STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

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 Michigan rate regulated electric, steam, and natural gas utilities to reflect the effects of the pending federal Tax Cuts and Jobs Act. Alpena Power Company, Consumers Energy Company, Detroit Thermal, LLC, DTE Electric Company, DTE Gas Company, Indiana Michigan Power Company, Northern States Power Company, Upper Peninsula Power Company, Upper Michigan Energy Resources Corporation, Wisconsin Electric Power Company, Presque Isle Electric & Gas Co-op, Michigan Gas Utilities Corporation, and SEMCO Energy Gas Company. / Case No. U-18494 MOTION OF THE RESIDENTIAL CUSTOMER GROUP FOR RECONSIDERATION, REHEARING, AND CLARIFICATION The Residential Customer Group ( RCG ), comprising residential customers of Consumers Energy Company ( CECo ) and DTE Energy (DTE), and other utilities subject to this case, pursuant to Rule 403 and Rule 401 (R 792.10403 and R 792.10401), and such other rules as are applicable, and the statute governing MPSC rehearing procedures, MCL 460.352, and Attorney General v PSC, 429 Mich 248 (1987), files this Motion for Reconsideration, Rehearing, and Clarification relative to the Michigan Public Service Commission s ( MPSC or Commission ) December 27, 2017 order in this case. In support of this Motion, the RCG states:: 1. On December 27, 2017, the Commission issued its Order in this docket requesting certain information and reports from regulated electric and gas utilities in Michigan to reflect the effects of the reduction in the corporate income tax applicable to Michigan utilities resulting 1

from adoption of the federal Tax Cuts and Jobs Act of 2017 (TCJA), effective January 1, 2018. The Commission Order, p 2, states in part: To ensure that all utilities account for these changes in a similar manner, beginning January 1, 2018, regulatory accounting treatment is required for all regulated utilities for any impacts of the new law including current and deferred tax impacts. It is likely that, in the near future, the Commission will open a separate docket for each above-captioned utility to begin a contested case proceeding in which interested parties can address the effects of the TCJA on the utility s rates. In the meantime, the Commission finds that it is appropriate and in the public interest to authorize, and to direct, the above-captioned utilities to use regulatory accounting, which includes the use of regulatory assets and liabilities, for all calculated differences resulting from the TCJA and what would have been recorded if the TCJA did not go into effect. It is the Commission s intention that utilities begin accruing the ratepayer benefits of the TCJA, using regulatory accounting, beginning on the effective date, January 1, 2018. The Commission opens this initial docket to solicit comments regarding the extent of the impacts of the new law, and how any resulting benefit should flow back to ratepayers. The above-captioned utilities are directed to file, no later than January 19, 2018, information detailing the calculation of the change in revenue requirements with and without the TCJA effective January 1, 2018, and outlining the preferred method to flow the benefits of those impacts to ratepayers. All interested parties are invited to file reply comments in this docket no later than February 2, 2018. 2. While the Commission s December 27, 2017 Order comprises a constructive partial initial step to address the impacts resulting from the federal tax law change, the plain language of the Order indicates that it is an accounting order only, and not a ratemaking order providing timely rate relief to ratepayers. The Commission Order also does not provide for contested case proceedings by which the Commission could issue a binding enforceable order against any utility that may challenge the results of the Commission s proceeding. This contrasts with the Commission s procedures utilized in past analogous cases wherein similar federal corporate tax cuts were involved, such as the Tax Reform Act of 1986, wherein the Commission commenced and utilized contested rate cases to issue binding enforceable orders requiring rate reductions (U-8638, U-8675, U-8684, U-8676, U-8686, U-8687, U-8691, U-18692, U-8680, and U-8688). The Commission s use of contested case procedures to implement rate cuts resulting 2

from the 1986 TRA made it possible for the Commission to successfully defend Consumers Energy Company s challenge of the Commission orders affecting CECO in Consumers Power Co v Public Service Comm, 181 Mich App 261 (1989). Previous to that case, the Commission also proactively ordered in a contested case that any future federal tax reductions related to the Vietnam Tax Surcharge be immediately implemented when and if they became effective, which indeed did occur after issuance of the Commission s contested case order. The Commission s inclusion of this requirement in a contested case assisted in achieving judicial affirmance of the Commission s order. See Consumers Power Co v Public Service Comm, 65 Mich App 73 (1975), lv den 396 Mich 817 (1976). 3. The Commission s informal accounting order in this case, by its terms, is not a contested case, which may weaken the Commission s efforts to implement and ultimately enforce the Order, and may complicate the implementation of justified rate reductions that should be promptly required of the captioned utilities due to the tax change. 4. The Commission s order in this case also fails to recognize that some of the captioned utilities are already the subject of ongoing pending electric and gas rate cases wherein the corrective calculation of the utilities revenue deficiencies (or sufficiencies) can be promptly determined for purposes of setting rates. Examples of these ongoing contested case proceedings include the yet-to-be decided and ongoing and pending contested rate proceedings in CECO s electric rate case, U-18322, DTE s electric rate case, U-18255, CECO s ongoing gas rate case, U-18424, and DTE s gas rate case, U-18999. 5. RCG asserts that the captioned utilities have already now calculated the effects of the federal tax rate reduction pursuant to their ongoing annual accounting procedures, and for purposes of filing their January 19 responses to the Commission s Order, and to undertake preparation of reports to the Federal Energy Regulatory Commission (FERC) and the Securities 3

and Exchange Commission (SEC). RCG further asserts that many companies in private unregulated industries have already reported the impacts of the tax change on their income and tax obligations, as reported in financial publications such as the Wall Street Journal. 6. RCG further asserts that the utilities that have ongoing current rate proceedings pending before the MPSC should be required to immediately supplement or revise those limited portions of their pending cases to recalculate the reductions in their rate case requests that should be implemented in the Commission s Orders upcoming final orders in said rate proceedings. 7. RCG further asserts that no reason exists to delay utilizing corrective calculations of cost impacts of the tax rate reductions in ongoing utility rate proceedings, and for purposes of promptly calculating and setting just and reasonable customer rates. The calculations of the cost impacts of the federal tax reduction are relatively straightforward, and can be readily provided by the utilities in the ongoing contested cases. The prompt incorporation of corrections to utility rate case calculations is also necessary and essential to ensure that the utilities do not obtain a windfall in rate revenue collections between the effective date of the tax law reduction on January 1, 2018, and the time that the Commission issues final rate orders. The Commission should not acquiesce in the continuation of such windfall rate collections until some distant future date, if any, when each utility files their next rate case. 8. RCG further asserts that starting wholly new rate cases to adjust and reduce customer rates to reflect the federal tax reduction, in lieu of implementing said rate reductions in current ongoing pending rate cases awaiting Commission Orders, would also serve to: (i) unnecessarily delay justified rate relief to customers; (ii) result in unwarranted continued windfall rate collections by utilities while the delay in corrective action occurs; and (iii) would result in unnecessary duplicative cases, administrative inefficiencies, and costly burdens on ratepayers and their intervenor representatives. Due to the retroactive ratemaking doctrine, there 4

may be limited or no opportunity to limit this time gap, and to prevent said windfalls, except by immediately calculating the impact of the federal tax reduction in the current ongoing rate cases for the above captioned utilities where applicable. 1 The Commission can avoid unnecessary challenges to its rate reduction orders resulting from the federal tax reduction (such as issues concerning retroactive ratemaking) by promptly addressing said impacts in the ongoing pending rate cases. 2 9. RCG further urges that it would be unconscionable for the Commission to set prospective rates in its upcoming orders in ongoing pending rate proceeding by failing to base said rate decisions upon the correct (now changed) federal tax expense and revenue conversion factor calculations, and to thereby grant unjust and unreasonable (higher) rates based upon outdated erroneous cost calculations. Correcting the factual record on the impacts of the known effective reduced federal income tax rate in the ongoing pending contested rate cases would efficiently and fairly set the proper rates while eliminating any issues or claims regarding retroactive ratemaking. Also, the use of the now changed federal corporate tax rates should be utilized in the ongoing pending rate cases to enable the Commission to carry out its duty to set just and reasonable rates, and to balance the interests of ratepayers and the utility, and to refrain from setting increased rates based upon avoidable and unnecessary expenses. City of Detroit v PSC, 308 Mich 706; 14 NW2d 784 (1944). 10. RCG further asserts that the Commission Order, by its plain language, is only an accounting order at this stage, and is not a ratemaking order. There exists no need or 1 The Court of Appeals noted the applicability of the retroactive ratemaking doctrine in their decisions in Consumers Power Co v Public Service Comm, 181 Mich App 261 (1989), and Consumers Power Co v Public Service Comm, 65 Mich App 73 (1975), lv den 396 Mich 817 (1976). 2 Several pending cases also include projected test years, such as the 12-months ending in September or October 2018, or later, such as the CECO and DTE electric rate cases, U-18322 and U-18255, and the CECO and DTE Gas cases, U-18424 and U-18999. 5

justification to commence new rate cases for those utilities that already have ongoing pending rate proceedings, since the corrective impacts of the federal income tax change can be readily incorporated into the ongoing pending rate proceedings of those utilities with yet-to-be-decided Commission rate orders. 11. RCG further asserts that the Commission should determine that contested rate proceedings should be promptly instituted for those utilities that do not have ongoing pending rate cases, and to take whatever steps are necessary to ensure that utilities do not obtain a windfall in rates caused by the delay associated with the difference between the January 1, 2018 effective date of the federal tax rate change and the date upon which the Commission can issue final rate orders with respect to said utilities. Such Commission action could include the institution of immediate settlement negotiations with all captioned utilities to promptly ensure immediate rate reductions justified by the federal tax law change. 12. RCG recognizes that the resolution of factual or legal issues regarding the accumulated deferred federal income tax balances as of the end of 2017, and determining the proper refund flow-back of same to ratepayers, can be handled by a settlement process with each utility or by a contested case if a prompt settlement process is unsuccessful. However, the facts and issues regarding the accumulated deferred federal income tax balances is separable and different from the factual or (possible) legal issues relating to updating and correcting the amounts of federal income tax expense and the revenue conversion factor to be utilized for purposes of setting just and reasonable rates in the ongoing and pending contested rate cases, which matters can and should be made the subject of Commission orders in these current rate cases. 13. RCG notes that CECO and DTE in their reports filed on January 19, 2018, in this case have admitted that the federal tax law change substantially impacts customer gas and 6

electric rates for each utility. As detailed in paragraph 15(a) and (b), infra, RCG filed Motions with attached Affidavits and analysis exhibits calculating the need for rate reductions due to the federal tax reduction in the pending CECO electric case, U-18322, and in DTE electric rate Case U-18255, as offsets to any rate revenue requirement otherwise to be determined based on other cost issues. These rate reduction calculations relate to the impact of the federal tax deduction by correcting the now outdated amounts claimed for federal income tax expense, and to correct the revenue conversion factor, based upon the projected test years proposed by each utility. 3 14. Ample time remains to correct the now-erroneous and out-dated figures claimed by utilities relating to the federal tax expense and the revenue conversion factor in ongoing pending contested rate cases. For example, to meet the statutory deadline for decision, the Commission has until March 30, 2018 to issue its final order in CECO Case U-18322, and has until April 18, 2018 to issue its final rate order in DTE electric rate case U-18255. Similarly CECO s gas rate case in U-18424 was filed on August 2, 2017, with a final order deadline of June 1, 2018, while DTE s gas rate case in U-18999 was filed on November 22, 2017, with a deadline of September 21, 2018 for issuance of a final Commission order. 15. RCG further asserts that the filed information establishes that a prompt reduction in the revenue requirements requested by utilities in current ongoing pending cases can be readily and quickly determined either by settlement or by short augmentations of the existing evidentiary records, or by official notice by the presiding Administrative Law Judges or by the Commission itself. This approach is justified due to the undisputed magnitude of the revenue requirement reduction impacts resulting from the TCJA as calculated by both RCG, CECO, and 3 A copy of RCG s January 5, 2018 Motion, and January 15, 2018 Revised Motion with Affidavit and analysis exhibits in CECO electric case U-18322, are attached hereto as Appendices A and B; RCG s similar motion with supporting affidavits and analysis exhibits, filed on January 12, 2018, in DTE electric case, U-18255, are attached as Appendix C hereto;. 7

DTE, and the immediate effectiveness of the TCJA thereby justifying immediate customer rate reductions. a. With respect to CECO, the January 5, 2018 Affidavit of William A. Peloquin, p 3, paragraph 9, attached to RCG s January 5, 2018 Motion filed on January 8, 2018 in CECO s electric rate case, U-18322, shows that the TCJA reduces CECO s electric revenue requirement by $95,860,000, when using the Staff s case as stated in Staff s Initial Brief (see Appendix A hereto). The January 15, 2018 Supplemental Affidavit of William A. Peloquin, p 1, paragraph 4, attached to RCG s January 15, 2018 Revised Motion filed in CECO electric rate case U-18322 shows that the TCJA reduces CECO s electric revenue requirement by $96,745,000, when using the determinations made by the ALJ in her January 8, 2018 PFD (see Appendix B hereto). In contrast, CECO s January 19, 2018 report in U-18494 (p 4 and attached Exhibits 1 and 2) states that the TCJA results in an estimated reduction in CECO s jurisdictional electric revenue requirement of $120 million, and a reduction in its gas revenue requirement of $52 million, based upon CECO s own calculations. b. With respect to DTE, the January 12, 2018 Affidavit of William A. Peloquin, p 3, paragraph 9, attached to RCG s January 12, 2018 Motion filed in DTE Electric case U-18255 shows that the TCJA reduces DTE s electric revenue requirement by $156,367,000, based upon the Staff s case as stated in Staff s Initial Brief (see Appendix C hereto). DTE s January 19, 2018 filing in this case, p 4, estimated that the TCJA reduces DTE Electric s revenue requirement by $148 million, and reduces DTE Gas s revenue requirements by $38 million. The above difference presented by RCG and DTE with respect to the reduction in the electric revenue requirement is relatively minimal, comprising about $8 million or 5%. 8

16. RCG recognizes that the Commission s December 27, 2017 Order in this case provides for interested parties to file responses to utility filings made on January 19, 2018. While RCG welcomes this opportunity, RCG asserts that the mere filing of said responses in these informal comment proceedings constitutes an ineffective process and remedy to protect ratepayer interests. The sizeable impact of the large known and already effective federal income tax reduction clearly and immediately reduces the cost of service of the captioned utilities and justifies immediate MPSC action to recognize said cost reductions for purposes of setting customer rates from this date forward, for all captioned regulated utilities, or preferably, on and after January 1, 2018. WHEREFORE, the Residential Customer Group respectfully requests the Commission to undertake the following action: A. To immediately require utilities engaged in pending gas and electric rate cases to promptly file corrective calculations establishing the impact of the January 1, 2018 federal tax reduction upon their cost of service and rate requests, including corrections to their now-outdated federal tax expense and revenue conversion factor calculations, among other cost impacts; B. That the Commission immediately implement procedures to ensure use of correct calculations based upon the federal tax law changes in ongoing and pending contested case rate proceedings, and to issue upcoming rate orders in said cases based upon the corrected and updated tax law changes, and to immediately commence contested cases with respect to all other utilities to ensure prompt regulatory decisions to prevent utilities from receiving unwarranted windfalls through the continuation of electric or gas rates that are now unjust and unreasonable on and after January 1, 2018; 9

C. That the Commission utilize corrected federal tax expense calculations, and the correct revenue conversion factors, for purposes of setting customer gas and electric rates in all ongoing and pending rate cases; D. That the Commission implement and facilitate prompt settlement meetings with respect to all captioned utilities, including those with or without ongoing rate proceedings, for purposes of promptly negotiating revised customer rates to reflect the impact of the federal tax law change; E. That the Commission issue settlement orders and/or undertake prompt contested case proceedings to determine the correct accumulated federal deferred tax balances through December 31, 2017 for each utility, and to determine the proper amount and time period of the flow back of said balances in the form of rate reduction adjustments to customer rates; F. That the Commission clarify the scope of this case, and the remedies and time table for implementation of remedies in this case on an urgent basis G. That the Commission grant such further and consistent relief that is lawful and reasonable. Respectfully submitted, Dated: January 26, 2018 Don L. Keskey (P23003) Brian W. Coyer (P40809) Public Law Resource Center PLLC University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI 48823 Telephone: (517) 999-7572 E-mails: donkeskey@publiclawresourcecenter.com bwcoyer@publiclawresourcecenter.com 10

STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of CONSUMERS ENERGY COMPANY for authority to increase its rates for the generation and distribution of electricity and for other relief. / Case No. U-18322 MOTION OF THE RESIDENTIAL CUSTOMER GROUP TO REOPEN THE RECORD, FOR REHEARING, AND/OR FOR TAKING JUDICIAL OR OFFICIAL NOTICE AND MOTION FOR IMMEDIATE CONSIDERATION The Residential Customer Group (RCG) pursuant to Administrative Rule 136, 436, and Rule 201 and 202 of Michigan s Rules of Evidence, cited infra, and such other rules as may be applicable, files this combined motion to reopen the record, for rehearing, and/or for the taking of Judicial Notice, and for immediate consideration in this case. This Combined Motion seeks a ruling from the Administrative Law Judge (ALJ) and the Commission that Consumers Energy Company (CECO) be required to update and revise certain aspects of its evidentiary filing, and to revise its requested rate increase in this case, or alternatively, that the ALJ and Commission take Judicial or Official Notice of a recent major change in the federal tax laws and the impact of same on CECO s rate request herein. This combined motion is supported by the Affidavit and Exhibits of RCG Witness, William A. Peloquin, attached hereto. In further support of this motion, the RCG states: 1. CECO filed this rate case on March 31 2017, along with testimony and exhibits presenting a projected test year comprising 12 months ending on September 30, 2018. At the 1

time of its filing, the applicable federal income tax rate for corporations, including CECO, was 35%. 2. On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (TCJA) which revised the federal corporate income tax applicable to CECO from 35% to 21% effective January 1, 2018. 3. The change in the federal corporate income tax from 35 to 21% constitutes a major known change, which directly affects several aspects of CECO s rate case evidence and rate request, and renders the evidentiary record in this case as outdated, inaccurate and incomplete. For example, the tax law change affects: (1) calculations of federal income tax expense; (ii) the tax revenue conversion factor utilized to calculate CECO s revenue deficiency (or sufficiency); and (iii) results in necessary refunds of substantial amounts pre-collected from ratepayers for future tax obligations which are now excessive, equal to the difference between the 35% federal corporate income tax assumed in this and prior rate cases, and the now permanent change in the federal corporate tax rate to 21%. The now outdated evidentiary record in this case clearly includes future presumed federal tax obligations that will no longer be paid by CECO to the federal government. RCG estimates that these justified refunds to ratepayers substantially exceed any electric rate increase in this case (see Affidavit and Exhibits of William A. Peloquin, attached hereto). As of year-end 2016, CECO had accumulated electric deferred federal income tax reserves totaling $2.175 billion as of December 2016, which represents payments by ratepayers in rates to cover CECO s future federal income tax obligation. 1 CECO s 1 CECO s 2016 annual P-521 report (pp 234, 276 and 277) shows the 2016 year-end balance of $2.175,000,000 ($2.175 billion) which has further increased as of year-end 2017. See Exhibit p 5 to the attached Affidavit of William Peloquin. 2

year-end 2017 accumulated deferred federal taxes can be expected to be higher than the 2016 year-end balance. 4. The substantial and known change in the federal income tax rate applicable to CECO constitutes a major change which renders inaccurate and moot CECO s projected test year in this case. The tax change justifies immediate action to correct the tax revenue conversion factor for purposes of calculating the amount of any revenue deficiency (or sufficiency), which correction reduces the revenue requirement by at least $96 million to recognize the new 21% tax rate and justifies the adoption of a further downward adjustment comprising a down-payment toward the substantial rate refunds that should be rendered by CECO to its ratepayers. The result is that no rate increase in this case should be based upon utilizing the superseded federal tax rate applicable to CECO. 5. RCG s Motion to Reopen the Record herein is supported by the Administrative Code, as follows: R 792.10436 Reopening of proceedings. Rule 436. (1) A proceeding may be reopened for the purpose of receiving further evidence when a reopening is necessary for the development of a full and complete record or there has been a change in conditions of fact or law such that the public interest requires the reopening of the proceeding. (2) After providing due notice and an opportunity for the parties to be heard, the presiding officer, upon his or her own motion or upon motion of any party, may reopen the proceeding at any time before the date for the filing of exceptions to a proposal for decision or, if provided for, replies to exceptions. After the date for filing exceptions or replies to exceptions and until the expiration of the statutory time period for filing a petition for rehearing, the commission may reopen a proceeding upon its own motion or motion of any party. (3) Within 21 days after service of a motion to reopen a proceeding, any party may file an answer. Any party failing to do so shall be considered to have waived objection to the granting of the motion. As soon as practicable after the time for filing answers to a motion to reopen, the presiding officer or the commission shall, in writing, grant or deny the motion. The presiding officer or the commission may provide for hearing and oral argument on a motion to reopen. 3

follows: 6. RCG s Motion for Rehearing herein is supported by the Administrative Code, as R 792.10136 Request for rehearing. Rule 136. (1) Where for justifiable reasons the record of testimony made at the hearing is found to be inadequate for purposes of judicial review, the administrative law judge on his or her own initiative, or on request of a party, shall order a rehearing. (2) A request for a rehearing shall be filed prior to submission of a proposal for decision to the final decision authority or prior to issuance of a final decision by the administrative law judge. If a request for rehearing is granted the hearing shall be noticed and conducted in the same manner as an original hearing. The evidence received at the rehearing shall be included in the record for any further department, agency, or judicial review. A decision from the original hearing may be amended or vacated after the rehearing. 7. RCG s Motion for Judicial or Official Notice herein is also supported by the Michigan Rules of Evidence, as follows: Rule 202 Judicial Notice of Law (a) When discretionary. A court may take judicial notice without request by a party of (1) the common law, constitutions, and public statutes in force in every state, territory, and jurisdiction of the United States; (2) private acts and resolutions of the Congress of the United States and of the Legislature of Michigan, and ordinances and regulations of governmental subdivisions or agencies of Michigan; and (3) the laws of foreign countries. (b) When conditionally mandatory. A court shall take judicial notice of each matter specified in paragraph (a) of this rule if a party requests it and (1) furnishes the court sufficient information to enable it properly to comply with the request and (2) has given each adverse party such notice as the court may require to enable the adverse party to prepare to meet the request. Rule 201 Judicial Notice of Adjudicative Facts (a) Scope of rule. This rule governs only judicial notice of adjudicative facts, and does not preclude judicial notice of legislative facts. (b) Kinds of facts. A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. (c) When discretionary. A court may take judicial notice, whether requested or not, and may require a party to supply necessary information. (d) Opportunity to be heard. A party is entitled upon timely request to an opportunity to be heard as to the propriety of taking judicial notice and the tenor of the matter noticed. In the absence of prior notification, the request may be made after judicial notice has been taken. (e) Time of taking notice. Judicial notice may be taken at any stage of the proceeding. (f) Instructing jury. In a civil action or proceeding, the court shall instruct the jury to accept as conclusive any fact judicially noticed. In a criminal case, the court shall instruct the jury that it may, but is not required to, accept as conclusive any fact judicially noticed. 4

8. RCG s Motion for Immediate or Expedited Consideration is supported by the exigencies resulting from the recent change in federal law, and the resulting substantial impact the change has upon CECO s rate request herein, and because the federal tax law change renders the evidentiary record incomplete, inaccurate, and moot. Due to the limited time until the Commission must issue a final order in this case, the ALJ (or Commission) should either take judicial or official note of the undisputed impact of the tax law rate change in calculating any revenue deficiency or sufficiency in this case, or establish an expedited reopening or rehearing process to receive input from all interested parties to enable the tax law rate change to be recognized for purposes of setting customer rates in this proceeding. The indisputable change in the federal tax rate applicable to CECO, and the substantial impact reducing CECO s revenue requirements provide a compelling basis for reflecting same in any rate decision rendered in this pending case. 9. RCG asserts that this combined motion is also supported by past Commission and Court precedent. When the Tax Reform Act of 1986 (TRA 86) was adopted, the MPSC promptly initiated a contested case regarding the impact on customer rates resulting from the TRA tax reduction, which resulted in rate reduction settlements with some utilities (e.g., MPSC Cases U-8638, U-8675, U-8684, U-8676, U-8686, U-8687, U-8691, and U-18692) and contested case hearings in other cases (e.g., MPSC Docket U-8680 and U-8688). The MPSC s TRA orders required the utilities to amortize the tax write-downs over a number of years, and resulted in ratepayers receiving the benefits of the deferred tax accrual write-downs through multi-year negative rate surcharges. Undersigned counsel and RCG s expert William A. Peloquin (with 31 years of utility auditing and expert witness experience with the MPSC Staff and with the Special Litigation Division of the Attorney General) were involved in those past TRA tax cases. The 5

Commission s TRA orders requiring rate reductions for Michigan utilities (e.g., MPSC Orders in Dockets U-8680, U-8683, et al) were affirmed in the appellate courts, Consumers Power Co v Public Service Comm, 181 Mich App 261 (1989). Another example of this situation involved the rate reduction ordered by the MPSC when the Vietnam War income tax surcharge was reduced, which was affirmed by the Michigan Court of Appeals in Consumers Power Co v MPSC, 65 Mich App 73 (1975), lv den 396 Mich 817 (1976). The above MPSC orders were initiated even though most or all of the utilities did not have ongoing pending rate cases that were in existence which would permit immediate or prompt action in a pending rate case to timely implement the impacts of the tax law change. In contrast, this is a pending CECO contested rate case in which prompt regulatory action can and should be undertaken to protect ratepayers. Such action would be consistent with the Commission s duty to set just and reasonable rates and to balance the interests of ratepayers and the utility by excluding unnecessary and avoidable costs in setting rates. City of Detroit v PSC, 308 Mich 706; 14 NW2d 784 (1944). 10. RCG recognizes that the Commission issued an order on December 27, 2017 in U-18494, commencing an informal comment proceeding limited to receiving Staff and utility reports concerning the federal tax law change. Said order is not a contested case and cannot result in binding Commission precedent. Northern Michigan Exploration v MPSC, 153 Mich 635; 396 NW2d 487 (1986); Midland Cogeneration Venture Limited Partnership v MPSC, 199 Mich App 301; 501 NW2d 573 (1993). The Commission s order in U-18494 does not and cannot justify a delay in addressing the impacts of this tax law change in this pending contested case. 11. RCG therefore requests that the Administrative Law Judge (ALJ) undertake immediate action to update and correct the evidentiary record, and CECO s rate increase request 6

due to this major known change in circumstances involving the reduction in the federal corporate tax rate, and that the ALJ and Commission grant the relief sought in this motion. RCG requests specifically the following emergency relief: A. That the ALJ immediately schedule a hearing on this motion to be noticed to all parties to this proceeding; B. The ALJ require CECO to file corrective supplemental evidence to establish the impact of the federal corporate tax rate reduction on their evidentiary presentations in this case, and to revise its requested rate increase accordingly; C. That an expedited hearing be held relative to CECO s corrected supplemental filing, and responsive filings by other parties, and that a proposal for decision and/or Commission order be issued utilizing the corrected and more accurate evidentiary facts; D. That the ALJ (and Commission), as an alternative or in conjunction with the remedies sought in paragraphs A through C above, take judicial or official notice of the federal tax law rate change and to adopt ratemaking adjustments to correct the tax revenue conversion factor used in this case in determining CECO s revenue deficiency (or sufficiency) and also to adopt a further downward rate adjustment constituting a down-payment toward the amount of rate refunds resulting from the federal tax rate reduction. Presuming that the recognition of these adjustments will exceed the amount of any electric rate increase sought by CECO, RCG requests that CECO s rate request be reduced to zero, or to a rate reduction, with remaining refunds to be required by the Commission in a supplemental contested case, on a reasonably prompt basis commensurate or following the Commission s rate order in this case. 7

reasonable. E. RCG requests such further and consistent relief that is lawful and Respectfully submitted, Dated: January 5, 2018 Don L. Keskey (P23003) Brian W. Coyer (P40809) Public Law Resource Center PLLC University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI 48823 Telephone: (517) 999-7572 E-mail: donkeskey@publiclawresourcecenter.com bwcoyer@publiclawresourcecenter.com 8

STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of CONSUMERS ENERGY COMPANY for authority to increase its rates for the generation and distribution of electricity and for other relief. / Case No. U-18322 STATE OF MICHIGAN ) ) ss COUNTY OF INGHAM ) AFFIDAVIT OF WILLIAM A. PELOQUIN William A. Peloquin, being first duly sworn, says: 1. I presented testimony in this case on behalf of the Residential Customer Group (RCG). I have been a witness in numerous public utility contested cases over four decades. My qualifications are already included in this case. See MPSC document number 0277. 2. The Tax Reform Act of 1986 (TRA 86) reduced the federal income tax (FIT) corporate rate from approximately 45% to 34% (December 17, 1986 MPSC Order Initiating Proceedings in Case No. U-8638). I testified in the Consumers Power Company TRA 86 contested Case No. U-18680 (gas) and Detroit Edison Case No. U-8683. I was involved in the successful settlement of the following TRA-86 cases: U-8638 Generic Accounting for TRA- 86 U-8675 Revenue Reduction TRA- 86 Michigan Bell U-8684 Revenue Reduction TRA- 86 Michigan Consolidated Gas U-8676 Revenue Reduction TRA- 86 General Telephone U-8686 Revenue Reduction TRA- 86 Michigan Power (electric) 1

U-8687 Revenue Reduction TRA- 86 Michigan Power (gas) U-8691 Revenue Reduction TRA- 86 Alpena Power U-8692 Revenue Reduction TRA- 86 Edison Sault 3. The Tax Cuts and Jobs Act of 2017 (TCJA 17) reduced the FIT corporate rate from 35% to 21% effective January 1, 2018. 4. Staff s Initial Brief in this case, at page 95, states: 6. Staff recommends total federal income tax expense of $157,408,000 and a jurisdictional amount of $157,721,000. Staff recommends total federal income tax (FIT) expense of $157.408 million, which is $14.506 million more than the Company s projection in its initial filing. (Appendix C). Again, Staff s adjustments to the Company s projected revenues and expenses are responsible for the difference. The last sentence of the above citation indicates that there was at that time no controversy regarding the federal income tax expense for the test year. 5. Appendix A attached to the Staff s Initial Brief summarizes the Staff s $68,837,000 Revenue Deficiency under column (f), Staff Jurisdictional. Both the Company and the Staff utilized a revenue multiplier of 1.6377, referencing CECO s Exhibit A-8 and Exhibit A-3, Schedule C2, and Staff s Exhibit S-1. 6. Both the Company and the Staff utilized a Federal Income Tax (FIT) Corporate tax rate of 35% in their presentations. Effective January 1, 2018, the FIT corporate tax rate was reduced to 21%. This is a known change. It s magnitude is so large that it cannot be excluded from this rate proceeding. 7. I have attached a five page exhibit that demonstrates the effect of the FIT corporate tax rate reductions on the Staff s proposed revenue deficiency [sufficiency], among 2

other effects. The first page calculates the 1.3475 Revenue Multiplier appropriate for the 21% FIT corporate tax rate. 8. The second page of my exhibit calculates the $63 million reduction in jurisdictional Federal Income Tax Expense that results from the FIT rate reduction from 35% to 21%. A one dollar reduction in FIT expense results in a one dollar increase in Net Operating Income. Therefore, a $68 million reduction in FIT expense results in a $68 million increase in the test year s jurisdictional Adjusted Net Operating Income. 9. The third page of my exhibit demonstrates the Tax Cut and Job Act s 21% FIT corporate tax rate effect upon the Revenue Deficiency [Sufficiency] of this rate case. Adjusting the Staff Initial Brief s Revenue Deficiency for the affect of the 21% FIT tax rate results in a $96 million revenue requirement reduction ($68,837 + 27,023 = 95,860). The 21% FIT corporate tax rate adjustments reduces the Staff s Initial Brief s recommendations from a $68 million revenue deficiency to a $27 million revenue sufficiency. 10. Given the Staff s statement at page 95 of its Initial Brief that Staff s Federal Income Tax Expense was $14,506 million larger than CECO s FIT expense; then an adjustment of CECO s FIT expense for that 21% FIT rate would result in a reduction of its revenue deficiency slightly less than $96 million. 11. Pages 4 and 5 of my Exhibit indicate that Consumers Electric accumulated deferred Federal Income Taxes as of December 31, 2016 was a net amount of approximately $2,174,797,000 (2 billion 175 million dollars) per Consumers Form P-521; Accounts 190, 282, and 283; as filed with the MPSC for the year 2016. These deferred FIT balances were funded by the deferred FIT expense included in prior years electric rate cases. These balances were paid for by Consumers Electric ratepayers. 3

12. The $2,174,797,000 balance of electric deferred FIT was based upon a 35% FIT corporate tax rate. 13. Adjusting the 12/31/2016 Accumulated Deferred Income Tax to the 21% FIT tax rate of the Tax Cuts and Jobs Act of 2017 results in an excess balance of $869,919.000 ($870 million). Additional accumulated deferred income tax balances would relate to the year ending December 2017, which would have to be recognized and adjusted as indicated in my paragraph 16 and 17 below. 14. I recommend amortizing this $870 million excess balance of Accumulated Deferred Income Tax over 5 years, an annual amortization of the $174 million, commencing with this rate case. 15. The Staff Initial Brief at page 95 recommended a total FIT expense of $157,408,000 and a jurisdictional FIT expense of $157,721,000, which implies a jurisdictional factor exceeding 1.000. Therefore, I did not jurisdictionalize the $174 million annual amortization of excess accumulated deferred FIT balances. 16. An annual $174 million amortized excess accumulated Deferred FIT balances equates to an annual revenue refund of $234 million (for 5-years) based upon the December 31, 2016 amounts, to be further adjusted based upon the 2017 year-end balances. 4

17. The first year $234 revenue refund of excess deferred FIT expenses should he the initial refund, Any subsequent refunds can be adjusted up or down in the subsequent fouryears based upon the December 2017 balances. Subscribed and 8\;'.10111 to before me this 5 th day of January, 20~8:'''-''-."I '.,;,1/!! "),.'-,:'!J.:A.4l:,:f,,,\ rc';:"aj( tgaro'h}nn Dane, Notary Public --.,... State ofmichigan, County of Eaton My Commission Expires: 07/23/2022,-."-'----------. ---.-. --- -'---------~-~----~-_,_~~...,...,.".oo_~~~,.;.,...,,"_._,.~... j'_.5

Attachment to Affidavit of William A. Peloquin U-18322 RCG Motion to Reopen, et al January 5, 2018 Page 1 of 5 Consumers Energy Company Computation of the Revenue Multiplier Exhibit A-8 Adjustment for TCJA '17 1 Income Base - Before Taxes 100.0000 100.0000 2 Michigan Corporate Income Tax 5.8980 5.8980 3 City Income Tax 0.1600 0.1600 4 Federal Income Tax Base 93.9420 93.9420 5 Federal Income Tax 32.8797 a 19,7278 c 5 Income Base - After Taxes 61.0623 74.2142 6 Revenue Multiplier 1.6377 b 1.3475 b (a) Line 4 * 35.00 FIT rate (b) Line 1/Line 5 (c) Line 4 * 21.00 FIT rate

Attachment to Affidavit of William A. Peloquin U-18322 RCG Motion to Reopen, et al January 5, 2018 Page 2 of 5 Consumers Energy Company Jurisdictional Federal Income Tax Expense 1 Jurisdictional FIT expense @35% a $157,721.000 2 Jurisdictional FIT expense @21% b 94,633.000 3 Reduction of Jurisdictional FIT expense $63,088.000 (a) Staff Jurisdictional Federal Income Tax Expense of $157,721,000 - Staff Initial Brief at page 95 (b) Line 1 x 21/35

Attachment to Affidavit of William A. Peloquin U-18322 RCG Motion to Reopen, et al January 5, 2018 Page 3 of 5 Consumers Energy Company Revenue Deficiency/(Sufficiency) Staff Jurisdiction 1 TC JA '17 Adjustment Adjusted Staff Jurisdictional 1 Rate Base $10,131,927 $10,131,927 2 Adjusted Net Operating Income 547,928 63,088 610,016 3 Overall Rate of Return 5.42% 6.02% 4 Required Rate of Return 5.82% 5.82% 5 Income Required $589,962 $589,962 6 Income Deficiency/Sufficiency 42,033 (20,054) 7 Revenue Multiplier 1.6377-0.2902 1.3475 8 Revenue Deficiency/Sufficiency 68,837 (27,023) 1 MPSC Staff Initial Brief - Appendix A

Attachment to Affidavit of William A. Peloquin U 18322 RCG Motion to Reopen, et al January 5, 2018 Page 4 of 5 Accumulated Deferred Federal Income Taxes Calculation of Electric Deferred FIT as of December 31, 2016 Deferred Electric FIT Account 190 Electric 338,535,384 95.4294% = 323,062,286 Gas 335,495,501 Non-utility 68,742,916 Total 793,773,801 Federal 757,493,171 95.4294% State 34,603,080 4.3593% Local 1,677,550 0.2113% 100.0000% Account 282 Electric - Federal 2,017,034,144 2,017,034,144 Account 283 Electric 517,166,708 92.9729% = 480,824,886 Gas 337,049,843 Non-utility 13,558,545 Total 867,775,096 Federal 806,745,849 92.9729% State 58,716,926 6.7766% Local 2,262,321 0.2607% 100.0000%

Attachment to Affidavit of William A. Peloquin U-18322 RCG Motion to Reopen, et al January 5, 2018 Page 5 of 5 Accumulated Deferred Federal Income Taxes Electric Utility As of December 31, 2016 Account 282 2,017,034,144 Account 283 480,824,886 Subtotal 2,497,859,030 Account 190 (323,062,286) Net Total at 35% FIT rate 2,174,796,744 x 21/35 Net Total at 21% FIT rate 1,304,878,046 Excess Electric Accumulated Deferred FIT 869,919,000 Five Year Amortization 5 Annual Amortization 173,984,000 2018 Revenue Multiplier 1.3475 Annual Revenue Refund of Excess Accumulated Deferred Federal Income Taxes $234,443,000

STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of CONSUMERS ENERGY COMPANY for authority to increase its rates for the generation and distribution of electricity and for other relief. / Case No. U-18322 REVISED MOTION OF THE RESIDENTIAL CUSTOMER GROUP TO REOPEN THE RECORD, FOR REHEARING, AND/OR FOR TAKING JUDICIAL OR OFFICIAL NOTICE AND MOTION FOR IMMEDIATE CONSIDERATION The Residential Customer Group (RCG), pursuant to Administrative Rules 136, 436, and Rule 201 and 202 of Michigan s Rules of Evidence, cited infra, and such other rules as may be applicable, files this combined revised motion to reopen the record, for rehearing, and/or for the taking of Judicial or Official Notice, and for immediate consideration in this case. This Combined Motion seeks a ruling from the Administrative Law Judge (ALJ) and the Commission that Consumers Energy Company (CECO) be required to update and revise certain aspects of its evidentiary filing, and to revise its requested rate increase in this case, or alternatively, that the ALJ and Commission take Judicial or Official Notice of a recent major change in the federal tax laws and the impact of same on CECO s rate request herein. This revised combined motion is supported by the January 5, 2018 Affidavit and Exhibits of RCG Witness, William A. Peloquin, attached to RCG s Combined Motion filed in this case, and by the attached Supplemental Affidavit and Exhibits of RCG Witness William A. Peloquin, dated January 15, 2018. In further support of this motion, the RCG states: 1

1. CECO filed this rate case on March 31 2017, along with testimony and exhibits presenting a projected test year comprising 12 months ending on September 30, 2018. At the time of its filing, the applicable federal income tax rate for corporations, including CECO, was 35%. 2. On December 22, 2017, the President signed the Tax Cuts and Jobs Act of 2017 (TCJA) which revised the federal corporate income tax applicable to CECO from 35% to 21% effective January 1, 2018. 3. The change in the federal corporate income tax from 35 to 21% constitutes a major known change, which directly affects several aspects of CECO s rate case evidence and rate request, and renders the evidentiary record in this case as outdated, inaccurate and incomplete. For example, the tax law change affects: (1) calculations of federal income tax expense; (ii) the tax revenue conversion factor utilized to calculate CECO s revenue deficiency (or sufficiency); and (iii) results in necessary refunds of substantial amounts pre-collected from ratepayers for future tax obligations which are now excessive, equal to the difference between the 35% federal corporate income tax assumed in this and prior rate cases, and the now permanent change in the federal corporate tax rate to 21%. The now outdated evidentiary record in this case clearly includes future presumed federal tax obligations that will no longer be paid by CECO to the federal government. RCG estimates that these justified refunds to ratepayers substantially exceed any electric rate increase in this case (see January 5, 2018 Affidavit and Exhibits of William A. Peloquin, and Supplemental Affidavit and Exhibits of William A. Peloquin, dated January 15, 2018, attached hereto). As of year-end 2016, CECO had accumulated electric deferred federal income tax reserves totaling $2.175 billion as of December 2016, which represents payments by ratepayers in rates to cover CECO s future federal income 2