2 BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

Transcription

1 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission's Own Motion to consider changes in the rates of all of the Michigan rate-regulated Case U- electric, steam, and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of : Volume DTE ENERGY COMPANY files an application for determination of Credit A as described in Order U-. / CROSS-EXAMINATION Proceedings held in the above-entitled matter before Sally L. Wallace, Administrative Law Judge with MAHS, at the Michigan Public Service Commission, West Saginaw, Lake Michigan Room, Lansing, Michigan, on Tuesday, July,, at :0 a.m. APPEARANCES: ANDREA HAYDEN, ESQ. DTE ENERGY One Energy Plaza, WCB Detroit, Michigan On behalf of DTE Electric Company DON L. KESKEY, ESQ. Public Law Resource Center, PLLC Albert Avenue, Suite East Lansing, Michigan On behalf of Residential Customer Group (Continued)

2 APPEARANCES Continued: BRYAN A. BRANDENBURG, ESQ. CLARK HILL, PLC East Grand River Avenue Lansing, Michigan 0 On behalf of Association of Businesses Advocating Tariff Equity HEATHER M.S. DURIAN, Assistant Attorney General West Saginaw Highway, rd floor Lansing, Michigan On behalf of Michigan Public Service Commission Staff REPORTED BY: Marie T. Schroeder, CSR-

3 I N D E X Witness: Page SHERRI L. WISNIEWSKI Direct Testimony bound in THERESA M. UZENSKI Direct Testimony bound in KENNETH L. SLATER Direct Testimony bound in THOMAS W. LACEY Direct Testimony bound in 0 MICHAEL A. WILLIAMS Direct Testimony bound in KELLY A. HOLMES Direct Testimony bound in TIMOTHY A. BLOCH Direct Testimony bound in KENNETH D. JOHNSTON Direct Testimony bound in AMANDA M. ALDERSON Direct Testimony bound in

4 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A- Sch A - Revenue Deficiency 0 0 A- Sch B - Rate Base 0 0 A- Sch C-Approved Net Operating Income A- Sch C - Revenue Conversion Factor 0 0 A- Sch C-Projected Federal Income Taxes A- Sch D - Rate of Return Summary 0 0 A- Sch F.- UCOS CP -0- Production and Transmission Year Ending October, Per U- Order Sch F. - UCOS Distribution by Voltage Level Ending October, per U- Order A- Sch F.-UCOS CP -0- Production and Transmission Year Ending October, with Updated Tax Rate Sch F. - UCOS Distribution by Voltage Level Ending October, with Updated Tax Rate A- Sch F. - Order Conforming Capacity Charge Revenue Requirement Sch F. - Order Conforming Capacity Charge Revenue Requirement with Updated Tax Rate A- F - Summary of Present and Proposed 0 0 Revenue by Rate Schedule, April, U- Order Attachment A Sch F.-Summary of Present (U-) Revenue vs. Proposed Revenue with TCJA Tax Rate in Total and By Function

5 E X H I B I T S NUMBER DESCRIPTION MRKD OFRD RECD A- Continued 0 0 Sch F. - Summary of U- Ordered Revenue and Proposed Revenue with TCJA Tax Rate by Rate Schedule Sch F - Present and Proposed Revenues by Rate Schedule- month ending October, Sch F. - U- Ordered Present and Proposed Revenue for Rate Schedule D- April, U- Order Sch F. - U- Ordered Present and Proposed Revenue for Rate Schedule R- April, U- Order Sch F - Calculation of U- Ordered Voltage Level Distribution Charges Sch G - Proposed Tariff Sheets - - -

6 Lansing, Michigan Tuesday, July, :0 a.m (Hearing resumed pursuant to the schedule.) (Documents were marked for identification by the Court Reporter as Exhibits A- through A-.) JUDGE WALLACE: Back on the record in Case U-. This is DTE Electric Company's Credit A application. I am Sally Wallace, and I am the Administrative Law Judge assigned to this matter. For the record, can I have the appearance of counsel starting with the Company, please. MS. HAYDEN: Good morning, your Honor. Andrea Hayden on behalf of DTE Electric Company. JUDGE WALLACE: Staff. MS. DURIAN: Good morning, your Honor. Heather Durian on behalf of Michigan Public Service Commission Staff. JUDGE WALLACE: ABATE. MR. BRANDENBURG: Thank you, your Honor Bryan Brandenburg on behalf of ABATE. JUDGE WALLACE: And Residential Customer Group.

7 MR. KESKEY: Good morning, your Honor. Don Keskey and Brian Coyer appearing on behalf of the Residential Customer Group. JUDGE WALLACE: Thank you. It's my understanding that the Attorney General will not be able to attend today. And apparently Energy Michigan as well will not be attending. It's also my understanding the parties have agreed to bind in testimony and admit exhibits. Is that correct? No cross-exam today. Which also means we will be canceling the hearing for tomorrow; is that correct, Ms. Hayden? MS. HAYDEN: Yes, your Honor. JUDGE WALLACE: Everybody is clear on that. So no hearing tomorrow. All right. Let's begin with the Company. MS. HAYDEN: Thank you, your Honor. The Company has eight witnesses that filed testimony in this case. The first witness is Sherri L. Wisniewski. She filed testimony consisting of a cover page and four pages of questions and answers. And Ms. Wisniewski sponsored Exhibit A- Schedule C. The Company moves to bind in the direct testimony of Ms. Wisniewski and for admission into evidence of its Exhibit A- Schedule C.

8 JUDGE WALLACE: That was Schedule A? MS. HAYDEN: Sorry. Exhibit A- Schedule C. JUDGE WALLACE: Any objections? Hearing none, we will bind in that testimony and admit those exhibits. (Testimony bound in.)

9 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF SHERRI L. WISNIEWSKI

10 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF SHERRI L. WISNIEWSKI Q. What is your name, business address, and by whom are you employed? A. My name is Sherri L. Wisniewski. My business address is DTE Energy, One Energy Plaza, Detroit, Michigan. I am employed by DTE Energy Corporate Services, LLC. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric Company (DTE Electric or Company). Q. What is your educational background? A. I earned a Bachelor of Business Administration from Western Michigan University in and a Master of Business Administration from The University of Michigan in. Q. What work experience do you have? A. I have been with DTE Energy Company in the Tax Department since. I became Director of Tax Operations in July and am currently responsible for state and local income and franchise returns, tax accounting, tax forecasting, and regulatory tax. Q. Have you previously sponsored testimony before the Michigan Public Service Commission? A. Yes, I have sponsored testimony in DTE Electric Cases U-, U-, U- 0 and DTE Gas Cases U- and U-. I have also been involved over the years in various inputs and analyses in support of other regulatory proceedings. SLW -

11 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF SHERRI L. WISNIEWSKI Q. What is the purpose of your testimony? A. The purpose of my testimony is to provide support for the impact of the federal Tax Cuts and Jobs Act of (TCJA) on DTE Electric s Calculation of Projected Federal Income Tax. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am supporting the following exhibit: Exhibit Schedule Description A- C Projected Federal Income Tax Q. Was this exhibit prepared by you or under your direction? A. Yes, it was. Q. How does the TCJA impact the Company s Calculation of total Federal income tax (FIT) expense in order U-? A. The TCJA enacted by Congress on December, reduced the federal corporate income tax rate from % to % effective January,. Exhibit A-, Schedule C, details the calculation of FIT expense per order U- before and after the rate reduction as well as before and after rate relief. Q. How did you calculate FIT expense before and after the reduction in the federal corporate income tax rate excluding rate relief? A. The calculation of FIT expense per order U- excluding rate relief is shown in Exhibit A-, Schedule C, page. Total FIT expense at % is $. million, as shown in column (b), line. Total FIT expense adjusted to reflect the reduction in SLW -

12 S. L. WISNIEWSKI Line U- the tax rate per the TCJA to % is $0. million, as shown in column (c), line. Therefore, the reduction in the tax rate from % to % results in a reduction in total FIT expense of $. million before rate relief. Company Witness Mr. Lacey reflected the $0. million adjusted FIT expense to calculate his revised cost of service studies, in Exhibit A-, Schedules F. and F.. Total FIT expense is comprised of current expense (line ) and deferred tax expense (line ). Current FIT expense is calculated based on taxable income including utilization of a net operating loss (NOL), as shown on lines through, and is reduced by $. million before rate relief as a result of the tax rate decrease. Deferred FIT expense is shown on lines through and is based on book versus tax temporary differences and the NOL utilization (line ), which changes by $. million before rate relief as a result of the reduction in the tax rate; and annual amortization of several Deferred Debits and Credits (Medicare Part D Subsidy, FAS, and Investment Tax Credit) (lines -), which does not change as a result of the reduction in the tax rate. Total FIT expense before the reduction in tax rate in column (b) also includes an adjustment of $,000 on line to adjust FIT expense to match the Final order in Case U-. This adjustment is excluded from the calculation of deferred FIT expense after the reduction in the tax rate in column (c). Q. How did you calculate FIT expense before and after the reduction in the federal corporate income tax rate including rate relief? A. The calculation of FIT expense per the U- order including rate relief is shown SLW -

13 S. L. WISNIEWSKI Line U- in Exhibit A-, Schedule C, page. Total FIT expense at % is $.0 million, as shown in column (b), line. Total FIT expense adjusted to reflect the reduction in the tax rate per the TCJA to % is $. million, as shown in column (c). Therefore, the reduction in the tax rate from % to % results in a reduction in total FIT expense of $. million after rate relief. Total FIT expense is comprised of current expense (line ) and deferred tax expense (line ). Current FIT expense is calculated based on taxable income including utilization of an NOL, as shown on lines through, and is reduced by $. million before rate relief as a result of the tax rate decrease. Deferred FIT expense is shown on lines thru and is based on book versus tax temporary differences and the NOL utilization (line ), which changed by $. million after rate relief as a result of the reduction in the tax rate; and annual amortization of several Deferred Debits and Credits (Medicare Part D Subsidy, FAS, and Investment Tax Credit) (lines -), which does not change as a result of the reduction to the tax rate. Total FIT expense before the reduction in tax rate in column (b) also includes an adjustment of $,000 on line to adjust FIT expense to match the Final order in Case U-. This adjustment is excluded from the calculation of deferred FIT expense after the reduction in the tax rate in column (c). Q. Does this complete your direct testimony? A. Yes, it does. SLW -

14 MS. HAYDEN: Our second witness is Theresa M. Uzenski. Ms. Uzenski filed direct testimony consisting of a cover page and six pages of questions and answers. Ms. Uzenski also sponsored Exhibit A- Schedule C. The Company moves to bind into the record the direct testimony of Theresa Uzenski and for the admission into evidence of Exhibit A- Schedule C. JUDGE WALLACE: Are there any objections? Hearing none, the testimony of Ms. Uzenski and Exhibit A- Schedule C is admitted. The testimony is bound in. (Testimony bound in.)

15 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF THERESA M. UZENSKI

16 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF THERESA M. UZENSKI Q. What is your name, business address and by whom are you employed? A. My name is Theresa M. Uzenski. I am employed by DTE Energy Corporate Services, LLC (LLC), a subsidiary of DTE Energy Company. My business address is One Energy Plaza, Detroit, MI. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric Company (DTE Electric or Company). Q. What is your educational background? A. I have a Bachelor of Science in Accounting from the University of Detroit and a Masters of Business Administration with a concentration in Finance from Wayne State University. Q. What is your work experience and what position do you currently hold at DTE Energy? A. I have worked for DTE Energy or one of its affiliated regulated utilities for twenty- nine years in various accounting, finance and management positions. I am currently the Manager of Regulatory Accounting for DTE Gas Company as well as DTE Electric Company. As Manager of Regulatory Accounting, I am responsible for the development and management of regulatory accounting policies and practices, as well as supporting regulatory filings. My department analyzes the accounting implications of new legislation and Michigan Public Service Commission (Commission or MPSC) orders, and provides expert testimony on accounting issues and financial projections in various proceedings before the MPSC. We research and establish accounting policies, and assist the accounting operations departments with TMU -

17 T. M. UZENSKI Line U- implementation. My department also supports other Company expert witnesses in various proceedings before the MPSC by preparing historical and projected financial statements as well as other financial analysis. Q. Do you hold any certifications and are you a member of any professional organizations? A. I am a Certified Management Accountant, a member of the Institute of Management Accountants, and a member of the Corporate Accounting Committee of the Edison Electric Institute and American Gas Association. Q. To what extent have you participated in prior rate cases and other regulatory proceedings? A. I have sponsored testimony in the following cases: U- Michigan Consolidated Gas Company (MichCon) Depreciation U- MichCon UETM U-0 Detroit Edison 0 PSCR Plan U-0 Detroit Edison Enhanced Security Cost Recovery U- Detroit Edison Choice Incentive Mechanism Reconciliation U- Detroit Edison Pension Equalization Mechanism U--R U-0-EO Detroit Edison Pension Equalization Mechanism Detroit Edison Energy Optimization U- Detroit Edison UETM U-0 MichCon Energy Optimization U-00 Complaint Case against Detroit Edison U--R Detroit Edison 0 RETM Reconciliation TMU -

18 T. M. UZENSKI Line U- U--R Detroit Edison RETM Reconciliation U- Detroit Edison 0 REP Reconciliation U- Detroit Edison Rate Case U- Detroit Edison UETM Reconciliation U- Detroit Edison REP Plan U- MichCon Depreciation U- Detroit Edison CIM Reconciliation U- Detroit Edison RETM Reconciliation U- Detroit Edison UETM Reconciliation U-0 DTE Electric Company REP Plan Update U- DTE Electric Company Transitional Cost Recovery Mechanism U- DTE Electric Company Rate Case U- DTE Gas Company Rate Case U- DTE Electric Company Rate Case U- DTE Electric Company Customer 0 Program Accounting U- DTE Electric Company Rate Case U- DTE Electric Company Certificates of Necessity U- DTE Gas Company Rate Case U- DTE Gas Company TCJA Credit A TMU -

19 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF THERESA M. UZENSKI Q. What is the purpose of your testimony? A. The purpose of my testimony is to support net operating income that was approved in Case U-, adjusted for the change in the federal income tax rate from % to %. This amount is used by Company Witness Mr. Slater in his calculation of the updated revenue deficiency on Exhibit A-, Schedule A. Q. Are you sponsoring any exhibits with your testimony? A. Yes, I am supporting Exhibit A-, Schedule C, Approved Net Operating Income. Q. Was this exhibit prepared by you or under your direction? A. Yes, it was. Q. How did you determine the components of net operating income as shown on your Exhibit A-, Schedule C? A. Column (c) on Schedule C shows the components of approved projected operating income, before rate relief, from Case U-. Column (e) shows the components including the approved rate relief from Case U-. Line shows the total net operating income, with and without rate relief, that ties to the Commission s order. The individual line items comprising the total were derived by adjusting the Company s position for the various disallowances and adjustments incorporated by the Commission in its final order. Q. How did you calculate operating income updated for the new tax rate on line of Schedule C-? TMU -

20 T. M. UZENSKI Line U- A. I started with total net operating income as shown on line and removed the Federal Income Tax expense based on a % rate. To remove the expense, I added it back to net income. The tax amounts on line are from line, Federal Income Taxes. I then reduced income for the federal tax expense based on a % rate, as reflected on line. These federal tax amounts are from Exhibit A-, Schedule C. The amount in column (c) is from line on page of Schedule C, and the amount in column (e) is from line on page of Schedule C. The result of removing Federal Taxes at % and including Federal Taxes at % is shown on line, Updated Net Operating Income. Q. What is the approved net operating income amount updated for the new Federal tax rate? A. Net operating income without rate relief is $.0 million as shown on line, column (c). This amount is carried to Witness Slater s Exhibit A-, Schedule A, line, column (d). Q. What does the revenue sufficiency shown on Schedule C, line represent? A. Lines through on Schedule C calculate the amount of revenue currently included in base rates in excess of the revenue deficiency approved in Case U- adjusted for lower tax expense. I included this as a reconciliation to the change in the revenue requirement as calculated by Witness Slater on Exhibit A-, Schedule A, column (e). Q. How is the amount on line calculated? TMU -

21 T. M. UZENSKI Line U- A. In Case U-, the Commission approved a required net operating income of $. million, as shown on line, column (e). All else being equal, the Company will recognize $. million of income because it will incur less tax expense than it is collecting from customers. This is shown on line, column (e), and is calculated by removing the tax amount (on line ) included in the $. million, and replacing it with federal taxes based on the new % rate (line ). The difference between the approved net income amount, and the updated amount of $. million is $. million, as shown on line. I then grossed up the change in the income requirement by applying the updated conversion factor on line to derive the $. million on line. This figure ties to Witness Slater s calculation on Exhibit A-. It represents the reduction in revenue that is needed due to the reduction in the tax rate. This reduction does not reflect any impacts from re-measuring deferred taxes, re-balancing the capital structure, or any other adjustments. Those items will be addressed in DTE Electric s Calculation C filing. Q. Does this complete your direct testimony? A. Yes, it does. TMU -

22 0 MS. HAYDEN: The Company's next witness is Kenneth L. Slater. Mr. Slater filed direct testimony consisting of a cover page and seven pages of questions and answers. Mr. Slater sponsored Exhibit A- Schedule A, Exhibit A- Schedule B, Exhibit A- Schedule C, Exhibit A- Schedule D. The Company moves to bind into the record the direct testimony of Kenneth L. Slater and for admission into evidence of exhibits -- I will repeat them -- Exhibit A- Schedule A, Exhibit A- Schedule B, Exhibit A- Schedule C, Exhibit A- Schedule D. JUDGE WALLACE: Any objections? Hearing none, the testimony of Mr. Slater and Exhibits A-, A-, and A- and A- and the various schedules are admitted. The testimony is bound in. (Testimony bound in.)

23 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF KENNETH L. SLATER

24 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF KENNETH L. SLATER Q. What is your name, business address and by whom are you employed? A. My name is Kenneth L. Slater. My business address is One Energy Plaza, Detroit, Michigan. I am employed by DTE Energy Corporate Services, LLC, a subsidiary of DTE Energy Company (DTE Energy), within Regulatory Affairs as Manager of Revenue Requirements. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric Company (DTE Electric). Q. What is your educational background and business experience? A. I received a Bachelor of Science Degree in Business Administration, with a major in Accounting, from Lawrence Technological University in. In June, I joined Michigan Consolidated Gas Company (MichCon) and through August, I had several positions of increasing responsibilities within Regulatory Affairs. In September, I transferred to Gas Accounting as Supervisor, Michigan Gas Production Accounting with responsibilities for the recording of gas volumes and purchases from producers in Michigan. In September, I transferred back to Regulatory Affairs where I held several positions of increasing responsibilities. In July 0, I was promoted to Manager, Case Litigation within Regulatory Affairs with responsibility for the management of activities relative to MichCon s regulatory activities. In January, I was appointed to my current position. Q. What are your current duties and responsibilities? A. As Manager of Revenue Requirement within DTE Energy s Regulatory Affairs organization, I am responsible for revenue requirement studies, depreciation rate KLS -

25 K. L. SLATER Line U- studies, cost of service studies, as well as regulatory analysis and research for both DTE Electric Company and DTE Gas Company. Q. Have you previously sponsored testimony in cases before the Michigan Public Service Commission (MPSC or Commission)? A. Yes. I have sponsored testimony before the MPSC in several MichCon Gas Cost Recovery (GCR) factor and reconciliation cases regarding the forecasted and actual costs of transportation from MichCon s interstate pipeline transporters as well as the following cases: U- DTE Gas Company TCJA Credit A U-0 DTE Electric Company s Reconciliation of its Transitional Reconciliation Mechanism for the Period of January, through December, U- DTE Gas Company s application for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority U- DTE Gas Energy Optimization (EO) Reconciliation U- DTE Electric Energy Optimization (EO) Reconciliation U- DTE Gas - Energy Waste Reduction (EWR) Plan U- DTE Electric - Energy Waste Reduction (EWR) Plan U- DTE Electric Company s application for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of electric energy, and for miscellaneous accounting authority U- DTE Electric Company s Reconciliation of its Transitional KLS -

26 K. L. SLATER Line U- Reconciliation Mechanism for the Period of January, through December, U- DTE Electric REP Reconciliation U- DTE Electric REP Reconciliation U- DTE Gas EO Reconciliation U- DTE Electric EO Reconciliation U-0 DTE Electric Company s Reconciliation of its Transitional Reconciliation Mechanism for the Period of January, through December, U- DTE Gas Company s application for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority U- DTE Electric Company for Reconciliation of its Transitional Reconciliation Mechanism associated with the Disposition of the City of Detroit Public Lighting System for the Period of August, through December, U- Approval of a Refund Related to Self-Implementation of general service rates beginning November, and ending December, U- MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, through June 0, U- MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, through June 0, U- Approval of a Refund Related to Self-Implementation of general service rates beginning January, and ending June, KLS -

27 K. L. SLATER Line U- U- MichCon s Application for Authority to Increase Its Rates and for Other Relief U- MichCon s 0 Income Sharing Calculation U- Complaint Case (Title Transfer Fees) KLS -

28 Line Purpose of Testimony DTE ELECTRIC COMPANY DIRECT TESTIMONY OF KENNETH L. SLATER Q. What is the purpose of your testimony? A. I am providing testimony supporting the impact of the federal Tax Cuts and Jobs Act of (TCJA) on DTE Electric s currently authorized revenue requirement (approved by the Commission in its order in Case U-), rate base, the revenue multiplier, and the overall rate of return. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit Schedule Description A- A Revenue Deficiency A- B Rate Base A- C Revenue Conversion Factor A- D Rate of Return Summary Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. How does the TCJA impact the Company s current revenue requirement authorized in U-? A. When the lower federal income tax rate of % replaces the % tax rate in the Company s authorized revenue requirement, the revenue requirement decreases by $. million. Exhibit A-, Schedule A shows a comparison of the Commission approved revenue deficiency of $. million to a recalculated revenue sufficiency of $. million. The difference between the $. million revenue deficiency and KLS -

29 K. L. SLATER Line U- $. million revenue sufficiency is the $. million revenue requirement decrease. Q. Does the reduction in the federal income tax rate change authorized Rate Base? A. Rate base is not affected by the reduction in the federal tax rate. Exhibit A-, Schedule B shows Rate Base pre-tcja and post-tcja remain the same. Q. What is the purpose of the Revenue Conversion Factor? A. The Revenue Conversion Factor, also known as the Revenue Multiplier, is a multiplication factor that converts a utility s after-tax income deficiency/(sufficiency) into the required change in the pre-tax revenue requirement. Each dollar of revenue the Company receives is subject to Michigan Business Income Tax, Municipal Income Tax, and Federal Income Tax. The Revenue Conversion Factor utilized in the Company s approved rates was.. When the federal income tax rate is changed to %, DTE Electric s Revenue Multiplier becomes.. Exhibit A-, Schedule C, provides a comparison of the two Revenue Multiplier calculations. Q. Are there any changes to the Overall Rate of Return calculated on Exhibit A-, Schedule D? A. The overall rate of return approved in the Commission s order in U- of.% does not change. However, the pre-tax rate of return does decrease due to the updated Revenue Multiplier applied to Common Equity. The updated pre-tax rate of return is shown in column (i). KLS -

30 K. L. SLATER Line U- Q. Does this complete your direct testimony? A. Yes, it does. KLS -

31 MS. HAYDEN: The next witness is Thomas W. Lacey. Mr. Lacey filed direct testimony consisting of a cover page and nine pages of questions and answers. Mr. Lacey sponsored Exhibit A- Schedule F. and Schedule F., Exhibit A- Schedules F. and F., Exhibit A- Schedule F. and Schedule F.. The Company moves to bind in the direct testimony of Thomas Lacey, along with the exhibits that I just listed. JUDGE WALLACE: Any objections? Hearing none, the testimony of Mr. Lacey is bound into the record, and Exhibits A-, A-, and A- are admitted. (Testimony bound in.)

32 0 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF THOMAS W. LACEY

33 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF THOMAS W. LACEY Q. What is your name, business address and by whom are you employed? A. My name is Thomas W. Lacey. My business address is One Energy Plaza, Detroit, Michigan,. I am employed by DTE Energy Corporate Services, LLC (DTE Energy or DTE) as a Principal Financial Analyst in the Revenue Requirements Department of the Regulatory Affairs Organization. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric Company (DTE Electric or the Company). Q. What is your educational background and business experience? A. I received a Bachelor of Science Degree in Accounting from Michigan State University in and a Masters in Business Administration from Wayne State University in. From until 0, I was employed by ANR Pipeline Company (ANR) in the Rates and Regulatory Affairs department. I had several positions of increasing responsibilities within the Rates area, ultimately rising to the position of Senior Rates Analyst. During my nineteen years with ANR, I worked on numerous rate proceedings and filings before the Federal Energy Regulatory Commission (FERC) including rate cases (FERC Docket Nos. RP-0, RP-, RP-, RP-, RS- and RP-). My work was primarily in the areas of cost-of-service and rate design. In 0, I joined DTE as a Financial Analyst in the Load Research department of Regulatory Affairs. I worked in Load Research until December 0. My responsibilities within Load Research included extensive work on the 0 Michigan Consolidated Gas Company (MichCon) rate case (U- ) and The Detroit Edison Company (Detroit Edison) rate filings. In December 0, I accepted my current position. TWL -

34 T. W. LACEY Line U- Q. What are your responsibilities as a Principal Financial Analyst for both DTE Electric and DTE Gas? A. As a Principal Financial Analyst, my responsibilities include the preparation of revenue requirements, cost of service and rate design, testimony, exhibits and workpapers, in cases for both DTE Gas and DTE Electric. I am also responsible for managing certain MPSC filings such as DTE Electric s Renewable Energy Plan (REP) Plan case: U- and DTE Electric s most recent depreciation case U- 0. Q. Have you previously sponsored testimony in cases before the Michigan Public Service Commission (MPSC or Commission)? A. Yes, I have. I have sponsored testimony in the following cases: U- MichCon s 0 Uncollectible Expense True-up Mechanism and Safety and Training Related Expenditure Report U- MichCon s 0 General Rate Case Proceeding U- Reconciliation of MichCon s Energy Optimization (EO) Program U-0 MichCon s Updated Energy Optimization Plan U-0 MichCon Updated Energy Optimization Plan U- Reconciliation of the MichCon EO Program U- MichCon General Rate Case Proceeding U- Reconciliation of the DTE Gas EO Program U-0 Reconciliation of the DTE Electric EO Program U-0 Reconciliation of the DTE Gas EO Program U- Reconciliation of the DTE Electric REP Program TWL -

35 T. W. LACEY Line U- U- DTE Electric / Energy Optimization Plan U- DTE Gas / Energy Optimization Plan U-0 Reconciliation of the DTE Electric REP Program U- Reconciliation of the DTE Electric EO Program U- Reconciliation of the DTE Gas EO Program U- DTE Electric General Rate Case Proceeding U- DTE Electric REP Plan Proceeding U- DTE Electric Capacity Charge U- DTE Electric General Rate Case Proceeding U- DTE Electric REP Plan Proceeding Q. Have you previously testified or submitted testimony in any other regulatory proceedings? A. Yes. I sponsored testimony in ANR s general rate case in Docket RP-. I testified at a hearing before the FERC in Docket RP-. TWL -

36 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF THOMAS W. LACEY Q. What is the purpose of your testimony? A. I am providing testimony supporting the impact of the federal Tax Cuts and Jobs Act of (TCJA) on DTE Electric s currently authorized Cost of Service Study (COSS) approved by the Commission in its April, order in Case U- ; reflecting the TCJA revenue requirement supported by Company Witness Mr. Slater. I will restate the following cost studies: () the UCOS CP -0- Production and Transmission Year Ending October,, () UCOS Distribution by Voltage Year Ending October,, and () the Capacity Charge Revenue Requirement; for the overall reduction in revenue requirement of $. million. Q. Are you sponsoring any exhibits in this proceeding? A. I am sponsoring the following exhibits: Exhibit Schedule Description A- F. UCOS CP -0- Production and Transmission Year Ending October, Per U- Order A- F. UCOS Distribution by Voltage Year Ending October, Per U- Order A- F. UCOS CP -0- Production and Transmission Year Ending October, with Updated Tax Rate A- F. UCOS Distribution by Voltage Year Ending October, with Updated Tax Rate A- F. Order Conforming Capacity Charge Revenue Requirement A- F. Order Conforming Capacity Charge Revenue Requirement with Updated Tax Rate TWL -

37 T. W. LACEY Line U- Q. Were these exhibits prepared by you or under your supervision? A. Yes, they were. Exhibit A-, Schedules F. and F. and Exhibit A-, Schedule F. were prepared by the MPSC and I adopt them for the purposes of this case. A. COST OF SERVICE STUDY PER U- ORDER Q. What information is provided on Exhibit A-, Schedule F.? A. This four-page schedule provides details of the Production and Transmission COSS, including allocation of Production and Transmission rate base, revenues, and expenses for DTE Electric for the projected test year conforming to the Commission s April, order in Case U- (U- Order). This exhibit provides the amounts allocated to the various consolidated rate classes for the components of Production and Transmission revenue requirement, as well as the resulting revenue deficiency or sufficiency. The allocation methods used conform to the U- order, and reflect the projected test year revenue requirement for Production and Transmission of $,.0 million and the deficiency of $. million approved by the Commission in the U- Order. The U- Order reflected federal income taxes calculated at a % tax rate. Q. What information is provided on Exhibit A-, Schedule F.? A. This one-page schedule provides details of the Distribution COSS, including the allocation of Distribution rate base, revenues, and expenses for DTE Electric for the projected test year conforming to the U- Order. This exhibit provides the amounts allocated to the various voltage levels for the components of Distribution revenue requirement, as well as the resulting revenue deficiency or sufficiency. The allocation method used conforms to the U- order, and reflects the projected test TWL -

38 T. W. LACEY Line U- year revenue requirement for Distribution of $,. million and deficiency of $. million approved by the Commission in the U- Order. The U- Order reflected federal income taxes calculated at a % tax rate. Q. What is the total U- Order revenue requirement and revenue deficiency? A. The total U- Order revenue requirement is $,0. million ($,.0 million from Production and Transmission and $,. million from Distribution). The total revenue deficiency is $. million ($. million from Production and Transmission and $. million from Distribution). Q. What information is provided on Exhibit A-, Schedule F.? A. This four-page schedule provides details of the calculation of the Capacity Charge revenue requirement, including allocation of capacity related costs for DTE Electric for the projected test year conforming to the U- Order. Lines - on page of Exhibit A- schedule F., detail the calculation of the capacity charge revenue requirement, per the U- Order. Lines - on pages - of Exhibit A- schedule F. reflect the allocation of the capacity charge revenue requirement to the various consolidated rate classes. The allocation methods used conform to the U- order, and reflect the projected test year Capacity Charge revenue requirement of $,. million. B. COST OF SERVICE STUDY WITH UPDATED TAX RATE Q. How does the TCJA impact the Company s COSS authorized in U-? A. As shown on Exhibit A-, Schedule A supported by Company witness Mr. Slater, the TCJA reduced the annual revenue deficiency by $. million from a revenue TWL -

39 T. W. LACEY Line U- deficiency of $. million to a revenue sufficiency of $. million. This reduced the Revenue Requirements shown on Exhibit A-, Schedules F., F., and F.. The Production and Transmission revenue requirement was reduced by $. million and the Distribution revenue requirement by $. million. Q. How does the TCJA impact the Company s Production COSS authorized in U-? A. As shown on Line of Exhibit A-, Schedule F., the TCJA reduced the Production annual revenue deficiency by $. million from a revenue deficiency of $. million to a revenue sufficiency of $0. million. Likewise, the Production revenue requirements shown on Exhibit A-, Schedules F., decrease by $. million, from the amount approved in the U- Order of $,.0 million to $,0. million. Specifically, line (Income Taxes) has been reduced by $. million. The reduction in income taxes also reduces line (Income Deficiency), by $. million. Line (Total Revenue Deficiency/(Sufficiency) reflects the gross up of the Deficiency/(Sufficiency) from line by the Revenue Conversion Factor. This factor has been adjusted downward from the U- Order COSS from. to. as supported by Witness Slater on Exhibit A-, Schedule C. This causes the total Production revenue requirement to be reduced by an additional $. million for a total reduction of $. million reduction on line. Q. How does the TCJA impact the Company s Distribution COSS authorized in U-? A. As shown on Exhibit A-, Schedule F., the TCJA reduced the Distribution annual revenue deficiency by $. million from a revenue deficiency of $. million to a TWL -

40 T. W. LACEY Line U- revenue sufficiency of $.0 million. Likewise, the Distribution revenue requirements shown on Exhibit A-, Schedules F., decreases by $. million, from the amount approved in the U- Order of $,. million to $,. million. Specifically, line (Income Taxes) has been reduced by $. million. The reduction in income taxes also reduces line (Income Deficiency), by $. million. Line (Total Revenue Deficiency/(Sufficiency) reflects the gross up of the Deficiency/(Sufficiency) from line by the Revenue Conversion Factor. This factor has been adjusted downward from the U- Order COSS from. to. as supported by Witness Slater on Exhibit A-, Schedule C. This causes the total Distribution revenue requirement to be reduced by an additional $. million for a total reduction of $. million reduction on line. Q. What is the total revenue requirement and revenue deficiency reflected in Exhibit A-? A. The total revenue requirement is $,. million ($,0. million from Production and Transmission and $,. million from Distribution). The total revenue sufficiency is $. million ($0. million from Production and Transmission and $.0 million from Distribution). Q. How did you calculate and allocate the reduction in income taxes reflected on Line of Exhibit A- Schedules F. and F.? A. The $. million reduction in federal income expense was calculated by Company witness Ms. Wisniewski on her Exhibit A-, Schedule C (Page, column (d), Line ). I used the adjusted federal income tax amount of $0, (Exhibit A-, Schedule C, Page, column (c), Line ). I allocated the updated federal income TWL -

41 T. W. LACEY Line U- tax expense in the same manner as reflected in the U- Order COSS (Exhibit A- Schedules F. and F.). Federal income taxes are allocated using allocation factor (net income). The $. million reduction resulting from the lower tax multiplier is reflected in the same manner as in the U- Order. Specifically, the reduction results from using the lower revenue multiplier to covert the income sufficiency to a revenue sufficiency. Q. How does the TCJA impact the Company s Capacity Charge revenue requirement authorized in U-? A. As shown on Exhibit A-, Schedule F. the impact of the TCJA reduced the capacity charge revenue requirement by $. million, from the amount approved in the U- Order of $,. million to $,0. million. Specifically, line (Net Production Costs revenue requirement) has been reduced by the same $. million as the Production revenue requirement on Exhibit A- Schedule F.. Q. Do the changes to the U- present and proposed revenues for R and D, on Exhibit A-, Schedules F. and F., explained by Company Witness Mr. Bloch, impact the exhibits you support? A. Witness Bloch adjusted the U- Order conforming present and proposed revenues for rates R and D. The U- Order conforming COSS, reflected on Exhibit A- is correct and required no changes for the adjustments Mr. Bloch identified; and, as a result, my Exhibits, A-, A- and A-, are not affected. Q. Does this conclude your direct testimony? A. Yes, it does. TWL -

42 0 MS. HAYDEN: The Company's next witness is Michael A. Williams. Mr. Williams filed direct testimony consisting of a cover page and six pages of questions and answers. Mr. Williams sponsored Exhibits A- Schedule F and Exhibit A- Schedule G. And I will note for the record that we have four witnesses that worked on Exhibit A-, so those schedules are specific to Mr. Williams. The Company moves to bind into the record the direct testimony of Michael A. Williams and for the admission of Exhibit A- Schedule F and Schedule G. JUDGE WALLACE: And schedule? MS. HAYDEN: G. JUDGE WALLACE: All right. Any objections? Hearing none, the testimony of Mr. Williams is bound into the record, and Exhibit A- Schedule F and Exhibit A- Schedule G are admitted. (Testimony bound in.)

43 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF MICHAEL A. WILLIAMS

44 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF MICHAEL A. WILLIAMS Q. Will you please state your name business address and by whom are you employed? A. My name is Michael A. Williams. My business address is: One Energy Plaza, Detroit, Michigan. I am employed by DTE Energy Corporate Services, LLC within Regulatory Affairs as Principal Financial Analyst. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric Company (DTE Electric or Company). Q. What is your educational background? A. I graduated from Michigan State University in 0 with a Bachelor of Science degree in Economics. Q. Have you completed any other courses of study? A. Yes. I have attended multiple educational/training seminars regarding the electric utility industry throughout my career, including the Michigan State University Institute of Public Utilities Annual Regulatory Studies Program in 0, 0,,, and. Q. What work experience do you have? A. From 0 to 0, I was employed at the Postal Regulatory Commission (PRC) in Washington, DC as part of the Rates, Analysis, and Planning division. In this role, I was responsible for providing analysis and recommendations to PRC Commissioners regarding petitions filed by the United States Postal Service for things such as rate changes, new services, special contracts, and so on. I was also responsible for MAW -

45 M. A. WILLIAMS Line U- designing some of the PRC s recommended postal rates. From 0 until, I was employed at the Indiana Utility Regulatory Commission (IURC) in Indianapolis, IN. I held positions of increasing responsibility, ultimately serving as a Senior Utility Analyst in the Electric Division. In this role, I was responsible for providing analysis and recommendations regarding a wide range of electric regulatory filings made in Indiana. I joined DTE Electric in as a Senior Business Financial Analyst in Regulatory Affairs. In April, I was promoted to Principal Financial Analyst in Regulatory Affairs. My current responsibilities include rate development and administration of Company tariffs and rules. I also provide regulatory support to other business units. Q. Have you testified previously before the Michigan Public Service Commission? A. Yes, I have sponsored testimony and exhibits before the Michigan Public Service Commission (MPSC) in the following DTE Electric cases: Case Description U- DTE Electric General Rate Case Proceeding U- DTE Electric Section w of PA Filing U- DTE Electric General Rate Case Proceeding U- DTE Electric Biennial Review of its Amended Renewable Energy Plan U- DTE Electric General Rate Case Proceeding U- DTE Electric Public Act of Filing MAW -

46 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF MICHAEL A. WILLIAMS Q. What is the purpose of your testimony? A. The purpose of my testimony is to support the proposed residential rate design and tariffs for the residential rate schedules resulting from the Cost of Service study prepared by Company Witness Mr. Lacey, which reflects the impact of the federal Tax Cuts and Jobs Act of. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit Schedule Description A- F Present (U- rates) and Proposed Revenue by Rate Schedule A- G Proposed Tariff Sheets With respect to Exhibit A-, Schedule F, I am sponsoring the residential class which includes pages through of this exhibit. On Exhibit A-, Schedule G, I am sponsoring the proposed changes related to the residential class. Witnesses Bloch, Holmes, and Johnston are sponsoring the remaining sheets contained in these exhibits. Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. What approach has the Company used to revise rates to reflect the TCJA? A. As described in more detail later in my testimony, the Company has taken an approach to perform rate design for both power supply and distribution charges which is consistent with the Case U- Order and produces results that reflect what MAW -

47 M. A. WILLIAMS Line U- would have occurred if the TCJA had been in place when U- was originally filed. Q. Will you please describe Exhibit A-, Schedule F? A. This exhibit shows the present and proposed rate design and corresponding revenue by rate schedule. For purposes of this exhibit, present revenues are based on rates approved on January, in the Company s general rate case U- and not the rates ordered in Case U-, which became effective May,. This distinction is necessary to produce results that reflect what would have occurred if the TCJA had been in place when U- was originally filed. The various billing components are listed in column (a), and the respective billing determinants, including units of measure, are listed in column (b). The billing determinants are the same billing determinants that were used by the MPSC Staff ( Staff ) to develop the approved residential rates in the Company s last rate case, Case U-. The present rates in column (c) represent the rates approved in Case U-, and are used to calculate the present revenues in column (d). The present rates and revenue for each residential rate schedule match the present rates and revenues that were used by Staff in the development of the approved rates in the Company s last rate case, Case U-. The rates proposed in this proceeding are in column (e), with the resulting revenues in column (f). In summary, residential rates are developed based on the same billing determinants and starting point that were used by Staff to develop the residential rates approved by the Commission in Case U-, and the proposed rates reflect Company Witness Mr. Lacey s cost of service study which he updated for the tax change, sponsored in this case. MAW -

48 M. A. WILLIAMS Line U- Q. What is the basis for the Company s proposed residential rate levels in this proceeding? A. The same rate design methodology that was used by Staff to develop the residential power supply and distribution rates approved in the Commission s Order in Case U- was used to develop the residential power supply and distribution rates proposed in this case. The basis for the proposed rate levels are the functionalized power supply and distribution sufficiency/deficiency amounts supported by Mr. Lacey as shown in his Exhibit A-, Schedule F. (for power supply) and his Exhibit A-, Schedule F. (for distribution). The proposed residential power supply and distribution charges were designed to meet the power supply and distribution sufficiency/deficiency shown in these exhibits. The proposed residential power supply capacity and non-capacity rates were designed to recover the revenues pursuant to Mr. Lacey s Exhibit A- Schedule F., which shows how much of the power supply revenue requirement for each rate class is capacity and non-capacity related. Overall, residential rates in this case are proposed to decrease by approximately.%, compared to the residential rates that were approved by the Commission in its Case U- Order issued April, (see Exhibit A- Schedule F.). Residential customers will be informed of this rate decrease through a message on their bill. Q. Will you please describe Exhibit A-, Schedule G? MAW -

49 M. A. WILLIAMS Line U- A. This exhibit contains the proposed tariff sheet changes which result from the pricing changes described above. Q. Does this complete your direct testimony? A. Yes, it does. MAW -

50 MS. HAYDEN: The Company's next witness is Kelly A. Holmes. Ms. Holmes filed direct testimony consisting of a cover page and eight pages of questions and answers. Ms. Holmes also co-sponsored Exhibit A- Schedule F and Exhibit A- Schedule G. The Company moves to bind into the record the direct testimony of Ms. Holmes. The exhibits are already admitted, I believe. JUDGE WALLACE: O.K. Any objection to the binding in of the testimony of Ms. Holmes? Hearing none, the testimony is bound in. And the exhibits and schedules have already been admitted. (Testimony bound in.)

51 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF KELLY A. HOLMES

52 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF KELLY A. HOLMES Q. What is your name, business address and by whom are you employed? A. My name is Kelly A. Holmes. My business address is: One Energy Plaza, Detroit, MI -. I am employed by DTE Energy Corporate Services LLC within Regulatory Affairs as Principal Financial Analyst Regulatory Economics. Q. Who are you testifying on behalf of? A. I am testifying on behalf of DTE Electric Company (DTE Electric or Company) f/k/a/ The Detroit Edison Company (Detroit Edison). Q. What is your educational background and employment history? A. I received a Bachelor of Business Administration with an emphasis on accounting from the University of Michigan Business School in. From until 0, I was employed by Plante Moran LLP as a financial auditor. While employed at Plante Moran, I passed the Certified Public Accountant (C.P.A) examination in and became a licensed C.P.A. in upon meeting the work experience requirement. I had several positions of increasing responsibility, ultimately serving as the Senior Auditor on client engagements. In this role, I was responsible for tailoring each audit based on a client s industry and the risks inherent in their operations, supervising the audit fieldwork, and communicating the audit issues and results with client management. 0 In 0, I joined Kmart Corporation as a Senior Operations Auditor. My responsibilities included planning and performing operational audits within various departments of Kmart, and making recommendations to improve Kmart s efficiency and reduce costs. KAH -

53 K. A. HOLMES Line U- In 0, I joined Detroit Edison as a Financial Accountant within the Controller s Organization. My responsibilities included accounting, budgeting and reporting for electric revenues as part of the Gross Margin Analysis group. In 0, I was promoted to Senior Financial Analyst within Gross Margin, and my responsibilities expanded to include detailed financial modeling of the electric revenue to analyze the impact of regulatory and pricing changes, as well as forecasting related to Detroit Edison s Power Supply Cost Recovery (PSCR) Clause. I was also involved in preparing supporting schedules and exhibits for Case U- and Case U-. In December 0, I accepted my current position as a Principal Financial Analyst in Regulatory Affairs - Pricing and Rate Design. My current responsibilities include the development of customer rates, and the development, application and administration of the Company s tariffs, rules and regulations. Q. Have you completed any seminars regarding rate regulation? A. Yes. I attended the EEI Electric Rates Advanced Course in Madison, Wisconsin in July 0. I have also attended portions of the Institute of Public Utility s Advanced Regulatory Studies Program in October of,, and. Q. Have you previously sponsored testimony before the Michigan Public Service Commission (MPSC or Commission)? A. Yes. I supported and/or sponsored testimony in the following cases: U-0-EO U-0-EO-A U--R 0 Energy Optimization Plan Amended Energy Optimization Plan 0 PSCR Reconciliation KAH -

54 K. A. HOLMES Line U- U-0-R PSCR Reconciliation U- 0 Restoration Expense Tracking Mechanism U- RARS Reconciliation U- 0 EO Reconciliation U--R PSCR Reconciliation U- DECo General Rate Case U- Restoration Expense Tracking Mechanism U- Amended Energy Optimization Plan U-0 Revenue Decoupling Mechanism Reconciliation U- Choice Implementation Surcharge Reconciliation U--R PSCR Reconciliation U- Restoration Expense Tracking Mechanism U-0 Amended Energy Optimization Plan U-0-R PSCR Reconciliation U- Low Income and Energy Efficiency Fund/Vulnerable Household Warmth Fund Reconciliation U--R U-0-R PSCR Reconciliation PSCR Reconciliation U- DTE Electric Public Act of Filing U- DTE Electric Amended Energy Optimization Plan U--R PSCR Reconciliation U- DTE Electric General Rate Case U- DTE Electric General Rate Case U- DTE Electric Section w of PA Filing U- DTE Electric General Rate Case KAH -

55 K. A. HOLMES Line U- U-0 PSCR Reconciliation KAH -

56 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF KELLY A. HOLMES Q. What is the purpose of your testimony? A. The purpose of my testimony is to support the proposed rate design and tariffs for the commercial secondary rate schedules resulting from the Cost of Service study prepared by Company Witness Mr. Lacey, which reflects the impact of the federal Tax Cuts and Jobs Act of (TCJA) signed into law on December, and which resulted in this filing in accordance with the Order in MPSC Case U- issued on February,. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring two exhibits. Exhibit Schedule Description A- F Present (U- rates) and Proposed Revenue by Rate Schedule A- G Proposed Tariff Sheets Within Exhibit A-, Schedule F, I am sponsoring the pages specific to the commercial secondary customer class. This includes pages through. Company Witness Mr. Bloch is sponsoring the pages related to primary customer classes, Company Witness Mr. Williams is sponsoring the pages for the residential classes, and Company Witness Mr. Johnston is sponsoring the pages for the municipal, residential and commercial outdoor lighting classes. On Exhibit A-, Schedule G, I am sponsoring all of the commercial secondary tariffs, while Witnesses Bloch, Williams and Johnston sponsor the tariffs for the remaining customer classes. Q. Were these exhibits prepared by you or at your direction? KAH -

57 K. A. HOLMES Line U- A. Yes, they were. Q. What approach has the Company used to revise rates to reflect the TCJA? A. As described in more detail later in my testimony, the Company has taken an approach to perform rate design for both power supply and distribution charges which is consistent with the U- Order and produces results that reflect what would have occurred if the TCJA had been in place when U- was originally filed. Q. Will you please describe Exhibit A-, Schedule F? A. This exhibit shows the present and proposed rate design and corresponding revenue by rate schedule. For purposes of this exhibit, present revenues are based on rates approved on January, in the Company s general rate case U- and not the rates ordered in case U-, which became effective May,. This distinction is necessary to produce results that reflect what would have occurred if the TCJA had been in place when U- was originally filed. The various billing components are listed in column (a), and the respective billing determinants, including units of measure, are listed in column (b). The billing determinants are the same billing determinants the MPSC Staff ( Staff ) used to develop the commercial secondary rates approved in the Company s last rate case, Case U-. The present rates in column (c) represent the rates approved in Case U-, and are used to calculate the present revenues in column (d). The present rates and revenue for each rate schedule match the present rates and revenues used by Staff in the development of the rates approved in the Company s last rate case, Case U-. The rates proposed in this proceeding are in column (e), with the resulting revenues in column (f). In summary, commercial secondary rates are developed KAH -

58 K. A. HOLMES Line U- using the same billing determinants and starting point that were used by Staff to develop the rates approved by the Commission in Case U-, and the proposed rates reflect Company Witness Mr. Lacey s cost of service study sponsored in this case. Q. What is the basis for the commercial secondary rates proposed in this proceeding? A. The same rate design methodology used by Staff to develop the commercial secondary power supply and distribution rates approved in the Commission s Order in Case U- was used to develop the power supply and distribution rates proposed in this case. The basis for the proposed rates are the functionalized production (power supply) and distribution sufficiency amounts supported by Mr. Lacey in Exhibit A-, Schedule F. (for power supply) and Exhibit A-, Schedule F. (for distribution). The proposed commercial secondary power supply and distribution charges were designed to meet the power supply and distribution sufficiency shown in these exhibits. The proposed commercial secondary power supply capacity and noncapacity rates were designed to recover the respective revenues pursuant to Mr. Lacey s Exhibit A- Schedule F., which shows how much of the power supply revenue requirement for each rate class is capacity and non-capacity related. Q. How were rates for the commercial secondary class impacted by the TCJA? A. Overall, the commercial secondary rates proposed in this case represent a decrease of approximately.%, compared to the commercial secondary rates approved by KAH -

59 K. A. HOLMES Line U- the Commission in its Case U- Order issued April, (see Exhibit A- Schedule F.). All customers will be informed of this rate decrease through a message on their bill. Q. Will you please describe Exhibit A-, Schedule G? A. This exhibit contains the proposed tariff sheet changes which result from the pricing changes described above. Q. Does this conclude your direct testimony? A. Yes, it does. KAH -

60 MS. HAYDEN: The Company's next witness is Timothy Bloch. Mr. Bloch filed direct testimony consisting of a cover page and pages of questions and answers. Mr. Bloch sponsored Exhibit A- Schedules F, F., F., F, F., and F., F, and G. The Company moves to bind into the record the direct testimony of Mr. Bloch, and for the admission into evidence of the exhibits and schedules that I listed previously. JUDGE WALLACE: Any objections? Hearing none, the testimony of Mr. Bloch is bound into the record, as well as the various schedules Ms. Hayden listed. (Testimony bound in.)

61 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF TIMOTHY A. BLOCH

62 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF TIMOTHY A. BLOCH Q. By whom are you employed and in what capacity? A. My name is Timothy A. Bloch. My business address is: One Energy Plaza, Detroit, Michigan. I am employed by DTE Energy Corporate Services, LLC within Regulatory Affairs as Principal Financial Analyst. Q. What is your business address and on whose behalf are you testifying? A. My business address is One Energy Plaza, Detroit, Michigan. I am testifying on behalf of DTE Electric Company (Company or DTE Electric). Q. What is your educational background? 0 A. I graduated from Michigan Technological University in with a Bachelor of Science degree in Mechanical Engineering. Q. What is your business experience? A. I joined Detroit Edison in as an Assistant Engineer in the Central Heating Plants of the Production Organization. I was responsible for equipment performance and efficiency testing, system troubleshooting, outage management and capital improvement projects. In, I accepted a position as an Associate Engineer with the District Heating Management Organization. My responsibilities in this position included financial reporting, preparing testimony for the steam cost recovery cases and providing technical assistance to the sales and service staff. In addition, I provided technical recommendations and managed several engineering and economic projects related TAB -

63 T. A. BLOCH Line U- to the design, expansion, operation and maintenance of the steam distribution system and customer service installations. During this period I was promoted from Associate Engineer to Engineer and in from Engineer to Senior Engineer. In, I cross-trained in the Customer Options Group of Marketing. In this position, I assisted in the administration of Detroit Edison s power purchase contracts with FERC-qualified facilities. In, I accepted a permanent position in this group. From -, my primary responsibility was to assist in the development and negotiation of waste-to-energy contracts resulting from Public Act (PA). I was directly involved in developing the terms and conditions for these contracts, meeting with and providing information to customers and developers interested in developing PA projects, and representing the Company in the negotiation process. I was also the Company s witness in the filing of PA contracts. In, after the Company went through a restructuring process, Customer Options became part of the Pricing group and my job title changed to Analyst/Pricing. From to, my primary responsibilities in Pricing included contract administration of PA contracts, rate analysis and design, and support in the development of special contracts, such as the Special Manufacturing Contracts (SMC) and the Large Customer Contracts (LCC). During this period, I also crosstrained for approximately one year with our Load Research group to learn statistical sampling techniques, methods of accessing customer data and how the Total System TAB -

64 T. A. BLOCH Line U- Analysis (TSA) is performed. In June, I was promoted to Principal Financial Analyst. Q. What are your responsibilities as Principal Financial Analyst? A. My current responsibilities include the development of residential, commercial, industrial, and governmental rates for electric service. I am also responsible for developing and recommending pricing policy and development, application and administration of rate tariffs and special contracts, as well as the rules and regulations governing service. Q. Have you previously testified or submitted testimony in any Michigan Public Service Commission (MPSC or Commission) proceeding? A. I have sponsored testimony in the following cases: U- DTE Electric Certificate of Necessity per MCL 0.s U- DTE Electric General Rate Case U- DTE Electric Section w of PA Filing U- DTE Electric Avoided Cost Calculation U- DTE Electric General Rate Case U- DTE Electric General Rate Case U- In the matter of the Formal Complaint of AK Steel Corporation (successor to Severstal Dearborn, LLC) against DTE Electric Company for standby service. U- DTE Electric Public Act of Filing U- DTE Electric Amendment to Rider TAB -

65 T. A. BLOCH Line U- U- DTE Electric General Rate Case U- U- Self Implementation Refund U- Detroit Edison General Rate Case U- Detroit Edison General Rate Case U- Detroit Edison Direct Access Tariff U-0 U00 PA Power Purchase Agreements U- PA Power Purchase Agreement TAB -

66 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF TIMOTHY A. BLOCH Q. What is the purpose of your testimony? A. The purpose of my testimony in this proceeding is to support DTE Electric s proposed primary rate design based on Company Witness Mr. Lacey s COSS, Exhibit A-, Schedules F. and F. and Exhibit A- Schedule F.. As described in the testimony of Witness Lacey, Exhibit A-, Schedules F. and F. and Exhibit A- Schedule F. are based on the Commission approved cost of service model used to set rates in Case U-, modified to reflect the new Federal Income Tax changes enacted under the Tax Cuts and Jobs Act of (TCJA) signed into law on December, and which resulted in this filing in accordance with the Order in MPSC Case U- issued on February,. Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit Schedule Description A- F Summary of Present and Proposed Revenue by Rate Schedule months ending October,, Attachment A of the April, Order in U- A- F. Summary of Present (U-) vs. Proposed Revenue with TCJA Tax Rate by Rate Schedule months ending October, A- F. U- Ordered Revenue vs. Proposed Revenue with TCJA Tax Rate by Rate Schedule months ending October, A- F Present (U- rates) and Proposed Revenues TAB -

67 T. A. BLOCH Line U- months ending October, A- F. Present and Proposed Revenues for Rate Schedule D months ending October,, as approved in the April, Order in U- A- F. Present and Proposed Revenues for Rate Schedule R months ending October,, as approved in the April, Order in U- A- F Calculation of Voltage Level Distribution Charges Primary Sub-transmission and Transmission Voltage Levels A- G Proposed Tariff Sheets With respect to Exhibit A-, Schedule F, I am sponsoring the Commercial and Industrial (C&I) primary rate classes, which includes pages through of this exhibit. Company Witnesses Ms. Holmes, Mr. Johnston, and Mr. Williams are sponsoring the remaining customer classes in Schedules F. On Exhibit A-, Schedule G, I am sponsoring the proposed tariff price changes related to the C&I primary tariffs and the standard allowance table in Section C. (). Witnesses Holmes, Johnston, and Williams are sponsoring the remaining sheets contained in this exhibit. Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. What average rate decrease for primary customers results from the TCJA? A. Overall, the primary rates proposed in this case represent a decrease of TAB -

68 T. A. BLOCH Line U- approximately.% compared to the primary rates approved by the Commission in its Case U- Order issued April, (see Exhibit A- Schedule F.). All customers will be informed of this rate decrease through a message on their bill. Q. What approach has the Company used to revise rates to reflect the TCJA? A. As described in more detail later in my testimony, the Company has taken an approach to perform rate design for both power supply and distribution charges which is consistent with the U- Order and produces results that reflect what would have occurred if the TCJA had been in place when U- was originally filed. Q. Were the present and proposed revenues approved in Case U-, and shown in Attachment A pages - of the Commission s April, order used to support the Company s proposed rates in this case? A. Yes, with the following two exceptions; ) Rate Rider (R) present revenues shown in Attachment A, pages and were understated by $.0 million, and; ) Primary Rate D ordered revenues shown in Attachment A, page and were understated by $.0 million. Q. Can you please explain why the R present revenues were understated by $.0 million? A. Yes. The power supply present revenues for R, shown in Attachment A, page of the order, and included in this cases as Exhibit A, Schedule F, page, are $. million and should have been $.0 million, understating present revenues by $.0 million. This understatement of present revenues was due to the R primary TAB -

69 T. A. BLOCH Line U- off-peak discount inadvertently being applied twice in the R rate design sheet, as both a capacity off-peak discount and a non-capacity off-peak discount, as shown in Exhibit A, Schedule F.. Q. Can you please explain why the D ordered revenues were understated by $.0 million? A. Yes. The U- ordered power supply revenues for rate D should have been $. million based on the approved cost of service in the case as shown in column (p), line of Exhibit A, Schedule F., page. The D rate design, which was used to set D power supply rates, produces power supply revenues of $0. million as shown in column (f) of Exhibit A, Schedule F., understating D ordered power supply revenues by $.0 million. Q. Does the understatement of R present power supply revenues and ordered D power supply revenues affect the Company s proposed rates in this case? A. As addressed in the testimony of Witness Mr. Lacey, the understated revenues identified above did not affect the COSS and Exhibits A-, A-, and A- which are used to set rates in this case. Q. Does the understatement of R present power supply revenues and ordered D power supply revenues affect the Company s revenue comparisons in Exhibit A- Schedules F. and F.? A. Yes. If unchanged, the present revenues in column (b) would be understated - affecting the net impacts shown in columns (d) and (e) on Schedule F., and on Schedule F. the U- ordered revenue in column (b) would also be understated TAB -

70 T. A. BLOCH Line U- - affecting the net impacts shown in columns (d) and (e). Q. What changes did you make to Schedules F. and F. to address these concerns? A. On Schedule F., page of, I increased the R present power supply revenue in column (b) by $.0 million to correct for the primary off-peak discount issue discussed above. On Schedule F., column (b), I increased the U- ordered revenue for D by $.0 million to be consistent with the D revenue requirement approved in the U- COSS. Q. Will you please describe Exhibit A-, Schedule F.? A. This exhibit summarizes present and proposed revenues by rate schedule for the - month period ending October,. For purposes of this exhibit, present revenues are the same present revenues shown in Attachment A of the Commission s April, order in Case U-, and included in this case as Exhibit A, Schedule F, except for rate R which was increased by $.0 million as discussed above. This exhibit provides a comparison of what would have occurred if the TCJA had been in place when U- was originally filed. The exhibit provides a comparison of total present and proposed revenues on page, present and proposed power supply revenues on page, and present and proposed distribution revenues on page. The proposed power supply revenues on page provides a separate breakout of capacity and non-capacity related power supply revenues. Q. Will you please describe Exhibit A-, Schedule F.? TAB -

71 T. A. BLOCH Line U- A. Exhibit A-, Schedule F. provides a comparison of the total revenues by rate schedule approved in Case U- to the Company s proposed total revenue by rate schedule in this case. The revenue differences represent the impact on current rates due to the federal Tax Cuts and Jobs Act of. The U- ordered revenues are the same proposed revenues shown in Attachment A, of the Commission s April, order in Case U-, and included in this case as Exhibit A, Schedule F, except for rate D, which was increased by $.0 million as discussed above. Q. Will you please describe Exhibit A-, Schedule F? A. This exhibit compares the present and proposed rate design and corresponding revenue by rate schedule based on the ordered billing determinants in Case U-, approved on April,. The exhibit details the billing determinants, and corresponding present and proposed rates and revenue. The various billing components are listed in column (a), and the respective billing determinants, including units of measure, are listed in column (b). The previously existing rates, as approved in Case U-, are in column (c), and are used to calculate the present revenues in column (d). The proposed rates, which now include separate capacity and non-capacity related power supply charges, are in column (e), with the resulting revenues in column (f). Q. Will you please describe how your proposed power supply rate designs were determined for this proceeding? A. The starting point was the ordered primary rate designs approved in Case U- on April, which were based on the Staff s billing determinants and TAB -

72 T. A. BLOCH Line U- 0 rate designs, except for rate R. I corrected the ordered R rate design by removing the duplicate primary off-peak discount that caused present revenues to be understated, as discussed earlier in my testimony. Using the ordered rate designs, I then designed the primary power supply rates to meet the power supply capacity and non-capacity revenue requirement targets for each rate schedule based on Witness Lacey s COSS Exhibit A-, Schedules F. and Exhibit A- Schedule F.. Q. Will you please describe Exhibit A-, Schedule F? A. This exhibit shows the development of the voltage level Distribution Demand Charges for the primary tariffs. Q. Will you please describe the development of the voltage level distribution charges shown in Exhibit A-, Schedule F? A. The starting point for developing this exhibit was the ordered primary rate designs approved in Case U- on April, which were based on the Staff s billing determinants and rate designs and include a $. million distribution sufficiency attributed to the primary rate schedules. The present (U- Base Rates) base delivery revenue by voltage level for each rate schedule is shown in column (a). The base delivery revenue includes all revenues from service charges, distribution energy and demand charges, and substation credits. The cost-based deficiency/(sufficiency) for each service voltage level, from Exhibit A-, Schedule F., sponsored by Witness Lacey, are shown in column (b). Column (c) shows the total proposed base delivery revenue to be collected from each voltage level, which is the sum of columns (a) and (b). Columns (d) and (e) show the proposed service charge revenue and substation credits. Columns (d) and (e) are subtracted from TAB -

73 T. A. BLOCH Line U- column (c) to determine the amount of base delivery revenue to be collected in distribution demand charges, shown in column (f). The distribution demand revenue in column (f) was divided by the distribution demands in column (g) to determine the distribution demand charges by voltage level shown in column (h). This is the same methodology that was used by MPSC Staff to design the distribution charges approved in Case U-. Q. Will all primary customers pay the same $/kw distribution charges or an equivalent amount as shown in column (h)? A. Yes, all primary rates will have the same $/kw charges shown in column (h) except for rates D and R. and R. which have energy based delivery charges. For those three rates, I have calculated energy charges equivalent to the proposed voltage level distribution charges. Q. Will you please describe Exhibit A-, Schedule G? A. This exhibit contains the proposed rule and tariff sheet price changes which result from the Company s proposals in this case. Q. Does this complete your direct testimony? A. Yes, it does. TAB -

74 MS. HAYDEN: Finally the Company moves to bind in the testimony of Kenneth D. Johnston. Mr. Johnston filed direct testimony consisting of a cover page and pages of questions and answers. Mr. Johnston also co-sponsored Exhibit A- Schedule F and Exhibit A- Schedule G, which again has already been admitted into evidence, so for the record I'll make that note. The Company moves to bind into the record the direct testimony of Mr. Johnston. JUDGE WALLACE: Any objections? Hearing none, the testimony of Mr. Johnston is bound into the record. And the exhibits and schedules have already been admitted. (Testimony bound in.)

75 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION 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 ) to reflect the effects of the federal Tax ) Case U- Cuts and Jobs Act of : ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF KENNETH D. JOHNSTON

76 Line DTE ELECTRIC COMPANY QUALIFICATIONS OF KENNETH D. JOHNSTON Q. What is your name, business address and by whom are you employed? A. My name is Kenneth D. Johnston. My business address is 00 Haggerty, Belleville, Michigan. I am employed by DTE Electric Company (DTE Electric or Company) as Manager of Community Lighting. Q. On whose behalf are you testifying? A. I am testifying on behalf of DTE Electric. Q. What is your educational background? A. I graduated from Lawrence Technological University with a Bachelor of Science Degree in Engineering in. In, I graduated with distinction from the University of Michigan, Dearborn, with the degree of Master of Business Administration in Finance and received the Distinguished Graduate MBA Student Award. In addition, I have completed advanced level mathematics and mechanical engineering courses at Lawrence Technological University. Q. Have you completed other courses of study or attended any professional seminars? A. Yes, I have completed a Training Program titled Fundamentals of Energy Management sponsored by the Association of Energy Engineers, completed a training course offered by International Business Communications titled Energy Industry Essentials, attended a workshop on Retail Open Access offered by the Michigan Electric Power Coordination Center, attended the Lighting Upgrade Workshop offered by the US Environmental Protection Agency (EPA), and completed the Nuclear Utility Procurement Training sponsored by the Electric Power KDJ -

77 K. D. JOHNSTON Line U- Research Institute (EPRI). Finally, I have a Six Sigma Green Belt certification. Q. Do you belong to any professional organizations or hold any certifications? A. Yes. I have received certifications as an Energy Manager through the Association of Energy Engineers, a Green Lights Surveyor Ally through the US EPA, and as a Nuclear Utility Procurement Instructor through EPRI. Q. Please provide your employment history with DTE Electric. A. My first work assignment for Detroit Edison was in May as a contract engineer in the Applied Mechanics and Metallurgy Group, Power Systems Division, Engineering Research Department. As a vibration engineer, I was responsible for vibration monitoring, evaluation, and analysis of rotating machinery at Detroit Edison Power Plants. I was formally hired by Detroit Edison in August as a planning and scheduling engineer at the Fermi Nuclear Power Plant. In this capacity, I developed, programmed, and directed the production of plant outage schedules, including equipment maintenance and testing, plant system restoration, and plant startup. In March, I was assigned the duties of Preventive Maintenance Specialist, Nuclear Production-Maintenance, and was responsible for evaluation and implementation of the preventive maintenance program. In January, I took a position as a materials engineer, Nuclear Materials Management, and progressed to principal (lead) engineer. In this capacity, I was KDJ -

78 K. D. JOHNSTON Line U- responsible for the work direction of engineers and technicians in the performance of material engineering, parts planning, and receipt inspection activities. I represented the Company as a member of the EPRI Obsolete Items Database Technical Working Group and the General Electric Boiling Water Reactor Pooled Inventory Management Equipment Committees. In August, I was assigned the position of principal mechanical maintenance engineer, Rotating Equipment, Maintenance Engineering, Nuclear Production. In this capacity, I provided field-engineering support for mechanical maintenance activities, managed the resolution of emerging technical issues, monitored and evaluated the performance of rotating equipment and performed troubleshooting and root cause analysis of equipment failures. In January, I became a facilitator with the Energy Partnership, Customer Energy Solutions. In this position, I was responsible for the development, implementation, and management of the Energy Conservation Program at the General Motors Proving Ground in Milford, Michigan. Responsibilities in that position included the identification, financial evaluation, and implementation of natural gas and electric energy projects related to boiler and steam systems, lighting systems, air compressors, and HVAC systems. In June, I became a Principal Supplier Account Manager with the Supplier Transactions Group of the Electric Choice Implementation Team. In this capacity I was responsible for the management of relationships with Alternative Electric Suppliers (AES) including supplier education, supplier qualification, supplier billing, KDJ -

79 K. D. JOHNSTON Line U- customer enrollment, customer billing, and electronic data management. In January 0, I transferred to Regulatory Affairs as a Principal Project Manager and in September 0, I was promoted to Consultant. In February, I was promoted to Manager of the DTE Electric Choice Program. As Manager of the Electric Choice Program, I was responsible for managing the processes that enable customers to seamlessly migrate between DTE Electric Full Service and Electric Choice Service in accordance with Michigan Compiled Laws (MCL), Michigan Public Service Commission (MPSC or Commission) Orders, and DTE Electric s tariffs. In April, I was promoted to Manager of Community Lighting. Q. What are your duties and responsibilities as Manager of Community Lighting? A. In this capacity, I am responsible for managing the marketing & sales, planning & construction and asset management of more than,000 DTE Electric-owned street lights and outdoor protective lights, the maintenance and provision of energy to municipally owned streetlights and the provision of energy-only service to municipalities, in accordance with DTE Electric s MPSC-approved tariffs. DTE Electric s assets include mercury vapor, metal halide, high pressure sodium, (collectively known as high intensity discharge (HID)) and light-emitting diode (LED) luminaires. Q. What has been your involvement in regulatory case activities? A. I managed the following cases: KDJ -

80 K. D. JOHNSTON Line U- U- In the matter of the application of The Detroit Edison Company to recover implementation costs for the period ended December, 0 U-0 In the matter of the application of The Detroit Edison Company to recover implementation costs for the period ended December, 0 U- Review of Steam Rates U-0-R 0 Power Supply Cost Recovery Reconciliation U- In the matter of the application of The Detroit Edison Company to implement the Commission's final order in Case U-0 concerning Inter Alia, 0 Net Stranded Costs U-0 In the matter of the complaint of North Star Steel Company against The Detroit Edison Company regarding credits for experimental electric choice service U- In the matter of complaint of Nordic Marketing, LLC against The Detroit Edison Company for violations of the Code of Conduct, Public Act U- In the matter of the complaint of Commerce Energy Inc. against The Detroit Edison Company U-00 In the matter of the application of Michigan Consolidated Gas Company for the authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority. KDJ -

81 K. D. JOHNSTON Line U- I was the case manager and/or sponsored testimony in the following cases: U-0 In the matter of the complaint of Strategic Energy LLC against The Detroit Edison Company U-0 In the matter of the complaint of Quest Energy against The Detroit Edison Company U-00 In the matter of the complaint of Constellation NewEnergy, Inc. against The Detroit Edison Company. U- 0 Power Supply Cost Recovery Plan U--R 0 Power Supply Cost Recovery Reconciliation U-0 In the matter of the complaint of Nordic Marketing, L.L.C. against The Detroit Edison Company for failure to comply with enrollment processing requirements. U- 0 Pension Equalization Mechanism Reconciliation U-0 0 Power Supply Cost Recovery Plan U-0-R 0 Power Supply Cost Recovery Reconciliation U- 0 Pension Equalization Mechanism Reconciliation U-00 0 Power Supply Cost Recovery Plan U-00-R 0 Power Supply Cost Recovery Reconciliation U-0 In the matter of the complaint of FirstEnergy Solutions Corp. against The Detroit Edison Company for violation of the Code of Conduct U- 0 Power Supply Cost Recovery Plan U--R 0 Power Supply Cost Recovery Reconciliation U- 0 Power Supply Cost Recovery Plan U-0 Detroit Edison 0 PA Renewable Energy Plan (RPS) U-0 Power Supply Cost Recovery Plan KDJ -

82 K. D. JOHNSTON Line U- 0 U- In the matter of the application of The Detroit Edison Company for the authority to reconcile its renewable energy plan costs with the plan approved in Case U-0-RPS U- Power Supply Cost Recovery Plan U- In the matter of the complaint of Severstal Dearborn, LLC against DTE Electric Company U-0-R Power Supply Cost Recovery Reconciliation U- In the matter of the Formal Complaint of AK Steel Corporation (successor to Severstal Dearborn, LLC) against DTE Electric Company for standby service. U- DTE Electric General Electric Rate Case Proceeding U- DTE Electric General Electric Rate Case Proceeding U-0 In the matter of the Application of DTE Electric Company for approval of depreciation accrual rates and other related matters. U- DTE Electric General Electric Rate Case Proceeding In addition, I have submitted affidavits supporting changes to DTE Electric s Retail Access Service Rider, as well as the approval of renewable energy, renewable energy engineering, procurement and construction (EPC), and renewable energy credit (REC) contracts before the MPSC. I was also the case manager and submitted several affidavits regarding energy imbalance service and the recalculation of energy imbalance service costs in FERC Docket EL0--000, Complaint of Quest Energy, LLC to receive proper compensation for imbalance services. KDJ -

83 Line DTE ELECTRIC COMPANY DIRECT TESTIMONY OF KENNETH D. JOHNSTON Q. What is the purpose of your direct testimony? A. The purpose of my testimony is to support the proposed rate design and tariffs for () residential and commercial outdoor protective lighting (OPL), () municipal street lighting and () municipal traffic and signal lights resulting from the Cost of Service study prepared by Company Witness Mr. Lacey. Mr. Lacey s Cost of Service study reflects the direct impact of the lower corporate tax rate established in the federal Tax Cuts and Jobs Act of (TCJA). Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit Schedule Description A- F Present (U-) and Proposed Revenues by Rate A- G Proposed Tariff Sheets Schedule months ending October, With respect to Exhibit A-, Schedule F, I am sponsoring pages -0 for the municipal classes as well as the residential and commercial outdoor protective lighting. On Exhibit A-, Schedule G, I am sponsoring the OPL and municipal tariffs while Company Witnesses Mr. Bloch, Ms. Holmes, and Mr. Williams sponsor the tariffs for the remaining customer classes. Q. Were these exhibits prepared by you or under your direction? A. Yes, they were. Q. What average rate decrease for lighting customers results from the TCJA? KDJ -

84 K. D. JOHNSTON Line U- A. Overall, the lighting rates proposed in this case represent a decrease of approximately.% compared to the lighting rates approved by the Commission in its Case U- Order issued April, (see Exhibit A- Schedule F.). Specifically, Rate Schedule D outdoor protective lighting would be reduced by.% on average, Rate Schedule E Municipal Street Lighting by.% and Rate Schedule E Traffic Signal Lights by.%. All customers will be informed of this rate decrease through a message on their bill. Q. What approach has the Company used to revise rates to reflect the TCJA? A. As described in more detail later in my testimony. the Company has taken an approach which is consistent with the Case U- Order and produces results that reflect what would have occurred if the TCJA had been in place when Case U- was originally filed. Q. What does Exhibit A-, Schedule F show? A. This exhibit shows the present and proposed rate design and corresponding revenues by rate schedule, based on the billing determinants for the months ending October,. For purposes of this exhibit, present revenues are based on rates approved on January, in the Company s general rate Case U- and not the rates ordered in case U-, which became effective May,. This distinction is necessary to produce results that reflect what would have occurred if the TCJA had been in place when Case U- was originally filed. The exhibit details the forecasted billing determinants as well as the resulting present and proposed rates and revenues. The various billing components are listed in column (a), and the respective billing determinants, including units of measure, are listed in KDJ -

85 K. D. JOHNSTON Line U- column (b). The billing determinants are the same billing determinants that were used to develop the approved lighting rates in the Company s last rate case, Case U-. The present luminaire and energy rates are in columns (c) and (d), and are used to calculate the present revenues in column (e). The present rates and revenue for each rate schedule match the present rates and revenues that were used in the development of the approved rates in the Company s last rate case, Case U-. The luminaire rates proposed in this proceeding are in column (f), the proposed non-capacity energy rates are in column (g), the proposed capacity energy rates are in column (h) and the resulting revenues from the new lighting cost of service are in column (i). Q. Did DTE Electric change the methodology by which it allocated the production and distribution revenue requirements to the various lighting rate schedules that you are supporting in this case? A. Consistent with the methodology employed in the Company s last rate Case U-, the functionalized production (Exhibit A-, Schedule F.) and distribution (Exhibit A-, Schedule F.) revenue requirement amounts supported by Company Witness Mr. Lacey for each of the lighting rates schedules (D, E, & E) were fully allocated to each of those rate schedules within the lighting rate model. The proposed luminaire, distribution, and energy charges (both capacity and non-capacity) within each of the rates schedules were designed to meet the production and distribution revenue requirement for each rate schedule shown in these exhibits. Mr. Lacey s Exhibit A- Schedule F., which shows how much of the production revenue requirement for each rate class is capacity and non-capacity related, was used to allocate the production revenue requirement between the KDJ -

86 K. D. JOHNSTON Line U- capacity and non-capacity energy charges. Q. Do each of the individual lighting rates approved in the Company s last rate Case U- fully reflect their true cost basis? A. The lighting rates developed in the lighting rate model and approved for Rate Schedule E, Option I (DTE-owned streetlights), were not entirely based upon their cost of service. Based upon the consensus reached in the lighting collaborative ordered in case U- and beginning with rate Case U-, the Rate Schedule E Option I lighting rates are being gradually moved to rates which are entirely based upon cost of service. The rates recently approved in Case U- were designed to limit their overall impact on any individual municipality to a % increase. Q. Do the proposed Rate Schedule E Option I rates reflect a continuation of a gradual move to rates which are entirely based upon cost of service? A. Yes. The proposed lighting rates for Rate Schedule E, Option I, reflect a rate design which continues a gradual move to rates which are entirely based upon cost of service. Based upon using the same cost allocations in the lighting rate model that were utilized in the Company s last two rate cases, the present revenue from underground-fed lighting exceeds the allocated revenue requirement for that lighting whereas the allocated revenue requirement for over-head-fed lighting exceeds the present revenue for those luminaires. In addition to the skewing between overheadfed lighting and underground-fed lighting, additional skewing exists between lower wattage luminaires and higher wattage luminaires and HID versus LED technologies. KDJ -

87 K. D. JOHNSTON Line U- Q. How were the Rate Schedule E Option I proposed rates developed in this proceeding? A. The proposed Rate Schedule E Option I lighting rates were designed with two goals in mind; () continue the gradual move to rates which are entirely cost based and () do not increase the monthly lighting bill for any municipality. Using the lighting rate model, the first step towards achievement of these goals was to cap all the current lighting rates which are still below their cost of service at their recently approved rate in Case U-. The second step of the process was to allocate the remaining revenue sufficiency for the Rate Schedule E Option I class, on a percentage basis, to all the lights whose recently approved rate continues to be above their cost of service based upon the lighting rate model. This methodology allowed a % downward move from the recently approved rates to rates based upon cost of service while ensuring that all classes receive a TCJA-related rate reduction. For example, an existing rate that is currently $/month above its proposed cost of service was reduced by $./month. It is important to note that the economic advantage of LED lighting over HID lighting was maintained. Q. Was this rate design methodology applied to any other lighting rate schedules? A. Yes. The OPL rates on Rate Schedule D required the use of a similar methodology because the current rates for the high wattage luminaires on rate schedule D are still below their cost of service based upon the lighting rate model. As such, the high wattage OPL rates were capped at their currently approved rate in the U- Order and the balance of the OPL rates were moved downward approximately % of the way from the recently approved rates to rates based upon cost of service. The proposed rates for Rate Schedule E Option II & III (both municipality-owned) and KDJ -

88 K. D. JOHNSTON Line U- Rate Schedule E are entirely based upon their cost of service. Q. Does Exhibit A- Schedule F reflect any proposed rates for luminaires that were not previously approved? A. Yes. Exhibit A- Schedule F reflects a proposed rate for an underground-fed 0- watt high pressure sodium luminaire on Rate Schedule D. Although a price for this luminaire had been developed in the lighting interpolation model used by the MPSC to establish lighting rates in the Company s last rate Case U-, the luminaire rate was not presented on Exhibit A- Schedule F or in Exhibit A- Schedule G. At present, there are no installed quantities of this luminaire however there is an expectation that a quantity of these luminaires will be installed prior to receiving an order in the Calculation C rate case to be filed no later than October,. As such, the Company is requesting the approval of this proposed luminaire rate in this rate case based upon its development in both the lighting and interpolation models. The development of the luminaire rate using the lighting rate and interpolation models is consistent with the methodology employed to develop other proposed luminaire rates. The proposed capacity energy and non-capacity energy rates for the underground-fed 0-watt high pressure sodium luminaire are identical to all other proposed Rate Schedule D and E capacity energy and non-capacity energy rates. As such, the approval of this proposed rate will not result in an alteration or amendment in rates or rate schedules and will not result in an increase in the cost of service to customers. Q. Will you please describe Exhibit A- Schedule G? A. This exhibit contains the proposed tariff sheet changes which result from the pricing KDJ -

89 K. D. JOHNSTON Line U- changes described above. Q. Does this complete your direct testimony? A. Yes, it does. KDJ -

90 JUDGE WALLACE: Nothing further from the Company? MS. HAYDEN: Nothing further, your Honor. JUDGE WALLACE: Thank you. Staff did not file any testimony? MS. DURIAN: That is correct, your Honor. JUDGE WALLACE: O.K. RCG also did not file any testimony or exhibits. So Mr. Brandenburg, would you like to proceed with ABATE? MR. BRANDENBURG: Yes. Thank you, your Honor. At this time ABATE moves to bind in the direct testimony of Amanda M. Alderson, consisting of a cover page and five pages of questions and answers. Ms. Alderson's testimony also includes a set of her qualifications, and that is listed as Appendix A. JUDGE WALLACE: Any objection to binding in the testimony of Ms. Alderson, which includes Appendix A? Hearing none, the testimony is bound in. (Testimony bound in.)

91