Review of Indiana Michigan Power Company's Power Supply Cost Recovery Plan Dockets

Sierra Club
Project Complete August 2021

Synapse provided expert testimony and analysis to support the Sierra Club in reviewing Indiana Michigan Power Company (I&M)’s Power Supply Cost Recovery (PSCR) Plan for the calendar year 2021 in Michigan Public Service Commission Docket U-2804. Synapse testimony focused on evaluating the prudence of I&M’s PSCR plan for 2021. Specifically, we evaluated I&M’s justifications for charging Michigan customers for the purchase of energy from its affiliate, Ohio Valley Electric Corporation (“OVEC”) under the Inter-Company Power Agreement (“ICPA”), at above-market prices and review I&M’s oversight of OVEC’s operational and planning decisions. We also evaluated the Company’s operation of the Rockport units and reviewed the fuel and power purchase costs it plans to pass on to customers during the PSCR plan and five-year forecast period.

We found that I&M has been purchasing power from OVEC, an affiliate company, under the ICPA at above market value and passing those costs on to ratepayers since 2017. In 2020 alone, I&M customers incurred $2.5 million in losses relative to the energy market on a variable cost basis, and in total, the ICPA cost I&M customers $26.5 million more than the cost of equivalent energy and capacity in the market. We also found that I&M incurred $25.1 million in net losses relative to the market energy prices in 2020 at the Rockport units on variable cost basis, which could have been mitigated with more prudent unit commitment practices. Finally, we found that I&M's latest fuel cost plan and five-year forecast show that the company will continue to incur net losses in energy market revenue and capacity value by purchasing energy from OVEC under the ICPA and that I&M will continue to uneconomically operate Rockport, and the Company will pass millions in excess costs on to its ratepayers as a result of these actions.

We recommended that the Commission amend the PSCR plan and remove costs incurred under the OVECICPA above the cost of market purchases for energy and capacity. The Company should cap the recovery of costs incurred under the ICPA at the equivalent market value in the future. We also recommend that the commission not allow I&M to develop a PSCR plan that assumes uneconomic commitment of the Rockport units. Finally, we recommend that the Commission indicate that it will disallow recovery of the fuel portion of all net revenue losses incurred as a result of imprudent unit commitment decisions in future reconciliation dockets.