S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * *

Transcription

1 S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter, on the Commission s own motion, to ) to consider changes in the rates of all the Michigan ) rate-regulated electric, steam, and natural gas utilities ) Case No. U to reflect the effects of the federal Tax Cuts and Jobs ) Act of 2017: DTE ELECTRIC COMPANY ) files an application for determination of ) Credit B as described in orders U and U ) ) ) In the matter, on the Commission s own motion, ) to consider changes in the rates of all of the ) following Michigan rate-regulated electric, ) Case No. U steam, and natural gas utilities to reflect the effects ) of the federal Tax Cuts and Jobs Act of 2017: ) ALPENA POWER COMPANY, CONSUMERS ) ENERGY COMPANY, DETROIT THERMAL, LLC, ) DTE ELECTRIC COMPANY, DTE GAS COMPANY, ) INDIANA MICHIGAN POWER COMPANY, ) NORTHERN STATES POWER COMPANY - ) WISCONSIN, UPPER PENINSULA POWER ) COMPANY, UPPER MICHIGAN ENERGY ) RESOURCES CORPORATION, ) WISCONSIN ELECTRIC POWER COMPANY, ) PRESQUE ISLE ELECTRIC & GAS CO OP, ) MICHIGAN GAS UTILITIES CORPORATION, and ) SEMCO ENERGY GAS COMPANY. ) ) ) In the matter, on the Commission s own motion, ) to consider changes in the rates of all the Michigan ) rate-regulated electric, steam, and natural gas utilities ) Case No. U to reflect the effects of the federal Tax Cuts and Jobs ) Act of 2017: DTE ELECTRIC COMPANY files an ) application for determination of Credit A as described ) in order U ) )

2 At the December 20, 2018 meeting of the Michigan Public Service Commission in Lansing, Michigan. PRESENT: Hon. Sally A. Talberg, Chairman Hon. Norman J. Saari, Commissioner Hon. Rachael A. Eubanks, Commissioner ORDER History of Proceedings On February 22, 2018, the Commission issued an order in Case No. U (February 22 order), adopting a three-step approach to address the impacts of the federal income tax reduction arising from the Tax Cuts and Jobs Act of 2017 (TCJA). The first step, the Credit A proceeding, determined the rate credit based on the new tax rate going-forward. The second step, the Credit B proceeding, determines the rate credit from January 1, 2018, to the date of the order in the utility s Credit A case. The third step, the Calculation C proceeding, will capture the remaining impacts of the TCJA. In the February 22 order, the Commission determined that the Credit A and Credit B proceedings would be expedited, and the Commission would read the record in these cases. On July 24, 2018, the Commission issued an order in Case No. U approving a settlement agreement wherein the parties agreed that DTE Electric Company s (DTE Electric) base rate revenue requirement reduction associated with Credit A is $156.9 million, and ordering August 1, 2018, as the effective date of the resulting reduced tariffs (July 24 order). On September 21, 2018, DTE Electric filed an application for determination of Credit B in Case No. U-20284, with supporting testimony and exhibits. A prehearing conference was held on October 16, 2018, before Administrative Law Judge Sharon L. Feldman. DTE Electric and the Commission Staff (Staff) participated in the Page 2

3 proceeding. Petitions to intervene filed by the Michigan Department of Attorney General (Attorney General), the Association of Businesses Advocating Tariff Equity (ABATE), the Michigan Cable Telecommunications Association (MCTA), Energy Michigan, Inc. (Energy MI), and the Residential Customer Group (RCG) were granted. On November 5, 2018, the Attorney General and RCG filed testimony and exhibits. On November 9, 2018, DTE Electric filed rebuttal testimony and exhibits, and on November 13, 2018, the Staff filed rebuttal testimony. On November 16, 2018, Administrative Law Judge Jonathan F. Thoits 1 (ALJ) conducted an evidentiary hearing at which prefiled direct and rebuttal testimony were bound into the record; exhibits, including several exhibits that contained revisions, were admitted; and the parties waived cross-examination. On November 27, 2018, the ALJ transmitted the record to the Commission for its decision. On November 29, 2018, DTE Electric, the Attorney General, RCG, and the Staff filed initial briefs. On December 6, 2018, DTE Electric, the Attorney General, RCG, and the Staff filed reply briefs. ABATE, MCTA, and Energy MI did not submit testimony, exhibits, or briefs. The record consists of 86 pages of transcript and 13 exhibits admitted into evidence. 1 ALJ Thoits assumed responsibility responsibility for conducting the proceeding when Administrative Law Judge Sharon L. Feldman became unavailable due to a prior commitment to another proceeding. Page 3

4 Positions of the Parties A. DTE Electric Company DTE Electric 2 initially calculated that its Credit B refund total at $92.7 million, including $1.7 million in interest; however, the company revised its monthly interest calculation to account for the actual short-term interest rates that were in effect in September and October 2018 and calculated the remaining months at the October 2018 rate. The company also revised its refund amount to include principal and interest for June Tr 69, 79-80; Exhibits A-1, A-2 Revised. DTE Electric notes that its calculation includes changes in the company s revenue requirement and rates that occurred in response to the July 24 order 3 and other adjustments necessary due to selfimplementation in DTE Electric s rate case, Case No. U Tr 67-69; Exhibits A-1, A-2 Revised, A-3 Revised, A-4. The company proposes to issue its Credit B refund over the six-month period of January 2019 through June Tr 73. The company notes that July 2018, as yet unbilled at the time of filing, is not included in the refund and plans to refund appropriate amounts for that month in the final reconciliation of any residual balance. Id., p. 74. DTE Electric proposes that, if the company has over-refunded less than $50,000, the amount will be written off. If the company has overrefunded more than $50,000, a surcharge will be calculated and applied on a subsequent billing month until the residual over-refunded amount is less than $50,000. If the company has underrefunded less than $50,000, the amount will be donated to a charity of the company s choosing; an 2 Mr. Philip W. Dennis, a manager in DTE Electric s Regulatory Economics Division, provided testimony on behalf of the company. His testimony is found, in its entirety, at 2 Tr He sponsored Exhibits A-1 through A-6. 3 The July 24 order includes reference to the June 28, 2018 order on rehearing in Case No. U Page 4

5 under-refund of more than $50,000 will be calculated and applied as a customer credit until the under-refund is less than $50,000. Id., pp DTE Electric points out that the afore-discussed method of addressing residual balances was approved by the Commission in the September 15, 2017 order in Case No. U Id. DTE Electric disagrees with RCG s proposal that the company s overall rate of return be used to calculate Credit B interest and indicates that the use of short-term interest rates was adopted by the Commission in the February 22 order. Further, DTE Electric disagrees with RCG s suggestion that the short-term interest rate should be increased 0.25% commensurate with each rate increase by the US Federal Reserve (Federal Reserve); however, the company revised its proposed Exhibit A-2 to update the interest rates for September and October 2018 and to project the remaining months at the October 2018 interest rate. 2 Tr 79-80; Exhibit A-2 Revised. In addition, DTE Electric disagrees with suggestions by RCG and the Attorney General that the Credit B refund take place over three months, pointing out that RCG erroneously states that the company s refund will be delayed until August 2019, when, in fact, the refund will be complete by June Tr 80. DTE Electric also points out that refunding over the three-month period of January 2019 through March 2019 will result in greater fluctuations in customers monthly bills, which the February 22 order states is to be avoided. Id., p. 81. Finally, DTE Electric asserts that refunds based on customers historical use and crediting an under-refund in a future rate case, as suggested by RCG, are also not consistent with the February 22 order. Id., pp Case No. U involves an application filed on April 28, 2017, by DTE Electric related to the January 31, 2017 order in Case No. U-18014, p. 130, which requires the company to apply for a self-implementation reconciliation proceeding. The Commission approved a settlement of Case No. U in the order issued on September 15, Page 5

6 In its initial brief and reply brief, DTE Electric points out that its proposal is consistent with the Commission s and the Staff s recommendations as discussed above. The company requests that the Commission reject the intervenors suggestions and opinions. DTE Electric s initial brief, p. 5. B. Michigan Department of the Attorney General The Attorney General 5 voices his agreement with the $91.0 million principal of DTE Electric s Credit B refund and its approach of minimizing and disposing of residual amounts. 2 Tr 37, 39. However, the Attorney General asserts that the company failed to calculate and include interest for the month of June 2019, which results in a shortfall refund of $14,700 if DTE Electric s proposed six-month refund period is employed. Id., pp In addition, the Attorney General supports a three-month refund period beginning January Id., pp. 36, 38. Finally, the Attorney General recommends that, when the Credit B refund is recalculated, the company take into account the additional revenue received through heretofore unbilled electric use at rates that were in effect prior to establishment of Credit A, so to minimize residual refund amounts. Id., p. 39. In his initial brief, the Attorney General restates his agreement with the company s $91 million principal refund amount and the application of short-term interest rates, as well as the distribution of potential residuals. Attorney General s initial brief, pp However, the Attorney General continues to argue in favor of including revenues that were previously unbilled in the recalculated refund amounts and a three-month refund period, indicating that these steps 5 Mr. Sebastian Coppola, an independent business consultant, provided testimony on behalf of the Attorney General. His testimony is found, in its entirety, at 2 Tr He sponsored Exhibits AG-1 through AG-5. Page 6

7 return refunds to customers in a timely manner. Id., pp In his reply brief, the Attorney General contends that the six-month refund period is neither reasonable nor prudent.... Attorney General s reply brief, p. 4. C. Residential Customer Group RCG 6 recommends a three-month refund period that is based on each customer s actual electric use for the period January 2018 through July 2018; that the interest on the refund be calculated at the company s overall rate of return of 5.34%; and, for residential customers that have exited the system, the combined amount of unrefunded credits be totaled for a prompt second refund with any credits remaining after the second refund applied to a future electric case rather than donated to charity. 2 Tr RCG points out that DTE Electric used a short-term interest rate of 2.152% 7 in its Credit B interest calculation for September 2018 and the subsequent nine months, in spite of the fact that the Federal Reserve is expected to increase short-term interest rates by 0.25% per quarter during the coincident calculation period and in spite of the company projecting a short-term debt interest rate of 3.56% in its application for increased rates in Case No. U Id., pp Finally, RCG opposes DTE Electric s proposed $50,000 quiet zone for Credit B reconciliation, asserting that the figure should be $25,000 for residential customers and $25,000 for business customers so that neither business nor residential customers subsidize the 6 Mr. William A. Peloquin, Certified Public Accountant, testified on behalf of RCG. His testimony is found, in its entirety, at 2 Tr He sponsored Exhibits RCG-1 and RCG-2. Note that Mr. Peloquin refers to DTE Electric as Edison and DECO throughout his testimony. Prior to December 21, 2012, DTE Electric operated under the name The Detroit Edison Company. 7 The 2.152% interest rate was provided by DTE Electric in its initial application, proposed Exhibit A-2, which was not submitted into the record. DTE Electric revised the exhibit which was admitted to the record as Exhibit A-2 Revised and lists the following interest rates: 2.152% for August 2018, 2.206% for September 2018, and 2.375% for October 2018 through June 2019, thereby correcting the omission of June 2019 and providing for increased short-term interest rates. Page 7

8 other, and recommends that the second round of refunds be based on a cent per customer surcharge, with the reconciliation being filed without necessity of a contested proceeding. Id., p. 28. In its initial brief, RCG terms DTE Electric s entire proposal unwieldy, unnecessarily complex and extended over time and inconsistent with the Commission s goal of an expedited process. RCG s initial brief, pp RCG argues that there is no merit to the suggestion that the interest rate on refunds should be calculated at DTE Electric s short term [sic] borrowing rate merely because they were recommended by Staff, since the Staff s opinion has no legal significance or precedent value in a contested proceeding. Id., p. 5. RCG insists that using the overall rate of return to calculate interest is not punitive because it would prevent the company from gaining an unearned windfall at the expense of its residential electric customers. Id., p. 6. RCG continues its opposition to charitable donation of the residual unrefunded Credit B amounts, characterizing the proposal as self-serving and contrary to the Commission s regulatory responsibilities. Id., p. 8. In its reply brief, RCG continues to oppose a six-month refund period as overly leisurely. RCG s reply brief, p. 2. RCG also reiterates its belief that the refunds should be based on actual customer consumption and calculated using the company s overall rate of return or in the alternative, applying a fresh short-term interest rate. RCG s reply brief, pp RCG again voices its opposition to the donation of residual amounts to charity, arguing that the Commission lacks jurisdictional authority to authorize a charitable donation. Page 8

9 D. The Commission Staff The Staff 8 agrees with the Attorney General s initial claim that DTE Electric failed to calculate interest for June 2019 and that interest totaling approximately $14,700 should be included in the interest calculation for that month. 2 Tr 47. The Staff disagrees with RCG s suggestion that interest be calculated at DTE Electric s overall rate of return, but agrees that the interest rates used in the calculation should correspond to the Federal Reserve s increased rates and recommends that when there is a final order in this proceeding, the total refund [should] be recalculated with short-term interest rates developed using the most current information available. Id., p. 48. In support of the above opinions and recommendations, the Staff 9 points out that the February 22 order adopts the Staff s proposal for all three credits, including the recommendation that Credit B refunds be spread over no more than six months, and that the short-term interest rate be applied to the calculation. The Staff opines that a six-month refund period is optimal to eliminate significant swings in customer bills and indicates that the Attorney General is in error when he states that January, February, and March are high power usage months. 10 In fact, high power use tends to be in the summer air-conditioning months. Further, the three-month refund period is too burdensome to implement. Id., pp Mr. Charles E. Putnam testified on behalf of the Staff. His testimony is found, in its entirety, at 2 Tr Mr. Nicholas M. Revere also testified on behalf of the Staff. His testimony is found, in its entirety, at 2 Tr See, testimony on behalf of the Attorney General, 2 Tr 38. Page 9

10 In its initial brief, the Staff expressed its agreement with DTE Electric s revised calculations and refund results as expressed in DTE Electric s Exhibit A-2 Revised, which sets the Credit B refund amount at $92,812,177, inclusive of interest. Staff s initial brief, pp. 2, 6-7. The Staff continues to support a six-month refund period and the appropriate short-term interest rate applied to the Credit B principal for reasons discussed above. Id., pp In its reply brief, the Staff points out that the donation of residual amounts in the manner proposed by DTE Electric, rather than applying the residuals to the next electric case, makes sense because it is not known when the next rate case will be filed, and it is consistent with the October 24, 2018 order in DTE Gas Company s Credit B application, Case No. U The Staff opposes the Attorney General s suggestion that the Credit B refund be recalculated to include revenues that were not yet billed when the company filed its testimony because, in an expedited proceeding such as the Credit B refund, it is acceptable to include any such adjustment in the final reconciliation. Staff s reply brief, pp Discussion On the basis of the record in this proceeding, the Commission finds that the DTE Electric Credit B refund of $92,812,177, inclusive of interest, as set forth in Exhibit A-2 Revised, is reasonable and prudent. The parties disagreed on the appropriate billing period for returning the refund. As stated in the February 22 order, the Commission seeks to return the TCJA benefits to ratepayers as quickly as possible, consistent with reasonable and prudent ratemaking practices. February 22 order, p. 10. Although RCG and the Attorney General request shorter refund periods, the Commission finds that DTE Electric s proposed six-month period complies with the Commission s goal of providing a timely and accurate refund that avoids significant swings in customers bills, and Page 10

11 properly reflects the period of time over which the obligation was accrued. The six-month period also spreads the refund over a period of time long enough to help correct for large variations in use caused by weather. The Commission approves the company s proposed six-month refund period of January 2019 through June Regarding RCG s recommendation to apply the 5.34% overall rate of return approved in DTE Electric s most recent rate case, 11 the Commission finds it would not be appropriate. The Commission agrees with the Staff that because the Credit B obligation will be refunded within a year after it was incurred, the amounts reflect a short-term debt, and use of the short-term interest rate is approved. See, February 22 order, p. 6. Turning to RCG s suggestion that the refund be based on actual customer use, the Commission refers RCG to the long line of Commission and court precedent rejecting historical rebilling in various types of proceedings on the grounds that, when weighed against the benefits, it is too administratively burdensome and costly. In re Application of Consumers Energy Co, 313 Mich App 175, 194; 881 NW2d 502 (2015); In re Detroit Edison Co, 297 Mich App 377, 386; 823 NW2d 433 (2012); Attorney General v Public Service Comm, 215 Mich App 356, ; 546 NW2d 266 (1996); May 10, 2011 order in Case No. U-16302, p. 8; December 21, 2010 order in Case No. U-16441, pp. 7-8; May 17, 2005 order in Case No. U-13990, pp ; and October 29, 2003 order in Case No. U-13622, pp Finally, the Commission is not persuaded that the residual balance mechanism requires a change, and authorizes DTE Electric to implement the charitable donation option (if the prerequisites are met) that was approved in the September 15, 2017 order in Case No. U-18344, Exhibit A, Item See, April 18, 2018 order in Case No. U-18255, p. 59. Page 11

12 THEREFORE, IT IS ORDERED that: A. DTE Electric Company s Credit B refund of $92,812,177, inclusive of interest, for electric customers shall be implemented from January 1, 2019 through June 30, 2019 on a bill-rendered basis. B. Within 30 days of the date of this order, DTE Electric Company shall file with the Commission a tariff sheet substantially similar to that set forth in Exhibit A-3 Revised. The Commission reserves jurisdiction and may issue further orders as necessary. Page 12

13 Any party desiring to appeal this order must do so in the appropriate court within 30 days after issuance and notice of this order, pursuant to MCL To comply with the Michigan Rules of Court s requirement to notify the Commission of an appeal, appellants shall send required notices to both the Commission s Executive Secretary and to the Commission s Legal Counsel. Electronic notifications should be sent to the Executive Secretary at mpscedockets@michigan.gov and to the Michigan Department of the Attorney General - Public Service Division at pungp1@michigan.gov. In lieu of electronic submissions, paper copies of such notifications may be sent to the Executive Secretary and the Attorney General - Public Service Division at 7109 W. Saginaw Hwy., Lansing, MI MICHIGAN PUBLIC SERVICE COMMISSION Sally A. Talberg, Chairman Norman J. Saari, Commissioner By its action of December 20, Rachael A. Eubanks, Commissioner Kavita Kale, Executive Secretary Page 13

14 P R O O F O F S E R V I C E STATE OF MICHIGAN ) Case No. U et al County of Ingham ) Brianna Brown being duly sworn, deposes and says that on December 20, 2018 A.D. she electronically notified the attached list of this Commission Order via transmission, to the persons as shown on the attached service list (Listserv Distribution List). Subscribed and sworn to before me this 20 th day of December Brianna Brown Angela P. Sanderson Notary Public, Shiawassee County, Michigan As acting in Eaton County My Commission Expires: May 21, 2024

15 Service List for Case: U Name Andrea E. Hayden Anita Fox Benjamin J. Holwerda Brian W. Coyer Bryan A. Brandenburg Don L. Keskey DTE Energy Company Heather M.S. Durian Joel B. King Jonathan Thoits Laura A. Chappelle Lauren D. Donofrio Michael S. Ashton Sharon Feldman Timothy J. Lundgren Address

16 Service List for Case: U Name Amit T. Singh Andrea E. Hayden Brian W. Coyer Bryan A. Brandenburg Constance D. Groh Don L. Keskey Heather M.S. Durian Jason T. Hanselman John R. Liskey Meredith R. Beidler Michael J. Pattwell Paul M. Collins Richard J. Aaron Sherri A. Wellman Address

17 Service List for Case: U Name Andrea E. Hayden Anita Fox Brian W. Coyer Bryan A. Brandenburg Don L. Keskey DTE Energy Company Heather M.S. Durian Joel B. King Laura A. Chappelle Michael E. Moody Michael S. Ashton Sally Wallace Timothy J. Lundgren Address

18 GEMOTION DISTRIBUTION SERVICE LIST ITC Energy Michigan Energy Michigan Mid American Xcel Energy Cloverland Cloverland Village of Baraga Linda Brauker Village of Clinton Tri-County Electric Co-Op Tri-County Electric Co-Op Tri-County Electric Co-Op Citizens Gas Fuel Company Consumers Energy Company SEMCO Energy Gas Company Superior Energy Company Upper Peninsula Power Company WEC Energy Group Upper Peninsula Power Company Midwest Energy Coop Midwest Energy Coop Alger Delta Cooperative Cherryland Electric Cooperative Great Lakes Energy Cooperative Great Lakes Energy Cooperative Great Lake Energy Cooperative Stephson Utilities Department Ontonagon County Rural Elec Presque Isle Electric & Gas Cooperative, INC Thumb Electric Bishop Energy AEP Energy CMS Energy Just Energy Solutions Constellation Energy Constellation Energy Constellation New Energy DTE Energy First Energy MidAmerican Energy My Choice Energy Calpine Energy Solutions Santana Energy Updated

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