April 14, 2020 Lisa Felice Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Lansing, MI 48917 RE: In the matter of the application of DTE GAS COMPANY for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority MPSC Case No. U-20642 Dear Ms. Felice: Attached for electronic filing in the above captioned matter is DTE Gas Company’s Rebuttal Testimony of Witnesses, Jaison J. Busby, Robert J. Lee, Shoshannah M. Lenski, Habeeb J. Maroun, and Rajan M. Telang, and Rebuttal Testimony and Exhibits of Witnesses, Andrew D. Dewey, Mark C. Johnson, Tamara Johnson, Henry N. Campbell, George Chapel, Michael S. Cooper, Henry J. Decker, Philip W. Dennis, Alida D. Sandberg, Edward J. Solomon, Theresa M. Uzenski, and Dr. Bente Villadsen. Also attached is the Proof of Service. Please note that the Exhibit A-23, Schedules M2, M7, M8, M9, M10 and M11 contain confidential material. The confidential material is being filed under seal and is being supplied to the individuals who have properly executed a non-disclosure certificate pursuant to the Protective Order. Very truly yours, Lauren D. Donofrio LDD/lah Attachments cc: Service List Lauren D. Donofrio (313) 235-4017 [email protected]DTE Gas Company One Energy Plaza, 1635 WCB Detroit, MI 48226-1279
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
April 14, 2020 Lisa Felice Executive Secretary Michigan Public Service Commission 7109 West Saginaw Highway Lansing, MI 48917 RE: In the matter of the application of DTE GAS COMPANY for authority to increase
its rates, amend its rate schedules and rules governing the distribution and supply of natural gas, and for miscellaneous accounting authority
MPSC Case No. U-20642 Dear Ms. Felice:
Attached for electronic filing in the above captioned matter is DTE Gas Company’s Rebuttal Testimony of Witnesses, Jaison J. Busby, Robert J. Lee, Shoshannah M. Lenski, Habeeb J. Maroun, and Rajan M. Telang, and Rebuttal Testimony and Exhibits of Witnesses, Andrew D. Dewey, Mark C. Johnson, Tamara Johnson, Henry N. Campbell, George Chapel, Michael S. Cooper, Henry J. Decker, Philip W. Dennis, Alida D. Sandberg, Edward J. Solomon, Theresa M. Uzenski, and Dr. Bente Villadsen. Also attached is the Proof of Service.
Please note that the Exhibit A-23, Schedules M2, M7, M8, M9, M10 and M11 contain
confidential material. The confidential material is being filed under seal and is being supplied to the individuals who have properly executed a non-disclosure certificate pursuant to the Protective Order.
Very truly yours,
Lauren D. Donofrio LDD/lah Attachments cc: Service List
DTE Gas Company One Energy Plaza, 1635 WCB Detroit, MI 48226-1279
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
RAJAN M. TELANG
DTE GAS COMPANYREBUTTAL TESTIMONY OF RAJAN M. TELANG
LineNo.
RMT-2-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Rajan M. Telang. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Energy Corporate Services, LLC a4
subsidiary of DTE Energy as Director, Regulatory Affairs.5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas7
Company (DTE Gas or Company)?8
A2. Yes.9
10
Q3. What is the purpose of your rebuttal testimony?11
A3. The purpose of my rebuttal testimony is to rebut the following positions:12
Michigan Public Service Commission (Commission or MPSC) Staff13
Witness Mr. Rueckert relative to uncollectible expense and discuss a14
Attorney General (AG) Witness Mr. Coppola’s recommendation that16
inflation cost increases are not warranted.17
Attorney General Witness Mr. Coppola and MPSC Staff Witness Ms.18
McMillan-Sepkoski relative to their proposed disallowance of financial-19
related capitalized incentive compensation.20
Michigan Power Limited Partnership and Verso Corporation (MPLP-21
Verso) Witness Mr. Phillips’ recommendation that the Infrastructure22
Recovery Mechanism (IRM) be eliminated.23
MPSC Staff Witness Mr. Todd’s suggestion that rates not become effective24
for up to thirty-days after an Order is issued in this case.25
R. M. TELANGLine U-20642No.
RMT-3-Rebuttal
1
The absence of a discussion of other matters in my rebuttal testimony should not2
be taken as an indication that I agree with other aspects of any Staff or intervenor3
testimony.4
5
Q4. Are you sponsoring any exhibits in this proceeding?6
A4. No, I am not.7
8
Uncollectible Expense9
Q5. On page 6 of her direct testimony, Staff Witness Rueckert recommends10
“[T]hat cash basis accounting of gross write offs less recoveries to gas service11
revenue is preferable for Uncollectible Accounts Expense projections because12
it presents a more accurate picture of the actual cash flows the Company13
receives annually”. Do you agree?14
A5. No. As supported by Company Witness Ms. Uzenski in her rebuttal testimony, the15
Company determines uncollectible accounts expense based on an accrual method.16
The Company’s revenue requirement, and therefore rates, is calculated to recover17
the Company’s expenses expected based on accounting, not cash flow.1 The18
estimation of future expenses should therefore be consistent with the practice used19
to record the actual expenses thereby ensuring recovery of the Company’s prudent20
and reasonable costs. Further, use of a three-year historical average of uncollectible21
expense was approved by the Commission in DTE Gas’s prior two rate cases, Case22
Nos. U-18999 and U-17999.23
24
1 This statement is not meant to imply that cash flow is not an important consideration in the financialhealth of the company or that it should be ignored as a part of the regulatory process.
R. M. TELANGLine U-20642No.
RMT-4-Rebuttal
Q6. Are there any other reasons that the Commission should not reduce the1
Company’s uncollectible expense projection by $6.5 million as Staff suggests?2
A6. Yes. The Commission should not reduce the Company’s uncollectible expense, as3
Staff suggests, because it has become apparent that the Company’s projected4
uncollectible expense will be far higher than the prior three-year historical average5
uncollectible expense of $33.7 million. As supported by Company Witness Ms.6
Johnson, the Company’s forecasted uncollectible expense could increase to more7
than $65 million during the projected test year, due to the 2020 COVID-198
pandemic and the associated economic impacts. The Company has implemented a9
suspension on service shutoffs for all residential customers and an expansion of the10
winter protection program for senior customers. In addition, DTE Gas expects11
numerous customers will experience some form of economic hardship from job12
loss, reduced work hours, and/or unpaid sick time due to business closures resulting13
from emergency public health and safety measures ordered by Federal, State and14
local governments, for example Executive Orders 2020-04 and 2020-21.15
16
As discussed by Witness T. Johnson, similar to the 2008/2009 economic recession,17
these circumstances are likely to increase DTE Gas’s uncollectible expense from18
the current $33.7 million three-year average historic levels. If we experience an19
increase similar to that of the 2008/2009 recession, then uncollectible expenses20
could increase from 2019 actual uncollectible expense of $38 million to more than21
$65 million during the projected test year. Over 500,000 customers in our service22
territory are classified as low income. In addition, we also have a significant number23
of customers classified as working poor. These populations of customers24
consistently struggle making timely payments. The current pandemic creates added25
R. M. TELANGLine U-20642No.
RMT-5-Rebuttal
pressures as their resources decline. Customers with otherwise strong payment1
histories experiencing job elimination or reduced hours may also find it difficult to2
pay their bills. In addition, we anticipate that small and medium sized businesses,3
as they are mandated to close, will also experience additional hardship.4
Approximately 20% of these small and medium sized customers are currently past5
due in the amount of approximately $15 million, and we expect this to grow.6
7
Q7. Did DTE Gas experience an increase in uncollectible expense associated with8
a previous widespread economic hardship?9
A7. Yes. As supported by Witness Tamara Johnson and noted in Figure 1 later in my10
testimony, DTE Gas experienced an 80% increase in uncollectible expense from11
$70 million in 2007 to $126 million in 2008 during the 2008 recession, and it took12
two years to recover to pre-recession levels. It is important to recognize that this13
increase happened without a moratorium on service shut-offs. However, during the14
current pandemic, the Company has worked with the Commission and other15
Michigan utilities to implement a temporary suspension on service shutoffs for all16
residential customers as well and an expansion of the winter protection program for17
senior customers. These actions, while necessary to protect the health and safety18
of our customers, are nevertheless expected to exacerbate the level of uncollectible19
expense as explained by Witness T. Johnson.20
21
Q8. If the Commission does not reduce the Company’s projected uncollectible22
expense, as suggested by Staff, is the Company’s previously filed uncollectible23
expense projection adequate given the current economic situation you just24
discussed?25
R. M. TELANGLine U-20642No.
RMT-6-Rebuttal
A8. No. As mentioned previously, the most recent forecasted uncollectible expense1
could increase to more than $65 million for the test year ending September 30, 20212
and will be higher than the Company’s three-year historic previously filed amount3
of $33.7 million and likewise higher than Staff’s recommendation of $27 million.4
Therefore, neither DTE Gas’s proposed method nor Staff’s method for projecting5
uncollectible expense adequately reflects current conditions and the associated6
impact on DTE Gas’s financial situation.7
8
Q9. What does the Company propose to address this situation?9
A9. The Company is proposing an Uncollectible Expense True-up Mechanism (UETM)10
to ensure that DTE Gas is not severely harmed by the expected increase in11
uncollectible expense while also providing a mechanism to safeguard DTE Gas’s12
customers if uncollectible expense returns to levels less than what is included in13
rates. The UETM would be an annual reconciliation procedure that would allow the14
Company to recover its actual uncollectible expense while sparing the Commission15
the need to determine the proper allowance for uncollectible expense in this16
proceeding, which cannot be accurately predicted under current circumstances. In17
the past, this mechanism was useful protecting DTE Gas and its customers during18
uncertain economic times.19
20
Q10. What is the precedent for using this mechanism?21
A10. The Commission approved a UETM in prior DTE Gas rate cases, Case Nos. U-22
13898 and U-15985, both of which were affirmed on appeal. In its April 28, 200523
Order approving the UETM in Case No. U-13898, the Commission found that24
“MichCon’s present and likely-to-occur projected uncollectible expense level is25
R. M. TELANGLine U-20642No.
RMT-7-Rebuttal
uncharacteristic as regards the known and measurable change standard, and highly1
unusual. Thus, it is appropriate to consider an increased cost level for purposes of2
this proceeding only. The Commission is persuaded that the UETM, as clarified by3
the Staff, should be implemented.” Although the underlying uncollectible expense4
drivers in the current proceeding are not identical to those in Case No. U-13898,5
they are certainly “uncharacteristic” and “unusual” relative to the known and6
measurable standard, and therefore approval of an UETM in this proceeding is7
warranted.8
As Figure 1 below illustrates, the UETM utilized during the 2004/2005 economic9
slowdown and natural gas price escalations and the 2008 recession performed as10
was designed. It protected both DTE Gas and its customers during years of11
unprecedented uncollectible expense volatility. DTE Gas was not harmed by over12
300% increases in uncollectible expense levels (2002 was the historical test year13
for Case No U-13898) and customers were not harmed when it returned to pre-14
recession levels. In addition, DTE Gas did not have to file rate cases every year due15
to uncollectible expense.16
17
R. M. TELANGLine U-20642No.
RMT-8-Rebuttal
1
Figure 1 Annual Uncollectible Expense History2
3
Q11. How would the UETM operate?4
A11. By April 30 of each calendar year, the Company would submit a report to the5
Commission comparing its actual uncollectible expense with the uncollectible6
expense allowance approved in this proceeding. Ninety percent of the difference7
between these amounts would represent the amount to be collected or refunded to8
the Company’s customers over a subsequent 12-month period through a temporary9
surcharge or credit. The UETM surcharge or credit would be allocated to the10
respective rate schedules based on the allocation of uncollectible expense adopted11
in the cost of service and rate design in this case. DTE Gas proposes using the prior12
year’s actual sales and transportation volumes by rate schedule to calculate the13
surcharge for each rate to minimize yearly over or under-recoveries. See Table 114
below for an illustrative and simplified example of the determination of the annual15
R. M. TELANGLine U-20642No.
RMT-9-Rebuttal
UETM. The calculation methodology and level of data provided would be1
consistent with DTE Gas’s prior UETM Reconciliation cases approved by the2
Year 1 Actual Uncollectible Expense $60,000 $30,000
Uncollectible Expense in Base Rates 34,000 34,000
Difference $26,000 ($4,000)
Amount Subjected to True-Up x 90% x 90%
Year 1 (Over)/Under Collection $23,400 ($3,600)
8
Witness Uzenski further discusses the accounting treatment for the UETM in her9
rebuttal testimony in this case.10
11
Q12. Why would only 90% of the difference be subject to collection or refund?12
A12. While the actual level of uncollectible expense is largely beyond the Company’s13
control, DTE Gas proposes that the Company remain at risk for 10% of its14
uncollectible expense to provide a further incentive to minimize its actual expense.15
16
Q13. Will there be any carrying charges on the differences between the actual17
uncollectible expense and the amount of uncollectible expense included in base18
rates?19
A13. Yes. DTE Gas will maintain a monthly total balance for UETM accrual amounts,20
balances and collections. Carrying charge expense or revenue will be calculated21
R. M. TELANGLine U-20642No.
RMT-10-Rebuttal
on the total simple monthly balance of these three components using DTE Gas’s1
average short-term borrowing rate. Interest will be compounded annually on2
December 31.3
4
Q14. Would the UETM operate symmetrically?5
A14. Yes. The UETM would operate symmetrically. If uncollectible expense is higher6
or lower than the base amount, DTE Gas would be at risk for 10% of the difference7
between the uncollectible expense amount approved in this proceeding and the8
actual uncollectible expense and would refund or surcharge 90% of the difference.9
Therefore, customers would receive the benefit of a credit if the economy improves10
and actual uncollectible expense decreases before the Company files its next rate11
case. As discussed previously, the carrying charge for the UETM would be12
symmetrical using the company’s average short-term borrowing rate for both any13
under-recovery or over-recovery. Application of such a true-up mechanism would14
have the added benefit that it should alleviate the Staff’s concerns about over-15
collection in uncollectible expense by the Company, as expressed in Ms. Rueckert’s16
testimony.17
18
Q15. Why is the Company proposing to use prior year’s actual sales and19
transportation volumes in the annual UETM reconciliation rather than20
projected sales and volumes?21
A15. As a result of expected declining consumption per customer due to Energy Waste22
Reduction (EWR), using the projected delivery volumes in this proceeding would23
result in an under-collection of the amount to be recovered via the UETM surcharge24
in the year of recovery, resulting in a large roll-over of the under-collected25
R. M. TELANGLine U-20642No.
RMT-11-Rebuttal
surcharge amount to the following year. To better approximate the actual delivery1
volumes over which DTE Gas will collect the UETM surcharge, the Company2
proposes using the prior year’s actual volumes for each rate class as reported in3
DTE Gas’s Annual Report of Natural Gas Utilities, DTE Gas’s P-522, pages 305C,4
306C, 312 and 313. Aggregate volumes from pages 312 and 313 will be allocated5
to their proper rate classes to calculate surcharges. Volumes from Rate 2A I and II6
are provided in total but will be separated for calculation of surcharges. Unbilled7
volumes will not be included in the surcharge calculation. Any over or under8
collection due to differences in the actual sales and transportation volumes billed9
during the period that the surcharge is in effect would be rolled over as the10
beginning balance into the following year’s UETM surcharge.11
12
Q16. How would the UETM annual reconciliation be implemented by the13
Commission?14
A16. The Company would submit an application that included the specific details15
described above by April 30 of each year. This application would be noticed with16
an opportunity for a hearing. It is assumed that the elements of the application17
would be narrow in scope and that a prompt hearing and Commission order could18
ensue to facilitate timely implementation of the UETM credit or surcharge. The19
Company would anticipate that the reconciliation would follow the form and20
process of that used to reconcile the UETM approved in the U-13898 and U-1598521
final rate orders.22
23
Q17. How does the Company plan to address the initial 2020 UETM period?24
R. M. TELANGLine U-20642No.
RMT-12-Rebuttal
A17. It is expected that the Commission will issue an Order establishing new base rates1
in this proceeding in September 2020 or earlier. Therefore, the initial period for2
the UETM will be less than a full calendar year. Consistent with the Commission’s3
order in U-13898, the Company proposes that this initial period’s uncollectible4
expense over or under recovery be prorated based on a comparison of sales and5
transportation revenue for the portion of the year following the implementation of6
new rates pursuant to the Order to the total sales and transportation revenue for the7
calendar year.8
9
Q18. How long does the Company propose that the UETM would be in effect?10
A18. The Company proposes that the UETM remain in effect until the Commission11
issues a final order in DTE Gas’s next rate case. This would allow the parties and12
the Commission an opportunity to assess the effectiveness of the UETM and the13
level of uncollectible expense in DTE Gas’s base rates to determine if any changes14
to either are appropriate.15
16
Inflation17
Q19. Do you agree with AG Witness Mr. Coppola recommendation that projected18
inflation cost increases are not warranted in this case?19
A19. No, I do not agree with Witness Coppola’s recommendation that inflation cost20
increases are not warranted in this case.21
22
Q20. Has the Company presented evidence that there is inflationary pressure in this23
case?24
R. M. TELANGLine U-20642No.
RMT-13-Rebuttal
A20. Yes. Company Witnesses Cooper and Uzenski both presented evidence in support1
of inflation in their respective direct testimonies.2
3
Q21. What support does Company Witness Cooper provide in support of inflation?4
A21. In Company Witness Cooper’s Direct Testimony as stated in Section Labor Cost5
Escalation, Answer 45, with regard to represented employees, “[b]ased on existing6
Collective Bargaining Agreements, the Company is obligated to increase pay rates7
by approximately 3% annually through the term of the contracts. In addition to8
scheduled pay rate increases, the agreements also provide for progression increases9
for those employees that have not yet achieved the maximum pay rate for their10
positions.”11
12
Q22. What support does Company Witness Uzenski provide in support of inflation?13
A22. Company Witness Uzenski supports the composite rate of inflation for 2019, 2020,14
and 2021. To arrive at the composite rate utilized in this case, Witness Uzenski15
assumes a contract labor inflation rate of 3%, as much of the workforce is16
represented by unions and has wages that will increase at that rate as specified in17
collective bargaining agreements. Company Witness Uzenski uses the consumer18
price index (CPI)-Urban forecast published by IHS Markit for non-labor costs. The19
calculation of the blended rate is provided in Company Witness Uzenski’s Exhibit20
A-13, Schedule C12.21
22
Q23. Should the Commission accept AG Witness Coppola’s recommendation to23
remove inflation from these forecasts?24
R. M. TELANGLine U-20642No.
RMT-14-Rebuttal
A23. No. As described by Company Witnesses Cooper and Uzenski, and as has been1
supported in previous rate case decisions, the Company has experienced and will2
continue to experience inflationary pressures. Thus, the Company’s projection of3
future O&M expenditures is reasonable.4
5
Q24. On page 106 of his direct testimony Witness Coppola states that the inflation6
rates used by the Company in its direct case are now out of date, and the rates7
contained in Exhibit AG-4 are generally lower than the rates used by the8
Company. Should the AG’s inflation numbers be substituted for those used9
by the Company?10
A24. No, the Company’s projected O&M expenditures were developed at a point in time.11
Selectively choosing cost elements that have decreased since that point in time12
without acknowledging those items that may have increased over the same period13
would not be appropriate.14
15
Incentive Compensation16
Q25. Staff Witness McMillan-Sepkoski states on page 9 of her direct testimony that17
“Since the Commission has consistently disallowed the revenue requirement18
of the financial portion of Incentive Compensation, Staff recommends19
excluding the capitalized portion for 2018 going forward, which net of20
accumulated depreciation, is a $9,898,000 reduction to test year rate base”.21
AG Witness Coppola, on page 129 of his direct testimony, also recommends22
disallowing capitalized incentive costs related to financial measures for 201823
through the end of the projected test year. Do you agree?24
R. M. TELANGLine U-20642No.
RMT-15-Rebuttal
A25. No. The Company disagrees with MPSC Staff and the AG’s proposals to disallow1
financial-related capitalized incentive compensation from the projected test year as2
well as for time periods that are historical (2018) or will be past (2019, and most of3
2020) by the time an order is issued in this case. DTE Gas also disagrees that these4
capitalized amounts were previously disallowed from rate base. The Commission’s5
September 13, 2018 order in Case No. U-18999 was specific that incentive6
compensation expense tied to financial measures be disallowed. The Commission7
did not disallow any capitalized incentive costs. Therefore, Staff Witness8
McMillan-Sepkoski and AG Witness Coppola’s recommendations should be9
rejected because it is a departure from past rate-making treatment and will result in10
a plant balance that does not reflect the full capitalized cost incurred by DTE Gas.11
12
Q26. What would be the immediate impact to DTE Gas if the Commission adopted13
Staff and the Attorney General’s recommendations to retroactively disallow14
the previously capitalized portion of incentive compensation related to15
financial measures?16
A26. If the Commission were to retroactively disallow previously capitalized incentive17
compensation related to financial measures as proposed by Staff and the Attorney18
General, the Company would have to write off $3.1 million of capitalized19
incentives from 2018, $3.2 million from 2019 and $2.4 million from January to20
September 2020. As described previously, the Company disagrees with the Staff21
and Attorney General’s proposal. However, if the Commission agrees with the22
disallowance of capitalized incentive compensation related to financial measures,23
then the Company requests the change be made on a prospective basis; specifically,24
the date on which rates approved in this case become effective. The use of that25
R. M. TELANGLine U-20642No.
RMT-16-Rebuttal
effective date will avoid a significant write-off related to costs that had previously1
been incurred and approved for inclusion in rates as reasonable and prudent by the2
Commission in prior cases.3
4
Infrastructure Recovery Mechanism5
Q27. On page 22 of his direct testimony, MPLP-Verso Witness Phillips recommends6
that the “IRM be eliminated or certainly not increased. If it is not eliminated,7
it should be maintained at its current level as recently authorized in Case No.8
U-18999”. Do you agree?9
A27. No. The Commission has consistently approved the use of the Company’s IRM in10
the past three DTE Gas rate cases – Case Nos. U-18999, U-17999, and U-16999.11
Specifically, the merits of the IRM and the very same considerations raised by12
MPLP-Verso Witness Phillips in this case were already fully litigated and the IRM13
ultimately approved by the Commission in those previous DTE Gas rate cases.14
MPLP-Verso Witness Phillips has not raised any new issues that the Commission15
has not previously considered nor shown that circumstances have changed so that16
the Commission’s prior findings are no longer applicable. Therefore MPLP-Verso17
Witness Phillips recommendations regarding the IRM should be rejected.18
19
Further, the Company’s proposed IRM capital expenditures in the MRP, MMO,20
MAC MMO and PI programs, and the contemporaneous cost recovery of those21
expenditures through the proposed IRM surcharge, is of critical importance. As22
supported by Company Witness Mr. Dewey in his direct testimony, the IRM23
programs are necessary to assure the safety of DTE Gas’s customers and the public24
and to allow the Company to provide reliable utility service. The IRM expenditures25
R. M. TELANGLine U-20642No.
RMT-17-Rebuttal
proposed in this case continue supporting DTE Gas’s and the Commission’s goal of1
safe and reliable service. The proposed IRM expenditures are necessary to achieve2
the Main Renewal targets in the Commission’s September 13, 2018 order in Case3
No. U-18999.4
5
Rate Implementation6
Q28. On page 21 of his direct testimony, Staff Witness Todd states “In order for the7
Company to have adequate time to update their billing system with the new8
rates, Staff recommends that the effective date be set seven calendar days after9
the date the Order is issued”. Does the Company agree with this10
recommendation?11
A28. No. While the Company recognizes that Staff Witness Todd’s proposal would12
provide DTE Gas time to update the billing system, a full seven-day period is not13
necessary. Absent extenuating circumstances or major unexpected changes in14
billing, DTE Gas can update its billing system for new base rates in a much shorter15
time period, and fully contemplated the time required to accurately implement new16
rates when determining the date on which the rate case was filed in 2019 to ensure17
it was adequate. DTE Gas creates test scenarios for rates and tests them prior18
issuance of an order. As long as only rates change, not the structure of those rates,19
our testing allows us to implement new rates quickly.20
21
Further, depending on the timing of the Commission’s order in this case, delaying22
the effective date for new base rates by seven days may unintentionally result in23
new base rates becoming effective after the start of the projected test year, which24
would result in financial harm to the Company. Therefore, the Company proposes25
R. M. TELANGLine U-20642No.
RMT-18-Rebuttal
that new base rates become effective October 1, 2020, which is the start of the1
projected test year. Aligning the effective date with the start of the projected test2
year would also be consistent with the Commission’s September 13, 2018 Order in3
its last rate case, Case No. U-18999, and the Commission’s September 26, 20194
order in Consumers Energy’s last gas rate case, Case No. U-20322.5
6
Q29. On pages 21– 22 of his direct testimony, Staff Witness Todd suggests, as an7
alternate proposal, that the rates approved by the Commission’s final Order8
in this case not become effective until as much as 30 days after that Order is9
issued. Does the Company agree with this suggestion?10
A29. No. Rate case proceedings are required by statute (2016 Public Act 341) to be11
litigated within a ten-month period. Staff Witness Todd’s suggestion that there be12
as much as a 30-day delay from the time a final Order is issued in this proceeding13
would unnecessarily delay the implementation of rates beyond the period described14
in the statute or require that the initial final Order be issued earlier than otherwise15
necessary. The latter would further shorten an already compressed time table for16
rate cases. If adopted, Staff’s proposal to delay the date for making rates effective17
by as much as 30 days would effectively make what is intended to be a ten-month18
case an eleven-month case. Additionally, the Company has chosen its test year to19
receive rate relief in ten-months from its filing date. Not receiving that relief at the20
start of the projected test year would result in financial harm to the Company.21
22
Q30. Does Staff Witness Todd offer any explanation why a delay in the effective23
date for rates is necessary?24
R. M. TELANGLine U-20642No.
RMT-19-Rebuttal
A30. Yes, Staff Witness Todd explains that the delay would provide parties with more1
time to verify the rates before they become effective. According to Staff Witness2
Todd’s proposal, the delay would be 21 days if no errors were found, and up to 303
days if corrections are necessary.4
5
Q31. If additional time is necessary to validate rates contained in a final Order prior6
to those rates becoming effective, what remedial action should the Commission7
take to address any errors found after the Order issuance?8
A31. The Company is not opposed to a means to address errors found after the issuance9
of the final Order. However, DTE Gas recommends, consistent with past practice,10
that new base rates reflecting the Commission’s final Order become effective on11
October 1, 2020, the start of the projected test year, and any errors found would be12
corrected as soon as possible.13
14
Q32. Does this conclude your rebuttal testimony?15
A32. Yes, it does.16
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
JAISON J BUSBY
DTE GAS COMPANYREBUTTAL TESTIMONY OF JAISON BUSBY
LineNo.
JJB-1-Rebuttal
Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Jaison J Busby. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Energy Corporate Services, LLC, as4
Director – Information Officer within the Information Technology Services (ITS)5
organization.6
7
What is your education?8
A2. I graduated from Oakland University with a Bachelor’s degree, in Management9
Information Systems in 1999 and University of Phoenix with a Master’s Degree in10
Business Administration (MBA), Technical Management in 2004.11
12
What work experience do you have?13
A3. I have worked for DTE Energy or one of its regulated utilities for over 5 years in14
various Information Technology (IT) positions. I am currently the IT Director of15
Power Supply and Energy Gas for the LLC. As the IT Director of Power Supply16
and Energy Gas, I am responsible for the teams that support Nuclear, Fossil17
Generation, Generation Optimization, Fuel Supply, Renewables and Energy Gas18
business units to operate, secure, deliver and plan information technology solutions.19
My portfolio also supports the success of individual business units by delivering20
new application capabilities, monitoring and maintaining the health of the systems.21
Prior to my current position, I was the Business Relationship Manager for the22
J. BUSBYLine U-20642No.
JJB-2-Rebuttal
Employee Experience Group, Manager of IT Network Engineering Group and the1
Customer IT Operations Group.2
3
Have you previously sponsored testimony before the Michigan Public Service4
Commission (MPSC)?5
A4. No.6
7
Did you file direct testimony in this proceeding on behalf of DTE Gas?8
A5. No.9
10
Purpose of Testimony11
What is the purpose of your rebuttal testimony?12
A6. The purpose of my rebuttal testimony is to:13
o Refute Staff Witness Joy H. Wang’s proposed total capital disallowance of14
$614,547, with $85,897 in the bridge year and $528,650 in the test year.15
My testimony will support the four DTE Gas IT projects, specifically Field16
Sketch 2020, Field Sketch 2021, EGMS Enhancements and Predictive17
Dialer/Nice(vendor) Enhancements.18
o Refute Attorney General (AG) Witness Coppola’s proposed removal of19
$8.9 million in capital expenditures for the Clicksoft Field Management20
System (Clicksoft) and $3.5 million in capital expenditures for the21
Electronic Gas Management System (EGMS). My rebuttal testimony will22
J. BUSBYLine U-20642No.
JJB-3-Rebuttal
demonstrate that the requested recovery is required for prudent and1
necessary projects to support Gas Operations and Gas Dispatch services.2
3
Are you sponsoring any exhibits in this proceeding?4
A7. No.5
6
Staff’s Proposed Disallowances7
What is Staff proposing?8
A8. Staff witness Wang is proposing a total capital disallowance of $614,547, with9
$85,897 in the bridge year and $528,650 in the test year, for the four DTE Gas IT10
projects.11
12
What is Witness Wang’s basis for the disallowance of the Company’s proposed13
total capital expenditure of $614,547, with $85,897 in the bridge year and14
$528,650 in the test year for the Four DTE Gas IT projects?15
A9. On page 25 of her testimony, Witness Wang states that there is no adequate16
explanation for the four Gas IT projects nor is information available to determine17
the reasonableness and prudency of these projects (Field Sketch 2020, Field Sketch18
2021, EGMS Enhancements and Predictive Dialer/Nice Enhancements).19
20
In Witness Wang’s testimony she asserts that DTE Gas does not adequately21
explain the purpose of the four IT projects and in all four cases a synopsis only22
details that “enhancements” will be made. How do you define Enhancements?23
J. BUSBYLine U-20642No.
JJB-4-Rebuttal
A10. An enhancement is a term used at DTE to define a change to an existing application1
or system in production to add new features or capabilities. Examples of new2
features and capabilities can include changes required by internal end users to make3
an application or system more user friendly or can include external factors such as4
a software vendor upgrading their software, which would require DTE to take5
action to upgrade the DTE environment. Features and new capabilities targeted for6
the four projects are explained in detail in testimony below beginning with Q13.7
8
Do you agree with Witness Wang’s recommendation for disallowance of9
capital expenditure for $614,547, with $85,897 in the bridge year and $528,65010
in the test year for the Four DTE Gas IT Projects?11
A11. No. I do not. DTE Gas requires the capital expenditure of $614,547, with $85,89712
in the bridge year and $528,650 in the test year for the Four DTE Gas IT Projects13
(Field Sketch 2020, Field Sketch 2021, EGMS Enhancements and Predictive14
Dialer/Nice Enhancements) to add new features and capabilities required by the15
business.16
17
Field Sketch 202018
Q12. What Field Sketch 2020 enhancements (requirements) will the capital19
expenditures include in this case fund?20
A12. The following are the specific requirements for the Field Sketch 2020 project21
included in this case:22
J. BUSBYLine U-20642No.
JJB-5-Rebuttal
Provide the ability for gas employees to view electric facility data as well as1
hazmat and brownfield locations, which was not previously available. By2
accessing this data, gas employees will be able to identify that this is a possible3
safety concern and take appropriate action. Having this data visible also assists4
in assigning jobs, which will ensure proper protective gear is used on the job5
site.6
Implement and upgrade the search capability to include the compatible unit gas7
library. This will increase the efficiency of identifying correct assets that are8
being constructed and installed.9
Upgrade MIMS (Mobile Information Management System) application with10
annotation functionality. Implementing this functionality would enable gas11
employees to view the GIS (Geographic Information System) maps with12
improved symbology and text labeling.13
Include snap capability feature. This functionality will allow improved14
placement of assets (compatible units) on the map for viewing and improve the15
final mapping of the asset.16
Implement new bookmark feature to allow end user to save work for historical17
viewing abilities as well as in the event they are called to another job site. This18
capability will improve mapping cycle time and eliminate cost associated with19
re-work.20
Allow the ability to search by GPS coordinates in addition to address. This will21
allow gas employees to enter a latitude and longitude coordinate if they have it22
J. BUSBYLine U-20642No.
JJB-6-Rebuttal
and search for a location. Increases efficiency by adding an additional search1
tool.2
Implement ESRI (Environmental Systems Research Institute) corrections3
process converting from manual to electronic submissions. This capability4
within MIMS will allow the employee to identify changes needed in the maps5
that they have identified while in the field on a job. They will have the ability6
to submit without going to another system. The correction will automatically7
be sent to the new electronic correction process site.8
Improve sketch efficiency and upgrade the application to display a directional9
arrow indicator icon (north arrow/compass). Employees will use this to provide10
proper dimensions and locations of the assets.11
Upgrade to include a visual feature within the application to notify an end user12
that application is still processing or syncing to corporate systems. This visual13
notification will assist the employee in knowing the syncing status and prevent14
them from trying to execute the syncing function multiple times manually15
resulting in the application freezing and impacting employee productivity.16
17
Field Sketch 202118
Q13. What Field Sketch 2021 requirements will the capital expenditures included in19
this case fund?20
A13. The following are the specific requirements for the Field Sketch 2021 project21
included in this case:22
J. BUSBYLine U-20642No.
JJB-7-Rebuttal
Incorporate MIMS (Mobile Information Management System) software tool1
to capture barcode data into the application. This software tool will enable2
DTE to automatically place barcode data into the system and reduce the3
amount of manual data entry by field employees.4
Update MIMS Field Sketch application to ensure compatibility with field5
hardware devices so the application and devices remain operable. This will6
minimize the impact to field employee productivity, preventing hardware7
devices from being removed from service for repair.8
9
EGMS Enhancements10
Q14. What EGMS enhancements will the capital expenditures included in this case11
fund?12
A14. The following are the specific requirements for the EGMS Enhancements Project13
included in this case:14
Incorporate new and upgraded existing TIPS (The Intelligent Plant System)15
reporting to increase efficiency and reduce manual efforts.16
Upgrade QPTM (Quorum Pipeline Transaction Management) report to improve17
dependability and reduce the risk of revenue loss for the external customer.18
Enhance screen feature to track monthly scheduled quantities between DTE Gas19
and interconnecting pipelines to reconcile month end business, while archiving20
historical information.21
22
23
J. BUSBYLine U-20642No.
JJB-8-Rebuttal
Predictive Dialer/Nice Enhancements:1
Q15. What are the required changes included in the Predictive Dialer/Nice2
Enhancements project included in this case?3
A15. The following are the specific requirements for Predictive Dialer project funded:4
Enable Supervisor to view the Agent dialer screen in real time. Real time5
feedback in the moment to provide more useful coaching than a6
monthly/weekly review where erroneous behavior may not be recalled.7
Enable Supervisor to view saved screens and replay of agent’s movements for8
all calls. Interface new dialer application with internal systems to improve9
reliability and customer experience. This will improve monthly/weekly10
coaching where coaching can be applied to behavior in the system that may be11
causing problems.12
Incorporate new reporting features to increase efficiencies and reduce manual13
labor. This will enable the team to accurately track their progress, set realistic14
goals, and better focus their efforts on where improvements need to be made.15
Enable Supervisor to set and record random recordings of sessions that can be16
played back. Application feature to be able to ID key words and phrases to17
for 100% of contacts to be checked, by checking every call we can improve19
overall agent quality and improve the customer experience. Automating the20
process of collecting and analyzing data will give the analyst more time to21
coach employees on their performance.22
J. BUSBYLine U-20642No.
JJB-9-Rebuttal
Create campaign(s) by location specific code (for example, R198, R740,1
W870, etc.) station (Ids) (for example, Lynch, Allen Road, Muskegon, Grand2
Rapids, etc.) and TMS (TIPS Management System) code, meter location and3
zip code and other items as needed. This will improve the agility and speed of4
admins by giving them configurable items based on a variety of factors and5
what they are calling customers about.6
Q16. What should the Commission approve?7
A16. The Commission should approve the total capital of $614,547, with $85,897 in the8
bridge year and $528,650 in the test year, for the Four DTE Gas IT projects,9
specifically Field Sketch 2020, Field Sketch 2021, EGMS Enhancements and10
Predictive Dialer/Nice Enhancements. The implementation of the enhancements11
to existing programs is reasonable and prudent and necessary for the Company to12
meet end user requirements.13
14
AG’s Proposed Disallowances15
ClickSoft Field Service Management16
Q17. What is the AG’s witness proposing?17
A17. Mr. Coppola states that the forecasted capital expenditures for the ClickSoft Field18
Service Management system of $8.9 million should be removed from this rate case.19
20What is Witness Coppola’s reasoning for his suggested removal?21
A18. On page 47 of his testimony, Witness Coppola claims that there is neither clear22
explanation of why this current system needs to be replaced if it was installed in23
J. BUSBYLine U-20642No.
JJB-10-Rebuttal
2014 and five years after how it is end of life nor were there any quantifiable1
financial benefits or cost savings identified to support the project.2
3
Do you agree with Witness Coppola’s recommendation to remove the capital4
expenditure of $8.9 million for this project?5
A19. No. I do not. Please see explanation below.6
7
When was the current version of the Field Service Management (Service Suite)8
implemented?9
A20. The system was originally implemented in 2007 with an in-service date of April 7,10
2007 and was owned by a vendor called Advantex. In 2014, ABB (vendor) bought11
the Advantex software and rebranded it as Service Suite and offered a patch12
upgrade, which DTE implemented. The 2014 patch upgrade included screen and13
feature changes, but the base functionalities stayed the same as those implemented14
in 2007, more than a decade ago.15
16
Why does the current system need to be replaced?17
A21. ABB, the vendor of the current system (Service Suite), has indicated that, effective18
December 2019, they would no longer support the product. It has been deemed end19
of life, not by DTE but by the vendor. This poses many risks to DTE such as the20
vendor will no longer provide enhancements or defect remediations to this product21
and will no longer invest in ensuring its stability. ABB will also no longer provide22
critical security updates to ensure the software remains safe from new cyber threats.23
J. BUSBYLine U-20642No.
JJB-11-Rebuttal
This increases the risk of security vulnerabilities to DTE’s infrastructure, which is1
an unacceptable risk.2
3
Are there any other concerns if Service Suite is not replaced?4
A22. Today, Service Suite is a shared platform used by both Electric Field Operations5
(EFO) and DTE Gas Field Operations (GFO). EFO is implementing Clicksoft by6
the end of 2020. If DTE Gas Operations does not follow, then DTE Gas will incur7
the full cost of maintaining Service Suite, which is $1,289,445 per year rather than8
the current bill down cost of $258,280 per year for DTE Gas as a shared cost.9
10
What are the financial and cost saving benefits of Clicksoft Field Service11
Management system?12
A23. DTE is implementing ClickSoft for operational functionality purposes and to13
mitigate risk given the end of life status of Service Suite. Please refer to Q21-Q2214
for additional detail regarding why the system needs to be replaced and concerns if15
it is not.16
17
What should the Commission approve instead or what is appropriate?18
A24. The Commission should approve $8.9 million of capital expenditures for the19
Clicksoft Field Service Management system.20
21
Electronic Gas Management System (EGMS)22
What is the AG proposing?23
J. BusbyLine U-20642No.
JJB-12-Rebuttal
A25. Mr. Coppola states that the forecasted capital expenditures for Electronic Gas1
Management system (EGMS) of $3.5 million should be removed from this rate2
case.3
4
What was Witness Coppola’s reasoning for the suggested removal?5
A26. On page 47 of his testimony, Witness Coppola claims that there is neither clear6
explanation of how DTE Gas has been using the system since it has been7
unsupported for so long and why the upgrade and addition of servers is necessary8
nor were there any quantifiable financial and non-financial benefits identified to9
support the investment of $3.5 million for this project.10
11
Do you agree with Witness Coppola’s recommendation to remove the capital12
expenditure of $3.5 million for this project?13
A27. No. I do not. Please see Q28 for additional detail.14
15
Explain how DTE Gas has been using the system since it has been unsupported16
for so long and why the upgrade is necessary?17
A28. Security threats (i.e. code, application and hardware backdoors) by malicious actors18
are increasing and getting more sophisticated every day. As system hardware and19
software ages and we add new features and capabilities, it is important that we20
proactively upgrade the system to remain current with industry standards.21
22
J. BusbyLine U-20642No.
JJB-13-Rebuttal
To mitigate security risk to date on the EGMS system, DTE Gas utilizes standard1
continuous monitoring and software/hardware patching processes. Continuous2
monitoring of the DTE infrastructure ensures malicious activity is proactively3
identified and blocked, while implementing vendor software/hardware patches4
addresses any known security vulnerabilities.5
6
In addition to the security threats and vulnerability risk, there are other benefits7
associated with the upgrade which include:8
The DTE Gas Nominations business has moved from a passive nominations9
system to an active nominations system. Our current version of software10
limits active nomination support whereas our targeted upgraded version of11
software includes features such as capacity analysis, automated12
confirmations, and improved customer reporting in support of an active13
nominations system.14
DTE Gas interconnects with many FERC regulated pipelines. It has become15
necessary that DTE Gas adapt some of the FERC guidelines to monitor our16
system capacity and enable timely interactions between DTE Gas and our17
customers. The upgraded software is FERC compliant and will allow DTE18
Gas to monitor capacity throughout the day, giving the Company more19
reliable insight into capacity constraints on our gas system and will assist20
DTE Gas in managing those constraints when necessary.21
22
J. BusbyLine U-20642No.
JJB-14-Rebuttal
Explain the quantifiable financial and non-financial benefits identified to1
support the investment of $3.5 million for this project?2
A29. Please see Q28 above for a list of benefits associated with executing this project.3
4
What should the Commission approve instead or what is appropriate?5
A30. The Commission should approve the $3.5 million in capital expenditures for the6
Electronic Gas Management system (EGMS).7
8
Does this conclude your rebuttal testimony?9
A31. Yes, it does.10
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
HENRY N. CAMPBELL
DTE GAS COMPANYREBUTTAL TESTIMONY OF HENRY N. CAMPBELL
LineNo.
HNC-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Henry (Hank) N. Campbell. My business address is One Energy Plaza,3
Detroit, Michigan 48226. I am employed by DTE Energy Corporate Services,4
(LLC).5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas?7
A2. Yes.8
9
Purpose of Testimony10
Q3. What is the purpose of your rebuttal testimony?11
A3. The purpose of my testimony is to rebut the following:12
Staff’s recommendation to reduce Merchant Fees in the projected test13
period.14
Attorney General’s recommendation that non-residential merchant fees be15
disallowed in the projected test period.16
Attorney General’s assertion that the $75,000 limit for non-residential17
customers is not a significant O&M reduction18
19
Q4. Are you sponsoring any exhibits via this testimony?20
Q5. Please explain the calculation of Merchant Fees in the projected test period.2
A5. As stated in my testimony Pg. 14 Line 11-16 the projected test period provides a 3-3
year compound average growth rate (CAGR). Residential customers have increased4
by 17.5% whereas non-residential have increased by 51.4%. These rates have been5
applied to the to the 2018 historical expense.6
7
Q6. Do you agree with AG’s witness Coppola recommendation (Pg 114, Line 1-4)8
that limiting non-residential customers with an annual bill of $75,000 does not9
go far enough to reduce O&M expense?10
A6. No. As shown in AG’s exhibit AG-45, Pg. 4, implementing the $75,000 cap would11
reduce Merchant Fees by $2.4M. This further reduces fees ~20% while still12
allowing small commercial and industrial customers to benefit from this payment13
option.14
15
Q7. Do you agree with the recommendation that no-cost payment by credit and16
debit card be limited to residential customers, as supported in the testimony17
of both Staff Witness Theresa McMillan-Sepkoski (Page 38, line 1-3) and18
Attorney General Witness Coppola (Page 114, Lines 13 through 15)?19
A7. No, I do not, for reasons I discuss further in my testimony.20
21
Q8. Does the Company control the amount of the transaction fees?22
A8. No, the Company does not control the transaction fees. Financial institutions and23
credit card companies drive the transaction fees customers incur when paying with24
credit or debit cards. The fee for each credit card transaction type is determined by25
H. N. CAMPBELLLine U-20642No.
HNC-1-Rebuttal
both the kind of card used, the way it is processed, and the time it takes the merchant1
to batch the transactions for processing. These fees are passed on to the company2
that processes the payment.3
4
Q9. Does the Company promote the use of debit and credit cards over any other5
method of payment as asserted by Staff Witness McMillan-Sepkoski (Pg. 34,6
line 8-12)?7
A9. No. The Company promotes all payment methods which are available to a customer8
to pay their bill, including cash, check, money order, mail or in person at any9
authorized pay agent or bill payment kiosk.10
11
Q10. Why should no-cost payment by credit and debit card be provided to both12
residential and small commercial and industrial customers?13
A10. The Company believes that it is essential to allow small commercial and industrial14
customers to pay by credit and debit cards. Non-residential customers indicated that15
utilizing a credit card provided their business with an extra 30-day float, which was16
critical to maintaining a positive cash flow (Exhibit A-24 Schedule N1 U-2056117
MECNRDCSDE-1.6c Witness Clinton). Furthermore, the focus group study18
referenced by Witness Clinton also indicated that imposing fees for paying by credit19
card would result in the following:20
Increase in cost resulting from loss of credit card rewards from bank21
Loss of flexibility in terms of payment timing22
Increase in bill-processing time and associated labor costs23
Reduced efficiency in terms of recordkeeping24
25
H. N. CAMPBELLLine U-20642No.
HNC-1-Rebuttal
Given the current economic climate impact of the 2020 Pandemic, small1
commercial and industrial customers will already face financial challenges and the2
inability to pay by credit and debit cards will compound an already tremulous3
situation. The Company believes it is necessary to allow small commercial and4
industrial customers the ability to pay by credit card without fees for such payment5
types in general, and especially now.6
7
Q11. Do you agree with Staff that the projected test period only include residential8
merchant fees?9
A11. No. For reasons stated above, the projected test period should include both10
residential and non-residential customers (small commercial and industrial11
Assuming the $75,000 cap).12
13
Q12. What is Staff’s calculation for non-residential merchant fees in the projected14
test period?15
A12. The non-residential amount of $6.66 million for non-residential customers is based16
on Staff’s 34% calculation correction (Exhibit A-24 N2 U-20642 TMS-13.117
response).18
19
Q13. Do you agree with Staff’s calculation of allocating 34% of Merchant Fees to20
DTE Gas?21
A13. Yes, I do. In my direct testimony (Page 5, lines 23-24), I supported allocating 35%22
of Merchant Fees to DTE Gas. However, as stated in Exhibit A-24 N3 U-2064223
TMS-6.2 response, the 65% / 35% split for Merchant Fees between DTE Electric24
and DTE Gas, was done outside the annual cost driver cycle. The Company25
H. N. CAMPBELLLine U-20642No.
HNC-1-Rebuttal
recognizes that there can be annual variances and going forward will update the1
allocation using percent of customers annually.2
3
Q14. Does this conclude your rebuttal testimony?4
A14. Yes it does.5
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
GEORGE H. CHAPEL
DTE GAS COMPANYREBUTTAL TESTIMONY OF GEORGE H. CHAPEL
LineNo.
GHC-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is George H. Chapel. My business address is DTE Gas Company (DTE3
Gas or Company), One Energy Plaza, Detroit, Michigan 48226. I am employed by4
DTE Gas as Manager, Market Forecasting.5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas?7
A2. Yes.8
9
Purpose of Testimony10
Q3. What is the purpose of your rebuttal testimony?11
A3. The purpose of my rebuttal testimony is to address the testimony of Staff Witness12
Ausum and Attorney General (AG) Witness Coppola in regard to the Company’s13
sales volumes in the projected test year. In addition, I will discuss the significant14
impact the recent pandemic will likely have on the Company’s sales forecast to15
rebut the positions taken by the Staff and AG in the projected test year.16
17
Q4. Are you sponsoring any exhibits in this proceeding?18
A4. Yes. I am sponsoring the following exhibits:19
Exhibit Schedule Description20
A-25 O1 Expected Recession Impacts on Projected Test Year21
Sales22
23
Q5. Was this exhibit prepared by you or under your direction?24
A5. Yes, it was.25
G. H. CHAPELLine U-20642No.
GHC-2-Rebuttal
1
Rebuttal to Staff Witness Ausum2
Q6. Did you review the testimony and exhibits of Staff Witness Ausum?3
A6. Yes, I did.4
5
Q7. Do you agree with the conclusions that Witness Ausum recommended?6
A7. I agree with his conclusions regarding the customer count forecast and the inclusion7
of adjustments such as heating value and EWR in determining projected test year8
volumes. I do not, however, agree with how he applies these factors in determining9
the projected test year volumes.10
11
Q8. How does Mr. Ausum apply these factors to determine the projected test year12
heating volumes?13
A8. Mr. Ausum used calendar year 2018 normalized volumes as a starting point. He14
then applied a factor of 0.9907 to account for changes in heating value from15
calendar 2018 to the projected test year. Further, he applied a factor of 0.99 x 0.9916
x 0.9925 (or 0.97275) to account for expected EWR reductions from calendar 201817
to the projected test year. His recommendation is a forecast of projected test year18
volumes for GCR/GCC/Aggregate customers to be 157,427 MMcf, 2,472 MMcf19
higher than the Company proposed in its initial filing.20
21
Q9. Is Mr. Ausum correct in his proposal to use a calendar year, in this case 2018,22
as a basis for forecasting volumes?23
A9. No, he is not. Using a calendar year as the basis for a forecast is problematic.24
Calendar 2018 sales are defined as billed sales from January 2018 to December25
G. H. CHAPELLine U-20642No.
GHC-3-Rebuttal
2018 plus unbilled sales for December 2018 minus December 2017 unbilled sales.1
Because the December 2017 and 2018 unbilled sales are estimates, and because2
December is a deep winter month with a large amount of heat sales, those estimates3
may be off by volumes in the magnitude of a Bcf or more. This volume uncertainty4
makes using a calendar year as a basis for forecasting unwise. To note, both5
Michigan Gas Utilities and SEMCO Energy (two utilities regulated by the MPSC)6
also use non-calendar year data as bases for their gas demand forecasts.7
8
For reasons explained in the Company’s direct testimony, the Company uses sales9
billing data from the period 24-months ended July 2019 as a basis for all of its10
forecasting applications. This amount of data allows the Company to analyze11
sufficient customer consumption over two full winter periods of recent customer12
activity and to develop the Company’s three-factor (i.e. non-linear) usage factors.13
The three-factor approach to forecasting recognizes that customer behavior in14
relation to weather changes over the course of the year. This method allows the15
Company to more accurately project demand on a monthly basis assuring that the16
proper amount of supply is procured for the Company’s GCR and GCC customers.17
This forecast methodology is used for all of the Company’s forecast applications –18
rate case forecasts, GCR Plan forecasts, EWR Plan forecasts, and the Company’s19
financial planning forecasts and has been used by the Company for at least the last20
ten years. In addition, this methodology has been adopted in the prior two rate case21
orders - Case Nos. U-17999 and U-18999.22
23
Q10. What are unbilled sales?24
G. H. CHAPELLine U-20642No.
GHC-4-Rebuttal
A10. Unbilled sales are sales volumes that have been consumed within a month but have1
not yet been billed at the time that that month’s books are closed. The Company’s2
customers’ meters are read throughout the course of a month. (In an ideal situation,3
all meters would be read on the last day of the month making unbilled estimates4
unnecessary, but that is not practical.) Consider, for instance, a customer whose5
meter is read on or about the 5th day of each month. That customer’s bill will reflect6
consumption from the 5th day of the prior month through the 5th day of the billing7
month. All of that customer’s consumption from the 6th through the end of the8
billing month will be considered unbilled for that month. That is, the customer has9
consumed gas during that period, but will not be billed for that consumption (i.e.10
unbilled) until the following month. These unbilled estimates are based largely on11
the heating degree days (HDDs) that occur through the month.12
13
Q11. Can you give an example of how using calendar year data distorts annual14
sales?15
A11. Yes. Calendar year sales are defined as January through December billed sales plus16
December unbilled sales minus the prior December’s unbilled sales. The two17
unbilled estimates can be a sizable volume; over the past four years, December18
unbilled sales were 13 to 18 Bcf for GCR/GCC demand, or 8-12% of the19
Company’s annual GCR/GCC sales. The variations in these estimates can swing20
calendar volumes by several Bcf, depending in which calendar year those unbilled21
sales actually occurred.22
23
G. H. CHAPELLine U-20642No.
GHC-5-Rebuttal
Q12. If the Commission were to determine the Company should use a one-year1
period rather than the preferred 2-year period, is January – December 20182
the right 12-month period to use?3
A12. No, it is not. While the Company believes a 24-month period is a better and more4
accurate basis for forecasting volumes, if it must use a 12-month period, the 12-5
months sales ended August 2019 is a better period to use to normalize annual6
demand.7
8
Q13. If the Commission were to choose to use a 12-month sales timeframe versus9
your recommended 24-month timeframe, why is your recommendation for 12-10
months sales ended in August the best time frame to consider?11
A13. The period 12-months ended August provides the period when unbilled estimates12
can least likely distort annual demand. Over the past four years, August unbilled13
sales were 1.5 to 2.5 Bcf for GCR/GCC demand, or 1-2% of the Company’s annual14
GCR/GCC sales. Further, as unbilled sales variations are largely driven by HDDs,15
and since August generally has few (if any) HDDs, unbilled variations in August16
are quite low. In fact, August unbilled sales are so negligible from year to year,17
that 12 months of billed sales ended August is ample to sufficiently calculate18
normalized annual demand.19
20
Q14. Should the Commission adopt Mr. Ausum’s projected test year volumes as a21
basis for setting rates in this case?22
A14. No, it should not. The Commission should adopt the Company’s forecasted test23
year volumes of 154,955 MMcf that I included in my direct testimony in the24
Company’s initial filing. The Company’s forecast methodology is a highly detailed25
G. H. CHAPELLine U-20642No.
GHC-6-Rebuttal
analysis that incorporates the many nuances at play across its very diverse service1
territory. It is a build-up approach of first projecting customer growth/decline by2
each of the Company’s seven forecast areas and then applying two years of demand3
usage factors by each of those areas. Normal weather specific to each region is4
then applied to the usage factors and customer counts in those regions to determine5
a forecast specific to each region. This is necessary in assessing the demand over6
the Company’s far-reaching service territory in order that all the Company’s7
customers are served. Using a simplified single “calendar year” approach will not8
serve the Company’s forecast requirements, and thus will not serve the Company’s9
customers.10
11
Q15. Are there any factors that Staff did not consider at the time they developed12
their forecast analysis that would deem its recommendation not reasonable?13
A15. Yes. The impact of the current pandemic on the economy will be significant and is14
expected to have broad sweeping impacts throughout the DTE Gas service territory.15
In the relatively short period of time since the crisis started and the Governor began16
issuing executive orders, the first of which was released on March 10 where a17
Declaration of a State of Emergency was issued after two cases of coronavirus were18
confirmed in Michigan, we are already experiencing significant negative economic19
impacts, including the closing of businesses by executive order.20
21
A return to work and business as usual is still quite uncertain. Given the continued22
extensions of the stay home orders, the limited availability of widespread testing,23
and the absence of treatments or a vaccine to the virus, the return to work scenario24
G. H. CHAPELLine U-20642No.
GHC-7-Rebuttal
is expected to play out over several months at the earliest to prevent the1
continuation of further outbreaks.2
3
Q16. What impacts on the Company’s projected test year volumes do you expect4
from the current health crisis?5
A16. I expect a significant and prolonged economic downturn, similar to the economic6
downturn we experienced in 2009-10. During difficult economic times, residential7
and small commercial customers increase their focus on controlling their energy8
costs as a direct means within their control to help balance their budgets and control9
costs. Over the past three months, the U.S. economy has experienced over 1610
million jobless claims, with Michigan seeing nearly one million over the same time11
period. These levels are much higher than the peak experienced during the 2009-12
10 recession. Given Michigan’s continued dependency on the auto industry and13
the likelihood of fallout to the region’s residents, we are likely to see similar14
increased foreclosure rates, higher unemployment rates, and greater levels of small15
business bankruptcies.16
17
See Exhibit A-25, page 1 of 2. This exhibit describes the potential effect of the18
expected recession on both normalized residential and commercial GS-1 demand19
based on what the Company experienced during the 2009-10 recession period.20
During the 2009-10 recession period, the Company observed that average21
individual residential and commercial GS-1 natural gas usage per customer fell to22
92.0 Dth per customer and 411.4 Dth per customer, respectively. During difficult23
economic times, it is observed that customers attempt to lower their expenses as24
much as possible, including utility bills. This results in customers lowering their25
G. H. CHAPELLine U-20642No.
GHC-8-Rebuttal
thermostats in the winter, initiating energy efficiency projects (no matter how1
small), and generally paying more attention to how much energy is being2
consumed. Utilizing this residential and commercial GS-1 usage per customer3
reduction figure from the 2009-10 recession period and applying them to the4
Company’s filed heating value of 1.060 MMBtu per Mcf results in 86.8 Dth per5
customer for residential and 388.1 Dth per customer for commercial GS-1. The6
Company, in its initial filing, expected Rate A (i.e. Residential single home)7
demand to be 109,416 MMcf for the projected test year and commercial GS-18
demand to be 39,054 MMcf. Assuming that its residential and GS-1 customers9
behave similar to what was observed during the 2009-10 recession period, and fully10
return to their normalized consumption characteristics observed then, the volumes11
for those two classes would decrease to 103,940 MMcf and 34,645 MMcf,12
respectively. Overall forecasted sales would decline to 145,071 MMcf. This is what13
the Company refers to as a “Full Effect” recession scenario.14
15
Q17. Are there any known differences between the 2009-10 recession period and the16
current, expected recession period?17
A17. Yes. The cost of natural gas is much lower today and is expected to remain so into18
the projected test year. During 2009-10, the per unit cost that customers paid was19
approximately $10 per Mcf (GCR rate plus distribution rate). The present estimated20
per unit cost is approximately $5 per Mcf.21
22
Q18. Does the Company believe this difference in the cost of natural gas between23
the two time periods will influence customer usage?24
G. H. CHAPELLine U-20642No.
GHC-9-Rebuttal
A18. Yes, the Company believes this lower per unit cost may mitigate the full return to1
2009-10 customer behavior.2
3
Q19. What impact on the projected test year volumes does the Company expect4
when taking into account the difference in the cost of natural gas between5
2009-10 and now?6
A19. Although I believe there is a possibility that projected test year volumes may7
experience a “Full Effect” recession scenario, there could be a different scenario8
based on the lower cost of natural gas. Since the cost of natural gas is9
approximately 50% lower than the 2009-10 recession period, the Company10
estimates that the effect of the expected recession on customer usage may be only11
50% of that experienced in the 2009-10 recession period. The Company refers to12
this scenario as the “Half Effect” scenario. See Exhibit A-25, page 2 of 2. This13
exhibit provides a “Half Effect” forecast of the effects of the expected recession on14
both normalized residential and commercial GS-1 demand. Under this scenario15
recession assumptions, residential and commercial GS-1 volumes are expected to16
decrease to 106,678 MMcf and 36,849 MMcf, respectively. I arrived at these17
volumes by applying 50% to the difference between the original projected test year18
use per customer and the use per customer during the 2009-10 recession period.19
20
Q20. Were the volumetric reductions seen during the 2009-10 period impacted by21
the Company’s EWR (previously called Energy Optimization (EO)) program?22
A20. No, they were not. Since the Company filed for an EO program in 2009 and that23
program did not begin until after an order was issued by the Commission in June24
2009 and it took time to implement the various programs, the EO program would25
G. H. CHAPELLine U-20642No.
GHC-10-Rebuttal
have had little to no effect on the volumetric reductions seen during the 2009-101
period.2
3
Q21. With the new recession assumption in place, what is the effect on the total4
projected test year volumes with the expected coming recession?5
A21. Incorporating the “Half Effect” forecasted volumes for Residential Rate A of6
106,678 MMcf and for GS-1 of 36,849 MMcf results in all GCR, GCC, and7
Aggregate customer load for the projected test year to be 150,013 as identified on8
Exhibit A-25.9
10
Q22. What does this analysis tell you about the Company’s sales forecast that it has11
recommended for setting rates in this proceeding?12
A22. If there was any doubt regarding the reasonableness of the level of sales that DTE13
Gas has used as the basis for setting rates in this case, they should be put to rest. In14
light of the present pandemic and economic impact and the expected recession to15
follow, DTE Gas could make the case for a lower sales level for the projected test16
year. The Staff’s proposed level of sales should not be adopted, and the17
Commission should accept nothing greater than the 154,955 MMcf that the18
Company projected in its initial filing.19
20
Rebuttal to Attorney General Witness Coppola21
Q23. Did you review the testimony and exhibits of AG Witness Coppola?22
A23. Yes, I did.23
24
G. H. CHAPELLine U-20642No.
GHC-11-Rebuttal
Q24. Do you agree with the conclusions that Witness Coppola reached and his1
recommendations?2
A24. No, I do not. Witness Coppola relies on straight-line historical trends of calendar3
year normalized volumes to determine his projected test year volumes. He notes4
that calendar-year normalized demand has grown over the past three years and he5
uses that trend to project demand forward to determine his recommendation for6
projected test year demand.7
8
9
Q25. Is this the correct way to forecast company demand?10
A25. No, it is not. Principally, using calendar year normalized data as a basis for a11
forecast has the aforementioned unbilled estimation issues, especially when trying12
to establish trends. Trends cannot be accurately established using normalized13
calendar year data because the variances associated with unbilled estimates can14
overestimate the percentage increases and decreases. As these trends extend further15
and further into the future, these estimation errors become more evident.16
17
Q26. Does Mr. Coppola make any such forecast estimation that emphasizes this18
point?19
A26. He does. His forecast estimation for GS-1, in particular, illustrates this point. In20
Exhibit AG-32, line 11, he forecasts demand for GS-1 load for the projected test21
year to be 42.2 Bcf, or 470.5 Mcf per customer. Over the past five years, per22
customer demand for GS-1 customers has never been this high. For the 36-month23
period ended August 2019, GS-1 customers have averaged just 452.5 Mcf per24
G. H. CHAPELLine U-20642No.
GHC-12-Rebuttal
customer, or 40.5 Bcf. With a recession looming (as discussed earlier), it is more1
likely that volumes will trend to lower levels than to higher.2
3
Q27. Does Mr. Coppola make an adjustment to sales due to system average heating4
value?5
A27. No, he does not. He claims that no adjustment is necessary because he claims that6
the heating value of calendar 2019 (the basis year for his forecast) was 1.0607
MMBtu per Mcf. Further, he claims that this information was provided to him via8
the Company’s response to AGDG-1.24a.9
10
Q28. Did the Company’s response to AGDG-1.24a indicate that the heating value11
of calendar 2019 was 1.060 MMBtu per Mcf?12
A28. No, it did not.13
14
Q29. What did the Company’s response to AGDG-1.24a indicate?15
A29. The Company’s response to AGDG-1.24a made a reference to an attachment that16
identified the heating value of supply that the Company received from the NEXUS17
Pipeline from November 2018 to December 2019. (The discovery question had18
asked for NEXUS’ heating value through January 2020, but as that response was19
developed during January 2020, information for the full month of January 202020
was not yet available.)21
22
Q30. Did this response indicate what the system-wide heating value was for the23
Company for calendar 2019?24
G. H. CHAPELLine U-20642No.
GHC-13-Rebuttal
A30. No, it did not. Discovery question AGDG1-24a only asked for heating value1
information on gas delivered by NEXUS to DTE Gas. The Company provided the2
requested information.3
4
Q31. Did Mr. Coppola correctly interpret the information provided in the response5
to AGDG-1.24a?6
A31. No, he did not. He claimed the 12-month average for system average heating value7
for the Company was 1.060 MMBtu per Mcf and as such, no adjustment due to8
heating value would be necessary. The 12-month average NEXUS heating value9
provided in the response to AGDG-1.24a was 1.059 MMBtu per Mcf. More10
importantly, however, is that NEXUS is only a portion of the gas that the Company11
receives at its interconnects.12
13
Q32. What was the total system-wide heating value of gas on the Company’s system14
for calendar 2019?15
A32. The Company’s system-wide heating value for calendar 2019 was 1.057 MMBtu16
per Mcf. As a result, any 2019 calendar volumes used as a basis for projecting sales17
into the projected test year should be reduced by a factor of 0.997 (i.e. 1.057 /18
1.060).19
20
Q33. Should Mr. Coppola’s sales recommendations be adopted?21
A33. No. As discussed above, the Company does not support Mr. Coppola’s22
recommendations because he uses straight-line historical trends of calendar year23
normalized volumes to determine his projected test year volumes, which does not24
consider variances associated with unbilled estimates. Further, Mr. Coppola has25
G. H. CHAPELLine U-20642No.
GHC-14-Rebuttal
not considered the impact of the total system-wide heating value of gas on the1
Company’s system in his projections.2
3
Q34. Does this conclude your rebuttal testimony?4
A34. Yes, it does.5
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
MICHAEL S. COOPER
DTE GAS COMPANYREBUTTAL TESTIMONY OF MICHAEL S. COOPER
LineNo.
MSC-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Michael S. Cooper. My business address is DTE Energy Company,3
One Energy Plaza, Detroit, Michigan 48226. I am employed by DTE Energy4
Corporate Services, LLC (DTE LLC).5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas7
Company?8
A2. Yes.9
10
Purpose of Testimony11
Q3. What is the purpose of your rebuttal testimony?12
A3. My testimony will rebut the testimony of several witnesses, including:13
Michigan Public Service Commission Staff (Staff) Mr. Welke’s use of14
selected 2019 actual Employee Benefits expense as a basis for determining15
the level of selected Employee Benefits expense for the projected test year,16
Attorney General (AG) Witness Coppola’s use of actual 2019 Active17
Medical expense escalated through the end of the projected test year based18
on the historical five-year average of increases in the Company’s Active19
Medical expense,20
Witness Coppola’s proposal to exclude the costs of the Supplemental21
Severance Plan,22
Witness Coppola’s proposed exclusion of expenses related to the Wellness23
Plan,24
M. S. COOPERLine U-20642No.
MSC-2-Rebuttal
Staff Witness Ms. McMillan-Sepkoski’s proposals to exclude incentive1
compensation expense related to financial measures and Restricted Stock,2
and,3
Witness Mr. Coppola’s proposal to exclude incentive compensation4
expense related to financial measures and half of the operating measures.5
6
The absence of a discussion of other matters in my testimony should not be7
regarded as an indication that I agree with other aspects of the Staff’s and8
Intervenor’s testimony. The narrow focus of my testimony is instead a consequence9
of a focus on priority issues in recognition of the available resources.10
11
Q4. Are you sponsoring any exhibits in this proceeding?12
A4. Yes. I am sponsoring the following exhibits:13
Exhibit Schedule Description14
A-26 P1 Staff’s Employee Benefits Expense15
A-26 P2 Revised Employee Benefits Expense16
A-26 P3 Historical Active Healthcare Expense17
A-26 P4 Constant Dollar Active Healthcare Expense18
A-26 P5 Total Compensation Comparison19
A-26 P6 Operating Measures Results: 2016-201920
21
Q5. Were these exhibits prepared by you or under your direction?22
A5. Yes, they were.23
24
M. S. COOPERLine U-20642No.
MSC-3-Rebuttal
Employee Benefits Expense1
Q6. What was Staff Witness Welke’s proposal regarding Employee Benefits2
expense?3
A6. Witness Welke has proposed that the Company’s projected Employee Benefits4
expense be reduced by $7.197 million, before adjustments for the portion of5
Employee Benefits expense Capitalized, Transferred and allocated to separate6
surcharge programs, and a reduction of $7.486 million after those adjustments.7
8
Q7. Do you agree with Witness Welke’s proposed adjustment?9
A7. Only in part. Of Witness Welke’s total proposed reduction in Employee Benefits10
expense of $7.197 million, $4.148 million relates to the Company’s projected11
pension expense, which will be eliminated if the Commission adopts the12
Company’s proposal to defer Pension costs to a Regulatory Asset, as supported by13
both the Staff Witness Mr. Putnam and AG Witness Coppola. The remaining14
difference of $3.049 million relates primarily to Witness Welke’s use of 2019 actual15
Employee Benefits expense for specific expense categories rather than the16
Company’s actual Employee Benefits expense for 2018, as used by the Company.17
While I agree with Witness Welke’s $4.148 million adjustment related to Pension18
expense, under the assumption that the Commission adopts the Company’s19
proposal to defer Pension expense, I disagree with Witness Welke’s $3.049 million20
adjustment related to the use of selected actual 2019 Employee Benefits.21
22
Q8. Have you prepared a comparison of Witness Welke’s Employee Benefits23
expense projections to the Company’s?24
M. S. COOPERLine U-20642No.
MSC-4-Rebuttal
A8. Yes. Exhibit A-26, Schedule P1 reflects a detailed comparison of the Employee1
Benefits expense determined by Witness Welke with the Company’s projection,2
per Exhibit A-13, Schedule C5-9. This Exhibit reflects the actual Employee3
Benefits expense for 2018 and 2019 in columns (b) and (c), respectively. Columns4
(d) through (g) of this Exhibit shows the adjustments made by Witness Welke to5
determine the total Employee Benefits expense for the projected test year. For6
some expense categories Witness Welke adopted the Company’s projections,7
which were based on actual 2018 Employee Benefits as either adjusted for specific8
projections or escalated for increases through the end of the projected test year. For9
other categories, Witness Welke used 2019 actual Employee Benefits expense and10
escalated those expenses for specific escalation factors reflected on the bottom of11
Exhibit A-26, Schedule P1.12
13
Q9. How did Witness Welke determine the Projected Post-Retirement Benefits14
expense reflected on line 2 through 6 of Exhibit A-26, Schedule P1?15
A9. For Pension and Other Post-Employment Benefits (“OPEB”), Witness Welke16
adopted the Company’s proposal to defer any Pension and OPEB expense to either17
a Regulatory Asset or Liability, depending on whether such expense was positive18
or negative. Accordingly, Witness Welke’s projection for Pension and OPEB19
expense is zero for the projected test period. For the New Hire VEBA and20
Employee Savings Plan expense components Witness Welke used actual 201821
expenses with an annual escalation of 30% and 8%, respectively. This projection22
is consistent with the Company’s proposal.23
24
M. S. COOPERLine U-20642No.
MSC-5-Rebuttal
Q10. How did Witness Welke derive the Active Healthcare expense components for1
the projected test year?2
A10. For Medical, Dental and Vision and Life insurance expenses, Witness Welke relied3
upon the actual 2019 expense and then adjusted these amounts for the Company’s4
annual escalation factors applicable to 2020 and 2021. For Benefit Plan5
Administration Fees Witness Welke used the 2019 expense that was escalated for6
the Staff’s projected annual increases in price level changes as measured by the7
Consumer Price Index (“CPI).8
9
Q11. How did Witness Welke determine the level of Other Employee Benefits10
expense for the projected test year?11
A11. Witness Welke adopted the Company’s projections for Accrued Vacation,12
Supplemental Severance Plan, Wellness Plan, Affordable Care Act, Supplemental13
Savings Plan and Deferred Compensation Plan expenses, which were all either14
based on actual 2018 expense and escalated for expected price level changes or15
were based on specific projections. For Disability, General Benefit and Retirement16
Administration fees, Witness Welke based his projections on actual 2019 expenses17
and in the instance of Disability, escalated by the Company’s 3.0% annual labor18
escalation assumption and the remainder were escalated by the Staff’s CPI19
assumptions.20
21
Q12. Have you prepared an update of the Company’s Employee Benefits expense22
for the projected test year?23
A12. Yes. Exhibit A-26, Schedule P2 reflects an update of the Company’s projected24
Employee Benefits expense for the 12 months ending September 30, 2021 that25
M. S. COOPERLine U-20642No.
MSC-6-Rebuttal
eliminates the Pension expense, consistent with Witness Welke’s proposal. This1
Exhibit shows total Employee Benefits expense of $42.073 million, which is $3.0492
million higher than the level projected by Witness Welke, due to the Company’s3
consistent use of the 2018 historical test year. The Company’s projected Employee4
Benefits expense after adjustment for the impact of the adjustments for the portion5
capitalized, transferred and allocated to separate surcharges is $38.055 million,6
compared to Witness Welke’s projection on a comparable basis of $34.487 million,7
for a total difference of $3.568 million. The adjustments for the costs capitalized,8
transferred are discussed by Company Witness Ms. Uzenski.9
10
Q13. Do you agree that Witness Welke’s use of 2019 Employee Benefits expense for11
determining Employee Benefits expense for the projected test year?12
A13. No. While generally it can be tempting to use the most recent information as the13
starting point for the determination of expenses to be incurred in future years,14
Witness Welke seems to have selectively used 2019 actual Employee Benefits15
expense, as a base for the projection of future Employee Benefits expense, while16
the remainder of the Staff’s Operations and Maintenance expense (O&M) is based17
on the Company’s 2018 historical test year. There is no legitimate basis to pick and18
choose those expenses that were lower in 2019 relative to the Company’s escalated19
2019 projections, which were based on 2018 actual expense, while ignoring actual20
expense levels in 2019 that were higher than the Company’s 2019 expense21
projections based on 2018 actual expense.22
23
Q14. Are there any 2019 actual Employee Benefits expense levels that were higher24
than the Company projections for 2019?25
M. S. COOPERLine U-20642No.
MSC-7-Rebuttal
A14. Yes. Both the actual 2019 New Hire VEBA Plan and Employee Savings Plan1
expense were higher than the Company’s 2019 projections of these expenses.2
Whereas Witness Welke has adopted the Company’s projections for these two3
categories, if the same approach had been used for the New Hire VEBA and4
Employee Savings Plan as for Active Healthcare expense, the New Hire VEBA and5
Employee Savings plan expense would have been $0.278 million and $0.1576
million higher than proposed by Witness Welke. This results in Witness Welke’s7
projected Employee Benefit expense being understated by a total of $0.435 million8
due to the inconsistent historical period used as the starting point in determining9
the projected test year expenses.10
11
Q15. Are there any issues beyond the lack of consistency with using 2019 actual12
Employee Benefits expense as the starting point in determining Employee13
Benefits for the projected test year?14
A15. Yes. One of the 2019 actual expense categories used by Witness Welke in his15
determination of Employee Benefits expense for the projected test year was Active16
Healthcare Expense. While for certain Employee Benefits expense categories the17
most recent information is likely the most useful in predicting future expenses, such18
as Employee Savings Plan expense, the most recent Active Healthcare experience19
is not be useful in projecting future Active Healthcare expense20
21
Q16. Why is the most recent Active Healthcare experience not be useful in22
projecting future Active Healthcare expense?23
A16. Unlike Employee Savings Plan expense which increase at a steady trajectory24
reflecting increases in eligible employees and the applicable earnings base, Active25
M. S. COOPERLine U-20642No.
MSC-8-Rebuttal
Healthcare expenses are subject to a diverse set of variables that are largely beyond1
the Company’s control. Specifically, the Company’s historical active healthcare2
expense can change based on the actual mix of medical care provided and the3
number of plan participants receiving medical care, as more fully described below.4
Accordingly, any single year’s experience is unlikely to be a reliable predicate for5
expected expense in future years because although Active Healthcare expenses6
have a predictable long-term trend, that doesn’t imply there isn’t a high degree of7
year-to-year variability within that trend.8
9
Q17. Is there any evidence that the Company has experienced high year-to-year10
variability in its Active Healthcare expense?11
A17. Yes. Exhibit A-26, Schedule P3 reflects the Company’s actual annual Active12
Healthcare costs, before adjustment for the portion capitalized, and Active13
Healthcare expense for each of the years 2014 through 2019. This Exhibit14
demonstrates that the Company’s annual rate of change in its overall Active15
Healthcare expenses has varied from an actual annual reduction in 2016 of 9.3% to16
an actual annual increase in 2017 of 28.3%.17
18
Q18. What is the source of the year-to-year variability in the Company’s Active19
Healthcare expense?20
A18. The Company is self-insured for most of its healthcare costs and accordingly is21
subject to the actual costs incurred by those covered by the benefit plans in any22
given year. The Company’s annual healthcare costs are highly dependent on the23
level and mix of employee and dependents usage of medical related services and24
prices paid for healthcare in each year. Accordingly, year-to-year variations in the25
M. S. COOPERLine U-20642No.
MSC-9-Rebuttal
Company’s healthcare costs can be impacted by the degree to which its employees1
and/or dependents receive a disproportionately high or low level of high cost2
medical procedures (i.e., premature births, heart attacks, etc.) as well as a3
disproportionately high or low level of moderate cost medical procedures (i.e., x-4
rays, MRI’s, out-patient surgeries, etc.) While over the long run the choice to be5
self-insured for these costs is less expensive than the use of third-party insurance,6
it often creates significant variability in Active Healthcare expenses between years.7
Even for those plan participants enrolled in Health Maintenance Organizations8
(HMOs) or other managed care providers that provide fully insured coverage, the9
annual premiums for these organizations are experience rated, and thus premiums10
reflect the Company’s actual claims, albeit with some smoothing among years.11
In addition, as a result of the Company’s increased capital expenditure levels over12
the last few years, the portion of Active Healthcare costs that are capitalized has13
impacted the annual changes in Active Healthcare expense. Consequently, the14
9.3% reduction in Active Healthcare expense in 2016 would have been a 5.1%15
increase if the portion of Active Healthcare costs capitalized in 2016 was the same16
as the portion capitalized in 2015.17
18
Q19. Has the Staff been consistent in its use of the most recent Active Healthcare19
expense in prior DTE Gas rate cases?20
A19. No. In Case No. U-18999, the Company’s most recent rate case, the Company used21
a 2016 historical test year, which reflected a 9.3% reduction in actual annual Active22
Healthcare expense relative to the prior year. Although the Company provided its23
actual 2017 Active Healthcare expense, which reflected a 28.3% increase in its24
actual Active Healthcare expense in response to a Staff audit request, the Staff did25
M. S. COOPERLine U-20642No.
MSC-10-Rebuttal
not propose the Commission adopt the 2017 actual Active Healthcare expense in1
its Testimony and Exhibits filed on March 22, 2018 in that case. As a result, DTE2
Gas Company’s Active Healthcare expense included in the revenue requirement3
adopted by the Commission in its Order in Case No. U-18999 was based on the4
Company’s actual 2016 Active Healthcare expense.5
6
Q20. Is there a method of normalizing the Company’s historical Active Healthcare7
expense to confirm the reasonableness of using the Company’s actual 20188
Active Healthcare expense as a basis for determining Active Healthcare9
expense for the projected test year?10
A20. Yes. In recognition of the intractable variability in the Company’s actual Active11
Healthcare expense, a method of confirming the reasonableness of the selection of12
a single year’s actual Active Healthcare expense in determining the Active13
Healthcare expense for the projected test year, would be to determine the average14
of constant dollar Active Healthcare expense as the starting point in the projection.15
This allows the normalization of actual experience through the elimination of the16
impact of price level changes.17
18
Q21. Have you quantified a constant dollar average of the Company’s Active19
Healthcare expense that demonstrates that reasonableness of the use of 201820
as the basis for projecting future Active Healthcare expense?21
A21. Yes. Exhibit A-26, Schedule P4 reflects the Company’s actual Medical, Dental22
and Vision components of the actual Active Healthcare expense for the years 201423
through 2019, as reflected on Exhibit A-26, Schedule P3, and then adjusts the24
historical actual expense for each of the years for the impact of the actual percent25
M. S. COOPERLine U-20642No.
MSC-11-Rebuttal
increase in medical trends, as reported by PwC on page 3 of Exhibit A-13, Schedule1
C5.9.2. (The Life Insurance and Benefit Plan Administration Fees have been2
excluded from this analysis because these items are subject to separate escalation3
factors.) Adjusting the Company’s actual Active Healthcare expense for the overall4
increases in medical costs experienced by a broad sample of employers enables the5
separation of the Company’s year-to-year variability that is driven by changes in6
utilization by the Company’s employees and their dependents from changes to7
healthcare inflation. This Exhibit shows that a five-year average of the Company’s8
actual Active Healthcare expense related to Medical, Dental and Vision on a9
constant dollar basis is $18.602 million, which is $1.781 million higher than the10
Company’s actual 2019 Active Healthcare expense used by Witness Welke and11
demonstrates that the Company’s use of 2018 actual Active Healthcare expense of12
$18.015 million is a reasonable, albeit conservative, basis for projecting Active13
Healthcare expense for the projected test year.14
15
Q22. Are there any other factors that Witness Welke may not have been aware of16
when the Staff developed its recommendations?17
A22. Yes. The rapid expansion of the Covid-19 virus pandemic, which was viewed by18
many as merely a potential threat as recently as February 2020, became the basis19
for the declaration of a National Emergency by President Trump on March 13, 202020
and was followed by similar Executive actions by Governor Whitmer just days21
later. The result of the spread of the Covid-19 virus combined with governmental22
mandates in response to the virus will lead to substantial increases in the23
Company’s Active Health care expenses in 2020, arising both from increased self-24
insurance expenses and substantial risk mitigation measures, but will also lead to25
M. S. COOPERLine U-20642No.
MSC-12-Rebuttal
higher HMO premiums as the impact of higher healthcare costs and waived1
deductibles and co-pays for Covid-19 testing and treatment are reflected in the2
Company’s future experience rated premiums. Moreover, in the absence of the3
rapid development of a safe and effective vaccine for Covid-19, the risk of future4
waves of infection must be considered. While it is premature to attempt to quantify5
the impacts on the Company’s future Active Healthcare expense of the Covid-196
pandemic, there can be little doubt that they are significant and recurring.7
Accordingly, the Company’s projections of Active Healthcare expenses are a8
conservative measure of the Active Healthcare expense the Company will incur9
during the projected test year.10
11
Q23. Did Witness Coppola make an adjustment to the Company’s projected12
Medical expense?13
A23. Yes. Witness Coppola used the Company’s actual 2019 Medical expense with14
escalation for historical changes in actual Medical expense, as the basis for15
adjusting the Company’s projection of Medical expense for the projected test year16
(Coppola Direct, p. 109). Specifically, Witness Coppola used the 2019 actual17
Medical expense of $15.647 million, as reflected on Exhibit AG-43, and then18
escalated this amount by an annual escalation factor of 3.34%, the five-year average19
of the Company’s actual annual increase in Medical expense, to compute the20
Medical expense for the projected test year of $16.592 million. When compared to21
the Company forecast of Medical expense for the projected test year of $19.27022
million, Witness Coppola’s proposal results in a $2.678 million reduction in the23
Company’s Medical expense.24
25
M. S. COOPERLine U-20642No.
MSC-13-Rebuttal
Q24. Do you agree with Witness Coppola’s proposal?1
A24. No. Similar to Witness Welke, Witness Coppola’s selective use of the Company’s2
actual 2019 Medical expense as a basis for projecting future Medical expense is3
inconsistent with Witness Coppola’s adoption of 2018 actual expense levels as a4
basis for determining expenses through the end of the projected test year for5
virtually all other categories of O&M expense. Further, Witness Coppola’s6
proposal to update for 2019 actual expense levels is also inconsistent with his7
recommendations in Case No. U-18999, where the Company provided in response8
to an AG Discovery request the Company’s actual 2017 Active Healthcare expense,9
but Witness Coppola made no adjustment to his proposed revenue requirement to10
reflect the higher 2017 expense level. Moreover, the problem with the use of a11
single year’s actual experience in light of the year-to-year variability in Active12
Healthcare expense, as described above in reference to Witness Welke’s proposed13
use of 2019 actual Active Healthcare expense, is equally applicable to Witness14
Coppola’s use of 2019 actual Medical expense.15
16
Q25. Do you agree with Witness Coppola’s use of a five-year average of the17
Company’s actual increase in Medical expense to determine the Company’s18
Medical expense for the projected test year?19
A25. No. A simple average of the Company’s actual Medical expenses is a poor20
reflection of the likely increase in the Company’s future Medical expense. For21
example, the use of a single component of Active Healthcare expense ignores that22
expenses of the Company’s healthcare providers aren’t always consistently23
reported within the categories of Active Healthcare expense. Specifically, prior to24
2017, certain administrative costs billed by one of the Company’s insurance carriers25
M. S. COOPERLine U-20642No.
MSC-14-Rebuttal
were embedded in its Medical billings, whereas in 2017 that carrier began to1
separately bill for its administrative costs that the Company began to report as2
Benefit Plan Administration Fees in 2017 rather than Medical expense. That shift3
in expense is reflected as an expense reduction in Witness Coppola’s singular focus4
on Medical expense. Further, the use of annual changes in Medical expense over a5
five-year period ignores the impact of changes in the Company’s construction6
activity. As the Company has dramatically increased its capital expenditures over7
the last few years, the proportion of Medical costs that are capitalized has increased,8
which has led to reductions in the rate of change in the Company’s Medical9
expense. Indeed, although the Company’s Medical expense have increased at an10
average annual rate of 3.3%, between 2014 and 2019, as computed by Witness11
Coppola, the Company’s total medical costs before the impact of the portion12
capitalized has increased at an average annual rate of 5.0% over the same five-year13
period, as shown on line 3 of Exhibit A-26, Schedule P3. Accordingly, historical14
increases in the Company’s actual Medical expense are an unreliable measure to15
determine projected increases in Medical expense.16
17
Q26. Did Witness Coppola propose any adjustments to the Company’s Active18
Healthcare expense in Case No. U-18999 related to the expected rate of19
increase in Active Healthcare expense?20
A26. No. Witness Coppola apparently adopted the Company’s projected Active21
Healthcare expense trend rates as provided by Aon.22
23
M. S. COOPERLine U-20642No.
MSC-15-Rebuttal
Supplemental Severance Plan1
Q27. What was Witness Coppola’s adjustment related to the Company’s2
Supplemental Severance Plan?3
A27. Witness Coppola proposes that $0.871 million of Supplemental Severance Plan4
expense for the projected test year be completely eliminated (Coppola Direct, p.5
111).6
7
Q28. What is the basis for Witness Coppola’s proposed elimination of the8
Supplemental Severance Plan expense?9
A28. Witness Coppola claims that because this plan was implemented as a result of DTE10
Energy’s combination with MCN Energy Group, Inc (“MCN”), the costs of this11
plan should be assigned to DTE Energy as a cost of the combination and should not12
be reflected in the revenue requirements of DTE Gas (Coppola Direct, p. 111).13
14
Q29. Do you agree with Witness Coppola’s proposal?15
A29. No. Witness Coppola disputes the propriety of including the Supplemental16
Severance Plan expense without any assessment of the reasonableness of the17
benefits provided under the plan. As I described in my Direct Testimony, this plan18
is designed to address the differences in the full benefit eligibility retirement ages19
between the DTE Traditional Pension and the MCN Traditional Pension Plan.20
Witness Coppola has made no assertion that the full benefit eligibility ages under21
the DTE Traditional Pension Plan are unreasonable, he merely avers that the cost22
of aligning the full benefit eligibility for former MCN employees should be23
attributed to the merger with MCN.24
M. S. COOPERLine U-20642No.
MSC-16-Rebuttal
Even if one believes the Supplemental Severance Plan expense is a cost arising1
from the merger of DTE Energy and MCN, the cost savings achieved through the2
combination that have flowed through to customers through lower revenue3
requirements is significant. In 2004 alone, DTE Gas Company’s annual merger4
related savings were estimated to be almost $48 million and these savings were5
reflected in the revenue requirement adopted by the Commission in its order in Case6
No. U-13898. The cost savings made possible from the combination of DTE7
Energy and MCN have been reflected in the revenue requirements adopted by the8
Commission in all of DTE Gas Company rate cases subsequent to Case No. U-9
13898. Therefore, even if one accepts the irrelevant premise that these costs relate10
to the combination of DTE Energy with MCN, the DTE Gas’s customers have11
receive substantial savings that dwarf the costs of the Supplemental Severance Plan.12
13
Q30. Is this the first rate case filing by the Company that has included the14
Supplemental Severance Plan expense?15
A30. No. As observed by Witness Coppola, the Supplemental Severance Plan was16
adopted in 2016. Accordingly, the Company included projected Supplemental17
Severance Plan expense in its proposed revenue requirement in its 2017 rate case18
filing in Case No. U-18999. No party in that proceeding objected to the inclusion19
of that expense in the Company’s revenue requirement. Similarly, in DTE20
Electric’s most recent rate case filing in Case No. U-20561 a Supplemental21
Severance Plan expense was included in the Company’s proposed revenue22
requirement, which was also unopposed. While Witness Coppola proposed a23
similar adjustment in DTE Electric’s 2018 filing in Case No. U-20162, the24
Commission did not adopt his proposal.25
M. S. COOPERLine U-20642No.
MSC-17-Rebuttal
1
Wellness Plan2
Q31. What adjustment did Witness Coppola propose related to the Company’s3
Wellness Plan?4
A31. Witness Coppola proposes the elimination of $0.934 million related to the5
incremental expense due to the enhancements of the Company’s Wellness Plan.6
7
Q32. What is the basis of Witness Coppola’s proposed elimination of the Wellness8
Plan expense?9
A32. Witness Coppola asserts, in apparent reliance on information provided in Case No.10
U-20561, that the Company’s focus on diabetes prevention, obesity, hypertension11
and cardiovascular management programs are provided through the Company’s12
healthcare providers, such as Blue Cross and Blue Shield, and therefore the13
Company’s Wellness Plan is duplicative of other programs available to employees14
(Coppola Direct, p. 110).15
16
Q33. Do you agree with Witness Coppola’s conclusion?17
A33. No. First, the programs Witness Coppola describes as being offered by healthcare18
providers such as Blue Cross and Blue Shield are optional services that are only19
available at an additional cost to the Company, which the Company has opted not20
to participate in due to the higher cost relative to alternatives. Moreover, not every21
employee is enrolled in Blue Cross and Blue Shield plans. Therefore, the Wellness22
Plan being implemented by the Company is not duplicative of services the23
Company is already receiving from others. Second, Witness Coppola has ignored24
that another focus of the Company’s Wellness Plan is an increased emphasis on25
M. S. COOPERLine U-20642No.
MSC-18-Rebuttal
injury prevention. Third, Witness Coppola has also apparently ignored that an1
overarching objective of the Company’s Wellness Plan is to create an overall2
culture of health and well-being within the Company, which will ultimately be more3
effective in improving the overall health and productivity of the Company’s4
employees than specific target initiates.5
6
Q34. Is there an impact on the Company’s projected Active Healthcare expense of7
the Company’s Wellness Plan?8
A34. Yes. The healthcare trend rates provided by Aon were reduced by 0.50% in 20209
and 1.00% in 2021 for the expected impact of the Company’s Wellness Plan, which10
reduced the Company’s projected Active Healthcare expense by $0.231 million. If11
the Commission adopts a revenue requirement that excludes the increased Wellness12
Plan expense, as advocated by Witness Coppola, then the Company’s projected13
Active Healthcare expense should be increased by $0.231 million.14
15
Incentive Compensation Expense16
Q35. What is Staff Witness McMillan-Sepkoski’s proposal regarding the treatment17
of incentive compensation expense included within O&M?18
A35. Witness McMillan-Sepkoski proposes the exclusion of $8.052 million of incentive19
compensation expense related to financial measures and the exclusion of $0.97020
million of expense related to Restricted Stock (McMillan-Sepkoski Direct, p.10).21
22
Q36. Do you agree with Witness McMillan-Sepkoski’s recommendation?23
A36. No. Witness McMillan-Sepkoski’s proposed exclusion of $8.052 million of24
incentive compensation expense related to the financial measures is apparently25
M. S. COOPERLine U-20642No.
MSC-19-Rebuttal
premised exclusively on the Commission’s traditional practice. Specifically,1
Witness McMillan-Sepkoski describes the Commission policy as being the2
exclusion of the incentive compensation expense related to financial performance3
measures “on the basis that shareholders specifically benefit from financial4
performance measures such as return on equity and cash flow” (McMillan-5
Sepkoski Direct, p. 8).6
However, Witness McMillan-Sepkoski‘s proposed exclusion of incentive7
compensation expense related to the financial measures is made without regard to8
any determination of the overall reasonableness of the Company’s compensation9
policies and practices. As I demonstrated in Exhibit A-19, Schedule I2, the10
Company’s total cash compensation for its employees is, on average, 0.4% less than11
the Market Median for comparable positions, and in the absence of incentive12
compensation plans would be 12.1% less than the competitive market measures.13
14
Q37. Have you prepared other comparisons of the Company’s total compensation15
relative to external reference points?16
A37. Yes. In response to a series of Staff audit requests in this case and Case No. U-17
20561, the pending DTE Electric rate case, the Company provided various analyses18
of total compensation for 2018 for both DTE Gas and DTE Electric. One of the19
analyses provided for DTE Electric compared the total compensation, inclusive of20
all labor, including incentive compensation, benefits and labor related taxes to the21
average total compensation within the Utility sector as compiled by the Bureau of22
Labor Statistics (“BLS”), within the United States Department of Labor. The23
Company also prepared a similar analysis for DTE Gas, which is included on24
Exhibit A-26, Schedule P5.25
M. S. COOPERLine U-20642No.
MSC-20-Rebuttal
1
Q38. What are the components of total compensation included on Exhibit A-26,2
Schedule P5?3
A38. Consistent with the format provided in the Staff’s audit request in Case No. U-4
20561, I have summarized the Company’s total compensation on a cost per hour5
worked for DTE Gas and the portion of costs allocated to DTE Gas from DTE6
Energy Corporate Services, LLC differentiated by cost component and between7
Union and Non-Union employee classifications. Wages include all Regular time8
payroll costs. Supplemental Pay includes all Overtime wages as well as normalized9
2018 Incentive Compensation costs, various payments made under the Company’s10
separate recognition programs, which apply primarily to the Company’s Union11
employees, and other lump sum payments. Accordingly, the amount of Total Pay12
is an all-inclusive measure of total compensation costs incurred by the Company in13
2018, without regard to whether these costs were capitalized or expensed.14
15
The remainder of the costs included in Exhibit A-26, Schedule P5 reflect the16
Benefit costs, inclusive of Insurance (which includes Active Healthcare, Life17
insurance and Disability costs) and Retirement Costs (which primarily consists of18
the Service Costs related to both Pension and OPEB as well as Employee Savings19
Plan and New Hire VEBA). Legally Required costs relate primarily to the20
Company’s portion of payroll taxes, such as Social Security and Medicare plus21
Unemployment taxes.22
23
M. S. COOPERLine U-20642No.
MSC-21-Rebuttal
The comparative BLS data reflects Total Compensation and identified components1
for the Fourth Quarter of 2018 for the Utilities sector within private industry, as2
released by the BLS on March 19, 2019.3
4
Q39. What conclusion do you draw from the information on Exhibit A-26, Schedule5
P5?6
A39. The information on Exhibit A-26, Schedule P5 shows that on an all-inclusive basis7
of total wages and wage related costs, including normalized incentive8
compensation, the Company’s average hourly rate for 2018 for all hours worked9
was $58.77/hour worked compared to $61.87/hour worked as reported by the BLS10
for the Utility sector, which represents a difference of 5%. This analysis confirms11
that the Company’s total compensation practices result in compensation that is in12
line with the external benchmarks.13
14
Q40. Why is the overall reasonableness of the Company’s compensation practices15
relevant to Witness McMillan-Seposki’s proposal to exclude the incentive16
compensation expense related to the financial measures?17
A40. The relevance of the reasonableness of the Company’s total compensation is that18
absent a demonstration that the Company’s total compensation is not excessive,19
there is no legitimate basis for the disallowance of a portion of that compensation,20
irrespective of the method used in determining the compensation. As the21
Commission stated in its Order in Case No. U-10150, Michigan Consolidated Gas22
Company’s “…future approval of an incentive bonus like this requires a showing23
that it will not result in excessive costs and the benefits to the utility’s ratepayers24
will be commensurate with the costs (Case No. U-10150 Order, p. 58). The analysis25
M. S. COOPERLine U-20642No.
MSC-22-Rebuttal
on Exhibit A-19, Schedule I7 demonstrates that benefits of the Company’s1
incentive compensation programs exceed the costs and the comparison of the2
Company’s total compensation to the market shows that the incentive3
compensation programs do not result in excessive cost.4
5
Q41. What is Witness McMillan’s proposal regarding the issue of Restricted Stock?6
A41. Witness McMillan-Sepkoski also proposes that $0.970 million of Restricted Stock7
expense, which is a component of the Company’s Long-Term Incentive Plan8
(LTIP) be excluded from the Company’s revenue requirement.9
10
Q42. What is Restricted Stock?11
A42. The Company’s LTIP consists of two separate components; Performance Shares12
and Restricted Stock. Performance Shares are granted annually with the ultimate13
number of shares distributed dependent on the Company’s financial performance14
over the ensuing three years, based on the measures detailed on Exhibit A-19,15
Schedule I6. Because the value to the recipients is contingent on the Company’s16
achievement of long-term financial objectives, the costs of the Performance Shares17
are considered to be a component of incentive compensation. In contrast,18
Restricted Stock are granted annually to encourage continued employment of19
certain key executives for which the value is not dependent on the Company’s20
achievement of any financial objectives.21
22
Q43. Do you agree with Witness McMillan-Sepkoski’s proposed exclusion of the23
LTIP expense related to Restricted Stock?24
M. S. COOPERLine U-20642No.
MSC-23-Rebuttal
A43. No. First, this exclusion is improper for the same reason that the exclusion of the1
incentive compensation expense related to the financial measures is improper;2
Restricted Stock is merely another component of the Company’s total3
compensation practices that have been determined to be reasonable relative to the4
market. Second, Restricted Stock expense is not dependent on either the Company’s5
achievement of its financial objectives or DTE Energy’s future stock price, since6
the expense is recognized based on the value of DTE Energy’s stock price at the7
date of grant, due to the Company’s use of equity accounting for the grants.8
9
Q44. What support does Witness McMillan-Sepkoski rely upon in concluding the10
Restricted Stock expense should be excluded from the Company’s revenue11
requirement?12
A44. Witness McMillan-Sepkoski cites the Company’s LTIP employee plan description13
booklet included as Exhibit S-14.6 that the LTIP is “a reward to employees for14
assisting the Company in reaching its financial performance goals.” (McMillan-15
Sepkoski, p. 11). Witness McMillan-Sepkoski apparently infers from this phrase16
that this means the Restricted Stock is related to financial measures and therefore,17
consistent with the Commission’s traditional practice for excluding incentive18
compensation expense related to financial measures, should be disallowed.19
20
Q45. Do you agree with Witness McMillan-Sepkoski’s inference?21
A45. No. The LTIP employee plan description booklet referenced by Witness22
McMillan-Sepkoski and included in Exhibit S-14.6 addresses features of the23
Performance Shares, which relate to the Company’s future financial performance,24
rather than Restricted Stock, which are not related to the Company’s future25
program as it has been applied to the Company’s rate ST and LT EUT volume 2
forecast. He does not provide an alternative EWR calculation or volume projection. 3
4
Q30. Does the Commission provide oversight of the Company’s EWR programs? 5
A30. Yes, it does. The Company files the results of its EWR program with the 6
Commission annually where the Commission performs an exhaustive review and 7
audit of the Company’s EWR programs, including the C&I EWR program. The 8
EWR program for EUT customers achieved 405 MMcf of energy waste reduction 9
measures during 2017, 614 MMcf during 2018, and 520 MMcf during 2019. The 10
Company’s 1% factor applied to the rate ST and rate LT volumes, amounting to 401 11
MMcf, is well supported based on recent program measures. The AG’s proposed 12
disallowance of the Company’s Commission approved EWR program volume 13
forecast, without supporting evidence or an alternative consideration, is 14
disconcerting. 15
16
Appliance Repair Service Revenue 17
Q31. AG Witness Coppola has recommended using a 3-year average to calculate 18
revenues and expenses of the company’s Appliance Repair Service. Do you 19
agree with AG Witness Coppola’s recommendation? 20
A31. No. Adopting the historical test period revenues and costs for the Appliance Repair 21
Service is consistent with prior rate case orders, specifically U-16999 settlement, as 22
well as the Commission’s orders in Case Nos. U-17999 and U-18999. The 23
Appliance Repair Service is also subject to intense competition in the marketplace 24
from independent contractors and other repair service companies. Customer count, 25
H. J. DECKER
Line U-20642
No.
HJD-16-Rebuttal
pricing and costs are highly uncertain going forward. In addition, the Appliance 1
Repair Service is an optional cost from a customer perspective and are therefore 2
subject to economic conditions that the customers are currently facing and would 3
not be accurately reflected in a 3-year average. 4
5
Other Considerations 6
Q32. Are there any other factors that AG Witness Coppola was unable to consider 7
at the time he developed his EUT projected volume forecast and Appliance 8
Repair Service analysis? 9
A32. Yes, there are. The ongoing Coronavirus health crisis has dramatically, and in a 10
short period of time, altered many views of the economic environment. At the time 11
of this writing, the communities in DTE Gas’ service territory have already been 12
severely impacted with many businesses closing, and others reducing operations. 13
Mr. Chapel outlines the Company’s estimated impacts of this economic downturn 14
on residential and GS-1 customers likening it to what occurred in 2009-2010. 15
Although it’s difficult to extrapolate the exact impact of the health crisis on 16
forecasted volumes for all utility customer segments and Appliance Repair Service 17
revenues for the projected test year, it is anticipated that the volumes and revenues 18
will be lower than what the Company filed in this case. 19
20
SECTION 3: RESA REBUTTAL – CUSTOMER USAGE INFORMATION 21
End-Use Transportation 22
Q33. What tariff provision does the Retail Energy Supply Association (RESA) 23
propose for the Company’s gas rate book? 24
H. J. DECKER
Line U-20642
No.
HJD-17-Rebuttal
A33. RESA proposes the Commission direct the Company to add a provision requiring 1
the Company provide EUT customers, or their designated agents, with accurate 2
individual customer usage data no later than the 6 business days after the conclusion 3
of the month. RESA recommends inserting this language in Sections E2 and E16.2 4
of the Company’s gas rate book. 5
6
Q34. Does the Company agree with RESA’s proposed tariff change to Section E16.2 7
in the Company’s gas rate book? 8
A34. No. Section 16.2 is applicable to Off-System Customers, not the Company’s EUT 9
customers. There are currently only two Off-System Customers requiring usage 10
data, and the Company communicates with these two customers daily. The 11
customers have not voiced concerns about the data provided by the Company; 12
therefore, the 6th business day accurate usage provision proposed by RESA is 13
completely unnecessary. 14
15
Q35. Does the Company agree with RESA’s proposed tariff change to Section E2 in 16
the Company’s gas rate book? 17
A35. No. The Company also desires accurate consumption information early in the 18
month for its internal accounting and reporting purposes. The Company’s 3rd 19
business day meter read accuracy target is greater than 98%. During the past 27 20
months, the Company has attained an average 3rd business day meter read accuracy 21
of 97.9%. Given the Company reads more than 3,500 EUT meters monthly, 22
RESA’s proposed tariff change would only be addressing 70 EUT meter issues on 23
average after the 3rd business day. RESA’s claim that “each month there typically 24
are accuracy issues with one out of every dozen transportation customer accounts” 25
H. J. DECKER
Line U-20642
No.
HJD-18-Rebuttal
(RESA Witness Rittimann testimony, page 5, lines 11-12) is not supported by the 1
Company’s meter read tracking process. 2
3
Q36. Does the missing meter read or consumption data available on the third 4
business day improve in accuracy prior to the Company invoicing EUT 5
customers? 6
A36. Yes, it does. According to the Company’s major account billing team, the missing 7
meter read and consumption data improves each day with a majority of the EUT 8
meter read discrepancies solved by the 5th business day. The Company invoices 9
EUT customers on the 10th business day and the preliminary meter reads and 10
consumption data are typically only a couple meter discrepancies short of 100% 11
documented by that time. 12
13
Q37. RESA claims they do not receive usage data after the Day 6 report, is this 14
correct? 15
A37. No, RESA is incorrect. The Company does not send usage data to EUT customers 16
or their suppliers; rather, customers and their authorized agents log into the 17
Company’s eNominator site and generate usage reports themselves. The 18
Preliminary EUT Meter Consumption reports they generate are available beyond the 19
6th business day. EUT customers and their authorized agents have access to the 20
most current (updated daily) preliminary meter and consumption information 21
available by accessing the Preliminary EUT Meter Consumption report 24 hours a 22
day seven days a week, including the 4th through the 10th business day. In fact, 23
customers and their authorized agents suppliers can access the Preliminary EUT 24
Meter Consumption report any time prior to the 4th work day of the following month. 25
H. J. DECKER
Line U-20642
No.
HJD-19-Rebuttal
After the 4th work day of the following month, the Preliminary EUT Meter 1
Consumption report begins a new reporting cycle for the then current bill cycle. 2
3
Q38. What are the primary reasons for meter read and consumption inaccuracies? 4
A38. The Company agrees with RESA that discrepancies are typically due to a meter 5
instrument or meter problem; and sometimes, especially during holidays, it can be 6
challenging to gain access to the customer premise to read the meter. A meter failure 7
or meter instrument failure repair can take time to coordinate; however, most other 8
meter issues are resolved within 24-48 hours of the customer or agent contacting the 9
Company’s account manager or the assigned billing analyst. 10
11
Q39. Starting on page 6, line 18, RESA Witness Rittimann describes issues related 12
to obtaining accurate customer usage data and impacts on customers. Do you 13
agree with his claims? 14
A39. No. RESA, in their testimony, implies that 1) customers are at risk for unauthorized 15
use penalties and excess storage penalties and 2) the Company does not always 16
provide timely confirmation of storage transfers between customers. Witness 17
Rittimann goes on to describe concerns that inaccurate data from the Company may 18
result in the supplier misinforming the customer and impeding their ability to 19
provide the best pricing to the customer. I am confounded by RESA’s claims. The 20
Company always works with customers and their gas suppliers when metering issues 21
arise, working with all parties involved to insure the meter or meter instrument is 22
repaired as quickly as possible and penalties are not charged to the customer for 23
meter problems. The Company will not assess penalty (or will waive a penalty) if 24
it is determined the matter was related to a meter failure or an error created by the 25
H. J. DECKER
Line U-20642
No.
HJD-20-Rebuttal
Company. As for the Company placing RESA in a position that they could 1
misinform a customer or not offer the best service is inexplicable as the members of 2
RESA are presumably very sophisticated energy companies that have been in the 3
business of managing EUT customer gas supplies and balances on the Company’s 4
system for a long time. The Company has not received complaints as depicted by 5
RESA on consumption accuracy related to EUT accounts from other gas suppliers 6
or energy managers and have not received complaints from RESA members until 7
this general rate case. The Company is confident that the unsupported concerns 8
described by RESA are not echoed by other gas suppliers and energy managers 9
providing services to the Company’s EUT customers. 10
11
Q40. Does the Company provide electronic remote metering services? 12
A40. Yes, the Company provides electronic remote metering for customers taking service 13
under the Company’s EUT rate schedules. Remote metering service is available for 14
precisely the reasons RESA uses to argue for rate book changes - timely and accurate 15
meter information to aid in managing EUT customer gas procurement and storage 16
balancing decisions. The Company would be pleased to work with RESA and the 17
EUT customers to have remote metering installed at customer facilities that are 18
supplied and managed by RESA members. 19
20
Gas Customer Choice (GCC) 21
Q41. What is RESA Witness Rittimann proposing regarding the GCC program? 22
A41. Witness Rittimann proposes that a tariff provision be added to DTE’s rate book to 23
provide accurate, timely and reliable customer usage data to suppliers. 24
25
H. J. DECKER
Line U-20642
No.
HJD-21-Rebuttal
Q42. Why is RESA proposing this change? 1
A42. Witness Rittimann claims the Company does not send usage data to suppliers 2
in an accurate, timely and reliable manner. Witness Rittimann further claims 3
the suppliers cannot address customer complaints related to usage without the 4
ability to view the customer’s invoice. 5
6
Q43. Does the Company agree with Witness Rittimann’s assertion that it does not 7
provide the suppliers with accurate, timely and reliable usage data? 8
A43. No. DTE provides usage data to the suppliers each working day of the month based 9
on the customer’s billed actual or estimated consumption. DTE is compliant with 10
providing Gas Suppliers the necessary data as described in DTE’s Rate Book. 11
12
Q44. Does DTE agree with Witness Rittimann’s claim that the suppliers must be able 13
to view the customers’ invoices to provide appropriate support? 14
A44. No. Customer questions pertaining to usage should be directed to the Company, 15
while the Supplier should respond to customer inquiries related to the gas 16
commodity rates. It is not necessary for DTE Gas to, nor is it required to, provide 17
the supplier with a copy of the customer’s invoice. 18
19
Q45. Are Witness Rittimann’s concerns about cancelled billing transactions 20
associated with GCC customer accounts valid? 21
A45. No. DTE is obligated to adhere to MPSC billing rules, including rules associated 22
with adjustments that result in cancel and rebills. These rules apply to all customers, 23
including those enrolled in the GCC program. As a result, DTE may sometimes 24
cancel and rebill a customer back to the point of the original transaction requiring 25
H. J. DECKER
Line U-20642
No.
HJD-22-Rebuttal
correction. The Company assists customers with questions or concerns associated 1
with cancelled and rebilled invoices. 2
3
Q46. Is this general rate case the appropriate forum for Witness Rittiman to propose 4
changes to the GCC program? 5
A46. No. Section F5 of the Company’s rate book clearly establishes how supplier 6
complaints against the Company should be addressed. RESA has not adhered to 7
Section F5, and instead appears to be inserting a complaint into a general rate case 8
proceeding. It is not appropriate to address this issue in a general rate case. 9
10
Q47. If the Commission believes it appropriate to address Witness Rittimann’s 11
concerns in this rate case, how should this matter proceed? 12
A47. In Witness Rittiman’s testimony, there are no details, data, facts, or any other 13
evidence that the Company is not providing the suppliers with accurate, timely and 14
reliable usage data. The parties should be required to provide specific details and 15
facts supporting their assertions, and the Company should be afforded the 16
opportunity to respond accordingly. 17
18
SECTION 4: CITIZENS UTILITY BOARD of MICHIGAN (CUBM) REBUTTAL 19
5-Year Versus 3-Year Historical Average EUT Volumes for Power Generation 20
Customers 21
Q48. What is CUBM Witness Veerapaneni’s basis for using 3-year average historical 22
volumes in projecting the Company’s EUT volumes use by its power generation 23
customers? 24
H. J. DECKER
Line U-20642
No.
HJD-23-Rebuttal
A48. Witness Veerapaneni’s has two unsupported reasons for using a 3-year average 1
instead of a 5-year average because: 1) he presumes the Company chooses the term 2
that supports a higher rate increase, and 2) the volume consumed by the Company’s 3
power generation customers during 2019 is more than the 3-year average supported 4
by Witness Veerapaneni. Neither reason is supported nor would either be a 5
substantive reason to use the 3-year historical average power generation volumes. 6
7
Q49. Why has the Company used a 5-year historical average calculation to project 8
the EUT volumes consumed by the Company’s power generation customers? 9
A49. The Company’s power generation customer volumes vary significantly due to 10
weather, gas prices, and power plant outages that are not easily forecasted. The 11
Company’s 5-year average methodology captures a broad a range of warm and cold 12
winter weather conditions including the cold winter of 2014, warm and cool summer 13
weather conditions including the warm summers of 2016 and 2018 and the cool 14
summer of 2014, higher gas prices experienced during 2013 to 2014 and low gas 15
prices of early 2016 and during 2018. This wide variety of factors provides an 16
expansive and representative reflection of average usage for the Company’s power 17
generation customers. Limited to using only 2016 to 2019 gas volumes, CUBM’s 18
calculation does not represent the wide variability provided in the Company’s EUT 19
power generation volume forecast. 20
21
Q50. What was the Commission’s Order in the Company’s general rate case No. U-22
18999 concerning the use of 5-year versus 3-year historical average as the basis 23
to calculate the power generation average consumption used in its projected 24
year forecast? 25
H. J. DECKER
Line U-20642
No.
HJD-24-Rebuttal
A50. The use of the average 5-year period ending with historical test year was 1
extensively litigated and approved by the Commission in the Company’s last 2
general rate case No. U-18999. In that case the Company provided convincing 3
evidence supporting the Company’s power generation customer volumes vary 4
significantly due to weather, gas prices, and power plant outages that are not easily 5
forecasted. The Commission’s Order in case No. U-18999 states on page 63 of the 6
Order: 7
The Commission finds that DTE Gas’ five-year historical period best 8
represents the company’s average gas use. While the Attorney 9
General’s three-year historical period captures an apparent uptrend in 10
gas use, it does not account for variances in Michigan weather, which 11
may be warmer or colder than is typical and may influence customer 12
gas use. In addition, the Commission agrees with the ALJ that the 13
Attorney General failed to prove that EUT customers will be using 14
more gas in the test year as power generation transitions from coal to 15
natural gas. Although there is a current transition from coal to natural 16
gas, the shift to gas power generation is being phased in and 17
complemented by increased renewable energy and demand-side 18
management. Plans for new gas generation in the DTE Gas service 19
area are well beyond the test year. See, April 27, 2018 order in Case 20
No. U-18419, pp. 19, 30, 40-41, 76-80, and 117-118. 21
22
The Commission finds that the company provided convincing 23
evidence that the warm weather in 2016 resulted in more volume used 24
by power generation customers. Finally, the Attorney General did not 25
provide a basis for rejecting the EWR volume reduction. Accordingly, 26
the Commission finds that DTE Gas’ EUT test year revenue of $88.3 27
million should be approved. 28
29
Q51. Should the Commission reject CUBM’s power generation volume forecast for 30
the projected year? 31
A51. Yes. Witness Veerapaneni’s testimony does not provide meaningful evidence 32
supporting his power generation calculation methodology. If the Commission 33
adopts CUBM’s position, it should correct the apparent error in calculating the 34
H. J. DECKER
Line U-20642
No.
HJD-25-Rebuttal
proposed disallowance value. The calculation of a “proportionate increase” 1
results in applying an unrealistic transportation rate of $1.77 per Mcf which is 2
then applied to the unsupported increase in power generation volumes. This 3
result is overstated by more than 1,000 percent. 4
5
Other Considerations 6
Q52. Are there any other factors that CUBM Witness Veerapaneni was unable to 7
consider at the time he developed his EUT projected volume forecast analysis? 8
A52. Yes, there are. As noted elsewhere in my testimony, the ongoing Coronavirus 9
health crisis has dramatically, and in a short period of time, altered many views of 10
the economic environment. At the time of this writing, the communities in DTE 11
Gas’s service territory have already been severely impacted with many businesses 12
closing, and others reducing operations. Although it’s difficult to project the exact 13
impact of the health crisis on forecasted EUT volumes in the projected test year, it 14
is anticipated that the volumes will be lower than what the Company filed and well 15
below what Witness Veerapaneni has projected. 16
17
Q53. Does this conclude your rebuttal testimony? 18
A53. Yes, it does.19
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the Application of )
DTE GAS COMPANY for authority to )
increase its rates, amend its rate ) Case No. U-20642
schedules and rules governing the )
distribution and supply of natural gas, )
and for miscellaneous accounting authority. )
QUALIFICATIONS
AND
REBUTTAL TESTIMONY
OF
PHILIP W. DENNIS
DTE GAS COMPANY
QUALIFICATIONS OF PHILIP W. DENNIS
Line
No.
PWD-1-Rebuttal
Q1. What is your name, business address and by whom are you employed?1
A1. My name is Philip W. Dennis. My business address is One Energy Plaza, Detroit, 2
Michigan 48226. I am employed by DTE Energy Corporate Services, LLC, a 3
subsidiary of DTE Energy Company (DTE) as Manager, Regulatory Economics. 4
5
Q2. On whose behalf are you testifying? 6
A2. I am testifying on behalf of DTE Gas Company (DTE Gas or Company). 7
8
Q3. What is your education background? 9
A3. I received a Bachelor of Science Degree in Business Administration from Central 10
Michigan University. In addition, I received a Master of Finance Degree from 11
Walsh College. 12
13
Q4. What work experience do you have? 14
A4. In 1981 I was employed by ANR Pipeline Company (ANR) as a Finance Trainee. 15
ANR is an interstate natural gas (gathering, storage and transmission) company 16
regulated by the Federal Energy Regulatory Commission (FERC). I had varying 17
and increasing responsibilities within ANR, including positions in their 18
Controller’s organization, Regulatory Affairs and Marketing groups. While 19
working in the Regulatory Affairs organization, I assisted in the preparation and 20
analysis of general rate cases, purchased gas adjustments, and various surcharge 21
recovery filings. While in Regulatory Affairs, I presented testimony at the FERC 22
sponsoring various cost of service components and participated as a witness in 23
ANR’s rate case hearings. In 1994 I was promoted to Manager of Transportation 24
Rates. I transferred to ANR’s Marketing department in 1999 as Manager of Market 25
P. W. DENNIS
Line U-20642
No.
PWD-2-Rebuttal
Analysis. I remained there until early 2001, when ANR, as part of a merger, was 1
moved to Houston and I left the Company. In 2001, I began working for Michigan 2
Consolidated Gas Company (MichCon) as a Principal Financial Analyst in the 3
Regulatory Affairs department. In 2001, MichCon’s parent, MCN Energy, was 4
acquired by DTE Energy, DTE Electric’s (formerly The Detroit Edison Company) 5
parent. In 2005, I was promoted to Regulatory Affairs Consultant and was project 6
manager for DTE Electric’s general rate cases Case Nos. U-15244, U-15768 and 7
U-16472. In 2011, I assumed my present position of Manager, Regulatory 8
Economics. 9
10
Q5. What are your current duties and responsibilities with DTE? 11
A5. My responsibilities include the management of regulatory activities relative to 12
DTE’s Tariffs, and DTE Electric’s Load Research, Pricing, and Rate Design. 13
14
Q6. Have you previously sponsored testimony before the Michigan Public Service 15
Commission (MPSC or Commission)? 16
A6. Yes. I sponsored testimony and exhibits in the following DTE Electric cases: 17
Case No. Description 18
U-17437 Transitional cost recovery plan associated with the disposition of the 19
City of Detroit Public Lighting System 20
U-17761 Years 2013/2014 Reconciliation of Transitional Reconciliation 21
Mechanism associated with the disposition of the City of Detroit 22
Public Lighting System. 23
U-18005 Year 2015 Reconciliation of Transitional Reconciliation 24
Mechanism associated with the disposition of the City of Detroit 25
P. W. DENNIS
Line U-20642
No.
PWD-3-Rebuttal
Public Lighting System. 1
U-18248 Implementation of Section 6w of 2016 PA341 (“Capacity Filing”) 2
U-18251 Year 2016 Reconciliation of Transitional Reconciliation 3
Mechanism associated with the disposition of the City of Detroit 4
Public Lighting System. 5
U-18262 Years 2018/2019 Energy Waste Reduction Plan Filing 6
U-18419 Certificate of Necessity Filing 7
U-20051 Year 2017 Reconciliation of Transitional Reconciliation 8
Mechanism associated with the disposition of the City of Detroit 9
Public Lighting System. 10
U-18232 Renewable Energy Plan (REP) Proceeding 11
U-20162 DTE Electric 2018 General Rate Case 12
U-20284 DTE Electric Credit B Refunds 13
U-20561 DTE Electric 2019 General Rate Case 14
U-20657 Complaint Case 15
16
Q7. Did you file direct testimony in this proceeding on behalf of DTE Gas? 17
A.7 No I did not. 18
19
DTE GAS COMPANY
REBUTTAL TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-4-Rebuttal
Purpose of Testimony 1
Q8. What is the purpose of your testimony?2
A8. The purpose of my testimony is to respond to the Michigan Public Service 3
Commission Staff’s (“Staff”) proposal, as described in the direct testimony of Staff 4
Witness Revere, to change the method of recovering customer costs (sometimes 5
referred to as service charges) from all of DTE Gas’ rate schedules. The Company 6
currently recovers such costs through a monthly charge; Witness Revere proposes 7
changing to a daily charge. 8
9
Q9. Are you sponsoring any exhibits in this proceeding?10
A9. Yes. I am sponsoring the following exhibit: 11
Exhibit Schedule Description 12
A-35 Z1 Distribution of customer bills based on billing cycle days 13
14
Q10. Was this exhibit prepared by you or under your direction?15
A10. Yes, it was. 16
17
Q11. Why is Staff proposing to change the method of recovering customer charges 18
from a monthly charge to a daily charge?19
A11. Staff’s proposal may result from a misunderstanding of how DTE Gas charges its 20
customer related costs. Staff explains a perceived risk that customers will be billed 21
more than 12 customer charges, and therefore the Company may over-recover 22
customer charges using the monthly method, saying: 23
Due to the timing of billing cycles and potential delays in meter reading, 24
it is currently possible for a customer to be charged 13 monthly customer 25
charges in a year, rather than 12 as assumed when calculating rates. If 26
DTE GAS COMPANY
REBUTTAL TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-5-Rebuttal
the Company charges 13 customer charges in a year, it results in revenue 1
to the Company above what was assumed when setting rates1. 2
Staff further states “if the Company were to charge 13 customer charges to all 3
customers at Staff’s proposed customer charges, it would result in additional revenue 4
to the Company of approximately $21.3 million.”2 5
6
Q12. Do you agree with the proposed change to a daily charge?7
A12. I do not agree with the proposed change, for the following reasons: 8
1. Actual DTE Gas data from 2019 does not show Staff’s theoretical gain in 9
revenue occurring. In addition, recovering more or less than anticipated within 10
charging components (i.e. customer charge, distribution charge, gas cost 11
recovery, IRM, reservation charge, etc) is the normal course of business as 12
utilities set rates based on various assumptions, including number of customers, 13
expected load, costs, etc. 14
2. Any costs to implement the recommended change in the billing system would 15
not be cost justified. 16
3. More than likely, daily charges would cause additional customer confusion and 17
drive more calls to both the Company and the Michigan Public Service 18
Commission. 19
4. Daily customer charges are not the industry standard. 20
21
Q13. What is the Company’s current method for addressing variations in days per 22
billing cycle as discussed by Staff?23
1 Direct testimony of Staff Witness Nicholas M. Revere in U-20642, Pg 5. 2 Direct testimony of Staff Witness Nicholas M. Revere in U-20642, Pg 5
DTE GAS COMPANY
REBUTTAL TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-6-Rebuttal
A13. The Company bills customers on an approximately monthly basis. A bill issued for 1
a period between 26 and 35 days includes the regular monthly customer charge of 2
$11.25. Any billing cycle with fewer than 26 days or more than 35 days includes 3
a customer charge modified on a pro-rata basis to reflect the “short” or “long” 4
billing cycle. This has been the Company’s method for determining customer 5
service charges since at least when I joined the Company in 2001 for both the gas 6
and electric utilities. 7
8
Q14. Is the scenario discussed by Witness Revere, where the Company could charge 9
a customer for 13 monthly service charges in a year, even possible? 10
A14. Customers are billed on a billing cycle basis and every customer will get only one 11
bill per billing cycle each year. While customers (because of the number of days 12
included in cycle one, and/or cycle twenty), may get a thirteenth bill in a calendar 13
year, the next calendar year (or previous, depending on timing) would contain only 14
11 bills. The current billing cycle methodology actually prevents the situation 15
Witness Revere describes. In addition, under Mr. Revere’s scenario of a 13-month 16
service charge, the customer would have 390 days of service and thus the Company 17
would appropriately charge an additional $11.25. Under his daily methodology, 18
the customer would be charged the exact same as the Company’s current method. 19
20
Finally, in a given year, there is a scenario where a customer could be charged more 21
than $135 ($11.25 x 12 months) due to a few long bills in a particular month. 22
However, this is appropriate since such customers are receiving service for greater 23
than one month in that scenario. There are also scenarios in which a customer could 24
be charged less than $135 due to a few short bills (receiving service for less than one 25
DTE GAS COMPANY
REBUTTAL TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-7-Rebuttal
month in the billing cycle). Therefore, instead of developing a multitude of various 1
possible scenarios, I’ve reviewed data from 2019 to determine if an issue actually 2
exists. 3
4
Q15. Can you please describe the results of your analysis? 5
A15. Across all bills issued in 2019, approximately 96.9% reflected a regular billing 6
cycle and a regular customer charge. Of the about 3.1% that received a short or long 7
bill, approximately 2.8% were short bills related to Move-In / Move-Out and 8
outside of any Company control.3 In those situations, the Company’s current 9
methodology appropriately calculates a pro rata customer charge so that the 10
customer is not paying a full month customer charge. The much lower volume of 11
long bills (only 0.2%) is generally characterized by inaccessible, inside analog 12
meters and AMI misreads. 13
14
Q16. Does the Company’s billing approach create a timing mismatch with the 15
customer charge?16
A16. No, it does not. A month has approximately 30.4 days4 and the weighted average 17
billing cycle length in 2019 was an equivalent 30.4 days when accounting for the 18
impact of short bills generated by Move-In / Move-Out.5 19
20
Q17. Does the Company’s billing approach drive a deviation in recovery of 21
customer charges from what was authorized by the Commission?22
3 See Exhibit A-35, Schedule Z1 4 365.25 days in a year, 12 months in a year 5 See Exhibit A-35, Schedule Z1
DTE ELECTRIC COMPANY
DIRECT TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-8-Rebuttal
A17. No, it does not. Statistically and on average, there is no over or under recovery of 1
the monthly customer charge based on the timing or length of billing cycles. This 2
is evident based on the nearly identical length of an average month and an average 3
billing cycle. Variances in the number of actual customers compared to the 4
forecasted customer count in a general rate case may impact total recovery 5
associated with the customer charge but is unrelated to any billing method applied 6
by the Company. Similar variances exist when comparing the Company’s forecast 7
of expected load to actual load for any given year. 8
9
Q18. Does the monthly customer charge methodology lead to customer complaints?10
A18. There is no evidence of repeated customer contacts associated with the Company’s 11
current methodology. As a matter of fact, in a review of the more 39,000 informal 12
customer contacts with DTE’s Executive Consumer Affairs Center since 2018, only 13
97 were associated with DTE Gas “rate” related issues. Of those, only one 14
customer had an inquiry related to the gas customer charge methodology. This 15
customer was non-residential and did not understand the “long bill” pro-rata 16
method; the case was closed after explaining the pro-rata approach. 17
18
Q19. Are there customer benefits associated with a change to daily customer 19
charges? 20
A19. I have not identified any improvements to customer satisfaction or engagement that 21
would be unlocked with a daily customer charge. As a matter of fact, there are 22
several negatives associated with making a change. 23
24
Q20. What other impacts would the proposed change create?25
DTE ELECTRIC COMPANY
DIRECT TESTIMONY OF PHILIP W. DENNIS
Line
No.
PWD-9-Rebuttal
A20. Days in a billing cycle is not a billing determinant for any portion of a Residential-1
A customer bill at present; all charges are either fixed (customer and IRM) or driven 2
by consumption. Changing the billing determinants could create a handful of 3
adverse impacts, and incurring associated costs to address a topic that has generated 4
no complaints and causes no apparent adverse outcomes, would be neither prudent 5
nor reasonable. The adverse impacts of the proposed change include: 6
• Billing system changes would be required to ensure the correct calculation 7
and presentation of the new billing determinant and unit rate. 8
• Ongoing increase in call center volume from customers both generally 9
unfamiliar with the new billing practice and dissatisfied or confused about 10
their fluctuating customer charge. 11
• Increased billing exceptions as a new billing determinant is added. 12
13
Q21. Are daily customer charges typical in the industry?14
A21. No, they appear to be atypical. While Staff identifies three smaller utilities in 15
Michigan with daily customer charges, more than 90% of Michigan gas customers 16
are billed monthly for their customer charge.6 A brief survey of base residential 17
tariffs at gas LDCs in ten states,7 ranging from approximately 250k to more than 4 18
million customers, confirms the widespread use of monthly customer charges, 19
revealing 80% use monthly customer charges. 20
21
Q22. Does this conclude your testimony?22
A22. Yes, it does. 23
6 DTE Gas and Consumers Energy Gas total ~2.9 million customers 7 CMS – MI, ConEd – NY, Washington Gas – VA, Eversource– MA, PG&E – CA, Peoples – IL, NJ
Natural Gas – NJ, Eversource – CT, Wisconsin Gas – WI, Xcel - MN
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
ANDREW D. DEWEY
DTE GAS COMPANYREBUTTAL TESTIMONY OF ANDREW D. DEWEY
LineNo.
ADD-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Andrew D. Dewey. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Gas Company (DTE Gas or Company)4
as Director – Gas Operations – Construction.5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas7
Company?8
A2. Yes.9
10
Purpose of Testimony11
Q3. What is the purpose of your rebuttal testimony?12
A3. The purpose of my testimony is to rebut:13
1. The Michigan Public Service Commission (MPSC) Staff Witness Creisher’s14
testimony regarding the proposed 2020 capital expenditures for the MMO15
program.16
2. The Michigan Public Service Commission (MPSC) Staff Witness Creisher’s17
testimony regarding the proposed 2020 capital expenditures for the MRP.18
3. The Attorney General Witness Coppola’s testimony regarding the proposed19
capital expenditure levels and disallowances for the Main Renewal Program.20
21
Q4. Are you sponsoring any exhibits in this proceeding?22
A4. Yes. In addition to the exhibits I sponsored with my direct testimony, I am also23
sponsoring the following exhibit:24
25
A. D. DEWEYLine U-20642No.
ADD-2-Rebuttal
Exhibit Schedule Description1
A-27 Q1 2020 Plans – Main Renewal and Meter Move Out Programs2
3
Q5. Was this exhibit prepared by you or under your direction?4
A5. Yes, it was.5
6
Meter Move Out7
Q6. What spending level is Staff Witness Creisher proposing for DTE Gas’s Meter8
Move Out Program?9
A6. Witness Creisher proposes that DTE Gas’s Meter Move Out program operate with10
a capital expenditure level of $25,835,800 in 2020. However, DTE Gas is proposing11
the Meter Move Out program operate with a capital expenditure level of12
$27,668,000.13
14
Q7. Do you agree with the recommendation of Staff Witness Creisher’s proposed15
spending level for the Meter Move Out program?16
A7. No. The recommendation proposed by Witness Creisher utilizes the 2018 actual17
cost per inside meter impacted of $2,020 per meter experienced by the MMO18
program, as a basis for the capital expenditure level she is proposing. DTE Gas is19
proposing to utilize a cost per inside meter impacted of $2,163 per meter, which is20
approximately 7% higher than what Ms. Creisher is proposing.21
22
Q8. Why do you feel utilizing the 2018 actual cost per inside meter impacted is not23
appropriate when projecting capital expenditures for the MMO program in24
2020?25
A. D. DEWEYLine U-20642No.
ADD-3-Rebuttal
A8. Utilizing the 2018 actual cost per inside meter impacted is not appropriate when1
projecting our expected MMO capital expenditure for 2020 due to the significant2
changes to our internal work force since the beginning of 2018.3
4
In order to support the expansion of the Main Renewal Program approved by the5
Commission in Case No. U-18999, the Gas Renewal Program (GRP) began an6
internal hiring campaign to support the expected increase in annual work volume7
between both the MMO and MRP programs. Between the second half of 2018 and8
the first quarter of 2019, GRP has hired and retained a total of 78 Maintenance9
Fitter Apprentices, as referenced in Rebuttal Exhibit A-27 Schedule Q1. As these10
new employees are hired into the company, they must go through new hire and on-11
the-job training, which is conducted in the field. For the vast majority of 2018 and,12
through the duration of this training, the labor costs associated with these newly13
hired employees were not charged to either the MMO or MRP program budgets.14
Each of these employees has since been fully trained and qualified to begin 2020.15
As qualified employees, their labor will now be included in MMO and MRP16
expenditures and needs to be accounted for when projecting our MMO capital17
expenditure.18
19
Q9. Do we anticipate any effects on productivity due to the significant number of20
newer employees, impacting overall 2020 MMO capital expenditures?21
A9. Given the large number of employees that have recently been hired, we do expect22
to see a slightly lower overall productivity in 2020. Prior to the hiring campaign23
that started in 2018, the majority of our internal employees had several years, or24
decades, of work experience, leading them to be extremely efficient on a day to day25
A. D. DEWEYLine U-20642No.
ADD-4-Rebuttal
basis. Since the completion of the internal hiring campaign, the makeup of our1
internal employees has shifted and now, roughly half of our employees have some2
to very little work experience. While these newer employees are fully qualified and3
trained, they will continue to need many more months, if not several years, of4
further work experience in order to reach the productivity levels of our more5
experienced employees.6
7
Q10. Are there any additional cost impacts that are different from 2018 capital8
expenditures?9
A10. In addition to the expected productivity levels and labor costs we are anticipating10
for 2020, we must also take into account annual wage increases for our represented11
employees. Per the agreed upon collective bargaining agreement for our12
represented employees, they are subject to annual base wage increases of 2.95%.13
Our 2018 cost per inside meter impacted of $2,020 per meter does not account for14
the two years of annual base wage increases for our represented employees and15
would need to be adjusted when projecting 2020 capital expenditures.16
17
Q11. How do you project these cost drivers will impact MMO capital expenditures18
in the years 2021-25?19
A11. Given the recent level of internal hiring, we cannot know all potential impacts on20
future MMO capital expenditures. We are committed to ensuring that our requests21
are prudent and reasonable and best reflect our true capital expenditure needs.22
Therefore, we have not proposed any increases for our MMO capital expenditures23
beyond the year 2020 in Case No. U-20642.24
25
A. D. DEWEYLine U-20642No.
ADD-5-Rebuttal
Main Renewal Program1
Q12. What proposed spending level is Staff Witness Creisher proposing for DTE2
Gas’s Main Renewal Program?3
A12. Witness Creisher proposes that DTE Gas’s Main Renewal Program operate with a4
capital expenditure level of $234,400,000 in 2020. However, DTE Gas is proposing5
the Main Renewal Program operates with a capital expenditure level of6
$244,500,000.7
8
Q13. Do you agree with the recommendation of Staff Witness Creisher’s proposed9
spending level for the Main Renewal Program?10
A13. No, DTE Gas does not agree with Staff Witness Creisher’s proposed Main Renewal11
spending level of $234,400,000 in 2020.12
13
Q14. Why is Staff Witness Creisher recommending a reduction in the level of 202014
MRP capital expenditures?15
A14. Staff Witness Creisher believes that given the variability of actual costs in prior16
years, DTE Gas’s 2020 expenditures should be lowered to reflect a conservative17
approach. Witness Creisher recognizes that DTE Gas considers many factors when18
projecting costs but believes a conservative approach is more appropriate. In19
support of her recommendation, she notes the large variation in 2019 costs and units20
between projected and actual turn-key work performed by contractors, as well as21
the $4 million variance between total projected and actual spend.22
23
Q15. Does DTE Gas understand Witness Creisher’s recommendation, lowering24
2020 MRP expenditures?25
A. D. DEWEYLine U-20642No.
ADD-6-Rebuttal
A15. No. It is unclear to DTE Gas why a change in the proportion of work performed by1
external resources from a prior year, in addition to exceeding minimum spend2
limitations, would lead to the conclusion that a variance would result in a reduction3
in overall expenditures. DTE Gas believes that it has regularly spent, at a minimum,4
the total amount it has projected and agreed to as a minimum for the MRP. To5
achieve its targets for 2020, DTE Gas has projected an appropriate level of6
expenditures.7
8
Q16. Why did the company complete less turn-key service work and spend less in9
associated costs than originally projected in 2019?10
A16. When the Company initially projected the amount of turn-key service work in 2019,11
the Company anticipated that service work in Modified Grid Approach areas would12
require additional resources for the Company to achieve our year-end targets. As13
work progressed into the end of the year throughout the entire company, internal14
resources from other programs were available to complete this service work. This15
unexpected internal resource availability eliminated the need for external resources.16
As referenced DTE Gas’s annual March 31st, 2020 Report of 2019 activity, 8617
employees were temporarily transitioned from other South East Michigan stations18
throughout the year to support work included in the Gas Renewal Program. This19
change between contractor and internal resources in 2019 is an example of how20
DTE Gas carefully manages its work and resources to provide the maximum21
amount of work at the most reasonable cost.22
23
A. D. DEWEYLine U-20642No.
ADD-7-Rebuttal
Q17. For 2020, did the Company consider hiring more internal resources to support1
this anticipated increase in service work, rather than utilizing outside2
contractors?3
A17. Yes. The Company considered many impacts that would result from the hiring of4
even more internal employees, when determining the most prudent way to handle5
the increase in service work for 2020. As we experienced in 2019, there are many6
challenges that come with hiring many internal resources at a time. In addition to7
the long-term fixed costs associated with hiring internal resources, new hire8
employees go through extensive on-the-job training, conducted by already qualified9
and experienced employees. These experienced employees not only have to10
complete their daily construction work, but also have to take the time to train newly11
hired employees on every aspect of the construction work. This on-the-job training12
limits currently qualified and experienced employees from being fully efficient and13
productive. While hiring more internal resources seemingly reduces the need to14
utilize external resources, it doesn’t provide the immediate benefit of being able to15
complete more work, as would be required to complete all forecasted work for16
2020. As illustrated in Rebuttal Exhibit A-27 Schedule Q1, page 5, the amount of17
service work forecasted for 2020 is more than that completed in 2019 and what is18
forecasted to be completed in 2021. Because of this one-time increase of service19
work, the Company did not feel it was appropriate to hire internal resources who20
may not be needed in future years. Maintaining resource flexibility by utilizing21
external resources for turn-key work is currently the most prudent way to manage22
this spike in service work, specifically as it relates to our 2020 workload.23
24
A. D. DEWEYLine U-20642No.
ADD-8-Rebuttal
Q18. Has the Company implemented any proactive measures to mitigate cost1
impacts associated with this level of turn-key service work in 2020?2
A18. Yes, the Company has been able to utilize our experience in 2019 regarding turn-3
key work and has efficiently planned out the necessary turn-key work for 2020.4
Due to the volume of turn-key work required in 2020, the service work selected for5
turn-key is predominately made up of tie-over and elevation work types. These6
work types have the lowest associated unit costs, helping to mitigate the overall7
cost impacts from this volume of turn-key service work. Without leveraging this8
experience, the costs to complete the work would have been even higher.9
10
Q19. Are there any additional external influences that would further support the11
need for this volume of turn-key service work that the witness could not have12
anticipated when developing her testimony?13
A19. Yes. As experienced not just in Detroit, but across the entire state of Michigan and14
throughout all of DTE Gas’s service territory, the impacts of the 2020 health15
pandemic have been far reaching and profound. Due to the health and safety16
concerns of our employees and our customers, DTE Gas has made the difficult17
decision to temporarily stop all non-emergency operations work – this includes all18
infrastructure upgrades associated with the MRP and MMO programs. However,19
the Governor’s order includes an exception for energy companies, so many of our20
normal operations to keep gas flowing and to keep our customers and our system21
safe, continue during this crisis. And while DTE Gas is in the process of fully22
assessing the effects of the Governor’s prolonged stay-home-stay-safe executive23
order on our planned capital programs, it is currently understood that the need for24
A. D. DEWEYLine U-20642No.
ADD-9-Rebuttal
at least the originally planned amount of turn-key services remains in order to meet1
our annual targets.2
3
Because the temporary suspension of non-emergency work is impacting programs4
throughout the entire company, internal resources from other stations across the5
Company are likely to be fully utilized throughout the rest of the year. In all6
likelihood, the Main Renewal Program will not have the ability to utilize internal7
resources from other programs to support the completion of service work, putting8
further demands on our needs for at least the originally planned amount of turn-key9
services.10
11
Q20. Do we anticipate the impacts from 2020 health pandemic will prevent DTE12
Gas from achieving the annual targets committed to in Rate Order U-18999?13
A20. At this point and based on the Governor’s extended stay-home-stay-safe executive14
order, effective March 24 through April 30, the Company is confident it will be15
able to meet all of our annual goals.16
17
Due to the unprecedented uncertainty resulting from COVID-19, we will closely18
monitor our ability to enter residences and businesses to perform all associated19
meter work. Our plan is to educate customers regarding the safety precautions DTE20
Gas will take to ensure the safety of both our customers and our employees.21
Additionally, if the Governor decides to further extend the stay-home-stay-safe22
executive order and this situation continues to escalate, the Company will reassess23
our ability to complete all planned capital work and meet our annual targets. We24
A. D. DEWEYLine U-20642No.
ADD-10-Rebuttal
are committing to stay in close communication with Staff regarding the impacts1
from COVID-19 and will continue to reevaluate our plans throughout the year.2
3
Q21. What does Attorney General Witness Coppola propose regarding capital4
expenditure levels for the Main Renewal program going forward?5
A21. Attorney General Witness Coppola’s testimony recommends the Commission6
approve Main Renewal spending levels of $193 million going forward, which is7
consistent with the approved spending levels in Case No. U-18999. Additionally,8
Witness Coppola’s testimony recommends that $51,541,000 of additional Main9
Renewal capital costs in 2020 and 2021 be disallowed, with $12,885,000 being10
included in rate base for the 12-month period ending September 2021. Furthermore,11
Witness Coppola is recommending that the additional $39,400,000 being requested12
for Main Renewal in 2021 and beyond not be included in the IRM surcharge for13
these years, but only include the $193,000,000 in the IRM surcharge, which has14
already been approved by the Commission in Case No. U-18999.15
16
Q22. Do you agree with Attorney General Witness Coppola’s proposed spending17
level for the Main Renewal Program?18
A22. No, DTE Gas does not agree with Witness Coppola’s recommended capital19
expenditure levels for the Main Renewal Program. The capital expenditure amounts20
proposed by the Company for 2020-2025 are necessary to complete all21
infrastructure renewal work required to achieve the annual targets approved by the22
Commission in Case No. U-18999 and meet DTE’s goal to complete this program23
by 2035. Witness Coppola cites leak repair data filed by the Company with Pipeline24
and Hazardous Materials Safety Administration (PHMSA) unit of the U.S.25
A. D. DEWEYLine U-20642No.
ADD-11-Rebuttal
Department of Transportation as the basis for recommending capital expenditure1
levels consistent with what has already been approved in Case No. U-18999.2
However, as described in detail in my direct testimony, the Company has proposed3
increases in Main Renewal capital expenditure due to increases in construction cost4
estimates and increases in contractor construction contracts. The Company is not5
proposing an increase to the annual miles renewed in this rate case, but an increase6
in recovery to reflect the latest cost projections based on actual results from7
2018/2019 work as discussed in detail in my direct testimony.8
9
Q23. How is Witness Coppola substantiating his proposal for capital expenditure10
disallowance for the Main Renewal program?11
A23. Witness Coppola is not substantiating his proposal for capital expenditure12
disallowance with any argument. He is merely stating his recommendation for13
disallowance pertaining to Main Renewal capital expenditures in 2020 and 2021.14
Furthermore, the assertion that the company will recover the proposed disallowance15
of $39,400,000 in 2021 through the IRM anyways beginning in 2021 is not16
accurate. The Company will only recover the $39,400,000 through the IRM if the17
Commission approves the spending levels proposed for the IRM surcharge.18
19
Q24. Do the recommendations from Witness Coppola’s testimony align with the20
recommendations from the Commission?21
A24. No, Witness Coppola has recommended capital expenditure levels for the Main22
Renewal Program that are much lower than what Staff Witness Creisher expressed23
her support for on page 16 and 17 of her testimony. Witness Coppola recommends24
A. D. DEWEYLine U-20642No.
ADD-12-Rebuttal
spending levels of $193 million going forward, whereas Staff Witness Creisher has1
supported DTE Gas’s proposed spending levels of $232 million through 2025.2
3
Q25. If the proposed spending levels by witness Coppola are approved going4
forward, what effects would that have on DTE’s Main Renewal Program?5
A25. DTE Gas believes is has proposed appropriate levels of capital expenditure for its6
Main Renewal Program which are necessary to achieve the annual targets approved7
by the Commission in Case No. U-18999. As the Main Renewal Program continues8
to evolve, we continually work to better understand and forecast all costs associated9
with the completion of this work while doing everything we can to mitigate related10
cost pressures. While some of these additional expenditures were not initially11
included in cost estimates in Case No. U-18999, they are nonetheless required to12
complete all work that has been identified through 2025. Without the ability to13
invest in the Main Renewal program at the levels proposed by the Company and14
supported by Staff Witness Creisher, DTE would not be able to complete all15
necessary construction work required to achieve its annual targets.16
17
Q26. Does this conclude your rebuttal testimony?18
A26. Yes it does.19
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
MARK C. JOHNSON
DTE GAS COMPANYREBUTTAL TESTIMONY OF MARK C. JOHNSON
LineNo.
MCJ-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Mark C. Johnson. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Energy Corporate Services, (LLC).4
5
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas6
Company?7
A2. Yes.8
9
Purpose of Testimony10
Q3. What is the purpose of your rebuttal testimony?11
A3. The purpose of my testimony is to address the following:12
- The Attorney General’s testimony concerning the increased O&M expense for13
the expansion of the damage prevention program,14
- The Michigan Public Service Commission (MPSC) Staff Witness Creisher’s15
testimony regarding O&M expenses for excavation damages,16
A19. DTE Gas does not agree with the conclusions reached by Witness Miller. Although23
Staff was not satisfied with the information the Company provided in discovery,24
the Company in good faith provided responses to the discovery requests based on25
M. C. JOHNSONLine U-20642No.
MCJ-9-Rebuttal
what the Company understood was being requested. The Company makes its best1
attempt to be responsive to and transparent with the MPSC and any request they2
submit. Clearly, we misinterpreted Staff’s request and our initial response did not3
provide the detail for which Staff was looking, which we have now provided in4
Exhibit A-29 Schedule S2 and A29 Schedule S3 as mentioned above. The Company5
is increasing its O&M expenses for Pipeline Integrity in response to various6
regulatory drivers as explained in Witness Sandberg’s testimony. In addition, the7
MPSC Staff themselves recognize that the Company is increasing the miles of pipe8
assessable by ILI and therefore increased O&M costs are a reasonable and prudent9
request.10
11
Picarro Gas Survey Program12
Q20. What does Witness Wang recommend with regard to the Picarro Gas Survey13
Program proposed by the Company?14
A20. Witness Wang recommends a disallowance of one-third of the Picarro Gas Survey15
Program (page 25, lines 14-15). This would disallow $1,139,465 of capital16
expenditures in the bridge year and $40,888 of capital expenditures in the test year17
(page 25, lines 15-17).18
19
Q21. Why is Witness Wang recommending the disallowance of one-third of the20
Picarro Gas Survey Program?21
A21. The Company is requesting capital expenditures for three survey vehicles and22
Picarro units for the Picarro Gas Survey Program. Witness Wang asserts that three23
vehicles are not necessary to cover the Southeast Michigan Territory and two24
vehicles would suffice (page 27, lines 6-8). Witness Wang states that two vehicles25
M. C. JOHNSONLine U-20642No.
MCJ-10-Rebuttal
would be consistent with the Picarro pilot program at Consumers Energy (page 27,1
lines 8-10).2
3
Q22. How do you respond to the recommendation by Staff Witness Wang?4
A22. I disagree and believe that three vehicles and Picarro units are necessary to5
completely replace the traditional leak survey process.6
7
Q23. What is the basis for your conclusion that three vehicles and Picarro units are8
necessary for the DTE Gas Picarro project?9
A23. The need for three vehicles and Picarro units is based on the size of the Company’s10
service territory, the number of passes through the survey area, and expected11
vehicle down time. Witness Wang’s calculation of 2,080 available work hours12
annually is based on full availability for the entire year, which is not realistic.13
Vehicles and the associated Picarro units will need down time for vehicle/unit14
maintenance, employee time off, and inclement weather.15
16
Q24. How does the DTE Gas Picarro Project differ from the Consumers Picarro17
pilot?18
A24. DTE Gas intends to fully replace traditional leak survey methods with Picarro for19
its entire service territory. The Consumers Picarro pilot is a multi-month trial to20
compare Picarro survey versus traditional methods of leak survey.21
22
Q25. Does this conclude your rebuttal testimony?23
A25. Yes it does.24
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
TAMARA D. JOHNSON
DTE ELECTRIC COMPANYREBUTTAL TESTIMONY OF TAMARA D. JOHNSON
LineNo.
TDJ-2-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Tamara D. Johnson. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Energy Corporate Services, (LLC).4
5
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas6
Company (DTE Gas or Company)?7
A2. Yes.8
9
Purpose of Testimony10
Q3. What is the purpose of your rebuttal testimony?11
A3. The purpose of my testimony is to rebut the following:12
Staff’s recommendation to use a three-year average based on the cash basis13
of uncollectible accounts to calculate Uncollectible Accounts Expense14
Staff’s recommendation to reduce projected year uncollectible account15
expense by $648,000 with the implementation of Experian Precise ID16
AG’s recommendation to decrease Uncollectible Expense by $1.2 million17
Staff’s recommendation to reject the expansion of RIA enrollments from18
55,000 to 70,00019
Staff’s recommendation to reject the expansion of LIA enrollments from20
33,000 to 45,00021
22
23
24
25
T. D. JOHNSONLine U-20642No.
TDJ-3-Rebuttal
Q4. Are you sponsoring any exhibits in this proceeding?1
A4. Yes. In addition to the exhibits sponsored in my direct testimony I am also2
sponsoring the following exhibits:3
Exhibit Schedule Description4
A-32 V1 U-20642 MST-1.7 response5
A-32 V2 2018 U-18999 Gas Rate Case Order (pg. 108-109)6
A-32 V3 DOL March 2020 News Release7
A-32 V4 Gas Sales UCX UETM8
9
Uncollectible Accounts Expense10
Cash Basis Methodology11
Q5. Does the Company agree with the methodology presented by Staff Ruekert on12
Page 6 of his testimony for the calculation of Uncollectible Expense?13
A5. No, the Company disagrees with the cash basis accounting presented by Staff14
Witness Ruekert. As Witness Uzenski states Question 13, line 10 of her rebuttal15
testimony, the cash basis method for estimating uncollectible expense is16
inconsistent with how expense is recorded and with how other costs and revenues17
are calculated for both MPSC reporting and for rate-making. The Company18
determines uncollectible accounts expense based on an accrual method as required19
by the Uniform System of Accounts (USofA), General Instruction number 11.20
Rates are set to cover the Company’s expenses expected to be recorded for21
accounting purposes. The estimation of future expenses should therefore be22
consistent with the practice used to record the actual expenses to ensure recovery23
of the Company’s prudent and reasonable costs. An average of the amounts24
charged to account 904 provides such consistency. The use of a three-year25
T. D. JOHNSONLine U-20642No.
TDJ-4-Rebuttal
historical average of uncollectible expense is consistent with, and was the approach1
approved by the Commission in recent DTE cases (DTE Electric rate cases U-2
18255 and U-18014, and DTE Gas rate cases U-18999 and U-17999).3
4
Staff’s recommendation that the Company use cash basis accounting of gross write5
offs less recoveries to gas service revenue fails to consider that there is a significant6
timing lag between revenue recognition and when the net write-offs occur. Witness7
use of the 3-year average when calculating the Uncollectible Expense.9
10
Non Energy Write-Offs11
Q6. Why is the Company rejecting the adjustment made by Staff Witness12
Rueckert in Exhibit S-15.1 Page 1 of their testimony to exclude “Non Energy13
Write-Offs”?14
A6. In an audit request, Staff requested information on “Non Energy Write-Offs”15
(Exhibit SMR-2.2a) and asked us to compare that to revenue in column (g) “Total16
Gas Services Revenue” of the Company’s 2018 Natural Gas Utility Company17
Annual Report Form P-522 (“2018 Form P-522”), filed with the Commission.1 . To18
meet Staff’s request, we had to exclude any write-offs that were unrelated to this19
revenue (which would exclude Choice, EUT HPP). When Staff submitted its20
uncollectible expense calculation based on the information we provided, Staff21
changed its revenue view and included line 17 from the 2018 Form P-522, which22
1 The Company’s 2018 Natural Gas Utility Company Annual Report Form P-522 ispublicly available on the Commission’s web site at:https://www.michigan.gov/mpsc/0,9535,7-395-93308_93325_93422_94200_94201_94316---,00.html.
T. D. JOHNSONLine U-20642No.
TDJ-5-Rebuttal
would include the revenue associated with the write-offs Staff was trying to1
exclude. Staff either needs to exclude the write-off adjustment or adjust the revenue2
back to its original request to make sure write-offs and revenue are considered on3
a apples to apples basis.4
5
Therefore, the write-offs used in Staff’s calculation do not correspond to the6
revenue being used in the calculation and the adjustment should be removed for7
Non Energy Write-Offs. See Company adjustment to Staff proposed Uncollectibles8
on Witness Uzenski’s Exhibit A-30, Schedule W3, column (c), which adds back9
Non-Energy Write-Offs that were removed by Staff.10
11
Staff’s cash basis methodology should also include direct charges to expense (201812
Form P-522, Pg. 228A, Line 11) as these ongoing charges are driven by Low13
Income Self Sufficiency Plan (LSP) enrollments. This expense can be driven by14
MEAP funding shortfalls for the customers enrolled on LSP or customers on LSP15
who’s usage has exceeded designated caps and require additional assistance. When16
MEAP funding is exhausted, the Company addresses the shortage with direct17
expense. See Company adjustment to Staff proposed Uncollectibles on Witness18
Uzenski’s Exhibit A-30, Schedule W3, column (e), which includes the 3-year19
average of direct charges for 2016-18:20
Direct Charges – Three Year Average ($000)21
2016 $1,71522
2017 $41623
2018 $92324
Three Year Average $1,01825
T. D. JOHNSONLine U-20642No.
TDJ-6-Rebuttal
1
Experian Precise ID2
Q7. Staff Witness Theresa McMillan-Sepkoski recommends on Page 31, Line 9-143
of her testimony that anticipated savings from the use of the new Experian4
Precise ID product should be reflected in the projected test year Uncollectible5
Account Expense. Do you agree with Staff’s adjustment reducing Uncollectible6
Account Expense by $648,000?7
A7. No, I do not agree with Staff’s adjustment. Staff assumes that the estimated $1.88
million savings in arrears has already been proven and realized. The Company was9
clear in stating there is an expectation of savings and lowering of uncollectibles10
with the implementation of Precise ID (U-20642 TMS-14.15a). It is improper to11
impute savings to uncollectibles at this time based upon the estimate as it is yet12
uncertain. Any realized uncollectible reduction because of implementation of the13
Experian product will be reflected in the historical uncollectible expense of any14
future case. See Company adjustment to Staff proposed Uncollectibles on Witness15
Uzenski’s Exhibit A-30, Schedule W3, column (f), which removes Staff’s16
adjustment for Precise ID Impact.17
18
Attorney General19
Q8. Does the Company agree with the Attorney General Witness Coppola’s20
adjustment at page 115, lines 6-7 of his testimony of $1.2 million to the21
Uncollectible Accounts Expense for the projected test period?22
A8. Mr. Coppola cites to Exhibit AG-46 – AGDG-1.141c in stating that “uncollectible23
costs were avoided in 2016 when customers with bills in arrears used credit cards24
to pay their outstanding bill. The amount of the avoided cost was $2.3 million in25
T. D. JOHNSONLine U-20642No.
TDJ-7-Rebuttal
2019.” The Company presumes Mr. Coppola meant 2019, not 2016. Mr. Coppola’s1
subsequent analysis, found on pages 115-116 of his direct testimony, in which he2
projects $1.2 million in savings in the test year due to credit card usage based upon3
expected increases in merchant fees for residential customers, is flawed on two4
points.5
First, though a customer may have paid a final account by credit or debit card, this6
fact does not indicate that the customer would not have paid by another method if7
credit/debit card payment was not available. The analysis included in the8
Company’s discovery response was a snapshot of a small subset of customers’9
payment behavior for 2019 (Exhibit AG-46 AGDG-2.141c). This is a lagging10
indicator, not a leading indicator; we cannot predict that these customers will11
behave the same way in a future period. Second, a correlation cannot be drawn12
between customers who decide to change their payment methods by paying by13
credit card on a final account and the increase of merchant fees in the projected test14
year. Merchant fees have to do with costs associated with using a credit card billed15
by the credit card company as a percentage of the total amount charged. The16
Company predicts these fees based upon a three-year compound average growth17
rate, as explained by witness Campbell at page 13, line 11-16. The number of18
customers using a credit card to pay a final account is thus not determinative of the19
amount of merchant fees.20
21
Q9. Other than your specific responses to Staff regarding credit/debit card usage22
discussed above, are there any other factors the MPSC Staff or the Attorney23
General may not have taken into consideration in their testimony that the24
T. D. JOHNSONLine U-20642No.
TDJ-8-Rebuttal
Commission should consider to not reduce uncollectible expense as the Staff1
and Attorney General suggest?2
A9. Yes. DTE Gas expects numerous customers will experience some form of3
economic hardship from job loss, reduced work hours, and unpaid sick time due to4
business closures resulting from emergency public health and safety measures5
ordered by federal, state and local governments in response to the 2020 pandemic.6
Customers may also experience increased medical costs. These circumstances are7
likely to meaningfully increase DTE Gas uncollectible expense beyond the three-8
year average the Company is proposing to include as a basis for rate making. Over9
500,000 customers in our service territory are classified as low income. In addition,10
we also have a significant number of customers classified as working poor. These11
populations of customers consistently struggle making timely payments, even in12
the best of times. The current pandemic, and resulting job losses, creates added13
pressures as their resources will decline. Customers with otherwise strong payment14
histories experiencing job elimination or reduced hours will also find it difficult to15
pay their bills. The U.S. Department of Labor recently published data showing the16
following significant steep upward trend, of 5,909% from March 14 to April 4, in17
initial unemployment claims filed in Michigan, the largest weekly spikes ever18
experienced in Michigan:19
T. D. JOHNSONLine U-20642No.
TDJ-9-Rebuttal
1
Exhibit A-32.2- U.S. Depart. Of Labor Unemployment Insurance Weekly Claims.]2
3
In addition, we anticipate that small and medium sized businesses, as they are4
required to shutter their doors, will also experience additional hardship.5
Approximately 20% of these Gas customers are currently past due with ~$15M and6
we expect this to grow exponentially.7
8
During the 2008 recession, the Company experienced a 72% increase in9
uncollectibles from 2007 (DTE Gas increased from $70 million in 2007 to $12610
million in 2008) and it took two years to recover to pre-recession levels. This11
increase happened without a moratorium on service shut-offs. As the Commission12
is aware, the Company has already implemented a suspension on service shutoffs13
for all residential customers and an expansion of the winter protection program for14
senior customers. These actions, while necessary to protect the health and safety15
of our customers, is nevertheless expected to exacerbate the level of uncollectibles16
expense. Using the increased uncollectible expenses we experienced during the17
2008 recession as a basis for what we can expect our uncollectible expenses to grow18
to in 2020 and 2021 Exhibit 32-V4 Gas Sales UCX UETM, this overall 72%1
increase would grow DTE’s 2019 actual uncollectible expense from $38 million to2
almost $65 million; and as previously mentioned, this does not take into account3
the moratorium on service shut-offs the Company has implemented. Given the4
likelihood that uncollectible expense will be higher than forecasted in the test year,5
the Commission should not decrease uncollectible expense as Staff suggests.6
7
Q10. Are there any solutions that would address both the Staff’s concerns and your8
concerns?9
A10. Yes. Company Witness Telang, in his rebuttal testimony at Question 9, Line 10-1910
page (RMT-6 Rebuttal Telang) proposes a symmetrical uncollectible expense true-11
up mechanism (“UETM”), similar to what was done in response to the 200812
recession and the expected significant increase expected in uncollectible expense.13
14
Low Income Credits15
Q11. What is the goal of providing credits to low income customers?16
A11. As stated in my direct testimony (TDJ-6 Line 21), despite improvements in17
Michigan’s economy, many low-income gas customers in our service territory18
continue to struggle with paying their utility bill. Distribution of low-income credits19
such as Residential Income Assistance (RIA) and the Low Income Assistance Pilot20
(LIA) help alleviate the customer’s energy burden. These credits assist our most21
vulnerable customers, those customers at or below 150% Federal Poverty Level22
(FPL). The low-income credits are utilized to assist customers with arrears and23
who are vulnerable to interruption of services.24
25
T. D. JOHNSONLine U-20642No.
TDJ-11-Rebuttal
It is important that our most vulnerable customers not experience interruption of1
their services. Disconnection rates for customers who are enrolled in the LSP2
program when paired with a LIA credit experience a 1.5% disconnect rate,3
compared to a disconnect rate of 16% for those receiving LIA alone.4
5
Q12. Does the Company agree with Staff Madison Todd, (Pg. 93 line 21-23) position6
that the enrollment for the RIA credit should remain at 55,000?7
A12. No, I do not agree with Staff Witness Madison Todd’s position on RIA enrollment8
numbers as stated on Page 93, Line 21-23 of her testimony. Utilizing Staff’s Exhibit9
S-8.2, both the 3-year (61,945) and 5-year (74,691) average enrollments exceed the10
current 55,000 enrollment allowance. The Company’s reduced enrollment average11
(42,723) for 2018 reflects a system defect of the C360 billing system that prevented12
automated enrollment. Excluding the 2018 enrollment numbers, the actual average13
enrollment for RIA would be even greater (3-year 88,678 and 4-year 82,683). As14
for Staff’s assertion that RIA enrollments have been on a steady decline, the15
greatest decline from 2016 to 2017 can be attributed to the development of the LIA16
credit and customers moving from RIA to LIA. There are enough eligible customers17
to justify the increase from 55,000 to 70,000 as the 2019 enrollment numbers18
indicate. At the end of 2019, DTE had 79,910 and a monthly average of 72,10319
customers receiving an RIA credit.20
21
Additionally, I expect that as the economic impact of the 2020 Pandemic health22
crisis begins to surface, more customers will seek state and federal assistance,23
which will result in increased RIA enrollment, likely beyond DTE Gas’s projection24
and even the highest multi-year averages.25
T. D. JOHNSONLine U-20642No.
TDJ-12-Rebuttal
1
Q13. If credits are under-utilized, as Staff witness Madison Todd projects, what2
does the Company propose?3
A13. Consistent with other utilities, in this case the Company has requested a low-income4
tracker as stated in Witness Uzenski’s testimony at Page 36, Line 19-24. This will5
allow unused credits to roll over into the next fiscal year for distribution to6
customers and ensure that all credits are appropriately distributed to the customers7
they are intended to protect. Staff continues to state the Company’s sole purpose of8
the low-income credits is for financial gain, yet approval for this tracker which will9
roll over any unused credits would demonstrate otherwise.10
11
Q14. MPSC Staff Witness Madison Todd asserts on Page 93, Line 18 of her direct12
testimony that RIA enrollments are outside of the Company’s control as13
customers must request the credit or be referred from a qualifying agency. Is14
this accurate?15
A14. No, it is not. Customers who receive state and federal energy assistance are16
automatically enrolled to receive the RIA credit. Additional customers are enrolled17
on request. Audits are conducted to ensure that those customers who identify at the18
required less than or equal to 150% FPL receive the credit. Changes in how the19
state allocates such energy assistance could also impact auto enrollment.20
21
Q15. What was the Company’s response to Staff’s question about variances in22
customer counts for the RIA credit?23
A15. As stated in the Company’s response to Staff’s audit request, attached as Exhibit24
A-32. V1 U-20642 MST-1.7 Response:25
T. D. JOHNSONLine U-20642No.
TDJ-13-Rebuttal
In the instance of U-17999 the monthly counts were rounded whereas1the counts in U-18999 were actual. However, there is a discrepancy in2the 2013 month to month comparison. Unfortunately, the logic cannot3be provided to explain the variance due to the updated billing system in42017. As for what was submitted in Part III subsection 5, question 9,5that view is from a financial report that includes accounting practices6including corrections from month to month which do not align with the7customer counts at the Customer Service business unit reporting. Going8forward the Company will take internal steps to reconcile the two system9modules (customer relationship management and financials) with the10customer counts and financial reporting.11
12
Q16. Do you agree with Staff witness Madison Todd position that ratepayers are13
ultimately subsidizing the LSP program?14
A16. No, I do not. LSP is the most successful Affordable Payment Plan (APP) available15
to our low-income customers. Low income customers can experience an affordable16
monthly payment plan amount while reducing any arrears over the course of the17
program. Pairing the LIA credit with the LSP program allows the expansion of the18
LSP program where it may otherwise be limited by financial constraints. Staff19
witness Madison Todd’s position, at page 88, line 6 of her direct testimony that20
ratepayers are ultimately subsidizing the LSP program is flawed. The LIA credit is21
going to eligible customers whether LSP or Non-LSP. The fact that we can reach22
more customers with the LSP program when a low-income customer is receiving23
the LIA credit is a benefit, not an additional burden on ratepayers as Staff suggests.24
Where it becomes a burden is when customers who need more support than just the25
LIA credit fall into disconnect and final account status. These become uncollectible26
expenses that get passed to customers in rates.27
28
Exhibit A-32 V2 2018 U-18999 Order (pg. 108-109) supports pairing LIA with29
LSP, as the program demonstrated progress in avoiding disconnection, reduced30
T. D. JOHNSONLine U-20642No.
TDJ-14-Rebuttal
energy consumption and comprehensive support that helps eligible customers1
afford their utility. Most of the gas LIA credits are received by Non-LSP2
customers. It is only the electric LIA credit that is automatically applied when a3
customer enrolls in the LSP program. The gas LIA credits are manually applied4
during the LSP enrollment due to the current number of enrollments available.5
Expansion of enrollments will allow a seamless pairing with LSP.6
7
Q17. Do customers enrolled in LSP and receiving the LIA credit lose their LIA8
credit when they are no longer in the LSP program?9
A17. No, customers eligible to receive the LIA credit continue to do so even when no10
longer enrolled in LSP. The Company recognizes the importance of continued11
support for customers when they graduate or default from the LSP program.12
13
Q18. Does this conclude your rebuttal testimony?14
A18. Yes, it does.15
16
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
ROBERT J. LEE
DTE GAS COMPANYREBUTTAL TESTIMONY OF ROBERT J. LEE
LineNo.
RJL-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Robert J. Lee and my business address is One Energy Plaza, Detroit,3
Michigan 48226-1279. I am employed by DTE Energy Corporate Services, LLC4
as Manager of Environmental Management and Resources for DTE Gas Company5
(DTE Gas or Company) and I am responsible for managing the remediation6
program for the Company.7
8
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas9
Company?10
A2. Yes.11
12
Purpose of Testimony13
Q3. What is the purpose of your rebuttal testimony?14
A3. The purpose of my testimony is to rebut and clarify the following:15
Rebut and clarify DTE’s position regarding Staff’s recommendation that16
incurred costs should not be recovered through the Commission’s stated policy17
regarding recovery of MGP expense for the following Company properties: (i)18
properties that are not designated as a Facility, as defined in the Natural19
Resources and Environmental Protection Act (NREPA), Act 451 of 1994,20
Environmental Remediation, MCL §324.20101 et seq. (Part 201); (ii) properties21
that have already received an approved Remedial Action Plan (RAP) or No22
Further Action (NFA), in part or sitewide; or (iii) properties that DTE Gas23
considers closed.24
R. J. LEELine U-20642No.
RJL-2-Rebuttal
Clarify DTE’s position regarding Staff’s recommendation that the company1
recover the non-incremental recurring costs for routine monitoring and2
reporting and other operations and maintenance activities, in operations and3
maintenance (O&M) expenses, rather than by a deferral and amortization4
method more appropriate for extraordinary incremental expenses.5
6
Q4. Are you sponsoring any exhibits in this proceeding?7
A4. No.8
9
Q5. Do you agree with the Staff’s recommendation to recover the non-incremental10
recurring costs for routine monitoring and reporting and other operations and11
maintenance activities in operations and maintenance (O&M) expenses12
beginning August 2019?13
A5. While the Company does not object to this recommendation, the Company would14
need approximately $314,000 per year beginning August 2019 in O&M to cover15
these expenses. These O&M expenses are presented in the following table.16
R. J. LEELine U-20642No.
RJL-3-Rebuttal
Expected Annual Recurring O&M Costs1
Project Annual Recurring TasksExpected
Annual Cost
Broadway
- Cap inspections and maintenance
$25,000-Annual groundwater monitoring
Muskegon
-Operation and maintenance of dual recovery wellgroundwater hydraulic control system
$274,000-Monitoring, reporting and site inspections (including financialassurance and wastewater discharge expenses for waterdisposal to the Muskegon County wastewater system)
WealthyMGP and
Annex
-Semiannual surface cover inspection and maintenance tomitigate exposure to subsurface soil impacts
$5,000
-Groundwater sampling at one well until concentrations arebelow the generic residential cleanup criteria
-Annual Report consisting of documenting surface coverinspections and groundwater sampling results is sent toEGLE annually
Greenville-Potential periodic cap maintenance required as identified infuture annual inspections $10,000
Total= $314,000
2
Q6. Do you agree with the Staff’s recommendation regarding the treatment of3
costs incurred for environmental investigation and remediation at the4
Company’s properties that: (i) are not designated as a Facility under Part 201;5
(ii) that have received an approved Remedial Action Plan (RAP) or No Further6
Action (NFA), in part or site wide; or (iii) that is considered closed by the7
Company?8
9
A6. While the Company understands the intent of the Staff’s recommendation, the10
Company objects, in part, to the Staff’s recommendation regarding the treatment of11
future costs for properties not designated as a Facility under Part 201, properties12
that have received an EGLE approved RAP or NFA, in part or site wide, or13
R. J. LEELine U-20642No.
RJL-4-Rebuttal
properties that are considered closed by the Company. The Company agrees with1
Staff’s position that costs should not be incurred at sites that are not a Facility under2
Part 201. However, the Company disagrees with Staff’s position that a Facility that3
has received EGLE approval of a RAP or NFA, in whole or in part (informally4
considered “closed”) may not receive future recovery through the Commission’s5
stated policy regarding recovery of MGP expenses.6
7
To clarify, the Company does not object to Staff’s position that certain ongoing8
expenses be treated as O&M, as discussed in Question 5 above, subject to treatment9
of certain expenses as O&M in determining base rates. The Company does object10
to the concept that a Facility that has received EGLE approval of a RAP or NFA,11
in whole or in part, may not recover future expenses through the Commission’s12
stated policy regarding recovery of MGP expenses. While the Company has greatly13
reduced the overall future environmental risk by obtaining EGLE approved RAPs14
and NFAs, receiving such an approval is not a guarantee that future non-15
incremental spend may be necessary. Specifically, the determination by EGLE that16
No Further Action is required at a Facility is specific to the known conditions at the17
Facility that were addressed as part of the remedial actions. Conditions unknown18
to the Company or EGLE, future identification of currently unknown contaminants,19
or future changes to applicable Part 201 cleanup criteria, could require additional20
non-incremental spend that would be best accounted for through the Commission’s21
stated policy regarding recovery of MGP expenses.22
23
Q7. Does this conclude your rebuttal testimony?24
A7. Yes, it does.25
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
SHOSHANNAH M. LENSKI
DTE GAS COMPANYREBUTTAL TESTIMONY OF SHOSHANNAH M. LENSKI
LineNo.
SML-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Shoshannah M. Lenski. My business address is One Energy Plaza,3
Detroit, Michigan 48226. I am employed by DTE Gas Company as the Director of4
Productivity and Work Standards.5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas7
Company?8
A2. Yes.9
10
Purpose of Testimony11
Q3. What is the purpose of your rebuttal testimony?12
A3. My testimony will rebut Staff Witness Joy Wang’s proposed $2.7 million13
disallowance related to meter purchases and her recommendation regarding14
Q4. Are you sponsoring any exhibits in this proceeding?17
A4. No.18
19
Staff Disallowance of Meter Purchases20
Q5. Why does Witness Wang propose a $2.7 million disallowance to meter21
purchases costs?22
A5. Witness Wang explains on page 6 of her testimony that she is proposing this23
disallowance because she believes that DTE Gas will not be installing all the meters24
S. M. LENSKILine U-20642No.
SML-2-Rebuttal
it purchases. Also, Witness Wang does not believe the Company should purchase1
more AMI and AMR modules than it anticipates installing.2
3
Q6. Does DTE Gas plan to purchase more meters than it anticipates installing, and4
if so, why?5
A6. Yes. DTE Gas plans to purchase the number of meters required to meet demand6
from installations plus the number required to build up safety stock to protect7
against shortfalls due to demand variability and vendor delivery delays. In recent8
years, DTE Gas has operated with extremely low safety stock volumes, which has9
posed operational challenges. In some instances, we have run out of meters and/or10
modules when vendors have been delayed in shipping. In total, our proposed11
purchases will ensure availability of meters and modules to meet company and12
customer needs at all times.13
14
Q7. How many meters does DTE Gas estimate it will need for the purposes of15
installation and safety stock?16
A7. In the bridge period, DTE Gas anticipates needing approximately 61,000 meters for17
installations, and 13,000 meters for safety stock. In the test period, DTE Gas18
anticipates needing approximately 42,000 meters for installation and an additional19
5,000 meters to build up its safety stock. In total, over these two periods, 85% of20
meter purchases are intended for installation and 15% to build up safety stock.21
22
Q8. Do you agree with Staff's recommendation regarding meter purchases?23
24
S. M. LENSKILine U-20642No.
SML-3-Rebuttal
A8. No, we do not agree with this recommendation. The disallowance of $2.7 million1
in meter and module purchases, as proposed by Staff, may result in insufficient2
supply of meters and modules to cover all needs through the end of the projected3
test year ending September 30, 2021. We believe that Witness Wang’s disallowance4
calculation may have excluded a number of instances in which DTE Gas installs a5
new meter and module. For example, in addition to the AMI project and growth, as6
Witness Wang identified, DTE Gas also requires meters and modules for intest7
sampling and remediation, customer-requested meter changes, meter move out with8
meter changes, and other meter issues that result in a meter change. The table below9
summarizes the specific meter installation and safety stock needs that inform our10
request.11
12
Q9. Do you agree with the Staff recommendations regarding meter benefit13
reporting as seen in Exhibit A-21, Schedule K1?14
A9. No. On page 16 of Staff Witness Wang’s direct testimony, she recommends “…the15
Company provide the forecasted benefits for past years, as well as future16
projections, to allow a comparison of forecasted benefits with actual realized17
S. M. LENSKILine U-20642No.
SML-4-Rebuttal
benefits. This data should be collected for the life of the AMI module installations1
to provide “important evidence on the record regarding the ongoing and long-term2
benefits of AMI” (MPSC Case No. U-18255, 4/18/2018 Order, p. 84). In prior rate3
cases, the Company provided data to both quantify and provide justification for the4
benefits associated with recovery of the initial cost of the AMI investment. The5
Company and Staff both agree on the numerous benefits of AMI. However, the6
amount of data being requested by Staff would require a full-time employee to build7
a model, mine the data, and continue to report on the data going forward. The8
Company believes that given the effort involved to produce the data, with no real9
benefit to show to customers or DTE, this expense would not be reasonable or10
prudent. AMI will continue to be used indefinitely into the future and the Company11
is actively seeking new ways in which to leverage its investment. If more “real-12
time” information is needed by the Staff than is provided in the annual Smart Grid13
report filed each February in Case No. U-17999, the Company is open to meeting14
with Staff and other parties to share its current learnings, operational improvements,15
and future plans.16
17
Q10. Does this complete your rebuttal testimony?18
A10. Yes, it does.19
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
)
REBUTTAL TESTIMONY
OF
HABEEB J. MAROUN
DTE GAS COMPANYREBUTTAL TESTIMONY OF HABEEB J. MAROUN
LineNo.
HJM-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
My name is Habeeb J. Maroun. My business address is One Energy Plaza, Detroit,3
Michigan, 48226. I am employed by DTE Energy Corporate Services, LLC (DTE4
Energy or DTE) as a Principal Financial Analyst in the Revenue Requirements5
Department of the Regulatory Affairs Organization.6
7
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas8
Company?9
Yes, I did.10
11
Purpose of Testimony12
Q3. What is the purpose of your rebuttal testimony?13
The purpose of my testimony is to rebut the following party positions:14
The Attorney General (AG) Witness Mr. Coppola’s position that current15
monthly customer charges for Rate Schedules A, 2A and GS-1 should be16
maintained, or increased no more than $117
Michigan Power LP / Verso Corporation (MPLP/Verso) Witness Mr. Phillips’18
proposal to change the method for allocating costs on Average and Peak (A&P)19
to just Peak Day or 75/2520
The Association of Businesses Advocating Tariff Equity (ABATE) Witness21
Mr. Pollock’s proposal to change the method of allocating costs on A&P to22
Customer and Peak or just Peak Day as well as addressing various issues in23
ABATE’s testimony24
H. J. MAROUNLine U-20642No.
HJM-2-Rebuttal
Correction to the discount allocator sponsored by MPSC Staff Witness Mr.1
Krause2
3
Q4. Are you sponsoring any exhibits associated with your rebuttal testimony?4
No. I am not sponsoring any rebuttal exhibits.5
6
AG’s Recommendation for Monthly Customer Charges7
Q5. What is AG Witness Coppola’s position regarding DTE’s proposed monthly8
customer charges for Rates A, 2A, and GS-1?9
AG Witness Coppola, on page 134 of his direct testimony, recommends that “[T]he10
Commission maintain the current [Rate A and 2A] rate of $11.25…However, if the11
Commission sees some merit in increasing the monthly service charge, in the12
interest of rate gradualism, I recommend that the Commission not increase the13
monthly charge by more than $1, to $12.25. Similarly, for the GS-1 rate, the14
Commission should limit the increase to no more than $1 and preferably keep it at15
the current level of $31.00.”16
17
Q6. How do you respond to Witness Coppola’s position on monthly customer18
charges?19
I disagree. AG Witness Coppola provided no cost-based calculations supporting20
his proposed recommendations. Therefore, because his proposal is not based on any21
actual cost-based calculation, it clearly does not follow the Commission’s long-22
standing approved methodology for calculating monthly customer charges.23
24
H. J. MAROUNLine U-20642No.
HJM-3-Rebuttal
Q7. What methodology has the Commission previously established regarding1
customer charges?2
The Commission previously provided guidance regarding the calculation of3
customer charges in MPSC Case Nos. U-4771 and U-4331 in which it stated:4
Specific distribution plant such as meters and service drops used5exclusively for a given customer shall be treated as customer related. All6other distribution plant shall be treated as demand related. (MPSC Case7No. U-4771, Order, Attachment A, Part One, p 2, May 10, 1976).8
The maximum allowable service charge would be limited to those costs9associated directly with supplying service to a customer. Only costs10associated with metering, the service lateral, and customer billing are11includable since these are costs that are directly incurred as a result of a12customer’s connection to the gas system. [MPSC Case No. U-4331,13Order, p. 30, January 18, 1974; 3 TR 1251.]14
15
The guidance in Case Nos. U-4771 and U-4331 was reconfirmed by the16
Commission in its final order in Case No. U-17999 and used to design current17
customer charges approved by the Commission in Case No. U-18999.18
19
Q8. Is the proposed methodology employed by DTE consistent with accepted20
regulatory practice?21
Yes. The NARUC Gas Rate Design Manual (June 1989) states on page 12 that “the22
basis for the customer charge is that there are certain fixed costs that each customer23
should bear whether any gas is used at all. Examples of such costs are those24
associated with a service line, a regulator and a meter, recurring meter reading25
expenses and administrative costs of servicing the account.” DTE’s methodology26
for calculating monthly customer charges for Rates A, 2A, and GS-1 is consistent27
with these guidelines.28
29
H. J. MAROUNLine U-20642No.
HJM-4-Rebuttal
Average & Peak Allocation Method1
Q9. What does MPLP / Verso Witness Phillips propose regarding DTE Gas’ use2
of the A&P allocation method in its Class Cost of service (CCOS) study?3
On page 3 of his direct testimony, MPLP/Verso Witness Phillips states “I4
recommend that a peak day demand allocation method be used in place of DTE’s5
proposed demand and throughput.” He further recommends at page 3, that as an6
alternative solution, the “75/25” method, which allocates fixed costs, 75% on7
demand and 25% on average energy “is a far superior and more equitable form of8
cost allocation than DTE's current A&P method.”9
10
Q10. Do any other intervenors propose replacing the A&P allocation method?11
Yes, ABATE Witness Pollock proposes reclassifying distribution mains as a12
customer- and demand-related cost as stated on page 34 of his testimony,13
advocating to:14
Classify 40% of all distribution mains as a customer-related cost or,15alternatively, allocate distribution mains entirely on peak day design.16
17
Q11. How do you respond to the allocation proposals made by either MPLP/Verso18
Witness Phillips or ABATE Witness Pollock?19
I disagree. The Commission has consistently approved the use of the A&P method20
since December 1988 in DTE Gas’s general rate case U-8812.21
22
ABATE’s Class Cost of Service Study23
Q12. Can you describe the other topics you will be addressing in ABATE Witness24
Pollock’s testimony?25
H. J. MAROUNLine U-20642No.
HJM-5-Rebuttal
I will be addressing the following topics: (1) Witness Pollock’s use of inconsistent1
XXLT peak design day values in Table 1 and Exhibit AB-14; (2) ABATE’s2
incorrect claim that DTE “double-counts” facilities costs for transmission-serviced3
customers; and (3) ABATE’s proposal for a specific credit for transmission-4
serviced customers.5
6
Q13. ABATE Witness Pollock attempts to adjust the A&P allocator so that no7
distribution-related costs are allocated to customers served from transmission.8
What are your observations regarding Witness Pollock’s efforts to adjust the9
A&P allocator?10
ABATE Witness Pollock attempts to adjust the A&P allocator in Exhibit AB-14 by11
removing transmission-serviced customers, but it is not clear that the adjustment is12
made correctly. Specifically, the direct-served transmission Peak Day Demand for13
XXLT, on line 19, Column (2) of Exhibit AB-14 (94.3 MMcf), does not match the14
equivalent number on Table 1 of Witness Pollock’s direct testimony (145.1 MMcf).15
Therefore, it is unclear which transmission Peak Day Demand ABATE is16
supporting and thus none of ABATE’s Peak Day Demand positions should be17
utilized.18
19
Q14. Regarding DTE’s proposed allocation of distribution facilities, ABATE20
Witness Pollock states on page 8 of his direct testimony that “DTE’s CCOS21
double-counts the allocation of these facilities to the direct-served transmission22
customers.” How do you respond?23
Mr. Pollok in incorrect. DTE Gas is not allocating the same costs twice. Rather,24
ABATE Witness Pollock has a fundamental misunderstanding of various FERC25
H. J. MAROUNLine U-20642No.
HJM-6-Rebuttal
Accounts. DTE Gas continues to allocate distribution facilities (FERC Account1
Nos. 374, 375, 377, 378 and 379) and transmission facilities (FERC Account Nos.2
365, 366, 368, and 369) at the rate class level using the same methodology approved3
by the Commission in every DTE Gas rate case since Case No. U-15985. While4
the accounts share similar names, Witness Pollock fails to recognize that5
distribution and transmission facilities are separate and distinct.6
7
Q15. Regarding the allocation of distribution-related costs to transmission-serviced8
customers, ABATE Witness Pollock proposes on page 21 of his direct9
testimony that “the lower cost to provide direct-transmission service should be10
reflected by implementing a specific credit to the Rate LT, Rate XLT, and Rate11
XXLT classes.” How do you respond to this suggestion?12
I disagree with the position and the approach proposed by Mr. Pollock. In general,13
DTE Gas designs rates at the rate class level; the Company does not design different14
rates for individual customers or a subset of customers within a rate class. The15
reason is that while customer classes often share many similar characteristics, no16
two customers will be exactly the same. Not every customer within a class uses17
every facility or benefits from every expense. Because of this, a fundamental18
principle in COSS is that customers within a rate class share cost responsibility.19
20
Correction to Staff’s Calculation of the Discount Allocator21
Q16. Did you review the COS Excel models prepared by MPSC Staff (Staff), which22
were provided along with their direct testimony?23
Yes. I reviewed their COS Excel models and found that the discount allocator24
sponsored by Staff Witness Mr. Krause in Exhibit S-6, Schedule F1.2 p23 was25
H. J. MAROUNLine U-20642No.
HJM-7-Rebuttal
calculated incorrectly. It is important to calculate the discount allocator correctly1
because it is used to allocate the discount to each rate class in proportion to its2
benefit by having the discounted customers remain as DTE Gas customers.3
4
Q17. Why do you believe the discount allocator was calculated incorrectly?5
I identified a number of errors in Staff’s main and alternative COS models provided6
with their direct testimony. I have prepared workpaper “WP HJM-Rebuttal 1”,7
which identifies these errors and corrected values. I will also be providing Staff8
COS models with corrections highlighted in yellow to Staff for review.9
10
Q18. Did you recalculate the discount allocator?11
Yes, I recalculated the discount allocator using Staff’s models and numbers as12
shown in Table 1 below (col. (d) and (e)) but with the errors corrected. I also13
provided Staff’s filed values for comparison (col. (c) and (d)). Prior to the14
Commission’s final order in this rate case, I propose Staff either incorporate my15
corrections into their existing models or use the corrected models.16
H. J. MAROUNLine U-20642No.
HJM-8-Rebuttal
1
Discount Allocator ($000)2
(a) (b) (c) (d) (e)
Staff Filed Corrected
Rate Class Amount % of Total Amount % of Total
GS-1/2 $15,823 17.201% $1,160.8 18.086%
A 40,434 43.955% 3,467.1 54.019%
2A 1,602 1.742% 156.3 2.435%
S 541 0.588% 28.7 0.447%
ST 3,634 3.950% 391.8 6.105%
LT 3,004 3.265% 341.1 5.314%
XLT 3,201 3.480% 285.8 4.453%
XXLT 6,696 7.279% 267.0 4.161%
DIG 15,844 17.224% 163.9 2.554%
Exelon 1,210 1.315% 155.8 2.427%
Total 91,989 100.000% 6,418 100.000%
3
Q19. Does this conclude your rebuttal testimony?4
Yes, it does.5
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )DTE GAS COMPANY for authority to )to increase its rates, amend its rate )schedules and rules governing the ) Case No. U-20642distribution and supply of natural gas, )and for miscellaneous accounting authority )
REBUTTAL TESTIMONY
OF
ALIDA D. SANDBERG
DTE GAS COMPANYREBUTTAL TESTIMONY OF ALIDA D. SANDBERG
No.
ADS-1-Rebuttal
Q1. Please state your full name, title, business address and by whom you are1
employed?2
A1. My name is Alida D. Sandberg. My business address is One Energy Plaza, Detroit,3
Michigan 48226. I am employed by DTE Gas Company (DTE Gas or Company)4
and hold the position of Director, Gas Integrity and Compliance.5
Q2. Has your work experience changed since your direct testimony filing in 2019?6
A2. Yes. As of December 2019, I have accepted my present position with DTE Gas as7
Director, Gas Integrity and Compliance. Although I have accepted a different8
position within DTE Gas, I am continuing to support DTE Gas Capital9
Expenditures in this proceeding.10
Q3. Did you file direct testimony in this proceeding on behalf of DTE Gas Company11
(DTE Gas or Company)?12
A3. Yes.13
14
Purpose of Testimony15
Q4. What is the purpose of your rebuttal testimony?16
A4. The purpose of my rebuttal testimony is to address the following:17
1. Staff and Attorney General’s (AG) proposals to exclude capital expenditures18
classified as “contingency”. I will show that DTE Gas contingency is an19
inherent part of project estimates.20
2. Attorney General’s proposal to exclude capital expenditures for the Gas Quality21
Assurance Program. I will show that DTE Gas Quality Assurance Program22
should be included in rate recovery.23
A. D. SANDBERGLine U-20642No.
ADS-2-Rebuttal
3. Attorney General’s proposal to exclude certain capital expenditures for the Fort1
Street Main Replacement Project. I will show that the expenditures should be2
included in rate recovery.3
4. MPSC Staff’s proposal to exclude certain capital expenditures for meter4
purchases. Witness Lenski will show that the expenditures should be included5
in rate recovery.6
5. Attorney General and Staff proposal to exclude certain capital expenditures for7
Routine Transmission Plant. I will show that the expenditures should be8
included in rate recovery.9
6. Attorney General and MPSC Staff proposal to exclude certain capital10
expenditures for Routine General Plant – Computers and Related Equipment.11
Witness Busby will show that the expenditures should be included in rate12
recovery.13
7. Attorney General’s proposal to exclude certain capital expenditures for the14
NEXUS project. I will show that the expenditures should be included in rate15
recovery.16
8. MPSC Staff proposal to exclude the capital expenditures for the DTE Gas Site17
Security program. I will show that the expenditures should be included in rate18
recovery.19
9. MPSC Staff proposal to exclude certain capital expenditures for the Traverse20
City – Alpena Reinforcement Project (TCARP). I will show that the21
expenditures should be included in rate recovery.22
10. Attorney General and MPSC Staff proposal to exclude certain capital23
expenditures for the Van Born Project. I will show that the expenditures should24
be included in rate recovery.25
A. D. SANDBERGLine U-20642No.
ADS-3-Rebuttal
11. Attorney General’s proposal to exclude certain capital expenditures for four1
Pipeline Integrity projects. I will show why the expenditures should be included2
in rate recovery.3
12. Attorney General and MPSC Staff proposed recommendations and general4
concerns for the Pipeline Integrity projects. I will provide response to these5
recommendations and general concerns.6
7
Q5. Are you sponsoring any exhibits in this proceeding?8
A5. Yes. I am sponsoring the following exhibits:9
Exhibit Schedule Description10
A-23 M1 TCARP Project Capital11
A-23 M2 DTE Gas Site Security – Summary of Project List, Costs,12
and Risk Mitigation - Confidential13
A-23 M3 Revised Exhibit A-12 B5.3 Southfield 24 in Pipe14
Replacement15
A-23 M4 JSG-1 Supplement dated e-mail16
A-23 M5 E-mail providing 2019 updates to exhibits A-12 Schedule17
In the matter of the application of ) DTE GAS COMPANY for authority to ) to increase its rates, amend its rate ) schedules and rules governing the ) Case No. U-20642 distribution and supply of natural gas, ) and for miscellaneous accounting authority ) )
REBUTTAL TESTIMONY
OF
THERESA M. UZENSKI
Q1. Please state your full name, title, business address and by whom you are 1
employed. 2
A1. My name is Theresa M. Uzenski. I am employed by DTE Energy Corporate 3
Services, LLC, a subsidiary of DTE Energy Company (DTE Energy). My business 4
address is One Energy Plaza, Detroit, MI 48226. 5
6
Q2. Did you file direct testimony in this proceeding on behalf of DTE Gas 7
Company (DTE Gas or Company)? 8
A2. Yes. 9
10
Purpose of Testimony 11
Q3. What is the purpose of your rebuttal testimony? 12
A3. The purpose of my rebuttal testimony is to refute certain positions taken by the 13
other parties as described in more detail below. The absence of a discussion of 14
other matters in my testimony should not be taken as an indication that I agree with 15
all other aspects of intervenor testimony. 16
• Staff’s two adjustments to reduce the capital usage charge should be 17
rejected because they are duplicative and would understate the expenses that 18
will be billed to DTE Gas. In addition, one of the adjustments is based on 19
a presumed disallowance in DTE Electric’s current rate case (U-20561), in 20
which an order has not yet been issued by the Michigan Public Service 21
Commission (MPSC or Commission). 22
• The Attorney General’s (AG) adjustment to reduce the capital usage charge 23
should be rejected because it is based on a presumed disallowance in DTE 24
Electric’s current rate case (U-20561). 25
T. M. UZENSKI Line U-20642 No.
TMU-2-Rebuttal
• Staff’s adjustment to benefits capitalized and transferred should be rejected 1
because there is no basis for using 2019 as the starting point for their 2
calculation. 3
• Staff’s proposal to use the cash basis method for determining uncollectible 4
expense should be rejected because the accrual method is more accurate and 5
is the basis for the Company’s recorded uncollectible expense. 6
• ABATE’s proposed disallowance of all industry association dues should be 7
rejected because there is no sound basis to conclude that none of the costs 8
are reasonable and prudent. DTE Gas agrees to an expense reduction of 9
$100,000. 10
• Staff’s proposal to remove the receivable for the Customer Attachment 11
Program (CAP) is unnecessary because customers are appropriately 12
compensated by the related interest revenue. 13
I also address Staff’s comments regarding the accounting classification for certain 14
capital projects and discuss the accounting for an uncollectible tracker proposed by 15
Company Witness Telang. 16
17
Q4. Are you sponsoring any exhibits in this proceeding? 18
A4. Yes. I am sponsoring the following exhibits: 19
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 32 of 46
A44. No. Mr. Coppola’s implementation relies on an unusual and unnecessary two-step 1
methodology. He adds the average spread between utility bond yields and government 2
bond yields to his projected risk-free rate. He conflates his estimated spread by averaging 3
the spread of A-rated and BBB-rated utility bonds to U.S. Treasury yields. Next, Mr. 4
Coppola adds this spread to the historical average premium of utility stock returns over 5
utility bond yields. If his intention is to add a historical risk premium to his risk-free rate, 6
then he could have done so by using a simpler and more direct method of by utilizing the 7
historical premium relative to government bonds. 8
Q45. Do you agree with Ms. LaConte’s implementation of the Risk Premium model? 9
A45. Not entirely. I agree with Ms. LaConte’s use of authorized return on equities as I did.75 In 10
my Direct Testimony, I discuss how this approach measures the cost of equity for the 11
regulated entity and not the holding company and that these allowed returns are readily 12
observable by market participants.76 However, Ms. LaConte calculates her risk premium 13
by using 30-year bond yields. Ms. LaConte then utilizes a simple averaging of the 14
differences between the average authorized ROEs and the annual 30-year bond yield 15
whereas I take a more rigorous statistical approach utilizing ordinary least squared 16
regression to estimate the risk premium.77 17
Conclusions Regarding Model Implementations 18
Q46. What do you conclude regarding Messrs. Ufolla, Coppola, and Ms. LaConte model 19
implementations? 20
A46. First, I reiterate my arguments from Section IV that other highly regulated companies, such 21
as water utilities provide relevant comparisons for DTE Gas. I also object to the 22
unnecessary and inconsistent application of restrictions when screening for proxy group 23
companies. This has resulted in the elimination of companies such as Chesapeake Utilities 24
75 LaConte Testimony, pp. 32-33.
76 Villadsen Testimony, p. 55.
77 Ibid.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 33 of 46
from Mr. Ufolla’s and Mr. Coppola’s proxy groups despite the company’s size being 1
equivalent to other proxy companies and its debt being priced similar to other investment 2
grade utilities. I also object to Mr. Coppola’s and Ms. LaConte’s focus on regulated 3
revenues to eliminate companies when regulated assets is a more appropriate metric for 4
comparing business risk. 5
Second, I find that the currently very volatile financial markets and uncertainty regarding 6
DTE Gas’ load and potential bad debt merits an authorized ROE towards the upper end of 7
what the implementation of models can calculate to ensure risk-averse investors continue 8
to find the Company attractive. 9
Thirdly, I find issue that none of the witnesses considered financial leverage in their 10
analysis. As discussed in Section II, account for financial leverage is a standard financial 11
technique taught in MBA textbooks, the CFA program, and used in other regulatory 12
jurisdictions. By failing to consider financial leverage, Messrs. Ufolla, Coppola, and Ms. 13
LaConte’s estimates are downwardly biases and do not meet the fair return standard. 14
Fourth, I emphasize that the ROE is a forward-looking measure that is estimated based on 15
projected (forward-looking inputs) rather than historical (backward-looking) inputs. Mr. 16
Ufolla implemented a projected CAPM that results in an ROE estimate of 9.33%.78 This 17
estimate is over 150 basis points above his historical/backwards looking CAPM 18
implementation. Mr. Ufolla’s project CAPM results are consistent with my reasonable 19
range and supportive of my 10.5% ROE recommendation for DTE Gas. 20
Fifth, I find issue with Mr. Ufolla and Mr. Coppola’s implementation of the DCF which 21
utilizes annualized dividend growth. As discussed above, this in effect delays receipt of 22
dividends by investors and downwardly biases the results of the DCF models. 23
Sixth, Mr. Ufolla and Mr. Coppola make errors or inappropriate assumptions in the 24
implementation of their Risk Premium model. As previously discussed, the errors are 25
78 Ufolla Testimony, p. 21.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 34 of 46
related to incorrect comparisons and misinterpretation of data sources. I find that the results 1
from their implementations have many issues and should be disregarded. 2
Lastly, based on my analysis of the calculations of the Ufolla, Coppola, and LaConte 3
testimonies, I find that their implementation of the models downward bias the cost of equity 4
by approximately 90 to 160 basis points. 5
VI. RESPONSE TO CRITIQUE OF ECAPM 6
Q47. Are there other issues you want to respond to in this rebuttal testimony? 7
A47. Yes. In addition to the topics addressed in Section 0, I address the critique of using an 8
Empirical Capital Asset Pricing Model (“ECAPM”). 9
Therefore, I respond to (i) the Coppola and Ufolla Testimonies’ argument that the ECAPM 10
is unnecessary because most witnesses uses a long-term risk-free rate,79 (ii) the LaConte 11
and Ufolla Testimonies critique that the ECAPM is not needed when using adjusted betas,80 12
and (iii) the Coppola Testimony’s argument that the ECAPM methodology is not widely 13
accepted.81 14
Q48. How do you respond to the argument that the ECAPM is unnecessary because 15
witnesses use long-term risk-free rates? 16
A48. I disagree. As discussed in the response to JEU-1-31, the empirical value of alpha was 17
estimated to be in the range of 1% to 7.32%. I choose an alpha value in the lower half of 18
that range, in part, to take into account the use of long-term risk-free rates. Addressing Mr. 19
Coppola’s statement that “the classic CAPM typically uses short-term treasury rates as the 20
risk-free rate,”82 I take the use of the long-term risk-free rate into account as it reduces the 21
size of the alpha parameter – the average estimated by researchers cited in my appendix 22
79 Coppola Testimony, pp. 75-76, Ufolla Testimony, p. 23.
80 Ufolla Testimony, pp. 22-23, LaConte Testimony, p. 43.
81 Coppola Testimony, pp. 76.
82 Coppola Testimony, p. 75.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 35 of 46
was 4.45%; yet my estimate was only 1.5% and thus allowing for a maturity premium of 1
almost 300 bps.83 2
Q49. What about the argument that the use of the simultaneous use of the ECAPM and 3
adjusted betas lead to biased results? 4
A49. Mr. Ufolla and Ms. LaConte are concerned that I use ECAPM in combination with Value 5
Line betas, which are subject to the Blume adjustment.84 They believe the adjustment is 6
inappropriate. However, the Blume adjustment and the ECAPM are two fundamentally 7
different and complementary adjustments and both are well supported by the academic 8
literature. The reason for these necessary adjustments can be shown by reference to, which 9
illustrates the empirical security market line (“SML”). The adjustment to beta corrects the 10
estimate of the relative risk of the company, which is measured along the horizontal axis 11
of the SML. The ECAPM adjusts the risk-return tradeoff (i.e., the slope) in the SML, which 12
is on the vertical axis. In other words, the expected return (measured on the vertical axis) 13
for a given level of risk (measured on the horizontal axis) is different from the predictions 14
of the theoretical CAPM. Getting the relative risk of the investment correct does not adjust 15
for the slope of the SML, nor does adjusting the slope correct for errors in the estimation 16
of relative risk. 17
83 In comparison, the historical maturity premium for 20-year risk-free treasury bonds over 90-day treasury
bills for the longest period I have access to (April 1953 through February 2020) is 1.62% while the average
for the period 1953 – 1991 (the period covered by the articles) is lower at 1.16%. Source: Federal Reserve,
FRED.
84 Ufolla Testimony, pp. 22-23, LaConte Testimony, p. 43.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 36 of 46
Figure R-7: The Empirical Security Market Line
Importantly, the Blume adjustment has the effect of moving the beta along the x-axis 1
whereas the ECAPM is using the y-axis. The Value Line relied upon method to make betas 2
more precise was developed by Professor Blume.85 As shown in Professor Blume’s paper, 3
it is possible to apply a consistent adjustment procedure to historical betas that increased 4
the accuracy in forecasting realized betas. Essentially, Professor Blume’s adjustment 5
transforms a historical beta into a better estimate of expected future beta. It is this expected 6
“true” beta that drives investors’ expected returns according to the CAPM. 7
The backward-looking empirical tests of the CAPM that gave rise to the ECAPM did not 8
suffer from bias in the measurement of betas as do a forward-looking use. Researchers 9
plotted realized stock portfolio returns against betas measured over the same time period 10
to produce plots such as Figure R-8 below, which comes from the 2004 paper by Professors 11
Eugene Fama and Kenneth French.86 The fact that betas and returns were measured 12
contemporaneously means that the betas used in the tests were already the best possible 13
measure of the “true” systematic risk over the relevant time period. In other words, no 14
adjustments were needed for these betas. Despite this, researchers observed that the risk-15
85 Blume, Marshall E. (1971), “On the Assessment of Risk,” The Journal of Finance, 26, p. 1-10.
86 Fama, Eugene F. & French, Kenneth R, (2004), “The Capital Asset Pricing Model: Theory and Evidence,”
Journal of Economic Perspectives, 18(3), p. 25-46.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 37 of 46
return trade-off predicted by the CAPM was too steep to accurately explain the realized 1
returns. As explained above the ECAPM explicitly corrects for this empirical observation. 2
Figure R-8: Evidence from Empirical Tests of the CAPM87
Q50. Did the empirical tests that gave rise to the ECAPM use raw betas in their analyses? 3
A50. They did. However, this is simply because the researchers were able to measure raw betas 4
and realized returns from the same historical period. In other words, no adjustment to the 5
raw beta was necessary to evaluate the market return realized for the same historical period 6
– that is different from using betas to determine the cost of equity for future periods. Hence, 7
the raw betas they measured accurately captured the systematic risk that impacted the 8
returns they measured. In a sense, the measured betas and realized returns were already 9
contemporaneous in the tests of the CAPM that identified the effect shown in Figure R-7 10
and Figure R-8. 11
This is explicit in the article by Litzenberger et al.,88 who explain (on page 376) that the 12
estimate of “alpha” they obtain when using historical (i.e., “raw”) betas is a linear 13
combination of the alpha that would be obtained with a perfect estimate of “true” beta and 14
the weighting factor employed in the Blume “global adjustment” procedure, which they 15
describe with the equation 𝛽𝑖 = 𝜔𝛽𝑖(ℎ𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝑎𝑙) + (1 − 𝜔)1. Using the equations that the 16
authors present along with their results presented in the “Raw Betas” panel of Table 1 (on 17
87 Id., p. 33.
88 Robert Litzenberger, Krishna Ramaswamy and Howard Sosin, “On the CAPM Approach to the Estimation
of a Public Utility’s Cost of Equity Capital,” Journal of Finance, vol 35, 1979.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 38 of 46
page 380 of the paper), it is possible to derive the estimate of alpha implied for use of 1
Blume adjusted beta with 𝜔 = 0.67: 2
𝑎 = 𝑎′ − 𝑏′ (1 − 𝜔
𝜔) = 0.326 − 0.330 (
0.33
0.67) = 0.163 3
In other words, the results of Litzenberger et. al.’s study is consistent with an 4
ECAPM alpha factor of approximately 2.0% when applying Blume-adjusted betas.89 In 5
that light my use of an alpha factor of 1.5% is conservative. 6
Q51. How about the argument that the ECAPM is not widely used in regulatory 7
proceedings? 8
A51. First, I believe the Commission should be presented with the best possible analysis 9
regardless of whether the analysis is “widely used” by regulators. Second, there certainly 10
are regulatory commissions that have adopted the ECAPM methodology. Examples 11
include the Mississippi Public Service Commission90 and the New York State Public 12
Service Commission.91 Also, the Alabama Public Service Commission recognized the 13
methodology.92 Importantly, all of these regulators rely on the ECAPM in conjunction 14
with adjusted betas and the California Public Utilities Commission did not distinguish 15
between CAPM and ECAPM when reporting results.93 This list is not exhaustive as many 16
commissions review the evidence before them, based on which they decide on an allowed 17
return without explicitly accepting or rejecting any specific methodology. 18
Q52. What do you conclude regarding the ECAPM? 19
89 Since Litzenberger, et. al. used monthly return data, their monthly alpha estimate of 0.163% corresponds to
(1.00163)12 − 1 = 1.97% when annualized.
90 Mississippi Power, PEP-5A, p. 24.
91 NY PSC Case 19-E-0065, Staff Finance Panel Testimony, May 2019, p. 141. 92 Alabama Public Service Commission, “Report and Order in Dockets 18117 and 18416,” August 21, 2013,
p. 13.
93 California Public Utilities Commission, “Decision 19-12-056,” December 19, 2019.
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 39 of 46
A52. For the reasons discussed above, the ECAPM has merit and there is no double-counting in 1
using adjusted betas in the ECAPM. Not only is the ECAPM of merit, but failing to 2
consider the results will downward bias the results by approximately half a percent. 3
Q53. Does the fact that you have not addressed all criticisms of you testimony mean that 4
you agree with those criticisms? 5
A53. No. 6
VII. CAPITAL MARKETS UPDATE 7
Q54. What has changed since you filed your Direct Testimony? 8
A54. Since filing my Direct Testimony, long standing economic uncertainties weight on capital 9
markets subsided somewhat but new global uncertainties related to the COVID-19 10
pandemic have increased economic risk and market volatilities to levels never seen before. 11
In January 2020, a series of trade deals were signed by the U.S. easing global trade 12
tensions—Phase 1 of the U.S.-China trade deal was signed on January 15 and the USMCA 13
was signed on January 31 this year. In addition, after years of negotiations, Brexit was 14
finalized and the United Kingdom withdrew from the European Union on January 31, 2020. 15
However, around the same time, early indications of a new virus was spreading in China. 16
By March 11, the World Health Organization had declared that the COVID-19 outbreak 17
was a pandemic.94 Governments around the world have been working to contain the spread 18
of the virus and have encouraged people to practice social distancing with some countries, 19
U.S. states, and cities issuing stay-at-home orders for their populations. This has led to 20
large portions of the economy shutting down and record levels of unemployment. Adding 21
to the economic turmoil, OPEC+ members failed to reach an agreement on production cuts 22
94 World Health Organization, “WHO Director-General’s opening remarks at the media briefing on COVID-
19 – 11 March 2020”, press release, March 11, 2020. https://www.who.int/dg/speeches/detail/who-director-
Rebuttal Testimony of Bente Villadsen DTE Gas Company
Case No. U-20642
Page 46 of 46
evident that the business risk of regulated utilities is elevated. While I continue to find my 1
ROE recommendation reasonable, I find the heightened business risk environment lends 2
additional supports to awarding DTE Gas an ROE towards the upper half of my reasonable 3
range. 4
Figure R-12: Michigan Unemployment – U.S. Department of Labor
5
6
Q59. Does this conclude your rebuttal testimony? 7
A59. Yes. 8
Initial Claims
Continued Claims
0
50
100
150
200
250
300
350
400
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Jan
-20
UN
em
plo
ym
en
t C
laim
sTh
ou
san
ds
> 311,000 Initial ClaimsWeek Ending 3/28
STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of )
DTE GAS COMPANY for authority )
to increase its rates, amend its rate )
schedules and rules governing the ) Case No. U-20642
distribution and supply of natural gas, )
and for miscellaneous accounting authority )
)
PROOF OF SERVICE
STATE OF MICHIGAN )
) ss.
COUNTY OF WAYNE )
ESTELLA R. BRANSON, being duly sworn, deposes and says that on the 14th day of
April, 2020, she served a copy of DTE Gas Company’s Rebuttal Testimony of Witnesses, Jaison
J. Busby, Robert J. Lee, Shoshannah M. Lenski, Habeeb J. Maroun, and Rajan M. Telang, and
Rebuttal Testimony and Exhibits of Witnesses, Andrew D. Dewey, Mark C. Johnson, Tamara
Johnson, Henry N. Campbell, George Chapel, Michael S. Cooper, Henry J. Decker, Philip W.
Dennis, Alida D. Sandberg, Edward J. Solomon, Theresa M. Uzenski, and Dr. Bente Villadsen,
via electronic mail upon the persons referred to in the attached service list.
______
ESTELLA R. BRANSON
Subscribed and sworn to before
me this 14th day of April, 2020
Lorri A. Hanner, Notary Public
Wayne County, Michigan
My Commission Expires: 4-20-2020
Page 1 of 1
SERVICE LIST MPSC CASE NO. U-20642
ADMINISTRATIVE LAW JUDGE Honorable Martin D. Snider Administrative Law Judge Section 7109 West Saginaw Hwy Lansing, MI 48917 [email protected] ABATE Michael J. Pattwell Bryan A. Brandenburg Stephen A. Campbell Clark Hill, PLC 212 East César E. Chávez Avenue Lansing, MI 48906 [email protected][email protected][email protected] ATTORNEY GENERAL (ENRA) Joel King Assistant Attorney General G. Mennen Williams Bldg. 525 W. Ottawa Street, 6th Floor P.O. Box 30755 Lansing, MI 48909 [email protected][email protected] CITIZENS UTILITY BOARD OF MICHIGAN John R. Liskey John R Liskey Attorney At Law PLLC 921 N. Washington Avenue Lansing, MI 48906 [email protected] DETROIT THERMAL, LLC Arthur J. LeVasseur Fischer Franklin & Ford 24725 W. 12 Mile Road Southfield, MI 48034 [email protected]
MICHIGAN POWER LIMITED PARTNERSHIP; RETAIL ENERGY SUPPLY ASSOCIATION Jennifer Utter Heston Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan, Ste. 1000 Lansing, MI 48933 [email protected] MPSC STAFF ATTORNEYS Michael J. Orris Amit T. Singh Daniel E. Sonneveldt Nicholas Q. Taylor 7109 West Saginaw Hwy, 3rd Floor Lansing, MI 48917 [email protected][email protected][email protected][email protected] RESIDENTIAL CUSTOMER GROUP Don L. Kekey Brian W. Coyer University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI 48823 [email protected][email protected] VERSO CORPORATION Laura A. Chappelle Timothy J. Lundgren 201 N. Washington Square, Suite 910 Lansing, MI 48933-1323 [email protected][email protected]
MICHIGAN ATTORNEY GENERAL Joel King Michael E. Moody Amanda Churchill Assistant Attorney General G. Mennen Williams Bldg. 525 W. Ottawa Street, 6th Floor P.O. Box 30755 Lansing, MI 48909 [email protected][email protected][email protected] Consultant for Michigan Attorney General Sebastian Coppola President Corporate Analytics 5928 Southgate Rd. Rochester, MI 48306 [email protected] MICHIGAN POWER LIMITED PARTNERSHIP; RETAIL ENERGY SUPPLY ASSOCIATION Jennifer Utter Heston Angela Babbitt Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan, Ste. 1000 Lansing, MI 48933 [email protected][email protected] MPSC STAFF ATTORNEYS Michael J. Orris Amit T. Singh Daniel E. Sonneveldt Nicholas Q. Taylor 7109 West Saginaw Hwy, 3rd Floor Lansing, MI 48917 [email protected][email protected][email protected][email protected]