October 23, Ms. Lisa Felice Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway P.O. Box Lansing, MI 48909

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October 23, 2020

Ms. Lisa Felice Executive Secretary

Michigan Public Service Commission 7109 West Saginaw Highway

P.O. Box 30221 Lansing, MI 48909

RE: Case No. U-20525 – In the Matter of the application of CONSUMERS ENERGY COMPANY for Approval to implement a power supply cost recovery plan and for the 12 months ending December 31, 2020.

Dear Ms. Felice:

Enclosed for electronic filing in the above-captioned case is the Reply Brief of Consumers Energy Company.

This is a paperless filing and is therefore being filed only in a PDF format. I have enclosed a Proof of Service showing electronic service upon the parties.

Sincerely,

Robert W. Beach

cc: Parties per Attachment 1 to Proof of Service

General Offices: LEGAL DEPARTMENT

One Energy Plaza Tel: (517) 788-0550 SHAUN M. JOHNSON Senior Vice President and General Counsel

Robert W. Beach Ian F. Burgess Don A. D’Amato Gary A. Gensch, Jr.

Matthew D. Hall Georgine R. Hyden Katie M. Knue Robert F. Marvin Jason M. Milstone Rhonda M. Morris Deborah A. Moss*

Chantez L. Pattman Michael C. Rampe Scott J. Sinkwitts Theresa A.G. Staley Janae M. Thayer Anne M. Uitvlugt Aaron L. Vorce

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

*Washington Office:

1730 Rhode Island Ave. N.W.

Suite 1007

Tel: (202) 778-3340 MELISSA M. GLEESPEN Vice President, Corporate Secretary and Chief Compliance Officer KELLY M. HALL

Vice President and Deputy General Counsel Emerson J. Hilton Adam C. Smith Bret A. Totoraitis Assistant General Counsel Washington, DC 20036 Fax: (202) 778-3355

Writer’s Direct Dial Number: (517) 788-1846 Writer’s E-mail Address: robert.beach@cmsenergy.com

Digitally signed by Robert W. Beach Date: 2020.10.23 10:56:07 -04'00'

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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 ) CONSUMERS ENERGY COMPANY )

for approval to implement a power supply ) Case No. U-20525 cost recovery plan for the 12 months )

ending December 31, 2020. ) )

REPLY BRIEF OF CONSUMERS ENERGY COMPANY

October 23, 2020

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Table of Contents

Page

I. INTRODUCTION ... 1

II. REPLY TO RCG ... 1

A. Jackson Plant Lateral Pipeline ... 3

B. SEMCO Owned Zeeland Lateral ... 5

C. Natural Gas Management Services Agents and Agreements ... 6

D. TCJA Impact ... 7

E. Impact of COVID-19 Pandemic ... 8

VI. CONCLUSION AND RELIEF REQUEST... 9

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ending December 31, 2020. ) )

REPLY BRIEF OF CONSUMERS ENERGY COMPANY I. INTRODUCTION

Consumers Energy Company (“Consumers Energy” or the “Company”) files this Reply Brief in response to the Initial Brief filed by the Residential Customer Group (“RCG”). Consumers Energy requests that the Michigan Public Service Commission (“MPSC” and the “Commission”) issue a final order approving the Company’s 2020 Power Supply Cost Recovery (“PSCR”) Plan as set forth in the Company’s September 30, 2019 filing and find that there are no cost items that, on the basis of present evidence, the Commission would be unlikely to permit Consumers Energy to recover in the future. For the reasons set forth in the Company’s Initial Brief and in this Reply Brief, the Commission should reject any arguments to the contrary.

II. REPLY TO RCG

RCG’s Initial Brief presented its positions related to: (i) the recovery of charges associated with the natural gas transportation agreement with the Consumers Energy natural gas utility for the Company’s Jackson Natural Gas Plant (“Jackson Plant”); (ii) the recovery of demand charges associated with the natural gas transportation agreement with SEMCO Energy Gas Company (“SEMCO”) for the Company’s Zeeland Natural Gas Plant (“Zeeland Plant”); (iii) the Company’s use of natural gas management services agents and agreements; (iv) the impact of the Tax Cuts

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and Jobs Act of 2017 (“TCJA”) on power supply costs; and (v) the impact of the COVID-19 pandemic.

The Company has presented evidence that has addressed and refuted all of RCG’s positions. RCG’s Initial Brief fails to refute any of the Company’s evidence in this case and, at times, erroneously suggests that such evidence does not exist. Furthermore, RCG’s positions have been addressed and rejected by the Commission in prior PSCR orders. RCG’s positions largely ignore those prior Commission orders. The Company submits that the Commission should reject RCG’s recommendations because they are unreasonable, unsupported, and otherwise unnecessary.

In addition to the responses provided by the Company below, the Company continues to rely on its response to RCG as provided on pages 12 through 28 of its Initial Brief.

RCG’s disregard of the Company’s evidence and past Commission orders which refute its positions is unproductive, abuses the Commission’s resources, and needlessly burdens the other parties to PSCR cases. The Company requests that the Commission apply the Pennwalt doctrine and direct RCG to not present identical evidence and raise identical issues which have been repeatedly rejected by the Commission – such as the impact of the TCJA, the charges paid pursuant to the natural gas transportation agreement with SEMCO, and the Company’s use of natural gas management services agents and agreements, which were all addressed by the Commission in the Company’s 2019 PSCR Plan, Case No. U-20219 – without a change in circumstances or the production of new evidence. In re Consumers Energy, 291 Mich App at 122, citing Pennwalt Corp v Pub Serv Comm, 166 Mich App 1, 9 (1988) (“issues fully decided in earlier PSC

proceedings need not be ‘completely relitigated’ in later proceedings unless the party wishing to do so establishes new evidence or a showing of changed circumstances that the earlier result is unreasonable”).

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A. Jackson Plant Lateral Pipeline

On pages 22 through 26 of its Initial Brief, RCG argues that the Company did not justify the charges paid under the natural gas transportation agreement for the Jackson Plant and that such charges should be disallowed. RCG’s Initial Brief, page 26. RCG further recommends that, at a minimum, “the Commission issue a Section 6j warning that said pipeline contract charges will be disallowed in CECO’s reconciliation case if CECO does not provide persuasive evidence to carry its burden of proof to establish that said charges are reasonable and prudent” and requests the Commission to require Staff to audit the Jackson Transportation Agreement. Id. RCG’s arguments are completely without merit and should be rejected. The Company entirely refuted RCG’s positions in the record and on pages 24 through 28 of its Initial Brief. Because RCG has failed to address any of the Company’s evidence addressing its claims, the Company continues to rely on its arguments, as presented in its Initial Brief, in addition to the arguments presented below, in responding to RCG.

The natural gas transportation agreement for the Jackson Plant has not changed since the Jackson Plant was owned by the prior owner. The Company’s electric utility assumed the prior plant owner’s role and obligations under the natural gas transportation agreement. 2 TR 139. Since the natural gas transportation agreement has not changed since the electric utility’s purchase of the Jackson Plant, there is no basis to establish that the Company is now somehow double recovering costs. See RCG’s Initial Brief, page 22.

RCG’s position also defies basic logic. RCG freely concedes in its Initial Brief that the natural gas transportation agreement for the Jackson Plant was for a 50-year term. See RCG’s Initial Brief, page 23. As was the case with the prior plant owner, the Company’s electric utility, and its customers, are paying for use of the lateral pipeline with the demand charges pursuant to the natural gas transportation agreement with the Company’s natural gas utility over the term of

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the agreement. That 50-year term provides compensation for the natural gas utility. There is no basis to support RCG’s conclusion that the Company’s natural gas utility has somehow been fully compensated for the Jackson Plant lateral pipeline simply because the electric utility has taken over the prior plant owner’s role and responsibilities in the natural gas transportation agreement.

The Commission also recently rejected RCG’s unsupported allegations regarding the double recovery of costs related to the lateral pipeline which serves the Jackson Plant in the Company’s 2019 PSCR Plan, Case No. U-20219. In rejecting RCG’s position, the Commission specifically found as follows:

The Commission is not persuaded by RCG’s arguments.

Consumers’ electric and gas rates are considered in wholly separate proceedings, as are the power supply costs and factors for each.

Consumers’ gas side business would suffer a loss of revenue if it stopped charging the electric side for use of the Jackson lateral, potentially resulting in higher rates for gas customers in the utility’s next gas rate case. It is neither reasonable nor prudent that electric side customers obtain the benefit of lower power supply costs through no-charge or low-charge use of the Jackson lateral at the expense of the gas side customers from whom pipeline operation and maintenance costs are recovered. Therefore, the Commission declines to disallow demand charges related to the Jackson lateral as suggested by RCG and finds the charges to be reasonable and prudent. [MPSC Case No. U-20219, April 15, 2020 Order, page 15.]

There is also no basis to support RCG’s allegation of Code of Conduct issues related to the natural gas transportation agreement for the Jackson Plant. The Company’s natural gas transportation agreement for the Jackson Plant was not negotiated as an affiliate transaction.

Company witness Stephen J. Nadeau explained that the natural gas transportation agreement for the Jackson Plant was initially negotiated and executed as an arm’s length transaction between the Company’s natural gas utility and a third party (i.e. not between Company affiliates) under the rules and regulations of Michigan’s Public Act 9 of 1929. 2 TR 138. When the Company’s electric

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utility later acquired the Jackson Plant from the prior plant owner, the Company’s electric utility assumed the prior plant owner’s role and obligations under the natural gas transportation agreement, which is analogous to what the Company did when it purchased the Zeeland Plant.

2 TR 139. Therefore, even though the parties to the natural gas transportation agreement have changed, since the original parties to the agreement were unaffiliated, there was no reason for the Company’s natural gas utility to undercharge for the pipeline and natural gas service and there was also no reason for the former plant owner to overpay for the pipeline and natural gas service. 2 TR 139.

The only issues related to the transportation of natural gas to the Jackson Plant germane to this proceeding are the charges paid by the Company’s electric utility under the natural gas transportation agreement. The Company has provided those charges in this case and RCG has failed to establish that they are in any way unreasonable. If RCG desires to challenge the recovery of pipeline costs in the base rates of the Company’s natural gas utility, the appropriate place to do so would be in one of the Company’s natural gas rate cases, not in this PSCR proceeding. RCG has presented no explanation as to why these charges should be given heightened scrutiny in this case.

For the reasons discussed above, and in the Company’s Initial Brief, RCG’s criticisms and recommendations with respect to the natural gas transportation agreement for the Jackson Plant, and related charges, should be rejected.

B. SEMCO Owned Zeeland Lateral

Beginning on page 26 of its Initial Brief, RCG argues “that the ALJ should recommend, and the Commission should adopt, a disallowance of CECO’s lease payments to the Southeast Michigan Gas Company (SEMCO) for the use of the 7.5 mile interconnection pipeline serving CECO’s Zeeland natural gas electric generating plant.” However, RCG did not address any of the

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record evidence provided by the Company which refutes RCG’s positions. The Company responded to each of RCG’s arguments on this issue on pages 19 through 24 of the Company’s Initial Brief. Since RCG presents no new or different arguments in its Initial Brief, the Company rests on its arguments as presented in its Initial Brief.¹ For the reasons discussed in the Company’s Initial Brief, RCG’s positions related to the SEMCO owned Zeeland Lateral and the natural gas transportation agreement for the Zeeland Plant should be rejected.

C. Natural Gas Management Services Agents and Agreements

On pages 30 through 34 of its Initial Brief, RCG argues that “the ALJ should recommend, and the Commission should adopt, a disallowance or other effective remedy to address the unnecessary increased cost incurred by CECO to engage a third party agent to acquire gas, and arrange transportation and storage, to supply CECO’s Zeeland, Jackson, and Karn plants in contrast to utilizing CECO’s own internal resources and expertise in its gas division to undertake these functions.” However, RCG’s position is not based on any evidence provided by RCG. RCG did not present any testimony on this issue. See 2 TR 204-221. The Company has also extensively supported its use of natural gas service agents in prior PSCR cases and the Company’s use of such agents has been approved by the Commission. These proceedings included the Company’s 2010 PSCR Reconciliation, Case No. U-16045-R; 2011 PSCR Reconciliation, Case No. U-16432-R;

1While further argument regarding RCG’s flawed positions is not necessary, one point of clarification is necessary. On page 27 of its Initial Brief, RCG claims that “$1 million of CECO’s annual lease payments to SEMCO” was disallowed in Case No. U-18142. That is incorrect. In that case, the Company initially proposed to purchase the SEMCO owned Zeeland Lateral for $1 million and also proposed to recover the

$700,000 demand charge that it would pay to SEMCO in 2017 prior to the sale of the lateral. The Commission found that the $1 million purchase amount should be recovered in a rate case, and not in a PSCR proceeding, but permitted the recovery of the $700,000 demand charge in the PSCR. See Case No.

U-18142, July 24, 2018 Order Granting Rehearing and Clarification, page 4. RCG did not prevail on this issue in Case No. U-18142. Furthermore, there is no continued disallowance of the $1 million amount in the PSCR because the Company ultimately did not purchase the lateral from SEMCO and therefore did not incur that cost.

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2012 PSCR Plan, Case No. U-16890; 2013 PSCR Plan, Case No. U-17095; and 2016 PSCR Plan, Case No. U-17918.

Furthermore, RCG’s position on this very issue was recently rejected in the Company’s 2019 PSCR Plan, Case No. U-20219. In its April 15, 2020 Order in Case No. U-20219, the Commission rejected RCG’s position as follows:

The Commission is not persuaded by RCG’s arguments and agrees with the ALJ that Consumers’ use of gas management service agents has been addressed in past PSCR plan and reconciliation cases and no new issues were raised in the instant case. As the ALJ stated in the PFD, “RCG’s claim that it would be more economical for the gas side of the company to undertake these services for the electric side of the company is speculative and without any evidentiary support in [the] record.” PFD, p. 31. Further, Consumers provided testimony that the gas side of the company does not offer commercial gas procurement services. Id.; 2 Tr 66. In addition, as the ALJ pointed out, the “reasonableness of gas management services agreements can be addressed in the PSCR reconciliation.”

PFD, p. 31. And finally, RCG fails to make any persuasive argument as to why it would be reasonable for gas customers to forego the profit from providing gas procurement services and, potentially, suffer higher gas rates, so that electric customers can enjoy a lower power supply cost. Therefore, the Commission finds the gas management service expenses to be reasonable and prudent, but expects that the contracts and expenses to be adequately examined in the reconciliation case. [Case No. U-20219, April 15, 2020 Order, page 12.]

RCG has not presented any evidence to justify a different result on this issue in this proceeding.

Based on the Commission’s recent determination in Case No. U-20219, RCG’s position should again be rejected in this case.

D. TCJA Impact

Beginning on page 34 of its Initial Brief, RCG argues “that the ALJ should recommend, and the Commission should direct, CECO to undertake diligent efforts to seek supplier cost savings to reflect the adoption of the federal corporate tax reduction adopted by the Tax Cuts and Jobs Act

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(TCJA), effective January 1, 2018, and then to fully and transparently explain its efforts in its PSCR cases.” However, RCG did not address any of the record evidence provided by the Company which refutes RCG’s positions. The Company responded to each of RCG’s arguments on this issue on pages 14 through 19 of the Company’s Initial Brief. Since RCG presents no new or different arguments in its Initial Brief, the Company rests on its arguments as presented in its Initial Brief. For the reasons discussed in the Company’s Initial Brief, RCG’s positions related to the impact of the TCJA should be rejected.

E. Impact of COVID-19 Pandemic

Beginning on page 35 of its Initial Brief, RCG requests “further investigation into the impact of the COVID-19 virus crises on CECO’s PSCR costs and customer rates.” However, RCG did not address any of the record evidence provided by the Company which refutes RCG’s position. The Company responded to RCG’s position on this issue on pages 13 through 14 of the Company’s Initial Brief. Since RCG presents no new or different arguments in its Initial Brief, the Company rests on its arguments as presented in its Initial Brief. For the reasons discussed in the Company’s Initial Brief, RCG’s position on the impact of the COVID-19 pandemic should be rejected because it is unsupported and unnecessary.

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VI. CONCLUSION AND RELIEF REQUEST

Based on the evidence introduced into the record in this proceeding together with the arguments set forth in the Company’s briefs, Consumers Energy Company respectfully requests the Michigan Public Service Commission to issue an order:

(1) approving Consumers Energy’s 2020 PSCR Plan and five-year forecast as more fully described in the testimony and exhibits of Consumers Energy submitted in this proceeding as reasonable and prudent;

(2) authorizing Consumers Energy to charge its customers a maximum PSCR Factor for 2020 as stated on Exhibit A-22 (AGV-1), and ruling that such factors are in compliance with Public Act 304 of 1982; and

(3) granting Consumers Energy such other and further relief as may be lawful and appropriate.

Respectfully submitted,

CONSUMERS ENERGY COMPANY

Dated: October 23, 2020 By: ___________________________________

Robert W. Beach (P73112) Gary A. Gensch, Jr. (P66912) Michael C. Rampe (P58189) One Energy Plaza

Jackson, Michigan 49201

Attorneys for Consumers Energy Company Tel: (517) 788-1846

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ending December 31, 2020. )

)

PROOF OF SERVICE STATE OF MICHIGAN )

) SS COUNTY OF JACKSON )

Crystal L. Chacon, being first duly sworn, deposes and says that she is employed in the Legal Department of Consumers Energy Company; that on October 23, 2020, she served an electronic copy of the Reply Brief of Consumers Energy Company upon the persons listed in Attachment 1 hereto, at the e-mail addresses listed therein.

__________________________________________

Crystal L. Chacon

Subscribed and sworn to before me this 23^rd day of October 2020.

_________________________________________

Melissa K. Harris, Notary Public State of Michigan, County of Jackson My Commission Expires: 06/11/2027 Acting in the County of Jackson

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ATTACHMENT 1 TO CASE NO. U-20525

Administrative Law Judge Hon. Sally L. Wallace Administrative Law Judge 7109 West Saginaw Highway Post Office Box 30221 Lansing, MI 48909 wallaces2@michigan.gov

Counsel for the Michigan Public Service Commission Staff

Heather M.S. Durian, Esq.

Monica M. Stephens, Esq.

Nicholas Q. Taylor

Assistant Attorneys General 7109 West Saginaw Highway Post Office Box 30221 Lansing, MI 48909 durianh@michigan.gov stephensm11@michigan.gov taylorn10@michigan.gov Counsel for Attorney General Dana Nessel

Celeste R. Gill, Esq.

Assistant Attorney General ENRA Division

525 West Ottawa Street 6th Floor Williams Building Post Office Box 30755 Lansing, MI 48909 gillc1@michigan.gov

AG-ENRA-Spec-Lit@michigan.gov

Consultant for Attorney General Dana Nessel

Sebastian Coppola, President Corporate Analytics

5928 Southgate Road Rochester, MI 48306

sebcoppola@corplytics.com

Counsel for Michigan Power Limited Partnership and Ada Cogeneration Limited Partnership

Jennifer Utter Heston, Esq.

Fraser Trebilcock Davis & Dunlap, P.C.

124 W. Allegan, Suite 1000 Lansing, MI 48933

jheston@fraserlawfirm.com

Counsel for the Residential Customer Group (“RCG”)

Don L. Keskey, Esq.

Brian W. Coyer, Esq.

Public Law Resource Center PLLC University Office Place

333 Albert Avenue, Suite 425 East Lansing, MI 48823

donkeskey@publiclawresourcecenter.com bwcoyer@publiclawresourcecenter.com Consultant for RCG

Geoff Crandall

crandall@msbnrg.com

Counsel for the Association of Businesses Advocating Tariff Equity (“ABATE”) Bryan A. Brandenburg, Esq.

Stephen A. Campbell, Esq.

Clark Hill, PLC

212 East César E. Chávez Avenue Lansing, MI 48906

brandenburg@clarkhill.com scampbell@clarkhill.com Consultant for ABATE Jeffry Pollock

Kitty Turner, Paralegal J. Pollock Incorporated 12647 Olive Blvd., Suite 585 St. Louis, MO 63141

jcp@jpollockinc.com kat@jpollockinc.com

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ATTACHMENT 1 TO CASE NO. U-20525

Page 2 of 2 Counsel for the Independent Power

Producers Coalition of Michigan and Energy Michigan, Inc.

Timothy J. Lundgren Laura A. Chappelle Varnum LLP

201 N. Washington Square, Suite 910 Lansing, MI 48933

tjlundgren@varnumlaw.com lachappelle@varnumlaw.com

Counsel for Midland Cogeneration Venture Limited Partnership (“MCV”) Richard J. Aaron, Esq.

Jason T. Hanselman, Esq.

John A. Janiszewski, Esq.

Frankie Dame, Esq.

Dykema Gossett PLLC

201 Townsend Street, Suite 900 Lansing, Michigan 48933 raaron@dykema.com jhanselman@dykema.com jjaniszewski@dykema.com FDame@dykema.com Charles E. Dunn, Esq.

Midland Cogeneration Venture LP 100 East Progress Place

Midland, MI 48640 cedunn@midcogen.com