October 4, Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, Michigan 48917

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1 DTE Gas Company One Energy Plaza, 1635 WCB Detroit, MI David S. Maquera (313) October 4, 2018 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, Michigan RE: 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 on the federal Tax Cuts and Jobs Act of 2017: DTE Gas Company files an application for determination of Credit B as described in orders U and U MPSC Case No: U Dear Ms. Kale: Attached for electronic filing in the above captioned matter is DTE Gas Company s Initial Brief. Also attached is the Proof of Service. Very truly yours, DSM/lah Attachments David S. Maquera cc: Service List

2 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 Cuts and ) Jobs Act of 2017: ) ALPENA POWER COMPANY, CONSUMERS ) ENERGY COMPANY, DETROIT THERMAL, LLC ) DTE ELECTRIC COMPANY, DTE GAS COMPANY, ) INDIANA MICHIGAN POWER COMPANY, ) Case No. U NORTHERN STATES POWER COMPANY- ) WISCONSIN, UPPER PENINSULA POWER ) COMPANY, UPPER MICHIGAN ENERGY ) RESOURCES CORPORATION, WISCONSIN ) ELECTRIC POWER COMPANY PRESQUE ISLE ) ELECTRIC & GAS CO-OP, MICHIGAN GAS ) UTILITIES CORPORATION, and SEMCO ENERGY ) GAS COMPANY. ) In the matter on the Commission s own motion, ) to consider changes in the rates of all the Michigan ) rate-regulated electric, steam, and natural gas utilities ) to reflect the effects of the federal Tax Cuts and ) Case No. U Jobs Act of 2017: ) DTE GAS COMPANY files an application for ) determination of Credit A as described in order ) U ) 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 Cuts and Jobs ) Case No. U Act of 2017: ) DTE GAS COMPANY files an application for ) determination of Credit B as described in order ) U ) DTE GAS COMPANY S INITIAL BRIEF October 4, 2018

3 I. INTRODUCTION On July 30, 2018, DTE Gas filed its application with supporting testimony and exhibits pursuant to the requirements of the U Order and U Order for determination of Credit B as described in such orders. On August 20, 2018, a prehearing was held and intervention was granted to the Michigan Attorney General (AG), Association of Businesses Advocating Tariff Equity (ABATE), and Residential Customer Group (RCG) (1T 5-6). 1 The Michigan Public Service Commission Staff (Staff) also entered their appearance (1T 3). On September 7, 2018, Staff and the intervenors filed direct testimony and exhibits for their respective witnesses. On September 13, 2018, DTE Gas, Staff, and ABATE filed direct testimony and exhibits for their respective witnesses. On September 20, 2018, the evidentiary hearing was held where cross examination was waived and the pre-filed testimony and exhibits for all parties witnesses were bound into the evidentiary record. The transcript is 95 pages long and there are a total of 22 exhibits. Initial briefs are due October 4, 2018, and reply briefs are due October 11, Due to the expedited nature of this proceeding, the Michigan Public Service Commission (Commission or MPSC) will be reading the record and forego a proposal for decision (1T 12). 2 II. DISCUSSION Credit B is a backward-looking tax credit reflecting the reduction of the corporate tax rate from 35% to 21% due to the TCJA from the time period the TCJA went into effect January 1, 2018, until the effective date of Credit A commenced, 3 which was July 1, From January 1, 1 Both the e-docket and the prehearing transcript indicate that RCG had failed to timely file its petition to intervene until after the prehearing (1T 5-6). See In re DTE Gas Co, MPSC Case No. U-20189, Dkt. No. 14. However, DTE Gas waived its objection to RCG s untimely intervention (1T 5-6). 2 See In re Commission s Own Motion, MPSC Case No. U-18494, Order dated Feb. 22, 2018, Dkt. No. 41, pp Id at p. 10.

4 2018 through June 30, 2018, DTE Gas s customers were billed using rates established when higher tax rates were in effect. To provide the benefits of the lower tax rates during this time to customers, Credit B will refund the difference between the rates billed and the rates that would have been billed had they been established under the TCJA from January 1, 2018 to June 30, 2018 (2T 28). For reasons discussed below, DTE Gas s proposed total refund amounts by rate schedule, refund period, and rates based on the proposed refund period for Credit B, as modified by Staff, should be approved as reasonable and prudent compared to any other alternative presented in the evidentiary record. A. The Credit B Amounts DTE Gas calculated a total refund for Credit B in the amount of $24,766,955 (Exhibit A-4 Revised, line 10, col. (e)). The total refund amount includes the Credit B amounts calculated by rate class in Exhibit A-1, line 20, col. (k), plus the interest calculated in Exhibit A-3 Revised, line 21, col. (g). Interest was calculated, as recommended by Staff on page 4 of their February 2, 2018 comments in Case No. U-18494, at DTE Gas s short term borrowing rate. Interest was calculated from January 1, 2018 through July 2019, which is the last month Credit B will be in effect. Interest rates for the months when actuals are unknown are forecasted at the July 2018 rate, the latest rate known at the time this testimony was written (2T 29-30). Once interest was calculated, it was allocated to each rate schedule proportional to Credit B total amounts (2T 30). Company witness Ms. Schmidt calculated the above amounts by using the rates developed in DTE Gas s Credit A filing in case No. U and actual volumes billed relating to January 1 through June 30, 2018 natural gas service. These rates are applied, on a rate schedule basis, to the related volumes to arrive at a refund amount per rate schedule. The amounts to be credited, by rate schedule, are calculated in Exhibit A-1 (2T 28).

5 The Credit A rates were determined using the same method and dollar amounts used to calculate base rates approved in U The exhibits from Case No. U were used to calculate the credit amounts, similar to base rate case exhibits A1, B1, C1, C2, C8, D1 and F1, are included in this case as Exhibit A-7 (2T 28). Notwithstanding DTE Gas s above calculations, Staff witness Mr. Putnam calculated a total Credit B amount of $24,995,319, which is comprised of $24,467,922 Credit B amount, plus $527,397 total interest (Exhibit S-1). DTE Gas supports Staff s modifications for the reasons provided by Mr. Putnam (2T 52). B. The Proposed Refund Period DTE proposes to refund Credit B on a volumetric basis from January 2019 through June Credit B will be implemented on a bills-rendered basis. DTE proposes to use January through June for the refund because: 1) it allows time for the administrative process in this case to occur; 2) customers are likely to use gas in the same way they did in the period during which the credit was earned in 2018, thereby resulting in a type of matching between the amount refunded to each customer and how each customer generated the credit amounts; 3) rates based on six months of usage will be lower than rates for shorter periods resulting in smaller deviations from planned refunds in the face of swings in usage; and 4) a six-month refund will provide a number of months to possibly smooth out any large variations in usage due to weather that might otherwise result in a large over or under refund if the refund occurred in a one or two-month period (2T 30). C. The Proposed Credit B Rates DTE Gas calculated a total credit amount, plus interest through the refund period, by rate schedule, and divided by DTE Gas s most recent forecast to arrive at the rates for each rate

6 schedule. This calculation is performed in Exhibit A-5 Revised. However, based on his modifications to DTE Gas s initial calculations discussed above, Staff witness Mr. Putnam calculated a total Credit B refund amount of $24,993,666 (Exhibit S-1). DTE Gas supports this modified Credit B refund amount for reasons stated in the evidentiary record (2T 52). A revised tariff sheet reflecting Staff s Credit B refund amount is attached to this initial brief. See Attachment 1. To minimize large over or under refunds of Credit B amounts, DTE Gas is proposing an early termination or an extension of Credit B amounts. The impact of weather on usage during the winter and shoulder months, April and May, of any year can be significant. Such swings in usage could result in unexpected large residuals if Credit B refunds are applied as planned. Residuals result in additional refunds or surcharges. To minimize these residuals, DTE Gas proposes to extend or shorten the refund period as needed in consultation with Commission Staff (2T 31). Specifically, DTE Gas will track the progress of the refund, by rate schedule, and compare the remaining refund to the projected remaining refund for that month. The expected refund amounts, by month by rate schedule, are included in the revised tariff sheet. See Attachment 1. If the Credit B remaining refund for a rate schedule equals or is less than the refund projected for the month following, then DTE Gas will request to terminate the refund with the first billing cycle of the next month. DTE Gas would provide Staff with supporting information prior to extending or terminating the surcharges at any time except for the planned expiration with the last billing cycle of June For example, refunded amounts through April 2019 will be available in early May 2019 (mid-may for End Use Transportation customers). If the remaining Credit B balance for a Rate Schedule is less than the projected refund for May 2019, then DTE Gas would consult with

7 Staff and, if possible, terminate the Credit B for that rate schedule with the last billing cycle for the May 2019 billing month (2T 31-32). Conversely, an extension of refunds will be determined using the same methodology described above. In contrast, rates will be extended by a month if the actual remaining refund exceeds the projected remaining refund for the next two months. For example, refunded amounts through May 2019 will be available by the sixth business day of June If the remaining Credit B balance for a Rate Schedule exceeds the projected refund for June and July 2019, then DTE Gas would consult with Staff and, if possible, extend the Credit B refund for that rate schedule through the last billing cycle of the July billing month (2T 32). Finally, DTE Gas proposed the following methodology to eliminate residuals: 1. If a residual balance exists, in total, with an absolute value that is less than $50,000: a. If no rate schedule has an over refund or over collection exceeding $50,000: i. Under refund: given to a charity chosen by the Company ii. Over refund: written off by the Company. b. If a rate schedule has an over or under refund exceeding $50,000: i. If additional surcharges or credits will not result in the total residual balance exceeding the absolute value of $50,000: Additional surcharges or credits, calculated on a per customer basis, will be implemented for that particular rate schedule until the balance is less than the absolute value of $50,000. ii. If additional surcharges or credits will result in the total residual balance exceeding the absolute value of $50,000; additional surcharges or credits, calculated on a per customer basis, will be implemented for any rate schedule that has a balance that would result in a meaningful reduction in the absolute value of the residual until the balance is less than the absolute value of $50,000.

8 Rate schedules with rates of less than one penny per customer will not be further surcharged or credited. 2. If a residual balance exists with an absolute value that is greater than $50,000: a. Over refund: Surcharges, calculated on a per customer basis, will be implemented for any rate schedule that has a balance that would result in a meaningful collection (at least one penny per customer) until the residual balance is less than the absolute value of $50,000. b. Under refund: Surcharges or credits, calculated on a per customer basis, will be implemented for any rate schedule that has a balance that would result in a meaningful reduction in the absolute value of the residual until the balance is less than the absolute value of $50,000. Rate schedules with rates of less than one penny per customer will not be further surcharged or credited (2T 32-33). The Company proposes that within six months of the final billing cycle concluding residual surcharges or credits, it will file a report in this docket that identifies any remaining residual balance (2T 33). D. The Intervenors Proposals Should Be Rejected For completeness, Staff appears to fully support DTE Gas s case subject to review of their initial brief. However, both RCG and the AG filed direct testimony taking issue with various aspects of DTE Gas s case. For reasons discussed below, the Commission should reject the intervenors proposed modifications. Specifically, RCG proposes that the Commission utilize historical refunding as an alternative to DTE Gas s proposed prospective refunding. However, the Commission has already

9 rejected this proposal on page 13 of its February 22, 2018 order in Case No. U (2T 41). 4 As noted above, interest was calculated at the short term borrowing rate as recommended by Staff on page 4 of their February 2, 2018 comments in Case No. U-18494, which was later incorporated by the Commission in their February 22 Order. Also, RCG provides no facts or evidence support why such a stale rate of return should be used as the interest rate in this proceeding (2T 44-45). As the Michigan Supreme Court has previously held: It is not sufficient for a party simply to announce a position or assert a claim of error and then leave it up to this Court to discover and rationalize the basis for his claims, or unravel and elaborate for him his arguments, and then search for authority to sustain or reject his position. 5 Next, the AG proposes a two month refund period instead of the six month period proposed by the Company. However, Ms. Schmidt provided several reasons for rejecting the AG s proposal. First, Ms. Schmidt explained how the AG s proposed refund period is less practicable than DTE Gas s proposed refund period (2T 37-38). Second, the AG s proposed refund period would result in cash volatility for DTE Gas (2T 38). Third, DTE Gas s proposed refund period appropriately matches the same length of time over which the amount was collected in the first place (2T 38-39). Finally, the refund will be occurring during the winter season, which can lead to difficulties in eliminating remainders if the refund period is too short (2T 39-40). Finally, the AG proposes that Credit B be applied to the Infrastructure Renewal Mechanism (IRM). However, Ms. Schmidt explained that Credit B refunds are not required for the IRM. As Exhibit A-2 shows, the surcharges in place from January 2018 through June 2018, for example 4 See In re Commission s Own Motion, MPSC Case No. U-18494, Order dated Feb. 22, 2018, Dkt. No. 41, p. 13 (where the Commission held that the Commission notes that Energy Michigan fails to acknowledge the long line of Commission precedent rejecting historical refunds in various types of proceedings going as far back as ) 5 Wilson v Taylor, 457 Mich 232, 243; 577 NW2d 100 (1998), quoting, Mitcham v Detroit, 355 Mich 182, 203; 94 NW2d 388 (1959).

10 $0.35 per residential customer, were less than the Credit A IRM surcharge, for example $1.10 per residential customer. It would be appropriate to provide a Credit B IRM refund if the Credit A IRM rate was less than the actual IRM surcharge for that time, which it is not. Conversely, it would be inappropriate to provide a credit related to the IRM when the surcharge at the time did not recover the costs of the IRM for that same period. Since the Credit A IRM surcharge is higher than what customer were actually charged (2T 44), there are no IRM amounts required to be refunded due to the TCJA (2T 29). III. CONCLUSION Based on the foregoing, DTE Gas s proposed total refund amounts by rate schedule, refund period, and rates based on the proposed refund period for Credit B, as modified by Staff and reflected in the attached revised tariff sheet (Attachment 1), should be approved as reasonable and prudent compared to any other alternative presented in the evidentiary record. Legal Department DTE GAS COMPANY BY: Attorney for Applicant David S. Maquera (P66228) One Energy Plaza, 1635 WCB Detroit, Michigan (313)

11 ATTACHMENT 1

12 Case No.: U Exhibit: A-6 Revised Witness: J.C. Schmidt Page: 1 of 1 M.P.S.C. No. 1 Gas Revised Sheet No. D-2.00 DTE Gas Company Cancels Revised Sheet No. D-2.00 (Revised pursuant to Case No. U-20189) D2. SURCHARGES Rate Schedule Credit B Credit No. $/Mcf A Residential ($0.2210) 2A Residential Multiple Family Dwelling Class I ($0.2630) 2A Residential Multiple Family Dwelling Class II ($0.2630) GS-1 Non-Residential General Service ($0.2196) GS-2 Large Volume ($0.1505) <100,000 Mcf >100,000 Mcf S School ($0.1737) ST Small Volume Transportation ($0.1079) LT Large Volume Transportation ($0.0719) XLT Extra Large Volume Transportation ($0.0559) XXLT Double Extra Large Volume Transportation ($0.0232) The Credit B Credit is implemented on a bills rendered basis and is effective for a six billing month period commencing with the first billing cycle of the January 2019 billing month and ending with the final billing cycle of the June 2019 billing month. This is only the proposed incremental language for the Credit B Credit. This language would be added to the current Sheet D-2 in effect at the time the credit was approved. Because the credit(s) currently in effect may change between the time this sheet is proposed and its approval, only the language and rates at issue in this case are included. DTE Gas proposes this incremental language tariff to avoid confusion at the time of final tariff issuance. Issued, 201 Effective for bills rendered on and after the first billing cycle of D. M. Stanczak, 201_ billing month Vice President Regulatory Affairs Issued under authority of the Detroit, Michigan Michigan Public Service Commission Dated, 201_ In Case No. U-20189

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 No. U Cuts and Jobs Act of 2017: ) DTE GAS COMPANY files an application ) for determination of Credit B as described ) in order U and ) STATE OF MICHIGAN ) ) ss. COUNTY OF WAYNE ) PROOF OF SERVICE ESTELLA BRANSON, being duly sworn, deposes and says that on the 4 th day of October, 2018, she served a copy of DTE Gas Company s Initial Brief, via electronic mail upon the persons listed on the attached service list. Subscribed and sworn to before me this 4 th day of October, ESTELLA BRANSON Lorri A. Hanner, Notary Public Wayne County, Michigan My Commission Expires: Acting in Wayne County 1

14 SERVICE LIST MPSC CASE NO. U ADMINISTRATIVE LAW JUDGE Honorable Sally L. Wallace Michigan Public Service Commission 7109 West Saginaw Highway Lansing, MI ABATE Bryan B. Brandenburg Michael J. Pattwell Clark Hill, PLC 212 East Cesar E. Chavez Avenue Lansing, MI MPSC STAFF ATTORNEYS Spencer A. Sattler Emily A. Jefferson 7109 West Saginaw Hwy, 3 rd Floor Lansing, MI sattlers@michigan.gov jeffersone1@michigan.gov RESIDENTIAL CUSTOMER GROUP Don L. Keskey Brian W. Coyer donkeskey@publiclawresourcecenter.com bwcoyer@publiclawresourcecenter.com Amanda M. Alderson BRUBAKER & ASSOCIATES, INC Swingley Ridge Road, Suite 140 Chesterfield, MO aalderson@consultbai.com ATTORNEY GENERAL (ENRA) Joel B. King Assistant Attorney General G. Mennen Williams Bldg. 525 W. Ottawa Street, 6 th Floor P.O. Box Lansing, MI Kingj38@michigan.gov ag-enra-spec-lit@michigan.gov Sebastian Coppola, President Corporate Analytics 5928 Southgate Rd. Rochester, MI sebcoppola@corplytics.com