20180529Admitted Exhibit 73.pdf

RMP Cross Exhibit
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STATE OF INDIANA
INDIANA UTILITY REGULATORY COMMISSION
VERIFIED JOINT PETITION OF DUKE ENERGY )INDIANA,INC.,INDIANAPOLIS POWER &LIGHT )COMPANY,NORTHERN INDIANA PUBLIC )SERVICE COMPANY AND VECTREN ENERGY )DELIVERY OF INDIANA,INC.FOR APPROVAL,IF )AND TO THE EXTENT REQUIRED,OF CERTAIN )CHANGES IN OPERATIONS THAT ARE LIKELY TO )RESULT FROM THE MIDWEST INDEPENDENT )TRANSMISSION SYSTEM OPERATOR,INC.'S )CAUSE NO.43426 S1
IMPLEMENTATION OF REVISIONS TO ITS OPEN )ACCESS TRANSMISSION AND ENERGY )MARKETS TARIFF TO ESTABLISH A CO-)OPTIMIZED,COMPETITIVE MARKET FOR )ENERGY AND ANCILLARY SERVICES MARKET;)AND FOR TIMELY RECOVERY OF COSTS )ASSOCIATED WITH JOINT PETITIONERS')
O PARTICIPATIONIN SUCH ANCILLARY SERVICES )MARKET.)
Direct Testimony and Exhibits of
James R.Dauphinais
On behalf of
Indiana Industrial Group
Project 8949
June 12 2009
ßRUBAKER &ASSOCIATES,INC.
CHESTERFIELD,MO 63017
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RMP Cross Exhibit
James R.Dauphinais
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OSTATEOFINDIANA
INDIANAUTILITY REGULATORYCOMMISSION
VERIFIED JOINT PETITION OF DUKE ENERGY )INDIANA,INC.,INDIANAPOLIS POWER &LIGHT )COMPANY,NORTHERN INDIANA PUBLIC )SERVICE COMPANY AND VECTREN ENERGY )DELIVERY OF INDIANA,INC.FOR APPROVAL,IF )AND TO THE EXTENT REQUIRED,OF CERTAIN )CHANGES IN OPERATIONS THAT ARE LIKELY TO )RESULT FROM THE MIDWEST INDEPENDENT )TRANSMISSION SYSTEM OPERATOR,INC.'S )CAUSE NO.43426 Si
IMPLEMENTATION OF REVISIONS TO ITS OPEN )ACCESS TRANSMISSION AND ENERGY )MARKETS TARIFF TO ESTABLISH A CO-)OPTIMIZED,COMPETITIVE MARKET FOR ENERGY )AND ANCILLARY SERVICES MARKET;AND FOR )TIMELY RECOVERY OF COSTS ASSOCIATED )WITH JOINT PETITIONERS'PARTICIPATION IN )SUCH ANCILLARY SERVICES MARKET.)
Direct Testimonyof James R.Dauphinals
1 I.Introduction
2 Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
3 A James R.Dauphinais.My business address is 16690 Swingley Ridge Road,
4 Suite 140,Chesterfield,MO 63017.
5 .Q WHAT IS YOUR OCCUPATION?
6 A -I am a consultant irbthe field of public utility regulation and principal of Brubaker &
7 Associates,Inc.,energy,economic and regulatory consultants.
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RMP Cross Exhibit
James R.Dau nais
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1 Q PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
2 A This information is included in Appendix A to my testimony.
3 Q ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
4 A The Indiana Industrial Group.Each member of the Indiana industrial Group
5 purchases substantial quantities of electricity from Duke Energy Indiana,Inc.
6 ("Duke"),Indianapolis Power &Light Company ("lPL"),Northern Indiana Public
7 Service Company ("NIPSCO")and/or Vectren Energy Delivery of Indiana,Inc.
8 ("Vectren").
9 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY?
10 A The purpose of my testimony is to address whether,and to what extent if any,a
11 cost-benefit analysis of the Joint Petitioners"participation in the MidwestO12IndependentTransmissionSystemOperator,Inc.("MISO")or the MISO Ancillary
13 Services Market ("ASM")should be performed and whether any additional data
14 concerning ASM costs and benefits should be provided in the Joint Petitioners'
15 respective Fuel Adjustment Clause ("FAC")filings.
16 Q CAN YOU PLEASE SUMMARIZE YOUR CONCLUSIONS AND
17 RECOMMENDATIONS?
18 A Yes.As I concluded in my Phase I Direct Testimony in Cause No.43426,there is a
19 need to detetrnine whether each Joint Petitioner is obtaining a net benefit or cost from
20 participation in the MISO and how the costs and benefits of that participation are
21 flowing to ratepayers.While MlSO has conducted previous cost-benefit studies for its
'The Joint Petitioners are Duke,IP&L,NIPSCO and Vectren.
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RMP Cross Exhibit
James R.Dauphinals
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1 energy market and the addition of its ASM,MISO's studies have focused on the net
2 benefit or cost for the entire MISO footprint.These studies have not examined the
3 net cost or benefit to the Joint Petitioners.Neither have the MISO studies examined
4 whether costs and benefits are flowing to Indiana ratepayers.As the Commission
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5 noted in its August 13,2008 Order on Phase I of Cause No.43426,
6 "...while the Commission has supported the development of regional
7 markets,we also have the responsibility to ensure that Indiana utilities
8 and ratepayers are fairly treated by those markets."(Cause No.43426
9 Phase i Order at 14.)
10 To this end,I recommend the Commission require the Joint Petitioners to
11 jointly undertake a study of the cost-benefit of continued participation in the MISO,
12 including MISO's energy and operating reserve markets,versus other realistic
13 alternatives.These realistic alternatives should include participation in PJM and
14 non-participation in a Regional Transmission Organization ("RTO")in a manner
15 similar to the approach taken by former MISO participants Louisville Gas &Electric
16 ("LG&E")and Kentucky Utilities ("KU")in the State of Kentucky.While the study
17 would examine alternatives to MISO participation,the purpose of the study would not
18 be to identify whether the Joint Petitioners should still participate in MISO.Rather,
19 the purpose would be to identify whether there is a net benefit associated with
20 continued participation and,if not,why not.In addition,the study should identify
21 whether any net benefit from MISO participation is actually flowing through to
22 ratepayers and,if not,why not.The identification of this information would enable the
23 Commission,the Joint Petitioners,the OUCC and ratepayers to take appropriate
24 actions to help ensure MISO participatÏon provides a net benefit to the Joint
25 Petitioners and ensure that ratepayers see the net benefit of such participation by the
26 Joint Petitioners in a timely fashion.
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BRUBAKER ASSOCIA TES,INC.
RMP Cross Exhibit
James R.Dauphinals
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1 II.Need For A Study
2 Q CAN YOU PLEASE EXPLAIN WHY A COST-BENEFIT STUDY OF THE
3 PARTICIPATION BY THE JOINT PETITIONERS IN THE MISO IS NECESSARY?
4 A A cost-benefit study is needed for four reasons:
5 -The cost-benefit estimates and studies the Commission has had access to
6 focused on the net benefit for RTOs in general or to the MISO footprint in
7 particular.
8 -As recognized by the Commission,its August 13,2008 Phase I Order in Cause
9 No.43426,the Commission has the responsibility to ensure that Indiana utilities
10 and ratepayers are fairly treated by regional markets such as those operated by
11 MISO.
12 -It is not possible to assess whether the Indiana utilities and ratepayers are being
13 fairly treated by the participation of the Indiana utilities in the MISO unless the
14 cost and benefits of MISO participation are estimated and a determination is
15 made in regard to how those costs and benefits are flowing to ratepayers.
16 Q DOES THE MISO CURRENTLY HAVE ANY PLANS TO PERFORM A
17 COST-BENEFIT ANALYSISTHAT WOULD EXAMINE COSTS AND BENEFITS ON
18 A UTILITYOR RATEPAYER LEVEL?
19 A No.MISO is not currently proposing to perform any cost-benefit studies at the utility
20 level and is not proposing to determine the cost-benefit to retail ratepayers.The
21 Commission did note that MISO has proposed to create a task force to perform an
22 ongoing analysis of costs and benefits associated with the ASM.However,as the
23 Commission recognized,"neither the 2006 cost-benefit analysis nor the task force
24 addresses,or will address,the costs and benefits to each of the Joint Petitioners and
25--their ratepayers associated with--their -participation in the Midwest ISO or ASM."
26 (Cause No.43426 Phase 1 Order at 13.)Thus,absent action by this Commission to
27 require a study,the type of information needed to ensure fair treatment of Indiana
28 utilities and ratepayers will continue to be unavailable.
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1 Q WOULD IT BE SUFFICIENT TO EXAMINE HOW THE COST AND REVENUES OF
2 EACH OF THE JOINT PETITIONERS HAS CHANGED SINCE THE START OF THE
3 MISO ASM?
4 A No.While the collection of such information would be useful,ultimately that
5 information is insufficient to conclusively determine whether the Joint Petitioners are
6 receiving a net benefit or cost from MISO participation or how that net benefit or cost
7 is being passed onto ratepayers.
8 Q WHY WOULD THIS INFORMATION BE INSUFFICIENT?
9 A It is only possible to determine the net benefit or cost of a change by testing the
10 change while keeping all other inputs fi×ed.Before and after comparisons have
11 value,but they can sometimes be misleading because factors unrelated to the
12 change in question may distort the apparent impact of that change.On occasion,the
13 distorting impact of such factors can be removed through normalization or other
14 processes,but this is not always possible.
15 In addition,a comparison that only examines the apparent before and after
16 impact of the ASM does not answer the broader question of whether Indiana utilities
17 and their ratepayers are fairly being treated by the MISO markets in general.That
18 question goes beyond the apparent before and after impact of the MISO ASM.
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1 fil.Study Method
2 Q HOW CAN A STUDY BE PERFORMED TO EXAMINE WHETHER INDIANA
3 UTILITIES AND RATEPAYERS ARE BEING FAIRLY TREATED BY THE MISO
4 MARKETS?
5 A It can be best performed by conducting a looking forward study of the projected costs
6 and revenues of each of the Joint Petitioners.The projections would be performed
7 for both continued participation in the MISO and realistic alternatives to continued
8 participation in MISO.
9 Q WHAT ARE THE REALISTIC ALTERNATIVES TO CONTINUED PARTICIPATION
10 IN MISO?
11 A Realistic alternatives to MISO participation for the Joint Petitioners include
12 participation by all four of the Joint Petitioners in PJM and no participation by the four
13 Joint Petitioners in an RTO.The four Joint Petitioners are contiguously
14 interconnected with each other and two of the four Joint Petitioners have
15 interconnections with utilities in PJM in addition to MISO.This makes participation by
16 the Joint Petitioners in PJM a realistic alternative to participation in MISO.In addition,
17 non-participation in an RTO is a realistic alternative as shown by the exit of LG&E
18 and KU from the MISO shortly after the startup of the MISO energy markets.Under
19 the non-participation option,it should be assumed the four Joint Petitioners would
20 each contract with an RTO to be an independent transmission coordinator for the
21 Joint Petitioners This is the approach I G&E and KU successfully used wherr they
22 exited MISO.
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RMP Cross Exhibit
James R.Dauphinals
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1 Q WHAT WOULD BE AN EXAMPLE OF AN UNREALISTIC ALTERNATIVE TO
2 PARTICIPATION IN MISO?
3 A An example would be participation in an RTO or Independent System Operator
4 ("ISO")both not interconnected with and distant from any of the Joint Petitioners such
5 as the Southwest Power Pool.
6 Q WHAT TOOLS WOULD BE NEEDED TO PERFORM THE STUDY?
7 A A multi-area production cost simulation model with a detailed transmission system
8 model would be required to simulate operation of the bulk electric power system over
9 the study horizon under each of the three RTO participation scenarios (i.e.,continued
10 participation MISO,participation in PJM and no participation in an RTO).Examples
11 of production cost models that meet this need are the General Electric ("GE")
12 Multi-Area Production Simulator ("MAPS")and PROMOD.O13Inadditiontoaproductioncosttool,other general analytic tools will be needed
14 to estimate cost and revenues not encompassed within the production cost
15 stimulation and to process the results from the production cost simulation runs.
16 Q WOULD SUCH A LOOKING FORWARD STUDY BE SPECULATIVE?
17 A No.The study would be a planning study and be conducted in a manner consistent
18 with how planning studies are conducted in the electric utility industry.While nobody
19 can predict the future perfectly,utility planning studies can yield important information
20 Ïn regard to an expected outcome under a specific set of defined assumptions.In
21 addition,to address the inherent uncertainty associated with some assumptions,it is
22 standard practice to perform a number of sensitivity cases which examine the impact
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1 of changes to those assumptions that can have a significant impact on the results of
2 the study.
3 Q HAVE THE JOINT PETITIONERS PERFORMED PLANNING STUDIES IN THE
4 PAST?
5 A Yes.For example,Duke performed a detailed planning study for the Integrated
6 Gasification Combined Cycle ("lGCC")generation it is currently constructing (Direct
7 Testimony of Duke witness Diane L.Jenner in Cause No.43114).That study
8 included forward looking production cost simulations which examined the projected
9 costs and benefits under various assumptions.In addition,the Joint Petitioners'
10 individually develop Integrated Resource Plans that generally include production cost
11 simulations of projected production costs.The performance of forward looking
12 production cost simulations is a standard part of resource planning.
13 Q ARE YOU AWARE OF ELECTRIC UTILITIES THAT HAVE PERFORMED OR HAD
14 PERFORMED ON THEIR BEHALF,A PLANNING STUDY THAT EXAMINED
15 DIFFERENT RTO PARTICIPATION OPTIONS?
16 A Yes.In Missouri,Aquila-Missouri and AmerenUE had such planning studies
17 performed on their behalf.The Missouri-Aquila study,which I have included as
18 Exhibit JRD-1,was filed in Missouri Public Service Commission ("MOPSC")Case No.
19 E0-2008-0046 as part of Missouri-Aquila's request to participate in the MISO.The
20 AmerenUE study,which I have included as Exhibit JRD-2,was filed in MOPSC Case
21 No.E0-2008-0134 as part of AmerenUE's request to continue participation within the
22 MISO.While permission to participate in MISO or to continue to padicipate in MISO
23 is not at issue in this matter,the approach taken in these studies,especially the
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1 AmerenUE study,is quite applicable to the matter of determining whether there is a
2 net benefit from MISO participation,and if not,why not.
3 Q PLEASE EXPAND ON THE APPROACH TAKEN IN THESE STUDIES?
4 A These studies were performed on behalf of the affected utility by an independent
5 consultant.The development of the Request For Proposals ("RFP")for the studies
6 and selection of independent consultants were performed by the affected utility in
7 consultation with the Missouri Public Service Commission ("MOPSC")staff,the
8 Missouri Office of Public Counsel ("MOOPC")and in the case of the AmerenUE
9 study,the Missouri Industrial Energy Consumers ("MIEC").2 In addition,the
10 development of the study scope,development of study assumptions,review of
11 preliminary results and review of the draft report were all performed in consultation
12 with the aforementioned stakeholders.This approach helped to ensure the study was O13unbiasedandhelpedtowardsubstantiallyreducingareasofdisagreementand
14 misunderstanding that may have otherwise occurred.The controversy that did later
15 develop before the MOPSC was,in my opinion,caused by not having the affected
16 RTOs involved in the study process.
17 Q HOW LONG DID IT TAKE TO COMPLETE THESE STUDIES?
18 A i do not know how long it took to perform the Missouri-Aquila study.For the
19 AmerenUE study,it took approximately ten months to complete the study from the
20 tifiië of the initiaf Rickoffmeeting with parties to develop the study RFP to the filigg of
21 the final study report with the MOPSC.
2 I Was MIEC's technical representative for the study.O
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1 Q CAN YOU PLEASE EXPLAIN FURTHER WHY A SIMILAR STUDY FOR THE
2 JOINT PETITIONERS HERE IN INDIANAWOULD BE USEFULT
3 A Yes.In addition,to providing information on the projected cost-benefit associated
4 with the various RTO scenarios examined,the AmerenUE study identified the timing
5 of such benefits and costs,the specific underlying drivers of those costs and benefits,
6 and the sensitivity of the costs and benefits under alternative assumptions.This level
7 of detail is important for understanding what issues at the MISO are driving the results
8 of any net cost benefit and allow identification of how specific costs and revenues will
9 likely flow through to ratepayers.
10 Arming the Commission and other stakeholders with this information enables
11 action at the MISO and the Commission to make adjustments necessary to produce
12 fair treatment of indiana utilities and ratepayers by MISO's regional markets.
13 Providing this information will move all stakeholders,including the Commission,fromO14thepositionofwonderingwhattheimpactofparticipatingintheMISOregional
15 markets is on Indiana Utilities and ratepayers to not only understanding the impact,
16 but also to knowing what actions are needed to obtain and presente such fair
17 treatment.
18 Q WOULD EACH JOINT PETITIONER PERFORM THEIR OWN COST-BENEFIT
19 STUDY OR WOULD A SINGLE STUDY BE PERFORMED COLLECTIVELY BY
20 THE JOINT PETITIONERS?
21 A To erisure a consistent approach and to minimize the cost and_resources needed to
22 perform the study,a single study should be performed for the Joint Petitioners with
23 the results for each Joint Petitioner separately broken out.An independent
24 consultant with extensive experience with examining the issues at hand and
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1 multi-area production cost modeling can be engaged by the Joint Petitioners to
2 perform the study.As was done in Missouri with interested parties there,the
3 development of the study scope,the selection of the independent consultant,the
4 selection of assumptions,the review of preliminary results and the review of the draft
5 study report would be performed in consultation with representatives from interested
6 parties from this proceeding.
7 IV.Provision of Additional Data in FAC
8 FIIInqs Concerning ASM Costs and Benefits
9 Q DO YOU HAVE ANY RECOMMENDATIONS AT THIS TIME IN REGARD TO
10 ADDITIONAL DATA THAT SHOULD BE PRESENTED BY THE JOINT
11 PETITIONERS IN THEIR RESPECTIVE FAC FILINGS IN ORDER TO ASSESS THE
12 BEFORE AND AFTER IMPACT OF THE MISO ASM?
13 A No,not at this time.This was an issue pursued by the OUCC in Phase I of Cause
14 No.43426.As such,I will defer to OUCC's direct testimony for now,but reserve the
15 right to respond to OUCC's testimony with responsive testimony as allowed under the
16 procedural schedule in this proceeding.This said,as I noted earlier,such before and
17 after analysis may not be conclusive in regard to the net benefit or cost of the ASM
18 and the question of net benefit or cost goes beyond the ASM.A forward looking
19 cost-benefit study is needed in order to make a determination in regard to the benefits
20 and costs for the Joint Petitioners from participation in the MISO and how those
21 benefits and costs are flowing to ratepayers.
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1 V.Conclusion
2 Q PLEASE SUMMARIZEYOUR CONCLUSIONS AND RECOMMENDATIONST
3 A There is a need to determine whether each Joint Petitioner is obtaining a net benefit
4 or cost from participation in the MISO and how the costs and benefits of that
5 participation are flowing to ratepayers.While MISO has conducted previous
6 cost-benefit studies for its energy market and the addition of its ASM,MISO's studies
7 have focused on the net benefit or cost for the entire MISO footprint.
8 To this end,I recommend the Commission require the Joint Petitioners to
9 jointly undertake a study of the cost-benefit of continued participation in the MISO,
10 including MISO's energy and operating reserve markets,versus other realistic
11 alternatives.As I recommended in my Phase l direct testimony in Cause No.43426,
12 the study should be completed for filing with the Commission two years after the
13 startup date of the MISO ASM.Conservatively,allowing twelve months to completeO14thestudy,work on the study should commence no later than one year after the
15 startup date of the MISO ASM.The purpose of the study will be to identify whether
16 there is a net benefit associated with continued participation and,if not,why not.In
17 addition,the study should identify whether any net benefit from MISO participation is
18 actually flowing through to ratepayers and,if not,why not.The identification of this
19 information will enable the Commission,the Joint Petitioners,the OUCC and
20 ratepayers to take appropriate actions to help obtain and ensure fair treatment by
21 MISO's regional markets of Indiana utilities and ratepayers.
22 Q DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
23 A Yes,it does.
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