STATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL BILL SCHUETTE ATTORNEY GENERAL. August 8, PDF Free Download

STATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL P.O. BOX 30755 LANSING, MICHIGAN 48909 BILL SCHUETTE ATTORNEY GENERAL August 8, 2016 Kavita Kale Executive Secretary Michigan Public Service Commission 6545 Mercantile Way Lansing, MI 48911 Dear Ms. Kale: Re: MPSC Case No. U-17087 I am enclosing for filing the Attorney General s Direct Testimony and Exhibits. I am also enclosing a proof of service. In addition, a copy of this filing is being submitted electronically pursuant to the instructions in the Commission's notice of hearing. Sincerely, Michael E. Moody Assistant Attorney General c All Parties

PROOF OF SERVICE - U-17087 The undersigned certifies that a copy of the Attorney General's Direct Testimony and Exhibits was served upon the parties listed below by e-mailing the same to them at their respective e-mail addresses on the 8 th day of August, 2016. Michael E. Moody Administrative Law Judge: Mark Cummins Public Service Commission cumminsm@michigan.gov Residential Customer Group: Don Keskey Brian Coyer bcoyer@gmail.com donkeskey@publiclawresourcecenter.co m MPSC Staff: Amit Singh Assistant Attorney General Public Service Division 6545 Mercantile Way, Suite 15 Lansing, MI 48911 singha@michigan.gov Consumers Energy Company: Kelly Hall Consumers Energy Company One Energy Plaza Jackson, MI 49201 Kelly.hall@cmsenergy.com mpscfilings@cmsenergy.com

S T A T E O F M I C H I G A N BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter of the application of ) CONSUMER ENERGY COMPANY ) for authority to increase its rates for ) the generation and distribution of ) electricity and other relief ) MPSC Case No. U-17087 (Remand) Direct Testimony And Exhibits of Sebastian Coppola On behalf of Attorney General Bill Schuette August 8, 2016

1 2 Qualifications Q. PLEASE STATE YOUR NAME, OCCUPATION, AND ADDRESS. 3 4 A. My name is Sebastian Coppola. I am an independent business consultant. My office is at 5928 Southgate Rd., Rochester, Michigan 48306. 5 Q. PLEASE SUMMARIZE YOUR PROFESSIONAL QUALIFICATIONS. 6 7 8 9 10 11 12 13 14 15 16 17 18 A. I am a business consultant specializing in financial and strategic business issues in the fields of energy and utility regulation. I have more than thirty years of experience in public utility and related energy work, both as a consultant and utility company executive. I have testified in several regulatory proceedings before the Michigan Public Service Commission (MPSC or Commission) and other regulatory jurisdictions. I have prepared and/or filed testimony in rate case proceedings, revenue decoupling reconciliations, gas conservation programs, Gas Cost Recovery (GCR) cases and Power Supply Cost Recovery (PSCR) cases. As accounting manager and later financial executive for two regulated gas utilities with operations in Michigan and Alaska, I have been intricately involved in regulatory proceedings related to gas cost recovery cases, gas purchase strategies, rate case filings and power plant cost analysis. I have also supported other witnesses in testimony before the MPSC in various rate setting and other regulatory proceedings. 19 Q. WHAT EXPERIENCE DO YOU HAVE WITH ELECTRIC UTILITIES? U-17087 (Remand) S. Coppola Direct 1 8/8/16

1 2 3 4 5 6 A. I have performed rate case analyses and filed testimony in several electric general rate cases addressing issues on revenue requirement, sales level determination, operation and maintenance expenses, cost allocations, cost of capital, cost of service and rate design, and various cost tracking mechanisms. In addition, I have performed analysis of power costs and filed testimony in power supply cost recovery mechanisms, including reconciliation of annual power supply costs. 7 8 9 In my position as Senior Vice President of Finance at MCN, I had also responsibility for project financing of independent power generation plants in which MCN was an owner. In this regard, I was intricately involved and became knowledgeable of PURPA qualified 10 cogeneration plants in Michigan and other states. In addition, I was involved in 11 12 negotiating the development and financing of power generation and electricity distribution plants in other countries, such as India. 13 14 15 16 17 18 19 20 21 22 23 24 Q. PLEASE LIST SOME OF THE MORE RECENT CASES YOU HAVE PARTICIPATED IN BEFORE THE MPSC AND OTHER REGULATORY AGENCIES. A. Here is a partial list of the most recent regulatory cases in which I have participated: Consumers Energy (CECo) 2016 electric Rate Case U-17990 on a several issues, including revenue, operations and maintenance costs, capital expenditures, cost of capital, rate design and other items. Michigan Gas Utilities Corporation (MGUC) 2016-2017 GCR Plan case U-17940. DTE Electric Co. (DTEE) 2016 electric Rate Case U-18014 on a several issues, including U-17087 (Remand) S. Coppola Direct 2 8/8/16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 revenue, revenue decoupling, operations and maintenance costs, capital expenditures, cost of capital, rate design and other items. SEMCO Energy Gas (SEMCO) 2016-2017 GCR Plan case U-17942. DTE Gas 2016-2017 GCR Plan case U-17941. DTE Gas 2015 gas general rate case U-17999 on a several issues, including revenue, operations and maintenance costs, capital expenditures, RDM program, cost of capital and other items. CECo 2016-2017 GCR Plan case U-17943. CECo 2016 PSCR Plan case U-17918. CECo 2014-2015 GCR Plan reconciliation case U-17334-R. DTEE 2016 PSCR Plan case U-17920. SEMCO 2014-2015 GCR Plan reconciliation case U-17333-R. CECo 2015 gas general rate case U-17882. CECo Gas Choice and End-User Transportation tariff changes case U-17900. o Analyzed the gas rate case filings of MGUC in Case U-17880 and assisted the Michigan Attorney General in settlement of the case. CECo 2014 Power Supply Cost Recovery (PSCR) reconciliation case U-17317-R. DTE Gas Company (DTE Gas) 2013-2014 GCR Plan reconciliation case U-17131-R. DTEE 2014 electric Rate Case U-17767 on a several issues, including operations and maintenance costs, capital expenditures, AMI program, cost of capital and other items. DTE Gas 2015-2016 GCR Plan case U-17691. U-17087 (Remand) S. Coppola Direct 3 8/8/16

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 o Filed testimony on behalf of the Illinois Attorney General in Ameren Illinois Company s 2015 general rate case on operation and maintenance costs in Docket 15-0142. CECo 2014 electric Rate Case U-17735 on a several issues, including sales, operations and maintenance costs, capital expenditures, cost of capital, AMI program, revenue decoupling and infrastructure cost recovery mechanisms. CECo 2015-2016 GCR Plan case U-17693. MGUC 2015-2016 GCR Plan case U-17690. Consumers Energy Company (CECo) 2015 PSCR Plan case U-17678. o Analyzed the electric rate case filings of Northern States Power in Case U- 17710 and Wisconsin Public Service Company U-17669, and assisted the Michigan Attorney General in settlement of these cases. CECo 2013-2014 GCR Plan reconciliation case U-17133-R. Michigan Gas Utilities Corporation (MGUC) 2013-2014 GCR Plan reconciliation case U- 17130-R. SEMCO Energy Gas (SEMCO) 2013-2014 GCR Plan reconciliation case U-17132-R. CECo 2014 gas general rate case U-17643. o Filed testimony on behalf of the Illinois Attorney General in Wisconsin Energy merger with Integrys on the Peoples Gas and Coke Company s Accelerated Main Replacement Program in Docket 14-0496. o Filed testimony on behalf of Citizens Against Rate Excess in Wisconsin Public Service Company s 2013 Power Supply Cost Recovery (PSCR) plan reconciliation case U-17092-R. CECo 2014 Power Supply Cost Recovery (PSCR) plan case U-17317. CECo 2014 OPEB Funding case U-17620. Appendix A elaborates further on my qualifications in the regulated energy field. U-17087 (Remand) S. Coppola Direct 4 8/8/16

1 2 Prepared Direct Testimony Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY? 3 4 5 6 7 A. I have been asked by the Michigan Department of Attorney General to perform an independent analysis of Consumers Energy Company s (CECo or the Company) smart meter opt-out tariff rates in conjunction with the Michigan Appellate Court remand in Case No. U-17087. This testimony presents a report of that analysis with related recommendations. 8 Q. WHAT TOPICS ARE YOU ADDRESSING IN YOUR TESTIMONY? 9 10 11 12 13 14 15 16 17 18 19 20 A. I am addressing the following major topics in this case: 1. The upfront fee, if any, that the Company should charge to electric customers if the customer chooses to retain the current non-transmitting meter. 2. The upfront fee that the Company should charge to electric customers if the customer chooses to replace the current transmitting smart meter with a nontransmitting meter. 3. The monthly fee that the Company should charge to electric customers for meter reading and related costs of having a non-transmitting meter. The absence of a discussion of other matters in my testimony should not be taken as an indication that I agree with those aspects of CECo s filing in this case. The narrow focus of my testimony is, instead, a consequence of focusing on priority issues within the available resources. U-17087 (Remand) S. Coppola Direct 5 8/8/16

1 Q. IS YOUR TESTIMONY ON THESE TOPICS ACCOMPANIED BY EXHIBITS? 2 3 4 5 6 7 8 9 10 11 12 13 14 A. Yes. I am sponsoring the following exhibits, which were either prepared by me or under my direct supervision: 1. Exhibit AG-1 CECo Smart Meter Opt-out Procedure 2. Exhibit AG-2 Calculation of Monthly Meter Reading Opt-Out Costs 3. Exhibit AG-3 CECo Response on Smart Meter Credits 4. Exhibit AG-4 AG Proposed Opt-Out Fees Q. PLEASE PROVIDE A SUMMARY OF YOUR CONCLUSIONS BEFORE YOU ADDRESS EACH TOPIC IN DETAIL. A. Based on my analysis of the Opt-Out Fees imposed by the Company and the underlying data supporting those fees, I have concluded that both the fees under the existing tariff and the updated fees proposed by the Company in Case No. U-17990 are inappropriate, excessive, punitive and not fair and reasonable. My summary recommendations are as follows: 15 16 17 18 19 20 21 22 1. The Commission should not impose a fee to those customers who choose to retain their current non-transmitting meter. In Comparison, the Company has proposed an upfront fee of $163.82. 2. The upfront fee for a customer who requests to have an installed smart meter replaced with a non-transmitting meter should be lowered from $123.91 to $73.88 when using the cost structure underlying the existing tariff. With updated cost data from Case U-17990, this upfront fee should be either $71.13 or $48.63, depending on whether the Commission chooses U-17087 (Remand) S. Coppola Direct 6 8/8/16

1 2 3 4 5 6 7 8 9 10 Option I or Option II cost levels. In Comparison, the Company has proposed an updated upfront fee of $219.48. 3. The monthly fee for meter reading and other related costs for opting out of a smart meter should be $9.89 under the existing tariff cost structure. With updated cost data form Case U-17990, this fee should be either $8.18 or $7.89, depending on whether the Commission chooses Option I or Option II cost levels. In comparison, the Company has proposed a monthly fee of $19.43. The remainder of my testimony provides further details and support to these summary conclusions and recommendations. 11 Commission Order For Review of Opt-out Fees 12 13 14 Q. PLEASE SUMMARIZE THE COMMISSION ORDER DIRECTING THE COMPANY AND OTHER PARTIES TO REVIEW THE PROPRIETY OF THE SMART METER OPT-OUT FEES. 15 16 17 18 A. In its order dated March 29, 2016, the Commission directed the parties to the Appellate Court remand case to introduce new and relevant evidence available after June 17, 2015 to establish whether or not the opt-out tariff is cost-based or is in a the nature of a penalty. The Commission order also requested the parties to determine whether the U-17087 (Remand) S. Coppola Direct 7 8/8/16

1 2 amount of the opt-out tariff is being double-collected because it is already included in base rates. 1 3 CECo s Conclusions On Opt-out Fees 4 5 6 Q. PLEASE BRIEFLY DESCRIBE THE COMPANY S PROCEDURE TO PERMIT CUSTOMERS TO HAVE A NON-TRANSMITTING METER AND THE RELATED FEES. 7 8 9 10 11 A. Under its tariff C5.5, the Company permits residential and general service customers under rate schedules RS and GS to opt out from having a smart meter installed on their premises. In response to discovery, the Company further explained how the procedure to opt out of a smart meter works. Exhibit AG-1, includes the Company s response explaining the procedure. 12 13 14 15 16 17 18 In general, if the customer requests to not have a smart meter installed, before the Company has installed a smart meter at the customer s home or business, then the customer can retain the existing analog meter. However, the customer will be required to pay a fee to select this option. The current fee is $69.39. Although no meter change has occurred at this time, according to the Company the purpose for the charge is that it will need to recover the cost of exception processing and the eventual need to replace the analog meter with a smart meter once the customer moves out of the premises. 1 Commission order in Case No. U-17087 dated March 29, 2016 at page 8. U-17087 (Remand) S. Coppola Direct 8 8/8/16

1 2 3 4 5 6 7 8 If there is a smart meter currently installed at the customer s premises and the customer requests to not have such a meter, then the Company will install a new non-transmitting digital meter. This is not a smart meter with the transmitter deactivated, but simply a digital meter. For opting out of the smart meter and having a non-transmitting digital meter installed, the customer is currently charged a fee of $123.91. According to the Company this fee recovers the cost of replacing the smart meter with a digital meter at the customer request, re-installing a smart meter once the customer vacates the premises, and for exception processing. 9 10 11 In addition to the upfront fees of selecting a non-transmitting meter, the customer is also charged a monthly fee for manual meter reading and other related costs to maintain the meter. The current monthly fee is $9.72. 12 13 14 Q. FOR COMPARISON PURPOSES, DOES DTE ELECTRIC FOLLOW THE SAME PROCEDURE OF METER REPLACEMENT WHEN A CUSTOMER CHOOSES TO OPT-OUT OF A TRANSMITTING METER? 15 16 17 18 19 A. No. DTE Electric (DTEE), which is the only other major utility in Michigan who has adopted a smart meter program, installs a smart meter at all customer locations. If the customer chooses to not have the smart meter transmit a signal, then it inactivates the transmitting feature and reads the meter manually. Once the customer moves out of the premises, the company then activates the transmitting feature. U-17087 (Remand) S. Coppola Direct 9 8/8/16

1 2 Q. PLEASE BRIEFLY DESCRIBE CECO S CONCLUSIONS FILED IN THIS REMAND CASE. 3 4 5 6 A. In this Remand Case, the Company filed the testimony and exhibits of Lincoln Warriner. Mr. Warriner provided an historical rendition of the development of the current smart meter opt-out tariff fees and the updated fees filed by the Company in its current pending rate case in Case No. U-17990. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Mr. Warriner s conclusions can be summarized as follows: 1. The opt-out fees are not a penalty or a tax since they are cost-based. 2. The Company is not double-collecting costs already included in its base rates. 3. The current upfront opt-out fee of $69.39 for a customer requesting to retain its non-transmitting meter should be increased to $163.82. 4. The current upfront opt-out fee of $123.91 for a customer requesting to have installed a non-transmitting meter after to the installation of a smart meter should be increased to $219.48. 5. The monthly fee, for meter reading and other on-going costs, for a nontransmitting meter should be increased from $9.72 to $19.43. In his testimony and subsequent responses to discovery, Mr. Warriner claims that the primary reasons for the higher fees are the result of the reduction in the number of customers expected to opt-out of having a smart meter and also more recent cost data. U-17087 (Remand) S. Coppola Direct 10 8/8/16

1 AG Assessment of Opt-out Fees 2 3 Q. PLEASE PROVIDE YOUR ASSESSMENT OF THE PROPRIETY OF THE SMART METER OPT-OUT FEES. 4 5 6 A. The Appellate Court remand and the subsequent Commission order raise several fundamental questions about who should pay smart meter opt-out fees, as well as when and how much. Specifically, I will address the following questions: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 1. If a customer wants to retain its current analog meter, the cost of which has already been paid in rates, why should that customer pay now for the future installation of a smart meter years later when the customer vacates the premises and the Company decides to have a smart meter installed? 2. If a customer decides to have a smart meter removed or inactivated, why should that customer pay to have the smart meter replaced and also pay now again to have the smart meter re-installed years later when he/she vacates the premises? 3. Should the opt-out fees include excessive costs incurred by the Company due to its inefficient procedures and cost over-runs? 4. Should the opt-out fees take into consideration the fact that the number of customers who decide to opt-out of a smart meter will not remain static and in fact will turn over as customers move in and out of their premises? 5. Should one-time costs to establish computer system capabilities be amortized and recovered over time given the turnover in opt-out customers? U-17087 (Remand) S. Coppola Direct 11 8/8/16

1 2 3 6. Should the opt-out fees be reduced by costs related to the investment and operation of smart meters? I will address each of these questions and related issues in my testimony below. 4 5 Q. SHOULD A CUSTOMER WHO DECIDES TO RETAIN THE ANALOG METER PAY AN OPT-OUT FEE? 6 7 8 9 10 11 12 A. No. A customer who decides to retain its current analog meter should not pay an upfront opt-out fee. The Company has not incurred any incremental costs as result of the customer making this choice. In fact, the Company has avoided the cost of buying and installing a smart meter. This is a cost saving not an incremental cost. If the Company later decides to install a smart meter, it is a cost not materially different than what the Company is incurring in installing other smart meters. The Company is not charging other customers a fee to have a smart meter installed as part of its smart meter program. 13 14 15 16 17 18 19 The possibility that at some point the customer may move out of the house or premises and the Company will likely replace the existing meter with a smart is a choice that the Company has made, not the customer. The new customer will pay for that smart meter when paying the Company s base rates which reflect the cost of the installation of the smart meters. Many customers live or stay at their premises for many years. Therefore, to charge the customer now an upfront fee for an action to be taken by the Company many years down the road is not fair or reasonable. Such an upfront fee, no matter how U-17087 (Remand) S. Coppola Direct 12 8/8/16

1 2 the Company justifies it as being cost-based, is in fact a disguised penalty fee to coerce the customer to select a smart meter. 3 4 Q. SHOULD A CUSTOMER WHO DECIDES TO REPLACE A SMART METER WITH A NON-TRANSMITTING METER PAY AN OPT-OUT FEE? 5 6 7 8 9 10 A. Yes, but only for the installation of a non-transmitting meter. A customer who requests that the Company replace the current transmitting smart meter with a non-transmitting meter should pay an upfront opt-out fee to have the non-transmitting meter installed. In this circumstance, the Company will incur any incremental cost to have the meter replaced. However, the customer should not pay an additional cost now for the Company s decision to have a smart meter re-installed at some point many years later. 11 12 13 14 15 16 17 18 19 20 Once more, the possibility that at some point the customer may move out of the house or premises and the Company will likely replace the non-transmitting meter with a smart meter is a choice that the Company has made, not the customer. The new customer will pay for that smart meter when paying the Company s base rates which reflect the cost of the installation of the smart meters. As stated earlier, many customers live or stay at their premises for many years. Therefore, to charge the customer an upfront fee now for an action to be taken by the Company many years down the road is not fair or reasonable. Such an upfront fee inclusive of the cost of re-installing a smart meter later, no matter how the Company justifies it as being cost-based, is again a disguised penalty fee to coerce the customer to select a smart meter. U-17087 (Remand) S. Coppola Direct 13 8/8/16

1 2 3 Q. SHOULD THE OPT-OUT FEES INCLUDE EXCESSIVE COSTS INCURRED BY THE COMPANY DUE TO ITS INEFFICIENT PROCEDURES AND COST OVER-RUNS? 4 5 6 7 8 9 A. No. As stated earlier, the Company has chosen a very inefficient procedure to replace smart meters with digital meters when a customer chooses to opt out of having a transmitting meter. In contrast to DTEE, which simply inactivates the transmitting module and charges the customer only once for the opt-out choice, CECo s current tariff charges the customer twice for the cost of opting out of a smart meter. The Commission should not approve this double charge. 10 11 12 13 14 15 In addition, the Company is now estimating that the cost to modify the customer service/billing system has increased to $1,072,600 from the $110,000 estimated in Case No. U-17087. 2 This is nearly a 10-fold increase in cost. The Company has stated that it required 5,363 hours of Information Technology and contractor time at a cost of $200 per hour to establish the computerized exception processing to flag the customer s premises as having a non-smart meter. This cost is extremely excessive. 16 17 18 19 The Company has provided no support or basis as to why it should take more than 2 man-years to make the necessary programming changes to its computer system. For example, DTE Electric, which has instituted a similar exception processing routine in its computer system, has estimated the cost at approximately $15 per customer for its 8,000 2 Lincoln Warriner s testimony at page 20. U-17087 (Remand) S. Coppola Direct 14 8/8/16

1 2 3 4 5 6 7 opt-out customers versus CECo s estimated cost of $99.31 per customer. CECo s cost is 6 times higher. The Commission should not accept such a large cost over-run. The amount to be recovered in the opt-out fee should be set at no more than $500,000, which is approximately half the cost the Company seeks to recover. The $500,000 is a more fair and reasonable amount and still considerably higher than what DTEE spent for a similar exception process. Later in my testimony I will provide the option for the Commission to choose this lower amount in setting an appropriate opt-out fee. 8 9 10 Q. SHOULD ONE-TIME COSTS TO ESTABLISH COMPUTER SYSTEM CAPABILITIES BE AMORTIZED AND RECOVERED OVER TIME GIVEN THE TURNOVER IN OPT-OUT CUSTOMERS? 11 12 13 14 15 16 A. Yes. Currently, the upfront opt-out fee calculated by the Company assumes that the entire cost of $1,072,600 for system development for exception processing needs to be recovered in the upfront opt-out fee charged to the 10,800 customers who initially decide to opt-out of a smart meter. In reality, the customers who opt-out of a smart meter will change over time as customers move in and out of their houses or premises. Therefore, as new customers opt-out in later years, the Company will likely over-recover these costs. 17 18 19 20 Additionally, the system development work is a capital investment that will provide benefits over multiple years. In comparison, the Company has made considerable investment in system development and technology to facilitate the communication and processing of meter reads and other information from smart meters. The Company has U-17087 (Remand) S. Coppola Direct 15 8/8/16

1 2 3 4 5 6 capitalized these costs and will amortize them over a 15-year period for recovery in base rates. The Company should take a similar approach with regard to technology costs for system modifications for the exception processing costs related to the opt-out meters. Therefore, I propose that these costs should be amortized over a 15-year period and recovered through the monthly fee billed to customers who have opted out of a smart meter. 7 8 Q. WHAT IS YOUR ASSESSMENT OF OTHER COST COMPONENTS INCLUDED IN THE OPT-OUT FEES? 9 10 11 12 13 14 15 16 17 18 19 A. After performing a review of the calculations of the current and updated fees presented by the Company, I have found three additional problems. First, the Company has included a charge for $15 to notify the installation vendor that a smart meter must not be installed at the customer s premises. 3 This charge is not supported by the Company other than by an assumption that it will require 15 minutes of an employee s time to notify the vendor. Why this notification cannot be done by simply sending an email message which should take no more than 2 minutes is a mystery. There is no need to develop complex systems when a simple notification can be put in place. Furthermore, the Company charges this fee twice if a smart meter is already installed. I believe, a cost half this amount, or $7.50 per order, is more than adequate. Again, in comparison, DTEE does not include such cost in its calculation of the opt-out fee. 3 Case No. U-17990, WP-LDW-1. U-17087 (Remand) S. Coppola Direct 16 8/8/16

1 2 3 4 5 6 7 8 9 10 Second, the Company has estimated that the time and cost to take a customer request over the telephone to opt out of the smart meter will take twice the average call time of a typical call by a customer. The Company could not support this doubling of the cost other than to say that a smart meter opt-out call is more complex than a typical call and the customer service representative needs to execute three transactions. Why such a call would be more complex than a call to initiate or terminate service, or establish a payment plan for past due bills, is a mystery. Opt-out customers are already paying for the cost of the Company s customer service function in base rates. To include this cost again in the opt-out fee whether at the base amount or at twice the cost is a double dip recovery of costs and this component should be removed from the opt-out fee calculation. 11 12 13 14 15 16 17 18 19 20 Third, the Company has updated the cost of reading analog and digital meters for customers who have opted out of the smart meters. The monthly cost of meter reading is projected to increase from $11.06 to $19.26. 4 After reviewing the components of the updated fee, I have determined that the Company has increased the annual base wages for a meter reader from $41,165 in Case No. U-17087 to $56,659 in the calculations in Case No. U-17990. This is an increase of 37.6% in about three years which the Company has not explained. Applying a reasonable wage inflation rate of 2% per year would increase the $41,165 to $43,685 over three years. In addition, the Company had estimated in Case No. U-17087 that it would need 35 meter readers to read 27,000 nontransmitting meters monthly. This translates to an average of 41 meter reads per meter 4 Exhibit A-1, line 16. U-17087 (Remand) S. Coppola Direct 17 8/8/16

1 2 3 4 5 6 reader per day. In Case No. U-17990, the Company is now projecting that it will need 21 meter readers to read 10,800 non-transmitting meters per month. This translates to 27 meter reads per day. The Company has not explained this significant 34% decline in meter reads per day. Whatever inefficiencies existed in reading 27,000 non-transmitting meters would not increase significantly in reading 10,800 meters when the Company has nearly a million smart meters spread throughout in its service area. 7 8 9 10 As shown in Exhibit AG-2, using an adjusted wage cost for meter readers and 15 meter readers instead of 21 at the same productivity initially estimated by the Company in Case No. U-17087 results in a monthly meter reading cost of $11.41 per non-transmitting meter. I propose that the Commission adopt this lower cost. 11 12 13 Q. HAS THE COMPANY CONSIDERED COST OFFSETS RELATED TO THE INVESTMENT AND OPERATION OF SMART METERS IN CALCULATING THE OPT-OUT FEES? 14 15 16 17 18 19 20 A. No. The current monthly fee billed to opt-out customers for monthly meter reading and other costs includes some cost offsets recommended by Staff. However, in the monthly opt-out fees proposed by the Company in Case Nos. U-17735 and U-17990 there are no such cost offsets. Mr. Warriner s testimony is silent on this matter. Customers who have opted out of a smart meter should not pay for costs related to smart meters which are included in base rates. These customers are not participating in whatever benefits those meters may provide. Similarly, opt-out customers should not pay for the cost of reading U-17087 (Remand) S. Coppola Direct 18 8/8/16

1 2 3 4 5 6 the remaining meters which is included in base rates. Based on my analysis and information provided by the Company in response to a discovery request, the monthly fees should be reduced by $0.35 for duplicative meter reading costs and $3.60 for the smart meter investment credit. To not exclude these costs would result in duplicative recovery of costs from opt-out customers. Exhibit AG-3 includes the calculation of these credits provided by the Company in response to discovery. 7 8 9 Q. HAVE YOU CALCULATED WHAT THE APPROPRIATE OPT-OUT FEES SHOULD BE GIVEN THE FUNDAMENTAL ISSUES YOU HAVE DISCUSSED ABOVE? 10 11 12 13 14 15 A. Yes. In Exhibit AG-4, I have shown what the appropriate upfront opt-out fee should be for a customer requesting a replacement of a smart meter with a non-transmitting meter. Under the existing tariff, this fee should be $73.88. With updated cost data form Case U- 17990, this fee should be either $71.13 or $48.63 depending on whether the Commission chooses Option I or II cost levels. As stated earlier in my testimony, a customer who retains an analog or non-transmitting meter should not be charged an upfront fee. 16 17 18 19 Additionally, in Exhibit AG-4, I have calculated that the monthly fee billed to customers with a non-transmitting meter under the existing tariff should be $9.89. With updated cost data form Case U-17990, this fee should be either $8.18 or $7.89 depending on whether the Commission chooses Option I or Option II cost levels. In calculating these U-17087 (Remand) S. Coppola Direct 19 8/8/16

1 2 fees I have primarily relied on information provided by the Company with the adjustments that I have discussed above. 3 4 5 6 7 Q. IN CECO S RATE CASE NO. U-17990 YOU REJECTED THE COMPANY S PROPOSAL TO INCREASE THE SMART METER OPT-OUT FEES AND RECOMMENDED THAT THE COMPANY RETAIN THE CURRENT FEES. SHOULD THE RECOMMENDATIONS IN THIS REMAND CASE OVERRIDE THOSE MADE IN CASE NO. U-17990? 8 9 10 11 12 A. Yes. The recommendations I made in Case No. U-17990 were in the context of whether or not the Company had provided sufficient compelling evidence and had made a convincing case that an increase in the opt-out fees was warranted. As stated in my testimony in that case, I reached the conclusion that the Company had not made a convincing case and therefore an increase was not justified. 13 14 15 16 17 18 As ordered by the Commission in this remand case, I have undertaken a more fundamental review of the propriety of the existing opt-out fees. In this review, I have concluded that the opt-out fees need to be significantly restructured and limited to appropriate situations. The Commission should now adopt my recommendations in this remand case in order to avoid the punitive nature of the current fees and to ensure that the fees paid by customers who opt out of the smart meter are fair and reasonable. 19 Q. DOES THIS CONCLUDE YOUR PREPARED DIRECT TESTIMONY? U-17087 (Remand) S. Coppola Direct 20 8/8/16

1 2 A. Yes, it does. However, I reserve the right to amend, revise and supplement my testimony to incorporate new information that may become available. U-17087 (Remand) S. Coppola Direct 21 8/8/16

Appendix A Qualifications of Sebastian Coppola Mr. Sebastian Coppola is an independent energy business consultant and president of Corporate Analytics, Inc., whose place of business is located at 5928 Southgate Rd., Rochester, Michigan 48306. EMPLOYMENT BACKGROUND Mr. Coppola has been an independent consultant for more than 10 years. Before that, he spent three years as Senior Vice President and Chief Financial Officer of SEMCO Energy, Inc. with responsibility for all financial operations, corporate development and strategic planning for the company s Michigan and Alaska regulated and non-regulated operations. During the period at SEMCO Energy, he had also responsibility for certain storage and pipeline operations as President and COO of SEMCO Energy Ventures, Inc. Prior to SEMCO, Mr. Coppola was Senior Vice President of Finance for MCN Energy Group, Inc., the parent company of Michigan Consolidated Gas Company. During his 24-year career at MCN and MichCon, he held various analytical, accounting, managerial and executive positions, including Manager of Gas Accounting with responsibility for maintaining the accounting records and preparing financial reports for gas purchases and gas production. In this role, he had also responsibility for preparing Gas Cost Recovery (GCR) reconciliation analysis and reports, and supporting preparation of testimony for the cost of gas reconciliation proceedings before the MPSC. Over the years, Mr. Coppola also held the positions of Treasurer, Director of Investor Relations, Director of Accounting Services, Manager of Corporate Finance, and Manager of Customer Billing. In many of these positions he was intricately involved in defining gas 1 Appendix A Sebastian Coppola Qualifications

purchasing strategies, rate case analysis, cost of capital studies and other regulatory proceedings ENERGY INDUSTRY AND REGULATORY EXPERIENCE As a business consultant, Mr. Coppola specializes in financial and strategic business issues in the fields of energy and utility regulation. He has more than thirty years of experience in public utility and related energy work, both as a consultant and utility company executive. He has testified in several regulatory proceedings before State Public Service Commissions. He has prepared and/or filed testimony in electric and gas general rate case proceedings, power supply and gas cost recovery mechanisms, revenue and cost tracking mechanisms/riders and other regulatory proceedings. As accounting manager and later financial executive for two regulated gas utilities with operations in Michigan and Alaska, he has been intricately involved in gas cost recovery and reconciliation cases, gas purchase strategies and rate case filings. Mr. Coppola has more than 15 years of experience in the area of gas supply and regulatory proceedings. He has led or participated in the financial operations, gas supply planning and/or gas cost recovery arrangements of two major gas utilities in Michigan and in Alaska. He has prepared testimony in multiple electric and gas general rate cases, Power Supply Cost Recovery (PSCR) and Gas Cost Recovery (GCR) proceedings, and other regulatory cases on behalf of the Michigan Attorney General, Citizens Against Rate Excess (CARE), the Public Counsel Division of the Washington Attorney General, the Illinois Attorney General and the Ohio Office of Consumers Counsel in electric and gas utility rate cases, including AEP Ohio, Ameren-Illinois Utilities, Avista, Consumers Energy, Detroit Edison, MichCon (DTE Gas), Michigan Gas Utilities Corp, PacifiCorp, 2 Appendix A Sebastian Coppola Qualifications

Peoples Gas, Puget Sound Energy, SEMCO, Upper Peninsula Power Company and Wisconsin Public Service Company. As accounting manager and later financial executive for two regulated gas utilities, he has been intricately involved in gas purchase strategies and CGR reconciliation cases. He has had direct responsibility for preparing GCR reconciliation analysis and reports, and supporting preparation of testimony for the cost of gas reconciliation proceedings before the Michigan Public Service Commission (MPSC). He is intricately familiar with the power supply and gas cost recovery mechanisms, gas supply and pricing issues, and regulatory issues faced by utilities. In his role as Treasurer and Chairman of the MCN/MichCon Risk Committee from 1996 through 1998, Mr. Coppola was involved in reviewing and deciding on the appropriate gas purchase price hedging strategies, including the use of gas future contracts, over the counter swaps, fixed price purchases and index price purchases. In March 2001, Mr. Coppola testified before the Michigan House Energy and Technology Subcommittee on Natural Gas Fixed Pricing Mechanisms. Mr. Coppola frequently participates in natural gas issue forums sponsored by the American Gas Association and stays current on various energy supply issues through review of industry analyst reports and other publications issued by various trade groups. Specific Regulatory Proceedings And Related Experience: Consumers Energy (CECo) 2016 electric Rate Case U-17990 on a 3 Appendix A Sebastian Coppola Qualifications

several issues, including revenue, operations and maintenance costs, capital expenditures, cost of capital, rate design and other items. Michigan Gas Utilities Corporation (MGUC) 2016-2017 GCR Plan case U-17940. DTE Electric Co. (DTEE) 2016 electric Rate Case U-18014 on a several issues, including revenue, revenue decoupling, operations and maintenance costs, capital expenditures, cost of capital, rate design and other items. SEMCO Energy Gas (SEMCO) 2016-2017 GCR Plan case U-17942. DTE Gas 2016-2017 GCR Plan case U-17941. DTE Gas 2015 gas general rate case U-17999 on a several issues, including revenue, operations and maintenance costs, capital expenditures, RDM program, cost of capital and other items. Consumers Energy Company (CECo) 2016-2017 GCR Plan case U- 17943. CECo 2016 PSCR Plan case U-17918. CECo 2014-2015 GCR Plan reconciliation case U-17334-R. DTE Electric (DTEE) 2016 PSCR Plan case U-17920. SEMCO 2014-2015 GCR Plan reconciliation case U-17333-R. CECo 2015 gas general rate case U-17882. CECo Gas Choice and End-User Transportation tariff changes case U- 17900. 4 Appendix A Sebastian Coppola Qualifications

o Analyzed the gas rate case filings of MGUC in Case U-17880 and assisted the Michigan Attorney General in settlement of the case. CECo 2014 Power Supply Cost Recovery (PSCR) reconciliation case U- 17317-R. DTE Gas Company (DTE Gas) 2013-2014 GCR Plan reconciliation case U-17131-R. DTEE 2014 electric Rate Case U-17767 on a several issues, including operations and maintenance costs, capital expenditures, AMI program, cost of capital and other items. DTE Gas 2015-2016 GCR Plan case U-17691. o Filed testimony on behalf of the Illinois Attorney General in Ameren Illinois Company s 2015 general rate case on operation and maintenance costs in Docket 15-0142. CECo 2014 electric Rate Case U-17735 on a several issues, including sales, operations and maintenance costs, capital expenditures, cost of capital, AMI program, revenue decoupling and infrastructure cost recovery mechanisms. CECo 2015-2016 GCR Plan case U-17693. MGUC 2015-2016 GCR Plan case U-17690. CECo 2015 PSCR Plan case U-17678. o Analyzed the electric rate case filings of Northern States Power in Case U-17710 and Wisconsin Public Service Company U-17669, and assisted the Michigan Attorney General in settlement of these cases. CECo 2013-2014 GCR Plan reconciliation case U-17133-R. MGUC 2013-2014 GCR Plan reconciliation cases U-17130-R. 5 Appendix A Sebastian Coppola Qualifications

SEMCO Energy Gas (SEMCO) 2013-2014 GCR Plan reconciliation case U-17132-R. CECo 2014 gas general rate case U-17643. o Filed testimony on behalf of the Illinois Attorney General in Wisconsin Energy merger with Integrys on the Peoples Gas and Coke Company s Accelerated Main Replacement Program Docket 14-0496. o Filed testimony on behalf of Citizens Against Rate Excess in Wisconsin Public Service Company s 2013 Power Supply Cost Recovery (PSCR) plan reconciliation case U-17092-R. Consumers Energy Company s (CECo) 2014 Power Supply Cost Recovery (PSCR) plan case U-17317. CECo 2014 OPEB Funding case U-17620. SEMCO 2014-2015 GCR Plan case U-17333. MGUC 2014-2015 GCR Plan case U-17331. CECo 2014-2015 GCR Plan case U-17334. o Filed testimony for Citizens Against Rate Excess in Wisconsin Public Service Company s 2014 Power Supply Cost Recovery (PSCR) plan case U-17299. o Filed testimony in March 2013 on behalf of the Michigan Attorney General in CECo s electric Rate Case U-15645 on remand from the Michigan Court of Appeals for review of the Automatic Metering Infrastructure (AMI) program. o Filed testimony for Citizens Against Rate Excess in Upper Peninsula Power Company s 2012 PSCR plan case U-17298. MGUC 2012-2013 GCR Reconciliation case U-16920-R. DTE Gas Company 2012-2013 GCR Reconciliation case U-16921-R. 6 Appendix A Sebastian Coppola Qualifications

CECo 2012-2013 GCR Reconciliation case U-16924-R. SEMCO 2012-2013 GCR Reconciliation case U-16922-R. o Filed testimony for Citizens Against Rate Excess in Upper Peninsula Power Company s 2012 Power Supply Cost Recovery (PSCR) reconciliation case U-16881-R. o Filed testimony in Puget Sound Energy s 2013 Power Cost Only Rate Case on behalf of the Public Counsel Division of the Washington Attorney General in Docket No. UE-130167 on the power costs adjustment mechanism. o Filed testimony in PacifiCorp s 2013 General Rate Case on behalf of the Public Counsel Division of the Washington Attorney General in Docket No. UE-130043 on power costs, cost allocation factors, O&M expenses and power cost adjustment mechanisms. SEMCO 2013-2014 GCR Plan case U-17132. MGUC 2013-2014 GCR Plan case U-17130. CECo s 2012 electric Rate Case U-17087 on a several issues, including cost of service methodology, rate design, operations and maintenance costs, capital expenditures and infrastructure cost recovery mechanism and other revenue/cost trackers. o Filed reports on gas procurement and hedging strategies of four gas utilities before the Washington Utilities and Transportation Commission on behalf of the Washington Attorney General Office of Public Counsel in April 2013. MGUC and SEMCO 2011-2012 GCR Plan reconciliation cases U- 16481-R and U-16483-R. o Filed testimony for Citizens Against Rate Excess in Upper Peninsula Power Company s 2012 Power Supply Cost Recovery (PSCR) plan case U-17091. o Filed testimony in MichCon s 2012 gas Rate Case U-16999 on a several issues, including sales volumes, revenue decoupling 7 Appendix A Sebastian Coppola Qualifications

mechanism, operations and maintenance costs, capital expenditures and infrastructure cost recovery mechanism. o Filed testimony on behalf of the Washington Attorney General Office of Public Counsel on executive and board of directors compensation in the 2012 Avista general rate case. o Filed testimony for Citizens Against Rate Excess in Upper Peninsula Power Company s 2011 Power Supply Cost Recovery (PSCR) reconciliation case U-16421-R. o Filed testimony on behalf of the Ohio Office of Consumers Counsel in AEP Ohio s power supply restructuring case in June 2012. MGUC and SEMCO 2012-2013 GCR Plan cases U-16920 and U- 16922. o Filed testimony for Citizens Against Rate Excess in Upper Peninsula Power Company s 2012 PSCR plan case U-16881. o Filed testimony for Citizens Against Rate Excess in Wisconsin Public Service Corporation s 2012 PSCR plan case U-16882. o Filed testimony for the Michigan Attorney General in CECo s gas business Pilot Revenue Decoupling Mechanism in case U-16860. o Filed testimony for the Michigan Attorney General in Consumers Energy Gas 2011 Rate Case U-16855 on several issues, including sales volumes, operations and maintenance cost, employee benefits, capital expenditures and cost of capital. o Filed testimony for the Michigan Attorney General in SEMCO and MGUC 2010-2011 GCR Plan reconciliation cases U-16147-R and U- 16145-R. o Filed testimony for the Michigan Attorney General in Consumers Energy 2011 electric Rate Case U-16794 on several issues, including electric sales forecast, revenue decoupling mechanism, operations and maintenance cost, employee benefits, capital expenditures and cost of capital. o Filed testimony for the Michigan Attorney General in CECo s electric business Pilot Revenue Decoupling Mechanism in case U-16566. 8 Appendix A Sebastian Coppola Qualifications

SEMCO and MGUC 2011-2012 GCR Plan cases U-16483 and U- 16481. o Filed testimony for the Michigan Attorney General in Detroit Edison 2010 electric Rate Case U-16472 on several issues, including revenue decoupling mechanism, operations and maintenance cost, executive compensation and benefits, capital expenditures and cost of capital. o Filed testimony for the Michigan Attorney General in SEMCO 2009-2010 GCR reconciliation case U-15702-R. o Filed testimony for Michigan Attorney General in MGUC 2009-2010 GCR reconciliation case U-15700-R. o Filed testimony for Michigan Attorney General, in Consumers Energy Gas 2010 Rate Case U-16418 on several issues, including sales volumes, operations and maintenance costs, capital expenditures and cost of capital. o Filed testimony for Michigan Attorney General, in SEMCO 2010 Rate Case U-16169 on several issues, including sales volumes, rate design, operations and maintenance cost, executive compensation and benefits, capital expenditures and cost of capital. o Filed testimony, for Michigan Attorney General in Consumers Energy 2009 electric Rate Case U-16191 on several issues, including sales volumes, revenue decoupling mechanism, operations and maintenance cost and capital expenditures. o Filed testimony for Michigan Attorney General, in MichCon 2009 gas Rate Case U-15985 on several issues, including sales volumes, revenue decoupling mechanism, operations and maintenance cost, capital expenditures and cost of capital. o Filed testimony for Michigan Attorney General and was crossexamined in Consumers Energy 2009 gas Rate Case U-15986 on several issues, including sales volumes, revenue decoupling mechanism, operations and maintenance cost, capital expenditures and cost of capital. o Prepared testimony and assisted the Michigan Attorney General in discussions and settlement of SEMCO and MGUC 2010-2011 GCR Plan cases U-16147 and U-16145. 9 Appendix A Sebastian Coppola Qualifications

o Prepared testimony and assisted Michigan Attorney General in settlement of SEMCO 2009-2010 GCR case U-15702. o Prepared testimony and assisted Michigan Attorney General in settlement of MGUC 2009-2010 GCR case U-15700. o Prepared testimony and assisted the Michigan Attorney General in discussions and settlement of SEMCO 2008-2009 GCR case U-15452 and reconciliation case U-15452-R. o Prepared testimony and assisted Michigan Attorney General in discussions and settlement of MGUC 2008-2009 GCR reconciliation case U-15450-R. o Prepared testimony for Michigan Attorney General in SEMCO GCR 2007-2008 Reconciliation Case U-15043-R. o Prepared testimony for Michigan Attorney General filed in MGUC 2007-2008 GCR Reconciliation Case U-15040-R. o Participated in drafting of testimony for all aspects of SEMCO rate case filing with the Regulatory Commission of Alaska (RCA) in 2001. o Filed testimony in 2001 before the (RCA) and was cross-examined on the financing plans for the acquisition of Enstar Corporation and the capital structure of SEMCO. o Developed a cost of capital study in support of testimony by company witness in the Saginaw Bay Pipeline Company rate request proceeding in 1989. o Prepared testimony for company witness on cost of capital and capital structure in MichCon 1988 gas rate case. o Filed testimony in MichCon gas conservation surcharge case in 1986-87. o Testified before MPSC ALJ in MichCon customer bill collection complaints in 1983. o Participated in analysis of uncollectible gas accounts expense for inclusion in rate filings between 1975 and 1988. o Participated in analysis of allocation of corporate overhead to subsidiaries and use of the Massachusetts Formula at MichCon and at SEMCO in 1975 and 2000. o Prepared support information on GCR and rate case-o&m testimony at MichCon from 1975 to 1988. 10 Appendix A Sebastian Coppola Qualifications

o Filed testimony in MichCon financing orders in 1987 and 1988. o Participated in rate case filing strategy sessions at MichCon and SEMCO from 1975 to 2001. o Provided Hearing Room assistance and guidance to counsel on financial and policy issues in various cases from 1975 to 2001. EDUCATIONAL BACKGROUND Mr. Coppola did his undergraduate work at Wayne State University, where he received the Bachelor of Science degree in Accounting in 1974. He later returned to Wayne Sate University to obtain his Master of Business Administration degree with major in Finance in 1980. 11 Appendix A Sebastian Coppola Qualifications

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-1 Consumers Energy Company Case No: U-17087 (Remand) Date: August 8, 2016 CECo Response to Discovery Request 17990 AG-CE-321 Page 1 of 1

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-2 CONSUMERS ENERGY COMPANY Case No: U-17087 Remand Date: August 8, 2016 Calculation of Mothly Meter Reading Expense Page 1 of 1 Notes 1 Meter Reader annual wages $ 43,685 See Coppola Testimony 2 Labor Loading 24,464 56% per Company WP-LDW-1 3 Supervision and other 30,463 Per Company WP-LDW-1 4 Total $ 98,612 5 Number of Meter Readers 15 See Below 6 Annual cost for meter reading non-transmitting meters $ 1,479,180 7 Number of Opt-out Customers 10,800 8 Annual Cost per Opt-out Customer 136.96 9 Monthly Cost per Opt-out Customer $ 11.41 10 Number of Monthly Meter Reads Required 10,800 11 Number of Annual Meter Reads Required 129,600 12 Number of Meter Reads per Day Per Meter Reader 41.1 Case U-17087 Compay WP LEY-3 * 13 Number of Meter Reads per Year Per Meter Reader 9247.5 Assuming 225 work days per year 14 Number of Meter Reader Needed 14.0 Line 11 Line 13 15 Round up and Use 15.0 * 27,000 meter reads per month or 324,000 per year / 225 days / 35 meter readers.

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-3 Consumers Energy Company Case No: U-17087 (Remand) Date: August 8, 2016 CECo Response to Staff Audit Request 17990 AG-CE-202 Page 1 of 3

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-3 Consumers Energy Company Case No: U-17087 (Remand) Date: August 8, 2016 CECo Response to Staff Audit Request 17990 AG-CE-202 Page 2 of 3

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-3 Consumers Energy Company Case No: U-17087 (Remand) Date: August 8, 2016 CECo Response to Staff Audit Request 17990 AG-CE-202 Page 3 of 3

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-4 CONSUMERS ENERGY COMPANY Case No: U-17087 Remand Date: August 8, 2016 Smart Meter Opt-Out Fees Page 1 of 1 Option I Option II AG AG AG Changes To Changes To U-17990 Changes To U-17990 U-17990 Line Existing Company Existing Company Company No. Costs to Support Opt-Out (1) Tariff Proposal Tariff Proposal Proposal Explanation of AG Calculation Up-Front Costs: Customer Retains existing Meter 1 Non-Transmitting Meter Retention $ 0.47 $ 0.47-2 Smart Meter Deployment Exceptions Process 19.07 114.31 3 Customer Support Labor 6.44 8.38 4 Meter Reader Handheld Device Purchases 3.89-5 Restore Premise to Standard metering 39.52 40.66 6 One Time Cost Prior to Smart Meter Install $ 69.39 $ 163.82 No Fee No Fee No Fee No Significant Incremental Cost - See Coppola Testimony Up-Front Costs: Customer Replaces Smart Meter 7 Replace Existing Smart Meter with Legacy Meter $ 39.52 $ 40.66 $ 39.52 $ 40.66 $ 40.66 Incremental cost only while on premise (see line 12 below) 8 Legacy Meter Retention 0.47 0.47 0.47 0.47 0.47 Not incremental cost 9 Smart Meter Deployment Exceptions Process 34.07 129.31 30.00 30.00 7.50 System modifications amortized below. See Coppola Testimony 2 10 Customer Support Labor 6.44 8.38 - - - Customer Service call cost reflected in base rates. 11 Meter Reader Handheld Device Purchases 3.89-3.89 - - Cost amortized and shifted to monthly fee per Company 12 Restore Premise to Standard metering 39.52 40.66 - - - Current customer not responsible for future change to smart meter. 13 One Time Cost Post Smart Meter Install $ 123.91 $ 219.48 $ 73.88 $ 71.13 $ 48.63 Ongoing Monthly Cost of Operations 14 Removal of Meter Reading Expense $ (0.39) $ - $ (0.39) $ (0.35) $ (0.35) See Exhibit AG-3 15 Removal of AMI capital investment costs (1.00) - (1.00) (3.60) (3.60) See Exhibit AG-3 16 Meter Reading @12 Reads Per Year 11.06 19.26 11.06 11.41 11.41 Meter Reading costs based on 15 meter readers vs. 21 3 Meter Reader Handheld Device Purchases - 0.14 0.14 0.14 0.14 17 Systems Modifications 0.03-0.05 0.55 0.26 System modifications costs amortized over 15 years 4 18 Meter Testing Program for Legacy Meters 0.03 0.03 0.03 0.03 0.03 17 Total Monthly Ongoing Costs $ 9.72 $ 19.43 $ 9.89 $ 8.18 $ 7.89. Source: (1) Existing Tariff and U-17990 Proposed cost components from Exhibit A-1 (LDW-1). (2) System modification costs amortized in monthly fee. Meter change order cost of $15 cut to $7.50 and cost of $15 to set Billing flag for manual read removed in AG Option II. (3) See Exhibit AG-2. (4) Up-front system modification cost for exception processing of $110,000 in Existing Tariff amortized over 15 years and 27,000 customers = $0.02 added to Company on-going cost of $0.03. Case U-17990 system modification cost of $1,072,600 amortized over 15 years and 10,800 customers = $0.55. For Option II only $500,000 of system modifications costs are allowed or $0.26 per month per customer. See Coppola Testimony.

MICHIGAN PUBLIC SERVICE COMMISSION Exhibit: AG-1 Consumers Energy Company Case No: U-17087 (Remand) Date: August 8, 2016 CECo Response to Discovery Request 17990 AG-CE-321 Page 1 of 1

STATE OF MICHIGAN DEPARTMENT OF ATTORNEY GENERAL BILL SCHUETTE ATTORNEY GENERAL. August 8, 2016