STATE OF MICHIGAN 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 the Michigan rate-regulated ) electric, steam, and natural gas utilities ) to reflect the effects of the federal Tax ) Case U-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF SHERRI L. WISNIEWSKI

2 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). 0 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 0 and am currently responsible for state and local income and franchise returns, tax accounting, tax forecasting, and regulatory tax. 0 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- 00 and DTE Gas Cases U- and U-00. I have also been involved over the years in various inputs and analyses in support of other regulatory proceedings. SLW -

3 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 0 (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 0 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, 0 reduced the federal corporate income tax rate from % to % effective January, 0. 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. 0 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 -

4 S. L. WISNIEWSKI Line U-00 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 $0. 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.. 0 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 0, and Investment Tax Credit) (lines -), which does not change as a result of the reduction in the tax rate. 0 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 -

5 S. L. WISNIEWSKI Line U-00 in Exhibit A-, Schedule C, page. Total FIT expense at % is $0.0 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. 0 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 0, and Investment Tax Credit) (lines -), which does not change as a result of the reduction to the tax rate. 0 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 -

6 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-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF THERESA M. UZENSKI

7 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). 0 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. 0 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 twentynine 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 -

8 T. M. UZENSKI Line U-00 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. 0 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 00 PSCR Plan U-0 Detroit Edison Enhanced Security Cost Recovery U- Detroit Edison Choice Incentive Mechanism Reconciliation U- Detroit Edison Pension Equalization Mechanism 0 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 00 RETM Reconciliation TMU -

9 T. M. UZENSKI Line U-00 U--R Detroit Edison 00 RETM Reconciliation 0 U- Detroit Edison 00 REP Reconciliation U- Detroit Edison 00 Rate Case U- Detroit Edison 00 UETM Reconciliation U- Detroit Edison 0 REP Plan U- MichCon Depreciation U- Detroit Edison 0 CIM Reconciliation U- Detroit Edison 0 RETM Reconciliation U- Detroit Edison 0 UETM Reconciliation U-0 DTE Electric Company 0 REP Plan Update U- DTE Electric Company Transitional Cost Recovery Mechanism U- DTE Electric Company 0 Rate Case U- DTE Gas Company 0 Rate Case U-0 DTE Electric Company 0 Rate Case U- DTE Electric Company Customer 0 Program Accounting U- DTE Electric Company 0 Rate Case U- DTE Electric Company Certificates of Necessity U- DTE Gas Company 0 Rate Case U-00 DTE Gas Company TCJA Credit A TMU -

10 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. 0 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 0 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 -

11 T. M. UZENSKI Line U-00 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. 0 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). 0 Q. What does the revenue sufficiency shown on Schedule C, line represent? A. Lines 0 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 -

12 T. M. UZENSKI Line U-00 0 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 0. 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 -

13 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-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF KENNETH L. SLATER

14 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). 0 0 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 0. In June 0, 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 00, 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 0, 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 -

15 K. L. SLATER Line U-00 studies, cost of service studies, as well as regulatory analysis and research for both DTE Electric Company and DTE Gas Company. 0 0 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-00 DTE Gas Company TCJA Credit A U-00 DTE Electric Company s Reconciliation of its Transitional Reconciliation Mechanism for the Period of January, 0 through December, 0 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 0 Energy Optimization (EO) Reconciliation U- DTE Electric 0 Energy Optimization (EO) Reconciliation U- DTE Gas 0-0 Energy Waste Reduction (EWR) Plan U- DTE Electric 0-0 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 -

16 K. L. SLATER Line U Reconciliation Mechanism for the Period of January, 0 through December, 0 U- DTE Electric 0 REP Reconciliation U-0 DTE Electric 0 REP Reconciliation U-0 DTE Gas 0 EO Reconciliation U-0 DTE Electric 0 EO Reconciliation U-00 DTE Electric Company s Reconciliation of its Transitional Reconciliation Mechanism for the Period of January, 0 through December, 0 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, 0 through December, 0 U- Approval of a Refund Related to Self-Implementation of general service rates beginning November, 0 and ending December, 0 U-0 MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, 0 through June 0, 0 U- MichCon s Reconciliation of its Revenue Decoupling Mechanism for the Period July, 00 through June 0, 0 U- Approval of a Refund Related to Self-Implementation of general service rates beginning January, 00 and ending June, 00 KLS -

17 K. L. SLATER Line U-00 U- MichCon s Application for Authority to Increase Its Rates and for Other Relief U- MichCon s 00 Income Sharing Calculation U-0 Complaint Case (Title Transfer Fees) KLS -

18 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 0 (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. 0 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. 0 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 -

19 K. L. SLATER Line U-00 $. 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. 0 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. 0 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 -

20 K. L. SLATER Line U-00 Q. Does this complete your direct testimony? A. Yes, it does. KLS -

21 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-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF THOMAS W. LACEY

22 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). 0 0 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 00, 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 00, I joined DTE as a Financial Analyst in the Load Research department of Regulatory Affairs. I worked in Load Research until December 00. My responsibilities within Load Research included extensive work on the 00 Michigan Consolidated Gas Company (MichCon) rate case (U- ) and The Detroit Edison Company (Detroit Edison) rate filings. In December 00, I accepted my current position. TWL -

23 T. W. LACEY Line U-00 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 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 00 Uncollectible Expense True-up Mechanism and Safety and Training Related Expenditure Report U- MichCon s 00 General Rate Case Proceeding U-0 Reconciliation of MichCon s 00 Energy Optimization (EO) Program U-0 MichCon s 0 Updated Energy Optimization Plan U-0 MichCon 0 Updated Energy Optimization Plan U- Reconciliation of the MichCon 0 EO Program U- MichCon 0 General Rate Case Proceeding U- Reconciliation of the DTE Gas 0 EO Program U-0 Reconciliation of the DTE Electric 0 EO Program U-0 Reconciliation of the DTE Gas 0 EO Program U- Reconciliation of the DTE Electric 0 REP Program TWL -

24 T. W. LACEY Line U-00 0 U- DTE Electric 0/0 Energy Optimization Plan U- DTE Gas 0/0 Energy Optimization Plan U-0 Reconciliation of the DTE Electric 0 REP Program U- Reconciliation of the DTE Electric 0 EO Program U- Reconciliation of the DTE Gas 0 EO Program U-0 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 -

25 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 0 (TCJA) on DTE Electric s currently authorized Cost of Service Study (COSS) approved by the Commission in its April, 0 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, 0, () UCOS Distribution by Voltage Year Ending October, 0, and () the Capacity Charge Revenue Requirement; for the overall reduction in revenue requirement of $. million. 0 0 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, 0 Per U- Order A- F. UCOS Distribution by Voltage Year Ending October, 0 Per U- Order A- F. UCOS CP -0- Production and Transmission Year Ending October, 0 with Updated Tax Rate A- F. UCOS Distribution by Voltage Year Ending October, 0 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 -

26 T. W. LACEY Line U-00 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. 0 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, 0 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. 0 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 -

27 T. W. LACEY Line U-00 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). 0 0 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 -

28 T. W. LACEY Line U-00 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 0 to a revenue sufficiency of $0. million. Likewise, the Production revenue 0 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 -

29 T. W. LACEY Line U-00 0 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). 0 Q. How did you calculate and allocate the reduction in income taxes reflected on Line of Exhibit A- Schedules F. and F.? A. The $0. 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 -

30 T. W. LACEY Line U-00 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 0 (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. 0 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.. 0 Q. Do the changes to the U- present and proposed revenues for R and D, on Exhibit A-0, 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 -

31 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-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF MICHAEL A. WILLIAMS

32 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). 0 Q. What is your educational background? A. I graduated from Michigan State University in 00 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 00, 00, 0, 0, and 0. 0 Q. What work experience do you have? A. From 00 to 00, 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 -

33 M. A. WILLIAMS Line U-00 designing some of the PRC s recommended postal rates. From 00 until 0, 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. 0 I joined DTE Electric in 0 as a Senior Business Financial Analyst in Regulatory Affairs. In April 0, 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 0 U- DTE Electric 0 General Rate Case Proceeding U- DTE Electric Section w of 0 PA Filing U-0 DTE Electric 0 General Rate Case Proceeding U- DTE Electric Biennial Review of its Amended Renewable Energy Plan U- DTE Electric 0 General Rate Case Proceeding U- DTE Electric Public Act of 0 Filing MAW -

34 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 0. 0 Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring the following exhibits: Exhibit Schedule Description A-0 F Present (U-0 rates) and Proposed Revenue by Rate Schedule A-0 G Proposed Tariff Sheets With respect to Exhibit A-0, Schedule F, I am sponsoring the residential class which includes pages through 0 of this exhibit. On Exhibit A-0, 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. 0 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 -

35 M. A. WILLIAMS Line U-00 would have occurred if the TCJA had been in place when U- was originally filed. 0 0 Q. Will you please describe Exhibit A-0, 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, 0 in the Company s general rate case U-0 and not the rates ordered in Case U-, which became effective May, 0. 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-0, 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 -

36 M. A. WILLIAMS Line U-00 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. 0 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. 0 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, 0 (see Exhibit A-0 Schedule F.). Residential customers will be informed of this rate decrease through a message on their bill. Q. Will you please describe Exhibit A-0, Schedule G? MAW -

37 M. A. WILLIAMS Line U-00 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 -

38 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-00 Cuts and Jobs Act of 0: ) DTE ELECTRIC COMPANY files an ) application for determination of Credit A as ) described in order U- ) QUALIFICATIONS AND DIRECT TESTIMONY OF KELLY A. HOLMES

39 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). 0 0 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 00, 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. In 00, 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 -

40 K. A. HOLMES Line U-00 0 In 00, 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 00, 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 00, 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 00. I have also attended portions of the Institute of Public Utility s Advanced Regulatory Studies Program in October of 0, 0, and 0. 0 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 00 Energy Optimization Plan Amended Energy Optimization Plan 00 PSCR Reconciliation KAH -

41 K. A. HOLMES Line U-00 U-0-R 00 PSCR Reconciliation U- 00 Restoration Expense Tracking Mechanism U- RARS Reconciliation U- 00 EO Reconciliation U--R 0 PSCR Reconciliation 0 U- DECo General Rate Case U- 00 Restoration Expense Tracking Mechanism U- 0 Amended Energy Optimization Plan U-0 Revenue Decoupling Mechanism Reconciliation U- Choice Implementation Surcharge Reconciliation U--R 0 PSCR Reconciliation U- 0 Restoration Expense Tracking Mechanism U-0 Amended Energy Optimization Plan U-0-R 0 PSCR Reconciliation U- Low Income and Energy Efficiency Fund/Vulnerable Household Warmth Fund Reconciliation U--R U-0-R 0 PSCR Reconciliation 0 PSCR Reconciliation 0 U- DTE Electric Public Act of 0 Filing U- DTE Electric Amended Energy Optimization Plan U-0-R 0 PSCR Reconciliation U- DTE Electric General Rate Case U-0 DTE Electric General Rate Case U- DTE Electric Section w of 0 PA Filing U- DTE Electric General Rate Case KAH -

42 K. A. HOLMES Line U-00 U-00 0 PSCR Reconciliation KAH -

43 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 0 (TCJA) signed into law on December, 0 and which resulted in this filing in accordance with the Order in MPSC Case U- issued on February, 0. 0 Q. Are you sponsoring any exhibits? A. Yes, I am sponsoring two exhibits. Exhibit Schedule Description A-0 F Present (U-0 rates) and Proposed Revenue by Rate Schedule A-0 G Proposed Tariff Sheets 0 Within Exhibit A-0, 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-0, 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 -

44 K. A. HOLMES Line U-00 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. 0 0 Q. Will you please describe Exhibit A-0, 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, 0 in the Company s general rate case U-0 and not the rates ordered in case U-, which became effective May, 0. 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-0, 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 -