Direct Testimony of James T. Selecky On Behalf of ABATE

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 BRUBAKER & ASSOCIATES, INC. James T. Selecky Page 5 These two charges produce a total securitization charge of .37¢ per kWh that will recover DECo’s stranded costs, which include Fermi 2 and various other regulatory assets net of certain regulatory liabilities. Q WHY SHOULD THE COMMISSION ESTABLISH A STRANDED BENEFIT CREDIT? A Without this determination, the purposes of Act 141, which was to create customer choice for DECo customers, will not be met. Specifically, Section 10 of Act 141 states the purposes of this recently passed legislation. The stated purposes are: “(a) To ensure that all retail customers in this state of electric power have a choice of electric suppliers. (b) To allow and encourage the Michigan public service commission to foster competition in this state in the provision of electric supply and maintain regulation of electric supply for customers who continue to choose supply from incumbent electric utilities. (c) To encourage the development and construction of merchant plants which will diversify the ownership of electric generation in this state. (d) To ensure that all persons in this state are afforded safe, reliable electric power at a reasonable rate. (e) To improve the opportunities for economic development in this state and to promote financially healthy and competitive utilities in this state.” (Public Act No. 141 of 2000, Sec. 10 (2)) The Commission has authorized DECo to securitize $1.750 billion of costs. It is implied that a significant portion of those costs is stranded and DECo would not be able to collect those costs in a competitive market. If the Commission does not establish a credit to recognize DECo’s stranded benefits and DECo’s securitization charges as authorized remain in place, the development of a competitive electric utility market would be severely impeded. Assessing DECo’s customers that participate in the customer choice program, a charge that only recognizes claimed stranded costs would have an adverse effect on the ability of customers to use open
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 BRUBAKER & ASSOCIATES, INC. James T. Selecky Page 6 access service and the development of merchant plants that are needed to provide the State with future capacity additions to provide a reliable source of electricity. Q WHAT IS THE BASIS FOR YOUR STATEMENT THAT DECo’S PROPOSED LEVEL OF STRANDED COSTS WOULD IMPEDE COMPETITION AND THE DEVELOPMENT OF MERCHANT PLANTS IN THE STATE OF MICHIGAN? A In a report, the Commission had the following comment regarding an electric industry restructuring proposal: “The Commission has thoroughly examined the Electric Industry Restructuring Proposal put forth by the Chamber of Commerce and Consumers Energy Company, which has subsequently been amended by a number of other parties. The Commission has also examined the proposal put forth by Detroit Edison. The Commission has two concerns over the transition charge in the Chamber-Consumers Energy proposal, as amended by Detroit Edison. These concerns are: (1) the transition charge is too large and will thus preclude effective competition, and (2) the transition charge will continue for 15 years for Detroit Edison, and 25 years for Consumers Energy, thus locking in Michigan to a no-competition or limited competition mode while most, or all other states, will pass us by competitively. It is estimated that the transition charge for customers in Consumers Energy’s territory will be between 6 and 7 mills (0.6 to 0.7 cents) while the transition charge for customers in Detroit Edison’s territory will be approximately 3.5 mills (0.35 cents). These charges, which cannot be adjusted by the Michigan Public Service Commission even if they prove unworkable, will remain until they expire. The Commission believes that a transition charge of 3 mills (0.3 cents) is the maximum charge in which to foster a competitive market. This is usually a number given by most customer groups and potential competitors.” As previously stated, DECo’s securitization charge will be 3.7 mills per kWh or 0.37¢ per kWh. Based on the above quote, it is likely that the stated purposes of Act 141 will not be met, i.e., a competitive electric market will not develop. Without this market, the development and construction of merchant plants will be severely hindered because it will not be economical for buyers and sellers to participate in the open access market.
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Direct Testimony of James T. Selecky On Behalf of ABATE

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