Before the Maryland Public Service Commission Case No. Prepared Surrebuttal Testimony of Stephen J. Woerner on Behalf of Baltimore Gas and Electric Company October, 01
LIST OF ISSUES AND MAJOR CONCLUSIONS The following is a summary list of the issues and major conclusions addressed in the Prepared Surrebuttal Testimony of Stephen J. Woerner: OPC continues to oppose the ERI initiative based upon alleged inconsistencies with the Task Force Report. Yet, BGE has never taken the position that its proposed ERI initiative was intended to be fully responsive to the Task Force Report, and the Commission has never directed BGE to adopt any particular findings or recommendations of the Task Force Report. The Commission should reject Staff s new recommendation to disallow $,000 of vegetation management-related costs, because the recommendation is based upon the mistaken belief that one of the vegetation management vendors selected for 01-01, Lewis Tree Service, is more expensive than Mercier s, a vendor that BGE used for the 0-01 period. The Commission should reject Staff s new recommendation to disallow certain environmental investigation and monitoring costs related to the George Street, Sauer Dump and Spring Gardens sites, since such costs were necessary and proper business expenses.
TABLE OF CONTENTS I. INTRODUCTION AND PURPOSE...1 Page II. III. CONSISTENCY OF THE ERI INITIATIVE WITH THE TASK FORCE REPORT... STAFF S DISALLOWANCE OF CERTAIN VEGETATION MANAGEMENT COSTS RELATED TO VENDOR SELECTION... IV. STAFF S DISALLOWANCE OF CERTAIN ENVIRONMENTAL COSTS...
1 1 1 1 1 1 1 1 0 1 I. INTRODUCTION AND PURPOSE Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. A. My name is Stephen J. Woerner, and my business address is Baltimore Gas and Electric Company ( BGE or the Company ), Center Plaza, 1 West Fayette Street, Baltimore, Maryland 1. Q. ARE YOU THE STEPHEN J. WOERNER WHO PREVIOUSLY FILED TESTIMONY IN THIS PROCEEDING? A. Yes, I am. Q. IN THE PROCESS OF PREPARING THIS SURREBUTTAL TESTIMONY, DID YOU HAVE AN OPPORTUNITY TO REVIEW ANY OF THE REBUTTAL TESTIMONY FILED BY THE OTHER PARTIES IN THIS PROCEEDING? A. Yes. I have reviewed the rebuttal testimony of Maryland Public Service Commission Staff ( Staff ) Witness Patricia M. Stinnette and Maryland Office of People s Counsel ( OPC ) Witness David E. Dismukes. Q. WHAT IS THE PURPOSE OF YOUR SURREBUTTAL TESTIMONY? A. The purpose of my surrebuttal testimony is to respond to certain positions advanced by the other parties in their rebuttal testimony. More specifically, I will respond to OPC Witness Dismukes ongoing attempt to mistakenly link the Commission s determination on whether to approve the Electric Reliability Investment ( ERI ) initiative and its related surcharge mechanism to the specific contents of the Governor s Grid Resiliency Task Force (the Task Force ) September, 01 report titled, Weathering the Storm: Report of the Grid Resiliency Task Force (the Task Force Report ). My surrebuttal testimony will also respond to Staff Witness Stinnette s new recommendations in 1
rebuttal that the Commission disallow certain vegetation management and environmental-related expenses. II. CONSISTENCY OF THE ERI INITIATIVE WITH THE TASK FORCE REPORT Q. WHAT DOES OPC WITNESS DISMUKES STATE IN HIS REBUTTAL TESTIMONY REGARDING THE ERI INITIATIVE? A. Similar to his direct testimony, OPC Witness Dismukes argues in rebuttal that several of the ERI initiative programs are not consistent with the findings and recommendations of the Task Force Report. In particular, OPC Witness Dismukes asserts that BGE s proposed Expansion of Poorest Performing Feeder program: 1 1 1 1 1 1 cannot be incremental and accelerated relative to the Task Force requirements since, by definition, the new RM requirements recommended by the Task Force have not been proposed nor adopted[ ] ; 1 and is not conceptually consistent with the Task Force Report, since the Task Force recommends a full three percent of feeders be selected annually based upon reliability statistics that include major outage event data, and BGE s proposal includes only 1.% of the poorest performing feeders. 1 1 0 1 Q. DO YOU AGREE WITH OPC WITNESS DISMUKES POSITION? A. No, I do not. As I stated in my rebuttal testimony, BGE has never taken the position that its ERI initiative was intended to be fully responsive to the Task Force Report. Moreover, the Commission has never directed BGE to adopt any particular findings or recommendations of the Task Force. In Case No., Pepco proposed to accelerate its vegetation management program based on a Task Force recommendation. By Order No., the Commission rejected the proposal on the grounds that it was not cost- 1 Dismukes Rebuttal at, lines 1-1. See id. at -.
effective. Thus, OPC Witness Dismukes continued reliance upon the Task Force 1 1 1 1 1 1 1 1 0 1 Report to discredit the ERI initiative in its entirety or any of the specific eight programs is without merit. Q. DID THE TASK FORCE OFFER ANY GUIDANCE ON HOW ITS FINDINGS AND RECOMMENDATIONS SHOULD BE CONSIDERED RELATIVE TO SPECIFIC INFRASTRUCTURE IMPROVEMENTS? A. Yes. The Task Force made clear that it was not recommending specific infrastructure improvements: The Task Force determined that it would not recommend specific infrastructure improvements. Rather, the Task Force made recommendations that are informed by the foundational principles, guided by the data and intended to be implemented in a cohesive manner. If followed, the recommendations will logically lead to certain infrastructure investments. (emphasis added.) Q. HOW DO YOU RESPOND TO OPC WITNESS DISMUKES POSITION THAT THE COMMISSION CANNOT DETERMINE WHETHER THE EXPANSION OF POOREST PERFORMING FEEDER PROGRAM IS INCREMENTAL AND ACCELERATED UNTIL IT MODIFIES THE RM REQUIREMENTS CONSISTENT WITH THE TASK FORCE REPORT S RECOMMENDATIONS? A. In Order No., the Commission approved Pepco s Accelerated Priority Feeders project based upon the fact that it was designed to produce accelerated and incremental benefits over Pepco s existing RM requirements. Similarly, BGE s proposed Expansion of Poorest Performing Feeder program is incremental and accelerated Case No., Order No. at 1. See Weathering the Storm, Report of the Grid Resiliency Task Force at (September, 01). Case No., Order No. at 1-.
relative to the current RM requirement that BGE annually identify the poorest performing % of feeders with the intent of determining actions that will improve reliability. BGE proposes to double the existing program and address the poorest 1 1 1 1 1 1 1 1 performing % of feeders. To the extent that the Commission elects at some future point to modify the RM poorest performing feeder requirement, it will have the opportunity to review the merits of continuing with this ERI initiative program in future proceedings. Accordingly, any postponement of the implementation of the Expansion of Poorest Performing Feeder program would only serve to delay customers from experiencing the enhanced reliability that they have requested. Q. DO YOU AGREE WITH OPC WITNESS DISMUKES POSITION THAT THE EXPANSION OF POOREST PERFORMING FEEDER PROGRAM IS NOT CONCEPTUALLY CONSISTENT WITH THE RECOMMENDATIONS OF THE TASK FORCE? A. No, I do not. As stated in my rebuttal testimony, half of the additional feeders in this ERI initiative program will factor in major outage event interruption data. Furthermore, BGE determines its poorest performing feeders each year both with and without major outage event interruption data. Historically, approximately one-half to two-thirds of the poorest performing feeders selected for mitigation under the existing program have been identified on the poorest performing feeder list that includes major outage event 0 interruption data. Hence, consistent with the Task Force s recommendations, the 1 Expansion of Poorest Performing Feeder program will ultimately focus a substantial percentage of investment each year on feeders that are impacted by major outage events.
III. STAFF S DISALLOWANCE OF CERTAIN VEGETATION MANAGEMENT COSTS RELATED TO VENDOR SELECTION 1 1 1 1 1 1 1 1 0 1 Q. PLEASE SUMMARIZE STAFF S NEW POSITION REGARDING VEGETATION MANAGEMENT COSTS. A. Despite not raising the issue in direct testimony, Staff Witness Stinnette now recommends in rebuttal that the Commission disallow $,000 of vegetation management-related costs based upon the mistaken belief that one of the vegetation management vendors selected for 01-01, Lewis Tree Service, is more expensive than Mercier s, a vendor that BGE used for the 0-01 period. Q. DO YOU AGREE WITH STAFF WITNESS STINNETTE S RECOMMENDED ADJUSTMENT? A. No. Staff Witness Stinnette arrives at her recommendation by comparing the extended cost per mile for only two counties, Howard County and Carroll County, from two contracts the 0-01 Mercier s contract and the 01-01 Lewis Tree Service contract that involve different time periods and scopes of work. This is simply not an apples-to-apples comparison. Q. PLEASE DESCRIBE THE PROCESS THAT WAS UNDERTAKEN TO AWARD A CONTRACT FOR THE 01-01 VEGETATION MANAGEMENT WORK AND THE RESULTS OF THAT PROCESS. A. Using BSC Supply Chain, BGE pursued a joint sourcing initiative with its sister utilities, ComEd and PECO, to establish a five-year vegetation management contract. Such a joint effort allowed the participants to realize better pricing through volume discounts afforded Stinnette Rebuttal Testimony at 1, lines -.
by vendors as a result of total increased spend. With respect to BGE, the scope of work detailed in the request for proposal conformed to the requirements of RM. A total of ten vendors, including Mercier s and Lewis Tree Service, responded to the request for proposal. These ten vendors and their bids were thoroughly evaluated on the basis of price, experience, capabilities, safety and environmental record, financial risk, diversity spend, and compliance with the terms and conditions of the request for proposal. Based upon the results of this comprehensive evaluation process, contracts for BGE s vegetation management work were awarded to Lewis Tree Service and Asplundh. Even on price alone, however, Mercier s would still not have been awarded the contract. Accordingly, there is no foundation for Staff Witness Stinnette s recommended disallowance of certain vegetation management costs. 1 1 IV. STAFF S DISALLOWANCE OF CERTAIN ENVIRONMENTAL COSTS 1 1 1 1 1 1 0 1 Q. PLEASE SUMMARIZE STAFF S NEW POSITION WITH RESPECT TO ENVIRONMENTAL INVESTIGATION AND MONITORING COSTS. A. Despite not raising the issue in direct testimony, Staff Witness Stinnette now recommends in rebuttal that the Commission disallow environmental investigation and monitoring costs related to the following three sites: George Street; Sauer Dump; and Spring Gardens. As discussed in the surrebuttal testimony of Company Witness David M. Vahos, Staff Witness Stinnette improperly applied the used and useful standard to the operating expenses included in the test year for the Sauer Dump and George Street sites to arrive at her proposed disallowance. With respect to the Spring Gardens site, Staff Witness Stinnette based her disallowance on the opinion that [t]he monitoring costs are immaterial to the total overall remediation costs [, and as such,]... shareholders
should pay for the on-going monitoring costs[.] In addition, she mistakenly concludes that actual remediation costs for Spring Gardens were not in line with estimates provided to the Commission in prior cases. Q. DO YOU AGREE WITH STAFF S POSITION TO DISALLOW GEORGE STREET AND SAUER DUMP ENVIRONMENTAL INVESTIGATION AND MONITORING COSTS? A. No, I do not. As explained in the surrebuttal testimony of Company Witness Vahos, environmental investigation and monitoring costs should be included in the cost of service if they were necessary and proper business expenses. The used and useful 1 1 1 1 1 1 1 1 0 1 standard, which applies to the placement of property in rate base, is not applicable in this case because environmental costs are operating expenses and not fixed assets. If the correct standard is applied to the George Street and Sauer Dump environmental investigation and monitoring expenses, they are properly included in the cost of service. Q. DOES STAFF WITNESS STINNETTE CHALLENGE THE PRUDENCY OF THE GEORGE STREET AND SAUER DUMP ENVIRONMENTAL INVESTIGATION AND MONITORING EXPENSES? A. No, she does not. That being said, all investigation and monitoring expenses related to these two sites were prudently incurred. The total annual amount for monitoring the George Street site is approximately $,000, which represents the cost to retain an environmental contractor to periodically recover oil, if any, from one on-site environmental well. Such monitoring work is performed by BGE at the direction of the Maryland Department of the Environment. As I discussed in my rebuttal testimony, the Public Utilities Article -1(), Md. Code Ann.
1 1 1 1 1 1 1 1 0 1 investigation costs related to the Sauer Dump site represent BGE s share of the total investigation cost split among four potentially responsible parties identified by the U.S. Environmental Protection Agency ( EPA ). Q. DOES STAFF WITNESS STINNETTE DISPUTE THAT THE GEORGE STREET AND SAUER DUMP ENVIRONMENTAL INVESTIGATION AND MONITORING EXPENSES WERE NECESSARY AND PROPER? A. Not directly, since she applies the incorrect standard to evaluate whether these costs are recoverable. In the case of George Street, and as recognized by Staff Witness Stinnette in her rebuttal testimony, BGE used the site to provide gas service to customers. With respect to the Sauer Dump site, the allegations that led EPA to identify BGE as a potentially responsible party directly relate to BGE s electric business and the equipment that BGE uses to provide electric service to customers. Moreover, as part of its business operations and in the best interest of the safety and well-being of its customers and employees, BGE maintains a strong commitment to the environment. It would have been irresponsible of BGE to ignore EPA s request that BGE perform an environmental investigation at the Sauer Dump site, which is located within BGE s electric service territory. Q. DO YOU AGREE WITH STAFF S POSITION TO DISALLOW ENVIRONMENTAL MONITORING COSTS RELATED TO SPRING GARDENS? A. No, I do not. Staff Witness Stinnette s recommendation that shareholders should pay for the on-going monitoring costs violates one of the most basic tenets of ratemaking that a utility is entitled to recovery of its prudently incurred costs. The Spring Gardens
1 1 1 1 1 1 1 1 0 1 facility remains the hub of BGE s natural gas distribution operations. The site was once a manufactured gas plant that converted coal and oil into natural gas, and BGE has been diligent in the remediation and ongoing monitoring of this facility. In fact, the facility has been recognized several times for the successful implementation of vegetation and wildlife habitat management efforts. BGE has even received the Baltimore City Mayor s Business Recognition Award for the innovative environmental reclamation, reforestation, and brownfield cleanup of the Spring Gardens site in 001 as well as the Wildlife Habitat Council s certification in 00 for the use of native trees and shrubs in the Critical Area Buffer and overall greening of the site. The monitoring expenses incurred by BGE are necessary, proper, and legally required. Q. DO YOU HAVE ANY ADDITIONAL COMMENTS WITH RESPECT TO ENVIRONMENTAL MONITORING COSTS AT SPRING GARDENS? A. Yes. BGE s remediation and monitoring activities at the Spring Gardens site have already been the subject of a number of proceedings over the years, including most recently in Case No. 0 (In the Matter of the Application of the Baltimore Gas and Electric Company for Revision its Gas Base Rates), a 00 rate case proceeding. Furthermore, the record in Case No. 0 reflects that BGE made clear to the Commission that monitoring activities at the Spring Gardens site would continue for many years. Finally, and overlooked by Staff Witness Stinnette in evaluating the $1. million in remediation costs incurred by BGE to date for the Spring Gardens site, BGE informed the Commission in Case No. 0 that the remediation costs would total In Case No.0, Company Witness Castagnera testified that BGE s clean-up efforts and monitoring activities [at the Spring Gardens site] will continue for the next -0 years. See Case No. 0, Prepared Rebuttal Testimony of Robert G. Castagnera at 1 (September, 00).
approximately $. million, net of insurance proceeds. Thus, the amount used by Staff Witness Stinnette of $. million for remediation costs from Case No., a 1 BGE gas base rate proceeding, was outdated. Q. DOES THIS CONCLUDE YOUR SURREBUTTAL TESTIMONY? A. Yes, it does. See id.