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A CMS Energy Company fl0405-1-224 www.consumersenergy.com April 15, 2005 Ms. Mary Jo Kunkle Executive Secretary

Michigan Public Service Commission 6545 Mercantile Way

P.O. Box 30221 Lansing, MI 48909

Re: Case No. U-14414 – In The Matter Of The Investigation, On The Commission’s Own Motion, Into The Electric Supply Reliability Plans Of Michigan’s Electric Utilities For The Year 2005.

Dear Ms. Kunkle:

Pursuant to the Commission’s January 25, 2005 Order in Case No. U-14414, enclosed is an original and four copies of Consumers Energy Company’s Report to the Michigan Public Service Commission regarding the reliability of its Electric Supply. An electronic copy of this report is being filed with the Commission in the portable document format (PDF).

Sincerely,

Jon R. Robinson

General Offices: LEGAL DEPARTMENT One Energy Plaza Tel: (517) 788-0550

Jackson, MI 49201 Fax: (517) 768-3644 or

(517) 788-1682

JAMES E BRUNNER Vice President and General Counsel *Washington Office:

1016 – 16th Street, NW Tel: (202) 293-5795 Washington, DC 20036 Fax: (202) 223-1864 Writer’s Direct Dial Number: (517) 788-0698 Writer’s E-mail Address: jrrobinson@cmsenergy.com

JON R ROBINSON Vice President Utility Law and Regulation Catherine M Reynolds Arunas T Udrys Michael G Wilson Assistant General Counsel David E Barth Francis X Berkemeier H Richard Chambers John P Dickey Ann F Goodman Deborah Ann Kile Roger K Krakusin M Bryan Little* Eric V Luoma Raymond E McQuillan Rhonda M Morris Deborah A Moss* Mirče Michael Nestor Robert M Neustifter Vincent P Provenzano Susan L Rasmussen John C Shea P Leni Staley Charlotte A Walls Kimberly C Wilson Attorney Digitally signed by Jon R. Robinson Date: 2005.04.15 14:24:41 -04'00' Signature Not Verified

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BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

In the matter of the investigation, on the )

Commission’s own motion, into the electric )

supply reliability plans of Michigan’s ) Case No. U-14414

electric utilities for the year 2005. )

)

CONSUMERS ENERGY COMPANY’S

ASSESSMENT OF THE GENERATION AND TRANSMISSION CAPACITY AND

PLAN FOR MEETING SUMMER 2005 PEAK LOAD DEMAND

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Consumers Energy Company

ASSESSMENT OF THE GENERATION AND TRANSMISSION CAPACITY AND

PLAN FOR MEETING SUMMER 2005 PEAK LOAD DEMAND

On January 25, 2005, the Michigan Public Service Commission (“MPSC”), in its Order in Case U-14414, ordered Consumers Energy Company (“Consumers”) to file with the Commission “an assessment of the ability of the utility to meet customers’ expected electric requirements in 2005”. This assessment is in response to that order.

OVERVIEW

Consumers has adequate generation resources and long term contracts to meet loads that are expected to occur over the calendar year 2005. Unusual events such as extreme weather combined with generation unavailability can create capacity shortages at any time.

Because Consumers is in the process of finalizing its specific summer capacity plans and power supply arrangements, and because of uncertainty in the timing and amount of Retail Open Access (“ROA”) load to be served by others, the forecasted peak loads, planned capacity additions and associated reserve margins are provided as estimates rather than specific final values.

PEAK LOAD FORECAST

The Company forecasts peak hourly load using appropriate statistical and regression analysis of factors that significantly affect electricity sales in its service territory. Consumers has forecasted the expected weather normalized load in its traditional service area to peak during Summer 2005 at 8,700 MW, including the load associated with the ROA program. This increase of

approximately 2.9% from the 2004 weather adjusted peak load of 8,453 MW1 reflects changes in

Consumers’ service territory due to economic growth and increased air conditioning use.

Based on assumed commitments to the ROA program, Consumers’ planning assumption is that the estimated nominal load to be served by others this summer is approximately 900 MW, with a

coincident peak of 647 MW2, leaving the Company to serve 8,053 MW. The actual load to be

served by others under the ROA program could be higher or lower than the amount assumed by Consumers. Exhibit 1 provides the probability distribution of potential load values, under various assumptions that reflect the variability of the load demand due to economic and environmental factors.

1 Consumers’ actual year 2004 peak load occurred on July 21, 2004 at 6,958 MW. The total system load, including

685 MW of coincident peak ROA load served by others, was 7,643 MW. Consumers believes that the total system load would have been 8,453 MW had normal seasonal high temperature weather been experienced on that day.

2 Consumers estimates that 900 MW of nominal ROA load will be served by others by August 2005. The coincident

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2

Interruptible Customers

Included in Consumers’ load forecast is approximately 5 MW of load provided under its interruptible rate tariff (Rate I). Consumers plans to maintain sufficient capacity to serve those interruptible customers. However, in the event of excessive load demand, transmission curtailments, external power supply shortages or unit forced outages that threaten system integrity, Consumers, based on its own judgment or at the request of the Midwest Independent Transmission System Operator (“MISO”) will interrupt the 5 MW of interruptible load in accordance with the applicable tariff and contracts.

RESOURCES

Consumers expects to draw on a diverse portfolio of resources to meet 2005 peak load conditions. Those resources include i) Utility Owned Generation, ii) Non-Utility Generation, iii) Power Supply Call Option Contracts and Dispatchable Capacity and Energy Contracts, iv) Daily Spot Power Supply Purchases and v) Voluntary Load Reductions. Consumers has also entered into vi) Customer Self-Generation Contracts and vii) Load Shifting Contracts.

Consumers is utilizing a planning reserve margin target of 11%3, thus expecting to provide

capacity resources with load-serving capability of 111% of expected peak demand (Exhibit 2). Consumers currently expects that essentially all of the purchased capacity will be sourced from in-Michigan resources. This has the potential to change somewhat since Consumers is in the process of finalizing its specific power supply arrangements. As in previous years, these purchases are a consistent and integral part of the overall plan to meet the summer obligation to serve the Company’s load and assure reliable service to retail Michigan customers. A brief discussion of each of these resources follows.

(i) Utility Owned Generation

Consumers owns and operates 6,4374 MW of summer generation capacity, all located

within Michigan.

(ii) Non-Utility Generation

Consumers has long-term contracts with in–Michigan Non-Utility Generating Companies

for the supply of 1,657 MW of electrical capacity and energy5. All units are expected to

be available to serve summer 2005 peak load conditions.

3 See Direct Testimony of David F. Ronk, Jr. in MPSC Case No. U-13917, pages 2 through 5, regarding the

development of the seasonal planning reserve margin target.

4 Consumers transferred operations of Palisades to Nuclear Management Company on July 1, 2001, but retains

ownership of the plant. Consumers expects no material changes in the operations of the plant or in the amount of capacity and energy available for use by Consumers.

5 Included in this supply of non-utility generation is 1,240 MW of the Midland Cogneeration Venture (“MCV”),

which, in January 2005 and by order of the MPSC, began using an alternative dispatch method. This method is referred to as the Resource Conservation Plan. The plan, as designed, should have no impact on system reliability.

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3

(iii) Power Supply Call Option Contracts and Dispatchable Capacity and Energy Contracts

Consumers has purchased or plans to purchase from other utilities, utility affiliates, exempt wholesale generators, or large power marketers a) call option capacity and energy and b) dispatchable capacity and energy during the summer 2005 period. Call options and dispatch schedules can be exercised for blocks of on-peak power by providing notice to the seller on the business day or the calendar day preceding the day of delivery. Delivery of the power will be into the Michigan Electric Coordinated Systems (“MECS”). Some contracts provide for the seller to incur substantial penalties if the seller fails to deliver power for which Consumers has exercised its purchase rights. Such contracts effectively make the purchases “financially firm” thus eliminating or minimizing the incentive by the seller to over commit its resources and maximizing the reliability of this resource to Consumers. Other contracts provide for other damages in the event that the seller fails to deliver the contracted capacity.

(iv) Daily Spot Power Supply Purchases

The Company plans to survey the power supply market daily and purchase economic and day-ahead on-peak scheduled power as available, as well as bid to purchase economic power in MISO’s Midwest Energy Market. While the magnitude and sources of such purchases cannot be predicted at this time, some contribution toward meeting summer 2005 peak load is expected to come from such purchases. During the previous four summer seasons Consumers was able to purchase substantial quantities of spot power supplies to economically meet peak load conditions, from both external and in-state generating sources. To facilitate these purchases, the Company has purchased 100 MW of long-term firm transmission across the American Electric Power (“AEP”) system.

(v) Voluntary Load Reduction

If extreme load situations or tight supplies warrant, the Company plans to advise the public when summer 2005 peak load conditions are imminent. If necessary, the Company estimates its planned day-ahead public notice program to result in approximately 150 MW of load reduction (in addition to the customer self-generation and load shifting contract reductions) during summer 2005 peak load conditions.

(vi) Customer Self-Generation Contracts

The Company may enter into contracts with certain customers who have the ability to self-generate during periods of peak load (MPSC Order U-12278). Under these contracts, the Company would purchase from those customers the right to request, with prior day notice, that the customer synchronize its generators, or isolate or disconnect loads to be served by its generators from Consumers’ system and to pay the customer a fee for the generation that the customer self-generates.

(vii) Load Shifting Contracts

The Company has entered into contracts with certain customers who have the ability to shift certain energy intensive operations from peak load periods to off-peak periods (MPSC Order U-12278). Under these contracts the Company has purchased from those

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customers the right to request, with prior day notice, that the customers perform certain operations during the off-peak periods that would have been normally performed during the on-peak periods. In addition to purchasing such right Consumers will pay the customer a fee for the amount of load shifted to off-peak periods.

AFFILIATE DEALINGS

Consumers has long term Non-Utility Generator ("NUG") contracts with affiliates Midland Cogeneration Venture Limited Partnership ("MCV"), Grayling Generating Station Limited Partnership, TES Filer City Station Limited Partnership, and Genesee Power Station Limited Partnership.

CUSTOMER CHOICE AND ELECTRICITY RELIABILITY ACT, MCL 460.10 et seq.

In June 2000, the Customer Choice and Electricity Reliability Act (“Customer Choice” or “Act”) became effective. Under the Act, retail customers are allowed to switch to different generation service suppliers (referred to as Alternative Electric Suppliers or AESs), with utilities still being responsible for the delivery of power. Customers who switch to an AES have the right under existing rules to return to utility full service under certain specified terms and conditions. The ability of customers to leave full service at any time, and the right to return to full service make it difficult for Consumers to plan for its loads.

RETAIL OPEN ACCESS (ROA)

Retail Open Access load, that is load being served by AESs, has grown over the past year. The ROA load as of April 12, 2005 was 894 MW, an increase of 4.4% from the 2004 summer nominal level of 856 MW. Consumers is projecting nominal ROA load of 900 MW by summer 2005. The Company does not provide backup service to ROA customers, although it is required to provide full service to customers who desire to switch back from ROA service. In the event that a significant number of ROA customers return to Consumers as bundled customers, the average cost of service for full service customers could increase, and, under certain circumstances, service reliability could be adversely affected.

INTERCONNECTION OF MERCHANT GENERATING PLANTS

Following the addition of 3,440 MW of new Michigan generation between 2001 and 2003, no

substantial new Michigan generation has been added.

MIDWEST WHOLESALE ELECTRIC MARKET EXPECTED CHANGES

Consumers is a market participant in the Midwest Energy Market, which MISO officially began operating on April 1, 2005. At that time, MISO implemented a day-ahead and real-time energy market and centralized dispatch for the MISO’s market participants. These changes were implemented to ensure that load requirements in the region are met reliably and efficiently, to better manage congestion on the grid, and to centralize dispatch of generation throughout the region.

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Consumers is currently evaluating whether or not there may be impacts on electric reliability associated with changes in the composition of transmission markets. For example,

Commonwealth Edison Company joined the Pennsylvania-Jersey-Maryland Regional

Transmisssion Organization (“PJM” or “PJM RTO”) in May 2004 and American Electric Power Service Corporation joined the PJM RTO in October 2004. These integrations may be creating different patterns of power flow within the Midwest area and could affect adversely our ability to provide reliable service to our customers.

Consumers has communicated its concerns to MISO regarding the startup of the Midwest Energy

Market.6 Consumers, MISO and others have been working diligently to address these concerns,

and Consumers Energy is committed to continuing to work with MISO to resolve any items that may arise as the new MISO market and dispatch operations are implemented.

MICHIGAN TRANSMISSION

Consumers is a customer of Michigan Electric Transmission Company (“METC”), which provides network integrated transmission service (“NITS”). METC, as the MISO transmission owner of the transmission system that serves Consumers, is responsible for ensuring reliable operation of the system under the direction of MISO.

EXTERNAL TRANSMISSION (IMPORT CAPABILITY)

For summer 2005, Consumers currently has 100 MW of annual firm point-to-point transmission reserved with PJM on the PJM bus to MECS path. Additionally, the seams agreement between MISO and PJM is expected to facilitate transactions between MISO and PJM and to serve load. Consumers intends to continue to have access to the PJM transmission system to facilitate transactions with AEP and others. Accordingly, Consumers is now a customer of PJM.

TRANSMISSION CONSTRAINTS

MISO, as the transmission provider and administrator for the Midwest Energy

Market, has tools at its disposal to deal with congestion. For instance, where congestion is detected, MISO may order the redispatch of generation to relieve the congestion.

One of the four transmission ties to Ontario is out of service indefinitely. As a result, Consumers expects that transmission constraints and transmission line loading relief (“TLR”) procedures, as well as generation redispatch may continue to impact import capability into Michigan.

However, in agreement with other major electric transmission providers located around Lake Erie, METC, as a party to this agreement, acts as a coordinator in its control area to use generation re-dispatch to mitigate TLR curtailments in situations where the affected system is about to curtail firm customer load. Consumers has a cooperative role in this effort.

6 Letter dated January 17, 2005, from John G. Russell, President and COO of Consumers to James P. Torgerson,

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6

ASSESSMENT

Based on the above planning assumptions for load forecast, generation capability, and contract arrangements, Consumers expects that, with approximately 900 MW of nominal summer load being supplied by others, it will have an estimated reserve margin of 11% of expected peak load during summer 2005 peak load conditions. In the event the level of ROA participation is different than the assumed level and no adjustment is made in available resources, the reserve margin can be expected to be slightly higher or lower than the target level.

In 2003, Consumers determined that a seasonal planning reserve margin target of 11% was sufficient to satisfy ECAR capacity planning criteria of expecting to interrupt firm load no more frequently than one occasion in 10 years. The reserve margin will be used to cover a 4% operating reserve required by ECAR, generating plant forced outages and derates, more severe weather (i.e. higher demand) than expected, unanticipated transmission constraints, Ludington Pump Storage and hydro unit water depletion, and other uncertainties that may decrease available resources and/or increase load requirements.

Respectfully submitted,

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100% 90%

z

3

~ 80%

-

L = 0 I 70% s b 60% 0 m a v)

-

z

-

-

50%

3

J h

-

40%

a

I Y m m 0 30% 0

-

5

20%

e

n 10% 0% CONSUMERS ENERGY COMPANY MPSC Case U-14414

Cumulative

Probabilitv

Distribution

Summer

2005

Peak

Hourly

Load

(MW)

Exhibit 1 7200 7400 7600 7800 8000 8200 8400 8600 8800 9000 9200 9400 Hourly Load (MW)

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CONSUMERS ENERGY COMPANY MF'SC Case U-14414

Comparison

of

Summer

2005

Load

and

Capacity

Load

Intermptible

Firm

Projected

Peak

Load

Demand

(MW)

Capacity

Utility-Owned

Generation

Non-Utility

Generators

Sub

-

Total

(MW)

Current

Summer

Capacity

Plans

(Power

Supply

Call

Options,

Dispatchable

Capacity

and

Energy

Contracts,

Self-Generation

Contracts,

Load

Shift

Contracts

and

Other

Seasonal

Purchases)

Exhibit

MW

5

8,048

8,053

6,437

1,657

8,095

844

Total

Planned

Capacity

(MW)

8,938

*

Assuming

a

nominal

retail

open

access

load

of

900

MW

is

supplied

by

others.

References

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