BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OtHo TELEPHONE(5 13) TE LECOP IER (5 13)

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1 BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OtHo TELEPHONE(5 13) TE LECOP IER (5 13) VIA ELECTRONIC CASE FILING November 21, 2018 Kavita Kale, Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI Re: Case No. U Dear Ms. Kale: Please find attached the REPLY BRIEF 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. Boebm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan ##P67067) BOEHM, KURTZ & LOWRY MLKkew Enclosure Cc: Administrative Law Judge Sharon Feldman (feinans(michign.gov) Michigan Public Service Commission 7109W. Saginaw Flighway Lansing. MI 48917

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the Matter Of The Application of CONSUMERS ENERGY COMPANY For Authority To Increase Its : Case No. U Rates For The Generation And Distribution Of : (E-file) Electricity And For Other Relief REPLY BRIEF OF THE KROGER CO. Kroger Co. ( Kroger) submits this Reply Brief addressing arguments concerning the rate design for the Rate GPD subclasses made by Consumers Energy Company ( Consumers or the Company ), Hemlock Semiconductor LLC s (HSO) and Commission Staff. 1. Consumer s Brief Ignores The Unrefuted Evidence In This Case That The Rate Differential Between the Three GPD Subclasses Is Not Cost-Based. In its Initial Brief Consumers argues that Kroger s proposal to adopt a cost-based rate design for each of the 3 GPD subclasses (GPD voltage level 1 ( GPD1 ), voltage level 2 ( GPD2 ), and voltage level 3 ( GPD3 )) should be rejected because it is without merit. Consumers argues that MCL requires that rates be costbased by customer class and Consumers witness Ms. Collins testified that Rate GPD is cost-based. Consumers states on pages : Kroger witness Bieber proposed to revise the Rate GFD rate design. According to Mr. Bieber, his revision was needed to more close/v align revenuesfrom Rate GPD Voltage Level] and Rate GFD Voltage Level 3 to the i-ate design targets. 5 TR The Commission shottld reject his revision. MCL reqitires cost-based rates by customer class, and Ms. Collins testuled that the rates for Rcite GFD were cost-based within the class. 5 TR ]586. Ms. Collinsfurther testuled that diffrrentials must be maintained within the class voltage levels to recognize that higher voltage custom ers are connected to the Company s svs tern, where less Company infrastructure was required to serve them and to recognize line losses for each voltage level. Id. This is done by combining the cost of service GFD voltage levels in one bucket, and using the differences from the cost ofservice stttdy to determine how the rates would increase among the three voltage levels. 5 TR Mr. Bieber s revisions are without merit and the Commission should reject them.

3 This argument is without merit because it mischaracterizes Ms. Collins testimony. At the evidentiary hearing, Ms. Collins conceded that while the rate allocation to the total GPD class recovers its cost-based share of the revenue requirement, the rate design for the power supply capacity and non-capacity demand charges for the individual GPD subclasses (GPD1, GPD2, and GPD3) are not cost-based. Q. So for power supply, the one bucket all GPD reflects cost based rates, but for each voltage level that does not necessarily reflect cost based rates, correct? [Ms. CollinsJ That is correct.1 Kroger does not dispute that the rates for the total bucket of GPD rates is cost-based. Kroger instead takes issue with the fact that the GPD subclass rate differentials are not cost-based. As shown above, Ms. Collins agrees with Kroger that the subclass rate differentials for the power supply capacity and non-capacity demand charges are not cost-based. This is explained in more detail through the testimony of Kroger witness Justin Bieber. Mr. Bieber established that while GPD as a whole recovers approximately 100% of its costs, Consumers proposal would underrecover costs from GPD1 and over-recover costs from GPD3. This inequity is illustrated in the table below: Comparison of GPD Revenues/Costs by GPD Voltage Level2 GPD1 GPD2 GPD3 Total GPD Production Related Revenues/Costs 84.6% 101.9% 110.5% 101.0% Distribution Demand Related Revenues!Costs 112.9% 108.8% 96.7% 100.1% Customer Related Revenues/Costs 10.0% 40.0% % 90.3% Total Revenues/Costs 85.0% 102.1% 108.9% 100.9% Kroger does not disagree with Consumers assertion that d(fferentials must be maintained within the class voltage levels to recognize that higher voltage customers are connected to the Company s system... (Initial Brief at 302). The cost-of-serve difference between the various GPD voltages levels require Consumers to charge different rates to GPD1, GPD2 and GPD3. But the differentiated rates must be cost-based. Consumers proposed Transcript Volume 5 at 1599, lines 20-25; at 1600, lines Rebuttal Testimony of Justin Bieber at 9.

4 1600, $1.00 rate differential between GPD voltage subclasses for the power supply capacity and non-capacity demand charge and non-capacity demand charge is arbitrary and is not cost-based. Consumers reference to MCL is also misplaced because that statute requires that each class and each subclass be cost-based. MCL , states: (1) Except as otherwise provided in tills sttbsection, the commission shall ensttre the establishment of electric rates equal to the cost ofprovicling service to each customer class. In establishing cost ofservice rates, the commission shall ensure that each class, or subclass, is assessedfor its fair and equitable ttse of the electric grid... (emphasis added). Consumers proposed rate design for the GPD subclasses should be rejected because, by Consumers own admission, it is not cost-based. In contrast Kroger s proposed rate design would move the voltage differentiated GPD rates in the direction of costs. This is explained in detail on pages 6 and 7 of Kroger s initial Brief. Kroger s proposed rates eliminate the arbitrary $1.00 loss differential between the power supply capacity and non-capacity demand charges for each subclass as proposed by Consumers, and replaces it with the same loss differential that Consumers calculates in its rate design model,3 and proposes to use to differentiate the transmission demand charges between voltage subclasses. This proposed rate design will recover $7.9% of the rate design target for GPDY and 105.8% of the rate design target for GPD3, compared to Consumers proposed rate design, which would recover only 85.0% of the rate design target for GPD1 and 107.4% of the rate design target for GPD3. So while Kroger s proposed rate design does not eliminate the intra-class subsidies within GPD, it does make gradual movement in the right direction towards aligning rates with the underlying costs while avoiding rate shock.4 2. HSO s Proposed GPD Rate Design Proposal Seeks To Establish Cost-Based Rates For The Distribution Component Of GPD Rates While Ignoring Cost-Of-Service For All Other Components Of The Rate. Begiiming on page 20 of its Initial Brief, HSO argues that Consumers proposed distribution revenues do not equal Consumers allocated functionalized costs from Consumers COSS. HSO states that Consumer s proposed GPD rates would have GPDY customers pay 16% more than Consumers distribution cost-of-service and GPD2 customers would pay 12% more than cost-of-service. HSO proposes to modify the distribution demand Transcript Volume 5 at 1598, line 14 Direct Testimony of Justin Bieber at 8. line 15. 3

5 charges for the GPD subclasses in order to reflect distribution demand costs.5 While HSO is laser-focused on ensuring that distribution demand charges are based on cost-of-service it does not propose to bring the other elements of GPD in line with costs. In this sense, HSO is cherry-picking the one element of GPD costs, distribution demand costs, in which GPD1 is slightly over-paying relative to costs while ignoring the fact that GPD1 is currently receiving a large intra-class subsidy from GPD3 due to a misallocation of production-related costs. As shown in the Rebuttal Testimony of Mr. Bieber, the proposed distribution demand revenues exceed the proposed costs by $0.9 million for GPD1 and $1.2 million GPD2, while the costs exceed revenues by $2.0 million for GPD3. However, the misalignment between the revenues and costs for the other rate elements for the GPD rate class is much more significant. In fact, the proposed production-related revenues for GPD1 are $37.7 million less than the GPD1 allocated costs, while the GPD3 proposed production revenues are $42.9 million greater than the proposed costs. The Table below compares the costs, by classification, allocated to each GPD subclass in Consumers proposed COSS Version 2 to the proposed revenues in Consumers proposed GPD rate design, in dollars. Comparison of GPD Revenues/Costs by GPD Voltage Level6 ($000) GPD1 GPD2 GPD3 Total GPD Production Revenues Over/(Under) Recovery (37,692) 3,224 42,948 8,481 Distribution DelTiand Over/(Under) Recovery 872 1,173 (1,969) 76 Customer Related Over/(Under) Recovery (1,051) (569) 1,080 (540) Total Over/(Under) Recovery (37,871) 3,828 42,059 8,016 As shown above, this misalignment between production costs and charges for GPD1 is over 40 times larger than the misalignment that exists for the distribution demand charge that HSO identifies. Therefore, it would be entirely unreasonable to adjust distribution demand charges for the GPD subclasses without making a corresponding adjustment for the other rate elements in which there is a much more significant misalignment with cost-of-service that cuts in the opposite direction. The Commission should reject HSO s proposal to establish cost-based rates for one element of GPD costs while ignoring the far more impactful misalignment of costs with revenues contained in HSO Initial Brief, pp Rebuttal Testimony of Justin Bieber at 8. 4

6 the production costs portion of the rates. Instead, the Commission should adopt the GPD rate design proposed by Mr. Bieber because it brings all GPD rate elements closer to cost-of-service.7 3. Staffs Criticisms Of Kroger s Testimony Concerning GPD Rate Design Are Unfounded And Do Not Provide Any Evidence Contrary To Mr. Bieber s Conclusion That Staffs Proposed Rate Design Would Increase Intra-Class Subsidies. On pages 12 through 17 of his Rebuttal Testimony, Kroger witness Mr. Bieber identifies several flaws in the GPD rate design proposal of Staff witness, Mr. Isakson. Mr. Bieber explains that the result of Staffs proposed GPD rate design is that it would significantly exacerbate the misalignment between costs and revenues and the existing intra-class subsidy. 8 In its Initial Brief, Staff responds to Mr. Bieber s criticism by generally claiming that Mr. Bieber s testimony is not sufficiently explained and not supported by workpapers. However, Staff does not provide any evidence contrary to Mr. Bieber s analysis or conclusion that Staffs proposed rate design would increase the intra-class subsidies paid by GPD3 customers to GPD1 customers. Staffs specific criticism of Mr. Bieber s Testimony is addressed below: On page 103 of its Brief, Staff states: Kroger could not follow how Staff s rate design reventte for Rate GPD matched costs. (Vol. 5, Tr 1415.) Even including adjustmentsjbr interruptible credits, ElF capacity, Rate GP-GPD crossing point, self-generation, senior citizen, and income assistance credits Kroger supposes that Staff s rate design revenuefor Rate GPD does not match costs by voltage level. (Doe No. 334, Vol. 5, Tr ) Kroger witness Mr. Bieber clearly demonstrated that Staffs GPD rate design does not match costs by voltage level and increases the misalignment between costs and revenues for the GPD subclasses. Staffs proposed rate design significantly exacerbates this misalignment between costs and revenues and the existing intra-class subsidy. This was shown on page 14 of Mr. Bieber s Rebuttal Testimony which includes a table that compares the costs allocated to each GPD subclass in Staffs proposed COSS to the proposed revenues in Mr. Isakson s proposed GPD rate design. Direct Testimony of Justin Bieber at Rebuttal Testimony of Justin Bieber at 16. 5

7 Table KRO-39 GPD1 GPD2 GPD3 Total GPD StaffProposed Costs* 262, , , ,398 StaffProposed Rate Desim Revenues 211, , ,691 1,000,548 StaffProposed Revenues/Costs 80.5% 102.4% 110.5% 100.9% StarfProposed Over/(Under) collection of costs (51,202) 4,726 55,626 9,150 *Costs include proposed adjustments for interruptible service, EIP capacity, the interciass crossing point adjustment, self-generation, senior citizen credits, and income assistance credits. The above table shows that Staffs proposed rate design significantly under-collects costs from GPDY and over-collects costs from GPD3. As explained by Mr. Bieber, relative to Consumers filing, Staffs proposed cost of service study allocates a $9.7 million cost increase for GPD1 while its rate design results in a decrease in revenues of $3.6 million. For the GPD2 subclass, Staff proposed a cost of service increase of $5.4 million and a revenue increase of $6.5 million. For GPD3, Staff proposed a cost of service increase of $1.7 million but proposes a revenue increase of $14.5 million.)0 Next, Staff criticizes Kroger for not providing any references or workpaper showing how Kroger formulated its analysis of Staffs rate design revenue for Rate GPD by voltage level. This is simply false. Mr. Bieber s workpapers and footnotes clearly show the calculations and figures that support Table KRO-3 on page 13 of Mr. Biebers Rebuttal Testimony. If Staff needed additional support for these calculations, they did not ask for them in discovery. Next, Staff states that: The rate design revenues by voltage level for Rate GFD mczde by Kroger also do not appear to match Staff s rate design model. (Doe. No. 344, Exhibit S-6, f-3, p 1 7 line 39, p 18, line 35; and p 19, line 33.) Mr. Bieber s Rebuttal Testimony provides a thorough explanation of his analysis of Staff rate design. For example, in footnote 6 on page 13 of his Rebuttal Testimony Mr. Bieber states For this comparison, I combined GPD, GPD GEl, and GPTU costs and revenues together for each subclass. At the time that I drafted this rebuttal Rebuttal Testimony of Justin Bieber, p. 14. Rebuttal Testimony of Justin Bieber, p. 13. StaffBrief,p

8 testimony, I did not have access to the necessary workpapers to separate the GPTU costs and revenues. Then in the footnote to Table KRO-3 on page 14, Mr. Bieber states, Costs include proposed adjustments for interruptible service, EIP capacity, the interclass crossing point adjustment, self-generation, senior citizen credits, and income assistance credits. While Staffs Brief attempts to discredit Mr. Bieber s analysis of Staffs rate design by making several claims that Mr. Bieber does not provide sufficient support for his conclusions, Staff does not provide any evidence that refutes Mr. Bieber s conclusion that Staffs proposed rate design is not cost-based and would increase the intra class subsidies paid by GPD3 customers to GPD1 customers. In fact, Staffs Brief supports Mr. Biebers argument that its rate design is not-cost based. On page 103 of its Brief Staff states: When reallocating costsfor rate design, both Staffand the Company combine Rate GPD s voltage levels, so reallocated costs accrue to the entire rate. (StaffExhibit 56, F-2.], note 3.) As is discussed above, during cross-examination, Consumers witness Ms. Collins admitted that combining power supply costs into one bucket for GPD does not reflect cost-based rates for each voltage level. 12 Therefore, Staffs proposed rate design suffers from the same fundamental flaw as Consumers in that its proposed rate design is not cost-based. Respectfully submitted, November21, 2018 Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan #P67067) BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio Ph: Fax: KBoehrn@BKLlawfirm.com ]KvlerColrn(iIBKLlawfirm.corn rnkurtzttbkllawfirrn.corn COUNSEL FOR THE KROGER CO. 12 Transcript Volume 5 at 1599, lines 20-25; at 1600, lines

9 STATE OF MICHIGAN BEFORE THE PUBLIC UTILITIES COMMISSION In the Matter of the application of CONSUMERS ENERGY COMPANY for authority to increase its 2 Case No. U rates for the generation and distribution of : (f-file) electricity and for other relief PROOF OF SERVICE Kurt J. Boebm, Esq. duly sworn, deposes and says that on November 21, 2018 he served (via electronic mail) when available or regular U.S. Mail, REPLY BRIEF OF THE KROGER CO. and this PROOF OF SERVICE upon those listed on the attached Certificate of Service. Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan #P67067) BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio Ph: Fax: KBoehm@BKLlawfirm.com JKylerCohn@iBKLlawfirm.com mkurtz(ä)bkllawfirm.com COUNSEL FOR THE KROGER CO. Subsciibed t and sworn before me thi a of November, q. Ndta ry 16lic mbew Noaiy Pi Se o(cio My Comnisslon Epêes

10 SERVICE LIST MPSC CASE NO. U Administrative Law Judge Hon. Sharon L. Feldman Administrative Law Judge Michigan Public Service Commission 7109 W. Saginaw Hwy., 3rd Floor Lansing, MI feldmans(c4michigan.gov Counsel for the Michigan Public Service Commission Heather M.S. Durian Daniel Sonneveldt Michael J. Orris Monica M. Stephens Michigan Public Service Commission 7109 W. Saginaw Hwy., 3rd Floor Lansing, MI stephensml 1 (,michigan.gov Counsel for Consumers Energy Company Bret A. Totoraitis Anne Uitvlugt Gary Gensch, Jr. Michael C. Rampe Theresa A.G. Staley Consumer Energy Company One Energy Plaza Jackson, MI bret.totoraitis@cmsenergy.com Gary. genschjr(cmsenergy.com anne.uitvlugt@cmsenergy.com michael.rampe@cmsenergy.com Theresa.staley@cmsenergy.com mpsc.filings(cmsenergy.com Counsel for Attorney General Celeste R. Gill Assistant Attorney General G. Mennen Williams Bldg., 6th floor 525 W. Ottawa St. Lansing, MI Gillc ag-enra-spec-lit@michigan.gov Counsel for Michigan Cable Telecommunications Association Michael S. Ashton Anita G. Fox Fraser, Trebilcock, Davis & Dunlap, P.C. 124 W. Allegan, Ste Lansing, MI mashton(dfraserlawfirm.com afox(4fraserlawfirm.com Counsel for Michigan Environmental Council, Sierra Club, Natural Resources Defense Council, City of Flint, & City of Grand Rapids Christopher M. Bzdok Tracy Jane Andrews Olson, Bzdok & Howard, P.C. 420 E. Front St. Traverse City, MI chris@envlaw.com tj andrews(iienvlaw.com karla@envlaw.com kimberly@envlaw.com breanna(env1aw.com Counsel for Environmental Law & Policy Center Margrethe Kearney Robert Kelter Environmental Law & Policy Center 1007 Lake Drive SE Grand Rapids, MI mkearney(,elpc.org rkelter@elpc.org Counsel for Hemlock Semiconductor Corporation Jennifer Utter Heston Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan, Ste Lansing, MI jheston(iifraserlawfirm.com Counsel for Midland Cogeneration

11 Counsel for The Kroger Company Kurt I. Boehm Jody Kyler Cohn Michael L. Kurtz Boehm, Kurtz & Lowly 36 East Seventh St., Ste Cincinnati, OH mkurtz(ibkllawfinmcom Kevin Higgins Energy Strategies, LLC 215 South State Street, Suite 200 Salt Lake City, Utah Counsel for Wal-Mart Stores East, LP & Sam s East, Inc. Melissa M. Horn Higgins, Cavanagh & Cooney, LLP 10 Dorrance Street, 4th Floor Providence, RI mhome@hcc-law.com Counsel for Residential Customer Group Don L. Keskey Brian W. Coyer Public Law Resource Center PLLC University Office Place 333 Albert Avenue, Ste. 425 East Lansing, MI donkeskey(,publiclawresourcecenter.com bwcoyer@publiclawresourcecenter.com Counsel for Michigan State Utility Workers Council, Utility Workers Union Of America (UWUA), AFL-CIO John R. Canzano McKnight, Canzano, Smith, Radtke & Brault, P.C. 423 N. Main St., Ste. 200 Royal Oak, MI j canzano(michworker1aw.com Ventures, LP Richard J. Aaron Jason I. Hanselman John A. Janiszewski Dykema Gossett PLLC 201 Townsend St., Ste. 900 Lansing, Michigan raaron@dykema.com jhanselman@dykema.com jjaniszewski@dykema.com Charles E. Dunn Midland Cogeneration Venture LP 100 East Progress Place Midland, Michigan cedunn(,midcogen.com Counsel for Association of Businesses Advocating Tariff Equity Bryan A. Brandenburg Michael I. Pattwell Clark Hill PLC 212 East César E. Chavez Avenue Lansing, MI bbrandenburg@clarkhill.com mpattwe1l(clarkhill.com tbibbs@clarkhill.com ldegnan(clarkhill.com Jeffry C. Pollock Billie S. LaConte Kitty A. Turner J. Pollock, Inc Olive Blvd., Ste. 585 St. Louis, MO jcp@jpollockinc.com bsl@jpollockinc.com kat@jpollockinc.com 3