STATE OF MICHIGAN - Electronic Case Filings

STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of DTE
ELECTRIC COMPANY for approval
of a transitional cost recovery plan and
retail electric tariffs associated with the
disposition of the City of Detroit Public
Lighting System.
Case No. U-17437
(e-file paperless)
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MICHIGAN PUBLIC SERVICE COMMISSION STAFF'S
INITIAL BRIEF
In accordance with the schedule established for this case, the Michigan
Public Service Commission (“MPSC” or “Commission”) Staff (“Staff”) files the
following Initial Brief in DTE Electric Company’s (“DTE Electric” or the “Company”)
application for approval of a transitional cost recovery plan and retail electric tariffs
associated with the disposition of the City of Detroit (“City”) Public Lighting
System.
History of Proceedings
On July 19, 2013 DTE Electric filed an Application supported by pre-filed
testimony and exhibits requesting the Commission approve its transitional cost
recovery plan and retail electric tariffs to recover the net incremental revenue
requirement and carrying charges associated with its City of Detroit Public
Lighting Department (“PLD”) conversion plan, and to grant waivers of existing
Rules of Service.
The Administrative Law Judge (“ALJ”) held the prehearing conference on
September 4, 2013. At that time the ALJ granted the Petitions to Intervene of the
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Attorney General, the Association of Businesses Advocating Tariff Equity
(“ABATE”), and the Detroit Public Schools (“Schools”). 1 TR 5-6. Staff also
participated in the hearing. 1 TR 4. By an agreement of the parties, the ALJ set a
schedule. 1 TR 8-9.
Staff, the Attorney General, ABATE and the Schools submitted their pre-filed
direct testimony on November 25, 2013. DTE Electric filed rebuttal testimony on
December 16, 2013. The ALJ conducted an evidentiary hearing on January 14,
2014. Following the completion of cross-examination, the record in this case closed.
The record consists of 366 pages of transcript and numerous exhibits.
Argument
DTE Electric’s Application arises out of the City of Detroit’s decision to
transfer its retail electric service to a third party due to the significant investment
it would take to make the PLD system safe and reliable. 2 TR 142. Currently the
City operates a 139 square mile public lighting department serving approximately
115 retail electric customers and 88,000 city street lights. 2 TR 49. The City
currently generates a portion of its electricity requirements, and purchases the
remainder from DTE Electric under a wholesale purchase agreement. Application
at ¶3. In an effort to reduce the City’s costs and improve its financial situation, as
well as to improve service reliability for current PLD retail customers, the City and
DTE Electric have negotiated a transfer of retail electric service from PLD to DTE
Electric. Application at ¶4.
On July 11, 2013, the Commission issued an order in MPSC Case No. U17427 authorizing DTE Electric to defer for accounting purposes the net
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incremental revenue requirement associated with the disposition of the PLD electric
distribution business and transfer of PLD customers to DTE Electric . In this case,
DTE Electric proposes a plan for recovery of those deferred costs.
DTE Electric proposes installation of retail billing meters at all PLD
customer billing locations during a six to twelve month “Meter Conversion Period.”
2 TR 53. During this period, current PLD retail customers would remain PLD
customers, however, DTE Electric would provide meter read data to PLD for billing
purposes for locations with the new meters. 2 TR 145. Following the Meter
Conversion Period, all PLD customers would become DTE Electric customers on a
single date, the “Customer Conversion Date.” Id. At this time, the wholesale
electric purchase agreement between PLD and DTE Electric would terminate. Id.
Once former PLD customers have been converted to DTE Electric customers,
DTE Electric proposes to directly connect these former PLD customers to the DTE
Electric distribution system. Id. DTE Electric estimates this “System Conversion
Period” will last approximately five to seven years, and will involve upgrade work
on the DTE Electric distribution system to connect and service former PLD
customers. 2 TR 107. During the System Conversion Period, PLD would continue
to transport and deliver power to DTE electric customers that the Company has not
yet physically connected to DTE Electric’s distribution system. 2 TR 55. DTE
Electric estimates its system conversion costs at $275 million. 2 TR 143. DTE
Electric also plans to seek recovery of approximately $40 million in costs associated
with making customer facilities ready to receive electric service from DTE Electric.
2 TR 57.
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DTE Electric plans to seek recovery of the transmission costs it will pay to
PLD during the System Conversion Period in its annual Power Supply Cost
Recovery (PSCR) cases. 2 TR 146. In the alternative, if the Commission determines
these costs are unrecoverable in PSCR cases, then DTE Electric requests to recover
its system conversion costs as incremental revenue requirement associated with
this cost recovery plan. Id.
DTE Electric’s plan provides that following the Customer Conversion Date,
all former PLD customers would begin paying DTE Electric retail tariff rates. 2 TR
147. In instances where a former PLD customer’s applicable DTE Electric currently
approved rate is 5 or more percent higher than their former PLD rate, the Company
will transition customers to its retail charges over a period of years via a
“Transitional Tariff.” Id. The Transitional Tariff will moderate the financial
impact on former PLD customers resulting from the move to DTE Electric retail
rates by limiting base rate increases to 5% per year. 2 TR 111. DTE Electric
proposes that the Transitional Tariff be optional for PLD customers, however, in
order to take advantage of the Transitional Tariff, DTE Electric proposes to require
customers to remain full service customers for ten years. 2 TR 147.
DTE Electric is aware of several service equipment issues that will affect
PLD customers involving type and ownership of transformation equipment and
different line voltage services. In response, DTE Electric proposes a voluntary
exception to its normal line extension rules and charges. DTE Electric seeks to
modify its line extension Rules of Service whereby the Company will waive
customary line extension costs and fund the specific make ready costs necessary to
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connect the customer. 2 TR 148-9. In return, the customers will be required to
commit to DTE Electric service for a period of ten years. Id. If the customer does
not request a waiver, the customer will be subject to conventional line extension
and make ready costs. DTE Electric proposes to include all costs associate with line
extension and system conversion upgrades in DTE Electric’s incremental revenue
requirement. Id.
DTE Electric proposes a Transitional Reconciliation Mechanism (“TRM”).
Under the TRM, all incremental revenue requirement incurred to build out the DTE
Electric distribution system will be deferred, recovered, and reconciled. 2 TR 150.
The first reconciliation would be for the year or partial year in which the Customer
Conversion Date falls, and every year thereafter until both the System Conversion
Period ends and all incremental costs and revenues are included in DTE Electric
base rates. Id. DTE Electric proposes that the Commission conduct these
proceedings as contested cases and that DTE Electric will be required to file by
March 31 of each year for the preceding calendar year. 2 TR 234. Any deficiency or
sufficiency will be reflected as a surcharge or credit on customer bills. Id.
Staff reviewed DTE Electric’s proposed plan, including the Transitional
Reconciliation Mechanism, Transitional Tariff, and modifications to the Rules of
Service. Staff supports DTE Energy’s request, finding it both reasonable and
prudent, and therefore recommends that the Commission approve DTE Energy’s
Application, with the following recommended changes regarding recovery of
payments to PLD, revenue requirement calculation, transitional tariff, and net
street lighting revenues.
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A. Recovery of payments to PLD
Following the Customer Conversion Date when former PLD customers begin
taking service from DTE Electric, until the time the Company connects all former
PLD customers to DTE Electric’s distribution system (i.e. the System Conversion
Period), DTE Electric will pay PLD to maintain its distribution system and deliver
electricity to former PLD customers. 2 TR 172. DTE likens the service provided by
PLD to that provided by the International Transmission Company (ITC). In this
case, DTE Electric Company seeks to recover the costs paid to PLD through annual
Power Supply Cost Recovery (PSCR) cases. 2 TR 145-146.
As described by Staff witnesses David W. Isakson and Steven Q. McLean,
Staff recommends that DTE Electric recover its transmission delivery costs in the
proposed annual TRM cases. DTE Electric suggests that it recover these costs in
PSCR cases merely because of the similarity of PLD’s distribution service to ITC’s
transmission services, which they traditionally recover in PSCR proceedings.
Regardless of whether or not the service provided by PLD is similar to ITC’s
transmission services, it would still be best if DTE Electric recovered those costs
through the TRM. Mr. McLean notes that, “This will afford the Commission the
opportunity to make all future decisions related to the transfer in one docket and
based on all appropriate information.” 2 TR 238. Though both proposals address
the costs annually Staff argues that keeping all project costs associated with
transitioning customers from PLD to DTE Electric in one case is most efficient.
Under DTE Electric’s proposal, the Commission will consider PLD transmission
delivery payments out of context, potentially to the detriment of the entire
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transitional cost recovery plan. 2 TR 216. Staff witness Isakson testified that
addressing all project costs in one case is useful so, “… staff from the Company,
Commission, and intervenors may consider the program as a whole during TRM
cases.” 2 TR 215.
B. Revenue Requirement Calculation
The Company’s proposed TRM includes a methodology for calculating the
incremental revenue requirement associated with expanding service to former PLD
customers. As described by Staff witness Daniel M. Birkam, the “the Incremental
Revenue Requirement calculates the components of a revenue requirement
similarly to a rate case, the calculation being: Revenue Requirement = (Rate Base *
Pretax overall Rate of Return) + Net Operating Income. The Incremental Revenue
Requirement however, picks up only the components associated with taking over
the service of PLD, including the build-out project to replace PLD’s assets.” 2 TR
200. While the Company’s revenue requirement calculation is similar to a rate case
calculation there are two distinct differences that Staff does not support. As a part
of the revenue requirement calculation the Company includes an offset for deferred
taxes within rate base and calculates a rate of return based on the projected capital
structure of the PLD expansion in isolation. As described by Staff witness Steve
McLean “because the incremental calculation looks at the PLD related costs in
isolation it does not incorporate the full benefit of the Company’s overall Capital
Structure, including its total Company Deferred Taxes.” 2 TR 238. This results in
a higher rate of return through the TRM than would have been included in a
general rate case. 2 TR 202, 2 TR 238-239.
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To prevent the Company from earning a higher rate of return through the TRM
than it would have through a general rate case, Staff recommends that the
Commission require the Company to use the overall rate of return approved in the
most recent general rate case, as opposed to calculating a new rate of return based
on PLD related costs in isolation. Staff also recommends that for the duration of
the TRM, the overall rate of return should be updated to match the overall rate of
rate of return approved in any new general rate case. 2 TR 202-203. In addition,
because the impact of Deferred Taxes is included in the calculation of overall rate of
return within a general rate case, it will be necessary to remove the adjustment for
Deferred Taxes to rate base that the Company has included in its revenue
requirement calculation in the TRM. 2 TR 203. Overall, these two adjustments will
create rates that more closely reflect those that would have been created in a
general rate case and prevent the Company from earning a higher rate of return
from the PLD expansion than it would have in a general rate case.
Only Staff and the Company testified to a methodology for calculating the
revenue requirement.
C. Transitional Tariff
DTE Electric designed the proposed Transitional Tariff to ease former PLD
customers from PLD rates to the appropriate current DTE rates. The Transitional
Tariff will give customers a bill credit based on the customer’s average annual rate
prior to moving to DTE Electric rates. Customers with larger differences in rates
from DTE Electric rates will receive larger bill credits. The Company’s proposed
Transitional Tariff requires customers to take 10 years of bundled electric service
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beginning on the Customer Conversion Date. However, the Company never
addressed why, specifically, the period of 10 years is the sufficient length of time to
assure the customer pays for “…its fair share of DTE Electric’s bundled costs.” 2 TR
111. There is no supporting evidence for or calculation of the appropriate period to
meet this assurance. In fact, the company never indicated that it intended the 10
year full service requirement to recover losses from the Transitional Tariff. 2 TR
216.
Staff supports the Company’s proposed Transitional Tariff with one
modification. The Transitional Tariff aligns with Staff’s approach to ratemaking by
providing a gradual shift to Commission approved cost based rates. Staff
recommends that the 10 year full service requirement for customers taking service
under the Transitional Tariff be removed, and customers only be required to remain
full service customers until they have transitioned to their applicable full cost DTE
rates. 2 TR 239. Once former PLD customers have been fully transitioned to their
applicable DTE rate they should be afforded the same rights and privileges as other
DTE customers on those rates, including the right to seek an alternative electric
supplier. 2 TR 223-224.
According to Company witness Don Stanczak’s rebuttal testimony, DTE “…is
not forcing former customers of PLD to commit to taking 10 years of bundled service
from DTE electric.” 2 TR 159. Instead, former PLD customers can seek alternative
electric suppliers if they forgo the Transitional Tariff and take service under
standard DTE rates. Staff maintains that the Transitional Tariff should not
include the 10 year full service requirement. If former PLD customers that are not
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eligible for the Transitional Tariff pay full DTE rates and have the right to move to
an alternative electric supplier, then former PLD customers that have transitioned
from the Transitional Tariff on to full DTE rates should have that same right.
Only DTE Electric and Staff testified regarding recommendations on the 10 year
full service requirement for service under the Transitional Tariff.
D. Net Street Lighting Revenues
In this case, DTE Electric is proposing to include net street lighting tariff
revenue in the TRM incremental revenue. Net street lighting tariff revenue is
associated with adding and removing street lights within Detroit to and from their
electric distribution system. Michigan legislation created a regional lighting
authority responsible for addressing the street lighting in the city of Detroit. This
regional authority will remove, add, and/or relocate street lights in the city, which
will alter DTE’s street light revenue. 2 TR 293.
Only costs directly associated with transitioning former PLD customers to
DTE’s electric distribution system should be within the scope of this case and future
TRM cases. The newly created lighting authority will be responsible for street
lighting in the city, and the Company should address changes in street lighting
revenue in future rate cases. Id.
AG witness Terry Myers contends that street lighting revenue changes will
be handled between DTE and the Lighting Authority, and concurs with Staff that
changes in those revenues should be addressed in DTE’s next rate case. Id. Once
the newly created Lighting Authority assumes control of the street lighting, has
begun to address street lighting issues, and has contracted with DTE to power their
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street lights, then DTE should treat the Lighting Authority as a new customer
under its street lighting tariff. Id.
Detroit Public Schools and ABATE did not testify on the matter of the
inclusion of net street lighting revenue in TRM incremental revenue.
E. Staff recommendations
Staff makes the following recommendations:
1. Staff recommends approval of the Transitional Reconciliation
Mechanism, with Staff’s modifications, which exclude inclusion of net
street lighting revenue, remove the adjustment for Deferred Taxes,
require the Company to use the overall rate of return approved in the
most recent general rate case, and include PLD delivery payments.
2. Staff recommends approval of the Transitional Tariff with Staff’s
modification that customers who elect the Transitional Tariff are only
required to remain full service customers until they are fully
transitioned to DTE Electric’s retail electric rate.
3. Staff recommends approval of the modification of the Rules of Service
to include the Line Extension Rule.
Conclusion
In conclusion, Staff recommends that the Commission approve DTE Electric’s
cost recovery plan, including the Transitional Reconciliation Mechanism,
Transitional Tariff, and modified Rules of Service, with Staff's proposed
modifications as described above.
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Respectfully submitted,
MICHIGAN PUBLIC SERVICE COMMISSION
STAFF
Lauren D. Donofrio (P66026)
Assistant Attorney General
Public Service Division
6520 Mercantile Way, Suite 1
Lansing, MI 48911
Telephone: (517) 241-6680
DATED: February 12, 2014
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STATE OF MICHIGAN
BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION
In the matter of the application of DTE
ELECTRIC COMPANY for approval
of a transitional cost recovery plan and
retail electric tariffs associated with the
disposition of the City of Detroit Public
Lighting System.
Case No. U-17437
(e-file paperless)
/
PROOF OF SERVICE
STATE OF MICHIGAN )
) ss
COUNTY OF INGHAM )
Corinna C. Swafford, being first duly sworn, deposes and says that on
February 12, 2014, she served a true copy of Michigan Public Service
Commission Staff’s Initial Brief upon the following parties via email ONLY:
DTE Electric Company
Bruce R. Maters
The Detroit Edison Company
One Energy Plaza, 688 WCB
Detroit, MI 48226
[email protected]
[email protected]
[email protected]
Administrative Law Judge
Hon. Peter L. Plummer
Administrative Law Judge
Michigan Public Service Comm.
611 W. Ottawa St.
Ottawa Bldg., 2nd Floor
Lansing, MI 48933
[email protected]
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Abate
Robert A.W. Strong
Clark Hill PLC
151 S. Old Woodward Ave.
Ste. 200
Birmingham, MI 48009
[email protected]
Detroit Public Schools
Michael G. Oliva
Loomis Ewert Parsley Davis & Gotting
124 W. Allegan St., Ste. 700
Lansing, MI 48933
[email protected]
James T. Selecky
Brubaker & Associates, Inc.
P.O. Box 412000
St. Louis, MO 63141
[email protected]
Leland R. Rosier
Clark Hill PLC
212 E. Grand River Ave.
Lansing, MI 48906-4328
[email protected]
Attorney General
Donald E. Erickson
John A. Janiszewski
Assistant Attorneys General
Environment, Natural Resources, and
Agriculture Div.
G. Mennen Williams Bldg., 6th Floor
525 W. Ottawa St; P.O. Box 30755
Lansing, MI 48909
[email protected]
[email protected]
________________________________________
Corinna C. Swafford
Subscribed and sworn to before me
this 12th day of February, 2014.
_________________________________
Tina L. Bibbs, Notary Public
State of Michigan, County of Clinton
Acting in the County of Ingham
My Commission Expires: 11-13-2014
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