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BOEHM, KURTZ & LOWRY ATTORNEYS AT LAW

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VIA ELECTRONIC CASE FILING September 22, 2017 Kavita Kale, Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI 48909

Re: Case No. U-18255 Dear Ms. Kale:

Please find attached the REBUTTAL TESTIMONY OF KEVIN C. HIGGINS on behalf 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 (eysterm@michigan.gov) Michigan Public Service Commission 7109 W. Saginaw Highway Lansing, MI 48917

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE 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.

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Case No. U-18255

Rebuttal Testimony of Kevin C. Higgins

on behalf of

The Kroger Co.

September 22, 2017

HIGGINS / 1

REBUTTAL TESTIMONY OF KEVIN C. HIGGINS 1

Introduction 2

Q. Please state your name and business address. 3

A. My name is Kevin C. Higgins. My business address is 215 South State Street, 4

Suite 200, Salt Lake City, Utah, 84111. 5

Q. By whom are you employed and in what capacity? 6

A. I am a Principal in the firm of Energy Strategies, LLC. Energy Strategies is a 7

private consulting firm specializing in economic and policy analysis applicable to 8

energy production, transportation, and consumption. 9

Q. Are you the same Kevin C. Higgins who provided direct testimony on behalf 10

of The Kroger Co. (“Kroger”) in this proceeding? 11

A. Yes, I am. 12

Q. What is the purpose of your rebuttal testimony? 13

A. My rebuttal testimony responds to the direct testimony of Staff witness Nicholas 14

M. Revere regarding the SRM capacity charge rate design applicable to Rate D11, 15

as well as Staff’s approach to allocating Power Supply revenues between Rate 16

D11 and Rider 3, as presented by Staff witness Mark J. Pung. My rebuttal 17

testimony also responds to Association of Businesses Advocating Tariff Equity 18

(“ABATE”) witness James R. Dauphinais regarding Rate D11 rate design. 19

Q. Please summarize the conclusions of your rebuttal testimony. 20

A. 1) I recommend that Staff’s proposal to recover capacity-related costs solely 21

through summer on-peak kW charges for demand-billed customers be rejected by 22

the Commission, as it represents a radical and unnecessary change in rate design 23

HIGGINS / 2

that would result in unwarranted intra-class cost shifting among bundled service 1

customers. 2

2) Staff’s proposed Rate D11 Power Supply rates would recover a portion of 3

Rider 3’s allocated Power Supply costs. If a class cost-of-service study is utilized 4

that treats Rider 3 as a separate class, I recommend that no portion of Rider 3’s 5

allocated Power Supply costs should be recovered in Rate D11’s rates. 6

3) To the extent that Rate D11 rate design changes are implemented that reduce 7

DTE’s proposed energy charges, as proposed by ABATE witness James R. 8

Dauphinais, then the Subtransmission and Transmission energy charge voltage 9

level discounts must be proportionately adjusted downward. 10

11

Response to Staff’s Capacity Charge Rate Design Recommendation 12

Q. What does Mr. Revere recommend in his direct testimony, filed August 29, 13

2017, regarding the recovery of capacity-related costs? 14

A. Consistent with his direct testimony in the SRM proceeding, Case U-18248, Mr. 15

Revere recommends that SRM capacity-related costs be recovered through 16

summer on-peak kWh charges for rate schedules without demand charges, and 17

through summer on-peak kW charges for rate schedules with demand charges.1 18

Q. Do you agree with Staff’s proposal to recover all capacity-related costs 19

through summer on-peak charges? 20

1 Direct Testimony of Nicholas M. Revere p. 12. I note that 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.

HIGGINS / 3

A. No. I do not agree with Staff’s proposal as described in Mr. Revere’s testimony, 1

which would recover the entirety of the SRM capacity-related costs for demand-2

billed customers through a summer on-peak demand charge. This change would 3

constitute a radical departure in rate design. Today, capacity-related costs are 4

recovered year-round through the demand charge. The current rate design 5

smoothes out the recovery of capacity costs throughout the year. This basic 6

design was determined to be just and reasonable in the last general rate case and 7

in numerous prior proceedings. There is no reason to switch to a dramatically 8

different approach to rate design for capacity cost recovery. 9

Loading the entirety of capacity-related cost recovery into the four 10

summer months would dramatically increase summer bills for bundled service 11

customers. Bundled service customers should not be subject to the significant 12

cash flow spikes that would result simply to accommodate a new SRM capacity 13

charge – particularly when such a change is completely unnecessary. The SRM 14

capacity charge can recover capacity costs throughout the year just as the current 15

demand charge does. 16

Q. What is your recommendation regarding Staff’s capacity charge rate design 17

proposal? 18

A. I recommend that Mr. Revere’s recommendation to recover capacity-related costs 19

solely through summer on-peak kW charges from demand-billed customers be 20

rejected by the Commission. This change would constitute a radical and 21

unnecessary change in rate design that would result in unwarranted intra-class 22

cost shifting among bundled service customers. 23

HIGGINS / 4

Response to Staff’s Power Supply Revenue Allocation Between Rate D11 & Rider 3 1

Q. Does Staff’s class cost-of-service study calculate the Power Supply revenue 2

requirements for Rider 3 (Parallel Operation and Standby Service Rider) 3

and Rate D11/Other separately? 4

A. Yes. The results of the class cost-of-service study utilized by Staff for production 5

costs are summarized in Exhibit S-6, Schedule F1.1, presented by Charles E. 6

Putnam. On page 3 of that exhibit, Staff’s proposed production costs for 7

D11/Other and Rider 3 are separately presented. Staff calculates a production 8

revenue requirement of $839.281 million for D11/Other (D10) and $18.537 9

million for Rider 3. Collectively, Staff’s proposed D11/Other and Rider 3 10

production revenue requirement is $857.817 million. 11

Q. How does Staff propose to recover these production costs among Rate D11, 12

Rate D10, and Rider 3? 13

A. Staff’s proposed Power Supply revenues are summarized in Exhibit S-6, Schedule 14

F2, page 3, presented by Mark J. Pung. Staff’s proposal would increase the 15

Power Supply revenues for Rate D11, Rate D10, and Rider 3 by approximately 16

the same percentage (3.3 percent), despite Staff’s cost-of-service study results 17

indicating that Rider 3 warrants a higher increase. Staff proposes Power Supply 18

revenues of $845.731 million for Rate D11 and $2.266 million for Rate D10 19

($847.997 million for these two rate schedules together), and $9.820 million for 20

Rider 3. 21

Q. What is your response to Staff’s proposed allocation of Power Supply 22

revenues among Rate D11, Rate D10, and Rider 3? 23

HIGGINS / 5

A. Staff’s proposed Power Supply rates would over-recover production costs from 1

the Rates D11/D10 group while under-recovering production costs from Rider 3, 2

based on Staff’s cost-of-service study. If a class cost-of-service study is utilized 3

that treats Rider 3 as a separate rate class for cost allocation purposes, then Rider 4

3’s allocated production costs should not be recovered in Rate D11 or Rate D10 5

rates. I recommend that Staff’s approach for allocating Power Supply revenues 6

among Rates D11/D10 and Rider 3 be rejected by the Commission. 7

8

Response to ABATE’s Rate D11 Rate Design 9

Q. Does Mr. Dauphinais propose to decrease the Rate D11 energy charges 10

relative to DTE’s proposal? 11

A. Yes. ABATE’s proposed D11 rates are compared to DTE’s proposed rates in Mr. 12

Dauphinais’ Exhibit AB-26. Mr. Dauphinais proposes to implement a Non-13

Capacity demand charge to recover transmission costs, while reducing the Non-14

Capacity energy charge. 15

Q. Do you agree with the Subtransmission and Transmission energy charge 16

voltage level discounts in Mr. Dauphinais’ D11 rate design? 17

A. No. Despite reducing the Non-Capacity Primary voltage energy charge, the 18

energy charge voltage level discounts in Mr. Dauphinais’ D11 rate design are 19

unchanged from DTE’s proposal. This is inappropriate. The energy charge 20

voltage level discounts should have a consistent proportionate relationship to the 21

Primary voltage energy charges to which they are applied. 22

HIGGINS / 6

Specifically, since Mr. Dauphinais’ D11 Non-Capacity energy rates are 1

designed to collect 25 percent less revenue than DTE’s, the Subtransmission and 2

Transmission voltage level discounts should be proportionately reduced by 3

approximately 25 percent. Since these rates will produce a greater level of 4

Subtransmission and Transmission revenue, the Primary voltage Non-Capacity 5

energy charge should be commensurately reduced from that proposed by Mr. 6

Dauphinais. 7

If Mr. Dauphinais’ proposed approach to D11 Non-Capacity rate design is 8

approved, I estimate that the Non-Capacity Primary energy charge should be 9

reduced to $0.01850 per kWh, and the proportionate Non-Capacity voltage level 10

discounts should be approximately ($0.00053) per kWh for Subtransmission, and 11

($0.00091) per kWh for Transmission. 12

Q. Does this conclude your rebuttal testimony? 13

A. Yes, it does. 14

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.

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Case No. U-18255

PROOF OF SERVICE

Kurt J. Boehm, Esq. duly sworn, deposes and says that on September 22, 2017 he served (via electronic mail) when available or regular U.S. Mail the REBUTTAL TESTIMONY OF KEVIN C. HIGGINS on behalf 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 45202 Ph: 513-421-2255 Fax: 513-421-2764 E-mail: KBoehm@BKLlawfirm.com JKylerCohn@BKLlawfirm.com mkurtz@BKLlawfirm.com

COUNSEL FOR THE KROGER CO. Subscribed to and sworn before me This 22nd day of September, 2017. ____________________________ Notary Public

MPSC Case No. U-18255 Page 1

ABATERobert A.W. StrongClark Hill PLC151 S. Old Woodward Avenue, Suite 200 Birmingham, MI 48009 rstrong@clarkhill.com

Michael J. Pattwell Sean P. Gallagher Clark Hill PLC212 E. Grand River Ave. Lansing, MI 48906 mpattwell@clarkhill.com sgallagher@clarkhill.com

Stephen A. Campbell Clark Hill PLC 500 Woodward Ave., Suite 3500 Detroit, MI 48226 scampbell@clarkhill.com

James R. Dauphinais Brian Andrews Chris Walters Brubaker & Associates, Inc. P.O. Box 412000 St. Louis, MO 63141-2000 jdauphinais@consultbai.combandrews@consultbai.comcwalters@consultbai.com

CONSTELLATION NEWENERGY, INC. Jennifer Utter Heston Fraser Trebilcock Davis & Dunlap, P.C. 124 W. Allegan Street, Ste. 1000 Lansing, MI 48933 jheston@fraserlawfirm.com cynthia.brady@constellation.comDwayne.Pickett@constellation.comLael.Campbell@constellation.comfsh@NBGROUP.COMlaura.olive@nera.comJeff.Makholm@nera.comjcv@nbgroup.com

DETROIT PUBLIC SCHOOLS Michael G. OlivaLeah J. BrooksLoomis Ewert Parsley Davis & Gotting 124 W. Allegan, Suite 700 Lansing, MI 48933mgoliva@loomislaw.com ljbrooks@loomislaw.com

ENVIRONMENTAL LAW & POLICY CENTERMargrethe Kearney 1514 Wealthy Street SE, Suite 256 Grand Rapids, MI 49506 mkearney@elpc.orgkfield@elpc.org

Bradley Klein Environmental Law & Policy Center 35 E. Wacker Drive, suite 1600 Chicago, IL 60601 bklein@elpc.org

ENERGY MICHIGAN Timothy J. Lundgren Laura Chappelle Varnum LLP 201 N. Washington Square, Suite 910 Lansing, MI 48933tjlundgren@varnumlaw.com lachappelle@varnumlaw.com

Toni L. Newell 333 Bridge Street NW Grand Rapids, MI 49504 tlnewell@varnumlaw.com

THE KROGER CO. Kurt J. Boehm, Esq Jody Kyler Cohn, Esq Boehm, Kurtz & Lowry 36 East Seventh Street, Suite 1510Cincinnati, OH 45202 kboehm@BKLlawfirm.com jkylercohn@BKLlawfirm.com

MPSC Case No. U-18255 Page 2

Kevin Higgins Energy Strategies, LLC Parkside Towers 215 South State Street, Suite 200 Salt Lake City, Utah 84111 khiggins@energystrat.com

MICHIGAN ATTORNEY GENERALMichael Moody Assistant Attorney General ENRA Division 525 W. Ottawa Street, 6th Floor P.O. Box 30755 Lansing, Michigan 48909moodym2@michigan.gov ag-enra-spec-lit@michigan.gov

Sebastian Coppola, President Corporate Analytics 5928 Southgate Rd. Rochester, MI 48306 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 48933dmarvin@fraserlawfirm.com mashton@fraserlawfirm.com

MICHIGAN ENVIRONMENTAL COUNCIL; NATURAL RESOURCES DEFENSE COUNCIL; SIERRA CLUBChristopher M. Bzdok Tracy Jane Andrews Lydia Barbara-Riley Olson, Bzdok & Howard, P.C.420 East Front Street Traverse City, MI 49686 chris@envlaw.com tjandrews@envlaw.comlydia@envlaw.comkimberly@envlaw.com karla@envlaw.commarcia@envlaw.com

MICHIGAN WASTE ENERGY, INC. D/B/A DETROIT RENEWABLE POWER AND DETROIT THERMAL, LLC’S Arthur J. LeVasseur500 Griswold St., Ste. 3500 Detroit, MI 48226 levasseur@fischerfranklin.com

MIDWEST COGENERATION ASSOCIATION John R Liskey 921 N. Washington Ave Lansing, MI 48906 john@liskeypllc.com

Patricia F. Sharkey Environmental Law Counsel, P.C. 180 N. LaSalle Street, Suite 3700 Chicago, IL 60601 psharkey@e-lawcounsel.com

MPSC STAFF Lauren D. Donofrio Michael Orris Heather Durian 7109 West Saginaw Hwy, 3rd Floor Lansing, MI 48917 donofriol@michigan.gov durianh@michigan.gov orrism@michigan.govmayabbl@michigan.gov mpscredratecase@michigan.gov

SIERRA CLUBMichael Soules 1625 Massachusetts Ave. NW Suite 702 Washington, D.C. 20036 msoules@earthjustice.org fchampenois@earthjustice.orggwinick@earthjustice.org

Kristin A. Henry 2101 Webster Street, Suite 1300 Oakland, CA 94612 kristin.henry@sierraclub.org

MPSC Case No. U-18255 Page 3

RESIDENTIAL CUSTOMER GROUPDon L. Keskey Brian W. Coyer University Office Place 333 Albert Avenue, Suite 425 East Lansing, MI 48823donkeskey@publiclawresourcecenter.com briancoyer@publiclawresourcecenter.com

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 48067 jcanzano@michworkerlaw.comprorai@michworkerlaw.com

WAL-MART STORES EAST; LP AND SAM’S EAST, INC. Melissa M. Horne Higgins, Cavanagh & Cooney, LLP 10 Dorrance Street, Suite 400 Providence, RI 02903 mhorne@hcc-law.com