Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517)

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1 Founded in 1 by Sidney Davy Miller MICHAEL C. RAMPE TEL (1) -91 FAX (1) -0 rampe@millercanfield.com Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan 9 TEL (1) -00 FAX (1) -0 MICHIGAN: Ann Arbor Detroit Grand Rapids Kalamazoo Lansing Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cincinnati CANADA: Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw Wrocław December 9, 01 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 109 W. Saginaw Hwy. Lansing, MI 91 Re: Upper Michigan Energy Resources Corporation and Wisconsin Electric Power Company PURPA Avoided Costs MPSC Case Nos. U-109 and U-109 Dear Ms. Kale: Enclosed for electronic filing are the Direct Testimony and Exhibits of Jeff Knitter on behalf of Upper Michigan Energy Resources Corporation and Wisconsin Electric Power Company in the above-mentioned matter. Also enclosed for electric filing is the Proof of Service. If you should have any questions, please kindly advise. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. Enclosures cc: ALJ Mark D. Eyster Robert M. Garvin Theodore Eidukas Dennis M. Derricks Jeff Knitter Koby A. Bailey Ronda Ferguson Colleen Sipiorski By: Michael C. Rampe

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter, on the Commission s own motion, ) establishing the method and avoided cost calculation for ) WISCONSIN PUBLIC SERVICE CORPORATION ) Case No. U-109 to fully Comply with the Public Utilities Regulatory ) Policy Act of 19, 1 USC 01 et seq. ) In the matter, on the Commissions own motion, ) establishing the method and avoided cost calculation for ) Case No. U-109 WISCONSIN ELECTRIC POWER COMPANY to fully) comply with the Public Utilities Regulatory Policy Act ) of 19, 1 USC 01 et seq. ) QUALIFICATIONS AND DIRECT TESTIMONY AND EXHIBITS OF JEFF KNITTER 1 Q. Please state your name and title. A. My name is Jeff Knitter. My title is Director of Planning in the Wholesale Energy and Fuels Department of Wisconsin Electric Power Company ( WEPCo ) representing WEPCo, Wisconsin Public Service Corporation ( WPS Corp ) and Upper Michigan Energy Resources Corporation ( UMERC ). Q. On whose behalf are you testifying? A. I am testifying on behalf of UMERC and WEPCo in these consolidated cases. Q. Please describe your educational and business experience. 1

3 A. I graduated from the University of Wisconsin Madison in 19 with a degree in Mechanical Engineering. Since that time I have been employed by WEPCo in various capacities. From 199 to 000, I was the Manager of Resource Planning in the Business Planning Department, where I was responsible for generation planning. From 000 to 00, I was Manager Special Projects in the Legal department and was active in the planning and development of the Power The Future project since its inception. Among my responsibilities were the development and evaluation of WEPCo s long range supply plans and their economic analysis for which I provided testimony in the Port Washington and Elm Road dockets. Since 00, I have worked in the Wholesale Energy and Fuels department focusing on the Midcontinent Independent System Operator, Inc. ( MISO ) energy market, MISO ancillary services market, financial transmission rights and longer 1 range planning. Since June 1, 009, I have also managed the planning staff with responsibility for the annual fuel cost recovery plans in Wisconsin and Michigan. Q. Have you ever testified in other cases? A. Yes. In addition to the Power The Future dockets in Wisconsin, I have testified in the following construction dockets in Wisconsin: Valley Power Plant Conversion to Gas Rothschild Biomass Energy Project WPL Riverside 0 1 I also testified in WEPCo s 010 Michigan power supply cost recovery ( PSCR ) reconciliation (Case No. U-1-R) and 011 PSCR plan case (Case No. U-1). Q. What is the purpose of your testimony?

4 A. I am providing testimony and exhibits relating to the avoided costs information requested by the Commission in its May, 01 Order initiating these cases. Specifically, I will address the following matters related to Public Utility Regulatory Policies Act of 19 ( PURPA ) avoided costs: 1) WEPCo s position on PURPA avoided cost methodology. ) Overview of UMERC. ) Avoided cost methodologies and costs which address the Hybrid Proxy Plant method. ) Avoided cost methodologies and costs which address the Transfer Price method. ) Preferred avoided cost method selected by UMERC. ) Proposed tariff sheets reflecting standard rates for purchasing from qualifying facilities. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit A-1 (JEK-1): Calculation of Hybrid Proxy Rates Exhibit A- (JEK-): Proposed tariff sheets for standard rates for purchasing power from qualifying facilities in legacy WPSC Rate Zone. Exhibit A- (JEK-): Proposed tariff sheets for standard rates for purchasing power from qualifying facilities in legacy WEPCo Rate Zone Q. Were these exhibits prepared by you or at your direction? A. Yes. Q. Can you provide an overview of UMERC?

5 1 A. Yes. UMERC is a gas and electric utility that is being formed on January 1, 01 as approved by the Commission on December 9, 01 in Case No. U-101. On January 1, 01, the electric and gas distribution facilities of WEPCo and WPS Corp that are located in the Upper Peninsula of Michigan ( UP ) will be transferred to UMERC. UMERC will provide service to approximately,00 electric customers in the UP. Like WEPCo and WPS Corp, UMERC is a wholly owned subsidiary of WEC Energy Group, Inc. Q. Are all electric customers of WEPCo and WPS Corp being transferred to UMERC? A. All but one customer, the Tilden Mining Company LC ( Tilden ). Tilden will remain a WEPCo customer and will be served under the special contract approved by the MPSC in Case No. U-1. This contract will remain in place and WEPCo will continue to serve Tilden until UMERC places new generation in service, which is expected in 019. Q. Before we turn to UMERC, can you address what retail electric customers and service territory WEPCo will be serving in Michigan beginning on January 1, 01? A. Yes. WEPCo will only be serving Tilden under the special contract just described. No other retail electric customers, including any new customers, will be served by WEPCo in Michigan. Q. Does WEPCo have any obligations to purchase generation from a generator located in the UP after January 1, 01? A. For practical purposes, WEPCo will have no service territory in Michigan other than to serve Tilden, and that is only temporary until sometime in 019. Thus, with no service territory in Michigan for a potential new generator to locate and desire to sell under PURPA to WEPCo, I don t see how PURPA applies to WEPCo in Michigan.

6 Q. If WEPCo were required to provide a PURPA calculation, what would be its preferred approach? A. If required, WEPCo s preferred approach in Michigan is to be consistent with UMERC. Q. Going back to UMERC, are you aware of any Michigan customers that sold generation to either WPS Corp or WEPCo in 01 or are expected to sell to UMERC in 01? A. No. Q. So, the potential changes to rates for purchases from QF generators in this docket will not impact any current customer or generator? A. Correct, no current customers will be impacted. Q. How were the rates and tariffs handled with the transfer of customers from WEPCo and WPS Corp to UMERC? A. UMERC has two rate zones, the legacy WEPCo Rate Zone and the legacy WPSC Rate Zone. The rates and tariff sheets for the legacy WEPCo Rate Zone reflect the rates and tariffs that were in place for WEPCo prior to the formation of UMERC. The rates and tariff sheets for the legacy WPSC Rate Zone reflect the rates and tariffs that were in place for WPS Corp prior to the formation of UMERC. These include the buy-back tariffs that are applicable and available for customers with generation to sell power to the utilities to comply with PURPA. Q. Can you provide a general overview of UMERC s load without Tilden? A. Yes. UMERC is a relatively small electric utility. The legacy WEPCo Rate Zone has approximately, annual MWh of sales, with an average demand of approximately

7 1 MW. The legacy WPS Corp Rate Zone has approximately,99 MWh annual MWh of sales, with an average demand of approximately MW. Q. What is the source of power supply for UMERC? A. Until new generation is placed in service in the UP, UMERC will obtain its power supply from both WEPCo and WPS Corp via full requirements purchase power agreements ( PPA ) pursuant to FERC-approved tariffs. There is one PPA between WEPCo and UMERC to supply the legacy WEPCo Rate Zone load, and another PPA between WPS Corp and UMERC to supply the legacy WPSC Rate Zone load. These PPAs will provide a full slice of system cost and benefits of both the WEPCo and WPS Corp generation portfolios, similar to what the customers in the UP had prior to the formation of UMERC. Q. Please describe the long term generation plan for UMERC. A. UMERC will be filing an application requesting a Certificate of Necessity ( CON ) (and other relief) in January of 01 in connection with the construction of approximately 10 MW of electric generation in the UP. This generation will be fueled with natural gas and 1 will utilize reciprocating internal combustion engine technology. This project is being proposed to meet the power supply need of UMERC, including Tilden, to allow for the retirement of the coal fired Presque Isle Power Plant ( PIPP ), as well as to eliminate the need for extensive transmission. Q. If the proposed generation project is approved and installed, what will UMERC s capacity situation be in 00 and in following years? 1 A Based on current sales forecasts, UMERC will have excess generation that it will likely seek to sell to a third party via a bilateral contract or via the MISO capacity auction. Q. Can UMERC install less generation to avoid having excess generation?

8 A. The amount of generation will be specifically addressed in UMERC s CON filing, but generally speaking, the amount of generation being proposed is designed to address the loads and needs of Tilden and UMERC s other customers, retirement of PIPP, and avoidance of future transmission projects. Q. What are the methodologies and costs associated with the Hybrid Proxy Plant Method proposed by Staff? A. The results of the Hybrid Proxy Methodology for UMERC are presented in Exhibit A-1 (JEK-1). The capacity cost is the MISO cost of new entry, which is based on the cost of a combustion turbine, not a combined cycle plant. The base capacity cost is adjusted for each plant type by the Effective Load Carrying Capability ( ELCC ). The annual energy produced by each plant type is based on the capacity factor times 0 hours per year. The energy cost is based on UMERC s forecast of locational marginal pricing ( LMP ) for WEC-North. The LMP values are projected through 0 using an inflation factor of % per year. Q. Does UMERC recommend adopting the Hybrid Proxy Plant Methodology? A. No. The value of capacity in the UP in a planning year (June through May) is determined in the MISO Planning Resource Auction. There are no significant barriers to entry for generators of any size to participate in the MISO capacity auction and receive the capacity auction clearing price. Likewise all MISO market participant generators receive 0 the local energy price (MISO energy market LMP). The Hybrid Proxy Plant 1 Methodology would force UMERC to pay PURPA generators the annualized cost of new entry when all non-purpa and UMERC s own capacity is paid the market price for capacity.

9 Q. Does UMERC recommend adopting the Transfer Price method? A. No. UMERC does not support the Transfer Price method because this method ignores the difference in the value of reliable capacity versus capacity that is intermittent. The Transfer Price Method uses forecasted capacity and energy prices and estimates a long run avoided cost. The MISO capacity and energy markets provide a market-based option that more accurately reflects the current supply and demand balance of annual capacity and hourly energy. UMERC s expected avoided costs are the MISO energy and capacity market prices. Q. Please describe the current tariffs that apply to the UMERC legacy WPSC Rate Zone for customers with generation that satisfy the requirements of a Qualifying Facility status under Part 9 of PURPA. A. There are tariffs, PG-M, PG-M and PG-M. These tariffs are included in Exhibit A- (JEK-). Q. Can you briefly describe PG-M? A. Yes. PG-M is a tariff that simply provides the authority for the customer and company to negotiate terms and conditions, including the price for power to be purchased. This tariff option is available to all customers with generation capabilities of up to 0 MW. Q. Please describe the PG-M and PG-M tariffs. A. These tariffs are pretty similar in that both have energy pricing based on the MISO locational prices, capacity reflecting MISO capacity auction clearing prices, and a premium for renewable power based on negotiated prices. The PG-M tariff is available for customers with generation capabilities of up to MW. The energy price for this tariff uses historical MISO LMP s for the most recent completed November 1 to October 1

10 1 time period. The PG-M tariff is available for customers with generation capabilities of up to MW. Energy is priced under this tariff at the Actual Day Ahead Location Marginal Price for each hour. The PG-M and PG-M tariffs were approved by the 9 10 Commission in WPS Corp s last rate case, Case No. U-19. Q. Does WPS Corp have any customers that sell power to WPS Corp under any of these three tariffs as of the date of the filing of this direct testimony? A. Not that I am aware of. Q. Do Tariffs PG-M, PG-M and PG-M represent UMERC s preferred avoided cost method for the WPSC Rate Zone? A. Yes. These tariffs reflect both the market price of capacity, energy and renewable credits 11 and are expected to reflect the avoided costs of UMERC. Having prices higher than the pricing methodologies reflected in these tariff sheets will simply increase the costs for UMERC customers. Q. Is UMERC recommending any changes to these tariffs as part of this proceeding to comply with PURPA or MPSC orders? A. No. Q. Please describe UMERC s existing tariffs for customer generation in the legacy WEPCo Rate Zone. A. For customers in UMERC s legacy WEPCo Rate Zone with generation capacity larger than 10 kw, UMERC offers the CGS Large tariff, which specifies the buy-back rates for 1 energy purchased from these customers. The buyback rates were determined in WEPCo s most recent general rate case, Case No. U-10, which used the forward- looking test year 01. The buy-back rates are split into on-peak and off-peak periods 9

11 1 and are based on the average of UMERC s forecast of hourly LMP for the years 01 and 01. The derivation of these average LMP values was documented in work paper AF Schedule b in that case. The values shown in work paper AF Schedule b are at transmission level of 9 kv. Buy-back rates for primary customers at voltages less than 9 kw and for secondary customers are based on the transmission-level values adjusted for losses. The loss factors used are shown in work paper AF-1 Schedule g in that case. No credit is provided for capacity under this tariff. Q. What tariff options do customers with less than 10 kw of generation have for sale of generation to UMERC? A. Customers with generation capacity of 10 kw or less are offered net metering under the CGS Category 1 or CGS Category (modified net metering) tariffs. Category 1 essentially pays the customer the retail rate (including distribution cost) for the energy purchased by UMERC. For Category the customers are paid for their excess energy at the power supply energy charge rate. Q. Is UMERC proposing any changes to the tariffs in this proceeding in the WEPCo Rate Zone? A. No. UMERC does not see a need to modify the CGS Large tariff rate. The tariff currently pays the customer with generation, depending on voltage and whether the sale occurs on or off peak, from a low of $0.090/kWh to a high of $0.0/kWh. The CGS Large tariff and above-referenced work papers can be found in Exhibit A- (JEK-). Q. Are there any other approaches that UMERC would support? A. The CGS Large tariff mentioned above represents UMERC s preferred approach for purchasing power from qualifying facilities in the WEPCo Rate Zone; however, UMERC 10

12 1 would support the approach used by WPS Corp, as represented in their PG-M, PG-M and PG-M tariffs. For these tariffs, the energy buy-back rate is based on either the day- ahead LMP or a negotiated value and the capacity rate is based on the most recent MISO auction price. This would provide consistency across the two rate zones and utilize pricing methodologies that reflect current or recent market prices. Q. Are there any other changes UMERC would support? A. If the current CGS Large tariff rate remains in place, UMERC would not oppose removing the 10 kw minimum threshold for availability under the tariff. However, since customers with less than 10 kw of generation qualify for net metering tariffs, UMERC would expect customers to choose net metering tariffs over the CGS Large tariff. Q. Does this conclude your testimony? A. Yes. 10.1\

13 Case Nos. U-109 & U-109 Exhibit A-1 (JEK-1) Witness: Jeff Knitter Page 1 of A B C D E F G H I PURPA Avoided Costs Using Hybrid Proxy Method Annual energy per MW of Plant Capacity MWH Plant Type Cost of New Entry $/MW-Yr ELCC Capacity Cost per MW-Yr for Given Plant Type Capacity Factor Capacity Cost $/MWH Energy Costs $/MWH Total Avoided Cost $/MWH Hydro $9,110 9% $,01 0%, $1. $. $.1 Biomass $9,110 9% $, 0%,00 $1. $. $0. Landfill Gas $9,110 % $, %, $11.11 $. $. Solar $9,110 % $0,9 0% 1, $. $. $1.00 Wind $9,110 1% $1,1 %,0 $.9 $. $. Sources: Col B: MISO Col C: Estimate Col D: Col B * Col C Col E: Estimate Col F: 0 hours * Col E Col G: Col D / Col F Col H: LMP forecast Col I: Col G + Col H Energy Cost Projections (Assumed % Escalation) Energy Costs Year $/MWH 01 $. 01 $.1 01 $. 019 $9. 00 $ $0. 0 $1.1 0 $1. 0 $.1 0 $.0 0 $.

14 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page 1 of M.P.S.C. No. 1 Electric Upper Michigan Energy Resources Corporation WPSC Rate Zone Original Sheet No. D-1.00 D9. PARALLEL GENERATION-PURCHASE BY WPSC PG-M EFFECTIVE IN: All territory served. AVAILABILITY To customers contracting for electric service who satisfy the requirements of "qualifying facility" status under Part 9 of the Federal Energy Regulatory Commission's regulations under the Public Utility Regulatory Policies Act of 19, generating electrical energy with total customer owned generating capacity of,000 KW or less, and desiring to sell electrical energy to the Company. Customers with generation capacity of 0 KW or less have the option of selling energy to the Company under this Pg-M tariff or the Pg-1M tariff. MONTHLY RATES Customer Charge: $1.00/Month $0.9/Day Charges for Deliveries from Company Deliveries from the Company to the customer shall be billed in accordance with the standard applicable rate schedules of the Company. Energy Credit Deliveries to Company On-peak Energy Charge : For 00 rates, the on-peak energy charge shall equal the average of the on-peak Day Ahead Locational Marginal Prices ( DA LMP )at the WPS.WPSM load zone node for calendar year 00. The rates shall be reset annually on January 1 of each year based on the hourly average on-peak DA LMP at the WPS.WPSM load zone node of the most recently completed November 1 to October 1 period. The on-peak energy charge for 01 is $0.01/kWh. Off-peak Energy Charge : For 00 rates, the off-peak energy charge shall equal the average of the off-peak DA LMP at the WPS.WPSM load zone node for calendar year 00. The rates shall be reset annually on January 1 of each year based on the hourly average off-peak DA LMP at the WPS.WPSM load zone node of the most recently completed November 1 to October 1 period. The off-peak energy charge for 01 is $0.0119/kWh. Capacity Payment Should the Midwest Independent Transmission System Operator ( MISO ) implement a capacity market, a capacity credit shall be implemented reflecting the MISO capacity market methodology. Once the MISO capacity market is operational, Customers with Interruptible Service will not receive any additional capacity charge credit. Renewable Premium At the Company's sole discretion, a premium to be paid on a per kwh basis may be applied to generators that generate a renewable credit that is transferred to the Company. Customers retain the right to refuse a renewable premium and keep the renewable credits or tags. Premiums are to be set when the contract is signed and will not change during the contract period. Distribution Loss Factors The following factors shall be applied to the on-peak and off-peak energy factors and capacity payments to reflect system losses: Customers metered at a transmission voltage of 0,000 volts or higher: Customers metered at a primary voltage of,10 volts - 0,000 volts: Customers metered at a secondary voltage of less than,10 volts: 0.9 ON-PEAK HOURS Winter (calendar months of October through May): :00 AM to 10:00 PM; Monday through Friday (except holidays). Summer (calendar months of June through September): :00 AM to 11:00 PM; Monday through Friday (except holidays). OFF-PEAK HOURS All hours not listed as on-peak hours. (Continued on Sheet No. D-1.00) Issued December 1, 01 Effective for service rendered on and T. T. Eidukas after January 1, 01 Vice-President, Milwaukee, Wisconsin Issued under authority of the Michigan Public Service Commission dated December 9, 01 in Case No. U-101

15 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of M.P.S.C. No. 1 Electric Upper Michigan Energy Resources Corporation WPSC Rate Zone Original Sheet No. D-1.00 D9. PARALLEL GENERATION-PURCHASE BY WPSC PG-M (Continued from Sheet No. D-1.00) HOLIDAYS The days of the year which are considered holidays are: New Year's Day, Good Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, Friday After Thanksgiving, Day Before Christmas, Christmas Day, and the Day Before New Year's Day. MINIMUM CHARGE The monthly minimum charge shall be the customer charge. PRO-RATION OF DEMAND COST FOR AUTHORIZED MAINTENANCE For customers billed on rates with demand charges, the demand charges other than "Customer Demand" shall be prorated if the maintenance schedule of the customer owned generation facility has been approved in advance in writing by the Company. Said pro-ration shall be based on the number of authorized days of scheduled maintenance. The customer shall pay the demand rate for the higher than normal demands due to the generation outage only for the days of authorized maintenance. SPECIAL RULES 1. The Company shall install appropriate metering facilities to record all flows of energy necessary to bill the customer in accordance with the charges and credits of this rate schedule.. The customer shall furnish, install, and wire the necessary service entrance equipment, meter sockets, meter enclosure cabinets, or meter connection cabinets that may be required by the Company to properly meter usage and sales to the Company.. The requirements for interconnecting a generator with the Company s facilities are contained in the Michigan Public Service Commission s Electric Interconnection Standards Rules (R ) and the Company s Michigan Utility Generator Interconnection Requirements, copies of which will be provided to customers upon request. All requirements must be met prior to commencing service. PARALLEL GENERATION RULES See Schedule PGXM. Issued December 1, 01 Effective for service rendered on and T. T. Eidukas after January 1, 01 Vice-President, Milwaukee, Wisconsin Issued under authority of the Michigan Public Service Commission dated December 9, 01 in Case No. U-101

16 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of M.P.S.C. No. 1 Electric Upper Michigan Energy Resources Corporation WPSC Rate Zone Original Sheet No. D-1.00 D9. PARALLEL GENERATION-PURCHASE BY WPSC PG-M EFFECTIVE IN: All territory served. AVAILABILITY To customers contracting for electric service who satisfy the requirements of "qualifying facility" status under Part 9 of the Federal Energy Regulatory Commission's regulations under the Public Utility Regulatory Policies Act of 19, generating electrical energy with total customer owned generating capacity of,000 KW or less, and desiring to sell electrical energy to the Company. Customers with generation capacity of,000 kw or less have the option of selling energy to the Company under this Pg-M tariff or Pg-M tariff. MONTHLY RATES Customer Charge: $1.00/Month $0.9/Day Energy Charge The Customer will be compensated at the Day Ahead LMP at WPS.WPSM load zone node expressed in $/kwh for every hour. Capacity Payment Should the Midwest Independent Transmission System Operator ( MISO ) implement a capacity market, a capacity credit shall be implemented reflecting the MISO capacity market methodology. Once the MISO capacity market is operational, Customers with Interruptible Service will not receive any additional capacity charge credit. Renewable Premium At the Company's sole discretion, a premium to be paid on a per kwh basis may be applied to generators that generate a renewable credit that is transferred to the Company. Customers retain the right to refuse a renewable premium and keep the renewable credits or tags. Premiums are to be set when the contract is signed and will not change during the contract period. Distribution Loss Factors: The following factors shall be applied to the on-peak and off-peak energy factors and capacity payments to reflect system losses: Customers metered at a transmission voltage of 0,000 volts or higher: Customers metered at a primary voltage of,10 volts - 0,000 volts: Customers metered at a secondary voltage of less than,10 volts: 0.9 MINIMUM CHARGE The monthly minimum charge shall be the fixed charge plus the energy optimization charge. PRO-RATION OF DEMAND COST FOR AUTHORIZED MAINTENANCE For customers billed on rates with demand charges, the demand charges other than "Customer Demand" shall be prorated if the maintenance schedule of the customer owned generation facility has been approved in advance in writing by the Company. Said pro-ration shall be based on the number of authorized days of scheduled maintenance. The customer shall pay the demand rate for the higher than normal demands due to the generation outage only for the days of authorized maintenance. SPECIAL RULES 1. The Company shall install appropriate metering facilities to record all flows of energy necessary to bill the customer in accordance with the charges and credits of this rate schedule.. The customer shall furnish, install, and wire the necessary service entrance equipment, meter sockets, meter enclosure cabinets, or meter connection cabinets that may be required by the Company to properly meter usage and sales to the Company. (Continued on Sheet No. D-1.00) Issued December 1, 01 Effective for service rendered on and T. T. Eidukas after January 1, 01 Vice-President, Milwaukee, Wisconsin Issued under authority of the Michigan Public Service Commission dated December 9, 01 in Case No. U-101

17 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of M.P.S.C. No. 1 Electric Upper Michigan Energy Resources Corporation WPSC Rate Zone Original Sheet No. D-1.00 D9. PARALLEL GENERATION-PURCHASE BY WPSC PG-M (Continued from Sheet No. D-1.00) SPECIAL RULES (Cont.). The requirements for interconnecting a generator with the Company s facilities are contained in the Michigan Public Service Commission s Electric Interconnection Standards Rules (R ) and the Company s Michigan Utility Generator Interconnection Requirements, copies of which will be provided to customers upon request. All requirements must be met prior to commencing service. PARALLEL GENERATION RULES See Schedule PGXM. Issued December 1, 01 Effective for service rendered on and T. T. Eidukas after January 1, 01 Vice-President, Milwaukee, Wisconsin Issued under authority of the Michigan Public Service Commission dated December 9, 01 in Case No. U-101

18 M.P.S.C. No. 1 Electric Upper Michigan Energy Resources Corporation Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of WPSC Rate Zone Original Sheet No. D-1.00 D9. PARALLEL GENERATION-PURCHASE BY WPSC PG-M EFFECTIVE IN: All territory served. AVAILABILITY To customers contracting for electric service who satisfy the requirements of "qualifying facility" status under Part 9 of the Federal Energy Regulatory Commission's regulations under the Public Utility Regulatory Policies Act of 19, generating electrical energy with total customer owned generating capacity of 0,000 KW or less, and desiring to sell electrical energy to the Company. Customers with generation capacity of,000 KW or less have the option of selling energy to the Company under this Pg-M tariff or the Pg-M tariff. NEGOTIATED RATES Parallel generation customers have the right to request negotiated buy back rates. The following are the required procedure guidelines: 1. Except as allowed by Paragraph below, the Company must respond to the customer owned generating system within 0 days of the initial receipt of the customer owned generating system written proposal, and within 0 days of receipt of any subsequent customer owned generating system written proposal;. The company's rejection of the customer owned generating system written proposal must be accompanied by a counter offer relating to the specific subject matter of the customer owned generating system written proposal; and. If the Company is unable to respond to the customer owned generating system written proposal within 0 days it shall inform the customer owned generating system of: a. Specific information needed to evaluate the customer owned generating system proposal. b. The precise difficulty encountered in evaluating the customer owned generating system written proposal. c. The estimated date that it will respond to the customer owned generating system written proposal.. The commission may become involved in the Company negotiations upon showing by either the Company or the customer owned generating system that a reasonable conclusion cannot be reached under the above guidelines. The commission may provide a waiver to the guidelines and order new negotiation requirements so that a reasonable conclusion can be reached. Renewable Premium At the Company's sole discretion, a premium to be paid on a per kwh basis may be applied to generators that generate a renewable credit that is transferred to the Company. Customers retain the right to refuse a renewable premium and keep the renewable credits or tags. SPECIAL RULES 1. The Company shall install appropriate metering facilities to record all flows of energy necessary to bill the customer in accordance with the charges and credits of this rate schedule.. The customer shall furnish, install, and wire the necessary service entrance equipment, meter sockets, meter enclosure cabinets, or meter connection cabinets that may be required by the Company to properly meter usage and sales to the Company.. The requirements for interconnecting a generator with the Company s facilities are contained in the Michigan Public Service Commission s Electric Interconnection Standards Rules (R ) and the Company s Michigan Utility Generator Interconnection Requirements, copies of which will be provided to customers upon request. All requirements must be met prior to commencing service. PARALLEL GENERATION RULES See Schedule PGXM. Issued December 1, 01 Effective for service rendered on and T. T. Eidukas after January 1, 01 Vice-President, Milwaukee, Wisconsin Issued under authority of the Michigan Public Service Commission dated December 9, 01 in Case No. U-101

19 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page 1 of

20 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of

21 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of

22 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of Case No. U-10 Part I WPAF-1b Marginal Costs Schedule b Page 1 of 1 Witness: E. A. Rogers Date: July, 011 WE Energies Forecast Average Hourly Energy Cost by Season and On-Off Peak Average Marginal Energy Costs Year 01 Season Off Peak On Peak Grand Total Winter Spring Summer..00. Fall.0.. Grand Total..19. Year 01 Season Off Peak On Peak Grand Total Winter Spring Summer Fall Grand Total Ave of 01 & 01 Grand Total Year 01 Season Off Peak On Peak Grand Total Winter Spring Summer Fall Grand Total 1... Year 01 Season Off Peak On Peak Grand Total Winter... Spring...9 Summer.0.. Fall.1..9 Grand Total... Year 01 On-Peak Period is Monday - Friday AM to PM Central Prevailing Time Season Off Peak On Peak Grand Total Winter Spring...0 Summer Fall..9. Grand Total.1.. $/MWh in Year of Occurrence Dollars

23 Case Nos. U-109 & U-109 Exhibit A- (JEK-) Witness: Jeff Knitter Page of Case No. U-10 Part I WPAF-1g Marginal Costs Schedule g Page 1 of 1 Witness: E. A. Rogers Date: July, 011 Customer-Owned Generation Purchase Prices CGS - 00 kw or More CGS Secondary CGS Primary < 9 kv CGS Primary >= 9 kv 1 Monthly Gen Level Capacity Credit $/kw/month $0.0 $0.0 $0.0 Avoided Cost for Highest 00 Hours $/kwh $0.0 $0.0 $0.0 Loss Adjustments.9% 1.% 0.000% Proposed Capacity Payment $/kw $0.0 $0.09 $0.00 Proposed Energy Payment for Dispatched Energy Flowing into System $0.01 $0.0 $0.0 On-Peak Firm Energy Rate - TY01 Proposed $0.0 $0.09 $0.09 Energy Payment for Displaced Energy - TY01 Proposed $ $ $ Off-Peak Marginal Energy Costs $0.090 $0.090 $ Proposed Energy Payment for Non-Dispatched Energy $0.0 $0.0 $ Proposed Facilities Charge $.911 $.911 $.911 Current Capacity Payment $/kw $.90 $.1 $.0 Current Energy Payment for Dispatched Energy Flowing into System $0.00 $0.00 $0.0 Current Energy Payment for Displaced Energy $ $0.001 $ Current Energy Payment for Non-Dispatched Energy $0.01 $0.09 $0.0 Current Facilities Charge $.911 $.911 $.911 1) Actual Market Bid Price for 01 from Schedule 1 ) Based on average of 01 and 01 values from LMP forecast used for Schedule ) From Class Load Exhibit 9 ) Row 1 / (1+ Row ) ) Row / (1+ Row ) ) From Revenue Yield Exhibit ) Row - Row (Not Less Than Zero) ) From Schedule 9) Row / (1+ Row ) 10) No Change from Current

24 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter, on the Commission s own motion, ) establishing the method and avoided cost calculation for ) WISCONSIN PUBLIC SERVICE CORPORATION ) Case No. U-109 to fully Comply with the Public Utilities Regulatory ) Policy Act of 19, 1 USC 01 et seq. ) In the matter, on the Commissions own motion, ) establishing the method and avoided cost calculation for ) Case No. U-109 WISCONSIN ELECTRIC POWER COMPANY to fully) comply with the Public Utilities Regulatory Policy Act ) of 19, 1 USC 01 et seq. ) STATE OF MICHIGAN ) )ss COUNTY OF INGHAM ) PROOF OF SERVICE Crystal L. Abbott, being first duly sworn, deposes and says that on December 9, 01, she served the Direct Testimony and Exhibits of Jeff Knitter on behalf of Upper Michigan Energy Resources Corporation and Wisconsin Electric Power Company on the parties listed on the attached Service List via electronic mail. Subscribed and sworn before me on this 9 th day of December, 01. Crystal L. Abbott Amie L. Sullivan, Notary Public State of Michigan, County of Eaton, Acting in Ingham My Commission Expires: March 1, 01

25 SERVICE LIST MPSC Case Nos. U-109 and U-109 Administrative Law Judge Honorable Mark D. Eyster Administrative Law Judge Michigan Public Service Commission 109 W. Saginaw Highway, rd Floor Lansing, MI 91 Michigan Public Service Commission Staff Bryan A. Brandenburg Amit T. Singh Michigan Public Service Commission 109 W. Saginaw Highway, rd Floor Lansing, MI 91 Environmental Law & Policy Center Ecology Center Solar Energy Industries Association Vote Solar Margrethe K. Kearney Environmental Law & Policy Center 11 Wealthy Street, SE Grand Rapids, MI \