DICKINSON WRIGHT PLLC

Transcription

1 DICKINSON WRIGHT PLLC COUNSELLORS AT LAW S. W A S H I N G T O N S Q U A R E, S U I T E 0 0 L A N S I N G, M I C H I G A N - T E L E P H O N E : ( ) - 0 F A C S I M I L E : ( ) h t t p : / / w w w. d i c k i n s o n w r i g h t. c o m J O H N M. D E M P S E Y j d e m p s e d i c k i n s o n w r i g h t. c o m October, 00 Via E-Docket Ms. Mary Jo. Kunkle Executive Secretary Michigan Public Service Commission Mercantile Way Lansing, MI Re: In the matter of the application of Consumers Energy Company for authority to increase its rates for the distribution of natural gas and for other relief. Dear Ms. Kunkle: Enclosed for filing in the above-referenced case is the Direct Testimony of James R. Germain on Behalf of Constellation NewEnergy-Gas Division, LLC and Proof of Service. If you have any questions, please contact me. Very truly yours, John M. Dempsey JMD:jkt Enclosure LANSING - C o u n s e l l o r s A t L a w D E T R O I T B L O O M F I E L D H I L L S L A N S I N G G R A N D R A P I D S A N N A R B O R W A S H I N G T O N, D. C.

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) CONSUMERS ENERGY COMPANY ) for authority to increase its rates for ) Case No. U- the distribution of natural gas and for ) other relief. ) ) TESTIMONY OF JAMES R. GERMAIN VICE PRESIDENT, SUPPLY ON BEHALF OF CONSTELLATION NEWENERGY GAS DIVISION, LLC DATED: October, 00

3 Page of 0 I. INTRODUCTION Q. Please state your name and business address. A. My name is James R. Germain, and my business address is N W0 Ridgeview Parkway, Waukesha, WI -. Q. By whom are you employed? A. I am employed by Constellation Energy Group, Inc. ( Constellation ). Q. Please describe your position with Constellation. A. I am Vice President of Supply for Constellation NewEnergy-Gas Division, LLC ( CNE- Gas ). In this role, I am responsible for natural gas commodity and retail transportation purchasing, the purchase and sale of natural gas futures contracts and options, management of natural gas storage, and the day-to-day activities and performance of the Supply Department and its personnel. Functions of the Supply Department also include long range planning, supplier contracts, strategic planning, and customer special services. Key to this operation is building and maintaining relationships with suppliers and utilities. As Vice President, I am responsible for purchasing gas supplies for CNE-Gas entire customer base throughout North America, including for our customers located within the service territory of Consumers Energy Company. My responsibilities include developing and maintaining the most reliable, competitively priced supply structure along 0 with effectively utilizing all available storage and transportation assets. intermittently been involved in Michigan natural gas markets since. I have

4 Page of 0 Q. Please describe your educational and business experience. A. From an educational perspective, I earned a Bachelor of Business Administration (B.B.A.) in Accounting and Finance from the University of Wisconsin-Milwaukee in and a Master of Business Administration (M.B.A.) from the University of Wisconsin-Whitewater in 00. I am a Certified Public Accountant. Prior to joining Constellation, I had years of experience in accounting and finance for a variety of service, manufacturing, and technology industries. My previous experience includes four years as an auditor with a major public accounting firm and more than a decade of positions in finance across diverse industries such as insurance, real estate, investments, and software applications. In addition, for more than a decade, I was the president of a consulting firm specializing in providing financial services to small and medium sized businesses. Since joining Constellation in, I have held various positions in the Supply Department. Q. On whose behalf are you testifying? A. I am testifying on behalf of CNE-Gas. Q. Have you ever testified on energy regulatory matters? A. Yes. I have submitted testimony before the Illinois Commerce Commission and the Public Service Commission of Wisconsin. I have not previously appeared before the Michigan Public Service Commission ( Commission ).

5 Page of 0 Q. Please provide some background on the Constellation companies, including CNE- Gas. A. CNE-Gas is a full-service natural gas marketer that supplies natural gas and related transportation services to more than,000 commercial and industrial customers, municipalities, local distribution companies, and cogeneration facilities including customers in the service territory of Consumers Energy Company ( Consumers or the Company ). CNE-Gas retail natural gas market includes 0 U.S. states. In addition to our office in Michigan, CNE-Gas is headquartered in Louisville, Kentucky and has regional offices in Illinois, Ohio, Wisconsin, California, Oklahoma, Maryland, New York, Pennsylvania, Missouri, Arkansas, Kansas, Minnesota, Iowa, and Nebraska. CNE- Gas is a subsidiary of Constellation Energy Resources, LLC that, in turn, is wholly owned by Constellation Energy Group, Inc. ( CEG ). CEG s other subsidiaries provide regulated retail electricity and gas supply in central Maryland, including the city of Baltimore, and competitive wholesale and retail electricity, energy management, and consulting services nationwide. Q. Do you have any exhibits that support your testimony? A. Yes. In support of my testimony, I offer the following exhibit: 0 CNE-Gas Exhibit Consumers Discovery Request Response U--CNE- CE- and -CNE-CE- Supplemental Response (Reply to CNE-Gas Discovery Request CNEG-CEC00)

6 Page of II. OVERVIEW AND BACKGROUND 0 Q. Please describe CNE-Gas interest in this proceeding. A. As a marketer that serves transportation customers in Consumers service territory, CNE- Gas is extremely interested in the transportation programs and tariffs offered by the utility. Our interaction with our customers is predicated upon the gas transportation service provided by a local distribution company. While Michigan utilities have offered transportation service since the 0s, the Commission s ongoing approval of reasonable natural gas transportation service tariffs determines whether marketers such as CNE-Gas have a legitimate opportunity to provide end-use customers with an alternative to monopoly gas commodity service such as that provided by Consumers. Q. What changes in its natural gas transportation service tariffs has Consumers proposed in this proceeding? A. Consumers proposed changes are primarily limited to increases in the Customer and Distribution Charges assessed to transportation customers. In addition, Consumers 0 proposes to modify the transportation charge adjustment associated with the Authorized Tolerance Levels by an amount equal to the percentage increase of all transportation delivery rates, specifically 0.%. (Pender Direct, pp. -) From what I ascertain from their testimony, Consumers does not propose changes to the rules and regulations governing transportation service other than to clarify the definition of business day and the fact that nominations cannot be made on Saturday, Sunday, or Company holidays. (Pender Direct, pp. -0)

7 Page of 0 0 Q. What is your position on Consumers proposed rate increases to transportation service? A. While the 0.% increase proposed strikes me as rather substantial, especially in light of current conditions, the purpose of my testimony is not to respond to Consumers proposed increases to its Customer and Distribution Charges. I trust the Commission and its Staff will diligently vet the legitimacy of these proposed rate hikes. Rather, the purpose of my testimony is to recommend certain operational changes in Consumers transportation service. Q. What is your position on Consumers proposed business day definition and clarification that nominations cannot be made on weekends and Company holidays? A. While I would prefer the Company accept nominations on weekends and holidays, it is my understanding that the proposed changes do not in any way change current operating practice. It is not my intent to object to any tariff language changes that simply clarify existing operational procedures. Q. What are the specific operational changes to transportation service that you will address in your Direct Testimony? A. My testimony will propose that Consumers change its operational rules to allow suppliers to combine their transportation customers into groups or pools. Pooling is a common industry practice; many utilities, including several in Michigan, permit marketers to pool their transportation customers into groups in order to achieve greater efficiencies. Specifically, I will address the following two matters: () The Benefits of Pooling; and () CNE-Gas Pooling Recommendations

8 Page of III. THE BENEFITS OF POOLING 0 Q. Please explain what you mean by pooling. A. At its most basic level, pooling is simply the grouping together of transportation service customers that are all being supplied by the same marketer. It is certainly not a new concept in the industry, as many Customer Choice programs are predicated upon pooling or grouping many end-use customers together. Over a decade ago, in Issues Brief - 0 on the Potential GISB Implementation Issues for Local Distribution Companies, the Gas Industry Standards Board ( GISB ) recognized that it is not always necessary to tie marketer deliveries to consumption on a customer-by-customer basis, and that an LDC and marketer do not need to conduct all transactions on a customer-by-customer basis. Q. Has the Commission approved pooling of transportation customers in other utility jurisdictions? A. Yes. While I have not conducted an exhaustive search of all Michigan gas utility tariffs, I have determined that the transportation service tariffs of Michigan Gas Utilities Corporation ( MGUC ), Wisconsin Public Service Corporation ( WPSC ), SEMCO Energy Gas Company ( SEMCO ), and Northern States Power Company, d/b/a Xcel Energy ( NSP ) all permit pooling among transportation service customers. GISB is the predecessor organization to the North America Energy Standards Board ( NAESB ).

9 Page of 0 0 Q. Please describe the transportation service pooling provisions that exist in the MGUC tariff. A. MGUC Sheet No. E-.00 provides two options for Imbalance Paper Pooling. Option B, Pooling by Pipeline, permits a marketer to notify the utility in advance of the transportation customers in its pool, thereby allowing the marketer to submit a pooled nomination on behalf of all customers within that pool. Positive and negative imbalances are then netted among the customers in the pool. MGUC also offers storage pooling provisions for marketers with multiple transportation customers. As described on Sheet No. E-.00, MGUC permits pooling by suppliers relative to monthly storage withdrawal limits, storage injections during September and October, and daily nominations. These storage pooling provisions were approved November, 00 in Case No. U-0, in which limits for transportation customers utilization of the authorized tolerance level were also established. Thus, pooling relative to MGUC transportation storage has already been in place for five storage injection seasons. During that period, the only material tariff change has been to modify the daily nomination provision from a set cannot exceed % of expected daily usage without approval of the Company to a provision that is tied to interstate pipeline rules. That section of the MGUC tariff now reads cannot exceed the percentage of expected daily usage that is imposed upon the Company by the Interstate pipelines, without approval of the Company. Nominations that exceed the limitation, shall be subjected to overrun charges and imbalance penalties, as imposed by the Interstate Case No. U-0, Order Approving Settlement Agreement.

10 Page of pipelines. Since this is the only material change that has been made in the past five 0 0 storage injection seasons, even though the utility has had opportunities to propose changes, I conclude that pooling of transportation customers storage has been operationally feasible for MGUC. Q. Please describe the transportation service pooling provisions that exist in the WPSC tariff. A. The WPSC tariff is rather explicit in its acceptance of pooling among transportation customers. Specifically, WPSC tariffs permit: ) Formation of third party pool (MPSC Vol No -GAS, st Rev. Sheet No. E-.00). ) Netting of pool members usage and deliveries to determine imbalance (MPSC Vol No -GAS, st Rev. Sheet No. E-.00). ) Submission of a single nomination for the whole pool (MPSC Vol No -GAS, Original Sheet No. E-.00). ) Best efforts acceptance of intra-day nomination changes at the pool level (MPSC Vol No -GAS, Original Sheets No. E ). ) Determination of daily cash out charges at the pool level (MPSC Vol No -GAS, st Rev. Sheet No. E-.00). ) Determination of daily balancing charges at the pool level (MPSC Vol No - GAS, st Rev. Sheets No. E ). ) Determination of High Flow Constraint Period compliance at the pool level (MPSC Vol No -GAS, st Rev. Sheet No. E-.00). Case No. U-, Order Approving Settlement Agreement (emphasis added).

11 Page of 0 0 Review of WPSC s tariff Section E on Transportation Service quickly affirms that the utility has not just designed its transportation service to accommodate pooling by marketers, but its tariffs actually facilitate the pooling of transportation customers. Q. Please describe the transportation service pooling provisions that exist in the SEMCO tariff. A. In the SEMCO tariff, there is a specific section dedicated to the pooling of transportation customers. It is found at SEMCO Sheet No. E-.00 and describes its function as Pooling permits a Shipper s Pooling Agent to combine the usage of a group of Transportation Service Shippers for the purpose of netting the imbalances of the members of the pool on both a daily and monthly basis. Additional details on SEMCO s pooling provisions are found at: ) Original Sheet No. E-.00 provides the relevant definitions. ) Original Sheet No. E-.00 describes how pooling impacts the determination of imbalance penalties. ) First Revised Sheet No. E-.00 explains that, for daily balancing purposes, pooling provides for netting of pool member daily imbalances. ) First Revised Sheet No. E-.00 also explains that, for monthly balancing (cashout) purposes, pooling provides for netting of pool member monthly imbalances. ) Original Sheet No. E-0.00 provides the rules associated with removal of a transportation customer from a marketer s pool. The SEMCO tariff clearly permits pooling by a marketer of its transportation customers.

12 Page 0 of 0 Q. Please describe the transportation service pooling provisions that exist in the NSP tariff. A. The NSP tariff also accommodates pooling of a marketer s transportation customers. NSP tariff Sheet No. E-.0 states that a transportation customer must either choose the NSP pool or a third party (marketer) pool. Daily balancing charges are assessed based upon the net pool imbalance. (M.P.S.C. No. -Gas, Original Sheet No. E-.0) During a curtailment, marketers are permitted to continue to pool their transportation customers who are behind the same city gate. (Ibid.) Q. Did you review any of the Michigan Customer Choice tariffs to determine whether pooling applies? A. No, I did not review any of those tariffs, as the purpose of my testimony is to address pooling as it applies to traditional transportation service. Q. What is your experience with transportation customer pooling in other jurisdictions? A. While I have not conducted a comprehensive review of the tariffs of each utility behind which CNE-Gas has transportation customers, it is evident to me that pooling of transportation customers by marketers is a common practice. Perhaps the most 0 comparable example I can offer is that found in Illinois. I say most comparable since both Michigan and Illinois are upper Midwest states that use natural gas for both production and heat loads. Further, for comparison purposes, both have natural gas storage resources located within their state borders. This is an extremely important distinction in the natural gas industry. Ever since I first became personally involved in

13 Page of 0 0 Illinois natural gas markets in, marketers in Illinois have been able to pool their transportation customers. Marketers have been able to nominate on behalf of their entire pool, minimize balancing costs through the netting of pool member imbalances, and pool storage balances among their transportation customers to more effectively manage endusers storage assets. Among the largest utilities in Illinois, CNE-Gas is able to nominate at the pool level, net imbalances among pool members, and pool customer storage relative to inventory balance and injection and withdraw rights. This includes the tariffs of Northern Illinois Gas Company d/b/a Nicor Gas Company ( Nicor ), North Shore Gas Company, The Peoples Gas Light and Coke Company, Central Illinois Light Company d/b/a AmerenCILCO ( AmerenCILCO ), Central Illinois Public Service Co. d/b/a AmerenCIPS ( AmerenCIPS ), and Illinois Power Company d/b/a AmerenIP ( AmerenIP ). Q. You indicate that utilities in Michigan and elsewhere permit the pooling of transportation customers by marketers, but why is this so important? A. Quite simply, pooling simplifies the transportation service procedures for a marketer, thereby promoting efficiencies, reducing administrative burdens, and reducing the costs associated with transportation service. For example, if a marketer has 0 transportation customers, without pooling, that marketer will need to submit 0 separate nominations to a utility. If all of those customers can be grouped into a single pool, that marketer then is able to submit a single nomination to the utility. While this alone may not seem like a major difference, when you factor that by each separate LDC, multiply it by the number of customers within each utility, and consider that for many customers consumption

14 Page of 0 varies by day, the volume of separate transactions that can be reduced can result in significant savings of time and resources for a marketer. This is especially important in light of the fact that all nominations, no matter location, are subject to the same pipeline timetable. Let me further explain what I mean. Using the same 0 customers, let s assume that a marketer knows that half of these customers are heat load and will be greatly impacted by changes in temperature, whereas the other half are manufacturers whose total consumption is less impacted by temperatures than by their own production schedule. Shortly before the nomination deadlines, a major shift in weather patterns is forecast, causing the marketer to realize the nominations for its heat load customers will deviate from their original projections. If the group of 0 is part of a pool, the marketer may be able to adjust the nomination to account for the weather shift by calculating the impact the new weather conditions will have on its heat load volumes. Consequently, the marketer is able to submit a relatively more accurate nomination and better minimize imbalances. If, on the other hand, 0 separate nominations must be submitted for each individual customer, the marketer may not have the time or resources to recalculate the individual customer impact of the changed weather conditions, nor may adequate time remain before the nomination deadline to submit 0 separate nominations. Thus, the nomination may be relatively less accurate, resulting in greater imbalances which, for a transportation customer, translate into higher costs. This is just one example.

15 Page of 0 Q. What do you mean by imbalances translate into higher costs for transportation customers? A. Transportation service is based upon the customer or its marketer providing the utility with the volume of gas that will be delivered to the utility on behalf of the customer. This is typically the estimate of consumption for that day and is referred to as a nomination. The utility then anticipates this volume and makes plans to operate the system based upon this information. However, as no one can forecast consumption with 00% accuracy, there is always some deviation between the volumes delivered to account for expected usage; i.e., the nomination and the actual usage or consumption by customers. Thus, an imbalance occurs between anticipated and actual usage. In order to encourage accuracy in the nominations that are submitted, utilities typically assess a charge based on the degree of the imbalance. These costs often take the form of 0 balancing and cash-out charges. Typically, the greater the magnitude of the imbalance, the higher the cost of that imbalance. Therefore, a marketer s objective is to minimize imbalances, thereby reducing costs. Q. But how does minimizing imbalance costs relate to pooling? A. Pooling allows the marketer to net the imbalances of the transportation customers in the pool before any utility charges are applied. Again, keeping with the example of the 0 transportation customers for simplicity, let s assume that for each unit of imbalance, whether positive or negative, a utility charges $ per unit. In this example, the following imbalances occur:

16 Page of 0 Number of Imbalance per Total Units of Total Cost Customers Customer Imbalance units over $ 0 units over 0 $0 0 unit over 0 $0 0 unit under 0 $0 0 units under 0 $0 units under $ units under $ 0 $ Thus, without any pooling permitted, the total imbalance cost for this group of 0 customers would be $. However, if these same 0 customers were part of a pool, the marketer is able to net the units of imbalance that are above or over the nomination against the units of imbalance that are under or less than the nomination, resulting in a net imbalance of only one unit at a cost of $. In this example, the marketer would be able to reduce their imbalance costs from $ to $ through pooling. Q. But doesn t pooling reduce the incentive to minimize transportation customer imbalances? A. No. The incentive to reduce imbalances to minimize costs remains. For example, if all of the imbalances had been units over (rather than of them being units under), the total imbalance would have been units over, resulting in a $ imbalance cost to the pool. Any reduction in that imbalance results in cost savings, thereby creating an incentive to minimize imbalances. The impact of pooling is that the utility only recovers the cost of actual imbalances on its system created by the customers in the pool; the utility no longer

17 Page of 0 0 benefits from mathematical imbalances that do not result in actual physical imbalances on the utility system. For instance, in the above example, the actual impact on the utility system from this pool is a shortage of one unit of volume. The other units that the pool is under are cancelled out by the units that other customers in the pool are over. So the physical imbalance on the utility system is actually only one unit. The pool should pay for this unit of imbalance on the utility; it should not pay for the other 0 units that do not physically exist. Thus, pooling not only reduces the administrative costs of a marketer, it also reduces the balancing charges resulting for imbalances, thereby directly reducing the costs of transportation service for customers. It also reflects delivery and economic realities and reduces the likelihood of windfalls to the utility. Q. Earlier you indicated some utilities permit pooling relative to natural gas storage. How does that work? A. While each utility s tariffs and processes vary somewhat, typically, pooling of transportation customer storage works in the same way that it does for nominations and imbalances; specifically, that rather than handle each customer on a case-by-case basis, all of the customers in the pool are first netted together, and the net amounts then become the basis for utility consideration. For instance, if a utility provides units of storage for each transportation customer, a pool of 0 customers would have access to 0 units of storage. This is similar to how the Ameren tariffs work in Illinois. If, instead, each transportation customer is able to select a specific storage level from the utility, the pool storage capacity is the sum of the individual customer elections. Since transportation

18 Page of customers are under contract, typically for at least one year, there is not great volatility in pool membership, making this feasible to track. Nicor tariffs function in this fashion. If an individual customer has specific injection or withdrawal limits, those same limits apply to the pool, but at the pool level instead of by individual customer. For example, MGUC tariffs limit monthly withdrawals from storage during February through April to % of the customers Annual Contract Quantity ( ACQ ). Under pooling, monthly storage withdrawals during this period are also limited to % of ACQ, but it is the pooled ACQ of the customers that are members of the pool. (M.P.S.C. No. -GAS, First Revised Sheet No. E-.00) Thus, the pool has no more storage capacity, 0 0 withdrawal, or injection rights than currently exist among individual customers. Q. How do transportation customers and their marketers benefit from the pooling of storage? A. Similarly to how they benefit from pooling of nominations and imbalances. For the marketer, it is administratively simpler to maintain storage inventories, withdrawal, and injections in aggregate rather than manage each parameter of storage by individual customer. Going back to the earlier example of 0 transportation customers with units of storage each, individual customer management requires tracking of 0 separate inventory and capacity balances in order to appropriately inject or withdraw from storage. It is readily apparent that making similar transactions on a single account of 0 units is much less complicated. That is not to say that individual storage inventory and capacity measurement is irrelevant under pooling; it remains necessary to track those criteria even under pooling in order for the marketer to accurately assign costs, but any such

19 Page of 0 0 reconciliation can more easily take place in retrospect rather than on a daily basis in advance of pipeline timetables. Further, much like the netting of imbalances reduces balancing costs, the netting or storage inventory can reduce costs for transportation customers. This can readily be observed by again returning to MGUC s tariff provision. Monthly withdrawals from storage during February through April will be limited to % of the transportation customers ACQ. Withdrawals in excess of that limit may be authorized but are subject to the Company s sole judgment and prior approval pursuant to appropriate terms and conditions. Without prior approval, if in any month the volume of gas received by the Company, less the allowance for gas-in-kind plus the % of the transportation customer s ACQ is less than the volume of gas taken by the customer at the point of delivery, then all excess ATL delivery volumes above the % threshold will be cashed out in accordance with the Negative Imbalance provisions % Monthly Nomination Over %, at the high price for the MichCon City Gate Index. (M.P.S.C. No. -GAS, First Revised Sheet No. E-.00) For example, in looking at the last sentence, if one customer takes gas in excess of its allowance, that excess gas will be subject to the high price of the MichCon City Gate Index. However, there may be other customers in that pool that are below the threshold by an amount that the first customer exceeded its threshold so, in aggregate, the pool has not taken gas in excess of its combined allowance. Under pooling, that customer would avoid being assessed the high MichCon City Gate Index price, thus resulting in savings to that customer.

20 Page of Q. Does a utility accrue any benefits from the pooling of transportation customer nominations and storage? A. Yes. Similar to how the administrative burden on a marketer is eased, the administrative tasks for a utility are likewise simplified with pooling. For example, instead of 0 0 processing 0 separate nominations, the utility need only accept a single consolidated nomination. While consumption still must be measured at each individual customer location, any imbalance for purposes of determining balancing charges can be done at the pool level, minimizing the number of separate calculations. In some utility jurisdictions, the marketer then provides the utility with the actual imbalance charges that are to appear on each transportation customer s bill; other utilities have elected to simply bill the marketer for those charges. Perhaps the tasks associated with the management of storage accounts are where a utility experiences the greatest benefit from pooling. Without pooling, a utility must track the storage balance, storage capacity, storage injection, and withdrawal rights for each individual customer. With pooling, that level of detail is eliminated for the utility. Instead, these elements need only be tracked and monitored at the pool level, since the storage capacity, inventory, injection, and withdrawal rights are managed at the pool level. This can not only reduce the amount of separate transactions that must be tracked, it also can simplify for the utility the individual billing records of the customers that are in the pool.

21 Page of IV. CNE-GAS POOLING RECOMMENDATIONS Q. What are your recommendations relative to the pooling of transportation customers by marketers in Consumers service territory? A. I recommend that the Commission order Consumers to modify its tariffs in order to accommodate the pooling of transportation customers by marketers. Pooling is a 0 0 common industry practice that benefits competitive markets without causing harm to the utility. Specifically, Consumers should be required to: ) Accept pooled nominations from marketers; ) Calculate and assess any load balancing charges based upon the net imbalance of a marketer s pool; ) Calculate and assess any authorized and unauthorized gas usage charges based upon the net imbalance of a marketer s pool; ) Calculate and assess excess pipeline costs surcharge based upon the net imbalance of a marketer s pool; ) Establish the Pool Authorized Tolerance Level ( PATL ) as the sum of all of the individual pool member Annual Contract Quantity ( ACQ ) times.% or, when appropriate, the percentage of ACQ Tolerance Level as selected by the pool member; and ) Establish the pool monthly injection rights as the corresponding sum of the rights of the individual pool members under existing tariff limits.

22 Page 0 of 0 0 Q. Do you have any specific tariff recommendations? A. Yes. In Section E. of Consumers tariff, I suggest that the following definitions be added: Pool or Pooling shall mean the grouping together of transportation customers for the purposes of netting daily and monthly imbalances, nominations, and storage balances. Pool Administrator shall mean the person or entity whom the transportation customer has authorized to take actions and make decisions on their behalf with regard to the operation of a Pool. Pool Authorized Tolerance Level (PATL) shall mean the sum of the pool member ACQs times.% (or times the percentage of ACQ Tolerance Level when a different value is selected by the pool member). At Section E., I would add the following statements: If the transportation customer has authorized a Pool Administrator, the Daily Nomination submitted by the Pool Administrator will be for the Pool as a whole. The Pool Administrator must notify the Company in writing three business days prior to the beginning of each calendar month as to which meters will be members of the Pool. A transportation customer must remain in a Pool for a period of one calendar month unless its transportation service is discontinued during that calendar month and cannot be a member of more than one Pool at any one point in time. Original Sheet No. E-.00 of the Transportation Service Rate should be amended as follows:

23 Page of For any transportation customer that is part of a Pool, any Authorized Gas Usage Charges and Unauthorized Gas Usage Charges will be applied to the imbalance remaining after the netting of imbalances from all Pool members. The Pool 0 Administrator will be responsible for determining how any charges or credits remaining will be divided among Pool members. By the third working day of each month, the Company will provide the Pool Administrator with Pool member usage information from the prior month. The Load Balancing Charge section of Original Sheet No. E-.00 should be amended as follows: For any transportation customer that is part of a Pool, the $. per MMBtu charge for any month-end balance of gas will be assessed based upon the gas that exceeds the Pool Authorized Tolerance Level (PATL) plus the sum of the contract storage quantities that Pool members have individually contracted for. For a Pool, for any monthly injections during the months of September and October that are in excess of the sum of the Pool members ACQ times.%, plus the sum of the contact storage quantities that Pool members have individually contracted for, the Load Balancing Charge will be assessed. For imbalances remaining after pooling has been applied, charges may be either billed directly to the Pool Administrator or billed directly to the end-use transportation customer based upon allocation of those charges as provided to the utility by the Pool Administrator. Each of these methods is used in different utility jurisdictions that currently offer pooling.

24 Page of 0 Q. Why are you making these recommendations? A. Earlier in my testimony I described the benefits of pooling to transportation service and identified a number of jurisdictions where pooling currently exists. While my earlier testimony offered adequate cause for this Commission to adopt pooling in Consumers transportation service tariffs, this change is also a matter of equity between utility sales and transportation customers. Q. Please explain. A. Company Exhibits A- (TAY-) and A- (TAY-) indicate that storage-related costs (excluding the cost of the commodity) are allocated to customer classes based upon an allocation methodology that equally weights the peak month throughput of each rate class with the storage capacity of each rate class. In the current case, the result of such an allocation is that approximately 0.% of the storage-related costs (excluding the cost of the commodity) are allocated to utility sales rate classes, whereas approximately.% of these costs are allocated to the transportation rate classes. As shown in CNE-Gas Exhibit, a Company witness testified that Transport Users utilize storage volumes of to Bcf each storage cycle. Based upon the Company s total storage utilization, this equates to roughly % to % of the total volumes. So while transportation customers are allocated approximately.% of storage-related costs (excluding the cost of the commodity), they only account for % to % of the cyclic volume based upon current Company tariffs. According to Consumers data, Transport Users storage utilization accounts for % to % of Company Maximum Working Capacity of Bcf and.% to % of Company Storage Field Capacity of 0 Bcf. Case No. U-0, Exhibit A-0 (DWH-); see U--CNE-CE- and -CNE-CE- Supplemental Response (CNE-Gas Exhibit ).

25 Page of 0 0 Transportation customers bear an inordinate share of the cost burden compared to their opportunity to utilize the storage assets for which they pay. Q. Doesn t this inequity get resolved when you factor in the cost of the commodity? A. No. Transportation customers purchase their commodity from sources other than the utility; thus, the cost of the commodity should be excluded from utility storage costs that are allocated to them. Q. The standard Authorized Tolerance Level ( ATL ) for transportation customers is.% of the customers ACQ. What does an.% ATL equate to? A. According to Consumers response to discovery request -CNE-CE-, an authorized tolerance level of.% is approximately equal to one month s consumption, or / th of annual usage. The storage costs associated with an.% ATL are recovered through the transportation rate class distribution charges. (Ibid.) According to Exhibit A- (TAY-), total throughput for the Residential and Rate GS-, GS-, and GS- classes was,, Mcf, whereas comparable throughput for the transportation rate classes (Rate ST, Rate LT, and Rate XLT) was,, Mcf. If you take / th of total annual transportation throughput, the result is,, Mcf. This is consistent with the to Bcf range the Company identified as the cyclic storage volume for Transport Users. Q. Can you make any comparisons with utility sales customers? A. Yes. Based on their total throughput, one month of consumption averages to 0,, Mcf. As shown in CNE-Gas Exhibit, the storage utilization for GCR and GCC Customers is to 0 Bcf. Thus, if comparable to the amount of storage accessible by

26 Page of transport customers, these customers would have storage volumes of roughly 0 Bcf. Instead, the data indicates their utilization is about five times greater. Put another way, while transport users receive about one month s worth of their annual usage, GCR and GCC customers are utilizing storage equivalent to about five months of their annual usage. Q. Doesn t the fact that U-0 Exhibit A-0 (DWH-) includes both GCR and GCC customers invalidate your comparisons? A. No. While I readily admit it complicates any comparison, since a GCC customer can be either a utility sales or a transportation rate class, it does not invalidate it. If the 0 difference in the outcome of my comparison was only a month or so of difference, perhaps I could attribute that difference to Customer Choice program participants; however, a difference of one month versus five months is too large for it to all be due to Choice participants. It is obvious that sales customers are receiving greater access to company storage assets than do transportation customers, and that the transportation customers are paying relatively more storage-related costs (excluding the cost of the commodity) compared to their relative utilization of those storage assets. Ideally, 0 transportation customers should be allowed to access storage assets in proportion to the amount they contribute to their costs; at a minimum, pooling should be permitted to more equitably allocate storage assets to transportation customers than they are under current Company tariffs. Thus, at this time, I am recommended pooling be required in order to alleviate some of the inequitable allocation of storage-related costs (excluding the cost of the commodity) compared to current utilization of the Company storage assets.

27 Page of 0 0 V. SUMMARY Q. Please summarize your recommendations. A. In summary, the Commission should require that the Company offer pooling to transportation customers and their marketers. Pooling is a common industry practice that improves efficiencies and lowers costs for transportation customers without prejudice to a utility. Specifically, the Commission should: () Require that the Company accept pooled nominations from marketers; () Modify Consumers tariff to assess load balancing charges based upon the net imbalance of a marketer s pool; () Modify Consumers tariff to assess authorized and unauthorized gas usage charges based upon the net imbalance of a marketer s pool; () Modify Consumers tariff to assess excess pipeline costs surcharges based upon the net imbalance of a marketer s pool; () Implement pooling of transportation customer storage through a Pool Authorized Tolerance Level; and () Require that pool monthly injection rights are established based upon the pool member s individual rights. Q. Does this conclude your testimony? A. Yes. LANSING - v

28 Case No: U- CNE-Gas Exhibit Witness: Germain

29 Case No: U- CNE-Gas Exhibit Witness: Germain

30 Case No: U- CNE-Gas Exhibit Witness: Germain

31 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of Consumers ) Energy Company for authority to increase its ) rates for the distribution of natural gas and for ) Case No. U- other relief. ) ) PROOF OF SERVICE STATE OF MICHIGAN ) ) ss COUNTY OF WASHTENAW ) Jacqueline K. Tinney, being first duly sworn, deposes and says that she is employed at Dickinson Wright PLLC, and that on October, 00, she caused a copy of the Direct Testimony of James R. Germain on Behalf of Constellation NewEnergy-Gas Division, LLC to be served upon the parties listed below via . Subscribed and sworn to before me, a Notary Public in and for said County, this nd day of October, 00. Jacqueline K. Tinney Judith J. Martin, Notary Public Washtenaw County, Michigan Acting in Washtenaw County, Michigan My Commission Expires: //

32 Service List Administrative Law Judge Hon. Mark D. Eyster Consumers Energy Company Raymond McQuillan John Shea H. Richard Chambers Jon Robinson M. Bryan Little MPSC Staff Patricia Barone Spencer Sattler MCAAA Don Keskey National Energy Marketers Association Interstate Gas Supply John Dempsey Christina Pina Midland Cogeneration Venture LP Richard Aaron Ross Bower Michigan Attorney General Michael Moody ABATE Robert Strong Michigan State Utility Workers Steven Weyhing LANSING - 0