S T A T E OF M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * *

S T A T E OF M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter of the application of DTE Electric Company ) for authority to increase its rates, amend ) its rates schedules and rules governing the ) distribution and supply of electric energy, and ) for miscellaneous accounting authority ) Case No. U- 0 ) QUALIFICATIONS AND DIRECT TESTIMONY OF PETER J. DERKOS MICHIGAN PUBLIC SERVICE COMMISSION July, 0

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART I 0 0 Q. Please state your name, address, and present position. A. My name is Peter J. Derkos. My business address is 0 W. Saginaw Hwy, Lansing, MI. I am employed by the Michigan Public Service Commission (MPSC) as a Public Utilities Engineer Specialist in the Electric Operations Section of the Operations and Wholesale Marketing Division. Q. Please provide your educational background and professional experience. A. I earned a Bachelor of Science Degree in Mechanical Engineering from Michigan Technological University in November of. Courses were completed that covered power generation and electricity in earning this degree. In September of, I started at the MPSC as a Tariff Analyst in the Electric Division. In May of 0, I transferred to the Engineering Section of the Electric Division. I have held positions of increasing complexity and responsibility to reach my current level and position, after various promotions and reorganizations. Q. What additional training have you received while employed at the MPSC? A. I have completed several training courses, workshops and seminars given by academic institutions, private consulting firms, electric trade organizations, and utility companies. These include the following: the National Association of Regulatory Utility Commissioners Annual Regulatory Studies Program, New Dimensions In Pricing Electricity, International Reliability Availability Maintainability Conference for the Electric Power Industry, Power Quality in Michigan, Great Lakes Electric Meter School, University of Wisconsin Stray Voltage Investigators Training Course, National Utility Stray Voltage

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART I 0 Symposium, the Development and Application of the National Electrical Safety Code (DANESC), and other conferences, seminars and classes. Q. What is your current area of responsibility? A. As a Public Utilities Engineer Specialist, I have responsibility regarding inquiries and complaints that may involve pole attachment, safety, NESC compliance, service quality and reliability, territorial disputes, line extension issues, major outages, tariff issues of a technical nature, power quality, and stray voltage. As part of these responsibilities, I provide expertise, investigations and expert testimony. I am also responsible for reviewing summer capacity issues, distribution system operation and maintenance, and distribution reliability performance. Q. Have you previously prepared testimony or testified before this Commission? A. Yes. I have provided a list on the following pages.

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART I Case Number Company Subject / Type 0 U-0 Thumb Electric Cooperative PSCR Plan U- Oceana Electric Cooperative TIER Mech. Implementation U-0 O & A Electric Cooperative TIER Mech. Implementation U- Ontonagon County REA TIER Mech. Implementation U- Cherryland REA TIER Mech. Implementation U- Alpena Power Rate Case U--R Consumers Power PSCR Reconciliation U--R Consumers Power PSCR Reconciliation U--R Consumers Power PSCR Reconciliation U-00 Upper Peninsula Power Rate Case U-0-R Consumers Power PSCR Reconciliation U-0 Consumers Power Rate Case U-0-R Consumers Power PSCR Reconciliation U-0-R Consumers Power PSCR Reconciliation U-0 MBM Pasch Farms vs Consumers Power Complaint U-00-R Consumers Power PSCR Reconciliation U- Kurtz Steel vs Detroit Edison Complaint U-00/U- Ameritech Michigan & Detroit Edison Safety, Service 0 U- Detroit Edison, Consumers Energy, Ameritech Michigan Commission s own motion on NESC violations U- Indiana Michigan vs Midwest Rule 0.

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART I U-0 Indiana Michigan vs Midwest Rule 0. U- Commission s motion / Detroit Edison Pole Attachment Tariff U- Tensen Family Farm vs Consumers Energy Stray Voltage Complaint U-0 Consumers Energy Request for Declaratory Ruling R 0. U- Daniel Nitoski vs Detroit Edison Complaint U- Detroit Edison Rate Case

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 Q. What is the purpose of your testimony? A. The purpose of my testimony is to present Staff s position and recommendations on DTE Electric s (DTE) proposed Distribution Operation and Maintenance (O&M) Expenses including specific recommendation for tree trimming, previously referred to as vegetation management. Q. Are you sponsoring any exhibits in this proceeding? A. Yes. I am sponsoring the following exhibits: () Exhibit S-.0 (DTE Electric Distribution O&M expenses) () Exhibit S-. (Tree Trim Expenses) () Exhibit S-. (Projected Operation and Maintenance Expenses) Q. Please summarize Staff s Distribution O&M recommendations. A. Staff is recommending that DTE Electric s proposed total distribution operation and maintenance expenses be based on a five-year average of past spending levels with adjustments for inflation, storm restoration, preventative maintenance and tree trimming. Staff s recommendation is $,0,000 for the projected test year. Q. Why did Staff use a five-year average of distribution O&M expenses for a basis of Staff s calculation? A. Staff recommends a five year average of recent historical dollars because they reflect what DTE Electric has actually spent. Staff looked at recent spending by DTE Electric in the years 0 and 0; DTE Electric s spending showed a significant drop in those years from previous levels. Staff believes that before a significant increase in spending is allowed to improve reliability, DTE Electric

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 should demonstrate a consistent year-to-year level of increased spending. Staff found the five-year average of distribution O&M spending to be a more reasonable starting point than the recent level of 0 spending. Q. Did you quantify the total distribution operation and maintenance (O&M) dollars that were reported in FERC Form by DTE Electric? A. Yes. Exhibit S-.0 has DTE Electric s distribution operation and maintenance dollars from 0 to 0. The 0 total of $0,, is the highest in the five year period and approximately $M higher than the 0 total of $,,. The 0 total is approximately $0M higher than the five year average of $,,0. Q. Did you make any changes to the historic dollars used in the five year average? A. Yes. I first acknowledged a change to the 0 account. I eliminated expenses recovered through the Transitional Reconciliation Mechanism, as acknowledged by DTE Electric in a rate case adjustment on page of of Exhibit A-0, Schedule C.. I then inflated the yearly dollars to make each year equivalent to a 0 year. Q. Why did Staff inflate the yearly dollars? A. An inflation adjustment makes the numbers comparable to the current time period and to be consistent with the prior rate case, U-, in which the Commission supported an inflation calculation by the ALJ. Q. Does this five-year average represent Staff s starting point for calculating a projected test year number?

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 A. Yes. Staff took the inflated historic five-year average for each of the Form accounts and totaled them as a start point for projecting the test year numbers. Q. Does Staff have an exhibit showing the inflated O&M expenses with comparison to the as-reported FERC Form accounts? A. Yes. Staff Exhibit S-.0 shows historical 0 0 distribution O&M dollars that were inflated. The actual distribution O&M dollars that were reported in FERC Form are on a line below the table. The inflation percentages used by Staff to inflate historical dollars are provided near the bottom of the exhibit. Q. Once you had these starting point numbers how were the projected test period numbers calculated? A. I made adjustments to the distribution O&M accounts for inflation in 0 and 0. I then made further adjustments for additional tree trimming, outage restoration savings, and preventative maintenance. Q. Please explain the adjustment you made for tree trimming? A. Staff calculated its tree trimming dollars by using the number of miles DTE Electric proposed to trim in test years 0 and 0 and multiplied it by the respective inflated 0 actual DTE tree trimming unit cost. On Table, at page of DTE witness Paul Whitman s testimony, he reported the actual average tree trimming cost per mile for 0. I inflated the tree trimming cost per mile for the projected test year. I then applied the inflated unit cost to the miles that DTE Electric plans to trim during the test year. The mileage is from the same DTE Electric Table. The product of the unit cost and mileage is the basic routine maintenance tree trimming cost.

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 Q. What other costs are included as part of Staff s recommended tree trimming cost? A. In the last rate case, U-, Staff recommended, and the Commission approved a hazardous tree removal program. Staff continues to support this additional tree trimming maintenance program. In its filing DTE Electric included this cost within its trouble tree trimming program. Staff has reviewed this program and discussed it with DTE Electric. Staff finds it to be reasonable and believes it should continue to be added to the tree trimming expense with similar inflation adjustment. Staff believes this program to be a benefit to DTE Electric s system reliability improvement. Q. Do you have an exhibit showing Staff s recommended projected tree trimming expenses and its calculation? A. Yes. I have prepared Exhibit S-. for that purpose. Lines and show the miles and the dollars per mile, and when multiplied provides the basic tree trimming amount (adjusted for inflation), as shown on line. Line shows the trouble tree trim expense (adjusted for inflation). The $,,000 shown at the end of line column (i) is the total projected test period tree trimming expense recommended by Staff. Q. Can this dollar amount be compared to DTE Electric s projected tree trimming dollar amount to calculate a tree trimming expense adjustment? A. No. Staff s tree trimming spending recommendation is not intended to lead to an adjustment of DTE Electric s projected amount (line Exhibit A-0 Schedule C.). Rather, Staff intends it to lead to an adjustment of what the Company actually spent in 0. Essentially, for tree-trimming Staff does not support use

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 of a projected test year approach. Staff prefers to use a historical test period, that being the 0 historical test year. Staff is recommending an amount above what the Company actually spent in 0 and it is the additional amount that Staff considers an adjustment. Staff s recommendation also should not be compared to a DTE Electric tree trimming projection adjustment (line Exhibit A-0 Schedule C.) which is for regulatory asset treatment. Q. How do you include your tree trimming adjustment into your O&M recommendation? A. I am applying this adjustment to FERC account on Exhibit S-.. Account is one of the line items in the distribution O&M expenses I described earlier in my testimony. Q. Why did you apply your adjustment to this particular account? A. Account is for the maintenance of overhead lines. Tree trimming expense is included in this account along with other maintenance items. Q. Did you inflate account in calculating a test year amount? A. Yes. I inflated account and all of the distribution O&M accounts. It is shown in columns (d) and (e) on Exhibit S-.. Q. In calculating Staff s recommended tree trimming amount did you also include inflation in the calculation. A. Yes. I describe that in earlier testimony. Q. Is inflating the tree trimming amount that is in the account and then inflating the total account effectively inflating tree trimming twice?

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 A. Yes. Staff recognized that it would be inflated twice if no adjustment was made. Therefore, I calculated the inflation amount of tree trimming so it can be subtracted resulting in a single inflation. The 0 and 0 inflation amounts to be subtracted are shown on the bottom right of Exhibit S-.. Q. Please summarize the tree trimming adjustment. A. Staff s recommended tree trimming expense is $,,000 as explained earlier. DTE Electric s actual 0 tree trimming expense was $,00,000 plus trouble tree trimming expense of $,000,000, which totals $,00,000. The simple difference between Staff and DTE Electric dollars is $,,000. Because both categories were adjusted for inflation, it is necessary to discount the amount by $,,000, to eliminate double inflation. This amount should be subtracted from the simple difference resulting in a tree trimming adjustment of $,,000. It is the additional amount that DTE Electric should spend on tree trimming above what they spent in 0 for that purpose. Q. Are you recommending DTE Electric spend more on tree trimming than they did in 0? A. Yes. Staff recognizes that DTE Electric will have to spend more than they did in 0 if they are to trim more miles in subsequent years. Q. In addition to inflation and tree trimming, what other adjustments did you make on Exhibit S-.? A. I made adjustments for service restoration cost savings and for preventative maintenance. Q. Please explain your recommended adjustment to restoration costs. 0

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 A. Staff believes that the proposed increased maintenance done now, afforded by its increased spending recommendation will reduce future maintenance costs, through less outages to restore. The reduced costs will grow as DTE Electric completes the increased tree trimming maintenance on more of its system. The company should be realizing savings on the portions of the system they have already completed. DTE Electric estimates that these reduced restoration costs may be up to $M, as shown at page of Paul Whitman s testimony, when the Company reaches steady state on enhanced tree trimming. Staff made a conservative estimate that the yearly savings will be about 0% of DTE Electric s estimated savings spread over a ten-year period. Staff recognizes that these are estimates and are difficult to predict, but maintains that an adjustment for savings should be made. Therefore, Staff used a round figure of $.M savings that DTE Electric should see in the projected test year. Q. Please explain the preventative maintenance adjustment. A. These are the numbers on lines and of column (g) on Exhibit S-. for maintenance of station equipment and underground lines. DTE Electric has explained various equipment related outage problems especially related to aged equipment. DTE Electric should not replace equipment simply because of aging infrastructure. Until it becomes economical to replace equipment or until it suffers unacceptable reliability it will have to be maintained. Staff finds DTE Electric s requested adjustment to be reasonable and it has been included in Staff s recommended adjustments. Q. Do you have any other changes to DTE Electric s distribution O&M expenses?

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II 0 0 A. No. I have discussed the historical inflation, rate case inclusion, the projected future inflation, tree trimming, restoration savings, and preventative maintenance. Q. How did Staff address the regulatory asset treatment of tree trimming as proposed by DTE Electric in calculating operation and maintenance expense? A. Staff continues to maintain the position that enhanced tree trimming work is a matter of expanded routine maintenance to be expensed not capitalized. This position was supported by the Commission in the last rate case, U-. Staff is confident that Staff s proposal to not capitalize tree trimming expenses and to include those costs in O&M expenses is consistent with and in accordance with the Commission s finding in the last DTE rate case. Q. Staff s recommended O&M amount of $,0,000 appears to be more than DTE Electric s $0,,000 (A-0, C., of ). Is Staff recommending an amount more than the company requested? A. No. These two numbers cannot be directly compared. Staff did not give tree trimming regulatory asset treatment, whereas DTE Electric did. Therefore, tree trimming expense is included wholly within Staff s recommended distribution O&M dollars, whereas it is only partially in DTE Electric s distribution O&M number. This causes Staff s O&M number to be higher than DTE Electric. Q. Will the regulatory asset treatment affect other parts of the rate case? A. Yes. Staff s case reduces distribution capital, by removing the tree trimming regulatory asset, which is explained by other staff witnesses. Q. Please summarize Staff s O&M testimony recommendation?

DIRECT TESTIMONY OF PETER J. DERKOS CASE NUMBER U-0 PART II A. Staff recommends a total distribution operation and maintenance expense for the projected test period of $,0,000, inclusive of a recommended tree trimming expenditure of $,,000. The total O&M amount starts with a five year historical expenditure, inflates that to current base year, and includes inflation for the projected period, makes a restoration cost saving adjustment, a preventative maintenance adjustment and an adjustment for increased tree trimming. Q. Does that conclude your testimony? A. Yes, it does.

S T A T E OF M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter of the application of DTE Electric Company ) for authority to increase its rates, amend ) its rates schedules and rules governing the ) distribution and supply of electric energy, and ) for miscellaneous accounting authority ) Case No. U- 0 ) EXHIBITS OF PETER J. DERKOS MICHIGAN PUBLIC SERVICE COMMISSION July, 0

Case No: U-0 Exhibit: S-.0 Witness: P.J. Derkos Page: of STAFF'S INFLATION OF DTE ELECTRIC DISTRIBUTION O&M EXPENSES TO A 0 BASE YEAR as inflated 0 0 0 0 0 year Average. DISTRIBUTION EXPENSE Operation (0) Operation Supervision and Engineering,0,,0,,,,, 0,0,0,, () Load Dispatching,,,,,,,,,,,,0 () Station Expenses,,,, 0,,00,,0,,,0, () Overhead Line Expenses,,,0,,,,,,0,0,0, () Underground Line Expenses,0,,0,0,,0,00,,,,, () Street Lighting and Signal System Expenses 0 () Meter Expenses,,00,,,0,0,,00,0,0,0, () Customer Installations Expenses, 0, 0, 0,,, () Miscellaneous Expenses,0,,00,,,0,, 0,00,,, () Rents,, 0,,,,,,0,0, TOTAL Operation (Total of lines thru ),,0,,0,,,,,,00,0,0 Maintenance (0) Maintenance Supervision and Engineering,0,,,,,,,,,0,, () Maintenance of Structures,,,,,0,0,,0,,,, () Maintenance of Station Equipment,,,,,0,0,0,0,0,,, () Maintenance of Overhead Lines,,,,0,0,,,0,,,, 0 () Maintenance of Underground Lines,,0 0,,0 0,,,,0,,,, () Maintenance of Line Transformers () Maintenance of Street Lighting and Signal Systems,,0,0,,0,0,,,0,,0,0 () Maintenance of Meters () Maintenance of Miscellaneous Distribution Plant TOTAL Maintenance (Total of Lines thru ),0,,,,, 0,0,,,,, TOTAL Distribution Expenses (Total of Lines & ) 0,0,,0,,, 0,,,,,0, Total Distribution Expenses as reported in Form,,0,0,0 0,, 0,,,,,,0 total inflation,, dte yrs dist o&m 0 0 0 0 0 Inflation single year.0%.%.% 0.0%

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-. Staff's Projected Operation and Maintenance Expenses Witness: P.J. Derkos Tree Trim Expenses (000) Page: of (a) (b) (c) (d) ( e) (f) (g) (h) (i) // - // - Staff // // Line Projected Projected Projected Projected No. Description 0 0 CY 0 0 CY 0 Test Period Test Period Actual (Table ) Inflation Inflation COMPANY STAFF Expense,00 Trim Miles (Table ),,0, Unit Cost inflated($/mi),0.%,.%, Trim Expense (000),,. trouble tree inflated,000.%,0.%, Total Tree Trim Expenditures (000),,,0 difference, Co - Staff, 0 Line - DTE's projected tree trim miles from Table (PDW-) Line, column (b) from Table Line, columns (d ) & ( f) inflate column (b) Line multiplies lines & Line not included in Table (PDW- lines -) Line staff CY sums and projected test period Projected Test PeriodYear - months 0 / months 0 U0 VM BB

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-. Staff's Projected Operation and Maintenance Expenses Witness: P.J. Derkos Distribution Expenses Page: of ($000) (a) (b) (c) (d) (e) (f) (g) (h) (i) Projected Adjustments year // - // - average // // Restoration Other Total Line INFLATED Inflation Adj Inflation Adj Adjustment Adj Projected Projected No. Description Account 0-0 / / / / Adj Test Period Distribution Expenses Miscellaneous Transmission Expenses Operation Supervision and Engineering 0, 0 0,0, Load Dispatching,, Station Expenses,0, Overhead Line Expenses,0, Underground Line Expenses,, Street Lighting and Signal System Exp Meter Expenses,0 0 0,0 0 Customer Installations Expenses 0 Miscellaneous Expenses, 0,0 Rents,0, Total Operation Expense,0,,, 0,0 Maintenance Maintenance Supervision and Engineering 0,, Maintenance of Structures,,0 Maintenance of Station Equipment,,0,, Maintenance of Overhead Lines,,0, (,00),,,0 Maintenance of Underground Lines,,00,0 0, 0 Maintenance of Line Transformers Maintenance of Street Lighting and,0, Signal Systems Maintenance of Meters Maintenance of Misc Distribution Plant Total Maintenance Expense,,, (,00),,, Total Operation and Maintenance Expense,0,0, (,00),,,0 / Inflation Adjustment: // // DTE,0 // // Staff,0 Annual Rate.%.%, No. of Months in Period 0 Pro-rated Inflation Rate.%.0% / Savings from reduced restoration costs after increased O&M,00 / Other Projected Adjustments: Account Amount Tree Trim Adjustment Inflation of VM Preventative Maint. (Exh. A-0 C. p. ),0 Staff proj TY, Already in Acc Preventative Maint. (Exh. A-0 C. p. ),00 0 Actual,00 0 Tree Trim- Staff 0 TY minus 0 actual, Adjustment, 0 0 Less inflation on VM already in total acc (,),, Start with Actuals in ( c), inflate for (d) & ( e), add adjustments. U0 stand alone dist o&m A0 C of staff with yr ave start INFLATED TT Adj- Staff # from Ex. S-., DTE Electric 0 actual plus trouble tree

S T A T E OF M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter of the application of DTE ELECTRIC COMPANY ) for authority to increase its rates, amend ) Case No. U- 0 its rate schedules and rules governing the ) distribution and supply of electric energy, and ) for miscellaneous accounting authority. ) ) QUALIFICATIONS AND DIRECT TESTIMONY OF CODY S. MATTHEWS MICHIGAN PUBLIC SERVICE COMMISSION July, 0

QUALIFICATIONS OF CODY S. MATTHEWS CASE NUMBER U-0 PART I 0 0 Q. Please state your full name and business address for the record. A. My name is Cody S. Matthews. My business address is 0 W. Saginaw Hwy., Lansing, Michigan. Q. By whom are you employed and in what capacity? A. I am employed by the Michigan Public Service Commission (MPSC or Commission) as a Public Utilities Engineer in the Smart Grid Section of the Operations and Wholesale Markets Division (OWMD). In this position I perform technical analyses and evaluate the prudency and reasonableness of regulated utility companies investments and operating expenses. Q. Would you please outline your educational background? A. I earned a Bachelor of Science degree in Engineering from Michigan State University in 0. Q. Would you please outline your professional background? A. In 0 I began working for the MPSC in the Smart Grid Section. I review sections of utility rate case filings that pertain to smart grid, advanced metering infrastructure (AMI), automated meter reading (AMR), information technology (IT), and cyber-security. Q. Have you received any work-related training since starting your employment with the MPSC? A. Yes. I have attended several programs hosted by the Institute of Public Utilities at Michigan State University including Introduction to Public Utility Regulation, the full two-week fundamental course, and the Advanced Regulatory Studies Program, as well as the Michigan Forum on Economic Regulatory Policy.

QUALIFICATIONS OF CODY S. MATTHEWS CASE NUMBER U-0 PART I Additionally I have participated in numerous conferences and tabletop exercises centering on cyber-security issues. Q. Have you previously testified before the Commission? A. Yes, I have testified in in the following Cases: - No. U-, DTE Energy s general electric rate case - No. U-, DTE Gas Company s gas rate case I have also assisted in testimony and analysis with the following case: - Case No. U-, Consumers Energy s general electric rate case

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 Q. What is the purpose of your testimony in this proceeding? A. The purpose of my testimony is to present the Michigan Public Service Commission Staff s (Staff) recommendation regarding DTE Electric Company s (DTE or Company) request for recovery of Advanced Metering Infrastructure (AMI), demand response, IT, and cyber-security expenditures for the test year. Q. Are you sponsoring any exhibits in this proceeding? A. Yes, I am sponsoring the following exhibits: Exhibit S-0.0 Smart Grid Reporting Metrics Exhibit S-0. DTE Electric Company Audit Response CSM-. () Exhibit S-0. DTE Electric Company Audit Response CSM-. () Exhibit S-0. DTE Electric Company Audit Response CSM-. () Exhibit S-0. DTE Electric Company Audit Response CSM-. () Exhibit S-0. DTE Electric Company Audit Response CSM-. () Exhibit S-0. Shared IT Infrastructure Staff Adjustment Q. Were these exhibits prepared by you or under your supervision? A. Yes. Smart Grid Q. Please provide a brief description of the Company s AMI installation efforts. A. In 00, the Company began pilot installation of the AMI meters. In 00 the Company received recovery of cost associated with the installation of the AMI meters. These meters use wireless technology to transmit interval data to the Company for billing purposes, as opposed to the monthly meter reads the Company obtains from physical visits to the meter. The interval data AMI meters

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 provide can be utilized for a number of customer programs and benefits including improved bill accuracy, a reduction in estimated bills, improved reliability, reduced theft, and outage prevention. The Company plans to install 0,000 meters in 0, and,000 in 0 to complete AMI installations. Q. Does Staff have any adjustments to make to the Company s test year expenditures for the AMI program? A. No, Staff has no adjustments to the Company s test year expenditures. Q. Does Staff consider the Company s AMI capital and O&M expenditures reasonable and prudent? A. Generally speaking, yes. Staff acknowledges the growing costs of improving the electric grid and recognizes that AMI is just one way for the Company to monitor and improve grid resiliency. Staff has evaluated the Company s cost benefit analysis, purchasing, and installation costs and considers the associated AMI costs to be prudent at this time. It is Staff s position, however, that a continuous evaluation of the reasonableness of such expenditures is necessary in light of the field s rapidly changing technology. Additionally, Staff believes it is important for the Company to provide accountability for their AMI/smart grid investments as identified by the Company s benefit projections. Therefore Staff recommends that the Company provide annual smart grid reporting metrics in order to provide assurance to the Commission that the increasing spending by the Company is accompanied by commensurate associated benefits of the technology chosen. Q. What is meant by the Company s benefit projections?

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 A. In case number U-, the Company received cost recovery of its AMI program and the Commission concluded that the cost of Company s Advanced Metering Infrastructure program [was] just, reasonable, and in the public interest. (Commission Order U- p..) This was due in part to the Company s cost-benefit analysis which demonstrated a $. million net benefit of the electric portion of the program showing that the program would have more benefits to the ratepayers then it would cost in total. In 00 the Company provided testimony and a supplemental white paper entitled DTE Energy Smart Grid White Paper to the Michigan House Energy & Technology Committee with a focus on the benefits of smart grid improvements and the Company s future vision of a smarter grid. The supplemental white paper describes both the benefits of smart grid as well as the challenges of implementing it: Rapidly changing technology presents an additional challenge as generations of equipment become obsolete in as little as -0 years and need to be replaced. Pacing the timing and extent of our investments to maximize benefit to our customers and the Michigan economy will be imperative. (DTE white paper, p. ). This paper is an example of the Company s focus on the many benefits of AMI and smart grid. Subsequently, DTE has referenced multiple company-wide and customer benefits of AMI in its rate case filings where smart grid investments (such as AMI) and distribution improvements are included. http://efile.mpsc.state.mi.us/efile/docs//0.pdf https://legislature.mi.gov/documents/00-00/committeedocuments/house/energy%0and%0technology/committee%0bill%0record/comm ittee---00-.pdf

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 Q. Please describe the proposed smart grid reporting metrics. A. Staff recommends that the Company provide annual reporting metrics identified in Staff Exhibit S-0.0. Staff understands the Company s desire to invest in a smarter and more modern grid. Staff also recognizes that this investment represents a significant cost to ratepayers. As described by the Company in its 00 supplemental white paper, the implementation of smart grid needs to be paced in order to maximize the benefits to customers. For Staff to fully analyze and track the progression to a smarter grid to ensure benefits are maximized, metrics are a logical accountability mechanism for the Company to provide. The proposed metrics will provide information needed to help the Commission determine how upgrades to the Company s electric grid are delivering benefits to both the customers and the Company. The metrics will help measure the Company s performance on issues including reductions in peak energy demand, the increased adoption of demand response, and the increasing use of smart devices on the grid. These metrics will utilize the previous year s metrics data as a baseline, therefore demonstrating the progress the Company has made with the previous year s approved expenditures for enabled technology. Q. Do these reporting metrics differ from those proposed by Staff in DTE Gas case U-? A. No, Staff has made no substantive changed to the proposed smart grid reporting metrics. Q. Does Staff have any other comments or clarifications regarding the proposed smart grid reporting metrics?

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 A. Yes. Staff has included the proposed metrics in both of the Company s current gas and electric rate cases. It is Staff s intention for the Company to have a single report encompassing DTE Gas, DTE Electric, and customer service. Staff also believes that a single annual report based on a calendar year with a review of the metrics to allow for removal of unnecessary (or the addition of new) metrics is appropriate. Q. Does Staff have any recommendations concerning the Company s revised AMI opt-out charges? A. Yes. Staff agrees with the Company that updated AMI opt-out charges should not be implemented at this time. Staff believes that after full deployment of the AMI meters is complete, and more is known about the actual number of opt-out customers, the opt-out charges should be reassessed and updated at that time. Demand Response Q. In general, what is Staff s outlook on the Company s demand response programs? A. Staff is supportive of the Company s demand response (DR) efforts. Staff believes that the proposed programs can have a multitude of benefits to both ratepayers and the Company. Staff s opinion is that a cautious approach to demand response should be taken to ensure the benefits of the proposed programs come to fruition. Under the current regulatory paradigm, a utility proposes capital and operational spending on DR, and after careful analysis, it may be approved for rate recovery. However, the result from a well-functioning DR program is a reduction in customer demand that defers future capital investment in peakserving generation plants. For this reason, the utility is incentivized to not use

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 their DR program and instead pursue that same capital investment in peak-serving generation. The current regulatory structure encourages utilities to invest in DR infrastructure and marketing, but not to actually use the programs once they are created. In other words, it is advantageous for a utility to build a tool, but disadvantageous to use it. Company-specific, measured, and enforceable metrics/goals for both program inputs (i.e. program/name recognition, customer participation) and outputs (i.e. coincident peak demand reduction, avoided capacity investment) will mitigate the incentive problem facing the utility. Staff s opinion is that metrics/goals can be used to show that the Company is fully utilizing the DR programs and technologies that it has chosen to invest in. Q. Has Staff included Company-specific metrics/goals for demand response in this case? A. No, Staff has not included a set of metric/goals specific to DR in this case. Staff has included some of the above mentioned metrics in its proposed smart grid metrics as they relate to both a smarter grid and DR. Staff believes this will mitigate a portion of the previously mentioned incentive problems facing the utility. Staff s opinion is that until the time that DR specific metrics are developed, a cautious approach for DR should be taken. Q. Please describe the Company s demand response programs. A. The Company has proposed capital investment in three distinct DR programs in this case. These programs include the Interruptible Air Conditioning (IAC) program, the DTE Energy Insight program, and Programmable Communicating Thermostats (PCT). The IAC program is a 0-year capital investment plan with

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 the goal of upgrading the program s infrastructure from a one-way radio system to a two-way ZigBee enabled communication system. The Company plans on replacing 0,000 switches per year for the duration of the 0 year program to complete the upgrade. The DTE Energy Insight program focuses on the DTE insight mobile application, as well as energy bridges to allow customers to view real-time data from the mobile app. The energy bridge is a small device the customer can request from DTE that accesses the data on the customers AMI meter. This device displays customer information on the mobile application, thus allowing the customer to view real time data on their electrical usage. The Company plans to purchase and distribute 0,000 energy bridges to customers through the test year. The PCT program is based on the results the Company observed in its SmartCurrents pilot program in 00-0. The Company plans to enroll 0,000 customers each year for the next years under this program. Q. Does Staff have any recommendations concerning the Company s Capital spend on these DR programs? A. Yes, Staff is recommending a disallowance of $. million from the Company s request for energy bridges. Q. Please explain Staff s recommendation. A. As previously mentioned, Staff encourages the Company to pursue DR, but believes that the Company should show that there is a demand from customers for the energy bridges, and that the technology is being utilized. In order for a customer to take advantage of the energy bridge the customer must also be a user of the Company s mobile application. Consequently, Staff believes it is

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 appropriate at this time to limit the number of energy bridges the Company can purchase to the number of customers utilizing the Company s mobile application. As shown in Staff Exhibit S-0., during the month of February the Company had roughly,000 customers log into their mobile application. Therefore staff recommends that the commission limit the Company to purchasing,000 energy bridges total during 0, and through the test year. Q. Please explain why Staff recommends limited the Company to purchasing,000 energy bridges? A. As shown in Staff Exhibit S-0., the Company has previously purchased,000 energy bridges. Staff s recommendation is for the Company to have,000 energy bridges total meaning the Company will need to purchase,000 energy bridges to reach Staff s recommendation of,000. Q. Why does Staff feel it is appropriate to limit the number of energy bridges to the number of customers currently utilizing the app without including new customer downloads? A. Staff recognizes that the amount of customers logging into the mobile application is not a static number and that it has the possibility to grow in the future. Staff also recognizes that the Company currently has a large number of energy bridge devices in the field that have never been installed. As shown in Staff Exhibit S- 0., the Company estimates that % of customers that request an energy bridge never install them. While the Company is currently starting a recovery process as shown in Staff Exhibit S-0., Staff believes that the recovered energy bridge devices should be utilized for any new customer requests for the energy bridges 0

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 0 over the,000 until the Company has shown to the Commission that customers are actively requesting and utilizing the energy bridge devices. Staff s goal is not to limit the size of the program, but instead to ensure that the Company is utilizing the technology. Staff s opinion is that when the Company has shown the Commission that customers are engaged in the program, the Company should at that time request more energy bridges. Q. Does Staff have any other concerns regarding the Company s proposed DR programs? A. Yes, Staff has concerns regarding the Company s programmable communicating thermostat program. As mentioned previously Staff is supportive of the Company s DR programs but understands that the Company is incentivized to capitalize on programs and dis-incentivized to utilize those programs. Therefore, Staff believes that the Company should limit the amount of thermostats purchased to the 0,000 proposed in the test year until the time that the Company has shown that customers are enrolling in, and that the Company is utilizing the program. Information Technology Q. Please describe Staffs opinion of the Company s Information technology (IT) expenditures. A. Staff performed analysis on the Company s IT projections and spending and has found it to be generally prudent. Q. Please explain what is meant by generally prudent? A. Through its analysis Staff has found that the programs presented by the Company are necessary and prudent, but it is Staff s opinion that the costs associated with

DIRECT TESTIMONY OF CODY S. MATTHEWS CASE NUMBER U-0 Part II 0 the Company s shared IT infrastructure projections vary greatly by year. Therefore, Staff is recommending a disallowance of $. million in capital expenditures from the shared IT infrastructure line item to normalize the Company s projections. Q. Please describe Staff s recommendation. A. Through its analysis Staff found that the Company s shared IT infrastructure cost varies by nearly double each year. Company Exhibit A- Schedule B. Line shows the costs of shared IT infrastructure going from $. million in the 0 historical year down to $. million in 0, then back up to $. million in 0. Staff found this to be largely due to the Company s telecom replacement as shown in Staff Exhibit S-0.. As described in Staff Exhibit S-0., Staff arrived at its adjustment to telecom costs by taking a three year average of the actual telecom costs the Company incurred from 0-0, and using that number for 0, and the test year. Q. Does this conclude your testimony? A. Yes.

S T A T E OF M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * In the matter of the application of DTE ELECTRIC COMPANY ) for authority to increase its rates, amend ) Case No. U- 0 its rate schedules and rules governing the ) distribution and supply of electric energy, and ) for miscellaneous accounting authority. ) ) EXHIBITS OF CODY S. MATTHEWS MICHIGAN PUBLIC SERVICE COMMISSION July, 0

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-0.0 Smart Grid Reporting Metrics Witness: C.S.Matthews Page of Smart Grid Reporting Metrics Annual Report The Company will provide a written annual report to the MPSC Staff on the advancement of their grid improvements. The metrics are intended to show yearly development with the Company s implementation of grid improvements. The report will include but is not limited to the flowing metrics:. Number of electric AMI meter failures. Number of gas AMI module failures. Number of AMR module failures. Electric AMI meter read rate. Gas AMI meter read rate. AMR meter read rate. Number of meters replaced before the end of their useful life. Percentage of theft reduced due to AMI meters. Number of theft incidences identified through AMI 0. Number of OSHA recordable injuries reduced. Number of customers requesting to opt out of AMI. Number of customers actually opting out of AMI. Number of customers requesting to opt out of AMR. Number of customers actually opting out of AMR. Number of customers enrolled in dynamic peak pricing (DPP)/time varying rates (TVR). Estimated load reductions enabled by DPP and TVR. Frequency and dates of DPP events called. Average load reduction per customer during each DPP, and TVR events. Actual load reductions per event due to DPP and TVR events 0. Number of customers enrolled in interruptible load programs. Estimated peak reductions do to interruptible load programs. Actual peak reductions do to interruptible load programs. Frequency, dates, and weather data of interruptible load programs events called. Average load reduction per customer during each interruptible load events. Number of AMI net metering customers. Number of customers enrolled in pay as you go programs. Amount of arrearages reduced as a result of pay as you go programs. Percentage of distribution lines using sensing information to perform volt var controls. Percentage of distribution lines that are monitored (DSCADA) 0. Percentage of distribution lines that are automated. Percentage of capacitor bank controllers installed. Percentage of substations capable of automatic looping July, 0

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-0.0 Smart Grid Reporting Metrics Witness: C.S.Matthews Page of. Customers Experiencing Long Interruption Duration (CELIDx). Customers Experiencing Multiple Interruptions X (CEMIx). System Average Interruption Duration Index (SAIDI). System Average Interruption Frequency Index (SAIFI). Outage minutes avoided due to AMI meters. Number of outage minutes avoided due to automated switches. Number of customer outages avoided due to automated switches 0. Meter reader headcount. Number of estimated bills by month. Number of customers that have viewed their data from the web portal, and DTE Insight App. Number of customers that have downloaded their data July, 0

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-0. DTE Electric Company Audit Response CSM-. () Witness: C.S.Matthews Page of Michigan Public Service Commission Auditor: C. S. Mathews DTE Electric Company Audit Request No: CSM-. () Case No. U-0 Date of Request: //0 Respondent: T. M. Uzenski Date of Response: /0/ Page: of Request:. What percentage of customers currently utilize the Company s web portal? Response: During the month of February 0, the following number of customers logged into the Web portal to conduct various transactions such as account inquiry, bill pay, payment plan enrollment, and communication subscription:,0 customers logged into the Web application, customers logged into the Mobile application The above data is based on number of unique sign-ins (meaning a customer was counted only once even if they logged in multiple times). This data includes both electric and gas customers so it is not possible to develop a percentage of customers. July, 0

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-0. DTE Electric Company Audit Response CSM-. () Witness: C.S.Matthews Page of Michigan Public Service Commission Auditor: C. S. Mathews DTE Electric Company Audit Request No: CSM-. () Case No. U-0 Date of Request: //0 Respondent: I. M. Dimitry Date of Response: /0/ Page: of Request:. Does the Company plan on continuing to give out Energy Bridge devices only on customer request? If not, what are the Company s plans for future distribution of Energy Bridge devices? Response: At this point, customer request remains the only process for adoption of Energy Bridge devices. Based on current experience, within the group of customers who request and receive a bridge, the Company estimates that approximately % of those customers do not install the bridges. Sending bridges to customers who do not request the bridge may result in a higher percentage of uninstalled bridges. Although customer request is the only process for adoption, the Company has been continuously marketing the DTE Insight app and energy bridge devices to encourage customer adoption and utilization. DTE Electric may evaluate other potential alternative options in the future. July, 0

Michigan Public Service Commission Case No.: U-0 DTE Electric Company Exhibit: S-0. DTE Electric Company Audit Response CSM-. () Witness: C.S.Matthews Page of Michigan Public Service Commission Auditor: C. S. Mathews DTE Electric Company Audit Request No: CSM-. () Case No. U-0 Date of Request: //0 Respondent: I. M. Dimitry Date of Response: // Page: of Request:. How does the Company plan on addressing the estimated % of customers that request energy bridges and never install them? Response: The Company has and continues to experiment with strategies to reduce the number of customers who receive the device and never install the device. One of these strategies is a communication plan that includes multiple reminders to encourage customers to install the device. A second strategy attempted was an incentive approach to motivate customers to install the bridge. In this experiment we offered a range of $ to $ incentives to 0 customers to encourage them to install the bridge. Future experiments will include variations of the above as well as new experiments in an attempt to improve the number of devices that get installed. The Company has also started a recovery process for those customers who continue to hold an uninstalled energy bridge and are not responding to our follow up communications encouraging them to install the device. Those returned energy bridges would then be redeployed to fulfill new requests. July, 0

Michigan Public Service Commission DTE Electric Company DTE Electric Company Audit Responce CSM-. () Supplimental Case No.: U-0 Exhibit: S-0. Witness: C.S.Matthews Page of U-0 CSM. () Supplemental ($000) Shared IT Infrastructure 0 0 0 0 0 0 Endpoint Devices & Software (A),,,,, Servers,,,,,, Telecom,,,,, Cyber Security Infrastructure,00 Total,0,,,0,, Year over Year Change,, (,),0-0 0 Variance to Prior Year Endpoint Devices & Software (A), end of life replacement, Desktop licenses of $.M, partially offset by lower number of endpoint replacements Servers, support growth and new systems Telecom, end of life replacement (,) Lower number of end of life replacements,, 0 0 Endpoint Devices & Software (,) Capital constraints caused delays in purchases,0 Return to normal spending patterns based on life cycle targets Servers () () Telecom (),0 Return to normal spending patterns based on life cycle targets Cyber Security Infrastructure,00 One time project (,00) One time project in 0 (,),0 (A) In 0, the purchase of endpoint devices was transitioning to a centralized process within IT (vs at the various business units) so not all costs were captured within IT. The year 0 is more representative of a normal spending level.

Michigan Public Service Commission DTE Electric Company U-0 Staff Shared Infrastructure Adjustment Case No.: U-0 Exhibit: S-0. Witness: C.S.Matthews Page of Shared IT Infrastructure ($000) Mo. Ending // Mo. Ending // Mo. Ending //,0,0,0,0,0,0 Company Endpoint Devices & Software,,,,,,,, Servers,,,,,,,,, Telecom,,,,,,,, Staff Endpoint Devices & Software,,,,,,,, Servers,,,,,,,,, Telecom,,,,,0,,, Total Adjustments - - - - (,) () (,) (,0) 0-0 Average telecom cost, Staff is using a three year average for the telecom expence (0-0).