BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OHIO TELEPHONE (513) TELECOPIER (513)

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1 BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW 36 EAST SEVENTH STREET, SUITE 1510 CINCINNATI, OHIO TELEPHONE ( TELECOPIER ( VIA ELECTRONIC CASE FILING November 8, 2017 Kavita Kale, Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI Re: Case No. U Dear Ms. Kale: Please find attached the BRIEF OF THE KROGER CO. and its PROOF OF SERVICE for filing in the above captioned matter. Please place this document of file. Thank you for your assistance in this matter. Very truly yours, Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan ##P67067 BOEHM, KURTZ & LOWRY MLKkew Enclosure Cc: Administrative Law Judge Mark D. Eyster Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI 48917

2 STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In The Matter Of The Application Of The DTE Electric Company For Authority To Increase Its Rates, Amend Its Rate Schedules and Rules Governing The Distribution And Supply Of Electric Energy, And For Miscellaneous Accounting Authority : : : : Case No. U (E-file BRIEF OF THE KROGER CO. On April 19, 2017 DTE Electric Company ( DTE filed an Application to increase its rates by approximately $231 million annually. The Kroger Co. ( Kroger was granted intervention in this rate case proceeding and filed the Direct and Rebuttal Testimony of its expert witness Kevin Higgins. Kroger submits the below Brief addressing rate allocation and rate design issues in this case. 1. DTE s Current And Proposed Rate D11 Primary Voltage Delivery Service Charge Exceeds Customer-Related Costs Which Results In Smaller Rate D11 Customers Subsidizing Larger Rate D11 Customers. Customer charges should be set at or near the actual costs that vary directly according to the number of customers, and are allocated using customer-based allocators. When customer charges are set significantly above customer-related costs, smaller customers on the rate schedule are over-charged and thereby subsidize the larger customers on the rate schedule. 1 For the D11 Primary Voltage rate schedule the customer charge, called the Delivery service charge, is currently $275 per month. In this case DTE proposes to maintain the current Delivery service charge while slightly decreasing the Delivery demand charge, from $3.96 to $3.93 per kw. As shown in DTE s testimony and exhibits, this $275 charge far 1 Direct Testimony of Kevin Higgins, p. 5. 1

3 exceed customer-related costs and therefore requires smaller D11 customers to subsidize larger D-11 customers. 2 As discussed in the Direct Testimony of Kroger witness Kevin Higgins, DTE presents two alternate approaches for determining customer charge costs. One of these approaches calculates customer-related costs based on the Staff definition of customer-related. 3 These costs are associated with FERC Accounts 369A Overhead Services, 369B Underground Services, 370 Meters, 586 Meter Expense, 902 Meter Reading, 903 Customer Records and Collections, and Customer Services. 4 The Staff Method presented by DTE is an approach that appropriately only includes costs that vary directly according to the number of customers. Based on Exhibit A-13, Schedule F1.3, page 5, the Primary customer-related cost per month is $53.52 per month. 5 This is the appropriate amount for the D11 Primary Delivery service charge, not the $275 that is currently in DTE s rates. Kroger has argued that DTE s $275 D11 primary voltage service charge is unreasonably high in DTE s last two rate cases, Case Nos. U and U The Rate D11 primary voltage service charge has been overpriced since at least Case No. U due to DTE s historical reliance on a fundamentally flawed analysis of customer costs. In Case Nos. U and U-18014, DTE deemed significant portions of FERC Accounts 364 Poles, Towers, and Fixtures, 365 Overhead Conductors, 366 Underground Conduit, 367 Underground Conductors, and 368 Line Transformers to be customer-related, based on a generic report on the minimum size distribution system method from Importantly, in Case Nos. U and U-18014, DTE did not properly apply the minimum size method, because it allocated the customer-related portions of certain distribution costs on demand, rather than customer count. 7 2 Direct Testimony of Kevin Higgins, pp Direct Testimony of Thomas W. Lacey, p The customer-related costs using this approach are presented on Exhibit A-13, Schedule F1.3, page 5. 5 Direct Testimony of Kevin Higgins, pp See Case No. U-17767, Direct Testimony of Neal Townsend. 7 Direct Testimony of Kevin Higgins, p. 6. 2

4 Although DTE s analysis of customer costs was rejected by the Commission s Order in Case U , 8 DTE continued to rely on this approach in Case No. U In its Order in Case. No. U-18014, the Commission again declined to approve DTE s proposed customer charge calculation. 9 However, the Commission adopted the ALJ s recommendation that the D11 primary service charge of $275 per month be retained, to be revisited in DTE s next rate case (i.e. the instant case. 10 Kroger recommends that the service charge should not exceed $54 per month for D11 primary voltage customers. Kroger recommends that the remaining D11 primary voltage Delivery revenue be recovered via the Delivery demand charge. The resulting D11 primary voltage Delivery demand charge is $4.24 per kw at DTE s requested revenue requirement. 11 If a different D11 primary voltage revenue requirement is ultimately determined by the Commission, Kroger continues to recommend that the Rate D11 primary voltage customer charge should only include costs that vary directly according to the number of customers, and are allocated using customer-based allocators The Commission Should Reject Staff s Proposal To Recover Capacity-Related Costs Solely Through Summer On-Peak kw Charges From Demand-Billed Customers. Consistent with his Direct Testimony in the SRM proceeding, Case U-18248, Staff Witness Nicholas Revere recommends that SRM capacity-related costs be recovered through summer on-peak kwh charges for rate schedules without demand charges, and through summer on-peak kw charges for rate schedules with demand charges. 13 Such a change would constitute a radical departure in rate design. Today, capacity-related costs are recovered year-round through the demand charge. The current rate design smoothes out the recovery of capacity costs throughout the year. This basic design was 8 See Case No. U-17767, December 11, 2015 Order, p Case No. U-18014, January 31, 2017 Order, p Case No. U-18014, November 21, 2016 Proposal for Decision, p See Exhibits KRO-1 and KRO Direct Testimony of Kevin Higgins, p Direct Testimony of Nicholas M. Revere p. 12. The D11 rate design presented by Mark J. Pung in Exhibit S-6, Schedule F3, page 24, filed August 29, 2017, is inconsistent with Mr. Revere s capacity charge recovery recommendation. This exhibit depicts a capacity charge applied to D11 s annual billing demand, rather than summer-only billing demand. 3

5 determined to be just and reasonable in the last general rate case and in numerous prior proceedings. There is no reason to switch to a dramatically different approach to rate design for capacity cost recovery. 14 Loading the entirety of capacity-related cost recovery into the four summer months would dramatically increase summer bills for bundled service customers. Bundled service customers should not be subject to the significant cash flow spikes that would result simply to accommodate a new SRM capacity charge particularly when such a change is completely unnecessary. The SRM capacity charge can recover capacity costs throughout the year just as the current demand charge does. 15 Kroger recommends that Mr. Revere s recommendation to recover capacity-related costs solely through summer on-peak kw charges from demand-billed customers be rejected by the Commission. 3. According Its Own Cost-Of-Service Study, Staff s Proposed Power Supply Rates Would Over-Recover Production Costs From The Rates D11/D10 Group While Under-Recovering Production Costs From Rider 3. Staff s class cost-of-service study calculates the Power Supply revenue requirements for Rider 3 (Parallel Operation and Standby Service Rider and Rate D11/Other separately. The results of the class cost-of-service study utilized by Staff for production costs are summarized in Exhibit S-6, Schedule F1.1, presented by Charles E. Putnam. On page 3 of that exhibit, Staff s proposed production costs for D11/Other and Rider 3 are separately presented. Staff calculates a production revenue requirement of $ million for D11/Other (D10 and $ million for Rider 3. Collectively, Staff s proposed D11/Other and Rider 3 production revenue requirement is $ million. 16 Staff s proposed Power Supply revenues are summarized in Exhibit S-6, Schedule F2, page 3, presented by Mark J. Pung. Staff s proposal would increase the Power Supply revenues for Rate D11, Rate D10, and Rider 3 by approximately the same percentage (3.3 percent, despite Staff s cost-of-service 14 Rebuttal Testimony of Kevin Higgins, pp Rebuttal Testimony of Kevin Higgins, p Rebuttal Testimony of Kevin Higgins, p. 4. 4

6 study results indicating that Rider 3 warrants a higher increase. Staff proposes Power Supply revenues of $ million for Rate D11 and $2.266 million for Rate D10 ($ million for these two rate schedules together, and $9.820 million for Rider Staff s proposed Power Supply rates would over-recover production costs from the Rates D11/D10 group while under-recovering production costs from Rider 3, based on Staff s cost-of-service study. If a class cost-of-service study is utilized that treats Rider 3 as a separate rate class for cost allocation purposes, then Rider 3 s allocated production costs should not be recovered in Rate D11 or Rate D10 rates. Kroger recommends that Staff s approach for allocating Power Supply revenues among Rates D11/D10 and Rider 3 be rejected by the Commission To The Extent That Rate D11 Rate Design Changes Are Implemented That Reduce DTE s Proposed Energy Charges, Then The Subtransmission And Transmission Energy Charge Voltage Level Discounts Must Be Proportionately Adjusted Downward. ABATE witness James Dauphinais proposes to decrease the Rate D11 energy charges relative to DTE s proposal. ABATE s proposed D11 rates are compared to DTE s proposed rates in Mr. Dauphinais Exhibit AB-26. Mr. Dauphinais proposes to implement a Non-Capacity demand charge to recover transmission costs, while reducing the Non-Capacity energy charge. But despite reducing the Non-Capacity Primary voltage energy charge, the energy charge voltage level discounts in Mr. Dauphinais D11 rate design are unchanged from DTE s proposal. This is inappropriate. The energy charge voltage level discounts should have a consistent proportionate relationship to the Primary voltage energy charges to which they are applied. 19 Specifically, since Mr. Dauphinais D11 Non-Capacity energy rates are designed to collect 25 percent less revenue than DTE s, the Subtransmission and Transmission voltage level discounts should be proportionately reduced by approximately 25 percent. Since these rates will produce a greater level of 17 Rebuttal Testimony of Kevin Higgins, p Rebuttal Testimony of Kevin Higgins, pp Rebuttal Testimony of Kevin Higgins, p. 5. 5

7 Subtransmission and Transmission revenue, the Primary voltage Non-Capacity energy charge should be commensurately reduced from that proposed by Mr. Dauphinais. 20 Kroger witness Kevin Higgins estimates that if Mr. Dauphinais proposed approach to D11 Non- Capacity rate design is approved, the Non-Capacity Primary energy charge should be reduced to $ per kwh, and the proportionate Non-Capacity voltage level discounts should be approximately ($ per kwh for Subtransmission, and ($ per kwh for Transmission. 21 Respectfully submitted, November 8, 2017 Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan #P67067 BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio Ph: Fax: COUNSEL FOR THE KROGER CO. 20 Rebuttal Testimony of Kevin Higgins, p Rebuttal Testimony of Kevin Higgins, p. 6. 6

8 STATE OF MICHIGAN BEFORE THE PUBLIC UTILITIES COMMISSION In the matter of the Application of DTE ELECTRIC COMPANY for authority to increase its rates, amend its rate schedules and rules governing the distribution and supply of electric energy, and for miscellaneous accounting authority. Case No. U PROOF OF SERVICE Kurt J. Boehm, Esq. duly sworn, deposes and says that on November 8, 2017 he served (via electronic mail when available or regular U.S. Mail the BRIEF OF THE KROGER CO. and a copy of this Proof of Service upon those listed on the attached Certificate of Service. Kurt J. Boehm, Esq. Jody Kyler Cohn, Esq. Michael L. Kurtz, Esq., (Michigan #P67067 BOEHM, KURTZ & LOWRY 36 East Seventh Street, Suite 1510 Cincinnati, Ohio Ph: Fax: KBoehm@BKLlawfirm.com JKylerCohn@BKLlawfirm.com mkurtz@bkllawfirm.com COUNSEL FOR THE KROGER CO. Subscribed to and sworn before me This 8 th day of November, Notary Public

9 MPSC Case No. U Page 1 ABATE Robert A.W. Strong Clark Hill PLC 151 S. Old Woodward Avenue, Suite 200 Birmingham, MI rstrong@clarkhill.com Michael J. Pattwell Sean P. Gallagher Clark Hill PLC 212 E. Grand River Ave. Lansing, MI mpattwell@clarkhill.com sgallagher@clarkhill.com Stephen A. Campbell Clark Hill PLC 500 Woodward Ave., Suite 3500 Detroit, MI scampbell@clarkhill.com James R. Dauphinais Brian Andrews Chris Walters Brubaker & Associates, Inc. P.O. Box St. Louis, MO jdauphinais@consultbai.com bandrews@consultbai.com cwalters@consultbai.com CONSTELLATION NEWENERGY, INC. Jennifer Utter Heston Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan Street, Ste Lansing, MI jheston@fraserlawfirm.com cynthia.brady@constellation.com Dwayne.Pickett@constellation.com Lael.Campbell@constellation.com fsh@nbgroup.com laura.olive@nera.com Jeff.Makholm@nera.com jcv@nbgroup.com DETROIT PUBLIC SCHOOLS Michael G. Oliva Leah J. Brooks Loomis Ewert Parsley Davis & Gotting 124 W. Allegan, Suite 700 Lansing, MI mgoliva@loomislaw.com ljbrooks@loomislaw.com ENVIRONMENTAL LAW & POLICY CENTER Margrethe Kearney 1514 Wealthy Street SE, Suite 256 Grand Rapids, MI mkearney@elpc.org kfield@elpc.org Bradley Klein Environmental Law & Policy Center 35 E. Wacker Drive, suite 1600 Chicago, IL bklein@elpc.org ENERGY MICHIGAN Timothy J. Lundgren Laura Chappelle Varnum LLP 201 N. Washington Square, Suite 910 Lansing, MI tjlundgren@varnumlaw.com lachappelle@varnumlaw.com Toni L. Newell 333 Bridge Street NW Grand Rapids, MI tlnewell@varnumlaw.com THE KROGER CO. Kurt J. Boehm, Esq Jody Kyler Cohn, Esq Boehm, Kurtz & Lowry 36 East Seventh Street, Suite 1510 Cincinnati, OH kboehm@bkllawfirm.com jkylercohn@bkllawfirm.com

10 MPSC Case No. U Page 2 Kevin Higgins Energy Strategies, LLC Parkside Towers 215 South State Street, Suite 200 Salt Lake City, Utah khiggins@energystrat.com MICHIGAN ATTORNEY GENERAL Michael Moody Assistant Attorney General ENRA Division 525 W. Ottawa Street, 6th Floor P.O. Box Lansing, Michigan moodym2@michigan.gov ag-enra-spec-lit@michigan.gov Sebastian Coppola, President Corporate Analytics 5928 Southgate Rd. Rochester, MI sebcoppola@corplytics.com MICHIGAN CABLE TELECOMMUNICATIONS ASSOC. David E. S. Marvin Michael S. Ashton Fraser Trebilcock Davis & Dunlap 124 West Allegan Street, Suite 1000 Lansing, MI dmarvin@fraserlawfirm.com mashton@fraserlawfirm.com MICHIGAN ENVIRONMENTAL COUNCIL; NATURAL RESOURCES DEFENSE COUNCIL; SIERRA CLUB Christopher M. Bzdok Tracy Jane Andrews Lydia Barbara-Riley Olson, Bzdok & Howard, P.C. 420 East Front Street Traverse City, MI chris@envlaw.com tjandrews@envlaw.com lydia@envlaw.com kimberly@envlaw.com karla@envlaw.com marcia@envlaw.com MICHIGAN WASTE ENERGY, INC. D/B/A DETROIT RENEWABLE POWER AND DETROIT THERMAL, LLC S Arthur J. LeVasseur 500 Griswold St., Ste Detroit, MI levasseur@fischerfranklin.com MIDWEST COGENERATION ASSOCIATION John R Liskey 921 N. Washington Ave Lansing, MI john@liskeypllc.com Patricia F. Sharkey Environmental Law Counsel, P.C. 180 N. LaSalle Street, Suite 3700 Chicago, IL psharkey@e-lawcounsel.com MPSC STAFF Lauren D. Donofrio Michael Orris Heather Durian 7109 West Saginaw Hwy, 3 rd Floor Lansing, MI donofriol@michigan.gov durianh@michigan.gov orrism@michigan.gov mayabbl@michigan.gov mpscredratecase@michigan.gov SIERRA CLUB Michael Soules 1625 Massachusetts Ave. NW Suite 702 Washington, D.C msoules@earthjustice.org fchampenois@earthjustice.org gwinick@earthjustice.org Kristin A. Henry 2101 Webster Street, Suite 1300 Oakland, CA kristin.henry@sierraclub.org

11 RESIDENTIAL CUSTOMER GROUP Don L. Keskey Brian W. Coyer University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI UTILITY WORKERS LOCAL 223 John A. Canzano Patrick J. Rorai McKnight, McClow, Canzano, Smith & Radtke, P.C. 423 N. Main Street, Suite 200 Royal Oak, MI WAL-MART STORES EAST; LP AND SAM S EAST, INC. Melissa M. Horne Higgins, Cavanagh & Cooney, LLP 10 Dorrance Street, Suite 400 Providence, RI mhorne@hcc-law.com MPSC Case No. U Page 3

November 29, All parties of the service list have been provided access to this link. Also attached is a Proof of Service.

November 29, All parties of the service list have been provided access to this link. Also attached is a Proof of Service. DTE Electric Company One Energy Plaza, 1635 WCB Detroit, MI 48226-1279 Andrea Hayden (313) 235-3813 andrea.hayden@dteenergy.com November 29, 2018 Robert W. Strong Clark Hill, PLC 151 S. Old Woodward, Ste.