PECO ENERGY COMPANY STATEMENT NO. 1

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION

PENNSYLVANIA PUBLIC UTILITY COMMISSION

v.

PECO ENERGY COMPANY – ELECTRIC DIVISION

DOCKET NO. R-2015-2468981

____________________________________________

DIRECT TESTIMONY ____________________________________________

WITNESS: MICHAEL A. INNOCENZO

SUBJECTS: DESCRIBING PECO’S ELECTRIC OPERATIONS; PROVIDING AN OVERVIEW OF PECO’S RATE FILING; EXPLAINING PECO’S CAPITAL INVESTMENT PROCESS; AND DISCUSSING STEPS TAKEN BY PECO TO ENHANCE THE QUALITY OF SERVICE AND PROMOTE ECONOMIC DEVELOPMENT

DATED: MARCH 27, 2015

TABLE OF CONTENTS

Page

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I. INTRODUCTION AND PURPOSE OF TESTIMONY ................................................... 1

II. DESCRIPTION OF PECO’S ELECTRIC OPERATIONS ............................................... 3

III. OVERVIEW OF RATE FILING....................................................................................... 5

IV. PECO’S CAPITAL INVESTMENT PROCESS ............................................................... 8

V. QUALITY OF SERVICE, COMMUNITY SUPPORT, AND ECONOMIC DEVELOPMENT ............................................................................................................ 10

VI. CONCLUSION ................................................................................................................ 25

DIRECT TESTIMONY 1 OF 2

MICHAEL A. INNOCENZO 3

I. INTRODUCTION AND PURPOSE OF TESTIMONY 4

1. Q. Please state your name and business address. 5

A. My name is Michael A. Innocenzo. My business address is PECO Energy Company, 6

2301 Market Street, Philadelphia, Pennsylvania 19103. 7

2. Q. By whom are you employed and in what capacity? 8

A. I am employed by PECO Energy Company (“PECO” or the “Company”) as Senior 9

Vice President and Chief Operating Officer. In that capacity, I lead PECO’s electric 10

and natural gas distribution and transmission operations. These operations include 11

customer service, construction and maintenance, engineering and technical services, 12

investment strategy, safety, environmental, training, fleet, supply operations, real 13

estate and facilities, and human resources. These functions, in turn, are staffed by 14

approximately 2,400 craft, professional and support employees. I also ensure that the 15

operating groups are well integrated and focused on safety, reliability, and customer 16

satisfaction. 17

3. Q. Please summarize your prior professional experience. 18

A. During the past 25 years, I have held numerous positions within PECO. I will 19

highlight a few of my more recent positions. 20

Before becoming Chief Operating Officer of PECO, I served as Vice President, 21

Distribution System Operations and Smart Grid/Smart Meter. In that role, I was 22

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responsible for the operation of the Company’s electric and natural gas distribution 1

systems as well as the design and deployment of PECO’s Smart Grid and Smart 2

Meter systems. 3

Prior to that, I was the Director of Gas Operations, Quality Services and Performance 4

Improvement. I also served as a Regional Director in Philadelphia and Delaware and 5

Chester County regions, as well as a Regional Engineering Manager for Delaware 6

and Chester Counties. I also was the Emergency Services Supervisor in the 7

Philadelphia Region and a Project Engineer in Philadelphia and Montgomery County 8

Divisions. 9

4. Q. What is your educational background? 10

A. I earned my Bachelor’s Degree in Electrical Engineering from Widener University 11

and a Masters of Business Administration from Villanova University. 12

5. Q. What is the purpose of your direct testimony? 13

A. The several purposes of my direct testimony are as follows: (1) to generally describe 14

PECO’s electric distribution operations; (2) to provide an overview of this rate filing, 15

including an introduction of the other witnesses who will present testimony in support 16

of PECO’s case-in-chief; (3) to explain PECO’s capital-investment process and to 17

identify the types of projects that comprise PECO’s claimed future test year and fully 18

projected future test year plant additions; (4) to describe various measures undertaken 19

by the Company to ensure system safety and reliability and further enhance the 20

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quality of its service; and (5) to discuss measures taken by the Company to enhance 1

the communities in which it operates and to promote economic development. 2

II. DESCRIPTION OF PECO’S ELECTRIC OPERATIONS 3

6. Q. Please provide an overview of PECO’s electric distribution operations. 4

A. PECO provides electric service to approximately 1.6 million retail customers located 5

throughout a 2,100 square-mile area in southeastern Pennsylvania. The Company’s 6

electric service territory comprises all or portions of Bucks, Chester, Delaware, 7

Montgomery, Philadelphia and York Counties and includes a total population served 8

of approximately 4.0 million people. 9

7. Q. What services does PECO offer its electric customers? 10

A. PECO makes available electric distribution service and electric generation supply on 11

an unbundled basis. In addition to those customers who have exercised their option 12

to procure their own generation supply service and pay PECO for delivery (i.e., 13

distribution) service only, the Company, as the default-service provider, procures and 14

delivers power to the homes or places of business of residential and commercial and 15

industrial customers who are not receiving service from an electric generation 16

supplier. In addition to general service, and as set forth in our electric tariff, 17

qualifying customers can avail themselves of a variety of outdoor-lighting, 18

interruptible and other services. 19

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8. Q. How does PECO’s customer base break down by major customer classification? 1

A. As of December 31, 2014, we served 1,434,010 residential customers; 149,149 small 2

commercial and industrial customers; and 3,103 large commercial and industrial 3

customers. 4

9. Q. What are the major assets and facilities that PECO utilizes to provide electric 5

service to its customers? 6

A. PECO is the largest combined electric and natural gas utility in Pennsylvania. To 7

provide electric service to its customers, PECO operates and maintains 15,928 miles 8

of underground distribution cable, 12,971 miles of aerial distribution lines, and 1,067 9

miles of higher-voltage transmission lines. In addition, we operate and maintain 472 10

power substations. 11

It is important to note that, generally speaking, this infrastructure is a mix of reliable 12

older facilities and newer equipment. Consequently, a high level of expertise in a 13

variety of areas, as well as a significant capital investment, are required to maintain 14

and operate all of PECO’s plant and equipment and to provide the service and 15

reliability that our customers have come to expect. 16

10. Q. How does PECO staff its operations? 17

A. We project that, at the end of the fully projected future test year (December 31, 2016), 18

2,454 employees will be engaged full-time in our total Company operations. 19

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III. OVERVIEW OF RATE FILING 1

11. Q. Please summarize the relief that PECO is requesting through this rate filing. 2

A. PECO is seeking an increase in its annual electric operating revenues of 3

approximately $190 million, or 4.4% on the basis of total Pennsylvania jurisdictional 4

operating revenue. As required by the Public Utility Code, PECO’s proposed tariff 5

has been filed on 60-days notice and, therefore, bears an effective date of May 26, 6

2015. However, we recognize that our filing will likely be suspended and 7

investigated. 8

12. Q. Why is PECO requesting a rate increase at this time? 9

A. Our last electric base rate filing was made in 2010. Since rates were established in 10

that case, PECO has continued to make substantial investments in new and 11

replacement utility plant to ensure that our customers can continue to receive the safe 12

and reliable service they have come to expect. Indeed, by December 31, 2016, the 13

end of the fully projected future test year, we will have invested over $2.2 billion in 14

additional electric utility plant, and our measures of value will have increased by 15

approximately one-third from $3.2 billion to $4.1 billion. At the same time, while we 16

continue to add new customers, our overall sales levels have remained relatively flat 17

due, in large part, to our aggressive pursuit of energy efficiency and conservation 18

through Commission-approved programs implemented in compliance with 19

Pennsylvania’s Act 129 of 2008 (“Act 129”). 20

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13. Q. Has PECO made efforts to control operating and maintenance (“O&M”) 1

expenses since its last approved base rate increase in 2010? 2

A. Yes, we have. In fact, and as discussed by Mr. Barnett (PECO Statement No. 2), 3

PECO has limited growth in O&M expenses to less than 1% annually since its 2010 4

rate proceeding through 2016. We have accomplished this through operational 5

improvements arising from, among other things, the deployment of new technologies, 6

the productivity of our workforce, the implementation of best practices, and 7

competitive-procurement policies and benchmarking. 8

14. Q. Has PECO also developed a Long-Term Infrastructure Improvement Plan 9

(“LTIIP”) and a proposed Distribution System Improvement Charge (“DSIC”)? 10

A. Yes. In a separate docket (P-2015-2471423), we are submitting, for the Pennsylvania 11

Public Utility Commission’s (“Commission’s”) review and approval, our electric 12

LTIIP, which we refer to as our “System 2020” plan, and a proposed DSIC tariff 13

consistent with the provisions of Act 11 of 2012 (“LTIIP Petition”). Under its 14

LTIIP, PECO proposes to make additional capital investments totaling $274.3 million 15

over the period 2016 through 2020, which are focused on aerial storm hardening, 16

underground cable replacement and building substation retirements as described in 17

PECO’s LTIIP Petition and the supporting testimony of John E. McDonald. 18

As explained by Mr. Yin in PECO Statement No. 3, the reliability-related portion of 19

the Company’s planned capital investment during the first year (2016) of the LTIIP – 20

i.e., $21.8 million – is included in the Company’s pro forma adjustment to fully 21

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projected future test plant additions. As a result, those expenditures will not be 1

recovered under PECO’s proposed DSIC tariff, if approved by the Commission. 2

15. Q. Please identify the other witnesses providing direct testimony on behalf of PECO 3

in this proceeding. 4

A. In addition to myself, the following witnesses will be responsible for presenting 5

PECO’s case-in-chief: 6

Phillip S. Barnett (PECO Statement No. 2) is PECO’s Senior Vice President, Chief 7

Financial Officer and Treasurer. Mr. Barnett provides an overview of PECO’s 8

principal accounting exhibits; discusses PECO’s budgeting process; and describes the 9

services that PECO receives from the Exelon Business Services Company and the 10

estimated cost of those services during the fully projected future test year. 11

Shuo Yin (PECO Statement No. 3) is PECO’s Manager of Revenue Policy. Mr. Yin 12

sponsors PECO Exhibits SY-1, SY-2 and SY-3, which set forth PECO’s revenue 13

requirement for the fully projected future test year ending December 31, 2016, future 14

test year ending December 31, 2015 and historic test year ended December 31, 2014, 15

respectively. He specifically supports PECO’s measures of value, revenue, operating 16

expense and tax claims. 17

Scott A. Bailey (PECO Statement No. 4) is PECO’s Controller. Mr. Bailey describes 18

PECO’s accounting processes; supports the assignment and allocation of common 19

costs between PECO’s electric and gas operations; and explains the development of 20

the depreciated original cost of the Company’s utility plant in service and its claim for 21

annual depreciation expense. 22

8

Paul R. Moul (PECO Statement No. 5) is the Managing Consultant of P. Moul & 1

Associates, Inc. Mr. Moul presents testimony concerning the rate of return that 2

PECO should be afforded an opportunity to earn on its measures of value. He 3

supports PECO’s claimed capital-structure ratios, its embedded costs of debt and 4

preferred stock, and its requested equity allowance. 5

Alan B. Cohn (PECO Statement No. 6) is PECO’s Manager of Regulatory Strategy. 6

Mr. Cohn presents an unbundled, fully allocated, customer class cost of service study. 7

Scott A. Neumann (PECO Statement No. 7) is a Senior Engineer, Retail Rates at 8

PECO. Mr. Neumann presents PECO’s proposed tariff rates and explains how the 9

results of Mr. Cohn’s customer class cost of service study, as well as the 10

consideration of other factors, were utilized in the rate-design process. 11

Richard A. Schlesinger (PECO Statement No. 8) is PECO’s Manager, Retail Rates. 12

Mr. Schlesinger discusses proposed changes and clarifications to PECO’s tariff rules 13

and regulations. 14

IV. PECO’S CAPITAL INVESTMENT PROCESS 15

16. Q. How does PECO determine its annual capital investment requirements? 16

A. PECO’s capital investment plan begins with a detailed budgeting and long range plan 17

(“LRP”) development process and one of the key goals is to integrate and align 18

PECO’s operational, regulatory and financial plans. Once major projects (i.e., capital 19

expenditures exceeding $500,000) are budgeted, they must go through an additional, 20

rigorous review-and-approval process. Major projects are approved by review 21

committees, which include the appropriate Company executives, in three stages: 22

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conceptual design, detailed design, and construction. PECO utilizes these processes 1

to achieve the optimal level of spending to achieve reliability, safety and customer 2

service goals, and to achieve the optimal efficiency of PECO’s operations. 3

17. Q. Please describe, in broad terms, the types of plant additions that PECO expects 4

to place in service during the course of the future test year and fully projected 5

future test year. 6

A. PECO’s fully projected future test year and future test year plant additions are 7

itemized by functional area and by FERC account in Schedule C-2, Page 3 of PECO 8

Exhibits SY-1 and SY-2, respectively. In short, our 2016 capital budget calls for 9

overall electric plant additions of approximately $421 million, including, but not 10

limited to, $319 million in new distribution facilities and nearly $102 million in new 11

transmission facilities. For 2015, we have budgeted overall electric plant additions of 12

approximately $355 million, including but not limited to $274 million in new 13

distribution facilities and $81 million in new transmission facilities. For the most 14

part, the projected expenditures are designed to maintain and/or enhance the safety 15

and reliability of our backbone electric-delivery system (e.g., substation equipment, 16

poles and towers, overhead and underground conduit and conductors, and line 17

transformers). 18

18. Q. In your opinion, is all of the plant that PECO has included in its measures of 19

value claim needed in order to provide safe and reliable electric service? 20

A. Yes, it is. 21

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V. QUALITY OF SERVICE, COMMUNITY SUPPORT, AND ECONOMIC 1 DEVELOPMENT 2

19. Q. What steps has PECO taken in recent years to ensure system reliability? 3

A. Each year, PECO invests heavily in its electric system to increase safety and 4

reliability and to enhance the quality of the service it provides. For example, in 2013 5

and 2014, PECO performed the following targeted system enhancements and 6

corrective maintenance projects to continue its record-breaking electric reliability 7

performance such that customers experience, on average, less than one service 8

interruption per year outside of major storms: 9

• Construction of new distribution substations and the addition of several large 10 transformers at distribution substations to support localized load growth. 11

• Implementation of large substation retirement projects to remove older or obsolete 12 equipment and to improve or upgrade surrounding distribution facilities. 13

• Identification of circuits throughout PECO’s service territory as candidates for 14 priority reliability improvements and installation of reclosers, sectionalizers and 15 distribution automation in various locations throughout the Company’s service 16 area to pinpoint problems and quickly restore service. 17

• Integration of smart technology to combine information from smart meters, 18 communication infrastructure, and the Company’s upgraded geographic 19 information system and distribution management system to improve situational 20 awareness, operations, safety, and communications outreach during outages. 21

• Continuation of PECO’s five-year cycle of preventative maintenance work on 22 approximately 2,600 miles of distribution and 200 miles of transmission lines 23 each year, in combination with mid-cycle, 34kV, and data-driven corrective 24 maintenance programs to improve reliability by enhanced vegetation management 25 addressing pocket reliability issues (e.g., the average number of vegetation-related 26 service interruptions has declined by 33% between 2010 and 2014). 27 28

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20. Q. Mr. Innocenzo, please describe changes to PECO’s reliability performance since 1

its last base rate proceeding. 2

A. As a result of the Company’s investments, including the projects I described above, 3

2012, 2013, and 2014 have been the best three years for PECO’s electric reliability in 4

each of the measures for which the Commission has established standards. Indeed, 5

since the Company’s last base rate proceeding in 2010, PECO’s average number of 6

service interruptions has decreased by 21 percent and the average time customers are 7

without power has declined 24 percent as measured by the following Commission 8

reliability metrics: 9

• System Average Interruption Frequency Index (“SAIFI”): The average 10 number of sustained interruptions per customer during a year has improved from 11 1.09 interruptions (2010) to 0.86 interruptions (2014). 12

• Customer Average Interruption Duration Index (“CAIDI”): The average 13 duration of interruptions that a PECO customer experiences during a year has 14 improved from 126 minutes (2010) to 96 minutes (2014). 15

• System Average Interruption Duration Index (“SAIDI”): The sum of all 16 sustained customer interruptions durations divided by the total number of PECO 17 customers improved from 137 minutes (2010) to 82 minutes (2014). 18

According to the Commission’s most recent annual report on electric service 19

reliability in Pennsylvania, “PECO’s performance is excellent based on their 20

performance trends, which are significantly below benchmark.”1 Specifically, in 21

2013, PECO ranked first among other large electric utilities for its twelve-month 22

rolling CAIDI and SAIDI and second in terms of twelve-month rolling SAIFI. 23

Moreover, PECO was the only large electric utility in Pennsylvania with reliability 24

1 Pennsylvania Public Utility Commission, Electric Service Reliability in Pennsylvania 2013 (August 2014), p. 18, available at http://www.puc.state.pa.us/General/publications_reports/pdf/Electric_Service_Reliability2013.pdf.

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performance better than its baseline score prior to restructuring (i.e., 1994-1998 five-1

year average of annual system wide metrics) in every quarter in 2013. This trend of 2

improvement in the key metrics of SAIFI, CAIDI and SAIDI is evidence of PECO’s 3

sound management of its electric distribution system. 4

21. Q. Does PECO have a commitment to continue to maintain and enhance reliability? 5

A. Yes. PECO will continue to invest in projects to improve its reliability in 2015, 2016 6

and beyond, including installation of insulated aerial cable arranged in a special 7

configuration to better withstand tree contact, which we have already introduced in 8

areas with dense tree coverage in an effort to strengthen our system against storms, 9

increase our reliability and reduce outages. This program, along with investments in 10

PECO’s Top Priority Circuit Program, distribution automation and other distribution 11

and substation improvement projects, will continue to improve overall electric system 12

reliability and will address pocket areas of customers experiencing multiple 13

interruptions. In addition, PECO proposes to implement more aggressive vegetation 14

management practices in 2016, including expanding its existing hazard tree removal 15

program, performing additional mid-cycle tree trimming, and in certain portions of its 16

distribution system where the Company determines it to be appropriate, removing 17

trees and branches growing above and below the Company’s distribution facilities to 18

achieve “ground-to-sky” clearance. 19

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22. Q. Have PECO’s investments in its electric distribution system also improved 1

resistance to and recovery from storms? 2

A. Yes. Since its last base rate proceeding, PECO spent more than $630 million in 3

projects to prevent service interruptions and restore service due to storms. For 4

example, following Hurricane Irene, Hurricane Sandy and Winter Storm Nika, the 5

Company implemented several emergency preparedness and storm restoration 6

improvements identified by the Pennsylvania EDC Best Practices Team, including 7

the use of technology (e.g., social media and online outage maps) to provide real-time 8

information to customers during outages. As a result of the Company’s efforts to 9

restore service following both Hurricane Irene and Winter Storm Nika, PECO 10

received the coveted Emergency Recovery Award from the Edison Electric Institute. 11

23. Q. What steps has PECO taken in recent years to enhance the quality of the service 12

it provides? 13

A. Since its last electric base rate proceeding, PECO has executed several initiatives 14

specifically designed to improve our customer service. First, we have invested in our 15

Customer Service Representatives (“CSRs”) to improve our operating metrics 16

through optimizing staffing levels, providing on-going CSR training and creating 17

detailed quality standards for all calls. On-going CSR training has improved our 18

customer satisfaction scores. Most recently in 2015, we have expanded our Customer 19

Service business hours from 49 hours a week to 60 hours a week to better meet the 20

needs of our customers. 21

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Second, we have launched several programs which, in my view, have significantly 1

improved the service we provide our customers. We redesigned our website to 2

increase its overall usability and made enhancements to the log-in, outage reporting, 3

electronic billing, and electronic payment processes to improve our customers’ 4

experience. The electronic payment enhancements include adding an option to 5

schedule an e-check payment without paying a convenience fee and a virtual wallet 6

that eliminates the need to re-enter payment information every month. In addition, 7

PECO has expanded its use of social media channels to enhance communication with 8

customers during storms. We also added a usage portal that enables our customers to 9

view and analyze their monthly, daily, and hourly energy consumption and to receive 10

customized energy savings tips. We redesigned our Interactive Voice Response 11

(“IVR”) system to offer more self-service functionality and to improve the routing of 12

calls to the CSR group that can best address the caller’s issue. The redesigned IVR 13

system allows customers to receive a text message when the Company restores 14

service to their area. Technology advances also include leveraging our recent 15

advanced metering infrastructure (“AMI”) deployment to assist customers. As a 16

result of the AMI deployment, we have improved the remote connect/disconnect 17

process. We estimate that we have reduced credit calls by 60,000 in 2014. 18

Moreover, 83% of all customer reconnections now occur within one hour compared 19

to 6% in 2010. Reducing the time required for customer reconnections as compared 20

to restoration time with advanced meter reading (“AMR”) meters has reduced credit 21

call volume. 22

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24. Q. Have these enhancements helped PECO improve its performance in the area of 1

customer service? 2

A. Yes, they have. The effectiveness of PECO’s approach to customer service is 3

reflected in the fact that, in 2014, the Company exceeded its 2010 performance in the 4

following key metrics: 5

• Overall Customer Satisfaction Index scores, as measured by our internal 6

process, have improved from 7.47 (2010) to 7.84 (2014). PECO’s JD Powers 7

rating showed improvement from 619 (2010) to 648 (2014). 8

• Overall Satisfaction with CSRs has improved from 87.9% (2010) to 88.3% 9

(2014). 10

• Our Service Level (calls answered in 30 seconds) has improved from 72.2% 11

(2010) to 86% (2014). 12

• Average Speed of Answer has been reduced from 57 seconds (2010) to 33 13

seconds (2014). 14

• Abandon Rate has also improved from 5.9% (2010) to 2.8% (2014). 15

• Residential High Balance Accounts (>$5,000) scores have improved from 16

2,485 (2010) to 1,160 (2014). 17

• Commission Metrics: The Complaint Rate decreased from 5.96 (2010) to 18

5.17 (2013); the Justified Rate decreased from 0.34 (2010) to 0.10 (2013); the 19

Response time decreased from 4.7 days (2010) to 3.3 days (2013); and the 20

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Infraction Rate decreased from 0.06 (2010) to 0.05 (2013) (Commission data 1

for 2014 is unavailable). 2

• IVR Self-Service Transactions: Increased the number of calls completed 3

through IVR self-service by 10% from 2.86 million in 2012 to 3.16 million in 4

2014. 5

• Web Self-Service Transactions increased by 38% from 5.03 million in 2012 6

to 6.93 million in 2014. 7

25. Q. Is PECO a recognized leader in energy efficiency programs in Pennsylvania and 8

what has it done to merit that recognition? 9

A. Yes. In 2009, PECO emerged as a leader with the early launch of its comprehensive 10

“PECO Smart Ideas” portfolio of energy efficiency and demand reduction programs 11

in response to retail energy consumption and peak demand reduction requirements 12

under the first phase (“Phase I”) of the Commission’s energy efficiency and 13

conservation (“EE&C”) program established pursuant to Act 129. Working 14

collaboratively with stakeholders, PECO developed a robust suite of five residential 15

and four commercial and industrial energy efficiency programs. Since the program’s 16

inception in 2009, PECO’s residential and commercial customers have saved more 17

than $408 million. For example, during Phase I, the PECO Smart Ideas programs 18

recycled more than 30,000 refrigerators and freezers, as well as provided incentives 19

toward the sale of more than seven million discounted compact fluorescent light 20

(“CFL”) and light emitting diode (“LED”) bulbs and to 363,000 customers 21

purchasing appliances and HVAC equipment. PECO’s Phase I EE&C Plan also 22

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reduced the average system peak demand for the Company’s retail customers in the 1

100 highest hours of demand by approximately 5%. PECO received the ENERGY 2

STAR® Partner of the Year award for 2012 and 2013 in recognition of its 3

outstanding contributions to energy efficiency. 4

The growth of customer savings has continued through PECO’s Phase II EE&C Plan. 5

In Phase II, PECO has built on its successes during Phase I and has designed a plan to 6

capture deeper savings through more comprehensive energy solutions, including 7

whole building and home programs as well as programs focused on changing energy 8

usage behaviors. PECO also received Commission approval to voluntarily continue 9

its residential and small business direct load control program. Finally, PECO is 10

beginning to plan for its Phase III EE&C Plan pursuant to the Commission’s 11

Tentative Order issued on March 11, 2015 at Docket No. M-2014-2424864, which 12

will continue the trend of customer savings and comprehensive energy solutions. 13

26. Q. Has PECO implemented a smart meter plan in accordance with Act 129? 14

A. Yes. In 2015, PECO will be the first Pennsylvania electric distribution company 15

(“EDC”) to substantially complete deployment of AMI that complies fully with the 16

criteria set forth in the smart meter provisions of Act 129. In addition, PECO was one 17

of only six utilities in the United States awarded major funding from the Department 18

of Energy under the American Recovery and Reinvestment Act of 2009 for AMI and 19

smart grid investments. PECO received a $200 million Smart Grid Investment Grant 20

(“SGIG”) of which $140 million was used for PECO’s AMI program. The proceeds 21

of the SGIG significantly offset AMI deployment costs borne by customers. 22

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As of March 2, 2015, PECO had installed more than 1.6 million electric AMI meters 1

at customer premises or 93% of all meters it needs to install to substantially complete 2

deployment across PECO’s service territory in 2015.2 As a consequence, PECO will 3

be the first utility in Pennsylvania providing customers increased information 4

regarding their usage and enabling them to make smarter energy decisions. During 5

2014, PECO customers with AMI meters utilized the interactive “My Usage” tool on 6

the Company’s website more than 1.4 million times. In addition, deploying AMI 7

technology across the Company’s service territory provides enhanced outage 8

information, which has many benefits including more efficient restoration of service 9

during storm events. For example, during the February 2014 ice storm, this real-time 10

outage information helped PECO restore service to customers two to three days faster 11

than otherwise would have been possible. The significant efforts PECO made to 12

effectively and efficiently deploy AMI and smart grid technology have been 13

recognized by leading industry groups, including, most recently, the Electric Power 14

Research Institute’s 2015 award for Technology Transfer for Smart Grid. 15

27. Q. Is PECO evaluating emerging technologies such as microgrids? 16

A. Yes. A microgrid is “a group of interconnected loads and distributed energy 17

resources with clearly defined electrical boundaries that acts as a single controllable 18

entity with respect to the grid and can connect and disconnect from the grid to enable 19

it to operate in both grid connected or island modes.”3 Consistent with recent trends 20

2 Some existing commercial and industrial meters already have many of Act 129’s required smart meter capabilities but use a separate “MV-90” technology. 3 See Summary Report: 2012 DOE Microgrid Workshop, DOE EERE, Chicago, 2012; DOE Microgrid Workshop Report, DOE Office of Energy Reliability, Smart Grid R&D Program, San Diego, CA, 2011.

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in the utility industry, PECO has been monitoring the development of microgrid 1

technology as well as regulatory developments in other states. Locally, PECO is 2

partnering with PIDC, Philadelphia’s public-private economic development 3

corporation, on its project at The Navy Yard to install a microgrid controller in 4

support of The Navy Yard’s smart grid initiative. The project will benefit all electric 5

customers in the PECO service territory by enabling advanced energy management 6

programs and optimizing the use of existing and future infrastructure, by refining 7

these integrations with The Navy Yard, before rolling them out to the broader 8

market. PECO has provided consultative assistance to The Navy Yard on this project 9

to date, and along with PIDC is analyzing potential needs and opportunities for direct 10

engagement. Additionally, PECO is incorporating intelligent substation monitoring 11

equipment with the potential to proactively prevent equipment failures and outages in 12

the design of its Post substation included in its 2016 capital budget. Along with these 13

projects, PECO is evaluating several future microgrid opportunities and potential 14

spending over the 2017-2020 period as explained in the Company’s LTIIP Petition. 15

28. Q. Mr. Innocenzo, please describe PECO’s energy-efficiency and environmental 16

efforts regarding its own buildings and emissions. 17

A. PECO’s commitment to energy-efficiency and environmental stewardship applies to, 18

and is illustrated by, the Company’s daily operations. PECO has established an 19

environmental management system (“EMS”) based on standards set forth in 20

International Organization for Standardization (“ISO”) 14001, which supports the 21

development of performance-improvement goals and targets. With respect to land 22

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quality, since 2010, PECO has received Wildlife Habitat Council certification at two 1

sites. 2

PECO also is focused on being a low-carbon company. Since 2001, PECO has 3

reduced its annual greenhouse gas emissions by 55% through the implementation of 4

various reduction and offset programs, and we have reduced our own building energy 5

consumption by 24.8%. In addition, PECO reduced its total Scope 1 and Scope 2 6

greenhouse gas emissions by 12.3% from 2010 to 2013. Much of this performance, 7

as well as greenhouse gas emissions reductions attributed to our award winning Smart 8

Ideas customer energy efficiency programs and Renewable Portfolio Standard 9

compliance, contributed to the achievement of the corporate Exelon 2020 goal in 10

2014. 11

Currently, 100% of our building energy use in our Leadership in Energy and 12

Environmental Design (“LEED”) certified buildings is based on purchased renewable 13

energy credits. As part of the LEED initiative, 20 acres at our service buildings and 14

19 off-site acres of turf grass were converted to Native Meadows. 15

In 2009, PECO converted the 45,000 square foot lower roof of PECO’s headquarters 16

to a green roof. This is the largest urban vegetated roof in Pennsylvania, and it has 17

reduced storm water runoff by more than 70 percent and peak roof temperatures by 18

more than 60 degrees. 19

Waste recycling continues to be a focus at PECO. In 2014, we increased our annual 20

recycling rate to 56.4%. 21

21

Finally, the Company supports the use of alternative fuel vehicles and related 1

technologies, including the use of natural gas, biodiesel and electric vehicles. PECO 2

has worked proactively to ensure that its fleet of trucks is environmentally friendly 3

through inclusion of 788 green biodiesel vehicles, 22 plug-in hybrid Power Take Off 4

heavy duty aerial bucket trucks, 68 hybrid electric vehicles (non plug-in), 2 battery 5

vehicles (plug-in), 1 e-PTO hybrid bucket truck and 8 natural gas vehicles. 6

29. Q. What is PECO’s position regarding retail competition for the energy supplied to 7

its consumers? 8

A. PECO has worked in a collaborative fashion with the Commission and its Office of 9

Competitive Market Oversight (“OCMO”) in advancing the development of the 10

competitive electric market, including implementing changes resulting from the 11

Commission’s Retail Market Investigation and last year’s Polar Vortex. Specifically, 12

PECO has taken the following steps: 13

• Implementation of the “PECO Smart Energy Choice” customer referral program, 14 under which more than 80,000 customers have taken advantage of competitive 15 offers from more than 20 electric generation suppliers since its inception in 16 August 2013. 17

• In response to regulations issued following last year’s Polar Vortex, PECO 18 developed and implemented an innovative approach to customer switching which 19 enabled PECO to be the first EDC to fully comply with the new “3-day” 20 switching requirements. As of February 28, 2015, more than 50,000 PECO 21 customers have taken advantage of this new switching capability. 22

• In December 2014, we implemented a “Joint Bill” that provides space for supplier 23 messaging and logos, as well as a shopping information box. 24

• We implemented a process that enables suppliers to look-up customer account 25 numbers, thereby facilitating their efforts to sign up customers at events where 26 customers may not have their billing information on hand. 27

22

• We have issued multiple direct mail pieces to inform customers of the competitive 1 retail market. 2

30. Q. What is PECO’s record with respect to safety for its employees? 3

A. As to workplace safety, PECO consistently has been an industry leader with respect 4

to the Occupational Safety and Health Administration’s (“OSHA”) Recordable 5

Incidence Rate. This statistic measures the number of work-related injuries per 100 6

employees that require more than first-aid treatment. In 2012, PECO had the best in 7

class rate for a combined electric and gas utility. In 2013, the safety performance was 8

even better and second best among electric utilities, and first among gas utilities. 9

PECO received the 2013 American Gas Association’s Industry Leader Accident 10

Prevention Award for having a days away restrict time rate lower than the industry 11

average. PECO finished 2014 with even a better rate – 0.54 days – and the safest 12

year in company history. As a result of this performance, PECO was awarded the 13

Southeastern Electric Exchange for Top Performance in the Total Company Safety 14

Category for 2014. 15

31. Q. Finally, Mr. Innocenzo, please describe PECO’s efforts to support economic 16

development and the communities in which the Company provides energy. 17

A. PECO has a dedicated Economic Development Team that works cooperatively with 18

local, regional and state economic development officials as well as commercial and 19

industrial real estate professionals to assist businesses that are considering locating or 20

expanding in southeastern Pennsylvania. For example, the Company identifies office 21

and industrial space available for sale or lease, as well as land available for 22

development. PECO’s Economic Development Team also provides information on 23

23

electric and gas availability and prices to companies, developers and consultants as 1

key inputs to location decisions. Moreover, as I discussed earlier, PECO continues to 2

make very significant capital and infrastructure investments in its service territory 3

every year. This helps to maintain and create thousands of jobs in the region. 4

PECO has a strong commitment to diversity, both among its workforce and in the 5

communities it serves. For example, PECO has employed minority and women-6

owned businesses, contractors and vendors in its communities and has business 7

relationships with local minority-owned banks. PECO also has a strong and 8

continuing tradition of community involvement. The Company’s corporate 9

citizenship efforts are designed to improve the quality of life for the people who live 10

and work in PECO’s service territory, and include support for education and the 11

environment, sponsorships, employee volunteer activities, and executive involvement 12

on outside nonprofit boards. 13

32. Q. Does PECO’s deep commitment to the local communities it serves have a 14

significant economic impact on Southeastern Pennsylvania? 15

A. In 2014, PECO engaged the Economy League of Greater Philadelphia and Econsult 16

Solutions, Inc. (collectively, “ELGP”) to assess the economic impact of PECO’s 17

operations, including its award winning PECO Smart Ideas energy management 18

programs, and local community support on its service territory, the Greater 19

Philadelphia region and Pennsylvania. The ELGP study concluded that during 2014 20

the total direct economic value of PECO’s operations to the Commonwealth of 21

Pennsylvania is approximately $4.5 billion. ELGP further found that PECO’s 22

24

operations, excluding vendor and contractor work, provided over 2,400 jobs and $282 1

million in salary and wages in the Company’s service territory. In addition, PECO’s 2

Smart Ideas energy efficiency programs helped customers reduce energy usage by 3

approximately 305,100 MWh, resulting in nearly $75 million in savings across 4

PECO’s service territory in 2014. These savings increase disposable income, which 5

is reinvested in the local economy. ELGP estimated that the energy and 6

corresponding monetary savings from PECO’s energy efficiency programs supported 7

330 jobs and $17.2 million in wages and salaries in the local communities the 8

Company serves in 2014. Finally, PECO supported communities in its service 9

territory with more than $5.3 million in contributions to charities and non-profit 10

organizations. PECO employees serve on the boards of more than 150 non-profit 11

organizations and recorded nearly 14,000 volunteer service hours in 2014. 12

33. Q. Mr. Innocenzo, based on the factors you discussed above, how do you 13

characterize PECO’s record with regard to the performance factor 14

considerations of efficiency, effectiveness and adequacy of service identified in 15

Section 523 of the Public Utility Code? 16

A. My assessment is based on PECO’s demonstrated excellence with regard to the 17

quality and reliability of its service, its commitment to energy efficiency and 18

environmental stewardship, its willingness to embrace cost-effective new 19

technologies and microgrids, its dedication to retail competition, its vigilance in 20

protecting the safety of its workers, and its strong promotion of community and 21

economic development, all of which I have discussed above. It is also based on 22

PECO’s significant and successful efforts to manage and control its operating 23

25

expenses since its last base rate case in 2010, as discussed by Mr. Barnett in PECO 1

Statement No. 2. Based on all of those factors, PECO has exhibited, and continues to 2

exhibit, superior management performance, which fully supports Mr. Moul’s 3

recommendation (PECO Statement No. 5) that PECO receive a rate of return on 4

common equity at the upper end of the range of common equity return rates 5

calculated by Mr. Moul. 6

VI. CONCLUSION 7

34. Q. Mr. Innocenzo, would you describe PECO as a leader in the energy industry? 8

A. Yes, I would. But more importantly, I believe we are recognized as a leader in the 9

energy industry for our safety and reliability performance, our commitment to our 10

customers and customer service, our efforts to be at the forefront of energy-11

efficiency, smart-meter, and smart-grid programs and deployment, our environmental 12

stewardship, and our investment in our communities. Nonetheless, one of our 13

fundamental core values is continuous improvement, and we are always seeking ways 14

to better serve our customers and communities. 15

35. Q. Does that complete your direct testimony? 16

A. Yes, it does. 17