PSC REF#:173020 Public Service Commission of Wisconsin RECEIVED: 09/26/12, 12:51:56 PM PUBLIC SERVICE COMMISSION OF WISCONSIN Application of Madison Gas and Electric Company 3270-UR-118 for Authority to Change Electric and Natural Gas Rates Volume 1 Prefiled Testimony Pages September 18, 2012 D-MGE-Bollom-1-17, D-MGE­ Frassetto-1-4, D-MGE-Krueger-1-5, D-MGE-James-1-31, D-MGE-Johnson-1- 6, D-MGE-Minor-1-19, SD-MGE-Minor- 1-7, D-CUB-Neal-1p-20p, D-CUB­ Wallach-1-18, D-Clean Wis-Cook-1- 16, D-IBEW-Poklinkoski-1-6, D- UW System-Harrod-1-8, D-UW System­ Stephens-1-19, D-UW System-Weiss- 1-12, D-Airgas-Lyons-1-20, D-CNEG­ Fabrizius-1-10, D-PSC-Bauer-1-12, D-PSC-Hillebrand-1-8, D-PSC-Maly- 1-8, D-PSC-Singletary-1-20, D-PSC­ Vandervort-1-13, R-MGE-Bollom-1- 19, R-MGE-Keebler-1-8, R-MGE­ James-1-5, R-MGE-Johnson-1-2, R­ MGE-Minor-1-7, R-CUB-Wallach-1-11, R-Airgas-Lyons-1-14, R-Calpine­ Pena-1-4, R-PSC-Hillebrand-1-3, R­ PSC-Singletary-1-10, Incl. I N D E X Prefiled Direct Testimony Pages Gregory A. Bollom 1-17 Kenneth G. Frassetto 1-4 John D. Krueger 1-5 Steven S. James 1-31 Tamara J. Johnson 1-6 Timm A. Minor 1-19 Prefiled Supplemental Direct Testimony Timm A. Minor 1-7 Prefiled Direct Testimony Mary Neal 1p-20p Jonathan Wallach 1-18 Daniel Tyson Steadman Cook 1-16 David Poklinkoski 1-6 John Harrod 1-8 Robert R. Stephens 1-19 Craig Weiss 1-12 Kenneth Lyons 1-20 Darcy A. Fabrizius 1-10 Robert C. Bauer 1-12 Randy Hillebrand 1-8 Gail M. Maly 1-8 I N D E X Prefiled Direct Testimony Pages Corey S. Singletary 1-20 Anne P. Vandervort 1-13 Prefiled Rebuttal Testimony Gregory A. Bollom 1-19 Jeffrey M. Keebler 1-8 Steven S. James 1-5 Tamara J. Johnson 1-2 Timm A. Minor 1-7 Jonathan Wallach 1-11 Kenneth Lyons 1-14 Rick Pena 1-4 Randy Hillebrand 1-3 Corey S. J. Singletary 1-10 PSC REF#:l66575 'Ug. 1 BEFORE THE 1-' ::<1 1-'· t'il n 2 PUBLIC SERVICE COMMISSION OF WISCONSIN (1 t'iltll H (I) <: 11 t'il <: t:l 1-'· 3 Application ofMadison Gas and Electric .. n (I) 4 Company for Authority to Change Electric Docket 3270-UR-118 0 5 and Natural Gas Rates -.....o<1\(1 ~ ~ ----------------------------------------------------------------------- ~~-Ntil • 1-'· 0 6 DIRECT TESTIMONY OF GREGORY A. BOLLOM "'1:1 NO 7 ON BEHALF OF APPLICANT 1-'H! w~ --.J 1-'· til ~ g ::J tJl 8 Q. Please state your name and business address. 1-'· ::J 9 A. My name is Gregory A. Bollom. My business address is 133 South Blair Street, Post Office 10 Box 1231, Madison, Wisconsin 53701. 11 Q. By whom are you employed and in what capacity? 12 A. I am employed by Madison Gas and Electric Company (MOE) as Assistant Vice President - 13 Energy Planning. 14 Q. Please summarize your educational background and relevant work experience. 15 A. I have a B.A. degree in economics from St. Norbert College and a M.S. degree in economics 16 from the University of Wisconsin. I have held a variety of positions in forecasting, pricing and 17 planning during my 30 years with MOE. My current responsibilities include generation 18 planning and transmission policy; electric and natural gas sales and revenue forecasting; and 19 electric and natural gas pricing. I serve on the Edison Electric Institute Retail Energy Services 20 Executive Advisory Group; Economic Policy Advisory Group; and the Rates and Regulatory 21 Affairs Committee of which I am a past chairman. I have testified before the Public Service 22 Commission of Wisconsin (PSCW) many times on a variety of planning and pricing issues. 23 Q. What is the purpose of your direct testimony in this proceeding? 24 A. I am providing testimony to address two different aspects of MOE's case. I am providing the 25 Company's policy support for the increase in the fixed daily customer charges proposed in the 26 testimonies of Company witnesses Timm Minor and Steven James. The Company is Direct-MGE-Bollom-1 1 proposing that an increased amount of the fixed costs of providing natural gas and electric 2 service to our customers currently recovered through variable energy charges be shifted and 3 recovered through increased daily fixed customer charges. And I am also presenting proposed 4 modifications to Rate Schedule Sp-3, University of Wisconsin Time-of-use Rate. 5 Q. Are you sponsoring any exhibits? 6 A. Yes, I am sponsoring two exhibits. Ex.-MOE-Bollom-1 consists ofthree schedules that 7 support my testimony on increasing fixed charges. Ex.-MOE-Bollom-2 provides the relevant 8 portions from the Sp-3 rate schedule that are being revised to incorporate the proposed new 9 pricing for kWh purchases by the UW for its electric chillers at the West Campus 10 Cogeneration Facility (WCCF). In my testimony, I also reference pages 15-16 of Schedule 1 11 ofEx.-MOE-James-2 sponsored by Mr. James. 12 Q. Were Ex.-MGE-Bollom-1 and Ex.-MGE-Bollom-2 prepared by you or under your 13 supervision? 14 A. Yes. 15 Q. What is the difference between fixed costs and variable costs? 16 A. Fixed costs describe the category of expenses that the Company incurs to provide service that 17 remain the same for a customer regardless of the amount of energy the customer consumes. 18 Variable costs describe those categories of expenses that are directly related to the amount of 19 energy the customer uses and that rise or fall as the customer uses more or less energy. MOE's 20 rates are designed to recover its fixed and variable costs through a combination of rate 21 elements that similarly incorporate fixed and variable structures. 22 Q. How do the fixed and variable elements ofMGE's rates match up with the fixed and 23 variable nature of the expenses it incurs? 24 A. Not particularly well. MOE's current rate structure is the result of cost allocation and rate 25 design patterns that are in some cases decades old. While different stakeholders may have Direct-MOE-Bollom-2 different perspectives on the history, MOE's rates today reflect how the Commission has 2 balanced policy concerns about the accessibility, affordability, and social costs of natural gas 3 and electricity service over time. The cumulative result of those policy choices is a rate design 4 where some percentage of the Company's fixed costs are recovered through fixed rate 5 elements and the remaining percentage is recovered through variable rate elements. The 6 Company's variable costs are also recovered through the variable rate elements. 7 Q. Is there a drawback to the way the Company's rate structure has evolved? 8 A. Yes. It is always most economically efficient to recover the costs of service in a manner that 9 matches the way those costs are incurred. Customers will make better choices ifthe costs they 10 pay or the benefits they receive from increasing or decreasing their energy use match the 11 changes in the costs the Company incurs as a result of their change in behavior. 12 Q. Does the Company propose a shift in the manner in which its fixed costs are recovered 13 through rates? 14 A. Yes. The Company proposes that a greater percentage of its fixed costs be recovered through 15 fixed rates. 16 Q. Is the Company proposing to move to a complete straight fixed/variable rate design in 17 this current case? 18 A. No, we are not. We understand that because our current electric and natural gas rates recover a 19 significant portion of fixed costs through variable charges, moving too quickly to recover all 20 fixed costs through fixed charges could create large bill increases for some customers. MOE is 21 asking the PSCW for two types of findings in this case. First, we are asking the PSCW to 22 determine that it is appropriate and necessary for MOE to move to rate designs that recover 23 fixed costs through some type of fixed charges. Depending upon the bill impact across 24 different customer classes, it may take several rate cases to transition to rates that recover an 25 appropriate percentage of fixed costs through fixed rate components. And second, we are Direct-MOE-Boll om-3 asking for specific approval ofthe initial incremental changes in fixed charges proposed in the 2 testimonies ofMr. James and Mr. Minor. 3 Q. Why is the Company proposing this shift in rate design? 4 A. There are several reasons. First, there is a general industry movement toward sending price 5 signals that more accurately match the cost to serve customers. Changes in regulatory 6 structures in other states, as well as the existence of regional energy markets make it 7 increasingly difficult to sustain MGE's current rate structures. Second, customer conservation 8 in recent years has highlighted the confusing nature ofthe current relationship between rates 9 and costs. And third, on the electric side of our business growing customer interest in 10 distributed generation has increased the need for MGE to get its rates and costs in better 11 alignment to prevent costs from being inappropriately shifted amongst different customers.