BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OHIO TELEPHONE (513) TELECOPIER (513)

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1 BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OHIO TELEPHONE (513) TELECOPIER (513) VIA ELECTRONIC CASE FILING July 5, 2016 Mary Jo Kunkle, Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI Re: Case No. U Dear Ms. Kunkle: Please find attached the DIRECT TESTIMONY AND EXHIBITS OF NEAL TOWNSEND on behalf of THE KROGER CO. and its PROOF OF SERVICE for filing in the above captioned matter. Please place this document of file. Thank you for your assistance in this matter. Very truly yours, Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. BOEHM, KURTZ & LOWRY Anthony J. Szilagyi, Esq. (MI #P-56473) LAW OFFICES OF ANTHONY J. SZILAGYI, PLLC MLKkew Enclosure Cc: Administrative Law Judge (Via Overnight Mail) Honorable Sharon Feldman Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI 48917

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the Application of DTE ELECTRIC COMPANY 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. ) ) ) ) ) ) Case No. U Direct Testimony of Neal Townsend on behalf of The Kroger Co. July 5, 2016

3 1 DIRECT TESTIMONY OF NEAL TOWNSEND Introduction Q. Please state your name and business address. A. My name is Neal Townsend. My business address is 215 South State Street, Suite 200, Salt Lake City, Utah Q. By whom are you employed and in what capacity? A. I am a Principal at Energy Strategies, LLC. Energy Strategies is a private consulting firm specializing in economic and policy analysis applicable to energy production, transportation, and consumption. Q. On whose behalf are you testifying in this proceeding? A. My testimony is being sponsored by The Kroger Co. ( Kroger ). Kroger is one of the largest retail grocers in the United States, and operates more than 80 facilities in the territory served by DTE Electric Company ( DTE or the Company ). DTE delivers more than 200 million kwh annually to Kroger s facilities, which are mostly served under Rate Schedule No. D11, Primary Supply Rate. The majority of Kroger s accounts receive Retail Access Service, but some of Kroger s accounts receive Full Service from DTE. Q. Please describe your educational background. A. I received an MBA from the University of New Mexico in I also earned a B.S. degree in Mechanical Engineering from the University of Texas at Austin in Q. Please describe your professional experience and background. TOWNSEND / 1

4 A. I have provided regulatory and technical support on a variety of energy projects at Energy Strategies since I joined the firm in Prior to my employment at Energy Strategies, I was employed by the Utah Division of Public Utilities as a Rate Analyst from 1998 to I have also worked in the aerospace, oil and natural gas industries. Q. Have you previously testified before this Commission? A. Yes. I provided testimony in DTE s last two general rate cases, Case Nos. U and U I also provided testimony in Consumers Energy Company s last six general rate cases, Case Nos. U-17767, U-17735, U-17087, U-16794, U and U In addition, Energy Strategies has provided expert testimony sponsored by Kroger in eight previous proceedings before this Commission and I have assisted in the preparation of analysis applicable to a number of those proceedings. Q. Have you testified before utility regulatory commissions in other states? A. Yes. I have testified in utility regulatory proceedings before the Arkansas Public Service Commission, the Illinois Commerce Commission, the Indiana Utility Regulatory Commission, the Kentucky Public Service Commission, the Public Utilities Commission of Ohio, the Public Utility Commission of Oregon, the Public Utility Commission of Texas, the Utah Public Service Commission, the Virginia Corporation Commission, and the Public Service Commission of West Virginia. A more detailed description of my qualifications is contained in Attachment A, attached to this testimony. 23 TOWNSEND / 2

5 Overview and Conclusions Q. What is the purpose of your testimony in this proceeding? A. My testimony addresses the following issues in DTE s general rate case filing: (1) DTE s inclusion of inflation in calculating its projected test period non-labor O&M expenses; (2) DTE s proposal to implement a Revenue Decoupling Mechanism; (3) DTE s proposed production capacity cost allocation method; and (4) DTE s Delivery rate design for Rate D11 primary voltage customers. Q. What recommendations do you present in your testimony? A. Based on my review of DTE s direct filing: (1) I recommend that inflation be removed from DTE s projected test year non-labor O&M expense. (2) I recommend that the Company s proposal to implement its Revenue Decoupling Mechanism be rejected by the Commission. (3) I support DTE s proposal to adopt a 4CP production capacity cost allocation method. (4) I recommend that the Rate D11 primary voltage service charge be reduced to $121 per month, with the remaining D11 primary voltage Delivery revenue requirement collected via the Delivery demand charge Inflation Adjustment Q. What has DTE proposed with respect to inflation in this case? TOWNSEND / 3

6 A. The Company used its labor and non-labor rates to derive a composite inflation factor that is applied to DTE s test year O&M expenses. Specifically, the Company calculated a prorated internal wage factor as well as a prorated annual CPI-U 1 inflation rate to arrive at its composite labor and non-labor adjustment factors of 2.3% for 2015, 2.7% for 2016 and 1.6% for the first seven months of Q. Do you agree with the company s treatment of inflation? A. No. I do not agree with the application of a generic inflation factor to non-labor O&M expense. While I recognize that the company s labor cost increases are driven in part by collective bargaining agreements and other contractual arrangements that may contain cost escalation provisions, I have concerns regarding the inclusion of a generic inflation factor in calculating test year nonlabor O&M expense. Q. Please explain your concerns regarding the inclusion of general inflation assumptions in a forecasted test period. A. From a ratemaking perspective, I have two serious concerns with DTE s inclusion of inflation in its forecasted test period revenue requirement. First, at a broad policy level, I have concerns about regulatory pricing formulations that reinforce inflation. This occurs when projections of inflation are built into formulas that are used to set administratively-determined prices, such as utility rates. Such pricing mechanisms help to make inflation a self-fulfilling prophecy. As a matter of public policy, this is a serious concern. It is one thing to adjust for inflation 1 Consumer Price Index for All Urban Consumers. 2 Uncollectibles, injuries and damages, pension and post-employment benefits reflect specific cost estimates. TOWNSEND / 4

7 after the fact; it is another to help guarantee it. For this reason, I believe that regulators should use extreme caution before approving prices that guarantee inflation before it occurs. Q. What is your second major concern? A. A related, but distinct, concern involves the building of this cost cushion into the Company s test period costs. Allowing this type of systemic uplift in rates goes well beyond the basic rationale advanced by advocates for using a projected test period, which is to ameliorate the effect of regulatory lag on the recovery of investment in new plant. Q. Please explain. A. The primary justification for utilizing a projected test period is to allow a utility with expanding rate base the ability to avoid regulatory lag; that is, the use of a projected test period is intended to provide a utility a better opportunity to recover its investment cost than might occur with an historical test period. By including inflation in its non-labor O&M expenses, DTE is attempting to go well beyond simply aligning the test period with its projected investment to mitigate regulatory lag; the Company is also attempting to gain an additional benefit by inflating its baseline costs by applying an inflation factor. DTE should not be rewarded for the use of a forecasted test period with a windfall mark-up of its baseline costs. The Commission should not allow the utilization of a forward-looking test period to also become a vehicle for utility recovery of such pseudo costs. TOWNSEND / 5

8 The best evidence of what it costs DTE for non-labor O&M is the Company s actual costs recorded in the historical period, adjusted for certain known and measurable changes. The cost increases represented by DTE s inflation assumption may or may not come to fruition. In any case, DTE should be expected to strive to improve its O&M efficiency on a continuous basis, and thereby lessen the net impact of inflation on its O&M costs. It is not reasonable to simply gross up the Company s historical period costs by an inflation factor and pass these costs on to customers. Q. What are the limited situations in which projected inflation should be considered in ratemaking? A. The United States experienced major inflation during the late 1970s. In that type of severe increasing-cost environment, some consideration for O&M inflation in a forecasted test period would probably be necessary. However, we are very far from such a cost environment. Inflation in the United States has been at very low levels for several years. The prospects for core inflation, which excludes the relatively volatile pricing components of energy and food, remain subdued. Q. Can you cite to any independent sources to support your contention that the prospects for core inflation remain subdued? A. Yes. I have reviewed the Minutes of the Federal Open Market Committee for March 15-16, The published Minutes of that meeting indicate that the Fed s central tendency forecast for Core personal consumption expenditures 22 (PCE) inflation is 1.4% to 1.7% for 2016 and 1.7% to 2.0% for The 3 Minutes of the Federal Open Market Committee for March 15-16, 2016, Table 1. TOWNSEND / 6

9 Congressional Budget Office January 2016 forecast for Core inflation is 1.6% to 2.0% in 2016 and 1.9% to 2.2% in Q. What alternative for establishing non-labor O&M expense for the forecasted test period do you recommend? A. I recommend removing general inflation, which I estimate to be $38 million, from DTE s projected test year non-labor O&M expense. This adjustment is shown in Exhibit KC-1 (NT-1) Revenue Decoupling Mechanism Q. Please describe DTE s proposed provisionary Revenue Decoupling Mechanism ( RDM ). A. According to the Direct Testimony of Don. M. Stanczak, the Company s proposed provisionary decoupling mechanism would recover revenue shortfalls that are attributable solely to the Company s existing Energy Optimization ( EO ) initiatives. Specifically, based on DTE s proposed methodology, any sales reductions produced by the Company s approved EO programs would be 17 recovered through the RDM in the form of a class-specific surcharge. 5 DTE conditions its request for RDM approval on the enactment of legislation addressing revenue adjustment mechanisms for electric utilities during the pendency of this case. Q. Aside from the lack of statutory basis for a decoupling mechanism, what is your assessment of the Company s RDM proposal? 4 The Budget and Economic Outlook: 2016 to 2026, Table 2-1, inflation forecast for Core PCE price index and Core consumer price index. 5 Direct Testimony of D.M Stanczak, p. 12. TOWNSEND / 7

10 A. The Company s RDM proposal relies on a problematic set of assumptions and should be rejected. Q. Please explain. A. The primary issue with DTE s argument for the RDM is that it focuses on the sales impact of energy efficiency in isolation - and in the real world, all other things do not remain equal. In practice, the implementation of energy efficiency programs does not necessarily imply that a utility will not be able to fully recover its costs. To the extent that a utility experiences overall net growth in retail sales, the impact of energy efficiency measures will be more than offset. As a result, a utility will not be likely to experience an absolute reduction in fixed-cost recovery that is reflected in rates at any point in time, even in the presence of mandated energy efficiency programs. For instance, the Company s annual sales forecast remains relatively flat from the projected period (ending July 31, 2017) through year 2020 with continued increases in sales projected for the Commercial class. 6 In general, when load grows above the level of billing determinants used in setting rates, the fixed-cost recovery that occurs as a function of volumetric sales, increases. In traditional ratemaking, utilities are not required to return this incremental fixed-cost recovery to customers. This incremental fixed cost recovery can be thought of as additional revenues that the utility is allowed to retain, rather than return to ratepayers. In light of DTE s relatively flat load forecast for the next few years, it is unreasonable to require customers to pay for any lost margins at this time. Production Capacity Cost Allocation 6 Exhibit A-12, Schedule E-1, p. 1. TOWNSEND / 8

11 Q. Have you reviewed the cost-of-service study results presented by DTE in its direct filing? A. Yes, the class cost-of-service study results are presented in the Direct Testimony and exhibits of DTE witness Thomas W. Lacey. Q. Is DTE proposing any change to the production cost allocation method approved in the Company s last rate case? A. Yes. DTE is proposing to use a 4-Coincident Peak method, utilizing a 100% demand allocation (4CP ) to determine how jurisdictional production capacity costs are allocated to the retail rate classes. According to the Direct Testimony of Mr. Stanczak, DTE s proposed production cost allocation change to a 4CP method from the currently approved 4CP (with 0% weighting for annual on-peak energy and a 25% weighting applied to total annual energy), more appropriately aligns cost allocation with cost causation. The Company states that this change is of particular importance at this time given DTE s need for new production capacity. Q. Do you support DTE s proposed changes to the class cost-of-service allocation method for production capacity? A. Yes. I agree that DTE s proposed changes to its production cost allocation method will reasonably reflect cost causation therefore I recommend that the Commission approve the implementation of the 4CP method, as proposed by DTE in this case Rate D11 Primary Voltage Delivery Rate Design TOWNSEND / 9

12 Q. What has DTE proposed regarding Rate D11 primary voltage Delivery charges? A. DTE proposes to increase its Delivery demand charge for Rate D11 primary voltage customers by approximately 22%, while maintaining the current Delivery service charge of $275 per month. Q. Do you support DTE s proposed D11 primary voltage Delivery rate design approach? A. No. The monthly service charge should only include costs that vary directly according to the number of customers, and are allocated using customer-based 10 allocators. 7 Thus, the service charge should not exceed $121 per month for D primary voltage customers. I recommend that the remaining D11 Primary Delivery revenue be recovered via the Delivery demand charge. Q. How has DTE approached the process of determining the level of customerrelated costs? A. Based on Direct Testimony of Mr. Lacey, the Company s approach is based on the same principles proposed by DTE in its previous rate proceeding, Case No. U According to Mr. Lacey s Direct Testimony, the company classifies 100% of meter costs, overhead and underground services, customer accounting costs, uncollectibles, and customer service expenses as customer-related. The Company also deems a portion of poles & fixtures, overhead conductors, underground cable and conduit, and line transformers to be customer-related. In addition, the Company also asserts that a portion of distribution-related general 7 This includes weighted meter cost allocation, since it is based on the cost of customer attachment. TOWNSEND / 10

13 plant, employee pensions & benefits, A&G expense and taxes collected under the Federal Insurance Contributions Act ( FICA ) are customer-related. 8 The results of DTE s customer costs analysis are summarized in DTE Exhibit A-13, Schedule F1.3, page 1. According to this schedule, DTE has calculated a Primary customer cost of $1, per month. Q. Do you agree with the approach DTE has used to determine the level of customer-related costs? A. No. As acknowledged by Mr. Lacey, the method used by the Company to determine customer-related costs was rejected by the Commission in the last rate case. 9 It is critical to recognize that the majority of the costs DTE classifies as customer-related are allocated to classes on the basis of demand, rather than allocated based on the number of customers. It is not reasonable or rational to first allocate costs on the basis of demand and then classify the cost as customerrelated. Q. Please identify the costs in DTE s Exhibit A-13, Schedule F1.3, page 1 that are allocated on the basis of demand. A. The distribution plant costs included on lines 7 through 11 of this schedule Poles & Fixtures, OH Conductor, UG Cable & Conduit 10, and Line Transformers (FERC Accounts ) are allocated to customer classes using noncoincident demand and customer maximum demand-based allocators, while the 8 Direct Testimony of Thomas W. Lacey, p Direct Testimony of Thomas W. Lacey, p. 23; Case No. U-17767, December 11, 2015 Order, pp A portion of Account 367 is allocated only to the Residential class, and a portion is allocated to the Residential and Commercial Secondary classes, split between the two classes using demand-based allocators. TOWNSEND / 11

14 associated O&M expenses (FERC Accounts 583, 584, 593, 594) are allocated using composite allocators that are nearly entirely demand-related. The cost categories presented on lines 13 through 16 of this schedule General Plant, Employee Pensions & Benefits, Administrative & General, and FICA are allocated to customer classes based on distribution plant in service and distribution labor which largely consist of demand-allocated components. Q. DTE also classifies uncollectibles as customer-related. In your opinion, should uncollectibles expense be included in the calculation DTE s service charges? A. No. DTE s allocation method for uncollectibles expense, approved in the last rate case, is based on historical write-offs by class. Since uncollectibles expense does not directly vary according to the number of customers, and is not directly related to the cost of attaching customers to the system, it is inappropriate to include uncollectibles expense in the calculation of service charges. Q. Please discuss DTE s calculation of customer-related General Plant, Employee Pensions & Benefits, Administrative & General, and FICA costs. A. DTE has attributed a portion of these accounts as customer-related, based largely on the customer-related proportions of distribution FERC Accounts 364 through 368. However, these customer-related costs are allocated to customer classes based on distribution plant in service and distribution labor, which largely consist of demand-allocated components. As such, General Plant, Employee Pensions & Benefits, Administrative & General, and FICA costs should not be considered customer-related costs. TOWNSEND / 12

15 Q. How does DTE describe how it determined the customer-related portion of FERC Accounts 364 through 368 and related O&M expenses? A. According to Mr. Lacey s Direct Testimony, DTE utilized the minimum-size distribution system method, adopting the customer-related proportions from a DTE internal report titled A Look at the Allocation of Distribution Investment to Demand and Customer Components. Based on this report, DTE deemed the following percentages of costs to be customer-related (despite allocating the entirety of these costs to classes based on demand): 364 Poles, Towers, and Fixtures (82.3%), 365 Overhead Conductors (81.2%), 366 Underground Conduit and 367 Underground Conductors (62.8%), and 368 Line Transformers (35%). Q. Is this the same internal report that was utilized by DTE in its previous rate proceeding, Case No. U-17767? A. Yes, it is. I provided this report as an exhibit to my Direct Testimony in Case No. U-17767, and have provided it here as Exhibit KC-2 (NT-2) for reference. Q. What is your assessment of the Company s proposal to use the results of this report as the basis for the customer portion of Accounts and related O&M expenses? A. The report appears to be a general introduction to the minimum system and zerointercept distribution cost allocation methods for electric utilities, and compares the results of these methods using examples. I note that the report does not identify Detroit Edison or any other utility by name. Further, the several examples presented in the report consistently use round numbers, consistent with what one would expect in the presentation of illustrative cases. It is thus unclear TOWNSEND / 13

16 whether the examples are actually derived from a study of DTE s system. Ironically, the author of the report recommends against using either the minimum system or the zero-intercept allocation methods, and instead recommends allocating the applicable distribution plant accounts 100% on demand. This recommendation notwithstanding, DTE has nonetheless applied the customer-related proportions from the minimum system examples in this 1979 report to the demand-allocated costs associated with FERC Accounts 364 through 368. In short, DTE has used what appear to be illustrative examples from a 37- year-old report to classify as customer-related a host of costs that had already been allocated to classes on the basis of demand. This approach is simply unreasonable at multiple levels. In my opinion, there is no credible evidence in DTE s filing that customer-related costs are remotely close to what the Company claims. Q. Does DTE offer any other support for its proposed customer-related proportions of distribution plant? A. Mr. Lacey cites to the results of a Duke Energy Progress ( Duke ) North Carolina minimum-size study, which are reportedly fairly close to the customer-related proportions DTE utilizes. 11 Q. Do you have any comments on DTE s reference to the Duke minimum-size study? A. Yes. A minimum-size study is specific to a particular utility, based on the cost of the minimum size pole, conductor, cable, and transformer currently being 11 Direct Testimony of Thomas W. Lacey, p. 23, lns TOWNSEND / 14

17 installed by the utility and the utility s specific distribution system. The results of another utility s minimum-size study (or examples from a report) cannot be relied upon to determine the customer-related portions of DTE s distribution system. However, for reference, Duke does not appear to allocate customer-related costs using demand allocators. Duke s direct testimony from the referenced North Carolina docket states, The customer-related components of the distribution system are allocated based on the number of customers in each class that use that level of the distribution system. 12 Q. Do you object to a properly conducted and applied minimum-size study for the allocation of distribution costs? A. No, but this is a side matter, because DTE did not use the minimum-size approach to allocate costs in the first instance. The purpose of conducting a minimum-size study is to determine the portion of the distribution system costs that varies with the number of customers, and to allocate that customer-related portion to classes using a customer-based allocator. The NARUC Manual is very clear on this point, stating, The allocation of the customer-related portion of the various plant accounts is based on the number of customers by classes of service, with appropriate weightings and adjustments. 13 In contrast, DTE has allocated costs to classes based on demand, and then applied customer-related percentages to these demand-allocated costs. This results in inflated per-customer costs for classes such as Primary that are allocated 12 North Carolina Docket No. E-2, SUB 1023, Direct Testimony of William R. Hopkins (October 12, 2012), p NARUC Electric Utility Cost Allocation Manual, 1992, p. 98. TOWNSEND / 15

18 a significant portion of demand-related costs but have relatively few customers. As shown on Exhibit KC-3 (NT-3), p. 1, under DTE s approach, the Primary class grouping is allocated 5.14% of customer-related costs, although the group comprises only 0.15% of DTE s total customers. Q. What is your recommendation regarding the appropriate monthly service charge for D11 customers served at primary voltage? A. I have removed the following costs from the calculation of the D11 primaryvoltage customer-related costs: 1. Poles & Fixtures, 2. Overhead Conductors, 3. Underground Cable & Conduit, 4. Line Transformers, 5. General Plant, 6. Employee Pensions & Benefits, 7. Administrative & General, 8. FICA, and 9. Uncollectibles Removal of these costs results in a Primary customer-related cost of $ per month, which would recover the cost of Meters, Overhead & Underground Services, Customer Accounting, and Customer Service Expense allocated or assigned to the Primary voltage class, based on DTE s Exhibit A-13, Schedule F1.3, page 1. This contrasts with DTE s calculation of Primary voltage customer-related costs of $1, per month. Exhibit KC-3 (NT-3), page 1 provides this comparison. I am recommending that the monthly service charge for D11 customers served at primary voltage be set at $121, with the remaining D11 primary voltage Delivery revenue requirement recovered via the Delivery demand charge. The resulting D11 primary voltage Delivery demand charge is $4.34 at DTE s requested revenue requirement. Exhibit KC-3 (NT-3), page 2 TOWNSEND / 16

19 presents my recommended D11 primary voltage Delivery rates at DTE s requested revenue requirement for the schedule. Exhibit KC-3 (NT-3), page 3, compares the D11 primary voltage rate impacts resulting from my recommended rates to those resulting from DTE s proposed rates. While I am limiting my recommendation to Rate D11 customers served at primary voltage, the problems I identified in DTE s determination of customerrelated costs have implications for other rate classes as well. Q. What are the consequences of setting the monthly service charge significantly above customer-related costs, as would result from DTE s proposal? A. When the service charge is set significantly above customer-related costs, smaller customers on the rate schedule are over-charged and thereby subsidize the larger customers on the rate schedule. Q. If a different D11 primary voltage revenue requirement is ultimately determined by the Commission, would that impact your recommended approach to Rate D11 primary voltage rate design? A. No, I will continue support the removal of the cost categories I identified above in the calculation of the monthly service charge, and recommend that the remaining D11 primary voltage Delivery revenue requirement be collected through the Delivery demand charge. Q. Does this conclude your direct testimony? A. Yes, it does. TOWNSEND / 17

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21 ATTACHMENT A Resume Neal Townsend Energy Strategies, LLC 215 S. State Street, Suite 200 Salt Lake City, Utah Work Experience: Principal, Energy Strategies, LLC (2014 Present). Director, Energy Strategies, LLC ( ). Sr. Consultant, Energy Strategies, LLC ( ). Rate Analyst, State of Utah, Division of Public Utilities ( ). Other Systems Engineer, Morton Thiokol, Inc. Assistant Engineer, Schafer Engineering. Graduate/Research Assistant, University of New Mexico. Education: University of New Mexico, Masters of Business Administration, University of Texas, Austin, Bachelor of Science in Mechanical Engineering, Publications: Kevin C. Higgins, Neal Townsend, and Susannah Vale, Utility-Related Statutory and Regulatory Barriers, Chapter 6 in Coastal Wind: Energy for North Carolina s Future. University of North Carolina, Chapel Hill:

22 ATTACHMENT A Regulatory Testimony: State of Arkansas Docket # Title Activity U & In the Matter of the Application AFUDC Policy R of Entergy Arkansas, Inc. for Approval of Changes in Rates for Retail Electric Service U & In the Matter of a DSM Self Direction R Notice of Inquiry into Opt-Out Rules Energy Efficiency In the Matter of the Institution of a Rulemaking to Adopt Amendments to the Commission's Rules on Conservation & Energy Efficiency to Allow Self-Directed Programs for Large Consumers State of Illinois Docket # Title Activity Commonwealth Edison Rate Spread, Rate Design Company Tariff Filing to Present the Illinois Commerce Commission with an Opportunity to Consider Revenue Neutral Tariff Changes Related to Rate Design Authorized by Subsection (e) of the Public Utilities Act Commonwealth Edison Rate Spread, Rate Design Company Proposed General Increase in Electric Rates 2

23 ATTACHMENT A State of Indiana Cause # Title Activity Petition of Indiana Michigan Rate Design, Class Cost Power Company, an Indiana of Service Corporation, for Authority to Increase its Rates and Charges for Electric Utility Service, for Approval of: Revised Depreciation Rates; Accounting Relief; Inclusion in Basic Rates and Charges of the Costs of Qualified Pollution Control Property; Modifications to Rate Adjustment Mechanisms; and Major Storm Reserve; and for Approval of New Schedules of Rates, Rules and Regulations State of Kentucky Case # Title Activity Application of Kentucky Revenue Requirement Utilities Company for an Adjustments Adjustment of Electric Rates Application of Louisville Gas Revenue Requirement and Electric Company for an Adjustments Adjustment of its Electric and Gas Rates Application of Kentucky Rate Spread, Rate Design Utilities Company for an Adjustment of Base Rates Application of Louisville Gas Rate Spread, Rate Design and Electric Company for an Adjustment of its Electric and Gas Base Rates 3

24 ATTACHMENT A State of Michigan Case # Title Activity U In the matter of the Application Revenue Requirement Issues, of DTE ELECTRIC COMPANY Class Cost of Service, for authority to increase its rates, Rate Design amend its rate schedules and rules governing the distribution and supply of electric energy, and for miscellaneous accounting authority. U In the Matter of the Investment Recovery Application of Consumers Mechanism, Decoupling, Energy Company for Authority Class Cost of Service, Rate to Increase its Rates for the Design Generation and Distribution of Electricity and for Other Relief U In the Matter of the Class Cost of Service, Application of Consumers Rate Spread, Decoupling, Energy Company for Authority Rate Design to Increase its Rates for the Generation and Distribution of Electricity and for Other Relief U In the Matter of the Rate Spread, Revenue Application of Consumers Decoupling, Rate Design, Energy Company for Authority Load Aggregation, to Increase its Rates for the Generation and Distribution of Electricity and for Other Relief 4

25 ATTACHMENT A Case # Title Activity U & In the Matter of the Rate Increase Mitigation U Application of the Detroit Proposals, Bonus Tax, Edison Company for Authority Depreciation, Rate Spread, to Increase its Rates, Amend its Decoupling, Load Aggregation, Rate Schedules and Rules Surcharge Proposal, Governing the Distribution and Environmental Cost Recovery, Supply of Electric Energy, and Revenue Tracker for Miscellaneous Accounting Authority In the Matter of the Application of the Detroit Edison Company for Approval to Defer Certain Pension and Post-Employment Benefits for Future Amortization and Recovery U In the Matter of the Pension Tracker, Class Cost Application of Consumers of Service, Decoupling, Energy Company for Authority Rate Spread, Tariff Language to Increase its Rates for the Generation and Distribution of Electricity and for Other Relief U In the Matter of the Class Cost of Service, Application of Consumers Rate Spread Energy Company for Authority to Increase its Rates for the Generation and Distribution of Electricity and for Other Relief State of New Mexico Case # Title Activity UT In the Matter of the Application Rate Design of Public Service Company of New Mexico for Revision of its Retail Electric Rates Pursuant to Advice Notice No. 513 Public Service Company of New Mexico, Applicant 5

26 ATTACHMENT A State of Ohio Case # Title Activity EL-AIR, In the Matter of the Class Cost of Service, EL-ATA & Application of Duke Energy Rate Spread EL-AAM Ohio, Inc., for an Increase in Electric Distribution Rates In the Matter of the Application of Duke Energy Ohio, Inc., for Tariff Approval In the Matter of the Application of Duke Energy Ohio, Inc., for Approval to Change Accounting Methods GA-AIR, In the Matter of the Recovery of Environmental GA-ATA & Application of Duke Energy Remediation Expenses GA-ALT Ohio, Inc., for an Increase in GA-AAM Gas Rates In the Matter of the Application of Duke Energy Ohio, Inc., for Tariff Approval In the Matter of the Application of Duke Energy Ohio, Inc., for Approval of an Alternative Rate Plan for Gas Distribution Service In the Matter of the Application of Duke Energy Ohio, Inc., for Approval to Change Accounting Methods State of Oregon Docket # Title Activity UE-294 In the Matter of Portland Class Cost of Service General Electric Company Request for a General Rate Revision 6

27 ATTACHMENT A Docket # Title Activity UE-262 In the Matter of Portland Support of Stipulation General Electric Company Request for a General Rate Revision UE-246 In the Matter of PacifiCorp's Rate Design, Filing of Revised Tariff Energy Cost Adjustment Schedules for Electric Mechanism, Support of Service in Oregon Stipulation UE-217 In the Matter of PacifiCorp s Support of Stipulation Filing of Revised Tariff Schedules for Electric Service in Oregon State of Texas Docket # Title Activity Application of Entergy Recovery of Stranded Costs Texas, Inc. for Approval of Competitive Generation Service Tariff (Issues Severed from Docket No ) State of Utah Docket # Title Activity In the Matter of the Opposition to Inter-Jurisdictional Application of Rocky Mountain Cost Allocation Agreement Power for Approval of the 2017 Protocol In the Matter of the Class Cost of Service, Application of Rocky Mountain Rate Spread, Rate Power for Authority to Increase Design its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed Electric Service Schedules and Electric Service Regulations 7

28 ATTACHMENT A Docket # Title Activity In the Matter of the Class Cost of Service, Application of Questar Gas Rate Spread, Rate Company to Increase Distribution Design Rates and Charges and Make Tariff Modifications In the Matter of the Depreciation Policy Application of Rocky Mountain Power for Authority to Change its Depreciation Rates Effective January 1, In the Matter of the Class Cost of Service, Application of Rocky Mountain Rate Spread, Rate Power for Authority to Increase Design its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed Electric Service Schedules and Electric Service Regulations In the Matter of the Rate Design, Revenue Application of Rocky Mountain Decoupling Power for Authority to Increase its Retail Electric Utility Service Rates in Utah and for Approval of its Proposed Electric Service Schedules and Electric Service Regulations T08 In the Matter of Support of Stipulation Rocky Mountain Power Advice No , seeking an Adjustment to the DSM Tariff Rider, Schedule In the Matter of the Derivation of Prudence Application of PacifiCorp Disallowance For Approval of its Proposed Electric Rate Schedules and Electric Service Regulations 8

29 ATTACHMENT A Docket # Title Activity In the Matter of the Derivation of Methodology Application of PacifiCorp for Establishing QF Avoided For Approval of an IRP Based Cost Pricing Avoided Cost Methodology For QF Projects Larger than 1 MW In the Matter of the Support of Settlement Application of PacifiCorp Agreement for an Investigation of Inter-Jurisdictional Issues In the Matter of the Revenue Requirement and Application of Questar Gas Class Cost of Service Company for an Increase Modeling, Proposed CO 2 Plant in Rates and Charges Disallowance Mechanism In the Matter of the Interjurisdictional Cost Application of PacifiCorp Allocation and Class Cost of For Approval of its Proposed Service Modeling Electric Rate Schedules and Electric Service Regulations In the Matter of the Application Assessment of Application, of Questar Gas Company for Revenue Requirement Approval of a Natural Gas Modeling Processing Agreement State of Virginia Case # Title Activity PUE Application of Virginia Rate Design Electric and Power Company for a 2013 Biennial Review of the Rates, Terms and Conditions for the Provision of Generation, Distribution and Transmission Services Pursuant to A of the Code of Virginia 9

30 ATTACHMENT A Case # Title Activity PUE Application of Virginia Rate Design Electric and Power Company for Revision of Rate Adjustment Clause: Rider B, Biomass Conversions of the Altavista, Hopewell, and Southampton Power Stations, for the Rate Year Commencing April 1, 2013 PUE Application of Virginia Rate Design Electric and Power Company for Revision of Rate Adjustment Clause: Rider S, Virginia City Hybrid Energy Center, for the Rate Year Commencing April 1,2013 and April 1, 2014 PUE Application of Virginia Rate Design Electric and Power Company for Revision of Rate Adjustment Clause: Rider W, Warren County Power Station, for the Rate Year Commencing April 1, 2013 PUE In the Matter of the Rate Design Application of Virginia Electric and Power Company for Approval and Certification of the Proposed Warren County Power Station, Electric Generation and Related Transmission Facilities under D, and of the Code of Virginia and for Approval of a Rate Adjustment Clause, Designated Rider W, under A 6 of the Code of Virginia 10

31 ATTACHMENT A State of West Virginia Case # Title Activity E-42T Monongahela Power Company Rate Spread, Rate Design and the Potomac Edison Company, both d/b/a Allegheny Power Rule 42T Tariff Filing to Increase Rates and Charges 11

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34 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 1 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

35 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 2 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

36 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 3 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

37 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 4 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

38 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 5 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

39 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 6 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

40 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 7 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

41 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 8 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

42 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 9 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

43 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 10 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

44 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 11 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

45 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 12 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

46 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 13 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

47 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 14 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

48 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 15 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

49 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 16 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

50 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 17 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

51 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 18 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

52 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 19 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

53 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 20 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

54 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 21 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

55 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 22 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

56 MPSC Case No. U Exhibit KC-2 (NT-2) July 5, 2016 Page 23 of 23 As Provided in DTE's Response to MEC/DE-1.5 in Case No. U-17767

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60 STATE OF MICHIGAN BEFORE THE PUBLIC UTILITIES COMMISSION In The Matter Of The Application Of The DTE Electric Company 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 : : : : : Case No. U (E-file) PROOF OF SERVICE Kurt J. Boehm, Esq. duly sworn, deposes and says that on July 5, 2016 he served (via electronic mail) when available or regular U.S. Mail the DIRECT TESTIMONY AND EXHIBITS OF NEAL TOWNSEND on behalf of THE KROGER CO. and a copy of this PROOF OF SERVICE upon those listed on the attached Certificate of Service. Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio Ph: Fax: KBoehm@BKLlawfirm.com JKylerCohn@BKLlawfirm.com Anthony J. Szilagyi, Esq. (MI #P-56473) Law Offices of Anthony J. Szilagyi, PLLC 110 South Clemens Avenue Lansing, Michigan Ph: Fax: szilagyilaw@sbcglobal.net COUNSEL FOR THE KROGER CO. Subscribed to and sworn before me This 5 th day of July, My Commission expires: Notary Public

61 MPSC Case No. U Page 1 ABATE Robert A.W. Strong Clark Hill PLC 151 S. Old Woodward Avenue, Suite 200 Birmingham, MI rstrong@clarkhill.com Michael J. Pattwell Sean P. Gallagher Clark Hill PLC 212 E. Grand River Ave. Lansing, MI mpattwell@clarkhill.com sgallagher@clarkhill.com James Selecky Brubaker & Associates, Inc. P.O. Box St. Louis, MO jdauphinais@consultbai.com DETROIT PUBLIC SCHOOLS Michael G. Oliva Leah J. Brooks Loomis Ewert Parsley Davis & Gotting 124 W. Allegan, Suite 700 Lansing, MI mgoliva@loomislaw.com ljbrooks@loomislaw.com ENERGY MICHIGAN Timothy J. Lundgren Laura Chappelle Varnum LLP 201 N. Washington Square, Suite 910 Lansing, MI tjlundgren@varnumlaw.com lachappelle@varnumlaw.com ENVIRONMENTAL LAW & POLICY CENTER Margrethe K. Kearney Environmental Law & Policy Center 1514 Wealthy St. SE, Suite 256 Grand Rapids, MI MKearney@elpc.org Bradley Klein Robert Kelter Environmental Law & Policy Center 35 E. Wacker Drive, suite 1600 Chicago, IL bklein@elpc.org rkelter@elpc.org ejeffers@elpc.org THE KROGER CO. Kurt J. Boehm, Esq Jody Kyler Cohn, Esq Boehm, Kurtz & Lowry 36 East Seventh Street, Suite 1510 Cincinnati, OH kboehm@bkllawfirm.com jkylercohn@bkllawfirm.com Anthony J. Szilagyi, Esq. Law Offices of Anthony J. Szilagyi, PLLC 110 South Clemens Avenue Lansing, Michigan szilagyilaw@sbcglobal.net Kevin Higgins Energy Strategies, LLC Parkside Towers 215 South State Street, Suite 200 Salt Lake City, Utah khiggins@energystrat.com, Mr. Alexander J. Zakem Concord Drive Plymouth, MI ajz-consulting@comcast.net

62 MPSC Case No. U Page 2 MICHIGAN ATTORNEY GENERAL Michael Moody Celeste R. Gill Assistant Attorney General ENRA Division 525 W. Ottawa Street, 6th Floor P.O. Box Lansing, Michigan moodym2@michigan.gov gillc1@michigan.gov novakr@michigan.gov MICHIGAN CABLE TELECOMMUNICATIONS ASSOC. David E. S. Marvin Fraser Trebilcock Davis & Dunlap 124 West Allegan Street, Suite 1000 Lansing, MI dmarvin@fraserlawfirm.com MICHIGAN ENVIRONMENTAL COUNCIL; NATURAL RESOURCES DEFENSE COUNCIL; SIERRA CLUB Christopher M. Bzdok Tracy Jane Andrews Olson, Bzdok & Howard, P.C. 420 East Front Street Traverse City, MI chris@envlaw.com tjandrews@ymail.com kimberly@envlaw.com karla@envlaw.com SIERRA CLUB Casey A. Roberts Sierra Club Environmental Law Program 85 Second St., 2nd Floor San Francisco, CA Casey.roberts@sierraclub.org MUNICIPAL STREET LIGHTING COALITION Constance De Young Groh Douglas Jester John R Liskey Attorney At Law PLLC 921 N. Washington Ave Lansing, MI cdgroh@liskeypllc.com djester@5lakesenergy.com MPSC STAFF Lauren D. Donofrio Graham Filler Amit T. Singh 7109 West Saginaw Hwy, 3 rd Floor Lansing, MI donofriol@michigan.gov fillerg@michigan.gov singha9@michigan.gov mpscredratecase@michigan.gov RESIDENTIAL CUSTOMER GROUP Don L. Keskey Brian W. Coyer University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI donkeskey@publiclawresourcecenter.com briancoyer@publiclawresourcecenter.com UTILITY WORKERS LOCAL 223 John R. Canzano Lilyan N. Talia McKnight, Canzano, Smith, Radtke & Brault, P.C. 423 N. Main St., Suite 200 Royal Oak, MI jcanzano@michworklaw.com ltalia@michworkerlaw.com

63 WAL-MART STORES EAST; LP AND SAM S EAST, INC. Tyler D. Tennent Dawda, Mann, Mulcahy, & Sadler, PLC Woodward Ave., Ste 200 Bloomfield Hills, MI ttennent@dmms.com Rick D. Chamberlain Behrens, Wheeler & Chamberlain 6 N.E. 63 rd Street, Suite 400 Oklahoma City, OK Rdc.law@gmail.com Greg.Tillman@walmart.com MPSC Case No. U Page 3