LOOMIS, EWERT, PARSLEY,

Transcription

1 LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING A PROFESSIONAL CORPORATION 232 SOUTH CAPITOL AVENUE, SUITE 1000 LANSING, MICHIGAN TELEPHONE (517) FACSIMILE (517) JACK C. DAVIS, PC SHERRI A. WELLMAN PLUMMER SNYDER KARL L. GOTTING, PC JEFFREY S. THEUER ( ) DAVID M. LICK ELDONNA M. RUDDOCK HARVEY J. MESSING KEVIN J. RORAGEN HOWARD J. SOIFER JAMES R. NEAL THERESA A. SHEETS ( ) KENNETH W. BEALL MICHAEL C. RAMPE MICHAEL G. OLIVA SARA L. CUNNINGHAM GEORGE W. LOOMIS JEFFREY W. BRACKEN TRACEY L. LACKMAN QUENTIN A. EWERT CATHERINE A. JACOBS HAI JIANG WILLIAM D. PARSLEY RONALD W. BLOOMBERG GARY A. GENSCH, JR. RICHARD W. PENNINGS MICHAEL H. RHODES ANNA ROSE STERN OF COUNSEL JEFFREY L. GREEN JAMES F. ANDERTON, V GARY L. FIELD Ms. Mary Jo Kunkle Executive Secretary Michigan Public Service Commission 6545 Mercantile Way P.O. Box Lansing, MI March 28, 2005 Re: Wisconsin Electric Power Company 2004 PSCR Reconciliation MPSC Case No. U R [e-file] Dear Ms. Kunkle: Enclosed for electronic filing is the Application and Direct Testimony and Exhibits of Thomas P. Lorden. Additionally, enclosed is a proposed Notice of Hearing, which has also been ed to cbower@michigan.gov. Should you have any questions, please kindly advise. Very truly yours, LOOMIS, EWERT, PARSLEY, DAVIS & GOTTING, P.C. SAW/kab Enclosure cc with enc: Thomas Lorden I:\SAW\WEPCO\13907-R\Kunkle wpd Sherri A. Wellman CELEBRATING 50 YEARS OF SERVICE

2 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of WISCONSIN ) ELECTRIC POWER COMPANY S power supply cost ) recovery reconciliation proceeding for the ) Case No. U R 12-month period ended December 31, 2004 ) (e-file) ) APPLICATION WISCONSIN ELECTRIC POWER COMPANY ("Wisconsin Electric" or "Company"), d/b/a We Energies, requests the Michigan Public Service Commission ("Commission") to approve Wisconsin Electric s reconciliation of power supply costs and revenues pursuant to 1982 PA 304 ("Act 304") for the 12-month period January 2004 through December 2004, and represents to the Commission as follows: 1. Wisconsin Electric is a public service corporation organized under the laws of Wisconsin with its principal offices located in Milwaukee, Wisconsin, and is engaged primarily in public utility operations. Wisconsin Electric is also authorized to do business in Michigan and provides retail electric service to the public in service areas located in the Upper Peninsula, including the Counties of Alger, Baraga, Delta, Dickinson, Gogebic, Houghton, Iron, Marquette, Menominee and Ontonagon. 2. Wisconsin Electric s retail electric business in Michigan is subject to the Commission s jurisdiction pursuant to 1909 PA 106, as amended, MCL et seq.; 1909 PA 300, as amended, MCL et seq.; 1919 PA 419, as amended, MCL et seq.; and 1939 PA 3, as amended, MCL et seq.

3 3. Incorporated in Wisconsin Electric s rate schedules is a PSCR clause as authorized by the Commission pursuant to Section 6j(2) of 1982 PA 304 in its Opinion and Order, dated March 20, 1984, in Case No. U Wisconsin Electric represents that the 12-month reconciliation of the power supply costs and revenues for 2004, including the true up for year 2003 and interest, results in an under recovery of $182, Wisconsin Electric is requesting authority to implement a surcharge of $ per kwh for all billings that are subject to Wisconsin Electric s power supply cost recovery clause for the months of October 2005 through December This surcharge includes interest as specified in Act 304 and is designed to collect the under recovered amount of $182,185 from Wisconsin Electric s Michigan electric retail customers. 6. Wisconsin Electric is concurrently filing testimony and exhibits in support of this Application. Wisconsin Electric represents that its proposals are just and reasonable and in the public interest. WHEREFORE, Wisconsin Electric Power Company requests that this Commission: 1. Make and publish its notice of hearing, and after notice and hearing; 2. Approve the reconciliation of the 12-month power supply costs and revenues as presented by Wisconsin Electric; 3. Find and determine that the power supply costs charged to Wisconsin Electric s customers during 2004, were reasonably and prudently incurred; and, that Wisconsin Electric should recover $182,185 through a surcharge of $ per kwh in its bills for October 2005 through December 2005 to its Michigan retail electric customers; and 2

4 4. Grant Wisconsin Electric such other and additional relief as shall be lawful and proper. Respectfully submitted, WISCONSIN ELECTRIC POWER COMPANY Dated: March 28, 2005 By One of its Attorneys Harvey J. Messing (P 23309) Sherri A. Wellman (P 38989) Loomis, Ewert, Parsley, Davis & Gotting, P.C. 232 S. Capital Ave., Suite 1000 Lansing, Mi (517) ATTORNEYS FOR WISCONSIN ELECTRIC POWER COMPANY I:\SAW\WEPCO\13907-R\Application.doc 3

5 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION _ ) In the matter of the application of Wisconsin ) Electric Power Company's power supply cost ) recovery reconciliation proceeding for the ) Case No. U R 12-month period ended December 31, ) ) ) DIRECT TESTIMONY AND EXHIBITS OF THOMAS P. LORDEN ON BEHALF OF WISCONSIN ELECTRIC POWER COMPANY March, 2005

6 WISCONSIN ELECTRIC POWER COMPANY Before the Michigan Public Service Commission Direct Testimony of Thomas P. Lorden Q. Please state your name and business address. A. Thomas P. Lorden, 231 West Michigan Street, Milwaukee, Wisconsin Q. What is your present employment? A. I am employed by Wisconsin Electric Power Company ( Wisconsin Electric or Company ) as a Senior Project Analyst in the Regulatory Affairs and Policy Department. I have been in my current position, where I am responsible for fuel cost reporting to the various regulatory agencies, since Q. Please describe your qualifications and background. A. I earned a Bachelor of Arts Degree in Business Administration from Marquette University with a specialization in finance in I joined Wisconsin Electric in From 1968 to 1975, I 16 worked in the Plant Accounting Division. From 1975 until , I held various positions in the Load Research area of the Corporate Planning Department. From 1980 to 1998, I was in the Rates Section. While in the Rates Section, I was involved in the development of numerous cost-of-service studies to support the Company's rate and regulatory needs. From 1998 to 2002, I was in the Finance Department, where I was responsible for fuel accounting and

7 MPSC Thomas P. Lorden reporting to the various regulatory agencies. I have previously testified before the Michigan Public Service Commission ( Commission or MPSC ) on cost-of-service in Case Nos.U-7592, U and U I also presented testimony in Wisconsin Electric's 1994 power supply cost 6 recovery ( PSCR ) reconciliation in Case No. U R, PSCR plan in Case No.U-10707, 2001 PSCR plan in Case No.U-12615, 2002 PSCR plan in Case No.U-13107, 2001 PSCR reconciliation, Case No. U R, 2002 PSCR reconciliation in Case No.U R, 2003 PSCR plan in Case No. U-13556, 2003 PSCR reconciliation in Case No.U R, 2004 PSCR plan in Case No.U and 2005 PSCR plan in Case No.U Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to: (i) describe the operation of the Company's generating units and the obtaining of fuel and purchased power during 2004; and (ii) to compare projected power supply costs for the 2004 PSCR Plan year with the actual costs experienced that year. Additionally, my testimony and exhibits deal with the reconciliation of 2004 calendar year power supply revenues recorded, whether recovered in base rates or in PSCR factors, with the booked cost of power supply and the trueup of the 2003 power supply reconciliation amounts.

8 MPSC Thomas P. Lorden Q. Are you sponsoring any exhibits in connection with your testimony? A. Yes, I am sponsoring Exhibit A-1 (TPL-1) containing several schedules, which set forth the Company s 2004 PSCR 5 reconciliation. I am also sponsoring Exhibit A-2 (TPL-2) which is a copy of the Public Service Commission of Wisconsin ( PSCW ) order approving the Risk Management Plan for Gas-Fired Generation. Q. Was Exhibit A-1 (TPL-1) prepared by you or under your direction and supervision? A. Yes, it was. Q. Please describe how the recent Commission Order in Case No. U has impacted the Company s 2004 PSCR reconciliation. A. The Company petitioned for rehearing of the September Order in MPSC Case No. U to request a decision on its unopposed request to use deferred accounting and escrow treatment for nitrogen oxide ( NOx ) reduction costs and to reconcile those costs in annual power supply cost recovery ( PSCR ) reconciliation proceedings. On January 21, 2003, the Commission issued its Order on Rehearing in MPSC Case 21 No. U granting this request. Consistent with that order, this PSCR reconciliation includes a reconciliation of the NOx reduction costs for All costs including capital carrying cost at the Company's MPSC approved cost of

9 MPSC Thomas P. Lorden 1 capital, depreciation and O&M expense were included. The net 2 3 NOx costs for the year 2004 amounted to $28,403,947. Exhibit A-1 (TPL-1), Schedule 3, page 3. See Q. Did any of Wisconsin Electric's generating units experience outages during 2004 that lasted more than 90 days? A. Yes. Oak Creek unit 9 which was placed in-service in December, 1968 is a 20MW, natural gas-fired, combustion turbine used primarily to supply energy for the summer peak 9 period. The unit experienced a ground on the generator rotor during normal operation and was not due to neglilgence. As a result the rotor had to be shipped off- 12 site for repair. The repair schedule was established so 13 that the unit would be back in-service for the peak summer 14 demand season. The outage was for 183 days during the period November 25, 2003 to May 26, The Company did not need to buy replacement power due to this outage. The unit was available during the 2004 summer peak period. During 2004, the gas cost for Oak Creek unit 9 amounted to $91,640. Q. Were there any power plant retirements during 2004? A. Yes. As part of its Power The Future plan, the Company retired Units 1, 2 & 3 of the Port Washington Power Plant in September,

10 MPSC Thomas P. Lorden Q. During 2004, were there any firm purchases that involved capacity charges in excess of six months in duration? A. Yes, the Company had eight firm purchase power contracts and various renewable energy contracts that were previously approved by the Commission. Additionally, the Company had one contract that was not signed prior to the filing of the 2004 PSCR Plan. The Company has requested approval of this firm purchase power contract in Case No.U Q. Did the Company include the cost associated with its gas risk management plan as part of the reconciliation? A. Yes. Q. What is the purpose of the gas risk management plan? A. The purpose of the gas risk management plan is to mitigate and protect against natural gas price volatility. The cost of the risk management hedging program is equivalent to an insurance premium against price spikes. In both cases, premiums are paid to insure against the occurrence of a damaging event. As a result of the revisions to the Wisconsin Administrative Code (ch. PSC 116, Electric fuel rules), utilities in Wisconsin may begin to include the costs of fuel price risk management hedging tools in their fuel costs, provided the PSCW has approved the plan. The PSCW approved the Company s

11 MPSC Thomas P. Lorden risk management plan for gas-fired generation on March 14, 2003, in Docket No GF-105 for a two-year period. In 2004, the Company requested an extension through 2007 to allow the Company to begin hedging fuel costs for the Port Washington Generating Station scheduled to go into service in June, The PSCW approved this plan on June 4, 2004 in Docket No UR-105, which is included as Exhibit A-2 (TPL-2). Given the recent high gas prices, high volatility, and concerns about storage and supply/demand imbalances, the Company believes that it is important to protect customers from price swings. While managing gas price risk does not equate to guaranteed savings, financially settled hedging can act like insurance and is a proper and prudent action when a negative consequence event such as a price spike is likely to occur. Q. What is the amount of the gas risk management costs included in the reconciliation? A. The gas risk management cost for 2004 amounted to $349,584. The gas risk management benefit/cost is considered a component of the cost of gas which is charged to various power plants and power purchases. In 2004, the Company was hedging gas costs during a period when the NYMEX price for

12 MPSC Thomas P. Lorden gas was increasing. This resulted in some hedges being at a lower price than the month's NYMEX settle; this benefit was included in the cost of gas thereby offsetting the 4 higher purchase price of gas. The Company's hedging of gas costs was done in accordance with the PSCW order approved in Docket No UR-105. Q. Please describe Schedule 1 of Exhibit A-1 (TPL-1). A. Schedule 1 compares: (i) actual PSCR costs; with (ii) projected power supply costs as presented in the 2004 PSCR Plan Case, Case No. U In January 2004, the Company implemented a PSCR factor of 7.67 mills per kwh or $21.03 per MWh which did not include the projected costs associated with nuclear dry cask storage, SO2 allowances, and fuel handling and ash disposal. Q. Please summarize the major reasons for the cost increase? A. The two major reasons for the cost increase over the 2004 PSCR filing were lower output from Point Beach nuclear plant and higher than projected incremental transmission network charges. Q. Please explain further the variations of actual power supply and costs from the previous PSCR Plan projections. A. As shown on Exhibit A-1 (TPL-1) Schedule 1, the actual net system output was down 443,082 MWhs or 1.4% from the 2004

13 MPSC Thomas P. Lorden plan. This variance was met with a reduction from both generation and purchased power depending on the marginal unit. The actual total fossil steam generation was lower than projected because of reductions in native system requirements, and the economic dispatching of the Company s generating resources. Combustion turbine generation that is used to meet the system peak demands during the year was down 64,812 MWhs or 48% due in large part to lower net system output. The average cost per MWh was up due to both higher than projected natural gas costs and fixed costs. The Point Beach nuclear power plant had decreased generation of 231,685 MWhs or 2.8% due to an extended outage of 38 days on unit 1 due in large part to reactor vessel head analysis and 14 repairs and other minor issues. Purchased energy was down ,788 MWhs or 11%. Less energy was purchased than projected due to (1) the summer of 2004 which ranked as the fifth coolest during the last 55 years and (2) lower marginal purchase power prices. Additionally, with the actual price of natural gas being greater than the projected prices in the 2004 plan, the gas risk management program contributed to lowering the cost of gas since the projected volume of gas was greater than the volume actual purchased 23 due in large part to the cool summer. Opportunity sales

14 MPSC Thomas P. Lorden were 22% lower than projected. Network transmission costs were up 6.3% from the projected amount due to increase in American Transmission Company s budget to reflect increased labor costs and additional transmission projects. NOx reduction costs were down less than 1% from the 2004 plan. In total, the average actual net system power supply cost of $21.21/MWh in 2004 was 0.8% higher than the average net system power supply cost projected in the 2004 PSCR filing of $21.03/MWh that was implemented. These changes in actual costs from the previous projections were not the result of revisions of the economic dispatch strategies in the PSCR plan but the result of application of those principles and strategies to the circumstances that actually developed during the PSCR plan year. The changes in actual costs from the projection shown on Exhibit A-1 (TPL- 1), Schedule 1 were not the result of any unreasonable or imprudent management action or decision. Q. Were any costs associated with the new Port Washington Generation station included in the 2004 PSCR reconciliation? A. No Q. Would you please describe what revenues and costs are included in your reconciliation in Exhibit A-1 (TPL-1), Schedule 2?

15 MPSC Thomas P. Lorden A. The 2004 power supply revenues recorded in the Company's calendar months of January 2004, through December 2004 are being reconciled with power supply costs for the calendar cost months January 2004, through December Q. Has the reconciliation for 2004 in Exhibit A-1 (TPL-1), Schedule 2 been prepared in a manner consistent with the 2003 PSCR reconciliation in Case No.U R? A. Yes. Q. During the period of the reconciliation in this case was there any change in the method used to account for PSCR costs? A. No. Q. Do the costs included in this reconciliation include any costs attributable to capital investments to transport fuel to or relocate fuel at the Company's facilities, or any costs associated with unloading and handling expenses incurred after receipt of fuel by the utility? A. There were no capital investment costs included in the calculation of the 2004 power supply costs being reconciled. Nor are any Company unloading costs or Company costs for handling the fuel included. Coal is delivered at a Milwaukee dock and then the Company pays third parties to transfer that coal to both the Valley Power Plant and Milwaukee County Power Plant. Since the Valley Power Plant

16 MPSC Thomas P. Lorden does not have rail facilities, all coal must be delivered by boat. In addition, the size of the river channel restricts the size of the vessels that may be used for delivery. The Company treats the vessel reloading costs, paid to a firm contracted to do the loading, and the transfer vessel costs 6 as part of the freight costs. The Milwaukee County Power Plant does not have rail facilities; therefore all coal must be delivered by truck. The trucking costs are included as part of the freight costs. No Company labor or expenses are included. The transshipping costs are expensed as the coal is burned. This is consistent with how these costs were treated prior to the suspension of the Company s PSCR clause. Q. Did the Company purchase any fuel or fuel transportation services from an affiliated company? A. Yes. Wisconsin Electric purchased local gas distribution services from Wisconsin Electric Gas Operations ( WEGO ). WEGO includes the former gas operations of Wisconsin Natural Gas Company. Effective January 1, 1996, Wisconsin Natural 20 Gas Company was merged into Wisconsin Electric. The gas purchased is used for flame stabilization and ignition purposes at the Oak Creek Power Plant and the Pleasant Prairie Power Plant. Gas distribution service is provided at tariffs authorized by the Public Service Commission of

17 MPSC Thomas P. Lorden 1 Wisconsin ( PSCW ). Wisconsin Electric also purchased 2 natural gas from Wisconsin Gas Company ( WG ). Effective 3 4 January 1, 2000, Wisconsin Electric purchased WICOR Industries, which included the Wisconsin Gas Company 5 subsidiary. The gas purchased from WG is used at Valley, Port Washington and Milwaukee County power plants. Natural gas from WG is purchased at tariffs authorized by the PSCW. Natural gas, including gas purchased from and/or transported by WEGO and WG, contributed less than 1% of Wisconsin Electric s net generation in Q. Were such purchases through the affiliates less costly than fuel of requisite quality available at or about the same time from other suppliers? A. Yes. Q. During 2004, did the Company buyout any power purchase agreements? A. No. Q. Did the Company purchase any test/spot market coal during the period under reconciliation? A. Yes. During 2004, Wisconsin Electric purchased approximately 254,000 tons of test/spot market coal. The spot coal was purchased for the Port Washington plant to supplement contract coal tonnage, and for eastern coal for Presque Isle and Valley plants to cover Colorado coal

18 MPSC Thomas P. Lorden shortfalls due to performance issues with the Union Pacific Railroad. The spot market coal must be economically and environmentally suitable for the plant. Q. Did the Company incur any penalties, which were included in the power supply costs for this reconciliation period? A. No penalties were incurred or included in the 2004 costs. Q. Does the calculation of power supply costs include any demurrage charges? A. No demurrage costs are incurred or included in the 2004 power supply costs. Q. What spent nuclear fuel disposal costs have been included in this reconciliation? A. One mill per kwh has been included, in accordance with the provisions of the Nuclear Waste Policy Act of 1982, which the Company is required to pay per kwh of electrical generation for transportation and disposal of spent nuclear fuel used to generate electricity. storage are included. No costs for dry cask Q. Is that the same level of spent nuclear fuel disposal costs authorized in Case No.U-13907? A. Yes, it is. Q. Have you prepared an exhibit that reconciles the power supply costs with the power supply revenues for 2004?

19 MPSC Thomas P. Lorden 1 2 A. Yes. Exhibit A-1 (TPL-1), Schedule 2 shows the monthly over or underrecovery of power supply costs for the 3 reconciliation period. This exhibit shows the net under recovery of $82,660 of power supply costs for the reconciliation period. Q. Have you prepared additional Schedules to support the amounts shown on Exhibit A-1 (TPL-1) Schedule 2? A. Yes I have. Exhibit A-1 (TPL-1), Schedule 3, page 1 of 3, shows the calendar month sales associated with Michigan retail and wholesale customers and then removes those sales, which are not subject to the PSCR factors. Sales not subject to the PSCR factors are (i) wholesale sales; (ii) retail special contract sales to the Empire, Tilden and White Pine mines; and (iii) unmetered street and area lighting sales billed at a fixed rate per month. Exhibit A-1 (TPL-1), Schedule 3, page 2 of 3, shows the monthly total System Costs for Recovery and the associated total Net System Requirements. The Total System Costs and Net System Requirements are used to develop the monthly 20 average cost per MWh as adjusted for line losses. The monthly adjusted average cost per MWh is utilized in Exhibit A-1 (TPL-1), Schedule 2 to calculate the costs attributable to the sales.

20 MPSC Thomas P. Lorden Q. Were the actual costs of power supply incurred through reasonable and prudent actions on the part of the Company? A. All 2004 power supply costs were incurred through reasonable and prudent actions on the Company's part. Q. Please explain the accounting method to determine coal costs and how the monthly expense amount is determined. A. Coal costs are accounted for through the fuel inventory account. Inventories are maintained for each plant. Coal is recorded at the contract price, with adjustments to the 10 invoiced price and for price adjustments. Invoices are reviewed for conformance to contract prices and are approved by the Company s Commodity Resources Department, which also provides estimates of the price adjustments. Price adjustment estimates are updated routinely to reflect the most current estimates. Invoices for price adjustment are reviewed for conformance to terms and conditions set forth in the price adjustment provisions of the contracts and are then approved by the Commodity Resources Department. Differences between actual price adjustments and the 20 accruals are accounted for as inventory adjustments. The quantity of coal removed from inventory and burned is furnished by the Company s Fossil Operations Department as 23 determined by coal scale records. Coal is removed from

21 MPSC Thomas P. Lorden 1 inventory at the average inventory cost. This accounting treatment has been applied consistently by the Company. Q. Have you prepared an exhibit showing the cost per million BTU of coal as projected in the Power Supply Cost Recovery Plan and the actual costs incurred? A. Yes, I have prepared Exhibit A-1 (TPL-1), Schedule 4, which shows the annual projected and actual cost per million BTU( $/MMBTU ) for the various power plants using coal as fuel. The increase in $/MMBTU for Presque Isle and Valley power plants was due to purchase of spot coal used to supplement shortages of Colorado coal deliveries. The increase in $/MMBTU at Port Washington power plant was due to the purchase of spot coal for additional generation prior to shutdown of the units. Q. How are other fossil fuels accounted for? A. Oil inventories are maintained in a manner similar to that described for coal. Invoices for purchases are reviewed and 18 approved by the Commodity Resources Department. Inventory 19 disbursements are at the average inventory price. Natural 20 gas consumption is based on monthly meter readings. When the Company makes use of the natural gas transportation service, it must nominate the amount of gas to be taken. When the usage is less than the nomination, an undertake

22 MPSC Thomas P. Lorden credit is given and when the usage is more than the nomination an overtake charge is applied. Q. Please describe the accounting for nuclear fuel costs and how the monthly expense is determined. A. Nuclear fuel is sold to the Wisconsin Electric Fuel Trust ( Trust ) for the accumulated book value prior to the time the fuel is inserted into the reactor. The fuel is leased back by the Company and amortized over the anticipated burn on a per assembly basis. Lease finance charges are estimated quarterly based on the Trust's cost of commercial paper. The accounting for nuclear spent fuel disposal expenses was discussed earlier. Q. How did you calculate interest on the undercollection of PSCR costs? A. I calculated interest on the average of the beginning and end of month overcollection or undercollection balances for 17 each month. The interest on an underrecovery of power supply costs would have been calculated at the average short term borrowing rate available to the Company. Interest on any overrecovery balance was calculated at the Company's authorized rate of return on common stock equity (11%), which is greater than the average short term borrowing rate available to the Company. Exhibit A-1 (TPL-1), Schedule 5, page 1 of 5, shows the calculation of the interest on the

23 MPSC Thomas P. Lorden 1 monthly accumulated balances through December The amount of interest for 2004 is $7,160. Exhibit A-1 (TPL-1), Schedule 5, page 2 of 5 shows the interest calculation through the applicable 2005 recovery period which amounts to $1,808. Q. Has the Company included a true-up of the 2003 reconciliation? A. Yes. The Company received an order for its 2003 PSCR reconciliation, in Case No. U R, on August 10, This order authorized a surcharge of the 2003 underrecovery of $1,245,554 during October, 2004 through March, Exhibit A-1 (TPL-1), Schedule 5, page 3 of 5 shows the amount recovered during the recovery period of $1,142,286, resulting in an under recovered amount of $103,268. Exhibit A-1 (TPL-1), Schedule 5, page 4 of 5 shows the amount of interest through the 2005 recovery period of $1,609. Q. How does the Company propose to recover the net underrecovery for 2004? A. The Company is proposing a three-month recovery period for the underrecovery shown on Exhibit A-1 (TPL-1). Exhibit A-1 (TPL-1), Schedule 5, page 5 of 5 shows the calculation of a PSCR surcharge of $ per kwh which if applied over a three month period from October, 2005 through December, 2005 would fully recover the 2004 underrecovery and true up for

24 MPSC Thomas P. Lorden year 2003, including interest. The projected sales for 2005 are shown on Schedule 6. The total recovery amount, including interest, is $182,285. Q. Does this complete your testimony? A. Yes, it does.

25 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 1 Witness: Thomas P. Lorden Date: March, 2005 Page: 1 of 1 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Projected and Actual Power Supply Costs 2004 PSCR Plan As Filed PSCR Actual Change from As Implemented Cost Generation Cost Cost Generation Cost Cost Generation Cost Plant/Source: ($) MWH $/MWH ($) MWH $/MWH ($) MWH $/MWH Valley 27,874,528 1,244, ,202,496 1,155, ,968 (88,671) 2.00 Port Washington 9,835, , ,511, , ,676,403 82, Oak Creek 75,743,949 6,352, ,075,380 6,735, ,331, , Pleasant Prairie 84,315,860 8,337, ,224,826 8,250, (1,091,034) (86,718) (0.02) Edgewater 5 7,428, , ,808, , (620,072) (12,339) (0.81) Milw. County 1,401,980 63, ,858 21, (861,122) (42,351) 3.44 Presque Isle 46,930,033 3,327, ,695,829 3,257, ,765,796 (69,492) 3.61 Total Steam 253,529,882 20,363, ,059,252 20,529, ,529, , Germantown 2,889,119 36, ,693,558 21, (1,195,561) (14,889) (1.06) Concord 2,568,632 27, ,816,001 17, (752,631) (9,859) 9.37 Paris 5,257,464 69, ,066,865 29, (3,190,599) (39,922) (5.51) Other CT 75, , , ,587 (142) 1, Total Turbine 10,791, , ,786,884 69, (5,004,204) (64,812) 3.20 Nuclear 39,309,726 8,245, ,831,388 8,013, (3,478,338) (231,685) (0.30) Hydro & Wind - 404, ,703 - (29,249) Total Fuel 303,630,696 29,147, ,677,524 28,988, ,046,828 (159,744) 0.33 LS Power 34,724, , ,815, , (10,908,976) (432,468) Neenah 40,354, , ,098,538 59, (37,256,003) (553,739) (13.67) Zion 36,299, , ,455,563 29, (34,843,478) (526,283) (16.68) Other 66,242,039 2,395, ,252,667 3,411, ,010,628 1,016, Purchases-Energy 177,620,363 4,413, ,622,534 3,917, (22,997,829) (495,788) (0.78) Purchases-Capacity 89,055,519 87,464,126 (1,591,393) Transmission & Losses 10,761,935-9,718,221 (81,905) (1,043,714) (81,905) Total Purchases 277,437,817 4,413, ,804,881 3,835, (25,632,936) (577,693) Total Fuel & Purchases 581,068,513 33,561, ,482,405 32,823, (17,586,108) (737,437) (0.14) Opportunity Sales 46,729,343 1,325, ,909,484 1,031, (6,819,859) (294,355) 3.45 Net Output 534,339,170 32,235, ,572,921 31,792, (10,766,249) (443,082) (0.11) Transmission Costs 115,031, ,292,868-7,261,499 Net NOx Costs 28,611,945-28,403,947 - (207,998) TOTAL System Costs 677,982,484 32,235, ,269,736 31,792, (3,712,748) (443,082) 0.18 Less: PSCR Base Change from PSCR Base 7.24 multipied by Loss Factor 1.06 PSCR Factor (adjusted for losses) 7.67

26 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 2 Witness: Thomas P. Lorden Date: March, 2004 Page: 1 of 1 WISCONSIN ELECTRIC POWER COMPANY 2003 Power Supply Cost Recovery Reconciliation Power Supply Cost Over/(Under) Recoveries For The Year 2003 Line No. DESCRIPTION JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) 1. Billed Sales Subject to PSCR 62,402,949 59,178,721 57,428,163 54,954,330 52,362,801 56,673,731 46,934,493 60,454,155 61,900,095 53,571,457 55,817,897 61,787, ,466,754 Power Supply Cost Recovery Factor Including Losses: ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) ($/kwh) 2. Base Applied Factor Total Power Supply Cost Factor Power Supply Revenues: ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 6. Base 912, , , , , , , , , , , ,340 9,992, Applied Factor 478, , , , , , , , , , , ,914 5,242, Total 1,390,962 1,319,094 1,280,074 1,224,932 1,167,167 1,263,258 1,046,170 1,347,523 1,379,753 1,194,108 1,244,181 1,377,254 15,234, Power Supply Costs 1,219,978 1,169,372 1,328,313 1,310,661 1,337,870 1,399,841 1,141,916 1,376,541 1,452,176 1,050,536 1,146,500 1,383,432 15,317, Over/(Under) Recovery 170, ,722 (48,239) (85,729) (170,703) (136,583) (95,746) (29,018) (72,423) 143,572 97,681 (6,178) (82,660)

27 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 3 Witness: Thomas P. Lorden Date: March, 2005 Page: 1 of 3 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Michigan Billed Sales Subject To PSCR For The Year 2004 DESCRIPTION JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) Total Calendar Sales 254,997, ,114, ,738, ,727, ,424, ,879, ,161, ,687, ,482, ,617, ,975, ,881,155 3,097,688,316 LESS: Wholesale Sales 5,298,244 5,072,352 4,229,904 3,556,541 2,859,692 2,783,796 3,276,095 4,202,092 4,539,909 4,602,163 4,548,558 4,545,672 49,515,018 Retail Sales 249,698, ,042, ,508, ,171, ,564, ,095, ,885, ,485, ,943, ,014, ,426, ,335,483 3,048,173,298 LESS: Special Contract Sales 186,959, ,533, ,739, ,893, ,894, ,097, ,628, ,703, ,726, ,122, ,299, ,220,421 2,360,818,375 Mercury Street Lighting 173, , , , , , , , , , , ,454 2,079,896 Mercury Area Lighting 88,713 84,741 96,782 89,193 84,762 91,900 89,285 93,011 85,797 91,453 83,760 86,634 1,066,031 EFT Renewable Energy 74,416 74,598 69,010 60,799 49,407 60,142 59,255 61,403 57,398 56,281 52,521 67, ,242 Billed Sales Subject to PSCR 62,402,949 59,178,721 57,428,163 54,954,330 52,362,801 56,673,731 46,934,493 60,454,155 61,900,095 53,571,457 55,817,897 61,787, ,466,754

28 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 3 Witness: Thomas P. Lorden Date: March, 2005 Page: 2 of 3 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Power Supply Costs and Net System Requirements For the Year 2004 DESCRIPTION JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER TOTAL I. SYSTEM COSTS FOR RECOVERY ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) ($) 1. Fossil Fuel 23,036,485 21,129,261 20,029,365 21,972,022 23,082,079 22,600,448 25,441,341 25,200,565 20,447,654 22,393,846 23,658,260 24,924, ,915, Steam Transfer Credit (626,582) (515,200) (398,081) (226,901) (228,759) (184,691) (141,893) (143,352) (167,039) (204,912) (400,273) (618,653) (3,856,336) 3. Combustion Turbines 457, , , , ,822 1,019,590 1,542, , ,863 80, , ,411 5,786, Nuclear Fuel 3,417,887 3,073,311 3,258,155 1,916,912 1,621,217 2,748,626 3,304,000 3,356,166 3,215,800 3,211,087 3,216,988 3,491,239 35,831, Purchased Power 21,028,505 18,920,081 24,084,751 21,083,345 25,741,597 24,561,674 25,384,055 19,744,210 24,951,023 12,058,873 12,754,637 21,492, ,804, Network Transmission 10,673,221 9,946,420 9,901,885 9,755,919 9,880,139 10,034,536 10,137,371 11,274,877 10,205,635 10,555,693 9,854,148 10,073, ,292, Opportunity Sales (9,149,424) (8,200,464) (2,352,728) (2,302,316) (2,891,388) (1,248,216) (2,277,355) (2,124,113) (1,004,205) (2,753,403) (2,955,615) (2,650,257) (39,909,484) 8. Net Nox Costs 2,066,548 2,503,689 2,498,221 2,427,587 2,722,959 2,115,733 2,019,894 2,432,765 2,323,458 2,277,879 2,533,805 2,481,409 28,403,947 Total System Costs 9. for Recovery 50,903,790 47,064,808 57,347,694 54,941,387 60,606,666 61,647,700 65,410,281 59,984,450 60,566,189 47,619,561 48,827,645 59,349, ,269,736 II. NET SYSTEM REQUIREMENT (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) (MWH) 10. Fossil Generation 1,808,941 1,671,546 1,432,983 1,672,373 1,746,444 1,644,683 1,763,480 1,869,802 1,547,683 1,763,337 1,783,217 1,824,877 20,529, Combustion Turbine 4,111 1,589 2,448 3,215 8,525 21,227 17, ,207 (171) 3,146 1,106 69, Nuclear Generation 768, , , , , , , , , , , ,076 8,013,962 Hydraulic & Alternate 13. Energy Generation 29,597 28,327 34,987 54,192 54,131 43,273 27,808 20,491 16,201 18,443 22,158 26, , Purchased Power 348, , , , , , , , , , , ,354 3,835, Opportunity Sales (200,010) (189,539) (57,069) (62,241) (62,658) (33,924) (53,047) (76,289) (19,584) (84,432) (104,005) (88,282) (1,031,080) Total Net System 16. Requirements 2,760,197 2,524,710 2,627,186 2,441,110 2,513,777 2,645,628 2,849,423 2,792,511 2,736,836 2,572,702 2,519,326 2,809,226 31,792, Average Cost per MWH($/MWH) Adjustment for Line Losses Power Supply Costs ($/MWH)

29 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 3 Witness: Thomas P. Lorden Date: March, 2005 Page: 3 of 3 NOx Reduction Costs for the Year 2004 Michigan Total Amount Amount Average Economic Carrying Nox Included In Included In Month Net Book Cost of Capital Cost Depreciation O & M Costs Base Reconciliation January $ 113,736, % $ 1,057,748 $ 1,051,678 $ 73,789 $ 2,183,215 $ 116,667 $ 2,066,548 February $ 113,014, % $ 1,051,037 $ 1,052,537 $ 516,782 $ 2,620,356 $ 116,667 $ 2,503,689 March $ 112,384, % $ 1,045,174 $ 1,057,185 $ 512,529 $ 2,614,888 $ 116,667 $ 2,498,221 April $ 111,565, % $ 1,037,562 $ 1,059,611 $ 447,081 $ 2,544,254 $ 116,667 $ 2,427,587 May $ 110,767, % $ 1,030,138 $ 1,061,184 $ 748,304 $ 2,839,626 $ 116,667 $ 2,722,959 June $ 109,918, % $ 1,022,246 $ 1,063,980 $ 146,174 $ 2,232,400 $ 116,667 $ 2,115,733 July $ 108,910, % $ 1,012,872 $ 1,064,750 $ 58,939 $ 2,136,561 $ 116,667 $ 2,019,894 August $ 107,895, % $ 1,003,431 $ 1,064,919 $ 481,082 $ 2,549,432 $ 116,667 $ 2,432,765 September $ 106,881, % $ 994,001 $ 1,065,578 $ 380,545 $ 2,440,124 $ 116,666 $ 2,323,458 October $ 105,829, % $ 984,217 $ 1,065,774 $ 344,554 $ 2,394,545 $ 116,666 $ 2,277,879 November $ 106,119, % $ 986,908 $ 1,065,805 $ 597,758 $ 2,650,471 $ 116,666 $ 2,533,805 December $ 106,760, % $ 992,871 $ 1,088,360 $ 516,844 $ 2,598,075 $ 116,666 $ 2,481,409 Total $ 12,218,205 $ 12,761,361 $ 4,824,381 $ 29,803,947 $ 1,400,000 $ 28,403,947

30 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 4 Witness: Thomas P. Lorden Date: March, 2005 Page: 1 of 1 WISCONSIN ELECTRIC POWER COMPANY Fuel Costs - Coal For The Year 2004 PROJECTED ACTUAL POWER PLANT QUANTITY RATE QUANTITY RATE (Tons) ($/MBTU) (Tons) ($/MBTU) Edgewater 5 354, , Oak Creek 3,608, ,692, Pleasant Prairie 5,353, ,291, Port Washington 250, , Presque Isle 1,777, ,810, Valley 679, , Milwaukee County 23, ,

31 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 5 Witness: Thomas P. Lorden Date: March, 2005 Page: 1 of 5 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Interest Calculation For OVER/ BEGINNING END OF ANNUAL CALENDAR (UNDER) OF MONTH MONTH AVERAGE INTEREST MONTH RECOVERY BALANCE BALANCE BALANCE RATE INTEREST ($) ($) ($) ($) ($) Jan 170, ,984 85, % 784 Feb 149, , , , % 2,254 Mar (48,239) 320, , , % 2,719 Apr (85,729) 272, , , % 2,105 May (170,703) 186,738 16, , % 929 Jun (136,583) 16,035 (120,548) (52,257) 1.13% (49) Jul (95,746) (120,548) (216,294) (168,421) 1.29% (181) Aug (29,018) (216,294) (245,312) (230,803) 1.48% (285) Sep (72,423) (245,312) (317,735) (281,524) 1.67% (392) Oct 143,572 (317,735) (174,163) (245,949) 1.79% (367) Nov 97,681 (174,163) (76,482) (125,323) 2.01% (210) Dec (6,178) (76,482) (82,660) (79,571) 2.22% (147) Total (82,660) 7,160

32 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 5 Witness: Thomas P. Lorden Date: March, 2005 Page: 2 of 5 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Interest Calculation For BEGINNING END OF ANNUAL CALANDAR AMOUNT OF MONTH MONTH AVERAGE INTEREST MONTH RECOVERED BALANCE BALANCE BALANCE RATE INTEREST ($) ($) ($) ($) ($) Jan 0 (82,660) (82,660) (82,660) 2.49% (172) Feb 0 (82,660) (82,660) (82,660) 2.49% (172) Mar 0 (82,660) (82,660) (82,660) 2.49% (172) Apr 0 (82,660) (82,660) (82,660) 2.49% (172) May 0 (82,660) (82,660) (82,660) 2.49% (172) Jun 0 (82,660) (82,660) (82,660) 2.49% (172) Jul 0 (82,660) (82,660) (82,660) 2.49% (172) Aug 0 (82,660) (82,660) (82,660) 2.49% (172) Sep 0 (82,660) (82,660) (82,660) 2.49% (172) Total Interest Prior to Recovery Period (1,548) Oct 27,178 (82,660) (55,482) (69,071) 2.49% (143) Nov 26,938 (55,482) (28,544) (42,013) 2.49% (87) Dec 28,543 (28,544) (1) (14,273) 2.49% (30) Total Interest For Recovery Period (260) Total Interest for 2005 (1,808)

33 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 5 Witness: Thomas P. Lorden Date: March, 2005 Page: 3 of 5 WISCONSIN ELECTRIC POWER COMPANY 2003 PSCR Reconciliation True-up Reconciliation 2004/ ACTUAL 2005 SALES PSCR Calendar SUBJECT REFUND AMOUNT MONTH TO PSCR FACTOR* REFUNDED (kwh) ($/kwh) ($) Jan 04 62,402, Feb 59,178, Mar 57,428, Apr 54,954, May 52,362, Jun 56,673, Jul 46,934, Aug 60,454, Sep 61,900, Oct 53,571, ,857 Nov 55,817, ,315 Dec 61,787, ,136 Jan 05 58,055, ,744 Feb 57,774, ,811 Mar 57,055, ,423 Total 1,142,286 Amount To Be Recovered* 1,245,554 Amount Under Recovered (103,268) *Per MPSC Case No. U R Note: The sales subject to PSCR for March 2005 are an estimate.

34 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 5 Witness: Thomas P. Lorden Date: March, 2005 Page: 4 of 5 WISCONSIN ELECTRIC POWER COMPANY 2003 PSCR Reconciliation True-up Interest Calculation For 2005 BEGINNING END OF ANNUAL CALENDAR AMOUNT OF MONTH MONTH AVERAGE INTEREST MONTH REFUNDED BALANCE BALANCE BALANCE RATE INTEREST ($) ($) ($) ($) ($) Apr '05 0 (103,268) (103,268) (103,268) 2.49% (214) May 0 (103,268) (103,268) (103,268) 2.49% (214) Jun 0 (103,268) (103,268) (103,268) 2.49% (214) Jul 0 (103,268) (103,268) (103,268) 2.49% (214) Aug 0 (103,268) (103,268) (103,268) 2.49% (214) Sep 0 (103,268) (103,268) (103,268) 2.49% (214) Total Interest Prior to Recovery Period (1,284) Oct 33,954 (103,268) (69,314) (86,291) 2.49% (179) Nov 33,655 (69,314) (35,659) (52,487) 2.49% (109) Dec 35,659 (35,659) 0 (17,830) 2.49% (37) Total Interest For Recovery Period (325) Total Interest (1,609)

35 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 5 Witness: Thomas P. Lorden Date: March, 2005 Page: 5 of 5 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Calculation of Net Recovery 2004 Reconciliation AMOUNT TOTAL ($) ($) Amount over/(under) recovery (82,660) Interest during plan year 7,160 Total principal and simple interest (75,500) Interest for 2004 through 9/30/05 (1,548) Interest for recovery period (260) 2004 RECONCILIATION PERIOD SURCHARGE (77,308) 2003 Reconciliation True-up Amount under recovered (103,268) Interest through 9/30/2005 (1,284) Interest for rerecovery period (325) 2003 RECONCILIATION TRUE-UP (104,877) NET AMOUNT TO BE RECOVERED (182,185) Projected Sales subject to PSCR (kwh) October, ,698,000 November, ,180,000 December, ,646,000 Total Projected Sales During Recovery Period 178,524,000 SURCHARGE PER KWH ( )

36 Case No.: U R Exhibit: A-1 (TPL-1) Schedule: 6 Witness: Thomas P. Lorden Date: March, 2005 Page: 1 of 1 WISCONSIN ELECTRIC POWER COMPANY 2004 Power Supply Cost Recovery Reconciliation Projected 2005 Michigan Calendar Sales Subject to PSCR DESCRIPTION JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC TOTAL (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) (kwh) Retail Sales 257,298, ,279, ,542, ,521, ,903, ,411, ,504, ,244, ,245, ,350, ,184, ,367,000 2,997,848,000 LESS:Special Contract Sales 193,787, ,005, ,195, ,948, ,556, ,171, ,737, ,295, ,373, ,359, ,756, ,441,000 2,279,623,000 Street/Area Lighting 287, , , , , , , , , , , ,000 3,311,000 Calendar Sales Subject to PSCR 63,224,000 59,014,000 57,055,000 57,319,000 55,053,000 58,953,000 57,511,000 64,665,000 63,596,000 58,698,000 58,180,000 61,646, ,914,000

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