1 BEFORE THE PUBLIC UTILITIES COMMISSION OF OHIO - - - 2 In the Matter of the : Application of The Dayton : 3 Power and Light Company : Case No. 16-395-EL-SSO for Approval of its : 4 Electric Security Plan. : : 5 In the Matter of the : Application of The Dayton : 6 Power and Light Company : Case No. 16-396-EL-ATA for Approval of Revised : 7 Tariffs. : : 8 In the Matter of the : Application of The Dayton : 9 Power and Light Company : for Approval of Certain : Case No. 16-397-EL-AAM 10 Accounting Authority : Pursuant to Ohio Rev. Code: 11 §4904.13. : 12 - - - 13 PROCEEDINGS 14 before Mr. Gregory Price and Mr. Nicholas Walstra, 15 Attorney Examiners, at the Public Utilities 16 Commission of Ohio, 180 East Broad Street, Room 11-A, 17 Columbus, Ohio, called at 10:00 a.m. on Monday, 18 April 10, 2017. 19 - - - 20 VOLUME IV 21 - - - 22 ARMSTRONG & OKEY, INC. 222 East Town Street, Second Floor 23 Columbus, Ohio 43215-5201 (614) 224-9481 - (800) 223-9481 24 - - - 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 683 1 APPEARANCES: 2 Faruki Ireland Cox Rinehart & Dusing P.L.L. By Mr. Jeffrey S. Sharkey, 3 Mr. D. Jeffrey Ireland, and Mr. Christopher C. Hollon 4 110 North Main Street, Suite 1600 Dayton, Ohio 45402 5 Dayton Power and Light Company 6 By Ms. Judi Sobecki, General Counsel 7 and Mr. Michael Schuler, Regulatory Counsel 8 1065 Woodman Drive Dayton, Ohio 45432 9 On behalf of the Applicant. 10 Ohio Partners for Affordable Energy 11 By Ms. Colleen L. Mooney P.O. Box 12451 12 Columbus, Ohio 43212 13 On behalf of the Ohio Partners for Affordable Energy. 14 Sierra Club Environmental Law Program 15 Mr. Gregory E. Wannier, Staff Attorney 16 2101 Webster Street, 14th Floor Oakland, California 94612 17 On behalf of the Sierra Club. 18 Boehm, Kurtz & Lowry 19 By Mr. Michael L. Kurtz, Mr. Kurt J. Boehm, 20 and Ms. Jody Kyler Cohn 36 East Seventh Street, Suite 1510 21 Cincinnati, Ohio 45202 22 On behalf of the Ohio Energy Group. 23 - - - 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 684 1 APPEARANCES: (Continued) 2 McNees, Wallace & Nurick LLC By Mr. Frank P. Darr 3 and Mr. Matthew Pritchard 21 East State Street, 17th Floor 4 Columbus, Ohio 43215 5 On behalf of the Industrial Energy Users of Ohio. 6 IGS Energy 7 By Mr. Joseph Oliker 6100 Emerald Parkway 8 Dublin, Ohio 43016 9 On behalf of IGS Energy. 10 Vorys, Sater, Seymour & Pease, LLP By Mr. Michael J. Settineri 11 and Ms. Gretchen L. Petrucci 52 East Gay Street 12 Columbus, Ohio 43215 13 On behalf of Retail Energy Supply Association. 14 Kravitz, Brown & Dortch, LLC 15 By Mr. Michael D. Dortch 65 East State Street, Suite 200 16 Columbus, Ohio 43215 17 On behalf of Calpine Energy Solutions. 18 Carpenter Lipps & Leland LLP By Ms. Kimberly W. Bojko 19 and Mr. James D. Perko 280 North High Street, Suite 1300 20 Columbus, Ohio 43215 21 On behalf of the Ohio Manufacturers' Association Energy Group. 22 Carpenter Lipps & Leland LLP 23 By Ms. Angela M. Paul Whitfield 280 North High Street, Suite 1300 24 Columbus, Ohio 43215 25 On behalf of The Kroger Company. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 685 1 APPEARANCES: (Continued) 2 Environmental Law & Policy Center By Ms. Madeline Fleisher 3 21 West Broad Street, Suite 500 Columbus, Ohio 43215 4 On behalf of the Environmental Law & 5 Policy Center. 6 Spilman, Thomas & Battle, PLLC By Ms. Carrie M. Harris 7 310 First Street, Suite 1100 P.O. Box 90 8 Roanoke, Virginia 24002 9 On behalf of Wal-Mart Stores East, LP, and Sam's East, Inc. 10 Mr. Richard L. Sites 11 155 East Broad Street, Suite 301 Columbus, Ohio 43215 12 Bricker & Eckler, LLP 13 By Mr. Dylan Borchers 100 South Third Street 14 Columbus, Ohio 43215-4291 15 On behalf of the Ohio Hospital Association. 16 Ohio Environmental Council 17 By Mr. Trent A. Dougherty 1145 Chesapeake Avenue, Suite I 18 Columbus, Ohio 43212 19 On behalf of the Ohio Environmental Council. 20 Environmental Defense Fund 21 By Ms. Miranda Leppla 1145 Chesapeake Avenue, Suite I 22 Columbus, Ohio 43212 23 On behalf of the Environmental Defense Fund. 24 - - - 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 686 1 APPEARANCES: (Continued) 2 Mike DeWine, Ohio Attorney General By Mr. William Wright, 3 Section Chief Mr. Thomas W. McNamee 4 and Mr. Thomas Lindgren, Assistant Attorneys General 5 30 East Broad Street, 16th Floor Columbus, Ohio 43215 6 On behalf of the Staff of the PUCO. 7 Bruce E. Weston, Ohio Consumers' Counsel 8 By Mr. William Michael, Mr. Kevin F. Moore, 9 Mr. Ajay Kumar, and Mr. Andrew S. Garver, 10 Assistant Consumers' Counsel 10 West Broad Street, Suite 1800 11 Columbus, Ohio 43215-3485 12 On behalf of the Residential Consumers of The Dayton Power and Light Company. 13 Doll, Jansen & Ford 14 By Mr. Matthew T. Crawford and Mr. John Doll 15 111 West 1st Street, Suite 1100 Dayton, Ohio 45402 16 On behalf of the Utility Workers Union of 17 America Local 175. 18 Ohio Citizen Action By Mr. Ellis Jacobs 19 130 West Second Street Suite 700 East 20 Dayton, Ohio 45402 21 On behalf of Advocates for Basic Legal Equality and the Edgemont Neighborhood 22 Coalition of Dayton. 23 - - - 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 687 1 APPEARANCES: (Continued) 2 Carpenter Lipps & Leland LLP By Mr. Joel E. Sechler 3 280 North High Street, Suite 1300 Columbus, Ohio 43215 4 On behalf of EnerNOC. 5 Bricker & Eckler, LLP 6 By Mr. Devin D. Parram 100 South Third Street 7 Columbus, Ohio 43215-4291 8 On behalf of the People Working Cooperatively, Inc. 9 Calfee, Halter & Griswold LLP 10 By Mr. N. Trevor Alexander, Mr. James F. Lang, 11 Mr. Steven D. Lesser, and Mr. Mark T. Keaney 12 1200 Huntington Center 41 South High Street 13 Columbus, Ohio 43215 14 On behalf of Honda of America Manufacturing, Inc., and City of Dayton. 15 Isaac Wiles Burkholder & Teetor, LLC 16 By Mr. Mark Landes and Mr. Brian Zets 17 Two Miranova Place, Suite 700 Columbus, Ohio 43215 18 On behalf of the Adams County Residents 19 and Adams County Board of Commissioners. 20 Benesch Friedlander Coplan & Arnoff LLP By Mr. Orla E. Collier, III, 21 Mr. John F. Stock, Ms. Emily V. Danford, 22 and Mr. Michael J. Meyer 41 South High Street, Suite 2600 23 Columbus, Ohio 433215 24 On behalf of the Murray Energy Corporation. 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 688 1 APPEARANCES: (Continued) 2 Adams County Prosecutor's Office By Mr. C. David Kelley 3 110 West Main Street West Union, Ohio 45693 4 On behalf of Sprigg Township, Adams 5 County; Monroe Township, Adams County; Manchester Local School District; and 6 Adams County Ohio Valley School District. 7 PJM Interconnection By Ms. Evelyn Robinson 8 2750 Monroe Boulevard Audubon, Pennsylvania 19403 9 On behalf of the PJM Interconnection. 10 - - - 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 689 1 INDEX 2 - - - 3 Witnesses Page 4 Matthew I. Kahal Direct Examination by Mr. Michael 693 5 Cross-Examination by Mr. Sharkey 695 Cross-Examination by Ms. Bojko 733 6 Cross-Examination by Mr. Oliker 741 Cross-Examination by Ms. Petrucci 755 7 Cross-Examination by Mr. Alexander 756 8 James D. Williams Direct Examination by Mr. Kumar 760 9 Cross-Examination by Mr. Sharkey 762 Cross-Examination by Mr. Keaney 784 10 Cross-Examination by Mr. Oliker 795 Examination by Examiner Price 796 11 Robert B. Fortney 12 Direct Examination by Mr. Garver 802 Cross-Examination by Mr. Ireland 803 13 Cross-Examination by Mr. Alexander 812 Cross-Examination by Mr. Pritchard 814 14 - - - 15 OCC EXHIBITS IDENTIFIED ADMITTED 16 12 Supplemental Direct Testimony of Matthew I. Kahal 692 758 17 12A Direct Testimony 18 of Matthew I. Kahal 692 758 19 13 Supplemental Direct Testimony of James D. Williams 759 801 20 13A Direct Testimony 21 of James D. Williams 760 801 22 13B Exhibit JDW-5 760 801 23 14 Direct Testimony of Robert Fortney 802 818 24 - - - 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 690 1 INDEX (Continued) 2 - - - 3 CITY OF DAYTON EXHIBIT IDENTIFIED ADMITTED 4 1 Ohio Poverty Report 788 -- 5 - - - 6 IEU-OHIO EXHIBIT IDENTIFIED ADMITTED 7 2 NARUC Cost Allocation Manual 816 -- 8 - - - 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 691 1 Monday Morning Session, 2 April 10, 2017. 3 - - - 4 EXAMINER PRICE: Let's go on the record. 5 Good morning. The Public Utilities 6 Commission has set for hearing at this time and place 7 Case No. 16-395-EL-SSO, being in the Matter of the 8 Application of the Dayton Power and Light Company for 9 Approval of Its Electric Security Plan. 10 This is our fourth day of hearing in this 11 proceeding. My name is Gregory Price. With me is 12 Nicholas Walstra. We are the attorney examiners 13 assigned to preside over today's hearing. 14 Before we take our first witness we have 15 an appearance. 16 MS. ROBINSON: Yes. Thank you, your 17 Honor. Evelyn Robinson on behalf of the PJM 18 Interconnection, 2750 Monroe Boulevard, Audubon, 19 Pennsylvania 19403, (610) 639-0491. 20 EXAMINER PRICE: Thank you. OCC, you may 21 call your next witness. 22 MR. MICHAEL: Thank you, your Honor. We 23 would like to call Matt Kahal. 24 EXAMINER PRICE: Welcome back to 25 Columbus. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 692 1 MR. KAHAL: Yes. 2 (Witness sworn.) 3 EXAMINER PRICE: Please be seated and 4 state your name and businesses address for the 5 record. 6 THE WITNESS: My name is Matthew I. 7 Kahal, last name is spelled K-A-H-A-L. My business 8 address is 1108 Pheasant Crossing, Charlottesville, 9 Virginia 22901. 10 EXAMINER PRICE: Thank you. Please 11 proceed, Mr. William -- Mr. Michael. Close enough. 12 MR. MICHAEL: Your Honor, I would like to 13 have marked as OCC Exhibit 12 the supplemental direct 14 testimony of Matthew I. Kahal. 15 EXAMINER PRICE: So marked. 16 (EXHIBIT MARKED FOR IDENTIFICATION.) 17 MR. MICHAEL: And, your Honor, I would 18 like to have marked as Exhibit 12A the direct 19 testimony of Matthew I. Kahal. 20 EXAMINER PRICE: Also be so marked. 21 (EXHIBIT MARKED FOR IDENTIFICATION.) 22 - - - 23 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 693 1 MATTHEW I. KAHAL 2 being first duly sworn, as prescribed by law, was 3 examined and testified as follows: 4 DIRECT EXAMINATION 5 By Mr. Michael: 6 Q. Good morning, Mr. Kahal. You should have 7 in front of you what was previously marked as OCC 8 Exhibit 12. Do you see that document? 9 A. I do. 10 Q. Can you please identify that document. 11 A. 12 -- Exhibit 12 is the supplemental 12 direct testimony that was submitted by the OCC 13 concerning my supplemental direct testimony. 14 Q. And you should also have before you, 15 Mr. Kahal, what was previously marked as OCC Exhibit 16 12A. Can you identify that document? 17 A. Yes. 12A is my direct testimony which 18 was submitted in November of 2016. 19 Q. And that was testimony prepared by you or 20 under your direction? 21 A. Yes. 22 Q. And do you have any changes to that 23 testimony? 24 A. I do. First of all, Exhibit No. 12 I 25 have two typographical-type corrections. First, on ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 694 1 page 28, at line 3, there is a reference to "1.015 2 million." That should be "1.015 billion." And I've 3 got the same correction on page 32 at line 14. 4 Again, "1.015 million" should be "1.015 billion." 5 And on Exhibit 12A, there are also a 6 couple of minor corrections. First, on page No. 18 7 at line 15, you'll see the word in the middle of that 8 line, the word "as," "as" should be "a," that is, the 9 "as" should be stricken. That's just a typo. 10 And at page 23, there are two minor 11 corrections. Line 12, the word "increase" should be 12 "decrease." And then two lines down there's the word 13 "to." That should be stricken. The word "to," T-O, 14 should not be there. 15 And let's see. And then, finally, at 16 page 31, line -- at page 31, line 11, please insert 17 the word "increases" after the word "revenue." So it 18 should read "no revenue increases" just to make the 19 phrasing more precise. And that's it. 20 Q. Okay. With those corrections, Mr. Kahal, 21 if I were to ask you the same questions as are in OCC 22 Exhibit 12 and OCC Exhibit 12A, would your answers be 23 the same? 24 A. Yes. 25 MR. MICHAEL: Your Honor, I move for the ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 695 1 admission of OCC Exhibits 12 and 12A, subject to 2 cross. 3 EXAMINER PRICE: We will defer ruling on 4 your motion until after the conclusion of 5 cross-examination. 6 Mr. Sharkey, you may proceed. 7 MR. SHARKEY: Thank you, your Honor. 8 - - - 9 CROSS-EXAMINATION 10 By Mr. Sharkey: 11 Q. Mr. Kahal, we have talked on the phone a 12 number of times at depositions, but my name is Jeff 13 Sharkey. I represent The Dayton Power and Light 14 Company. 15 A. Good morning, Mr. Sharkey. 16 Q. Good morning. I am going to start today 17 by asking you about the prong in the Commission's 18 three-part test dealing with whether the stipulation 19 as a package benefits the public interest. And my 20 first question to you is it's true, isn't it, that 21 you consider it to be vitally important that DP&L 22 have an investment grade credit rating? 23 A. I do. 24 Q. Okay. And you are aware that credit 25 rating agencies issue different ratings for a -- an ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 696 1 individual corporation as an issuer for their secured 2 debt and as if the entity was a stand-alone 3 corporation, correct? 4 A. Yes. 5 Q. And just so we're clear, the issuer 6 rating provides a rating for what the corporation 7 would be if as it exists it issued new debt at that 8 time. 9 A. Yes. 10 Q. Okay. And the rating for secured debt 11 is -- rates the existing secured debt and how safe it 12 is. 13 A. That's correct. 14 Q. And then the stand-alone rating is -- 15 they pretend as if it exists with no parents, no 16 subsidiaries, what if we were just looking at this 17 entity as a stand-alone entity, right? 18 A. That's correct. 19 Q. Okay. And you agree with me it's 20 important that a utility have an investment grade 21 credit rating for each of those three different 22 items, right? 23 A. Yes. I think in the case of DP&L, which 24 issues secured debt, I think it's the secured debt 25 that's particularly important. The issuer rating is ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 697 1 more generic. The secured debt rating is more 2 targeted to debt that is secured by the company's 3 assets. 4 Q. But just so we're clear, you agree it's 5 important that all three of them be investment grade. 6 A. Oh, I -- I think so, yes. 7 Q. If you would, please, turn to DP&L 8 Exhibit 105. There should be a small binder at the 9 table for you that I placed there. 10 A. Oh, this black binder? 11 Q. Yes. 12 A. Yes. 13 Q. And if you open that to the back, Exhibit 14 105. 15 A. I have that, yes. 16 Q. Okay. And you understand that to be a 17 rating analysis issued by S&P Global after the 18 amended stipulation in this case was filed? 19 A. Yes. This was issued, gosh, about two 20 weeks ago. 21 Q. Okay. Turn, if you would, to page 3 of 22 the document. You'll see under the paragraph 23 rationale the first sentence says "The downgrade on 24 DPL and DP&L reflects our base-case scenario that 25 over the next few months the Public Utilities ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 698 1 Commission of Ohio will most likely approve the 2 distribution modernization rider in line with the 3 settlement proposal." Did I read that accurately? 4 A. That's correct. 5 Q. Okay. And so you understand that S&P is 6 assuming the amended stipulation in this case will be 7 approved, right? 8 A. Yes. 9 Q. In particular, if you turn back to 10 page 2. 11 EXAMINER PRICE: Both of your microphones 12 have cut off. 13 THE WITNESS: Oh, is mine not on? 14 EXAMINER PRICE: No. Neither is 15 Mr. Sharkey's. 16 THE WITNESS: Oh, sorry. 17 EXAMINER PRICE: Thank you. 18 Q. (By Mr. Sharkey) If you turn to page 2, 19 first -- first bullet, the last sentence reflects 20 that S&P is assuming that the DMR will exist for 21 years one through three of the ESP term; is that 22 correct? 23 A. That's correct. 24 Q. And then in the second bullet, it 25 reflects that S&P has lowered the credit ratings for ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 699 1 DPL and DP&L to BB-, correct? 2 A. Yes. 3 Q. That was the issuer of credit ratings? 4 A. That's the issuer of credit ratings. 5 Q. And BB- is not an investment grade credit 6 rating, correct? 7 A. That's correct. Neither is BB if that 8 was your next question. 9 Q. That was not my next question but that's 10 fine. It also reflects in the next bullet that they 11 have lowered the rating on DPL's senior unsecured 12 debt to B+, correct? 13 A. Yes. 14 Q. And, again, that is not an investment 15 grade credit rating. 16 A. That is not. 17 Q. Okay. Immediately the next bullet, they 18 said they've affirmed a BBB- rating on DP&L's senior 19 secured debt, correct? 20 A. Yes. 21 Q. And that's the lowest investment grade 22 credit rating that they offer, right? 23 A. You mean -- under the S&P rating system, 24 yes. 25 Q. And then, finally, in the immediately ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 700 1 following bullet, they -- they say that they have 2 revised DP&L's stand-alone credit rating to BBB from 3 BBB+, correct? 4 A. Yes. 5 Q. So it's a slight downgrade? 6 A. One notch, medium, BBB. 7 Q. And so BBB is two notches above being not 8 investment grade, right? 9 A. Yes. There's BBB- and then if you go 10 below BBB-, it becomes non-investment grade. 11 Q. I believe you told me at your deposition 12 your view is this report is critical of the 13 stipulation, correct? 14 A. That's how I read it. That's -- 15 Mr. Sharkey, that's with the caveat that I had before 16 the deposition -- I had gotten this document about 10 17 minutes before the deposition and hadn't had a -- 18 hadn't spent much time with it. But I didn't see 19 this report as being a ringing endorsement of the 20 stipulation by any means. I think this is critical 21 of the stipulation and not supportive at all. 22 Q. And by that you mean that the stipulation 23 doesn't really do it for S&P in terms of the amounts 24 DPL Inc. and DP&L need for favorable credit ratings? 25 A. That's right. S&P doesn't have a high ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 701 1 level of comfort with the stipulation. 2 Q. To your knowledge, other credit rating 3 agencies have not issued a report since the 4 stipulation was filed? 5 A. I haven't seen one. 6 Q. But you read the prior reports issued by 7 those other credit rating agencies, correct? 8 A. I have. I think they go back to last 9 fall. They are -- I don't believe there is anything 10 more recent than that. 11 Q. Do you recall -- do you recall that those 12 other reports had stated that DP&L was in danger of 13 losing its investment grade credit rating? 14 A. That there was some exposure to it. 15 Q. And DP&L's on a negative credit watch? 16 A. Yes. 17 Q. And being on a negative credit watch 18 means there is a significant risk of a credit 19 downgrade in a short period of time? 20 A. There is -- there was a risk. I don't 21 know if I want to characterize how big that risk is, 22 but yes. 23 Q. Okay. You agree with me that a credit 24 downgrade, all else equal, will lead to a higher cost 25 of debt for the utility? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 702 1 A. All else equal, obviously market 2 conditions have a lot to do with it too. 3 Q. But just so we are clear, all else equal, 4 yes, you agree? 5 A. Yes. 6 Q. And, again, all else equal, a higher cost 7 of debt will lead to higher utility rates, correct? 8 A. That's a hard question to answer. It may 9 or may not. If I was a utility, I would rather have 10 a higher credit rating than a lower credit rating but 11 there are obviously tradeoffs because it all depends 12 on what has to be done to obtain that higher credit 13 rating, so it's a complicated question. 14 Q. Yeah. Just to be clear, my question was 15 a higher cost of debt, all else equal, will lead to 16 higher utility rates. You would agree with that, 17 wouldn't you? 18 MR. MICHAEL: Objection, asked and 19 answered. 20 EXAMINER PRICE: Overruled. He hasn't 21 answered it yet. 22 A. Yes. The cost of debt is part of a 23 utility's cost of service. So if you're going to 24 deposit the notion of some element of that cost of 25 service goes up, then one would expect that over time ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 703 1 that would be reflected in rates. It's the all else 2 held equal that's a little bit hard to fit into that 3 answer. But if one wants to answer the question very 4 narrowly, then I would agree with you. 5 Q. You understand that certain institutional 6 investors cannot or will not invest in debt that is 7 below investment grade? 8 A. Yes. Such as pension funds sometimes 9 will not do so. There are some mutual funds that by 10 their policy don't do that. And there's some mutual 11 funds that specialize in non-investment grade debt 12 but so there are different institutional practices. 13 Q. You do know that in the non-investment 14 grade market a utility is more likely to have to 15 agree to restrictive covenants on its amount to 16 operate and issue new debt? 17 A. Yes. 18 Q. Do you know whether DP&L's last major 19 debt issuance was in that non-investment grade 20 market? 21 A. DP&L? 22 Q. DP&L's. 23 A. None -- I don't recall. I thought that 24 the last borrowing it did was in 2016 and that was to 25 replace some maturing debt, but I don't recall the ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 704 1 details on that financing. 2 Q. Do you recall if in that issuance The 3 Dayton Power and Light Company had to agree to 4 restrictions on its ability to issue new debt in the 5 future? 6 A. I do recall there are restricted 7 covenants, yes. 8 Q. Do you know -- strike that. 9 Let me ask you some questions about 10 DP&L's parent, DPL Inc. You agree that DPL Inc. is 11 in a financially-stressed situation, don't you? 12 A. Yes. It has way too much debt leverage. 13 Q. You also understand that DP&L's credit 14 rating is linked to DPL Inc.'s credit rating, right? 15 A. Yes, I do. I'm not -- never mind. I'm 16 sorry. I wasn't sure if your microphone was on. 17 EXAMINER PRICE: Jeff, switch with the 18 one with Ms. Bojko. 19 MR. MICHAEL: Turn yours on too, Matt. 20 EXAMINER PRICE: The batteries are 21 charged. We have no idea. 22 Please proceed. 23 Q. (By Mr. Sharkey) And you understand, 24 Mr. Kahal, that credit rating agencies will downgrade 25 a utility based upon the financial weaknesses of its ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 705 1 parent corporation, correct? 2 A. If you are asking me whether it could 3 happen, yes. I don't mean to suggest that 4 automatically happens. 5 Q. If you would, please, turn in your direct 6 testimony, I think it's OCC Exhibit 12A, to Exhibit 7 MIK-1. 8 A. I have that. 9 Q. And as I understand it, MIK-1 is a 10 document that you've prepared that summarizes ring 11 fencing testimony by a Mr. Charles Atkins in another 12 proceeding? 13 A. It does. 14 Q. Okay. And this then -- I'm a little 15 puzzled why it's summarizing Mr. Atkins, but is it 16 fair to say you have adopted and proposed these items 17 as a part of your testimony? 18 A. Yes. 19 Q. Okay. Turn, if you would, then to the 20 second paragraph there, focus there. You say 21 "Mr. Adkins has identified three types of risks 22 associated with a utility being owned by a 23 financially distressed holding company parent that 24 could be adverse to customers and utility 25 regulators." And then the first item you say is "the ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 706 1 distressed parent (which controls the utility) 2 extracts cash flow or other assets from utility to 3 address its needs thereby disrupting utility 4 operations." Did I read that accurately? 5 A. Yes. 6 Q. You would agree if that were to occur, 7 that would have adverse effects on customers and 8 regulators, correct? 9 A. Yes, it certainly could. 10 Q. Okay. Then the next item that you 11 identify is that "a parent in bankruptcy could 12 require the utility subsidiary to participate 13 voluntarily in that bankruptcy process." Did I read 14 that accurately? 15 A. Yes. 16 Q. And, again, if that were to occur, you 17 believe that would have adverse effects for customers 18 and regulators, right? 19 A. Yes. 20 Q. And then the last item you say "a court 21 could order the utility to be included in the 22 parent's bankruptcy," correct? 23 A. Yes. 24 Q. And, again, if that were to occur, that 25 would have adverse effects on customers and ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 707 1 regulators, right? 2 A. Yes. 3 Q. Do you know whether DP&L Jackson in his 4 testimony focused on the FFO-to-debt metric? 5 A. In his October testimony, he did. 6 Q. Okay. And you agree that FFO to debt is 7 the key metric that credit rating agencies look at, 8 right? 9 A. It's one of them, yes. 10 Q. You agree that it's the key? 11 A. I don't think that they exclusively focus 12 on that. It's -- it's certainly one of the most 13 important that they look at. They look at several 14 measures of -- of financial measures which I think do 15 focus on cash flow. 16 Q. You also agree that prompt action is 17 needed to shore up and improve the credit ratings of 18 DPL Inc. and The Dayton Power and Light Company, 19 right? 20 A. Yes. I would support prompt action. 21 Q. Okay. You agree that it's important that 22 DP&L be able to provide safe and reliable service, 23 correct? 24 A. Absolutely. 25 Q. And you do not sponsor any calculations ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 708 1 showing that DP&L can provide safe and reliable 2 service without the DMR, do you? 3 A. No. What I cite in my testimony is -- or 4 reference to is that up to this point in time it has. 5 And that's further addressed by Mr. Williams but I'm 6 not -- I am really not the reliability witness here. 7 Q. You don't -- but just so my record is 8 clear, you don't have any forward-looking analysis 9 that shows that DP&L would have enough money to 10 provide safe and reliable service in your exhibits, 11 correct? 12 A. That's correct. 13 Q. And you would agree with me that in 14 addition to any safety or reliability problems that 15 would occur, DP&L can't provide such service, that 16 would have an adverse economic impact within DP&L's 17 service territory if they can't provide safe and 18 reliable service? 19 A. If -- sure. If it can't provide safe and 20 reliable service, that would adversely affect 21 customers, and it would adversely affect the economy. 22 For example, if there are very, very frequent 23 prolonged outages of electric service, that would 24 have an adverse effect. 25 Q. You are aware that the stipulation ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 709 1 provides that SSO service will be provided via a 2 competitive bidding process? 3 A. Yes. 4 Q. And you agree that providing SSO service 5 through a competitive bidding process is beneficial 6 to customers, right? 7 A. It's beneficial to customers that take 8 SSO service. Obviously it's less important to those 9 who don't take it. 10 Q. Fair enough. And it's true, isn't it, 11 you are not aware of any regulatory requirement in 12 Ohio that generation service be provided -- I'm 13 sorry, that SSO be provided during a competitive 14 bidding process? 15 A. I believe that's up to the Commission. 16 It's under the Commission's jurisdiction to make that 17 determination. 18 Q. But you are not aware of any regulatory 19 requirement that mandates that SSO service be 20 provided through a competitive bidding process, 21 right? 22 A. I think you are referring to a statute of 23 regulation as opposed to the Commission's discretion. 24 And, no, I am not aware there is a statutory 25 requirement. What I am aware of is that if there is ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 710 1 a competitive procurement process, there are certain 2 standards under the law that must be followed. 3 Q. Let me ask you some questions about some 4 commitments AES made in the stipulation. You 5 understand that AES agreed not to take dividend 6 payments from DP&L during the ESP term? 7 A. Yes. 8 Q. Okay. And you agree that is a beneficial 9 measure, correct? 10 A. Yes. I'm sorry, Mr. Sharkey. I am just 11 trying to recall whether it was over the full term of 12 the ESP, which is six years, or over the period of 13 the DMR. I certainly recall that it was at least 14 over the term of the DMR, but I would have to 15 double-check that detail. 16 Q. Okay. It's a little confusing, but I 17 will represent to you that it was no dividend 18 payments for the ESP term. 19 A. For the full six years, okay. That was a 20 detail I just wasn't sure about. 21 Q. Okay. You also understand that this time 22 for the DMR term that AES agreed not to collect any 23 of the contractually-required tax sharing payments 24 from DPL Inc.? 25 A. Correct. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 711 1 Q. Okay. And you agree that's a beneficial 2 measure, right? 3 A. Yes and no. And I think that I tried to 4 address this in the deposition. It's -- it's -- I 5 indicated it's an appropriate condition. I think if 6 one is going to have a stipulation along the lines of 7 the one that was confected and submitted, it's 8 certainly an appropriate condition to have in the 9 settlement agreement. In terms of it being 10 beneficial, it's really a little more than a 11 continuation of current practice. So in that sense 12 I'm not sure that it's an incremental benefit. 13 Q. You understand also that AES agreed to 14 convert those tax sharing liabilities into equity of 15 DPL Inc.? 16 A. Yes. 17 Q. And you agree that's a beneficial 18 measure, right? 19 A. Yes. It's -- it's -- it's not an 20 important beneficial measure. It's -- it's probably 21 an appropriate thing to do. Since I think that the 22 focus here in the stipulation and in this case has 23 been on improving cash flow to reduce debt balances, 24 that accounting writeup or that accounting change is 25 not terribly important for that purpose. I don't put ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 712 1 much weight on that. I think that the other two 2 measures we talked about were more important. 3 Q. And you would agree though that those 4 three items combined, the no dividends, no collecting 5 tax sharing, and converting liabilities into equity 6 amounts to AES infusing equity into DPL Inc., right? 7 A. Yes. I think it's analogous to or maybe 8 even equivalent to there being an equity infusion 9 from AES into DPL Inc., something that AES obviously 10 should be doing regardless of whether there is a 11 stipulation or not. 12 EXAMINER PRICE: Well, at least as to the 13 dividend payments, they have been doing that; is that 14 correct? 15 THE WITNESS: They have been, also tax. 16 EXAMINER PRICE: They have been doing the 17 dividend payments for some period of time. 18 THE WITNESS: Right. They have been 19 doing that since I think 2012, as well as the 20 suspension of the tax sharing. So that's a 21 continuation of current practice. 22 Q. (By Mr. Sharkey) Now, let me ask you a 23 couple of questions about the AES acquisition of DPL 24 Inc. You are aware in that acquisition there was 25 roughly $4 billion in debt, and about 1 billion of it ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 713 1 was placed on DPL Inc. and 3 billion was placed on 2 AES. 3 A. Yeah. My recollection, I may not have 4 these numbers exactly memorized, but I thought it was 5 something like 4.3 billion and 1.3 billion of that 6 went on DPL Inc.'s books. That's what my 7 recollection was. 8 Q. And it's true, isn't it, that you don't 9 sponsor any calculations showing which debt and how 10 much debt at DPL Inc. is associated with an 11 acquisition premium? 12 A. I don't, no. I don't think that my 13 testimony says anything about an acquisition premium 14 one way or the other. 15 Q. You are aware that the stipulation 16 provides that DP&L will transfers its generation 17 assets to an affiliate? 18 A. Yes. 19 Q. And you agree that the transfer of those 20 assets to an affiliate is a good thing to do? 21 A. Absolutely. It is an appropriate thing 22 to do, and I thought all along that's what the plan 23 was for DP&L long before the stipulation was entered 24 into. 25 Q. That said, it is still true, isn't it, ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 714 1 that a transfer of those generation assets to an 2 affiliate, let's assume it's a subsidiary of DPL 3 Inc., would have no financial effect on the financial 4 integrity of DPL Inc., right? 5 A. I think I understand your question. 6 It's -- and I understand that question to be isn't it 7 an internal transfer within DPL Inc., and the answer 8 is yes. 9 Q. You're also aware that the stipulation 10 provides that DP&L or one of its affiliates will 11 endeavor to sell certain coal-fired generation assets 12 that are owned by DP&L currently? 13 A. Yes. The -- it states that there -- that 14 a sale process will be initiated. I don't know if 15 there is any commitment to complete that process but 16 there is at least a commitment to initiate such a 17 process. 18 Q. And you believe that's a good and prudent 19 thing for DP&L or its affiliates to do, right? 20 A. I do. And, in fact, I think I would go 21 further than that to say it's -- it's a completely 22 appropriate thing to do whether there is a 23 stipulation or not. And I would furthermore suggest 24 that other assets such as the gas plants should be 25 included in that as well. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 715 1 Q. Let me ask you some questions about the 2 significantly excessive earnings test. 3 A. Sure. 4 Q. You recommend that the Commission reject 5 at least the proposal from Mr. Jackson's original 6 testimony that the DMR funds should be excluded from 7 the significantly excessive earnings test, correct? 8 A. That's correct. 9 Q. It's nevertheless true, isn't it, you 10 don't sponsor any calculations showing that DP&L or 11 DPL Inc. would achieve reasonable FFO-to-debt ratios 12 if the DMR funds were subject to the significantly 13 excessive earnings test? 14 A. I have not calculated the -- the cash 15 flow-to-debt ratios. 16 Q. So you don't know whether DP&L or DPL 17 Inc. would achieve appropriate FFO-to-debt ratios if 18 those funds -- if the DMR funds were subject to the 19 SEET test, right? 20 A. I don't know that. That would -- that -- 21 I'm sorry. Are we talking about DPL Inc. or DP&L? 22 Q. Both of them. 23 A. Oh, I think that -- in the case of DP&L I 24 didn't do those calculations, but Mr. Malinak did, 25 and he -- he shows that the financial metrics without ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 716 1 the DMR are fine for DP&L, and the problem is with 2 DPL Inc. So I think you are correct with regard to 3 DPL Inc. but not with regard to DP&L. 4 Q. Are you claiming that Mr. Malinak 5 sponsored a calculation showing the performance of 6 DP&L if the DMR funds were subject to a SEET test? 7 A. No. What he -- what he -- what he shows 8 is that -- is that with no DMR at all, the financial 9 metrics for DP&L are fine, that the -- that the DMR 10 is not needed for DP&L on a stand-alone basis. 11 That's what -- that's what his analysis shows. And 12 that would be the equivalent -- in fact, that would 13 be even more stringent than subjecting the DMR to 14 the -- to the SEET because if the DMR is subject to 15 the SEET but there is a DMR at the level in the 16 stipulation, I mean, that would ensure that there 17 would be earnings of 12 percent or -- and higher than 18 12 percent. So he's provided a demonstration that's 19 far more restrictive than what was in your question. 20 Q. Let me ask you some questions about the 21 reconciliation rider. 22 A. Yes. 23 Q. You understand that the reconciliation 24 rider relates to DP&L's investment in OVEC, correct? 25 A. Its contract with OVEC, that's what I ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 717 1 understand, not its investment in OVEC. 2 Q. Fair enough. And you understand that 3 DP&L entered into that contract decades ago? 4 A. Yes. 5 Q. Okay. You are -- 6 A. It's a legacy resource, yes. 7 Q. You are not aware of any facts suggesting 8 that DP&L's conduct as it relates to OVEC has been 9 imprudent in any way, correct? 10 A. That's a hard question to answer. I have 11 one concern with regard to DP&L's conduct vis-a-vis 12 OVEC and that has to do with the -- the notion that 13 DP&L has -- has made a good faith attempt to divest 14 OVEC as has been advocated by the Commission staff 15 and I think sought by the Commission as well. 16 And I know that DP&L claims it has made 17 good faith efforts to do that. I can't sit here and 18 tell you they have really tried hard enough to do 19 that. I have doubts about that. Other than that I 20 would agree with the supposition in your question. 21 EXAMINER PRICE: Do you have evidence 22 they did not, or are you suggest -- because it hasn't 23 happened you have doubts? 24 THE WITNESS: The -- my concern, your 25 Honor, is that it looked like all DP&L did was make ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 718 1 an attempt by simply going through the motions of 2 making requests of the -- of the counterparties for 3 the divestiture and that's fine. There -- I think 4 that there may be more aggressive steps that could be 5 taken for divestiture and up to this point in time 6 haven't been. 7 It -- it may well be that these are steps 8 that would have to be taken by its parent or by AES 9 Corporation, for example, if AES Corporation could 10 provide guarantees, guarantees of payments to the 11 counterparties, that might convince them -- in other 12 words, there's a question among -- whether there are 13 more steps that could be taken than have been taken 14 to date. That's all I meant by that. 15 MR. SHARKEY: May I approach, your Honor? 16 EXAMINER PRICE: You may. 17 Q. Mr. Kahal, you recall that you have been 18 deposed twice in this case, correct? 19 A. Yes. 20 Q. And I will represent to you that the 21 transcript I just handed to you was from your first 22 deposition. I would like you to turn, please, to 23 page 69. Are you there? 24 A. Yes, uh-huh. 25 Q. Page 69, line 1, I asked you the question ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 719 1 "You are not aware of any facts suggesting that DP&L 2 is engaged in any imprudent activities relating to 3 its OVEC interests, are you?" 4 And your answer was "No, no. And, again, 5 it's -- I can't say one way or the other. I'm not 6 here to testify that everything they've done is 7 prudent, but I am not aware of any specific actions 8 that were imprudent." Did I read that accurately? 9 A. Yes. And I think that's a fair 10 statement, and I think that's consistent with what I 11 just said and that is there's question in my mind 12 whether there could be -- more could be done than has 13 been done so far to achieve the divestiture. Whether 14 those would bear fruit or not I don't know. 15 Q. You're aware that DP&L has made efforts 16 to divest its OVEC interests, aren't you? 17 A. Yes. As I just described to the ALJ, 18 yes. 19 Q. And you would agree with me that the 20 reconciliation rider will act as a hedge against 21 future changes in market conditions, right? 22 A. Not a very attractive hedge but, yes. 23 It's -- I think I said in my testimony it's a small 24 hedge, and it's a hedge that no one would want. 25 MR. SHARKEY: May I approach again, your ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 720 1 Honor? 2 EXAMINER PRICE: You may. 3 Q. Now, Mr. Kahal, I have now handed you a 4 copy of your second deposition transcript that was 5 from your deposition on March 30, 2017. If you turn 6 with me to page 62. 7 A. Yes, I have that. 8 Q. Okay. You can see at the top of the page 9 we were discussing OVEC, right? 10 A. Yes. 11 Q. And then on line 15 I asked you the 12 question "You do agree in the event that market 13 conditions change that it would act as a hedge," and 14 your answer was "Well, it will act as a hedge whether 15 market conditions change or not. And by change I 16 assume you mean change as compared to the company's 17 projections." Did I read that accurately? 18 A. That's correct, yes. 19 Q. Let me ask you some questions about 20 whether serious bargaining between capable and 21 knowledgeable parties occurred here. As an initial 22 matter, it's true, isn't it, you did not participate 23 in any of the negotiations leading to the settlement. 24 A. That's correct. 25 Q. You understand that staff signed the ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 721 1 settlement, correct? 2 A. I understand that, yes. 3 Q. Okay. And you understand that staff 4 has -- is charged with acting in the interests of all 5 constituents? 6 A. Yes. I -- I can't site to statutory 7 authority or anything like that, but as a general 8 matter, that's my understanding. 9 Q. And you are not aware of any facts 10 suggesting that staff failed to consider the 11 interests of all constituents, are you? 12 A. I am not suggesting that at all. I am 13 not making any judgment on any participant in this 14 process in terms of their capabilities and how they 15 participated in the negotiations. 16 Q. You would agree also that staff is 17 capable and knowledgeable, right? 18 A. I agree. 19 Q. You are aware that Ohio Partners for 20 Affordable Energy, Edgemont, and People Working 21 Cooperatively have all signed the stipulation, right? 22 A. Yes. 23 Q. And you understand that they represent 24 the interests of low-income residential customers, 25 correct? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 722 1 A. Yes. 2 Q. And you are also aware that the City of 3 Dayton signed the stipulation, right? 4 A. That's correct. 5 Q. And you are aware that City of Dayton has 6 residents that span various income brackets, right? 7 A. Yes. 8 Q. You are aware of the fact that the 9 stipulation includes economic development incentives 10 and grants? 11 A. It includes certain grants to agencies, 12 and it includes some rate discounts. I've seen no 13 evidence that they serve as economic incentive -- as 14 economic incentives. 15 Q. Do you have a copy of the stipulation 16 available to you, the amended stipulation? 17 A. I do. Would you like me to reference it? 18 Q. Yes. I would like you to turn to page 9 19 of it. 20 A. Yes. That Section IV? 21 Q. Exactly. The section titled "Economic 22 Development Rider." 23 A. Yes. 24 Q. You understand that the parties eligible 25 to receive the economic development incentives ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 723 1 described in that section are large employers within 2 DP&L's service area? 3 A. Yes. They are also the signatories to 4 the settlement. 5 Q. Okay. And do you agree by operating in 6 DP&L's service territory, they are benefiting the 7 local economy, right? 8 A. I -- I believe that's true of all of the 9 nonresidential customers. They are all employers. 10 These signatories and all of the other nonresidential 11 customers are employers in the DP&L service area. 12 Q. And you would agree with me that 13 businesses always look at their operating costs when 14 they are making decisions and would rather have lower 15 operating costs than higher operating costs. 16 A. Absolutely. They would rather have lower 17 operating costs than higher -- than higher operating 18 costs, all else equal. 19 Q. Turn, if you would, to page 13 of your 20 testimony, your supplemental testimony, that is. 21 A. I've got that. 22 Q. On line 22 you state "It is also my 23 understanding that the PUCO has expressed concern 24 about the approval of settlements in which there is 25 perceived to be unequal bargaining power between a ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 724 1 utility and non-utility settling parties." Did I 2 read that accurately? 3 A. Yes. 4 Q. It's true, isn't it, you are not aware of 5 any specific facts that suggest that there was 6 unequal bargaining power here? 7 A. In the sense that I have no firsthand 8 knowledge of how the negotiations took place, that's 9 correct. I can observe what the background is on 10 the -- on this whole process in this case, but I was 11 not directly involved in the negotiations, and so I 12 can't speak to what leverage was specifically 13 exercised during the negotiations. 14 MS. BOJKO: Objection, your Honor. I 15 move to strike everything after "that's correct." 16 EXAMINER PRICE: Mr. Michael? 17 MR. MICHAEL: I have nothing to say, your 18 Honor. 19 EXAMINER PRICE: Your motion will be 20 granted. 21 MS. BOJKO: Thank you, your Honor. 22 Q. (By Mr. Sharkey) Let me ask you some 23 questions about whether the stipulation violates any 24 important regulatory principles. 25 EXAMINER PRICE: Mr. Sharkey, before we ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 725 1 leave this topic, I had a couple of questions so now 2 is an opportune time. The line Mr. Sharkey is 3 talking about, line 22 of page 13, can you be more 4 specific as to how the Commission expressed concern? 5 THE WITNESS: I don't have the specifics 6 on that. I -- I recall seeing -- well, this is 7 something that I was informed of by the -- by counsel 8 that this was something that had been expressed by 9 the Commission in the past. I just don't remember in 10 which case that it was expressed. 11 EXAMINER PRICE: When you say the 12 Commission, do you mean the majority of the 13 Commission, or do you mean a commissioner in dissent? 14 THE WITNESS: That I don't recall, your 15 Honor. I thought it was a majority of the 16 Commission, but I couldn't say for sure. 17 EXAMINER PRICE: Do you recall whether it 18 was the dissenting decision by Cheryl Roberto, Case 19 12-1230-EL-SSO? 20 THE WITNESS: I don't recall that 21 specifically. 22 EXAMINER PRICE: Do you recall whether 23 the Office of Consumers' Counsel filed an application 24 for rehearing incorporating that argument in their 25 application for rehearing? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 726 1 THE WITNESS: No, your Honor. 2 EXAMINER PRICE: Do you recall the 3 Commission majority rejected that request? 4 THE WITNESS: I do not recall that, sir. 5 EXAMINER PRICE: Do you recall the 6 Commission rejecting that request in the subsequent 7 case as well? 8 THE WITNESS: No, your Honor. 9 EXAMINER PRICE: Thank you. 10 Thank you, Mr. Sharkey. 11 MR. SHARKEY: Thank you, your Honor. 12 Q. (By Mr. Sharkey) So I was starting to ask 13 you some questions about the ESP versus MRO test. 14 A. Sure. 15 Q. Do you agree with me that DP&L owned 16 generation assets as of July 31, 2008, correct? 17 A. Yes. 18 Q. Okay. And you understand that under the 19 stipulation DP&L's going to be conducting a 20 competitive bidding process soon. 21 A. I hope so, yes. 22 Q. And it's your understanding of that 23 to-be-conducted bidding process that prices are 24 projected to be lower than prices are today for SSO 25 service, correct? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 727 1 A. I'm hoping that this microphone is 2 operating. 3 EXAMINER PRICE: Turn it on again. 4 THE WITNESS: Oh, now it is, thank you. 5 A. I'm not sure I understood the question 6 because the prices coming out of that auction process 7 I think for the assets or that sale process for the 8 assets would be asset prices. SSO prices are 9 electricity prices, so they are two different things. 10 I don't know how you could compare one with the other 11 unless I misunderstood your question. 12 Q. I am not asking you at all about any 13 assets to be clear. I'm comparing DP&L's current SSO 14 prices to the expected results of the SSO auction 15 here when the new SSO auction is conducted soon. 16 A. Oh, I'm sorry. I thought you were 17 talking about the asset auction. I misunderstood 18 your question. I think that's correct as far as I 19 know. 20 Q. So what you are saying is correct is the 21 new prices are projected to be lower than the current 22 prices. 23 A. That's correct. It's expecting that 24 the -- that the SSO auction when it does happen will 25 produce lower prices. Nobody knows for sure. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 728 1 Q. Okay. And regarding the ESP versus MRO 2 test, I want you to assume for me that under an MRO 3 in year one SSO rates will be set 10 percent based 4 upon competitive bidding and 90 percent based upon 5 the preexisting SSO rates. Does that make sense to 6 you? 7 A. Well, I understand the math. It doesn't 8 make sense to me as policy, but I understand the 9 math. 10 Q. Okay. That's all you need to understand. 11 If that's true, then as a matter of pure math, you 12 would agree with me that SSO rates would be higher 13 under an MRO than under an ESP, right? 14 A. With all the assumptions I think in your 15 question, the answer would be yes. 16 Q. You read the ESP versus MRO testimony of 17 DP&L Witness Malinak, correct? 18 A. I did. There is more than one, but yes. 19 Q. Okay. And you understand that he has 20 deposited two separate scenarios, one under which the 21 DMR was available under an MRO and the other in which 22 the DMR was not available under an MRO? 23 A. Yes. He actually has a total of three 24 scenarios, but two of them are just variations on the 25 same theme. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 729 1 Q. Okay. And if you would turn in your 2 direct testimony to page 42, line 8, you state "My 3 assessment is that there is no provision under the 4 MRO statute that would permit a distribution 5 modernization rider to be approved," correct? 6 A. Yes. 7 Q. You are aware that in a recent 8 FirstEnergy case the Commission concluded that a 9 charge comparable to the FirstEnergy DMR would be 10 available under an MRO, right? 11 A. Yes. 12 Q. Okay. And you are aware that in that 13 decision the Commission cited to the availability of 14 the emergency relief under an MRO? 15 A. It did. I thought that the Commission 16 also said it had never been used before, and so it 17 was kind of a novel idea. But the answer to your 18 question is yes. 19 Q. Okay. And it's true, isn't it, you have 20 not done any analysis as to whether DP&L would be 21 entitled to emergency relief under an MRO, right? 22 A. That's correct. 23 Q. You do agree that if a DMR-type charge 24 was equally available under an ESP and MRO, then the 25 DMR would be a wash for purposes of the ESP versus ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 730 1 MRO test? 2 A. Are you asking me whether I agree with 3 that? 4 Q. I will restate the question. You agree 5 that if we assume a DMR-type charge was equally 6 available under an ESP and an MRO, then under that 7 assumption the DMR would be a wash for purposes of 8 the ESP versus MRO test, right? 9 A. That would be true in theory. Whether -- 10 whether it applies to this particular case is -- is 11 another question so I can only -- I can give you an 12 affirmative response to that in a very abstract way. 13 In this particular case there is a specific DMR 14 amount that's the result of a stipulation. And I 15 can't testify that in the absence of the stipulation 16 that that same DMR, if any, would be approved under 17 an MRO. 18 Q. No. I am not asking you whether it would 19 be approved or not. I am just asking you if we 20 assume that an MRO would be an emergency relief-type 21 charge in the same amount as the DMR charge under the 22 ESP stipulation, then the DMR, that $105 million, is 23 a wash for purposes of the ESP versus MRO test, 24 correct? 25 A. I understand your question really to be a ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 731 1 tautology; and, therefore, I have to agree with it, 2 but you've -- you have all the assumptions in your 3 question that would require that outcome. 4 Q. And you understand that Mr. Malinak's 5 second scenario is that the DMR would not be 6 available under an MRO? 7 A. Yes. 8 Q. And you understand that he opines that in 9 that scenario, DP&L would have difficulty and may not 10 be able to provide safe and reliable service? 11 A. More or less, he indicates that that's a 12 possibility. 13 Q. You agree with me that if DP&L is not 14 able to provide safe and reliable service, that would 15 impose on customers costs that would be difficult or 16 impossible to quantify? 17 A. That's right. 18 Q. And -- 19 A. I don't want to use the word impossible. 20 I feel more comfortable with difficult. 21 Q. Let me ask you some questions about ring 22 fencing. You do propose certain ring fencing 23 measures be implemented, correct? 24 A. That's correct. 25 Q. Are you aware whether the Ohio Revised ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 732 1 Code has corporate separation requirements? 2 A. Did you say corporate? 3 Q. Corporate separation. 4 A. Corporate, yes. 5 Q. You are not aware of any facts suggesting 6 that DP&L is in violation of any of those 7 requirements, are you? 8 A. No. I am not suggesting they are in 9 violation of any -- anything in the Ohio Code or even 10 anything under Commission policy with regard to 11 corporate separation. 12 Q. You know what competitive retail electric 13 service is defined as in Ohio, right? 14 A. Yes. 15 Q. Okay. You are not aware of any facts 16 suggesting that DP&L is providing competitive retail 17 electric service, are you? 18 A. Not at this time. I think that they have 19 done some in the past but -- or an affiliate has but 20 not at this time, no. 21 Q. Okay. And you are not aware of any facts 22 suggesting that DP&L is providing any nonelectric 23 product for service, are you? 24 A. No. 25 Q. And my last question to you you are not ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 733 1 aware of any requirement that any of the ring fencing 2 provisions that you advocate for be implemented in 3 Ohio, are you? 4 A. I am not -- are you asking me am I not 5 advocating those? 6 Q. No. You are not aware of any requirement 7 that the ring fencing measures you are advocating for 8 be implemented in Ohio. 9 A. By required you mean required by statute 10 or Commission regulation; is that what you mean? 11 Q. Correct. 12 A. Right. There's no such requirement at 13 this time. That's why I am advocating it be imposed. 14 MR. SHARKEY: Your Honor, I have no 15 further questions. 16 EXAMINER PRICE: Thank you. 17 Ms. Bojko? 18 MS. BOJKO: Thank you, your Honor. 19 - - - 20 CROSS-EXAMINATION 21 By Ms. Bojko: 22 Q. Good morning, Mr. Kahal. 23 A. Good morning. 24 Q. My name is Kim Bojko. I am representing 25 the Ohio Manufacturers' Association Energy Group. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 734 1 Mr. Sharkey asked you about some of the signatory 2 parties to the stipulation. I would like to ask you 3 about a couple more. Isn't it true that the 4 stipulation is either supported by or not opposed by 5 several customer groups? 6 A. Yes. 7 Q. And isn't it true that it is also 8 supported by specific customers of DP&L? 9 A. Individual customers as parties, that's 10 correct. 11 Q. And isn't it true that it is supported by 12 competitive retail electric suppliers? 13 A. Yes. I'm thinking of RESA as being -- as 14 representing a whole -- a group rather than 15 individuals. 16 Q. Suppliers. 17 A. Suppliers, yes. 18 Q. Would you turn to page 13 of your 19 supplemental testimony that's been marked as OCC 20 Exhibit 12. 21 A. Yes. 22 Q. On page 13, lines 12 through 15, you 23 state that "it appears that many of the supporting 24 (or even non-opposing parties) appear to be 25 motivated." Have you spoken to any of the signatory ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 735 1 or nonopposing parties to ask them what their 2 motivation might have been? 3 A. I have not spoken to any of them. 4 Q. And isn't it true, sir, that the 5 settlement, the amended stipulation, actually states 6 that the parties or nonopposing parties are 7 supporting the stipulation as a package? 8 A. Yes. 9 Q. And you would agree with me, sir, that 10 the amended stipulation is better than the 11 application that was initially filed by DP&L. 12 A. You mean back in February, or do you mean 13 the amended application? 14 Q. Oh, excuse me. Either one but the 15 amended application. 16 A. It's hard to remember the original -- 17 Q. Well, sir -- 18 A. -- but as far as the amended -- if we can 19 compare it to the amended, which I think is more of 20 an apples to apples comparison, I do agree with that. 21 I think that there are -- there are some things in 22 the stipulation as compared to the amended 23 application I think that are very positive. 24 Q. And you think one of those positives is 25 that the DMR proposed in the amended application of ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 736 1 1.015 billion has now been reduced to 315 million. 2 A. Yes, with the caveat that I hope that it 3 wouldn't go beyond the 315 million. I recognize 4 there is an opportunity to expand it further but not 5 a commitment to expand it further. 6 Q. Right. So your testimony focused on the 7 315 million, and you compare that to the 1.015 8 billion; is that correct? 9 A. Oh, I think that's the single biggest 10 item. There are some other features. I indicated in 11 response to Mr. Sharkey that I thought that the 12 provisions relating to the -- let's see, there are 13 either three or four commitments, I am trying to 14 remember, those commitments being no dividends during 15 the DMR period, the suspension of the tax sharing, 16 the equity writeup associated with the tax sharing, 17 and the asset -- the coal plant asset divestiture and 18 sale. Those four items I think will -- are 19 positives. They may well be things that would happen 20 without the stipulation, but it's good to have them 21 in there. 22 Q. And I believe you also stated that the 23 elimination of the CER rider was another positive; is 24 that correct? 25 A. That's correct. Thank you. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 737 1 Q. And I believe you state in your testimony 2 that the elimination of the collection for deferred 3 OVEC costs is a positive? 4 A. I don't know. I think that it's good 5 that that deferral has been taken out of this case. 6 But it's -- it's still alive. 7 MR. MICHAEL: We can hear you all right, 8 Matt. 9 A. It's still alive and well. As I 10 understand it, it's -- the company has not given up 11 on that. 12 Q. Right. But the signatory parties did not 13 agree to it as proposed in the application; is that 14 correct? 15 A. As proposed in the application. I think 16 that they did agree to keep the issue alive. 17 Q. And could you turn to page 5 of your 18 testimony. I want to make sure I am correct in your 19 numbers. 20 A. In the supplemental? 21 Q. Yes. I am only going to be referring to 22 your supplemental today. 23 A. Okay. 24 Q. Exhibit 12. Line 16 you say "a 25 three-year charge totaling 325 million." I think ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 738 1 that was a mistake. That should be 315; is that 2 correct? 3 A. Thank you, yes. 4 Q. And, sir, you would also agree with me 5 that the shorter term from the amended application to 6 the term in the settlement is a benefit as well. 7 A. It is. That was something that I 8 advocated in my direct testimony, limiting it to 9 three years, and that's true of the DMR. I would 10 like to extend that to the rest of the ESP, so it 11 takes a step in that direction. 12 Q. Could you turn to page 24 of your 13 supplemental testimony, please. Beginning on line 14 12, you discuss Section V.1.(c). Do you see that? 15 A. Yes. 16 Q. Of the amended stipulation? And that 17 Section V.1.(c) begins on page 11 of the amended 18 stipulation. Could you turn to that, please. 19 A. Yes, I'm at page 11. 20 Q. All right. So let's look at your 21 testimony on page 24, lines 14. You say "which 22 Witness Schroder euphemistically refers to as 23 'offsetting' (presumably offsetting the DMR)." Do 24 you see that? 25 A. Yes. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 739 1 Q. Okay. If you could look at page 11 of 2 the amended stipulation, could you read the very 3 first sentence of section c. 4 A. Yes. "To partially offset the costs of 5 this Stipulation and rate design modifications, 6 within ten days of an Order by the Commission 7 authorizing DP&L to file tariff sheets to collect 8 Distribution Modernization Rider. DP&L will pay 9 $145,000 to IEU-Ohio to the benefit of its members, 10 $18,000 to OMAEG for the benefit of its members and 11 $160,000 to Kroger, according to instructions for 12 payment provided by the parties." 13 Q. So that sentence, the beginning of 14 section c, specifically says that these provisions 15 that you reference in your testimony are to partially 16 offset the costs of the stip and rate design 17 modifications; is that correct? 18 A. That's correct. 19 Q. So it's not presumably. It states they 20 are to offset, correct? 21 A. Yes. 22 Q. Let's turn to -- and on page 32 of your 23 supplemental testimony, you talked about -- you talk 24 about the economic development incentives on -- 25 starting on line 18, and you use terms like "likely ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 740 1 in exchange." And, again, with regard to the 2 economic development incentive, you have not spoken 3 to any of the signatories or nonopposing parties that 4 received those incentives to ask them their 5 motivations behind those incentives; is that correct? 6 A. That's correct. This is not based on 7 conversations that I have had. It's based on 8 inference. 9 MS. BOJKO: Thank you. That's all I 10 have, your Honor. 11 EXAMINER PRICE: Thank you. 12 MS. BOJKO: Thank you, Mr. Kahal. 13 EXAMINER PRICE: Mr. Oliker? 14 MR. OLIKER: I might scoot down there. 15 MR. PRITCHARD: Your Honor, I am not sure 16 if you meant to start at that end, but I think 17 Gretchen had a couple and I have. 18 EXAMINER PRICE: No. I was starting back 19 with Joe and coming back around. I am going 20 clockwise. 21 MR. OLIKER: Good morning. 22 MR. ALEXANDER: Wait, wait. Your Honor, 23 I don't mind going last, but I do have brief 24 questions. 25 EXAMINER PRICE: I did not see you had ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 741 1 questions. You can go after Mr. Oliker. 2 MR. ALEXANDER: I don't mind going last, 3 your Honor. 4 EXAMINER PRICE: Okay. 5 MR. OLIKER: Thank you, your Honor. 6 - - - 7 CROSS-EXAMINATION 8 By Mr. Oliker: 9 Q. Good morning, Mr. Kahal. Is it Kahal? 10 A. Kahal. Comes out the same in the 11 transcript. 12 Q. Okay. Just a few questions for you this 13 morning. First, I am correct you have two pieces of 14 testimony that you are sponsoring? 15 A. Yes. 16 Q. And could you remind me how they are 17 marked so I just don't confuse that? 18 A. The supplemental is marked as Exhibit 12; 19 the direct testimony from last November is marked as 20 12A. 21 Q. Thank you. So starting with Exhibit 12, 22 could you turn to page 34, please. 23 A. I have that. 24 Q. And on line 12, you refer to customers 25 that pay for charges related to OVEC as "captive ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 742 1 customers." Would you like to modify that statement 2 to strike the word "captive"? 3 A. I'm sorry. Okay. We're in 12A? 4 Q. No. We are in 12. 5 A. Oh, I'm sorry. Okay. I was in the wrong 6 place. And that's page 34, did you say? 7 Q. Page 34, line 12. 8 A. Do I want to modify my testimony? No. 9 Q. So you would like to leave the word 10 "captive" in there? 11 A. Yes. 12 Q. Okay. Would you agree that only default 13 service customers pay for any charges or receive any 14 credits that may be provided by the OVEC-related 15 provision? 16 A. That's the proposal in the settlement, 17 yes. 18 Q. Okay. And -- 19 A. I am not -- I don't know if anybody is 20 paying -- paying for OVEC right now. I'm not sure 21 whether OVEC is in rates presently. 22 Q. And do you agree that default service 23 customers could take service from a CRES provider 24 and, therefore, avoid taking any charges or credits 25 associated with the OVEC provision that is ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 743 1 recommended in the stipulation? 2 A. That's correct. That's one of the 3 reasons why I am so troubled by this. 4 Q. And you previously testified in AEP Ohio 5 and FirstEnergy's ESP case, correct? 6 A. Yes. 7 Q. Would you agree that one of the main 8 subjects in those ESP cases was related to purchase 9 power agreements with affiliates? 10 A. Yes. 11 Q. And you actually testified in 12 FirstEnergy's proposed purchase power agreement case, 13 the ESP case, correct? 14 A. Yes. 15 Q. And would you agree that those PPAs were 16 structured as a utility paying a cost-based revenue 17 requirement to an affiliate? 18 A. Yes. 19 Q. And then the utility would sell the 20 capacity, energy, and ancillary services into the 21 wholesale market, correct? 22 A. Yes. 23 Q. And the difference between the 24 market-based revenues received by the utility and the 25 cost-based payments made to the affiliate would ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 744 1 either be flowed through to all customers as a credit 2 or charge, correct? 3 A. That's right. 4 Q. Would you agree that the Federal Energy 5 Regulatory Commission ultimately determined that 6 those PPAs may represent violations of the affiliate 7 abuse standards? 8 MR. ALEXANDER: I am going to object. I 9 think we are a little afield here. 10 EXAMINER PRICE: Mr. Oliker, would you 11 care to respond to Mr. Alexander's relevance 12 objection? 13 MR. OLIKER: He says these are captive 14 customers, and we are going down that path. 15 EXAMINER PRICE: We will give Mr. Oliker 16 a little bit of leeway. Overruled. 17 MR. OLIKER: Could you repeat my 18 question, please, Karen. 19 (Record read.) 20 A. I have a slightly different 21 understanding, and I -- and I wasn't directly 22 involved in the FERC cases, but my understanding was 23 that the -- is that the Federal Energy Regulatory 24 Commission indicated that -- that they were subject 25 to the affiliate abuse standards; and, therefore, it ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 745 1 would have to stand scrutiny. I don't recall that 2 they actually determined that there was a violation. 3 It's kind of a subtle difference. 4 Q. That's why I used the word "may" in my 5 question. 6 A. Okay. Fair enough. 7 Q. Okay. And you read the order that FERC 8 issued regarding those PPAs, correct? 9 A. I never read the FERC orders, no. 10 Q. You did not read them? 11 A. No. I was aware of what the outcome was, 12 but I didn't actually read the orders. 13 Q. Are you aware of whether the FERC made 14 any holdings with respect to the definition of 15 captive customers? 16 A. No. 17 MR. OLIKER: Your Honor, at this time, 18 although I don't know if it's necessarily appropriate 19 or necessary, can we take administrative notice of 20 the FERC orders related to the complaint filed by 21 EPSA against FirstEnergy Ohio utilities and Ohio 22 Power Company and its affiliate AEP Generation 23 Resources? 24 EXAMINER PRICE: Any objections? 25 Seeing none, we will take administrative ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 746 1 notice. 2 MR. ALEXANDER: Your Honor, I couldn't 3 hear what was moved. 4 MR. OLIKER: The request was for 5 administrative notice, and I can get the docket 6 numbers. 7 MR. ALEXANDER: I don't need the number. 8 I actually couldn't hear what you said. 9 MR. OLIKER: The request was for 10 administrative notice of FERC orders granting the 11 complaint filed by EPSA against Ohio Power Company, 12 AEP Generation Resources, FirstEnergy Solutions, and 13 Cleveland Electric Illuminating Company and Ohio 14 Edison Company and Toledo Edison Company. And those 15 are in dockets EL16-34-000 and EL16-33-000 issued 16 April 27, 2016. 17 MR. ALEXANDER: No objection. 18 Q. (By Mr. Oliker) And just so we are clear, 19 Mr. Kahal, you are not aware of whether FERC has 20 explicitly defined captive customers as being those 21 customers that are required to pay a nonbypassable 22 charge for generation-related costs? 23 A. Not specifically. Generally when FERC 24 talks about customers, they generally talk about 25 wholesale customers, not retail customers; but, no, I ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 747 1 didn't read the order, so I couldn't -- I couldn't 2 tell you exactly what that order said. 3 Q. And then just so we're correct, as you 4 use the word "captive" in your testimony, you are not 5 trying to attach any sort of significance from a FERC 6 scrutiny level? 7 A. I am not, no. In fact, the word 8 "captive" refers to delivery service, not generation 9 service. 10 MR. OLIKER: Could I have that answer 11 read back, please. 12 EXAMINER PRICE: You may. 13 (Record read.) 14 Q. So let's go back then to page 34 of your 15 Exhibit 12. You are not stating on line 12 that all 16 distribution customers would be paying for 17 OVEC-related charges or receive their credits, 18 correct? 19 A. No, no. I am not saying that at all. If 20 you look at this in the context of the question, 21 the -- the question related to the justification for 22 having an OVEC charge of any kind; that is, should 23 there even be an OVEC charge. And the answer simply 24 says it's going to be imposed on captive customers, 25 that is, distribution customers, and who get nothing ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 748 1 in return for the OVEC charges. That's all this goes 2 to in this question and answer. 3 EXAMINER PRICE: But you understand when 4 you say it's a distribution charge, it's only going 5 to be charged to SSO customers. 6 THE WITNESS: Oh, that's correct. And 7 I -- and later on in the testimony I get to who 8 should pay it, that is, which subgroup of customers 9 should pay it. But this statement at this point in 10 the testimony simply goes to should there be an OVEC 11 charge at all regardless of who should pay it. 12 That's the distinction I was making, your Honor. 13 EXAMINER PRICE: But they are only 14 captive to the extent they do not choose a CRES 15 supplier; is that right? 16 THE WITNESS: That's correct. 17 MR. OLIKER: Given the clarification I 18 won't move to strike. 19 EXAMINER PRICE: We are going to deny the 20 motion to strike. He can define captive however he 21 wants. I do agree it's not the normal definition, 22 and the Commission will give it its due weight. 23 Q. Now, on page 36, am I correct you 24 recommend modifying the OVEC provision to assess any 25 charge or credit to all distribution customers ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 749 1 through a nonbypassable rate structure? 2 A. Well, with the caveat that I'm not 3 supporting any customers pay for it, it's that if 4 there is going to be an OVEC charge, I think it 5 should be fairly assigned to all distribution 6 customers, but I am not suggesting any of the 7 customers should pay for it. 8 Q. And turning to page 5, footnote 1, you 9 incorporate by reference certain pages from your 10 prior testimony in this case that's also marked as 11 Exhibit 12A, correct? 12 A. Well, no. I was simply identifying the 13 sections that are most relevant to the current 14 stipulation. Exhibit 12A is -- is -- was filed and 15 is being sponsored, the entire testimony, but there's 16 certain portions of it that are no longer relevant 17 such as the clean energy rider portion would no 18 longer be relevant. 19 Q. But pages 49 to 52 are deemed indeed 20 relevant, correct? 21 A. Yes. I have to go back and look at what 22 those pages say, but yes. 23 Q. I'm sorry for interrupting you, 24 Mr. Kahal. 25 A. The answer is yes. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 750 1 Q. And Exhibit 12A was initially prefiled on 2 November 21, 2016, correct? 3 A. Yes. 4 Q. That was in response to the initial 5 application? 6 A. Yes. 7 Q. And in that application DP&L proposed to 8 collect the going-forward difference between costs 9 DP&L pays to OVEC and the market-based revenues that 10 DP&L receives through a nonbypassable charge, 11 correct? 12 A. As I recall, the amended application 13 dealt with the deferral issue. That's what I recall. 14 I can't remember what the amended application, which 15 has obviously been superseded, said about it going 16 forward. My testimony dealt more with the deferral. 17 Q. And on page 50, line 12, of Exhibit 12A, 18 do you not cite "Setting up a Reconciliation Rider 19 would hinder the divestiture of the OVEC assets 20 because allowing full recovery of the costs 21 associated with the assets does not incentivize DP&L 22 to divest"? 23 A. Sorry. We're in Exhibit 12 now? 24 Q. 12A. 25 A. Oh, 12A, okay. I'm sorry. I thought you ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 751 1 said 12. 2 EXAMINER PRICE: 12A, page 50. 3 A. Could you give me the line number 4 reference again? 5 Q. This is page 50, line 12. Let me know if 6 I read this right. "Setting up a Reconciliation 7 Rider would hinder the divestiture of the OVEC assets 8 because allowing full recovery of the costs 9 associated with the assets does not incentivize DP&L 10 to divest." 11 A. Yes. That's correct. 12 Q. Okay. 13 A. That is a concern that I have about that. 14 Q. And then on page 51, lines 9 to 13, do 15 you not state that it would be unlawful to allow DP&L 16 to recover going-forward costs related to OVEC 17 through a nonbypassable charge? 18 A. Well, I don't use the term "unlawful," 19 and I try to stay away from that for obvious reasons. 20 But, yeah, I do suggest that it would be a transition 21 charge which the courts have indicated have -- would 22 be unlawful. 23 Q. And that's page 51, lines 9 to 13. You 24 state "This in no way implies that Utility 25 distribution customers should be responsible for OVEC ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 752 1 over-market costs. Again, such charges to customers 2 to recover above market costs would be a transition 3 charge. And the PUCO cannot authorize any more 4 transition charges for DP&L." 5 A. Right. 6 Q. Did I read that correctly? 7 A. Yes. 8 Q. And on page 37 of Exhibit 12, which is 9 the later filed testimony, I'm sorry to make you go 10 back and forth, Mr. Kahal. 11 A. We are in 12 now? 12 Q. Just 12. 13 A. Sure. 14 Q. And in this testimony you state "To 15 Witness White's credit, his testimony does not seem 16 to advocate for the Reconciliation Rider or OVEC 17 out-of-market cost recovery for utility customers, 18 and he clearly is right that this Rider provides DP&L 19 with a subsidy." Now, regarding that statement, you 20 did read Mr. White's testimony, correct? 21 A. I read the section that dealt with this 22 issue. There were other issues that were handled by 23 another OCC witness. 24 Q. Would you agree that Mr. White did not, 25 in fact, state that making the OVEC-related provision ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 753 1 bypassable would provide DP&L with a subsidy? 2 A. I don't have his testimony in front of me 3 right now. Whatever he said speaks for himself. 4 Q. So you will -- you will defer to his 5 written testimony? 6 A. Absolutely. 7 Q. Okay. And if I stated -- subject to 8 check, would you agree that Mr. White stated making 9 any cost recovery related to DP&L's OVEC entitlement 10 bypassable avoids any competitive subsidy? 11 MR. MICHAEL: Objection. He said he 12 didn't read it, and he said it speaks for itself. 13 EXAMINER PRICE: No. He said he didn't 14 have it in front of him. 15 MR. MICHAEL: That's true. He didn't 16 have it in front of him. He couldn't answer the 17 question. It speaks for itself. 18 EXAMINER PRICE: Overruled. 19 MR. OLIKER: Could you reread the 20 question, Karen, or if the witness needs to -- 21 EXAMINER PRICE: Let's have the question 22 back. 23 (Record read.) 24 A. That's not how I read his testimony and 25 that's not how I recall it but, as I said, it speaks ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 754 1 for itself. I inferred that he felt that the -- that 2 the OVEC -- OVEC charge was a subsidy to DP&L, but I 3 don't want to put words in any witness's mouth. 4 MR. OLIKER: Could I approach, your 5 Honor? 6 EXAMINER PRICE: You may. 7 MR. OLIKER: Sorry. I only have the one 8 copy but perhaps this would refresh the witness's 9 recollection. 10 Q. Please look at line 21, page 11, going on 11 to page 12. 12 A. Yes. 13 Q. Now, Mr. Kahal, would you agree that 14 Mr. White did, in fact, state that making any cost 15 recovery related to DP&L's OVEC entitlement 16 bypassable avoids a competitive subsidy? 17 A. Yes, he does says that. He said that it 18 avoids an anticompetitive subsidy if you make it 19 bypassable. 20 MR. OLIKER: Thank you. No more 21 questions, your Honor. 22 Thank you, Mr. Kahal. 23 EXAMINER PRICE: At this time I think we 24 are going to take a 10-minute break. 25 Let's go off the record. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 755 1 (Recess taken.) 2 EXAMINER PRICE: Let's go back on the 3 record. 4 Ms. Petrucci, please proceed. 5 MS. PETRUCCI: Thank you. 6 - - - 7 CROSS-EXAMINATION 8 By Ms. Petrucci: 9 Q. I am not going to try and use the 10 microphone. If you have trouble hearing me, let me 11 know. I want to stick with the OVEC collection 12 subject. The collection of the OVEC net costs 13 through the reconciliation rider, that will collect 14 generation expenses, correct? 15 A. Yes. 16 Q. And if the revenues under that rider 17 resulted in -- exceeded the costs, that would then 18 also be resulting in a credit of generation revenues, 19 correct? 20 A. Yes. 21 Q. And DP&L believes that the collection of 22 the net proceeds of the OVEC generation will have an 23 effect of stabilizing retail electric service; is 24 that correct? 25 A. There was a statement to that in Witness ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 756 1 Schroder's testimony, that it would serve as a hedge, 2 and I take that to mean it provides at least a small 3 stabilization effect. 4 MS. PETRUCCI: Okay. Thank you. I have 5 no further questions. 6 EXAMINER PRICE: Thank you. 7 Mr. Pritchard? 8 MR. PRITCHARD: My questions have been 9 asked and answered. 10 EXAMINER PRICE: I am coming, Trevor. 11 Mr. Alexander. 12 MR. ALEXANDER: Thank you, your Honor. 13 - - - 14 CROSS-EXAMINATION 15 By Mr. Alexander: 16 Q. Mr. Kahal, my name is Trevor Alexander, 17 and I am representing Honda and the City of Dayton in 18 this proceeding. Could you please turn to your 19 amended testimony, your supplemental testimony, page 20 18, line 8. And here you compare DMR revenues to the 21 distribution rates. Do you see that? 22 A. Yes. 23 Q. So in making this comparison, do you 24 believe we should essentially think about rider DMR 25 as a distribution charge? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 757 1 A. It's not a charge in that it is intended 2 to recover distribution costs, but it is a charge 3 imposed on distribution customers. So in that 4 context it could be considered that. 5 Q. And so when you compare rider DMR 6 revenues to distribution rates, is that because you 7 believe that distribution rates are the most 8 analogous type of rate to rider DMR? 9 A. I don't think it's analogous at all. 10 Distribution rates are -- are rates that cover 11 distribution costs. The DMR has nothing to do with 12 costs whatsoever. 13 Q. If -- 14 A. It's just a charge. 15 Q. Sure. If it's not analogous at all, 16 what's the point of this paragraph? 17 A. Well, because the -- because DP&L's job 18 is to provide -- as regulated by this Commission is 19 to provide utility monopoly distribution service. 20 It's regulated by the FERC to provide regulated 21 monopoly transmission service. The DMR, if approved 22 by this Commission, then would be charged to 23 distribution customers. And so that's why I think 24 the comparison is relevant. 25 MR. ALEXANDER: Okay. No further ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 758 1 questions. Thank you, your Honor. 2 EXAMINER PRICE: Mr. McNamee? 3 MR. McNAMEE: Mr. Sharkey asked all my 4 questions. I have nothing left. Thank you. 5 MR. MICHAEL: Did you share outlines 6 beforehand? 7 MR. McNAMEE: And better than I would 8 have, by the way. 9 EXAMINER PRICE: Redirect? 10 MR. MICHAEL: None, your Honor. 11 EXAMINER PRICE: Thank you, Mr. Kahal. 12 You are excused. 13 THE WITNESS: Thank you, your Honor. 14 MR. MICHAEL: We move for the admission 15 of OCC Exhibits 12 and 12A, your Honor. 16 EXAMINER PRICE: Any objections? 17 Seeing none, those will be admitted. 18 (EXHIBITS ADMITTED INTO EVIDENCE.) 19 EXAMINER PRICE: At this time we will 20 break for lunch. Let's come back at 1 o'clock. 21 Off the record. 22 (Thereupon, at 12:00 noon a lunch recess 23 was taken.) 24 - - - 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 759 1 Monday Afternoon Session, 2 April 10, 2017. 3 - - - 4 EXAMINER WALSTRA: Go back on the record. 5 OCC, call your next witness. 6 MR. KUMAR: OCC would like to call Jim 7 Williams. 8 EXAMINER WALSTRA: Raise your right hand. 9 (Witness sworn.) 10 EXAMINER WALSTRA: Thank you. Please be 11 seated. State your name and business address, 12 please. 13 THE WITNESS: My name is James D. 14 Williams. My business address is 10 West Broad 15 Street, Suite 1800, Columbus, Ohio 43215. 16 EXAMINER WALSTRA: Thank you. 17 Go ahead. 18 MR. KUMAR: Your Honor, may I have the 19 supplemental direct testimony of Mr. Williams marked 20 as OCC Exhibit 13. 21 EXAMINER WALSTRA: So marked. 22 (EXHIBIT MARKED FOR IDENTIFICATION.) 23 MR. KUMAR: The direct testimony of 24 Mr. Williams marked as OCC Exhibit 13A. 25 EXAMINER WALSTRA: So marked. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 760 1 (EXHIBIT MARKED FOR IDENTIFICATION.) 2 MR. KUMAR: And the errata filed 3 November 30, 2016, as -- which was corrected Exhibit 4 JDW-5 to his direct marked as OCC Exhibit 13B. 5 EXAMINER WALSTRA: So marked. 6 (EXHIBIT MARKED FOR IDENTIFICATION.) 7 - - - 8 JAMES D. WILLIAMS 9 being first duly sworn, as prescribed by law, was 10 examined and testified as follows: 11 DIRECT EXAMINATION 12 By Mr. Kumar: 13 Q. Now, Mr. Williams, on whose behalf are 14 you appearing? 15 A. I am appearing on behalf of the Office of 16 the Ohio Consumers' Counsel. 17 Q. And do you have your prepared testimony 18 with you on the stand? 19 A. Yes, I do. 20 Q. Do you have any changes or corrections to 21 your testimony? 22 A. I have a few. In my supplemental -- let 23 me start with the supplemental testimony, Exhibit 13. 24 On page 12, line 10, deleting the word "accurate" and 25 changing that with the word "complete." ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 761 1 On page 19, line 1, I am changing ".8" to 2 ".88." 3 EXAMINER PRICE: Can I have that 4 reference again, please? 5 THE WITNESS: Yes. That is on page 19 6 and it's line 1. 7 A. In the exhibit that is marked 13A, on 8 page 6, line 6, I'm deleting the word "a," so it 9 should be "to pursue costly and unreasonable 10 charges." 11 On page 13 in the footnote 27, the 12 reference should be to "Ohio Administrative Code 13 4901:1-26." 14 Q. Do you mean "1-10-26"? 15 A. "1-10-26," thank you. 16 And then on page 17, line 3, the 17 reference should be to "Ohio Administrative Code 18 4901:1-10" -- "1-10-10." 19 Q. Okay. Do you have any other changes or 20 corrections to your testimony? 21 A. I do not. 22 Q. If I asked you those same questions 23 today, would your -- in the exhibits marked OCC 24 Exhibits 13, 13A, and 13B, would your answers be the 25 same? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 762 1 A. Yes, they would be. 2 MR. KUMAR: Your Honor, the OCC moves for 3 admission of Exhibits OCC 13, 13A, and 13B and would 4 like to make the witness available for 5 cross-examination. 6 EXAMINER WALSTRA: Thank you. 7 MS. BOJKO: Your Honor, I'm sorry. Could 8 I have the change from ".8" that was on page 19, what 9 the number should be? 10 EXAMINER WALSTRA: Sure. 11 MR. KUMAR: I believe it should be ".88." 12 This is his supplemental direct. 13 MS. BOJKO: Thank you. 14 EXAMINER WALSTRA: Mr. Sharkey. 15 MR. SHARKEY: Thank you, your Honor. 16 - - - 17 CROSS-EXAMINATION 18 By Mr. Sharkey: 19 Q. Mr. Williams, we've met on the phone a 20 few times and in person I think occasionally, but my 21 name is Jeff Sharkey, and I represent The Dayton 22 Power and Light Company. 23 A. Good afternoon, Mr. Sharkey. 24 Q. Good afternoon. I am going to start by 25 asking some questions about the serious negotiation ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 763 1 prong of the Commission's three-part test. And in 2 particular it's true, isn't it, that you did not 3 intend -- attend any of the bargaining sessions 4 leading to the stipulation? 5 A. I don't believe that I was at any of the 6 bargaining sessions on this specific case. 7 Q. Okay. And you do not know how many 8 sessions there were, right? 9 A. No, I don't. 10 Q. You do know that OCC's lawyers attended 11 sessions? 12 A. I'm assuming our lawyers were there. I 13 don't know for sure who was there or when. 14 Q. You are not rendering an opinion on 15 whether there was serious bargaining at those 16 sessions, correct? 17 A. The opinion that I'm rendering is that 18 whether or not there was serious bargaining or not, 19 there wasn't serious bargaining on behalf of 20 residential customers as a whole. 21 EXAMINER PRICE: So you are saying your 22 lawyers attended sessions but did not seriously 23 bargain on behalf of the residential customers; is 24 that your testimony? 25 THE WITNESS: There was bargaining on ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 764 1 behalf of residential customers. What I am saying is 2 I don't believe this -- this settlement though 3 addresses the needs of residential customers. 4 EXAMINER PRICE: But you are not 5 disputing there was serious bargaining on behalf of 6 residential customers by your attorneys. 7 THE WITNESS: No. There was bargaining. 8 MS. BOJKO: Could you turn your mic on, 9 please. 10 Q. (By Mr. Sharkey) And you do not dispute 11 that the signatories to the stipulation are capable 12 and knowledgeable, correct? 13 A. I am not disputing that. 14 Q. You understand the Commission staff 15 signed the stipulation, right? 16 A. I do understand that. 17 Q. And it's their responsibility to look out 18 for the interests of all constituents? 19 A. I'm not exactly sure. I know by statute 20 what staff -- or who staff represents or what exactly 21 those interests are. I believe that staff's 22 interests are -- from my own experience are usually 23 in trying to balance interests between parties. 24 Q. But you would agree they represent the 25 interests of all the constituents, correct? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 765 1 A. I believe so. 2 Q. Okay. And you don't claim that staff 3 disregarded its duty to consider the interests of 4 residential customers when it signed the stipulation, 5 do you? 6 A. I'm not making that allegation. 7 Q. You are not aware of any facts that 8 suggest staff did not take the settlement process 9 seriously, are you? 10 MR. KUMAR: Objection. Your Honor, he 11 has already testified he wasn't a part of the 12 settlement process. I think this is outside the 13 scope of his testimony at this point. 14 EXAMINER WALSTRA: Overruled. 15 A. Can you repeat the question? 16 Q. I'll do it again. You are not aware of 17 any facts that suggest staff did not take the 18 settlement process seriously, are you? 19 A. I am not aware of any facts. 20 Q. Okay. You are also aware Edgemont, Ohio 21 Partners for Affordable Energy, and People Working 22 Cooperatively signed the stipulation, right? 23 A. That's my understanding. 24 Q. And you understand that those 25 organizations represent the interests of low-income ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 766 1 customers? 2 A. I'm not exactly sure. I believe that 3 it's predominantly low-income customers, but I'm not 4 exactly sure what those interests were in this case. 5 Q. You are also aware the City of Dayton 6 signed the stipulation, right? 7 A. I am aware of that. 8 Q. And you believe the City of Dayton 9 represents the interests of all of its residents? 10 A. I believe the City of Dayton would 11 represent the interests of the City of Dayton which 12 could include residents as well as other interests. 13 Q. You understand that the next element the 14 Commission needs to consider is whether the 15 stipulation as a package benefits the public 16 interest, right? 17 A. That's my understanding. 18 Q. Let me ask you some questions about 19 whether you evaluated the stipulation as a package. 20 As an initial matter, you are aware that AES agreed 21 in the stipulation to refrain from taking dividend 22 payments for a period of time? 23 A. I believe I read those words. 24 Q. Okay. It's true, isn't it, you did not 25 consider that element of the stipulation in preparing ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 767 1 your testimony? 2 A. I did not consider it. 3 Q. Okay. You are also aware that AES agreed 4 to refrain from collecting tax sharing payments for a 5 period of time in the stipulation, right? 6 A. I'm aware of that. 7 Q. And, again, you did not consider that 8 provision in preparing your testimony, correct? 9 A. I did not. 10 Q. Okay. And you also know that AES agreed 11 to convert certain tax liabilities at DPL Inc. to 12 equity? 13 A. I read that. 14 Q. And, again, you did not consider that 15 provision in preparing your testimony? 16 A. I did not. Again, my interest -- my 17 review of the settlement though had more to do with 18 DP&L and DP&L's ability to provide safe and reliable 19 service, not AES. 20 Q. We'll come to that. You are aware that 21 DP&L agreed to sell its generating assets to an 22 affiliate in the stipulation, right? 23 A. I read those words. 24 Q. Okay. You did not consider that in 25 evaluating the stipulation, did you? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 768 1 A. I did not. 2 Q. Okay. And you are aware that DP&L agreed 3 in the stipulation to institute a sales process for 4 certain of its coal-fired assets? 5 A. I read that. 6 Q. And, again, you did not consider that 7 provision in preparing your testimony, did you? 8 A. I did not. 9 Q. You saw the stipulation provides SSO 10 service will be provided through a competitive 11 bidding process, right? 12 A. Yes. 13 Q. Okay. And you're supportive of SSO 14 service being provided through the competitive 15 bidding process, right? 16 A. Yes. I believe that that process could 17 occur with or without this settlement. 18 Q. But you don't know whether or not 19 competitive bidding is required in Ohio, do you? 20 A. I don't believe that there's a specific 21 provision for -- for a competitive bidding process. 22 I do know it would be unreasonable not to use a 23 competitive bidding process if it would result in 24 lower, just, and reasonable rates for consumers. 25 Q. You mentioned safe and reliable service. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 769 1 Let me ask you some questions about that. As an 2 initial matter, you agree with me it's very important 3 that DP&L be able to provide safe and reliable 4 service, right? 5 A. As DP&L has been doing for many, many 6 years, yes. 7 Q. You read the testimony of DP&L Witness 8 Malinak, right? 9 A. I did. 10 Q. Okay. And his testimony contains 11 detailed financial projections and charts at the 12 back, right? 13 A. I recall seeing those projections. 14 Q. Okay. 15 A. I didn't focus specifically on those. 16 Q. All right. So you don't disagree with 17 the projections that Mr. Malinak provides, right? 18 A. There are other witnesses that are more 19 capable to talk about Mr. Malinak's financial 20 projections like Mr. Kahal. 21 Q. So you do not -- just so I have a clean 22 record, you don't disagree with those projections, 23 right? 24 A. I have nothing to disagree with. 25 Q. Okay. And you understand that ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 770 1 Mr. Malinak offers an opinion that DP&L's financial 2 integrity is at risk, right? 3 A. I read those words. 4 Q. Okay. And there is nothing in your 5 testimony that contradicts that assertion, right? 6 A. I believe that my testimony addresses 7 more the ability of DP&L to provide safe and reliable 8 service. 9 Q. Okay. There's nothing in your testimony 10 that contradicts Mr. Malinak's assertion that DP&L's 11 financial integrity is at risk, right? 12 A. I don't address that issue in my 13 testimony. 14 Q. And you agree that to provide safe and 15 reliable service, DP&L needs sufficient funds to do 16 so, right? 17 A. Yes. 18 Q. Changing topics, you are aware that the 19 Commission issued an order approving a DMR for 20 FirstEnergy, correct? 21 A. Yes, I am. 22 Q. You read that order, right? 23 A. I don't know that I've read it as much as 24 I'm aware of some of those kind of -- the high points 25 of that -- that order. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 771 1 Q. Nothing in your testimony asserts that 2 the DMR is inconsistent with that Commission order, 3 correct? 4 MR. KUMAR: Objection. Your Honor, it's 5 calling for a legal opinion on the part of 6 Mr. Williams. 7 EXAMINER WALSTRA: Mr. Sharkey. 8 MR. SHARKEY: I am just asking him to 9 verify there is nothing in his opinions that suggests 10 that DP&L's DMR is inconsistent with that order, your 11 Honor. Interpreting Commission orders is something 12 that witnesses do all the time. Sometimes Commission 13 orders are very legal, sometimes they are very 14 factual, and sometimes they are a mix of both. And 15 certainly I wouldn't expect this witness to be 16 testifying as to the law, but I think it's 17 appropriate to ask him, you know, whether he asserts 18 that it violates the Commission's order. 19 EXAMINER WALSTRA: If he knows, he can 20 answer. 21 A. I believe the facts in this case are 22 completely different from the facts in the Day -- in 23 the FirstEnergy case, and the facts in this case do 24 not support a DMR. I don't believe that the office 25 of OCC supported a DMR with FirstEnergy either, but ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 772 1 the facts in this case are completely different. 2 There are other mechanisms for DP&L to address its 3 obligation for providing safe and reliable service 4 including expediting completion of its base rate case 5 to the extent it needs additional funds. 6 MR. SHARKEY: Your Honor, I would move to 7 strike the entire answer. It was not responsive to 8 the question your testimony does not assert DP&L's 9 DMR is inconsistent with the FirstEnergy order. 10 MR. KUMAR: Your Honor, he asked for 11 Mr. Williams' regulatory opinion, and Mr. Williams 12 gave it. I think it is responsive. 13 EXAMINER WALSTRA: Overruled. 14 Q. (By Mr. Sharkey) Mr. Williams, it's true, 15 isn't it, there is nothing in your supplemental or 16 direct opinions that cites to the FirstEnergy DMR 17 order? 18 A. I do not cite to the FirstEnergy order. 19 I believe that Dayton Power and Light has its own 20 pending ESP and that's the matter that we are 21 addressing today, not FirstEnergy's. 22 Q. You are aware that the Commission has 23 announced plans to institute a PowerForward 24 Initiative to establish parameters for grid 25 modernization, right? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 773 1 A. I am very familiar with it. 2 Q. Okay. And it's your hope and expectation 3 that that initiative will result in cost effective 4 grid modernization plans, right? 5 A. Yes. 6 Q. You believe that DP&L shouldn't spend 7 money on grid modernization until the Commission 8 completes its PowerForward Initiative and establishes 9 clear requirements for grid modernization; is that 10 fair? 11 A. That's very fair. 12 Q. Okay. And assuming the -- that DP&L 13 implements the Commission's plans in a cost effective 14 and prudent manner, you support cost recovery for 15 DP&L, right? 16 A. Yes, I do, although that cost recovery 17 may be through future base rate cases, not through a 18 rider as -- as is addressed within -- within this 19 settlement. 20 Q. You are aware that Ohio law permits 21 single-issue ratemaking, correct? 22 A. I am familiar with that. I don't believe 23 that Ohio law requires single-issue ratemaking. I 24 believe that there are certain applications where 25 maybe single-issue ratemaking might be appropriate. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 774 1 There are other situations where it's not. I've seen 2 nothing in PowerForward, DMR, really practically 3 anything within this settlement that would lead me to 4 believe there needs to be single-issue ratemaking. 5 Q. Turn, if you would, to your supplemental 6 testimony, page 12, line 10. 7 A. I'm there. 8 Q. You made a change there, and you struck 9 the word -- you struck the word "accurate" and 10 inserted the word "complete," right? 11 A. I did. 12 Q. I want to make sure I got a clean record. 13 You are not asserting that there are -- were 14 inaccuracies in Mr. Malinak's description of the 15 economic condition in DP&L's service territory on the 16 pages you cite which were 37 and 38 of his testimony. 17 A. I just believe that there was a more 18 complete -- there was more complete information than 19 he provided. 20 Q. Just so my record is clear, you are not 21 claiming his testimony was inaccurate, right? 22 A. I believe that I have corrected my 23 testimony to say complete. Complete means with the 24 information that I provided I think the record is 25 more complete. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 775 1 Q. Let me ask you about DP&L's proposal for 2 a distribution investment rider. It's true, isn't 3 it, that you have not conducted any analysis to 4 determine whether DP&L would have sufficient funds 5 available to implement the DIR programs without a 6 distribution investment rider? 7 A. Again, it seems to me that DP&L is 8 already recovering the costs of investments that it 9 makes in infrastructure modernization the way that it 10 is addressed in this -- this settlement. It's just 11 part of the normal course of operating and 12 maintaining its distribution system. I've not seen 13 any indication that there's infrastructure 14 modernization that's going to be occurring through 15 the DIR. It's just re -- it's just -- it's just a 16 different way to recover for the investments that 17 have been made and that would be made even without a 18 DIR. 19 Q. Clear. It's true, isn't it, that you 20 have not analyzed DP&L's expenses and revenues to 21 determine whether DP&L would, in fact, have 22 sufficient funds available to perform -- engage in 23 these distribution investment rider investments 24 without the DIR, right? 25 A. I would answer that by saying, ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 776 1 Mr. Sharkey, that that -- 2 EXAMINER PRICE: Mr. Williams, you should 3 answer it by answering his question. You should 4 listen carefully to Mr. Sharkey's question and answer 5 Mr. Sharkey's question directly. And if there is 6 need for additional information, I am sure your 7 counsel will ask you that on redirect. 8 A. The answer is, no, I have not. 9 Q. Are you aware that the Commission has 10 approved riders for FirstEnergy and AEP that are 11 similar to the DIR that DP&L seeks, correct? 12 A. I believe they are similar. 13 Q. Okay. And you recall that I deposed you 14 before the amended application -- I'm sorry, the 15 amended stipulation was filed and then again after 16 the amended stipulation was filed. 17 A. I do recall that. 18 Q. Okay. So I want to go back to before the 19 amended stipulation was filed, and you told me then, 20 I want to make sure it's still true, that on a 21 proportionate basis DP&L's application sought less 22 money in its DIR than FirstEnergy and AEP received in 23 their DIR, right? 24 MR. KUMAR: Objection. If he is going to 25 refer to the witness's deposition, I would like him ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 777 1 to give a copy of that deposition to the witness. 2 EXAMINER WALSTRA: Do you need a copy? 3 THE WITNESS: Yes, I do. 4 EXAMINER WALSTRA: Do you have a copy? 5 MR. SHARKEY: Sure. Happy to. May I 6 approach, your Honor? 7 EXAMINER WALSTRA: You may. 8 MR. KUMAR: Do you have a page number, 9 Jeff? 10 MR. SHARKEY: 34 to 35. 11 A. Which page was that, Mr. Sharkey? 12 Q. Yeah. If you would turn to pages 34 and 13 35 and really starts on page 34, line 19, and you see 14 there that we are talking about the DIR and AEP and 15 FirstEnergy's DIRs, right? 16 A. Yes. 17 Q. Okay. And then you told me that DP&L was 18 seeking on a proportional basis less than FirstEnergy 19 and less than AEP, correct? 20 MR. KUMAR: Your Honor, again, I just 21 have a clarification. Are you referring to the DIR 22 as was proposed before the amended application? The 23 amended stipulation was filed in -- 24 MR. SHARKEY: That is the DIR that was 25 being discussed at this time because it was before ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 778 1 the amended stipulation was filed. 2 MR. KUMAR: Okay. 3 A. And at that time the DIR was 4 proportionately less than the AEP and FirstEnergy. 5 Q. Okay. 6 A. Of course, now, it's not defined. 7 Q. Well, you agree with me that the DIR 8 in -- now, let's go to where we are today. We have 9 an amended stipulation that includes a DIR, right? 10 A. Yes. 11 Q. And you agree that the DIR in the amended 12 stipulation is even narrower than the DIR that DP&L 13 had originally proposed. 14 A. I don't agree with that at all. 15 MR. SHARKEY: Your Honor, may I approach? 16 EXAMINER WALSTRA: You may. 17 Q. If you turn, please, to page 76. 18 A. I'm there. 19 Q. Okay. I asked you the question "So it's 20 true that the DIR in the stipulation is narrower than 21 the DIR that DP&L had originally proposed?" And your 22 answer was "It appears to be narrower and limited to 23 just plant." Did I read that accurately? 24 A. Yes. It only addresses plant but in 25 the -- in the settlement, there's no longer caps or ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 779 1 anything else in terms of what the DIR could cost. 2 It's all been deferred to some other regulatory 3 proceeding. 4 Q. You agree with me it's narrower, right? 5 A. It appears to be addressing only capital, 6 but I'm not 100 percent sure of that either. 7 Q. You do contest DP&L's recovery of charges 8 under a variety of rates and riders, correct? 9 A. Yes. 10 Q. You do not claim anywhere in your 11 testimony that any of the amounts to be recovered 12 through the stipulation were imprudently incurred, 13 correct? 14 A. Can you be more specific with what 15 specific charges you are referring to? 16 Q. You don't claim that any amounts to be 17 recovered by DP&L under the stipulation were 18 imprudently incurred, do you? 19 A. I wouldn't know. 20 Q. OCC did have the opportunity to conduct 21 discovery in this case, didn't it? 22 A. And OCC did but there are many -- there 23 are several items that are being proposed under the 24 settlement that are items that are somewhat -- 25 whether or not the costs were prudently incurred are ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 780 1 really the subject of a distribution rate case and a 2 staff report that needs to come out at some point in 3 time. For example, the rider -- 4 MR. SHARKEY: Your Honor -- 5 A. -- DIR -- 6 MR. SHARKEY: -- I move to strike. The 7 only question to him was OCC had an opportunity to 8 conduct discovery in this case. The answer was 9 unresponsive. 10 EXAMINER WALSTRA: I am going to grant 11 the motion. 12 Q. Please turn in your supplemental 13 testimony to page 16. You can see, for example, on 14 line 8, that answer, that you are talking about the 15 DIR and the DMR, correct? 16 A. Yes. 17 Q. Okay. Then if you would turn to the next 18 page, page 17, starting on line 2, I am not going to 19 read all of your answer, just the part I am 20 interested in, you state "There are no conditions 21 attached, DP&L is free to use the revenues collected 22 from customers as they desire, including subsidizing 23 uneconomic generation." Did I read that accurately? 24 A. You did. 25 Q. Do you have available to you a copy of ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 781 1 the amended stipulation? 2 A. I did bring a copy. 3 Q. Please turn, if you would, to page 5. 4 Subparagraph b, you understand that paragraph 5 identifies what the cash from the DMR could be used 6 for, correct? 7 A. That's how I read that. 8 Q. And there is nothing in that paragraph 9 that authorizes the use of cash for generation, is 10 there? 11 A. Just transmission and distribution. 12 Q. Turn then to page 6, paragraph d. That 13 paragraph identifies what the -- what can be included 14 for recovery in the distribution investment rider, 15 correct? 16 A. Yes. As I mentioned during my 17 deposition, that comment was more related to the DMR, 18 not DIR. 19 Q. In any event just so our record is clear, 20 there is nothing in that subparagraph that permits 21 the use of -- permits the recovery rather of 22 generation-related costs through the DIR, right? 23 A. Appears to be just distribution capital. 24 Q. Let me ask you about reliability ratings. 25 Do you agree with DP&L has been achieving its ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 782 1 reliability ratings, correct? 2 A. Yes, it has. 3 Q. Okay. And DP&L's had above average 4 customer satisfaction ratings, right? 5 A. Yes, it has. 6 Q. Okay. In your direct testimony please 7 turn to Exhibit No. 14, JDW-14. It's about 8 two-thirds of the way back. 9 A. I'm there. 10 Q. Okay. In that document is a customer 11 perception survey that was performed by Metrix 12 Matrix? 13 A. Right. That's correct. 14 Q. Okay. And you've cited to and discussed 15 this survey in your testimony, correct? 16 A. I did. 17 Q. Okay. And turn, if you would, within the 18 document to page 6034. 19 A. I'm there. 20 Q. Okay. And as you can see by reading the 21 introductory paragraph, the survey asks residential 22 customers to write -- rate between 1, which is not 23 important at all, and 10, which is very important, 24 their responses to three different questions, right? 25 A. That's correct. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 783 1 Q. Okay. So the first question was "Could 2 you indicate how important it is" -- "it is to you to 3 reduce by half the frequency of sustained outages," 4 right? 5 A. Yes. 6 Q. Okay. And we can see in the chart at the 7 bottom that the mean important rating of reducing by 8 half the frequency of sustained outages was 7.2. 9 A. That's correct. 10 Q. Okay. And you can also see that the next 11 question was "Could you indicate how important it is 12 to you to reduce by half the duration of sustained 13 outages," and the mean important rating was 7.4, 14 correct? 15 A. That is correct. 16 Q. And then the last question was "Could you 17 indicate how important it is to you to reduce by half 18 the number of momentary power outages," and the mean 19 importance rating was 6.2, right? 20 A. That's correct. 21 Q. And you agree those three questions all 22 relate to reliability of the system, correct? 23 A. In this context, yes. 24 Q. Okay. Turn to page to 6035 which is a 25 continuation of the same document but relates to a ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 784 1 survey of businesses as you understand it, right? 2 A. Yes. 3 Q. Okay. Keep turning, if you would, then 4 to 6046. Are you there? 5 A. I'm there. 6 Q. Okay. And this is a document that 7 looks -- or page that looks much like the page I just 8 asked you about only directed to businesses, right? 9 A. Right. 10 Q. Contains the same questions and 11 identifies the mean importance rating, right? 12 A. That's what it appears to do. 13 Q. Without going through each one, the 14 importance ratings that it has, the mean importance 15 ratings are 7.7, 7.8, and 7.0, correct? 16 A. That is what it appears to be. 17 MR. SHARKEY: Your Honor, I have no 18 further questions. 19 EXAMINER WALSTRA: Thank you. 20 Go back around the room. 21 - - - 22 CROSS-EXAMINATION 23 By Mr. Keaney: 24 Q. Mr. Williams, can I have you turn to page 25 7 of your testimony, line 9, and let me know when you ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 785 1 get there. 2 A. Which testimony? 3 Q. Your supplemental testimony. 4 A. I'm there. 5 Q. Okay. At page 7, line 9, you say that 6 the vast majority of customers are not represented in 7 the settlement. Do you see that? 8 A. That is correct. 9 Q. And at the same page if you go down to 10 your footnote 15, you say that there are some 515,000 11 customers in the DP&L service territory; is that 12 right? 13 A. That's correct. 14 Q. And of that 515,000, approximately 15 456,000 are residential customers; is that right? 16 A. That's my understanding. 17 Q. And if I do the math correctly, that 18 leaves about 59,000 customers left which are 19 commercial and industrial customers; is that right? 20 A. Yes. 21 Q. You said in your testimony the City of 22 Dayton is the largest municipality in the DP&L 23 service territory; isn't that correct? 24 A. I believe it is, subject to check. 25 Q. Okay. So just to check, in your ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 786 1 supplemental testimony on page 7, line 5, when you 2 refer to "the largest municipality in the DP&L 3 service territory," you are referring to the City of 4 Dayton, are you not? 5 A. I am. 6 Q. Okay. So just to clarify here, in DP&L's 7 service territory there are more residential 8 customers that live in the City of Dayton than any 9 other municipality; is that fair to say? 10 A. I believe that to be the case. 11 Q. Okay. And isn't it true in the latest 12 U.S. Census data approximately 140,000 residents live 13 in the City of Dayton? 14 A. That I'm not 100 percent sure of, how 15 many residents are in Dayton. 16 Q. Okay. Subject to check? 17 A. Subject to check. 18 Q. Okay. In your testimony you state that 19 the poverty level in the City of Dayton is 35.5 20 percent; is that right? 21 A. That's correct. 22 Q. And you took that information in footnote 23 35 on page 13 of your testimony from the "Ohio 24 Poverty Report" which was produced by the Ohio 25 Development Services Agency; is that right? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 787 1 A. That is correct. 2 Q. You relied on that report when you were 3 drafting your supplemental testimony; is that right? 4 A. I did. 5 Q. You are familiar with the contents of 6 that report? 7 A. Very. 8 Q. Okay. According to that report 45,910 9 residents in the City of Dayton are low-income 10 customers; is that right? 11 A. That sounds about right. 12 Q. Okay. Do you have a copy of your -- of 13 the Ohio Poverty Report? 14 A. I did not bring it with me. 15 MR. KEANEY: Your Honor, may I approach? 16 EXAMINER WALSTRA: You may. 17 Q. Mr. Williams, you had cited page 65, 18 Table A6 of that report in your footnote 35 on page 19 13; isn't that right? 20 A. That looks right. 21 Q. If you can follow me here, the City of 22 Dayton, here it shows on that left-hand column 23 129,412 residents, and of that 129,412 residents, 24 45,910 residents are rated as poor or low income; is 25 that true? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 788 1 A. Yeah. Now, of course, in this context 2 the 129,000 I believe to be the -- is persons for 3 whom poverty status was determined. These aren't 4 necessarily individual residents, customers of DP&L. 5 Q. Okay. But the 45,910 number is where 6 your 35.5 percent number came from you cite in your 7 supplemental testimony, is it not? 8 A. Yes, it is. 9 Q. Okay. 10 EXAMINER WALSTRA: Are you going to mark 11 this as an exhibit? 12 MR. KEANEY: Yes, your Honor. Thank you. 13 It's Dayton Exhibit 1, City of Dayton Exhibit 1, 14 please. 15 EXAMINER WALSTRA: So marked. 16 (EXHIBIT MARKED FOR IDENTIFICATION.) 17 Q. You had also cited in your supplemental 18 testimony there are approximately 30,000 low-income 19 customers in DP&L's service territory that are 20 Percentage of Income Payment Plan Program; isn't that 21 true? 22 A. That is correct. 23 Q. And just so the record is clear, we can 24 agree to call those PIPP customers? 25 A. Yes. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 789 1 Q. How many of the 30,000 PIPP customers 2 reside in the City of Dayton? 3 A. I do not know. Dayton -- DP&L serves 4 approximately 30,000 PIPP customers across its entire 5 service territory. 6 Q. And from that report we just looked at, 7 about 45,000, almost 46,000 residents in the City of 8 Dayton are listed as poor or low income? 9 A. That is true. 10 Q. It's fair to say at least half or more 11 PIPP customers reside in the City of Dayton? 12 A. I don't know what the exact numbers are. 13 Q. Can you say that at least some of those 14 PIPP customers reside in the City of Dayton? 15 A. There are PIPP customers in Dayton. 16 Q. In addition to the City of Dayton, there 17 are also three other groups representing low-income 18 customers that signed the amended stipulation, 19 correct? 20 A. That's my understanding. 21 Q. Is that a "yes"? 22 A. Yes. 23 Q. In addition to those resident customers, 24 you would also agree there are commercial and 25 industrial customers in DP&L's service territory? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 790 1 A. Yes. 2 Q. Other than Wal-mart, are you aware of any 3 other commercial customer who is opposed to amending 4 this stipulation? 5 A. I don't know of anybody. 6 Q. Let me clarify my question for the 7 record, please. Other than Wal-mart, are you aware 8 of any other commercial customer who is opposing the 9 amended stipulation? 10 A. No. I don't know of any. 11 Q. Okay. Are you aware of any industrial 12 customer who is opposing the amended stipulation? 13 A. No. 14 Q. Are you aware of any trade association 15 who is opposing the amended stipulation? 16 A. I wouldn't know. 17 Q. Is that a "no"? 18 A. I don't know. 19 Q. In fact, many of those commercial and 20 industrial customers have signed the amended 21 stipulation as either a signatory party or as a 22 nonopposing party; isn't that true? 23 MR. KUMAR: Objection. I don't think 24 your -- you never specified which trade organizations 25 you were discussing. You just said trade ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 791 1 organizations and then. 2 MR. KEANEY: I referred to trade 3 organization in my prior question, your Honor. What 4 I am asking now is simply are any of the industrial 5 or commercial customers that I just previously asked 6 either a signatory or a nonopposing party of the 7 amended stipulation. I am not referring to trade 8 associations in this question. 9 EXAMINER WALSTRA: Overruled. 10 A. If I look at the amended settlement, I 11 see a number of different signatory parties. I 12 recall in Ms. Schroder's testimony a list of 13 different parties that had been involved in the 14 settlement discussions. That's the only list that I 15 would be aware of. I don't know if customer -- if 16 other customers are -- are opposed to this. I hadn't 17 looked at the docket to see if customers, for 18 example, have filed letters, expressed opposition 19 through the docket, other ways in which customers 20 might do that. 21 Q. Okay. Let me go back to our discussion 22 about whether you believe there is a diversity of 23 interest that are supporting this amended 24 stipulation. You explained in footnote 12, which is 25 on page 6 of your supplemental testimony -- let me ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 792 1 know when you are there. 2 A. I'm there. 3 Q. That the Commission takes into account 4 the diversity of interest as part of that first prong 5 of the stipulation assessment; isn't that true? 6 A. That's my understanding. 7 Q. Okay. And OCC purports to represent some 8 456,000 residential customers in DP&L's service 9 territory; is that true? 10 A. OCC statutorily represents all 11 residential customers in the DP&L service territory. 12 Q. So of the 456,000 you cited, you then -- 13 A. We purport -- OCC represents those 14 customers. We are not merely purporting anything. 15 Q. Okay. So of those 496,000 residential 16 customers, you said that that's the vast majority of 17 customers in DP&L's service territory; isn't that 18 true? 19 A. That is correct. 20 MR. KUMAR: Wait. I would like to 21 clarify just for the record, did you say 496 or -- 22 MR. KEANEY: 456. 23 A. Vast, correct. The vast majority of the 24 456,000 DP&L residential customers who are 25 represented by the Ohio Consumers' Counsel I don't ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 793 1 believe are represented in this amended settlement. 2 Q. Okay. You had indicated earlier that 3 there can be no diversity of interests represented in 4 this settlement if the vast majority of customers do 5 not support this settlement; isn't that true? 6 A. The vast majority in that context is the 7 vast majority of customers who are paying for this 8 settlement are not represented. 9 Q. If I can refer you to page 7 of your 10 supplemental testimony, line 9. 11 A. I'm there. 12 Q. Excuse me, line 8. Begins "there is 13 hardly a diversity of interests represented in this 14 Settlement when the interests of the vast majority of 15 customers who pay DP&L electric bills are not 16 supporting the Settlement." 17 A. I believe that's what I just said. 18 Q. Okay. So it is your position as the 19 representative of the vast majority of DP&L 20 customers, paying customers, OCC's support of the 21 settlement would be required for there to be a 22 diversity of interest that would be represented in 23 this settlement; isn't that true? 24 MR. KUMAR: Your Honor, may I have that 25 question reread? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 794 1 EXAMINER WALSTRA: Sure. Please. 2 (Record read.) 3 A. My answer to that is that I would trust 4 that the Commission would not approve a settlement 5 that doesn't include the statutory representative of 6 the vast majority of the DP&L customers. 7 EXAMINER PRICE: Actually, Mr. Williams, 8 the Commission has rejected that premise before, has 9 it not? 10 THE WITNESS: I believe that to be the 11 case, although I believe each case speaks for itself. 12 I would hope that the Commission -- 13 EXAMINER PRICE: The Commission has on 14 multiple occasions rejected the premise that any one 15 party should be able to review a settlement and the 16 Commission was upheld by the Ohio Supreme Court; is 17 that correct? 18 THE WITNESS: In terms of the court, I'm 19 not sure, but I do know that the PUCO has in the past 20 different times not supported that premise. I would 21 hope that would not be the case with this settlement. 22 EXAMINER PRICE: Every case is different. 23 Q. (By Mr. Keaney) So I just have one more 24 question. You are not aware of any Commission 25 precedent that OCC's support of a stipulation is ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 795 1 necessary to find that prong one of the stipulation 2 assessment is satisfied; isn't that true? 3 A. I believe that to be true. 4 MR. KEANEY: I have no more questions, 5 your Honor. 6 EXAMINER WALSTRA: Thank you. 7 Mr. Oliker? 8 MR. OLIKER: Thank you, your Honor. 9 - - - 10 CROSS-EXAMINATION 11 By Mr. Oliker: 12 Q. Just a few questions for you today, 13 Mr. Williams. Am I correct that your testimony 14 recommends that the Commission not approve the 15 uncollectible expense rider? 16 A. That is my testimony. 17 Q. Do you understand that the proposed 18 uncollectible expense rider would have a bypassable 19 and nonbypassable component? 20 A. That's my reading of the amended 21 settlement. 22 Q. And you understand that the bypassable 23 component of the uncollectible expense rider would 24 relate to the receivables associated with the full 25 service generation? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 796 1 A. Can you repeat the question, please? 2 Q. Do you understand that the uncollectible 3 expense rider proposed by the stipulation would have 4 a bypassable component that relates to uncollected 5 receivables associated with default service 6 bypassable generation rates? 7 A. Yes. 8 Q. And nothing in your testimony suggests 9 that uncollectible expenses associated with default 10 service generation don't exist. 11 A. That's not my testimony. 12 MR. OLIKER: That's all the questions I 13 have, your Honor. Thank you, Mr. Williams. 14 EXAMINER WALSTRA: Thank you. 15 Mr. Pritchard? 16 Staff? 17 MR. McNAMEE: No questions. 18 - - - 19 EXAMINATION 20 By Examiner Price: 21 Q. I just had a couple. Could you turn to 22 page 16 of your testimony, line 10. 23 MS. BOJKO: Supplemental? 24 EXAMINER PRICE: Yeah, supplemental, line 25 10. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 797 1 A. I'm there. 2 Q. Understanding you're not an attorney, I 3 am not asking for a legal conclusion, but you state 4 "The DIR is contrary to state law to the extent that 5 any investments are not specifically related to 6 distribution infrastructure modernization"; is that 7 correct? 8 A. That is correct. 9 Q. And then you cite 4928.143(B)(2)(h); is 10 that correct? 11 A. I do. 12 Q. But 4928 -- 4928.143(B)(2)(h) authorizes 13 a number of different provisions besides a 14 distribution modernization rider; is that correct? 15 A. Yes. I believe it's not limited to just 16 that. 17 Q. Including single-issue ratemaking. 18 A. Yes. 19 Q. Is it fair to characterize the DIR as 20 single-issue ratemaking? 21 A. I believe that it is. 22 Q. So your statement is not correct. 23 A. No. I believe that the statement is 24 correct. What I am trying to point out, your Honor, 25 is that there's -- there's a difference between the ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 798 1 collection -- the investments that are necessary to 2 just maintain the operation, maintenance of a 3 distribution system and the investments that are 4 purported to provide some type of distribution 5 modernization. 6 Q. That's not my question. Your testimony 7 is -- it says it's "contrary to state law," but you 8 agree that the same state law you cite to would 9 authorize the DIR single-issue ratemaking; is that 10 correct? 11 A. I believe that that statute supports 12 single-issue ratemaking, but using the single-issue 13 ratemaking for recovery of routine maintenance and 14 investments that are needed for the routine 15 maintenance of the distribution system are governed 16 by more traditional ratemaking. 17 Q. Is it not possible that the recovery of 18 the same investment could be recovered under two 19 different statutes, one of which eliminates 20 regulatory lag, one which doesn't? 21 A. I believe that's been the practice in 22 some cases. I don't believe that that type of a 23 practice is needed in Dayton Power and Light though 24 because Dayton Power and Light does have a pending 25 rate case that could be expedited to try to achieve. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 799 1 Q. And the DIR in the amended stipulation 2 will not be implemented until the conclusion of the 3 distribution rate case; is that correct? 4 A. That's not correct. I believe it's the 5 distribution rate case or another rate case. 6 Q. Okay. It will not be implemented until 7 there is a distribution rate case that has been 8 completed. 9 A. Unless there has been some type of a base 10 rate case but it's not necessarily the ongoing rate 11 case. 12 Q. If you could turn to pages 18 and 19 of 13 your testimony. You indicate that the DIR is not 14 necessary because Dayton's performance is getting 15 better; is that correct? 16 A. Yes. Dayton's performance has been good. 17 I wouldn't necessarily say better. It's been -- 18 Q. If Dayton's performance was getting 19 worse, would you support the DIR? 20 A. I think that depends upon what worse 21 really means. 22 Q. If the numbers were just reversed. 23 A. If -- if the -- if a utility was still 24 meeting its reliability standards but perhaps didn't 25 have as good a performance from one year to the next, ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 800 1 I wouldn't see the need for a DIR. 2 Q. What if it was not meeting its 3 reliability standards, would you support a DIR in 4 that circumstance? 5 A. Only to the extent it was distribution 6 modernization or that it was infrastructure 7 modernization. 8 Q. So you would not support a DIR in that 9 circumstance. 10 A. I think each case would have to stand on 11 its own in terms of what was specifically being 12 recommended. 13 Q. So really the reliability, whether it is 14 getting better or worse, is irrelevant because you 15 think it should be distribution modernization. 16 A. That's how I read 4928.143(B)(2)(h). 17 EXAMINER PRICE: Thank you. 18 EXAMINER WALSTRA: Redirect? 19 MR. KUMAR: May I have a few minutes? 20 EXAMINER WALSTRA: You may. 21 Go off the record for a 5-minute recess. 22 (Recess taken.) 23 EXAMINER WALSTRA: Go back on the record. 24 Mr. Kumar? 25 MR. KUMAR: I have no further questions, ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 801 1 your Honor. 2 EXAMINER WALSTRA: Thank you. 3 Thank you, Mr. Williams. 4 THE WITNESS: Thank you. 5 MR. KUMAR: Your Honor, I would move for 6 the admission of Exhibits 13, 13A, and 13B. 7 EXAMINER WALSTRA: Any objections? 8 Hearing none, they will be admitted 9 (EXHIBITS ADMITTED INTO EVIDENCE.) 10 EXAMINER WALSTRA: Dayton's exhibit? 11 MR. KEANEY: We are not moving. 12 EXAMINER WALSTRA: Okay. Off the record 13 for a second. 14 (Discussion off the record.) 15 EXAMINER WALSTRA: Go back on the record. 16 OCC, call your next witness. 17 MR. GARVER: I would like to call Bob 18 Fortney, your Honor. 19 EXAMINER WALSTRA: Raise your right hand. 20 (Witness sworn.) 21 EXAMINER WALSTRA: Thank you. Take a 22 seat. State your name and business address for the 23 record. 24 THE WITNESS: My name is Robert B. 25 Fortney, F as in Frank, O-R-T-N-E-Y. My business ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 802 1 address is 10 West Broad Street, Suite 1800, 2 Columbus, Ohio 43215. 3 EXAMINER WALSTRA: Go ahead. 4 (EXHIBIT MARKED INTO EVIDENCE.) 5 - - - 6 ROBERT B. FORTNEY 7 being first duly sworn, as prescribed by law, was 8 examined and testified as follows: 9 DIRECT EXAMINATION 10 By Mr. Garver: 11 Q. Mr. Fortney, do you have in front of you 12 what's been marked as OCC Exhibit 14? 13 A. Yes. 14 Q. And can you describe that document for 15 me, please. 16 A. My direct testimony in Case No. 17 16-395-EL-SSO. 18 Q. And was that testimony prepared by or at 19 your direction? 20 A. Yes, it was. 21 Q. And do you have any changes or 22 modifications you would like to make to your 23 testimony today, Mr. Fortney? 24 A. No, I don't. 25 Q. And if I asked you the same questions ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 803 1 that appear in that testimony, would you answer them 2 the same today? 3 A. Yes, I would. 4 MR. GARVER: Your Honors, we would like 5 to make Bob Fortney available for cross-examination. 6 EXAMINER WALSTRA: Thank you. 7 Mr. Sharkey. I'm sorry. 8 - - - 9 CROSS-EXAMINATION 10 By Mr. Ireland: 11 Q. Good afternoon, Mr. Fortney. 12 A. Good afternoon, Mr. Ireland. 13 Q. Nice to talk to you again. I have a few 14 just sort of background questions. As I understand 15 it, you were employed by the staff of the Public 16 Utilities Commission from 1985 until 2012; is that 17 right? 18 A. That's correct. 19 Q. And by whom are you employed now? 20 A. I'm employed by the Ohio Consumers' 21 Counsel. 22 Q. And how long have you been employed by 23 the OCC? 24 A. Since December of 2015. 25 Q. And as I understand it, you are not ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 804 1 offering any testimony in this case with respect to 2 financial issues; is that right? 3 A. That's correct. 4 Q. So you've conducted no independent 5 analysis of whether or not DP&L or DPL Inc. needs the 6 DMR in this case; is that fair? 7 A. That's correct. 8 Q. Now, you would agree with me that 9 electric utilities in Ohio should be financially 10 strong, correct? 11 A. Yes, I think it's important to provide -- 12 in providing reliable service that they be 13 financially strong. 14 Q. Now, I believe you've read Ms. Schroder's 15 testimony in this case; is that right? 16 A. That's correct. 17 Q. And she states that DP&L has had among 18 the lowest residential rates of electric utilities in 19 this state, and if the amended stipulation is 20 approved, DP&L's rates will still be among the lowest 21 in the state. You are familiar with that testimony? 22 A. Yes. 23 Q. And you have no reason to disagree with 24 her testimony based upon your experience with the 25 Public Utilities Commission; is that right? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 805 1 A. Based upon other things that I have read 2 and seen, I have no reason to believe that she is 3 inaccurate. 4 Q. Thank you. Now, in this case you are 5 offering testimony about elements two and three of 6 the three-prong test to be applied by the Commission; 7 is that right? 8 A. That's correct. 9 Q. And with respect to the first element, 10 you have no reason to believe that the amended 11 stipulation was not the result of serious bargaining 12 among capable, knowledgeable parties; is that right? 13 A. I have -- excuse me. I have no reason to 14 believe that it was not. When I looked around at the 15 parties who signed and talked, it was the usual 16 suspects. 17 EXAMINER PRICE: I assume you are 18 referring to the attorneys as the usual suspects. 19 Q. So your testimony focuses really on a 20 very narrow issue, the allocation of the DMR costs; 21 is that fair? 22 A. That's exactly right. 23 Q. And in allocating those costs, you would 24 agree there are certain regulatory principles to be 25 applied, right? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 806 1 A. Yes. And the allocation of any costs 2 there are principles that should be applied. 3 Q. Right. One of those principles would be 4 cost causation; is that right? 5 A. Correct. 6 Q. Another one would be Commission 7 precedent? 8 A. Correct. 9 Q. Another principle would be gradualism, 10 not having sharp inclines or declines or changes in 11 rates; is that right? 12 A. Correct. 13 Q. Fairness is also a regulatory principle 14 to be considered; is that right? 15 A. Correct. 16 Q. And in applying those principles, it's 17 important to look at individual rates as well as the 18 rates as a whole; is that right? 19 A. I think you would look at both. 20 Q. And cost allocation is a matter of 21 judgment, right? 22 A. Certainly an element of judgment. There 23 are certain cases of allocation that are kind of 24 universally accepted but a great number of 25 allocations are certainly subject to the individual's ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 807 1 judgment. 2 Q. Right. At the end of the day cost 3 allocation and rate design are largely a matter of 4 judgment; is that right? 5 A. I was always told it was an art rather 6 than a science. 7 Q. And certainly reasonable people could 8 look at the same cost allegation and come to 9 different judgments about it; isn't that right? 10 A. I believe that, sure. 11 Q. Oh, and we don't want to forget 12 commonsense. That's a part of this exercise, is it 13 not? 14 A. I think it's probably the most important 15 part of this exercise. 16 Q. And your basic disagreement with 17 Ms. Schroder is that you think the residential class 18 bears a disproportionate share of the DMR; is that 19 fair? 20 A. The only disagreement with Ms. Schroder 21 in that she supports the stipulation and the 22 stipulation has an allocation of the DMR that I 23 disagree with. 24 Q. Right. And that's the focus of your 25 testimony. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 808 1 A. Yes. 2 Q. Although you would agree that many 3 customers are going to actually be experiencing a 4 rate decrease when they look at their bill; isn't 5 that right? 6 A. They will be experiencing a decrease but 7 not as large of a decrease as they would have if my 8 recommendation for the allocation of the DMR was 9 accepted. 10 Q. Now, referring to your testimony at page 11 8, you make reference there to the NARUC Cost 12 Allocation Manual. It's in line 15. Do you see 13 that? 14 A. Yes. 15 Q. And you believe that is authoritative, 16 don't you? 17 A. I believe that is probably the most 18 common resource for cost allocations. 19 Q. And you go on to say in your testimony 20 that "The NARUC manual does not address the 21 allocation of costs associated with riders designed 22 for credit support in order to maintain the financial 23 integrity of electric companies or their parent or 24 affiliates." Do you see that? 25 A. Yes. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 809 1 Q. And you do not know whether debt costs 2 are related to the volume of energy being delivered; 3 is that right? 4 A. I don't believe that I claim that debt 5 cost is directly related to the volume of energy 6 being received. 7 Q. Right. And the NARUC manual doesn't 8 really provide you with any guidance on this 9 question; is that fair? 10 A. Not to my knowledge. 11 Q. We talked about some of the regulatory 12 principles but there are a number of other 13 considerations to be taken into account when you 14 allocate costs; is that right? 15 A. For instance? 16 Q. Energy? 17 A. Well, there are a number of factors -- 18 Q. Right, a number of factors, okay. 19 A. -- that you can allocate costs upon, 20 energy, demand, revenue. 21 Q. Distribution? 22 A. Distribution revenue. 23 Q. Current rates? 24 A. Current rates, current riders, probably 25 others but those pretty much cover. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 810 1 Q. And that all has to be taken into 2 consideration when you are exercising your judgment; 3 is that right? 4 A. Sure. 5 Q. Now, as I understand it, you're 6 advocating cost allocation based solely on the 7 Commission precedent from the FirstEnergy case; is 8 that right? 9 MR. GARVER: Objection, misstates his 10 testimony. 11 EXAMINER WALSTRA: Overruled. 12 A. No. That is one of the factors that I 13 use but the other factors, that it's the proper 14 allocation. 15 Q. Would you agree with me that there are 16 going to be situations where Commission precedent 17 should not be followed, that it's going to depend on 18 individual circumstances? 19 A. I guess I need the question clarified. 20 If the Commission has ordered something, that should 21 be followed. 22 Q. Oh. 23 A. Is that what you are asking me? 24 Q. No, no. I think we can all agree the 25 Commission orders should be followed. But when you ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 811 1 are looking to Commission orders as a source of 2 regulatory guidance for the purposes of cost 3 allocation, would you agree with me that you may not 4 always follow Commission precedent? 5 A. There will probably be a time where I 6 will try to convince Examiner Price that his love of 7 a straight fixed variable is misguided. 8 EXAMINER PRICE: And never convince me. 9 Q. So -- so I think you would agree with me 10 that it's not an absolute that is to be followed in 11 every instance. 12 A. I don't think that any Commission order 13 is written in stone, and on occasion the Commission 14 has changed its own orders. I think they are going 15 through an issue right now with submetering where 16 they have reversed in the past a couple times the 17 Commission precedent, and they are still struggling 18 with what to do with that issue. 19 Q. So there's going to be a number of 20 different ways to do allocation and there's no 21 universal opinion as to which one is correct; is that 22 fair? 23 A. There may be no universal opinion but 24 there may be opinions that are more correct than 25 others. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 812 1 MR. IRELAND: I'm sure that's true. 2 I don't have anything further, your 3 Honor. 4 EXAMINER WALSTRA: Thank you. 5 Ms. Bojko? 6 MS. BOJKO: No questions, your Honor. 7 EXAMINER WALSTRA: Go ahead. 8 MR. ALEXANDER: Yes, your Honor, just a 9 couple. 10 - - - 11 CROSS-EXAMINATION 12 By Mr. Alexander: 13 Q. Mr. Fortney, turning in your testimony to 14 page 10, starting on line 18, where you propose the 15 Commission adopt Staff Witness Turkenton's rate 16 design proposal from the FirstEnergy ESP proceeding. 17 Do you see that? 18 A. Yes, I see that discussion. 19 Q. Okay. I would like to give just a little 20 more background on that FirstEnergy proceeding. Now, 21 the DMR in the FirstEnergy proceeding was actually 22 proposed in the rehearing phase of that case; is that 23 correct? 24 A. I believe that's correct, yes. 25 Q. And there was no stipulation between ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 813 1 staff and FirstEnergy regarding the DMR, correct? 2 A. I believe that's correct. 3 Q. And so in this case the rate design has 4 been addressed in a stipulation, correct? 5 A. That's correct. 6 Q. Okay. And I believe you said earlier in 7 response to questions from Mr. Ireland the rate 8 design can be more art than science. Do you recall 9 that conversation? 10 A. Yes. 11 Q. And you would agree that here the parties 12 have agreed on the appropriate allocation expressed 13 in the amended stipulation? 14 A. Parties that have signed the stipulation 15 or agreed not to oppose have apparently found it to 16 be reasonable. 17 Q. And staff is one of the parties that 18 signed the amended stipulation? 19 A. That's correct. 20 MR. ALEXANDER: I don't have any further 21 questions. Thank you, Mr. Fortney. 22 EXAMINER WALSTRA: Thank you. 23 Mr. Oliker? 24 MR. OLIKER: No. Thank you, your Honor. 25 MR. GLADMAN: Mr. Pritchard? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 814 1 MR. PRITCHARD: Yes. A few questions, 2 your Honor. 3 - - - 4 CROSS-EXAMINATION 5 By Mr. Pritchard: 6 Q. Good afternoon, Mr. Fortney. 7 A. Good afternoon. 8 Q. Page 8 of your testimony, line 15, you 9 reference the NARUC Cost Allocation Manual, correct? 10 A. Correct. 11 Q. And you would agree that this manual is a 12 reliable source of information on cost of service 13 questions, correct? 14 A. Yes. 15 Q. And cost of service analysis typically 16 begins with a functional -- functionalization, 17 correct? 18 A. Normally the first step in a cost of 19 service study. 20 Q. And functions of an electric utility are 21 generation, transmission, and distribution, correct? 22 A. Correct. 23 Q. And then the next step after the analysis 24 is if you look at classification and assigned costs 25 on energy demand or customer charge, correct? ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 815 1 A. Correct. 2 Q. You understand that under the amended 3 stipulation DP&L has proposed to divest generation 4 assets, correct? 5 A. Certainly not my area of expertise nor a 6 matter of my testimony but, yes, I understand that 7 there were three plants that they have agreed to 8 divest. 9 Q. And you understand that for the SSO, DP&L 10 will be securing generation service through an 11 auction process, correct? 12 A. I believe so, yes. 13 Q. So the functions that DP&L will be 14 providing are transmission service and distribution 15 service, correct? 16 THE WITNESS: I'm sorry. Could I have 17 the question reread? 18 EXAMINER WALSTRA: Sure. Please. 19 (Record read.) 20 A. Yes. 21 Q. Now, I have a few questions about the 22 NARUC Cost Allocation Manual. 23 MR. PRITCHARD: Your Honor, I would like 24 to have marked as IEU-Ohio Exhibit 2. 25 EXAMINER WALSTRA: So marked. ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 816 1 (EXHIBIT MARKED FOR IDENTIFICATION.) 2 Q. Mr. Fortney, do you have in front of you 3 what has been marked as IEU-Ohio Exhibit 2, the 4 binder? 5 A. This book? 6 Q. Yes. 7 A. Yes. 8 Q. Would you open the binder, take a look at 9 the document in front of you. And is this the NARUC 10 Cost Allocation Manual referenced in your testimony? 11 A. It appears to be, yes. 12 Q. Now, will you turn to page 13 of this 13 manual and will you review the two paragraphs on the 14 bottom of this page. I'm sorry, page 22, not page 15 13, the paragraph at the bottom of page 22. 16 A. The one you have highlighted for me? 17 Q. I apologize that you did not receive a 18 clean copy. It's correct that the manual states that 19 "This manual only discusses the major costing 20 methodologies" in that first sentence, correct? 21 A. Correct. 22 Q. And it continues -- it recognizes that 23 "no single costing methodology will be superior to 24 any other and the choice of methodology will depend 25 on the unique circumstances of each utility," ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 817 1 correct? 2 A. You read it correctly, yes. 3 Q. Now, in your testimony you did not 4 include a bill impact analysis, correct? 5 A. That's correct. 6 Q. And you did not conduct a cost of service 7 analysis, correct? 8 A. I did not perform a cost of service 9 analysis, and I did give a bill impact for a 1,000 10 kilowatt hour residential customer. 11 Q. And in considering rate design, you went 12 through a couple of principles with -- in response to 13 questions from Mr. Ireland, correct? 14 A. That's correct. 15 Q. And you would agree that one principle 16 the Commission should consider when reviewing an 17 issue of cost allocation is the intent of parties to 18 a stipulation, correct? 19 A. I'm sorry? 20 MR. PRITCHARD: Could I have that 21 question reread, your Honor? 22 EXAMINER WALSTRA: Sure. 23 (Record read.) 24 A. I think the intent of the parties to a 25 stipulation would be one criteria to be reviewed, ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 818 1 certainly not the only criteria. 2 MR. PRITCHARD: I have no further 3 questions, your Honor. 4 EXAMINER WALSTRA: Thank you. 5 Staff? 6 MR. McNAMEE: No questions. Thank you. 7 EXAMINER WALSTRA: Do you have any 8 questions? 9 Any redirect? 10 MR. GARVER: No redirect. 11 EXAMINER WALSTRA: All right. Thank you. 12 MR. GARVER: At this time OCC would move 13 OCC Exhibit 14 be admitted into the record, your 14 Honor. 15 EXAMINER WALSTRA: Any objections? 16 Hearing none, it will be admitted. 17 (EXHIBIT ADMITTED INTO EVIDENCE.) 18 EXAMINER WALSTRA: Are you moving your 19 exhibit? 20 MR. PRITCHARD: I am not unless it would 21 be the Bench's preference. 22 EXAMINER WALSTRA: Okay. We will be 23 adjourned until 9:00 a.m. tomorrow. Thank you. 24 We are off the record. 25 (Thereupon, at 2:26 p.m., the hearing was adjourned) ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481 819 1 2 - - - 3 CERTIFICATE 4 I do hereby certify that the foregoing is 5 a true and correct transcript of the proceedings 6 taken by me in this matter on Monday, April 10, 2017, 7 and carefully compared with my original stenographic 8 notes. 9 10 _______________________________ 11 Karen Sue Gibson, Registered Merit Reporter. 12 13 (KSG-6344) 14 - - - 15 16 17 18 19 20 21 22 23 24 25 ARMSTRONG & OKEY, INC., Columbus, Ohio (614) 224-9481