Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517)

Transcription

1 Founded in 1852 by Sidney Davy Miller SHERRI A. WELLMAN TEL (517) FAX (517) Miller, Canfield, Paddock and Stone, P.L.C. One Michigan Avenue, Suite 900 Lansing, Michigan TEL (517) FAX (517) MICHIGAN: Ann Arbor Detroit " Grand Rapids Kalamazoo " Lansing " Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cleveland CANADA: Windsor CHINA: Shanghai MEXICO: Monterrey POLAND: Gdynia Warsaw " "&%$(#' Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway, 3rd Floor Lansing, MI October 1, 2018 Re: Michigan Gas Utilities Corporation Tax Reform Calculation C Case No. U Dear Ms. Kale: Pursuant to the Commission s orders issued in Case Nos. U and U-20114, Michigan Gas Utilities Corporation hereby files the enclosed Application, and Direct Testimony and Exhibits of Ricki J. Moras, Eric Nicolaus, and David J. Tyler to address the Calculation C effects of the federal Tax Cuts and Jobs Act of Also enclosed are the Appearances of Sherri A. Wellman and Paul M. Collins, together with the Proof of Service. Should you have any questions, please kindly advise. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. Fkikvcnn{!ukipgf!d{<!Ujgttk!C/!Ygnnocp Ujgttk!C/! FP<!EP!?!Ujgttk!C/!Ygnnocp!gockn!?! ygnnocpuboknngtecphkgnf/eqo!e!?!wu Fcvg<!3129/21/12!27<37<53!.15(11( By: Ygnnocp Sherri A. Wellman SAW/kf Enclosures cc: Intervenors in Case No. U and U Robert Gavin Theodore Eidukas Dennis Derricks Mary Wolter Richard Stasik Vickie Nugent Amy Winkler

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 ) Case No. U to reflect the effects of the federal Tax ) Cuts and Jobs Act of 2017: ) MICHIGAN GAS UTILITIES CORPORATION ) files an application for determination of Calculation C ) as described in orders U and U ) APPLICATION Michigan Gas Utilities Corporation ( MGUC or the Company ), as directed in the February 22, 2018 order of the Michigan Public Service Commission ( MPSC or the Commission ) issued in Case No. U ( February 22 Order ), and the May 30, 2018 order issued in Case No. U-20114, hereby files its application for Calculation C to address the outstanding impacts of federal corporate tax reduction arising from the Tax Cuts and Jobs Act of 2017 ( TCJA ). In support of this Application, MGUC respectfully represents to the Commission as follows: 1. MGUC, with its principal office located at 899 South Telegraph Road, Monroe, Michigan, is engaged as a public utility in the business of supplying and distributing natural gas to the public in its various service areas located in the southern and western portions of Michigan s Lower Peninsula. 2. MGUC s retail natural gas sales business and its retail gas transportation business are subject to the jurisdiction of the Commission.

3 3. MGUC s last general rate case for retail gas service was in Case No. U-17880, with a final order issued by the Commission in that case on December 11, As relevant to this application, in the Commission s February 22 Order, MGUC was directed to file an application, with supporting testimony and exhibits to address Calculation C, to capture all remaining impacts of the tax law change, including excess deferred taxes, bonus depreciation, and any other impacts not captured through Credits A and B. 5. Consistent with the Commission s directives made in Case Nos. U and U , MGUC is filing herewith supporting testimony and exhibits for purposes of addressing Calculation C and recommending credit amounts associated with Calculation C. MGUC is further proposing a true-up mechanism which will allow the Company beginning with the 2020 calendar year and annually thereafter to file an application in Case No. U by March 31 to address prior period volumetric differences, as well as changes in the amortization of excess deferred taxes due to the Average Rate Assumption Method. The true-up will also allow for the roll-in of any over or under credit balances from the prior calendar year in the proposed new Calculation C credits. 6. As reflected in its supporting testimony and exhibits, MGUC proposes to reflect Calculation C credits beginning January 1, MGUC represents that the proposed Calculation C credits to its natural gas rates and its requested true-up mechanism, as supported by its testimony and exhibits, are just, reasonable, in the public interest, and provide for its natural gas customers to enjoy the benefits of the tax reduction on an equitable, timely basis. WHEREFORE, Michigan Gas Utilities Corporation requests that the Commission: A. Approve this Application; 2

4 B. Find and determine that MGUC s initial proposed Calculation C credits and related proposals as set forth and supported by its testimony and exhibits are reasonable and prudent; C. Authorize MGUC to file and make effective its proposed Calculation C credits effective January 1, D. Approve MGUC s proposed true-up mechanism as described herein and in its supporting testimony; and E. Grant MGUC such other and further relief and authorizations as shall be lawful and proper. Respectfully submitted, Dated: October 1, 2018 MICHIGAN GAS UTILITIES CORPORATION Ujgttk!C/! Ygnnocp Fkikvcnn{!ukipgf!d{<!Ujgttk!C/! Ygnnocp FP<!EP!?!Ujgttk!C/!Ygnnocp!gockn!?!ygnnocpuBoknngtecphkgnf/eqo!E!?!WU By: Fcvg<!3129/21/12!27<38<16!.15(11( One of its Attorneys Sherri A. Wellman (P38989) Paul M. Collins (P69719) MILLER, CANFIELD, PADDOCK AND STONE, P.L.C. One Michigan Avenue, Suite 900 Lansing, MI (517) Attorneys for Michigan Gas Utilities Corporation 3

5 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 ) Case No. U to reflect the effects of the federal Tax ) Cuts and Jobs Act of 2017: ) UPPER MICHIGAN ENERGY RESOURCES ) CORPORATION files an application for ) determination of Calculation C as described ) in orders U and U ) DIRECT TESTIMONY AND EXHIBIT OF RICKI J. MORAS ON BEHALF OF MICHIGAN GAS UTILITIES CORPORATION

6 Q. Please state your name and business address. A. My name is Ricki J. Moras and my business address is 700 North Adams Street, Green Bay, Wisconsin Q. By whom are you employed and what is your position? A. I am employed by WEC Energy Group, Inc. ( WEC ) as Financial Manager Regulatory, and as such, provide regulatory financial support to Michigan Gas Utilities Corporation ( MGUC ), which is a wholly owned subsidiary of WEC. Q. Please describe briefly your education, professional, and utility background. A. I graduated from Michigan Technological University in 1977 with a Bachelor of Science degree in Accounting. My professional designations are Certified Public Accountant and Certified Internal Auditor. I have been employed by Wisconsin Public Service Corporation ( WPS Corp ), Integrys, or WEC since 1980, and have held various positions in the Accounting and Finance organization over that time. Q. Have you testified before a regulatory agency? A. Yes. I have previously submitted testimony and exhibits with the Michigan Public Service Commission ( MPSC or the Commission ) in Case Nos. U and Case U I have also testified before the Public Service Commission of Wisconsin ("PSCW") in many WPS Corp rate cases. Q. On whose behalf are you testifying in this proceeding? A. I am testifying on behalf of MGUC. Q. What is the purpose of your testimony in this proceeding? A. With the completion of MGUC s Credit A and Credit B filings, I have calculated the 2018 and 2019 annual revenue requirement impact of the Tax Cut! and Job! Act of 2017, 1

7 to address all remaining aspects of the tax reduction on MGUC s rates, referred to as Calculation C in the Commission s February 22 Order issued in Case No. U ( February 22 Order ). Q. Please describe your exhibit? A. I am sponsoring Exhibit A-1 (RJM-1) which reflects Calculation C. This exhibit includes the 2018 deferral of the revenue requirement as a result of the change in the deferred tax liability balances, the amortization of the revenue requirement of the excess deferred taxes, and an interest calculation on the deferral balance for 2018 through Q. Was this exhibit prepared by you or under your supervision? A. Yes. Q. What are the 2019 revenue requirement effects for 2018 deferral for MGUC? A. As shown in my exhibit, the impact of the change in the excess deferred taxes as a result of the TCJA on MGUC s rates is $159,898, excluding interest for Q. What the revenue requirement effects for 2019 for MGUC? A. The revenue requirements for 2019 are based on the estimates for The 2019 gas revenue requirement for MGUC is $158,376, which is the net revenue requirement change of the 2018 amortization of $161,865 and the change in the deferred tax liability of $3,489 as shown on Exhibit A-1 (RJM-1) for There is no interest calculated for the 2019 estimates as there is no deferral since the company s assumption is to give back the 2019 excess deferred tax amortization in Q. Are the amortizations related to 2018 and 2019 final? A. No. The 2018 and 2019 amortizations were based on estimates. Please see witness Eric 2

8 1 2 3 Nicolaus testimony in regards to annual adjustments. Q. Does this conclude your direct testimony? A. Yes. 3

9 Gewi#Rs1#Y I lmfmx#e04#+vnq04, [mxriww>##vmgom#n1#qsvew Teki#4#sj#6 +e, +f, +g, +h, +i, +j, +k, +l, +m, +n, 534< Xe #Vexi 581;73( 4 Hig04; Ner04< Jif04< Qev04< Etv04< Qe}04< Nyr04< Nyp04< Eyk04< Wit04< 5 6 Deferral 7 Before tax cost of capital: ; Hijivvih#xe #pmefmpmx}#fepergi#glerki 0 =/4=9 4;/953 58/4=6 64/=77 6;/<77 75/=56 7;/483 83/859 86/3<3 < GETMXEP#VIUYMVIQIRXW 0 =/4=9 4;/953 58/4=6 64/=77 6;/<77 75/=56 7;/483 83/859 86/3<3 = 43 Viziryi#Viuymviqirx#Erryep#Vexi <19=( <19=( <19=( <19=( <19=( <19=( <19=( <19=( <19=( <19=( 44 Viziryi#Viuymviqirx#sr#Getmxep 0 0 9; 45< 4< ; O&M & Other Income Statement 47 Eqsvxm~exmsr# 0 +46/7<=, +46/7<=, +46/7<=, +46/7<=, +46/7<=, +46/7<=, +46/7<=, +46/7<=, +46/7<=, ; Gsvtsvexi#Viz#Viu#sj#s{rivwlmt#{2s#jyip 0 +46/7<=, +46/755, +46/694, +46/639, +46/58;, +46/548, +46/4;<, +46/47;, +46/456, 4< Gyqypexmzi +46/7<=, +59/=44, +73/5;5, +86/8;<, +99/<69, +<3/383, +=6/55<, +439/6;8, +44=/7=<, 4= 53 MI Carry Cost Calculation: 54 Fikmrrmrk#Fepergi 0 +43/34;, +4=/=<7, +5=/=4<, +6=/<59, +7=/;48, +8=/8<<, +9=/77=, +;=/634, 55 QM#Hijivvep#Viz#Viu +46/7<=, +46/755, +46/694, +46/639, +46/58;, +46/548, +46/4;<, +46/47;, +46/456, 56 Gevv}#Gswx#+Tvizmsyw#Qsrxl, , +69, +93, +<4, +435, +44=, +469, 57 Xe #Gewl#Mrjps{ 6/7;5 6/788 6/776 6/767 6/75< 6/755 6/74< 6/748 6/ Irhmrk#Fepergi#Fijsvi#GQ#Gevv}#Gswx +43/34;, +4=/=<7, +5=/=4<, +6=/<59, +7=/;48, +8=/8<<, +9=/77=, +;=/634, +<=/47;, 59 5; Gevv}#Gswxw#Erryep#Vexi 41<8( 41=4( 5148( 5173( 5176( 5179( 5174( 5168( 5168( 5< Gevv}#Gswx 0 +49, +69, +93, +<4, +435, +44=, +469, +488, 5= Gyqypexmzi#Gevv}#Gswx 0 +49, +85, +445, +4=5, +5=7, +747, +883, +;38, MI Deferral: 65 Fikmrrmrk#Fepergi 0 +46/7<=, +59/=5;, +73/657, +86/9=3, +9;/35<, +<3/677, +=6/974, +439/=58, 66 Rix#Hijivvep#Viz#Viu# +46/7<=, +46/755, +46/694, +46/639, +46/58;, +46/548, +46/4;<, +46/47;, +46/456, 67 Gevv}#Gswx 0 +49, +69, +93, +<4, +435, +44=, +469, +488, 68 Irhmrk#Fepergi 0 +46/7<=, +59/=5;, +73/657, +86/9=3, +9;/35<, +<3/677, +=6/974, +439/=58, +453/536,

10 Gewi#Rs1#Y I lmfmx#e04#+vnq04, [mxriww>##vmgom#n1#qsvew Teki#5#sj#6 534< Deferral Before tax cost of capital: Hijivvih#xe #pmefmpmx}#fepergi#glerki GETMXEP#VIUYMVIQIRXW Viziryi#Viuymviqirx#Erryep#Vexi Viziryi#Viuymviqirx#sr#Getmxep O&M & Other Income Statement Eqsvxm~exmsr# Gsvtsvexi#Viz#Viu#sj#s{rivwlmt#{2s#jyip Gyqypexmzi MI Carry Cost Calculation: Fikmrrmrk#Fepergi QM#Hijivvep#Viz#Viu Gevv}#Gswx#+Tvizmsyw#Qsrxl, Xe #Gewl#Mrjps{ Irhmrk#Fepergi#Fijsvi#GQ#Gevv}#Gswx Gevv}#Gswxw#Erryep#Vexi Gevv}#Gswx Gyqypexmzi#Gevv}#Gswx MI Deferral: Fikmrrmrk#Fepergi Rix#Hijivvep#Viz#Viu# Gevv}#Gswx Irhmrk#Fepergi +o, +p, +q, +r, +s, +t, +u, +v, +w, +x, Sgx04< Rsz04< Hig04< Ner04= Jif04= Qev04= Etv04= Qe}04= /;<6 88/997 88/9= /;<6 88/997 88/9= <19=( <19=( <19=( <19=( <19=( <19=( <19=( <19=( 6<8 6=; 736 6/3< /7<=, +46/7<=, +46/7<=, +494/<98, /437, +46/3=5, +46/3<8, +48</;;=, /935, +478/9=7, +48</;;=, +48=/995, +48=/995, +48=/995, +48=/995, +48=/995, +<=/47;, +=</==7, +43</<78, +44</;3;, +4;6, +4;6, +4;6, +46/437, +46/3=5, +46/3<8, +48</;;=, , +4;8, +4=7, +4/3;6, +546, +565, 0 +3, +3, 6/746 6/748 6/74< +7=, =</==7, +43</<78, +44</;3;, +44</898, +4;6, +4;6, +4;6, +4;6, 5168( 5168( 5168( 5168( 5168( 5168( 5168( 5168( +4;8, +4=7, +546, +4/5<9, +565, +3, +3, +3, +<;=, +4/3;6, +4/5<9, +4/84=, +4/84=, +4/84=, +4/853, +4/853, +453/536, +466/7<4, +479/;9;, +493/399, +48=/<=8, +48=/<=8, +48=/<=8, +48=/<=9, +46/437, +46/3=5, +46/3<8, +48</;;=, ;8, +4=7, +546, +4/5<9, +565, 0 +3, +3, +3, +466/7<4, +479/;9;, +493/399, +48=/<=8, +48=/<=8, +48=/<=8, +48=/<=9, +48=/<=9,

11 Gewi#Rs1#Y I lmfmx#e04#+vnq04, [mxriww>##vmgom#n1#qsvew Teki#6#sj#6 534< Deferral Before tax cost of capital: Hijivvih#xe #pmefmpmx}#fepergi#glerki GETMXEP#VIUYMVIQIRXW Viziryi#Viuymviqirx#Erryep#Vexi Viziryi#Viuymviqirx#sr#Getmxep O&M & Other Income Statement Eqsvxm~exmsr# Gsvtsvexi#Viz#Viu#sj#s{rivwlmt#{2s#jyip Gyqypexmzi MI Carry Cost Calculation: Fikmrrmrk#Fepergi QM#Hijivvep#Viz#Viu Gevv}#Gswx#+Tvizmsyw#Qsrxl, Xe #Gewl#Mrjps{ Irhmrk#Fepergi#Fijsvi#GQ#Gevv}#Gswx Gevv}#Gswxw#Erryep#Vexi Gevv}#Gswx Gyqypexmzi#Gevv}#Gswx MI Deferral: Fikmrrmrk#Fepergi Rix#Hijivvep#Viz#Viu# Gevv}#Gswx Irhmrk#Fepergi +y, +z, +{, +, +}, +~, +ee, +ef, Nyr04= Nyp04= Eyk04= Wit04= Sgx04= Rsz04= Hig04= <19=( <19=( <19=( <19=( <19=( <19=( <19=( /7<= +494/<98, </6;9, +48=/995, +48=/995, +48=/995, +48=/995, +48=/995, +48=/995, +48=/995, +4;6, +4;6, +4;7, +4;7, +4;7, +4;7, +4;8, , +3, +3, +3, +3, +3, +3, ;6, +4;7, +4;7, +4;7, +4;7, +4;8, +4;8, 5168( 5168( 5168( 5168( 5168( 5168( 5168( +3, +3, +3, +3, +3, +3, +3, +4/855, +4/853, +4/854, +4/854, +4/854, +4/855, +4/855, +4/855, +48=/<=9, +48=/<=9, +48=/<=;, +48=/<=;, +48=/<=;, +48=/<=<, +48=/<=<, </6;9, +3, +3, +3, +3, +3, +3, +3, +4/855, +48=/<=9, +48=/<=;, +48=/<=;, +48=/<=;, +48=/<=<, +48=/<=<, +48=/<=<, +48=/<=<,

12 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 ) Case Nos. U to reflect the effects of the federal Tax ) Cuts and Jobs Act of 2017: ) MICHIGAN GAS UTILITIES CORPORATION ) files an application for determination of Calculation C as ) described in order Nos. U and U ) DIRECT TESTIMONY OF ERIC NICOLAUS ON BEHALF OF MICHIGAN GAS UTILITIES CORPORATION

13 Q. Please state your name and business address. A. My name is Eric Nicolaus. My business address is WEC Energy Group, Inc. ( WEC ), 700 North Adams Street, P.O. Box 19001, Green Bay, Wisconsin Q. By whom are you employed and what is your position? A. I am employed by WEC Business Services as a Principal Tax Analyst, which provides various services to Michigan Gas Utilities Corporation ( MGUC or Company ). WEC Business Services and MGUC are both wholly-owned subsidiaries of WEC Energy Group, Inc. Q. Please describe briefly your education, professional and utility background. A. I graduated from the University of Wisconsin Green Bay in 2007 with a Bachelor of Science degree in Accounting. My professional designation is a Certified Public Accountant. I have been employed by Wisconsin Public Service Corporation ( WPS Corp ). Integrys, or WEC since 2006, and have held various positions in the Tax organization over that time. Q. Have you testified before a regulatory agency? A. No, but I have assisted in numerous rate case proceedings on tax-related matters over my career. Q. What is the purpose of your testimony? A. The purpose of my testimony is to comply with the Commission s directives made in Case No. U and in its May 30, 2018 Order Approving Settlement Agreement in Case No. U wherein the Commission instructed MGUC to file its Calculation C 22 application to address the impact of the 2017 Federal Tax Act (TCJA) 1 on excess 1 The short-form title of this legislation is the Tax Cuts and Jobs Act ( TCJA or 2017 Federal Tax Act ). 1

14 deferred taxes, bonus depreciation, and any other impacts not captured through the Credit A and B filings by October 1, Q. Please provide an overview of this direct testimony. A. Since federal tax reform legislation was enacted on December 22, 2017, MGUC has analyzed the changes in federal tax laws for 2018 and their impacts on MGUC s previously approved revenue requirement. My testimony provides MGUC s calculation of the remaining impacts of the TCJA, including an update to MGUC s authorized revenue requirement that reflects the impact of TJCA. My testimony is intended to specifically address Calculation C. Q. Please describe the TCJA. A. The enactment of the 2017 TCJA made sweeping and complex changes to the federal tax landscape for businesses. There are many facets of the TCJA; however, the discussion in this testimony is limited to those changes (some of which are in themselves complex) that affect MGUC s previously approved revenue requirements and rates that have not already been addressed in this docket, including: (1) The timing and amount of the return of the one-time effects of the re-measurement of deferred tax liabilities from 35 percent to 21 percent ( Excess Deferred Taxes ); (2) The elimination of bonus depreciation; and (3) Changes in allowable deductions. Q. What is the estimated annual impact of the remaining components of the TCJA change? A. MGUC estimates that the remaining components of the TCJA reduces the Company s previously approved revenue requirement by approximately $160,000 annually. Details of this estimate are discussed below. 2

15 Q. First, can you describe the revenue requirement impact of the adjustment to MGUC s deferred tax balances? A. Yes. As a general overview, Financial Accounting Standards Board Accounting Standards Codification 740 ( ASC 740 ) states, Deferred tax liabilities and assets shall be adjusted for the effect of a change in tax laws or rates (ASC ). The deferred income tax effects of the change in tax laws or rates are required to be recorded in the period of enactment as either income tax expense or benefit (ASC ) or as a regulatory asset or liability for regulated entities applying the principles of ASC 980 (ASC ), with recovery from or refund to customers in the future as authorized by the regulator. Based on these accounting standards, the change in the federal corporate income tax rate from 35 percent rate down to a 21 percent rate under the 2017 Federal Tax Act results in changes to both the amount and amortization of previously-existing deferred tax balances. I will discuss each in turn. Q. What is the change to the amount of the deferred tax balances? A. Book accounting under ASC 740 requires that the impacts of a tax law change be recorded in the period of enactment. As a result, the Company s deferred taxes were revalued to account for the federal income tax rate change as of December 31, These deferred tax balances represent taxes that will be paid in the future. MGUC presently estimates that revaluation of its deferred tax liabilities at a 21 percent rate creates an estimated one-time deferred tax adjustment of approximately $30 million related to MGUC s regulated utility operations. This adjustment relates to the overall amount of the deferred tax liabilities required based on the new tax rate, which after 3

16 being grossed up to a revenue requirement results in a regulatory liability amount of $30 million. This adjustment is still considered preliminary. Given the amount of uncertainty that exists as of today regarding the analyses and effects of this complex legislation, the Securities and Exchange Commission ( SEC ) has published staff guidance for the 6 accounting impacts of the TCJA. 2 This guidance notes that items could be reported on a 7 provisional basis, based on a reasonable estimate, which would be subject to adjustment 8 for up to one year under certain circumstances. Since the deadline in this docket regarding Calculation C was set prior to MGUC filing its final tax returns, which are due the fourth quarter of 2018, for the 2017 tax year, changes are still possible after my testimony was developed. Q. What is the change to the amortization of the deferred tax balances? A. Under prior law, normalization provisions required that any federal tax benefits related to the re-measurement of deferred taxes from certain plant assets (i.e., depreciation method and life differences versus book accounting) be returned to customers no faster (i.e., normalized) than the remaining average life of the assets. Two methods were available to utilities to normalize the return of these Excess Deferred Taxes to customers: the average rate assumption method ( ARAM ) and the reverse South Georgia method ( RSGM ). Using RSGM is only permissible if companies do not have the appropriate records to calculate using ARAM. MGUC does have the necessary records available to calculate Excess Deferred Taxes to perform the ARAM calculation Securities and Exchange Commission Staff Accounting Bulletin No. 118 (Dec. 22, 2017), available at 4

17 The normalization provisions described above are maintained under the new law and continue to be required. Therefore, any return of federal Excess Deferred Taxes on plant assets more quickly than under ARAM would result in a normalization violation. This violation could result in (1) the possible loss of the utility s ability to continue to take accelerated tax depreciation, where accelerated depreciation benefits customers by reducing overall costs, as well as (2) an increase in tax equal to the amount of the Excess Deferred Taxes returned to customers faster than allowed under ARAM, which would harm customers by increasing overall tax expense. Of the $30 million of excess deferred taxes and associated regulatory liability referenced earlier, a portion must be amortized using ARAM ( protected ) and the other portion ( unprotected ) can follow a different method of amortization. Q. What does MGUC need to do to comply with the normalization provisions of the tax code? A. MGUC must use ARAM to reduce the protected excess deferred tax reserve over the remaining regulatory lives of the assets that gave rise to the reserve for deferred taxes. Under this method, the excess deferred tax reserve is reduced with respect to each item of property over the remaining life of the property beginning in the year in which regulatory depreciation exceeds tax depreciation. This method results in excess deferred taxes being returned to customers in a manner similar to how they would have been paid to the federal government had the tax rate not been reduced. Q. What is the estimated revenue requirement impact of applying the normalization provisions? 5

18 A. MGUC currently estimates that the revenue requirement impact of applying the normalization provisions to the updated deferred tax liability will be a decrease in federal income taxes in MGUC s proposed Calculation C amount. It is important to note, however, that when December 31, 2017 year-end tax returns are filed this amount is subject to change. In light of potential changes in the amount and normalization of deferred taxes, MGUC proposes that any difference associated with the amortization of excess deferred taxes, be included in the Company s annual true-up to Calculation C Credits as addressed in the testimony of witness David Tyler. Excess deferred tax amortizations are unique to each tax year. This makes any given year s amortization volatile and difficult to predict. Q. Can you provide more detail regarding the proposal involving the normalization provision? A. Yes. MGUC s 2017 federal and state tax returns will not be filed until the fourth quarter of To the extent that the final federal and state tax returns are different in any manner than the year-end 2017 estimates, the re-measurement estimate of $30 million will likely need to be adjusted. This adjustment could either increase or decrease the $30 million estimate, which in turn impacts the amortization of protected excess deferred taxes previously referenced. Any resultant change to the revenue requirement will be included in the Company s annual true-up to Calculation C Credits as addressed in the testimony of witness David Tyler. 6

19 Q. Third, can you describe the impact of the elimination of bonus depreciation? A. Yes. Under prior law, corporate taxpayers, including utility companies, were generally allowed 40 percent bonus depreciation in 2018 and 30 percent bonus depreciation in Bonus depreciation was not available after Under the new law, the prior bonus depreciation rules are eliminated effective September 28, 2017, and replaced with new asset expensing rules. Those asset expensing rules allow corporations to deduct 100 percent of the cost of capital assets in the first year they are placed in service for tax purposes. However, utility companies are prohibited from taking bonus depreciation or asset expensing under the TCJA starting January 1, 2018, and use Modified Accelerated Cost Recovery System ( MACRS ) tax depreciation. MACRS tax depreciation was used in calculating MGUC s previously approved revenue requirements and therefore, this impact of the TCJA was not adjusted in MGUC s Calculation C. One of the requirements of MGUC s most recent rate order settlement agreement required MGUC to establish a regulatory liability to record any cost savings arising from any bonus deprecation taken during the 2016 tax year. Therefore this regulatory liability mechanism recorded the benefits associated with bonus depreciation deductions taken in tax year Pursuant to that settlement agreement MGUC shall refund the recorded liability in its next general rate case. Q. Finally, can you describe the impact of the changes in allowable deductions? A. Yes. Deductions to income for expenses related to certain compensation are no longer permitted under the new tax law. These deductions were not incorporated in MGUC s previously approved revenue requirement, and therefore have no impact on the 7

20 1 2 Calculation C amount. Comparatively, deductions to income for expenses related to entertainment of clients and customers are also no longer permitted under the new tax 3 law. These reduced deductions, which would increase the revenue requirement if included in the Calculation C amount, are not material to MGUC s previously approved revenue requirement; therefore, this impact of the TCJA was not adjusted in MGUC s Calculation C. Under prior law, there was no limitation on the deduction of interest expense. Under the new law, corporate taxpayers are generally limited to deducting interest expense that does not exceed 30 percent of taxable income before interest, taxes, and tax depreciation (Adjusted Taxable Income or ATI ). Utility companies are specifically exempted from this provision and will continue to be able to fully deduct all interest expense. As such, changes to interest expense deductibility in the TCJA do not affect MGUC s Calculation C. Q. Can you summarize the impacts of the 2017 federal Tax Act (TCJA) reflected in the Company s Calculation C? A. Yes. In summary, my testimony reflects revenue requirement updates due to the following aspects of the TCJA: (1) Excess Deferred Taxes as of December 31, 2017 have been restated; (2) Estimated Amortization of the Protected Excess Deferred Taxes MGUC has calculated the net impact of these changes due to the TCJA, which results in an incremental revenue requirement reduction of approximately $160,000 annually. MGUC believes that it is appropriate to include these effects of the TCJA in this docket as it relates to Calculation C. Likewise, the amount is subject to change as MGUC 8

21 progresses through 2018 and continues to refine its information and understanding of the new tax law. Q. Does this conclude this direct testimony? A. Yes. 9

22 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 ) Case Nos. U to reflect the effects of the federal Tax ) Cuts and Jobs Act of 2017: ) MICHIGAN GAS UTILITIES CORPORATION ) files an application for determination of Calculation C ) as described in order Nos. U and U ) DIRECT TESTIMONY AND EXHIBITS OF DAVID J. TYLER ON BEHALF OF MICHIGAN GAS UTILITIES CORPORATION

23 4# 5# 6# 7# 8# 9# ;# <# =# 43# 44# 45# 46# 47# 48# 49# 4;# 4<# 4=# 53# 54# 55# 56# Q. Please state your name and business address. A. My name is David J. Tyler and my business address is 899 S. Telegraph Road, Monroe, Michigan Q. By whom are you employed and what is your position? A. I am employed by Michigan Gas Utilities Corporation ( MGUC or the Company ), a wholly-owned subsidiary of WEC Energy Group ( WEC ), as Manager, Regulatory Services for the state of Michigan. Q. Please describe briefly your education, professional, and utility background. A. I graduated from Wayne State University in 1976 with a Bachelor of Science degree in Business Administration, majoring in Accounting. From 1976 to 1987, I was employed by ANR Pipeline Company ( ANR ) progressing through positions of increasing responsibility and authority in the following departments: Special Projects, General Accounting, General Ledger Operations, Gas Accounting and finally, Supervisor Gas Accounting and Control with responsibility for the monthly invoicing of all the pipeline s sales customers. In October 1987, I accepted a position with MGUC s predecessor, Aquila, Inc., d/b/a Aquila Networks MGU ( MGU/Aquila ) as a Tariff and Contract Administrator, where I was responsible for monitoring and controlling gas purchase contracts related to system supplies and end-user transportation. In November 1989, I was promoted to Federal Regulatory Analyst responsible for monitoring and analyzing activities at the Federal Energy Regulatory Commission ( FERC ) to determine their impact upon MGU/Aquila, as well as developing and recommending the positions that MGU/Aquila would take in various proceedings. In July 1990, I was promoted to the position of Manager Federal 1

24 4# 5# 6# 7# 8# 9# ;# <# =# 43# 44# 45# 46# 47# 48# 49# 4;# 4<# 4=# 53# 54# 55# Regulatory Affairs. In August 1994, I accepted a position with SEMCO Energy Gas Company ( SEMCO ) as Manager, Federal Regulatory Affairs. In June 2001, I returned to MGU/Aquila, in my current position. In this position, I am responsible for regulatory activities within the state, including: (1) insuring compliance with all Michigan Public Service Commission ( MPSC or the Commission ) orders; (2) acting as a liaison for the Company with the MPSC Staff and interveners; (3) serving as a representative on the Efficiency United Steering Committee (the state appointed administrator for energy waste reduction ( EWR ) programs). In addition to these duties, I am responsible for preparing analyses related to and setting the Company s monthly Gas Cost Recovery ( GCR ) factors, preparing the monthly 45-Day report, GCR plan and reconciliation filings, as well as EWR filings. Q. Have you previously testified before a regulatory agency? A. Yes. I have testified before the MPSC in numerous MGU/Aquila, SEMCO and MGUC GCR plan and reconciliation proceedings, and in connection with take-or-pay proceedings involving FERC Order Nos. 500 and 528. I sponsored testimony in SEMCO s 1996 general rate proceeding (Case No. U-11220); MGU/Aquila s 2002 general rate proceeding (Case No. U-13470); and MGUC s general rate proceedings (Case Nos. U-15549, U-15990, U-17273, and U-17880). I also sponsored testimony in MGUC s EWR plan and reconciliation proceedings (Case Nos. U-15891, U-16291, U , U-16752, U-16731, U-17290, U-17360, U-17609, U-17789, U-17842, U-18015, U-18269, U and U-20036). Most recently, I filed testimony in Case Nos. U

25 4# 5# 6# 7# 8# 9# ;# <# =# 43# 44# 45# 46# 47# 48# 49# 4;# 4<# 4=# 53# 54# 55# 56# and U-20181, supporting the Company s Credit A and B Tax Cuts and Jobs Act of 2017 ( TCJA ) adjustments. I have also testified before the FERC on behalf of SEMCO in ANR s general rate case proceeding in Docket No. RP Q. On whose behalf are you testifying in this proceeding? A. I am testifying on behalf of MGUC. Q. Please describe MGUC? A. MGUC is a public utility engaged in the business of purchasing, storing, transporting, distributing and selling natural gas to the public in the lower peninsula of the state of Michigan. As of August 31, 2018, MGUC served approximately 175,300 customers, including 139,900 residential customers, 11,000 commercial and small industrial customers, 45 large industrial customers and 24,400 transportation and Gas Customer Choice ( GCC or Choice ) customers. Such customers are located in over 52 cities and villages and in 99 townships located in the southern and western portions of the state of Michigan between Lake Erie on the east and Lake Michigan on the west with its principal business office located at 899 South Telegraph Road, Monroe, Michigan. Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to comply with the Commission s directives made in Case No. U and its May 30, 2018 Order Approving Settlement Agreement in Case No. U ( May 30 Order ), wherein the Commission instructed MGUC to file its Calculation C application to address the impact of the TCJA on excess deferred taxes, bonus depreciation, and any other impacts not captured through the Credit A and B filings by October 1,

26 4# 5# Q. Are you sponsoring any exhibits in the proceeding? A. I am sponsoring the following exhibits: 6# Exhibits Content 7# 8# 9# ;# <# =# 43# 44# 45# 46# 47# 48# 49# 4;# 4<# 4=# 53# 54# 55# 56# A-2 (DJT-1) Allocation of Refund Amounts A-3 (DJT-2) Derivation of Interest and Credits A-4 (DJT-3) Proposed Tariff Sheets Q. Were these exhibits prepared by you or under your supervision? A. Yes, they were. Q. Please explain how Exhibit A-2 (DJT-1) was developed. A. Exhibit A-2 (DJT-1) represents the allocation of the refund dollars recovered by the Company during 2018 through excess deferred taxes, bonus depreciation, etc. These amounts were allocated by rate class on the basis of the refund amounts determined in the Company s Credit B filing in Case No. U The total refund amounts come from Ricki J. Moras Direct Testimony Exhibit A-1 (RJM-1). As shown in Exhibit A-2 (DJT- 1) the value of the Calculation C refunds for the portion applicable to the 2018 deferral is $159,898 and the 2019 on-going portion is $158,376. Q. Has the Company included any interest in the determination of its refund amount? A. Yes as detailed in Mr. Moras Direct Testimony on Exhibit A-1 (RJM-1), the Company has included $1,522 of interest covering January through December 2018 and an additional $1,599 as detailed in Exhibit A-3 (DJT-2) covering the period of January 2019 through December The methodology for calculating interest is consistent with the Company s Gas Cost Reconciliation ( GCR ) process where the short-term borrowing rate is applied. 4

27 4# 5# 6# 7# 8# 9# ;# <# =# 43# 44# 45# 46# 47# 48# 49# 4;# 4<# 4=# 53# 54# 55# 56# Q. How does the Company plan to flow-through the Calculation C tax reduction to customers? A. The Company is proposing to pass-through the Calculation C refunds to each customer rate schedule through means of volumetric credits. For a 12 month period effective January 1, 2019, the value of the Calculation C credits will be the 2018 deferral amount plus the 2019 on-going amount. It is appropriate to return the 2018 deferral amount over 12 months because this was accrued over 12 months and will be returned on a volumetric basis. Effective January 1, 2020, the value of the Calculation C credits will be the 2019 on-going amount only. Exhibit A-3 (DJT-2) shows the proposed volumetric credits for each customer rate schedule. Exhibit A-4 (DJT-3) is the proposed tariff sheet reflecting the volumetric credits for each customer rate schedule. Q. How were the volumetric credits derived? A. By applying the refund amount that was determined in the Company s Credit B filing in Case No. U-20181, the Company allocated the refund credits applicable to Calculation C as a percentage of the total. In this way the refund amount will be credited to each rate class in a manner consistent with the Company s previous TCJA filings. Volumetric credits were then developed by applying the forecasted sales volumes for the January through December 2019 time period. Q. Is the Company proposing a true-up mechanism for the flow-through of the Calculation C tax reduction to customers? A. Yes. MGUC proposes that a reconciliation be performed and the Calculation C credit rate be adjusted beginning with the 2020 calendar year and annually thereafter by filing an application in Case No. U by March 31 to address prior period volumetric 5

28 4# 5# 6# differences, as well as changes in the amortization of excess deferred taxes due to the Average Rate Assumption Method ( ARAM ). The true-up will also allow for the roll-in of any over or under credit balances from the prior calendar year in the proposed new 7# 8# Calculation C credits. testimony. ARAM is more fully explained in Eric Nicolaus direct 9# ;# Q. Does this complete your direct testimony at this time? A. Yes, it does. 6

29 Qmglmker#Tyfpmg#Wivzmgi#Gsqqmwwmsr Qmglmker#Kew#Yxmpmxmiw#Gsvtsvexmsr# Eppsgexmsr#sj#%Gepgypexmsr#G%#Vijyrh#Eqsyrxw Gewi#Rs1#Y I lmfmx#rs1#e05#+hnx04, [mxriww>#hezmh#n1#x}piv Teki#4#sj#4 %Gvihmx#F% EPPSGEXMSR#SJ#%GVIHMX#F%#VIJYRH#EQSYRXW Vijyrh# (#sj Gepgypexmsr#G Gepgypexmsr#G Vexi#Gpeww Ner04< Jif04< Qev04< Etv04< Qe}04< Nyr04< Xsxep Xsxep 534<#Tsvxmsr 534=#Tsvxmsr 59 Viwmhirxmep '### +5=;/773, '### +54=/7;<, '### +556/836, '### +4;6/<=;, '#### +7=/965, '## +5</;<9, '### +==5/;69, 931;5( '####### =;/3<9 '####### =9/495 5; Wqepp#Kirivep#Wivzmgi +94/654, +86/869, +88/477, +6;/==<, +44/648, +;/573, +559/887, 461<9( 55/489 54/=78 5< Pevki#Kirivep#Wivzmgi +5/739, +6/653, +6/699, +6/33=, +5/75;, +5/8;3, +4;/3==, 4138( 4/9;5 4/989 Gywxsqiv#Glsmgi> 5= ####Viwmhirxmep +74/=37, +66/844, +68/463, +59/<;;, +;/98=, +7/3;;, +47=/48<, =145( 47/8<; 47/77< 63 ####Wqepp#Kirivep#Wivzmgi +54/388, +49/348, +4;/86<, +45/458, +7/866, +6/576, +;7/843, 7189( ;/5<; ;/54; 64 ####Pevki#Kirivep#Wivzmgi ( 0 0 Xverwtsvxexmsr># 65 ####Ekk1#Viwmhirxmep +95, +9;, +86, +75, +55, +7, +583, 3135( ####Ekk1#Wqepp#Kirivep#Wivzmgi +9/=64, +9/<;9, +9/3=8, +7/=<=, +5/;;8, +=67, +5</933, 41;8( 5/;=; 5/;;3 67 ####Ekk1#Pevki#Kirivep#Wivzmgi +55;, +56;, +4<=, +483, +89, +48, +<;7, 3138( <9 <8 68 ####XV04 +=/;<5, +;/649, +=/48=, +8/46<, +6/5;6, +==3, +68/98=, 514<( 6/7<; 6/ ####XV05 +48/568, +47/569, +4=/6;;, +=/=8;, +43/437, +=/<33, +;</;3=, 71<4( ;/9=; ;/957 6; ####XV06# +8/86=, +6/;=6, +8/<5=, +9/363, +6/953, +9/379, +63/<8<, 41<=( 6/34< 5/=<= 6< Xsxep '### +794/=35, '### +68</6<;, '### +6;8/6<6, '### +5<3/546, '#### +=8/74;, '## +96/;37, ' +4/968/33;, ( '##### 48=/<=< '##### 48</6;9

30 Qmglmker#Tyfpmg#Wivzmgi#Gsqqmwwmsr Gewi#Rs1#Y Qmglmker#Kew#Yxmpmxmiw#Gsvtsvexmsr# I lmfmx#rs1#e06#+hnx05, Hivmzexmsr#sj#%Gepgypexmsr#G%#Wyvglevki#Gvihmxw [mxriww>#hezmh#n1#x}piv Teki#4#sj#4 %GEPGYPEXMSR#G %#VIJYRH#EQSYRXW#Jvsq#Wglihypi#E04 Small Large Choice Agg. Agg. General General Choice Small Agg. Small Large Resid. Service Service Resid. GS Resid. General General TR-1 TR-2 TR-3 Total 534<#Tsvxmsr '###### =;/3<9 '###### 55/489 '######## 4/9;5 '###### 47/8<; '######## ;/5<; '############## 57 '######## 5/;=; '############## <9 '######## 6/7<; '######## ;/9=; '######## 6/34< '#### 48=/<=< tivgirxeki 931;( 461=( 413( =14( 719( 313( 41;( 314( 515( 71<( 41=( 43313( Mrxiviwx '=;4 '555 '4; '479 ';6 '3 '5< '4 '68 ';; '63 '4/8== 534<#Tsvxmsr#T)M '=</38; '55/6;< '4/9<= '47/;66 ';/693 '58 '5/<58 '<9 '6/855 ';/;;7 '6/37< 494/7=; 534=#Tsvxmsr '###### =9/495 '###### 54/=78 '######## 4/989 '###### 47/77< '######## ;/54; '############## 57 '######## 5/;;3 '############## <8 '######## 6/787 '######## ;/957 '######## 5/=<= '#### 48</6;9 534<#Tsvxmsr# +'3133<3, +'313375, +'31335;, +'3133<8, +'31338=, +'3133;5, +'313389, +'313369, +'31334;, +'313345, +'313344, 534=#Tsvxmsr# +'3133;<, +'313375, +'31335;, +'3133<6, +'31338<, +'3133;4, +'313388, +'313368, +'31334;, +'313344, +'313344, Gsqfmrih#Wyvglevki +'31348<, +'3133<7, +'313387, +'31349=, +'313449, +'313476, +'313443, +'3133;5, +'313367, +'313356, +'313355, Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Forecast Total Volumes Volumes Volumes Volumes Volumes Volumes Volumes Volumes Volumes Volumes Volumes Volumes Ner#0#4= 5/646/=36 =64/63= ;5/5=3 658/<85 558/583 8<8 =6/73; 7/<43 5<=/797 99=/;6; 5;5/3=9 8/4=</;36 Jif#0#4= 5/398/554 <93/;5; ;5/=86 5=3/934 53;/4< ;/683 6/774 55;/833 89</ /876 7/8;7/63< Qev#0#4= 4/;44/87< 9<</<64 9</=85 573/;;= 498/3= /6<3 5/9;8 557/=45 8=</759 57;/858 7/346/989 Etv#0#4= 945, ,704 58, ,009 95, ,233 1, , , ,091 5/9=5/6;5 Qe}#0#4= 495, ,107 46,354 69,681 52, , , , ,587 4/<57/4;6 Nyr#0#4= 221, ,641 38,237 31,153 29, , , , ,509 4/599/67; Nyp#0#4= 194, ,350 34,643 27,359 26, , , , ,378 4/4=8/6<3 Eyk#4= 173, ,924 33,673 24,436 26, , , , ,361 4/589/647 Wit#0#4= 237, ,830 36,089 33,406 34, , , , ,165 4/5=</<63 Sgx#0#4= 705, ,888 40,665 99,245 74, ,339 1, , , ,418 5/4<5/;75 Rsz#0#4= 1,252, ,217 51, , , ,195 2, , , ,495 6/487/387 Hig#0#4= 2,012, ,701 66, , , ,710 5, , , ,765 7/9;</;3; Xsxep 45/65=/874 8/5<9/55= 953/5=5 4/;64/;44 4/587/459 6/755 83</498 56/<;9 5/39</;;4 9/;77/855 5/;97/=66 66/668/8<< Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Monthly Total Credits Credits Credits Credits Credits Credits Credits Credits Credits Credits Credits Refund Ner#0#4= '##### +4</735, '####### +6/=75, '########## +4=;, '####### +5/;;5, '####### +4/655, '############### +7, '########## +84=, '############# +4;, '########## +7=6, '########## +;;5, '########## +633, $ (28,742) Jif#0#4= +49/758, +6/977, +4==, +5/7;5, +4/549, +6, +6;7, +45, +6<;, +988, +565, (25,620) Qev#0#4= +46/945, +5/=49, +4<<, +5/37<, +=9=, +7, +68<, +43, +6<6, +9=3, +5;6, (21,450) Etv#0#4= +;/855, +4/9=5, +48=, +4/465, +894, +5, +579, +9, +63=, +9;3, +5;;, (12,575) Qe}#0#4= +6/=74, +=56, +459, +8=6, +639, +4, +484, +5, +556, +953, +5;4, (7,157) Nyr#0#4= +4/;94, +865, +437, +598, +4;9, +3, +8;, +5, +4;6, +8;9, +55=, (3,876) Nyp#0#4= +4/879, +79;, +=7, +566, +487, +3, +83, +5, +48=, +8<3, +549, (3,502) Eyk#4= +4/6<4, +7;3, +=5, +53<, +487, +3, +96, +5, +4<4, +94;, +58;, (3,426) Wit#0#4= +4/<<<, +955, +=<, +5<7, +536, +4, +98, +5, +4;3, +899, +55<, (4,127) Sgx#0#4= +8/947, +4/674, +444, +<77, +769, +5, +485, +7, +56=, +967, +583, (9,628) Rsz#0#4= +=/=8=, +5/658, +474, +4/7=5, +;7;, +6, +59<, +<, +64=, +979, +553, (16,128) Hig04< +49/339, +6/837, +4<3, +5/6<=, +4/449, +7, +854, +4=, +7<9, +;7<, +5=8, (25,268) Xsxep '##### +=</38;, '##### +55/6;<, '####### +4/9<=, '##### +47/;66, '####### +;/693, '############# +58, '####### +5/<58, '############# +<9, '####### +6/855, '####### +;/;;7, '####### +6/37<, '## +494/7=;, Current Beginning Month Ending Average Interest Monthly Balance Activity Balance Balance Rate Days Interest Ner04= '#### 48=/<=< +'5</;75, '464/489 '478/85; 51683( 64 '5=3 Jif04= 464/ /953, 438/86; 44</ ( 5< 546 Qev04= 438/86; +54/783, <7/3<; =7/< ( 64 4<= Etv04= <7/3<; +45/8;8, ;4/845 ;;/;== 51683( Qe}04= ;4/845 +;/48;, 97/688 9;/= ( Nyr04= 97/688 +6/<;9, 93/7<3 95/74; 51683( Nyp04= 93/7<3 +6/835, 89/=;< 8</;5= 51683( 64 44; Eyk04= 89/=;< +6/759, 86/885 88/ ( Wit04= 86/885 +7/45;, 7=/757 84/7<< 51683( 63 == Sgx04= 7=/757 +=/95<, 6=/;=9 77/ ( 64 <= Rsz04= 6=/;=9 +49/45<, 56/99= 64/; ( Hig04= 56/99= +58/59<, +4/8==, 44/ ( '494/7=;, 698 '4/8== 4133(

31 Qmglmker#Tyfpmg#Wivzmgi#Gsqqmwwmsr# Qmglmker#Kew#Yxmpmxmiw#Gsvtsvexmsr## MICHIGAN GAS UTILITIES CORPORATION M.P.S.C. No. 2 - GAS Gewi#Rs1#Y053643# I lmfmx#rs1#e07#+hnx06,# Third Revised Sheet No. D-1.03 Replaces Second Revised Sheet No. D-1.03 Continued from Sheet No. D-1.01 SECTION D RATE SCHEDULES D2. SUPPLEMENTAL CHARGES (contd.) Tax Cut And Jobs Act Calculation C Portion Credits This credit allows the Company to refund to customers the impact of the Federal Tax Cuts and Jobs act of 2017 for excess deferred taxes, bonus depreciation, etc. Customer s bills shall be adjusted by the Calculation C credits, per Mcf, on a service rendered basis. Effective Jan. 1, 2019 Effective to Dec. 31, 2019 Jan. 1, 2020 Rate Schedule credit per Mcf credit per Mcf Residential ($0.0158) ($0.0078) Small General Service ($0.0084) ($0.0042) Large General Service ($0.0054) ($0.0027) Transportation: TR-1 ($0.0034) ($0.0017) TR-2 ($0.0023) ($0.0011) TR-3 ($0.0022) ($0.0011) Aggregated - Residential ($0.0143) ($0.0071) Aggregated - Small General Service ($0.0110) ($0.0055) Aggregated - Large General Service ($0.0072) ($0.0035) Choice - Residential ($0.0169) ($0.0083) Choice - Small General Service ($0.0116) ($0.0058) Continued on Sheet No. D-2.00 Issued: By Theodore Eidukas VP - Regulatory Affairs Milwaukee, Wisconsin Effective for service rendered On and After: Issued Under Authority of the Michigan Public Service Commission Order Dated: In Case No.: U-20310

32 MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS PUBLIC SERVICE COMMISSION ENTRY OF APPEARANCE IN AN ADMINISTRATIVE HEARING This form is issued as provided for by 1939 PA 3, as amended, and by 1933 PA 254, as amended. The filing of this form, or an acceptable alternative, is necessary to ensure subsequent service of any hearing notices, Commission orders, and related hearing documents. General Instructions: Type or print legibly in ink. For assistance or clarification, please contact the Public Service Commission at (517) 2)'")$*0. $)'%-' #+.'" The #ommission will provide ')'&.,+*(& service of documents.* $(( +$,.'&- in this proceeding" THIS APPEARANCE TO BE ENTERED IN ASSOCIATION WITH THE ADMINISTRATIVE HEARING: Case / Company Name: Michigan Gas Utilities Corporation U Please enter my appearance in the above-entitled matter on behalf of: 1. (Name) Michigan Gas Utilities Corporation 2. (Name) 3. (Name) 4. (Name) 5. (Name) 6. (Name) 7. (Name) Docket No. Sherri A. Wellman Name One Michigan Avenue, Ste. 900 Address Lansing MI City State Zip Phone ( ) wellmans@millercanfield.com October 1, 2018 Date Ujgttk!C/! Ygnnocp Fkikvcnn{!ukipgf!d{<!Ujgttk!C/!Ygnnocp FP<!EP!?!Ujgttk!C/!Ygnnocp!gockn!?! ygnnocpuboknngtecphkgnf/eqo!e!?! WU Signature: Fcvg<!3129/21/12!27<38<66!.15(11( Save "#($!&'% Form " I am not an attorney " I am an attorney whose: Michigan Bar # is P- Bar # is: ( state ) EAHR1 - $*#&*#&$%(

33 MICHIGAN DEPARTMENT OF LICENSING AND REGULATORY AFFAIRS PUBLIC SERVICE COMMISSION ENTRY OF APPEARANCE IN AN ADMINISTRATIVE HEARING This form is issued as provided for by 1939 PA 3, as amended, and by 1933 PA 254, as amended. The filing of this form, or an acceptable alternative, is necessary to ensure subsequent service of any hearing notices, Commission orders, and related hearing documents. General Instructions: Type or print legibly in ink. For assistance or clarification, please contact the Public Service Commission at (517) 2)'")$*0. $)'%-' #+.'" The #ommission will provide ')'&.,+*(& service of documents.* $(( +$,.'&- in this proceeding" THIS APPEARANCE TO BE ENTERED IN ASSOCIATION WITH THE ADMINISTRATIVE HEARING: Case / Company Name: Michigan Gas Utilities Corporation U Please enter my appearance in the above-entitled matter on behalf of: 1. (Name) Michigan Gas Utilities Corporation 2. (Name) 3. (Name) 4. (Name) 5. (Name) 6. (Name) 7. (Name) Docket No. Paul M. Collins Name One Michigan Avenue, Ste. 900 Address Lansing MI City State Zip Phone ( ) collinsp@millercanfield.com October 1, 2018 Date Rcwn!Eqnnkpu Fkikvcnn{!ukipgf!d{<!Rcwn!Eqnnkpu FP<!EP!?!Rcwn!Eqnnkpu!gockn!?! eqnnkpurboknngtecphkgnf/eqo!e!?! WU Signature: Fcvg<!3129/21/12!27<39<26!.15(11( Save "#($!&'% Form " I am not an attorney " I am an attorney whose: Michigan Bar # is P- Bar # is: ( state ) EAHR1 - $*#&*#&$%(