewable Energy reconciliation in Case No. U- and the revised 0 Renewable Energy plan in Case No. U-709. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to present and provide support for the () the sales forecast for period 0 through 07, () renewable energy, () load management

8 MPSC Case No. U-709 Thomas P. Lorden programs, () estimated prior period PSCR reconciliation and true-up and () the development of the PSCR factors for the period covered by the Company's 0 PSCR plan. To develop the PSCR factors, I used the projected monthly power supply costs for January through December, 0 from Ms. Wolter s Exhibit A-7 (MLW-). The factors were calculated using the base power supply costs from the generation and purchased power requirements and costs as ordered by the Commission in its Order issued in Case No. U-80, on June, 0. Q. Are you sponsoring any exhibits in this proceeding? A. Yes, I am sponsoring Exhibits A- (TPL-) through A- (TPL-) and Exhibit A- (TPL- 7). These exhibits relate to the Company's forecast of electric sales, renewable energy and the development of the 0 PSCR factors and the sales forecast period of 0 through 07. Q. Were these exhibits prepared by you or under your direction and supervision? A. Yes. SALES FORECASTS Q. Please discuss the forecast of energy and demand requirements for the period 0 through 07. A. The forecast used in this docket was finalized in August 0. Billed sales data through March 0 were used to develop the billing month sector forecasts. Booked sales by rate class and jurisdiction through December 0 were used to develop the booked sales forecast. Historical output and peak demand data through July 00 and the newly developed (August 0) energy and customer forecasts were used to develop the peak demand forecast.

9 MPSC Case No. U-709 Thomas P. Lorden 7 8 Q. Would you please describe the steps involved in the development of the energy forecast? A. The first and most fundamental step in the process is the development of the billing month or billed forecasts for each of the customer segments or sectors served. In this step, monthly historical sales as maintained in our billing system are statistically related to economic, demographic, weather-related, and time-dependent variables, using a technique generally referred to as regression analysis. Regression analysis quantifies the relationships between sales and these other variables, collectively referred to as driving 9 variables or drivers, into regression coefficients. Forecast values of the drivers 0 supplied by a vendor (Moody s Analytics) are then multiplied by the regression coefficients to project sales into the forecast period. The three largest sectors are the residential, commercial, and industrial sectors; customers are classified as commercial and industrial based on their Standard Industrial Classification (SIC) codes. The smaller sectors include street lighting and other retail or Public Authority, municipal, and firm sales under contracts to other utilities In the second step, the monthly billed sector forecasts are aggregated by broad rate class and jurisdiction, and then disaggregated into specific rate schedules based on historical relationships and observable trends. In some cases, sectors and rate classes coincide, e.g. residential sectors sales are the same as residential rate class sales (although the WI jurisdiction has a Farm rate class which is generally included under the Residential rate classification). This is not the case with the commercial and industrial sectors. The commercial sector, which includes customers groups like Retail, Office, and Healthcare,

10 MPSC Case No. U-709 Thomas P. Lorden consists of both General Secondary (sometimes called Small Commercial and Industrial or Small C&I) and General Primary (or Large Commercial and Industrial or Large C&I) customers. In terms of Company-wide energy sales, roughly 7% of commercial sector sales falls into the General Secondary rate class, and the remainder falls into the General Primary class. The industrial sector, which includes customers in Mining (SIC 0) and manufacturers of durable goods (like Primary Metals or SIC ) and non-durable goods (like Paper and Allied Products or SIC ), also consists of both General Secondary and General Primary customers. The Company-wide rate class mix for the industrial sector reflects the energy-intensive nature of the processes in which these customers are engaged; roughly 7% of industrial energy sales (excluding sales to two very large industrial customers) fall into the General Primary rate class and the remainder falls in to the General Secondary rate class. The third major step in the forecast process is the conversion of billing month or billed sales to calendar month sales. This step is necessary because the periods for which particular customers are billed do not generally coincide with calendar months. By examining historical billing patterns and their relationships with the calendar, estimates are made which essentially allocate the billed energy to specific calendar periods. For example, a customer may be billed on or around the tenth day of each calendar month. That customer s consumption for a given billing month, therefore, must be allocated to 0 two calendar months. Calendar month sales consequently are composed of a billed portion and an unbilled portion. booked sales is described as follows: The convention used in calculating calendar or Current period booked = Current period billed

11 MPSC Case No. U-709 Thomas P. Lorden Current period unbilled - Prior period unbilled. Over an extended period, the difference between the two unbilled quantities becomes small relative to the billed quantity, so billed sales and booked sales tend to converge. On a month-to-month basis, however, consumption can shift substantially, especially if weather or the customers operations are particularly volatile. Furthermore, booked sales are generally regarded as more relevant for revenue calculations and financial reporting, and operational planning is also calendar-oriented, so this conversion process is essential. 9 0 In the fourth step of the process, distribution loss factors are applied which convert booked/calendar month sales to transmission level and transmission loss factors are subsequently applied to reach generation level. Transmission level sales are required for fuel and purchased power planning. Generation level sales are used in the forecast of peak demand, which is needed for capacity planning. The distribution loss factors were initially developed in a study completed in 00 and are specific to rate schedule, 7 jurisdiction, and serving voltage. MISO convention. Transmission losses are set at.8%, based upon 8 9 Q. What are the drivers of the billed sector forecasts? A. The residential sector forecast is a product of separate forecasts of the number of 0 customers and energy use per customer. The forecast of the number of residential customers is based on the historical relationship between changes in the housing stock in the WI and MI counties in our service territory and the number of customers we serve in those counties. The energy use per customer forecast essentially assumes that the

12 MPSC Case No. U Thomas P. Lorden impacts of factors which increase usage (e.g., increasing saturation of electric appliances and electronic devices) will be offset by the impacts of factors which decreases usage (e.g., improving efficiency). As such, use per customer remains at or near the level at which it remained for the past 8 months. The commercial sector forecast is driven primarily by weather (heating degree day s base 0 and commercial CTHI) and employment in commercial businesses such as Hospitality, Trade, and Professional and 7 Business Services. The industrial sector forecast is driven primarily by an index of 8 9 manufacturing industrial production (IPX) and by information acquired by our Customer Relations personnel in consultation with specific customers regarding their expectations 0 for future operations. Municipal sales are forecast based on trends in recent historical usage and contract length. Street lighting and other retail usage is relatively constant, so historical usage is used as its forecast. The forecasts for firm sales under contract to other utilities are based on contract terms and expectations of market conditions. Q. Would you please describe the steps involved in the development of the net native system peak demand forecast? A. There are eight major steps in the development of the forecast of monthly net native system peak demand. The first step is to update the historical values of native system peak demand (excluding the Empire and Tilden mine load) before load management. The second step is to update the monthly historical and forecast values for average weather and peak producing weather. The third step is to update the monthly historical and forecast values of non-mine native system energy.

13 MPSC Case No. U Thomas P. Lorden The fourth step is to update the historical and forecast values for residential and farm customers and the saturation rates for central air conditioners, room air conditioners, and electric space heating. The fifth step is to project the cooling load factor (CLF), which quantifies the load response to summer weather and the projected number of air conditioners determined in the fourth step and the weather determined in the second step The sixth step is the regression of monthly peak load from the first step and nonmine native system energy (step ), weather (step ), cooling load (step ), and binary variables to account for (December) holiday usage, and public appeals for energy conservation. The seventh step involves examining the residual values of the regression equations to determine if any monthly patterns are evident and if so, to estimate their values and adjust the forecast values from the sixth step accordingly. The eighth step is to add the monthly (negative) amounts of Empire and Tilden curtailable load and the (negative) amounts from the other interruptible and curtailable customers and direct load control of air conditioners. This results in the monthly forecast of net native system peak demand. Q. Are you sponsoring any exhibits relating to the sales forecast portion of your testimony? A. Yes. I am sponsoring Exhibits A- (TPL-) and A- (TPL-) which were prepared under my direction. Q. What does Exhibit A- (TPL-) show? A. The System s Energy forecasts for 0-07 along with the System Native Peak Demand are presented in Exhibit A- (TPL-). Q. Have you included a forecast for electricity requirements for 0-07 in the Company s Michigan service territory? A. Yes. The Michigan service territory s sales are presented in Exhibit A- (TPL-). This exhibit is based upon the Company forecast methodologies discussed previously.

14 MPSC Case No. U Thomas P. Lorden Q. Are there any noteworthy differences between the historical consumption patterns of Wisconsin Electric s Michigan customers and the patterns reflected in 0-07? A. Yes, there are several differences. First, an industrial customer which had substantially reduced its consumption in recent years is now expected to expand some operations such that its overall consumption will revert to prior levels. Second, another industrial customer has begun to supply itself with the majority of its energy requirements, reducing Wisconsin Electric s sales by,000 to 0,000 MWh per month. Third, the resources of one of the two very large industrial customers are expected to be depleted over the next 8 months and production at that facility is expected to shut down in Mid-0. The shutdown of that operation is expected to reduce Wisconsin Electric s sales by approximately 7,000 MWh per month. Q. Do you consider these forecasts to be reasonable? A. Yes. RENEWABLE ENERGY Q. Please describe the background of Wisconsin Electric treatment of renewable energy ( RE ) costs in this PSCR plan proceeding. A. In prior PSCR cases, Wisconsin Electric has included RE generation and the cost of RE purchases in its PSCR plan and costs, except for a portion of the RE costs which were proposed to be recovered via an Act 9 RE surcharge in the initial RE plan in Case No.U-8. The cost of new, post-act 9 RE was included in the PSCR factors and proceedings at the approved transfer price.

15 MPSC Case No. U Thomas P. Lorden The RE from Existing Renewables includes energy purchased from customers under Customer-owned generation ( CGS ) tariffs. As with all other PSCR energy and costs, the energy and cost of RE from Existing Renewables has been included in the determination of the average system-wide power supply costs used to calculate PSCR costs for Michigan. In all these prior PSCR proceedings, Wisconsin Electric has presented or proffered testimony that such costs were reasonably and prudently incurred. In each case, the Commission order has approved the PSCR costs which included the costs of RE from Existing Renewables. Q. Please describe the CGS tariffs. A. The Company has CGS tariffs for generators that are rated at 0 kw or less. The Company purchases output in excess of the customers' needs from these small generators. The Company also has CGS tariffs for generators that are rated over 0 kw. This tariff consists of a variety of mid-size to larger customer-owned generation systems ranging in size from about 00 kw to over 0 MW. The sources of energy for these generators include landfill gas, wind, hydro, agricultural waste and municipal waste. Additionally, the Company has CGS tariffs for photovoltaic generating resources. There are approximately 7 customers on these CGS tariffs and in aggregate, these purchases represent less than % of the system requirements. Q. Are the RE purchases for the "Energy for Tomorrow" program included in this case? A. No, the purchase of RE for use by customers that are participating in the Company s experimental "Energy for Tomorrow" program, which was approved by the Commission,

16 MPSC Case No. U-709 Thomas P. Lorden on November, 999, in Case No. U-099, are not included in this case. incremental cost of RE is charged directly to the customers on the program as a rider. The Q. Has the Company addressed the seven issues regarding the treatment of RE in the Commission s Order in Case No. U-80, dated June, 0? A. Yes. The Company addressed seven issues regarding the treatment of system-wide renewable energy in its revised RE Plan Case No. U-707 filed on September, 0. My testimony in that case states that the Company acquires energy resources, including RE resources, on a system-wide basis. A copy of that testimony is attached as Exhibit A- (TPL-7). Acquiring energy resources on a system-wide basis is reasonable and prudent, and the cost has historically been, and should continue to be, allocated on a costof-service basis among all jurisdictions within the system. Q. How does the Company s proposed treatment of system-wide RE in its RE Plan filing impact the 0 PSCR costs? A. The Company s revised RE Plan arranges the RE resources into three categories. The first category is RECs from Existing Renewables. This category includes the existing pre-act 9 RE, either Company-owned or purchased under a CGS tariff. Consistent with all prior PSCR proceedings, the Company includes the RE and the cost of purchased RE in its calculation of system-wide PSCR costs and PSCR factors. The second category is RECs from System-wide Allocation. This category includes new post-act 9 RE resources that the Company built, acquired or purchased to meet its system-wide needs, including but not limited to satisfying the Wisconsin RPS. As such, these RECs from System-wide Allocation would have been obtained even if Act 9 did not exist. Although the Michigan allocated share of the RE from such resources can

17 MPSC Case No. U-709 Thomas P. Lorden (and will) be used to achieve compliance with Act 9, the RE was not obtained solely to achieve compliance with Act 9. This second category includes company-owned generation from Glacier Hills Wind Park and the proposed purchase of the Montfort Wind Farm and the cost of fuel for the new Rothschild biomass plant. Consistent with the initial RE plan in Case No. U-8, the revenue requirement of Glacier Hills was not included in the revenue deficiency underlying the base rates 7 approved in Case No. U-80. Rather, under the initial RE plan, the capital and 8 9 operating costs of Glacier Hills would be recovered through the PSCR factors at the approved transfer price and the incremental cost of Glacier Hills Wind would be 0 recovered through the RE surcharges. The Company s 0 PSCR plan and factors 7 include the revenue requirements of Glacier Hills Wind until such revenue requirements can be recognized in base rates in the next general rate case. Since 00, the Company has purchased the output of the Montfort wind farm under a PPA which ends in 0. The cost of this purchased power has been included in PSCR proceedings since 00 as existing renewables. On August, 0, the Company filed its application with the PSCW for approval to purchase the Montfort Wind Farm in Docket No. 0-EB-0. A final decision by the PSCW is expected before the end of 8 year 0. The revenue requirement for the ownership of Montfort wind farm is a 9 0 replacement for the cost of energy previously obtained through the long-term PPA. Wisconsin Electric proposes to include the revenue requirements in PSCR costs until they can be recognized in base rates in the next general rate case. In an Order dated May, 0 in Docket No. 0-CE-0, the PSCW issued a certificate to Wisconsin Electric for authority to construct the Rothschild biomass

18 MPSC Case No. U-709 Thomas P. Lorden facility. The Company s 0 PSCR plan and factors include the projected fuel costs for the Rothschild Biomass facility. The third category of RE costs includes RECs-only obtained solely to achieve compliance with the Michigan REC standard. This category also includes the Michigan allocated portion of Act 9 incentive RECs created from the Hydro plants and the 7 Rothschild Bio-mass Facility. through the Company s RE plan. The cost of REC-only purchases would be recovered LOAD MANAGEMENT PROGRAMS Q. Does the Company have interruptible service rates on its system? A. Yes. Q. Please describe such service and its use in system operation. A. In the Wisconsin retail area, the Company offers two general primary service rates for -minute integrated demands of l,000 kilowatts interruptible or greater, CpM and CPFN. CpM provides the Company with the ability to interrupt such service during periods of operating capacity or reserve deficiency and for system energy economy constraints. The 7 rate provides for no more than 00 hours of interruption per year. An interruption is 8 9 credited as the actual time of interruption or six hours, whichever is greater. requires customers to be 00 percent interruptible. CpM 0 CPFN is similar to CpM with the exception that it allows customers to select a level of firm load as long as they have at least,000 kw of interruptible load.

19 MPSC Case No. U-709 Thomas P. Lorden Q. How many customers are served on each interruptible rate? A. As of September 0, 0 customers are served on rate CpM and customers are served on rate CPFN. (There are no customers in Michigan on an interruptible rate.) Q. How often are the interruptible customers typically interrupted? A. The interruptible customers were interrupted for one -minute period (in error) during a test on May, 0. Otherwise, the last interruption was over ten years ago. Q. Does the Company also offer curtailable service rates? A. Yes. Q. Please describe the various curtailable service rate options and their use in system operation. A. The Company offers a general primary curtailable service rate for customers with a minimum of 00 kw of curtailable load and a secondary curtailable rate for customers with a minimum of 00 kw of curtailable load. The rates provide for a maximum individual curtailment period of eight hours and no more than 00 hours of curtailment per year. A curtailment is credited at the actual time of curtailment or four hours, 7 8 whichever is greater. We also offer both general primary and general secondary Energy Co-operative Curtailable rate options available to customers with a minimum of 00 kw of curtailable load for general secondary customers and 00 kw for general primary 9 customers. These services are utilized during periods of operating capacity or reserve 0 deficiency and for daily operating economy. We also offer both general primary and general secondary Seasonal Curtailable rate options available to customers with a minimum of 00 kw of curtailable load for general secondary customers and 00 kw for general primary customers. These services are utilized during periods of operating

20 MPSC Case No. U-709 Thomas P. Lorden capacity or reserve deficiency and for daily operating economy. This rate is effective April Sept 0 annually. Q. How many customers are served on curtailable rates and how often have they been curtailed? A. Through September 0, there were 7 customers, on the general primary and general secondary curtailable rates and customers on the general primary and general secondary Energy Co-operative Curtailable rate, of which customers in Michigan were served on curtailable rates. Two other Michigan customers have contracts with a curtailable option. There are now customers on the new Seasonal Curtailable rate CpS (described above.) Since 007, the Company has not curtailed its customers. Prior Period PSCR True-up Q. Have you included an estimate of the prior period true-up amount and factor? A. Yes. The estimated prior period PSCR true-up consists of an estimated 0 overrecovery of $8,7, a refund for Bechtel liquidated damages of $8,700 (as ordered in Case No. U-80) and a prior year s reconciliation true-up under-recovery of $,79,, as filed in the 0 PSCR reconciliation Case No. U-88-R. This amounts to a net under recovery of $,,7 and based on projected 0 sales subject to PSCR, the estimated prior period true-up factor equals $0.000 per kwh. See Exhibit A- (TPL-), page of. 0 PSCR FACTORS Q. Have you compared the change in power supply costs from the 0 PSCR plan as filed?

21 MPSC Case No. U-709 Thomas P. Lorden A. Yes. Exhibit A- (TPL-) shows the power supply plan costs for both 0 and 0 and the difference in cost and MWh. Act 9 Renewable Generation is now included with RECs from System-wide Allocation. For comparison purposes, the following table shows the contribution by source to the difference between projected 0 as filed and 0 power supply costs: Description PSCR Cost PSCR Factor As Filed $.009 Fuel ($.0007) Purchased Power ($.0007) Act 9 Renewable Generation ($.0077) Opportunity Sales $.00 Transmission $.00 Total Change $.0008 Less: Change in PSCR Base $.00 0 PSCR Plan Year Factor $.009 Q. Please describe Exhibit A- (TPL-). A. Page of Exhibit A- (TPL-) shows the Company's annual power supply cost recovery factor of.9 mills per kwh for January through December, 0. The calculations in the top section of Exhibit A- (TPL-) derive monthly and an annual PSCR factors for 0 using a base cost of power supply of $.7 per MWh at transmission level for costs. The base cost represents the 0 test year power supply cost that was authorized by the Commission in Case No. U-80, adjusted for distribution losses.

22 MPSC Case No. U Thomas P. Lorden 7 Q. How does the Company propose to apply the proposed PSCR factors? A. The Company proposes to apply a uniform Maximum Authorized 0 PSCR Factor of $0.00 per kwh, which consists of a 0 Plan Year PSCR Factor of $0.009 per kwh and a Prior Year s Factor of $0.000 per kwh. The proposed factors by month are shown on Exhibit A- (TPL-). Q. Does this conclude your direct testimony? A. Yes, it does. 0,,80.\

23 Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of WISCONSIN ELECTRIC POWER COMPANY Annual System Energy Obligation 0-07 (Megawatthours) Line No Booked Sales. Residential 8,90,9 8,,7 8,9,7 8,8,8 8,0,9. General Secondary 8,90,8 9,0,0 9,8, 9,0, 9,09,78. General Primary 9,7,8 9,, 9,07,99 9,07, 9,0,9. Public Authority,798,798,798,798,798. Ultimate Retail Sales,9,8,79,9,7,8 7,,08 7,,. Municipal Sales,,,,, 7. Company Use,,,,, 8. Calendar - Customer Level 7,0,,807,770,78, 7,80,79 7,,88 9. Losses: Distribution 97, 9, 97,9 970,78 98, 0. Losses: Transmission,7 0, 0, 7,987,. Total Native System Energy 8,8,07 8,,97 8,,97 8,9, 9,00,7. Firm Wholesale Sales,,,,8,,9,0,7,08,89. Total Energy Obligation 9,80,9 9,7,89 9,8,7 9,87,9 0,9,

24 Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of WISCONSIN ELECTRIC POWER COMPANY Monthly System Native Energy and Peak 0-07 Line System Native Energy (Megawatthours) No. Year January February March April May June July August September October November December Total. 0,,808,,7,78,,,9,,8,,89,7,7,70,88,,8,87,,09,78,,7 8,8,07. 0,8,98,7,8,,,7,,,,8,,,80,,8,,,7,79,,90,,8 8,,97. 0,,0,99,87,,98,,0,09,898,8,,9,798,70,070,0,,,77,7,78,0, 8,,98. 0,8,77,,,,0,,7,,8,8,,7,9,7,008,,,8,,08,07,, 8,9,. 07,88,8,9,9,7,88,9,79,70,09,,09,7,9,77,8,,,,,,9,,7 9,00,70 System Native Peak - Net (Megawatts) Year January February March April May June July August September October November December. 0,8,,,,0,790,0,,08,,8,8 7. 0,707,80,7,8,7,87,,8,,9,80, ,78,70,9,,70,89,7,0,0,7,, ,809,,,77,77,9,9,0,,,7, ,8,8,87,8,88,0,8,7,0,70,7,99

25 Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of WISCONSIN ELECTRIC POWER COMPANY Monthly Michigan Energy Obligation 0 (Megawatthours) Line No. January February March April May June July August September October November December Total Booked Sales. Residential,8,08,8,08,9,00,,,,08,9,9 7,. General Secondary,78,78,8,89,78,80,,8,89,7,79,09,77. General Primary 7,0 7,80 8,8 7,8 8, 7,8 88,0 9,79 8,9 0,7 9,88 0,,,. Public Authority ,7. Ultimate Retail Sales () 0,800 99,79,7 0,0 08,8 99,89 7,0 9,8 08,8,0,000 9,797,,88. Municipal Sales , 7. Company Use , 8. Calendar - Customer Level 0,7 00,77,70 0,8 09, 00,08 7,0 9, 08,98,88, 0,7,9,9 9. Losses: Distribution,,,9,,77,0,8,9,7,,, 7,7 0. Losses: Transmission,807,70,9,79,87,70,0,09,870,9,0, 7,8. Total Native System Energy 0,708 0, 8,7 07,7,97 0,0,8,0,70 7,0,97,0,,87. Firm Wholesale Sales 9,99,7,99,,70,7,,,0, 9,,0 8,8. Total Energy Obligation 70,07 0,9 7,8,7 8,0,8 7, 9,7,7 8,7 7,0 9,,0,87 () Equals Michigan Sales Subject to PSCR.

26 Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of WISCONSIN ELECTRIC POWER COMPANY Annual Michigan Energy Obligation 0-07 (Megawatthours) Line No Booked Sales. Residential 7,, 7,90 70, 7,7. General Secondary,77, 8,77,0,7. General Primary,,,78,79,8,,,00,,9. Public Authority,7,7,7,7,7. Ultimate Retail Sales (),,80,09,7,7,,70,7,78,. Municipal Sales,,,,, 7. Company Use,,,,, 8. Calendar - Customer Level,9,97,097,0,79,,7,80,787,00 9. Losses: Distribution 7,7 7,7 7,88 8,70 8, 0. Losses: Transmission 7, 8,9,9,807,9. Total Native System Energy,,88,,888,79,0,8,87,88,. Firm Wholesale Sales 8,8 8,8 9, 9,89 00,7. Total Energy Obligation,0,87,70,7,0,77,,0,8,770 () Equals Michigan Sales Subject to PSCR.

27 WISCONSIN ELECTRIC POWER COMPANY PSCR PLAN COST COMPARISON Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of PSCR Plan 0 As Filed PSCR Plan 0 Change from prior plan Line Cost Generation Cost Cost Generation Cost Cost Generation Cost No. Electric Utility: ($) MWH $/MWH ($) MWH $/MWH ($) MWH $/MWH. Valley 7,77,78 77,8.8,,7 7,08.7 (,0,99) (0,98) 0.9. Oak Creek,98,9,987,97 8.,9,79,,.7 (,,7),7 (.9). Elm Road 9,80,709,0,8.8,9,0,0, ,,89 9,80 (0.). Pleasant Prairie 7,9,98,9,. 7,,8,77,9.,,90 8,.0. Milw. County,7,7 9,8 9.,079,0 9,0. (7,) (9) (.9). Presque Isle 7,0,0,99,9.,,,80,.09 (0,9,7) (9,). 7. Total Steam,80,7 7,7,7 9. 0,0, 7,9,8 8. (,7,) 7,00 (0.8) 8. Port Washington,8, 89, ,,80,98, ,0,,0, (8.) 9. Germantown,77,9 80.9, (99,8) (,8).8 0. Concord 7,9-9,0, ,7, Paris 0,8-78,9 8, ,7 8, Rothschild Bio-Mass - -,70,09,0.0,70,09,0.0. Total Other,0,0 89, 9.,97,7,99, ,9,08,098,7 (8.78). Hydro - 79,08-79,08. Wind - Blue Sky / Green Field - - -,808,808. Wind - Montfort (Badger) - -,8,000 0, 9.,8,000 0, Wind - Glacier Hills,,78 99, ,988,000 97, 0. 8,8,7 (,).7 8. Total Fuel 99,8,00 8,89, ,,798,0, 9. 09,8,778,,7 (.) 9. LS Power,,,90.9 7,8, 99,9 0.9,7,,9 (8.0). Zion,9,9,0.99,,80 0,9 0. (,789,) (,) 7.. FPL (Point Beach) 0,700,8 8,98,.8 0,,98 8,9,98.0,,0 (,7) 0.9. Existing Renewable Energy,9,,7.0 8,79,87 9,9.7 (,9,87) (9,78).. Wind & Hydro Repl. Power,8,0 7, (,8,0) (7,8) (.0). Incremental Energy - Tariff (,9,878) (99,77) 9. (8,0,9) (8,70) 8.7 (,7,) (8,89) (0.90) 7. System-wide Allocation RE 8,9,80 7,8.9 0,7,0,0,0 9.,9,8 88,97 (7.8) 8. Subtotal Purchases 0,8,7 0,9, 9.99,9,9 0,7, (,,9), (.80) 9. MISO Energy Market 80,,98,8,8.7 7,9,99, (7,9,07) (,7,08).8 0. MISO Make Whole Payments (0,,0) (0,70,0) (0,7) -. MISO Uplift & Admin. (,78,78) - (8,,098) - 7,0,88 -. Ancilliary Revenue (0,077) - (,08,) - (,8,78) - Total Purchases,08,79,,88. 9,,0 0,87,77. (,7,9) (,,) 0.. Less: Capacity Sales 0,7,8,99, (,0,9). Less: Oppty. Sales - PJM,99,, ,7 0, 8.87 (,,8) (,800) (.88). Less: Oppty. Sales - MISO 7,7,8 7,8.0,8,0,97,7.7 8,7,07,7, Less: Sale - Alliant , 8, , 8, Total Sales for Resale,0,8,9 8.,7,89,99,. 7,7,,70, Net Output,9,88,098 0,98,99 7.0,08,7, 8,9,0.8 (70,,8) (,,9) (0.) 9. Non-Network Transmission 0,99,90 0,98,99.00,9,7 8,9,0.,79, Network Transmission,0,000 0,98,99 7.8,7,000 8,9,0 8. 9,9, TOTAL System Costs,9,09,08 0,98,99.7,,70,8 8,9,0. (7,90,) (,,9) 0.8. Loss Factor Total PSCR Costs Less: PSCR Base (Adjusted for losses)..7. PSCR Factor (adjusted for losses).9.9

28 Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of WISCONSIN ELECTRIC POWER COMPANY Prior Year PSCR True-up Line Description January February March April May June July August September October November December Total No. (Actual) (Actual) (Actual) (Actual) (Actual) (Actual) (Actual) (Actual) (Estimate) (Estimate) (Estimate) (Estimate) 0 PSCR Reconciliation. PSCR Costs Sales Subject To PSCR 8,90,000 9,79,000 9,08,000,98,000 08,,000,8,000,78,000 9,8,000,07,000 8,707,000 0,98,000 7,7,000,,8,000. Total PSCR Cost $ 0,877,0 $ 0,8,0 $ 0,870,0 $ 0,0,97 $ 0,00,8 $ 7,, $ 7,79,0 $ 7,998, $ 7,,07 $ 8,, $ 9,7, $,,89 $,098,8. Base including Losses $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ PSCR Factor Applied (0.009) (0.009) Total PSCR $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.00 $ 0.00 $ 0.0 $ 0.0 $ 0.08 $ 0.08 $ 0.08 $ Sales Subject To PSCR 8,90,000 9,79,000 9,08,000,98,000 08,,000,8,000,78,000 9,8,000,07,000 8,707,000 0,98,000 7,7,000,,8, Total PSCR Revenue $,7, $ 0,9, $,8, $,08,9 $ 9,0, $ 7,00, $ 7,08,7 $,99, $ 7,,00 $ 8,8,80 $ 9,0,98 $,,77 $,9, Over/(Under) Recovery $ 70,0 $,99 $ 97,7 $ 8, $ (9,89) $ (,8) $ (,) $ (,08,97) $ (9,77) $, $ 7,8 $,78 $, 0. Interest Accrued $ 77,. Amount Recovered through PSCR $ 8,7. Bechtel Liquidated Damages Refund (from Case No. U-80) $ (8,700). 0 PSCR Reconcilation Under-recovery (from Case No. U--R) $,79,. Prior Year's PSCR Reconciliation True-up $ (,,7). 0 Estimated Sales (kwh),,80,000. Estimated Prior Year's PSCR True-up Factor $ Note: PSCR Base changed in Case No. U-80, dated //0.

29 WISCONSIN ELECTRIC POWER COMPANY Development of 0 Power Supply Cost Recovery Factor Case No.: U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page: of Description January February March April May June July August September October November December Total. Total Power Supply Costs 0,9,97 0,080,7 0,9,7 98,, 0,7,80 9,70,8 7,8,,0,0,,8 0,8,9 00,78,070,,8,,70,8. Net System Requirements (MWH),98,99,7,7,9,7,8,7,7,9,,,779,,7,09,,,9,,7,79,, 8,9,. Average Power Supply Costs ($/MWH) Loss Factor Total Power Supply Costs Base Power Supply Costs Power Supply Costs Recovery Factor (0.) Annual PSCR Factor ($/kwh) $ Prior Year True-up PSCR Trueup ($/kwh) $ Maximum Authorized PSCR Factor ($/kwh) $ 0.00

30 M.P.S.C. No. Electric Wisconsin Electric Power Company (PSCR Change Due to Self Implementing) Case No. U-709 Exhibit: A- (TPL-) Witness: Thomas P. Lorden Date: September, 0 Page of Revised Sixty-fifth Sheet No. D-.00 Cancels Sixty-fourth Revised Sheet No. D-.00 POWER SUPPLY COST RECOVERY PSCR Factors: All rates for metered electric service shall include an amount up to the Power Supply Cost Recovery (PSCR) Factor for the specified billing period as set forth below. The PSCR Factor includes an increase or decrease of 0.00 mills per kwh for each full 0.0 mill increase or decrease in the projected annual power supply costs above or below a cost base of.7 mills per kwh, rounded to the nearest one-hundredth of a mill per kwh. The projected power supply costs per kwh shall equal the total projected annual net power cost divided by the projected annual net system energy requirements. Net system energy requirements shall be the sum of net generation and net purchased and interchange power. An amount not exceeding the PSCR Factor for each month shall be placed into effect in the first billing cycle of that month and shall continue in effect until the first billing cycle of a subsequent month for which a subsequent PSCR Factor becomes operative. The PSCR Factor shall be applicable to all Power Supply charges for the following Rate Schedules: Class of Service Rate Schedule No. Residential Rg and Rg General Secondary Cg, Cg, Cg, CgC, Cg, TssM and TssU General Primary Cp, Cp, Cp, Cp, Schedule A & Cp LC Lighting Ms, Ms, GL, LED Other Mg, DS ERER, ERER 00% Renewable power No adjustment for PSCR 0% Renewable power (-.0) x PSCR factor applicable to rate schedule customer is served under. Customer pays 0% of PSCR factor. % Renewable power (-.) x PSCR factor applicable to rate schedule customer is served under. Customer pays 7% of PSCR factor. ERER Kilowatt-hour in excess of nominated block PSCR factor applicable to rate schedule customer is served under. Customer Generating System CGS Category, CGS Category, CGS Biogas 0 Plan Year Maximum Authorized PSCR Factor Prior Year s Factor 0 PSCR Factor Actual Factor Billed Month ($ per kwh) ($ per kwh) ($ per kwh) ($ per kwh) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Parentheses indicate a credit factor. Should the Company apply lesser factors than those above or if the factors are later revised pursuant to commission orders or 98 PA 0, the Company will notify the commission if necessary and file a revision of the above list. (Continued on Sheet No. D-.00) Issued December 7, 0 Effective for bills rendered for R.A. Draba the 0 Plan year Vice-President, Milwaukee, Wisconsin Issued under authority of Section j(9) of 98 PA0 For implementing in Case No. U-709

31 Case No. U-709 Exhibit: A- (TPL-7) Witness: Thomas P. Lorden Date: September, 0 Page of STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) WISCONSIN ELECTRIC POWER COMPANY ) for approval of a biennial renewable energy plan ) review and an updated renewable energy plan ) Case No. U-707 to comply with the requirements of Public Act 9 ) of 008. ) DIRECT TESTIMONY OF THOMAS P. LORDEN ON BEHALF OF WISCONSIN ELECTRIC POWER COMPANY September, 0

32 MPSC Thomas P. Lorden Case No. U-709 Exhibit: A- (TPL-7) Witness: Thomas P. Lorden Date: September, 0 Page of WISCONSIN ELECTRIC POWER COMPANY Before the Michigan Public Service Commission Direct Testimony of Thomas P. Lorden Q. Please state your name and business address. A. Thomas P. Lorden, West Michigan Street, Milwaukee, WI 0. Q. What is your present employment? A. I m employed by Wisconsin Electric Power Company, d/b/a We Energies ( Wisconsin Electric or Company ) as a Senior Project Specialist in the Regulatory Affairs and Policy Department. In this position, I am responsible for fuel filings and reporting to the various regulatory agencies. Q. Have you previously provided testimony before the Michigan Public Service Commission ( MPSC or Commission )? A. Yes. I have previously testified on cost-of-service in Case Nos. U-79, U-0000 and U-08. I have also provided testimony in the Company s Power Supply Cost Recovery ( PSCR ) plan and reconciliation cases for the past 0 years. Additionally, I have provided pre-filed testimony in the Company s Initial Renewable Energy ( RE ) Plan in Case No. U-8, 00 RE reconciliation in Case No. U-7, 0 RE Plan in Case No. U-88 and the 0 RE Reconciliation in Case No. U-. Q. What is the purpose of your testimony? A. The MPSC Order in Case No. U-88 dated June 7, 0 directed the Company to file a revised RE Plan by September, 0. My testimony describes the background leading to the revisions to the Company s initial RE Plan and the proposed revisions to the Company s RE Plan, including the proposed reductions in the RE surcharges required to fund the incremental cost to comply with the Michigan RE credit ( REC ) standard. My testimony also addresses issues that the Commission raised in its June, 0 Opinion and Order, pages 7-8, in Case No. U-80.

33 MPSC Thomas P. Lorden Case No. U-709 Exhibit: A- (TPL-7) Witness: Thomas P. Lorden Date: September, 0 Page of Q. Are you sponsoring any exhibits with this testimony? A. Yes. I m sponsoring Exhibit A- (TPL-) which shows the Company s revised RE Plan, including a RE Plan Surcharge Summary with supporting schedules. Q. Was Exhibit A- (TPL-) prepared by you? A. Yes. BACKGROUND OF RENEWABLE ENERGY Q. Please describe Wisconsin Electric s customer base and service territory. A. Wisconsin Electric provides wholesale and retail electric service in the states of Wisconsin and Michigan. Wholesale service is regulated by the Federal Energy Regulatory Commission ( FERC ). Wisconsin Electric provides retail electric service to approximately. million customers in Wisconsin at rates, terms and conditions of service that are approved by the Public Service Commission of Wisconsin ( PSCW ). Wisconsin Electric provides retail service to approximately 7,00 customers in the State of Michigan at rates, terms and conditions of service that are approved by the Commission. Q. Does Wisconsin Electric provide service to Michigan retail customers independently from its provision of service to other customers? A. Wisconsin Electric provides regulated service, including the dispatching of all generation, to all its customers (e.g., wholesale, Wisconsin retail and Michigan retail) on a system-wide basis, with the resulting revenue requirements allocated among the jurisdictions and rate classes on a cost-of-service basis. The Commission has repeatedly recognized that dispatching generating resources on a system-wide basis is beneficial to Michigan rates and customers. Although several cost-of-service allocators are used in allocating costs to a jurisdiction for setting base rates, for purposes of calculating PSCR factors and reconciliations, the Commission has allocated power supply costs among jurisdictions on an energy basis. This cost allocation methodology has historically been applied to RE, whether obtained to meet statutory requirements, tariff requirements or otherwise. Wisconsin Electric s revised RE Plan continues to allocate the cost of RE

34 MPSC Thomas P. Lorden Case No. U-709 Exhibit: A- (TPL-7) Witness: Thomas P. Lorden Date: September, 0 Page of obtained on a system-wide basis among jurisdictions using an energy allocator. See Exhibit (TPL-) A-, page, lines 8 and and page, lines and. Q. Is Wisconsin Electric s retail service in Wisconsin subject to renewable energy requirements? A. Yes. In 998, Wisconsin passed legislation that required each eastern Wisconsin utility to construct or procure by December, 000, 0 megawatts ( MW ) of 7 renewable capacity. In 999, Wisconsin enacted a second renewable portfolio 8 9 standard ( RPS ) statute applicable state-wide which required that at least 0. percent of the electricity sold in Wisconsin during 00 (increasing to. percent 0 in 0) be derived from eligible renewable resources. The Wisconsin statute s definition of renewable energy is not the same as in Act 9. In March 00, Wisconsin increased its state-wide RPS to 0 percent by 0, with each utility required to increase its RE Portfolio by specific percentage points over its baseline RE percentage. For Wisconsin Electric, this requires it to increase by its Wisconsin RE Portfolio to 8.7%. The Midwest Renewable Energy Tracking System ( M-RETS ) is used to track renewable generation and provide a platform for the PSCW to verify compliance with the RPS. This is similar to MIRECS in Michigan. In Wisconsin, the revenue requirements for the Wisconsin allocated costs of the RE required to meet the Wisconsin RPS standard is not recovered by a separate RE surcharge, but is recovered through regular ratemaking mechanisms. 997 Wisconsin Act 0, Electric Reliability Act, Wisc Stat 9.77()(b) 999 Wisconsin Act 9 00 Wisconsin Act, Wisc Stat 9.78()(a)