U-20137 - Application, Testimony and Exhibits 4843-3003 ...

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October 1, 2018

Kavita Kale Executive Secretary MPSC 7109 West Saginaw Highway 3rd Floor Lansing, MI 48917

Re: Case No. U-20317

Dear Ms. Kale:

Attached for filing, please find Indiana Michigan Power Company’s Application, Testimony and Exhibits in Case No. U-20317. Thank you.

Sincerely,

Richard J. Aaron

RJA/rlg Attachment

4818-8470-4373.1ID\AARON, RICHARD - 111253\000041

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan rate-regulated electric steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit C as described in orders U-18494 and U-20107.

U-20317

______________________________________ In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan rate-regulated electric steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit B as described in orders U-18494 and U-20107.

U-20316

______________________________________ In the matter, on the Commission's own motion, to consider changes in the rates of all the following Michigan rate-regulated electric, steam, and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: ALPENA POWER COMPANY, CONSUMERS ENERGY COMPANY, DETROIT THERMAL, LLC, DTE ELECTRIC COMPANY, DTE GAS COMPANY, INDIANA MICHIGAN POWER COMPANY, NORTHERN STATES POWER COMPANY, UPPER PENINSULA POWER COMPANY, UPPER MICHIGAN ENERGY RESOURCES CORPORATION, WISCONSIN ELECTRIC POWER ) COMPANY, PRESQUE ISLE ELECTRIC & GAS CO-OP, MICHIGAN GAS UTILITIES CORPORATION, and SEMCO ENERGY GAS COMPANY.

U-18494

______________________________________

4818-8470-4373.1ID\AARON, RICHARD - 111253\000041

In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan Rate-regulated electric, steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit A as described in order U-18494.

U-20107

_______________________________________

APPLICATION

Indiana Michigan Power Company (I&M or Company), in accordance with the

Michigan Public Service Commission’s (MPSC or Commission) February 22, 2018

Order issued in Case No. U-18494 (February 22 Order), submits this Application

addressing impacts of federal corporate tax reduction arising from the Tax Cuts and

Jobs Act of 2017 (“TCJA”) on its electric general base rates. In support of this

Application, I&M respectfully represents to the Commission as follows:

1. I&M is a corporation organized and existing under the laws of the State of Indiana

and is authorized to do business in the State of Michigan. I&M's principal

executive offices are located in the City of Fort Wayne, Indiana. I&M has

corporate power and authority, among other things, to engage in generating,

transmitting, distributing, and selling electric energy within the State of Michigan

and within the State of Indiana. I&M is a wholly-owned subsidiary of American

Electric Power Company, Inc.

2. I&M's electric business in the State of Michigan is subject to the jurisdiction of the

Commission pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; 1909

4818-8470-4373.1ID\AARON, RICHARD - 111253\000041

PA 300, as amended, MCL 462.2 et seq.; 1919 PA 419, as amended, MCL

460.51 et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.

3. I&M provides electric service to approximately 129,000 retail electric customers in

the State of Michigan. I&M's service area is located in southwestern Michigan

and northern and eastern Indiana.

4. In its February 22 Order, the Commission directed I&M to file a Credit C

application, supporting testimony and exhibits to address excess deferred taxes,

bonus depreciation and any other impacts of the TCJA not captured through

Credit A (Case No. U-20107) and Credit B (Case No. U-20316) filings.

5. On August 28, 2018 in Case No. U-20107, the Commission approved I&M’s

Credit A (forward looking) application wherein I&M requested a reduction of

approximately $8.7 million in the company’s revenue requirement due to the new

21% federal income tax (FIT) rate as established by the TCJA. I&M’s Tax Reform

Credit A Rider was effective on September 1, 2018 on a service rendered basis.

6. I&M’s Credit B Application, addressing the period of January 1, 2018 through

August 31, 2018, will be addressed in Case No. U-20316.

7. I&M’s current retail electric rates were approved by the Commission’s April 12,

2018 Order, as amended, in Case No. U-18370. I&M’s current rates were

effective April 26, 2018. The Company’s current base rates for retail electric

service include federal income tax expense amounts and a gross revenue

conversion factor (GRCF) based on the 35% federal income tax rate applicable to

I&M’s business. This income tax rate was in effect when I&M filed its rate case.

4818-8470-4373.1ID\AARON, RICHARD - 111253\000041

8. Consistent with the Commission’s directives made in the U-18494 Order, I&M is

filing herewith the supporting testimony and exhibits of Daniel E. High and Bryan

S. Owens.

9. As reflected in its supporting testimony and exhibits, I&M’s Credit C calculation

addressed the effects of the TCJA on the Company’s accumulated deferred

income tax (ADIT) balances as of June 30, 2018.

10. For I&M’s normalized ADIT, I&M proposes to credit customer rates as determined

by the Average Rate Assumption Method (ARAM) as explained in the testimony

of I&M witness Owens. I&M will credit customer rates via the Tax Reform Credit C

Rider.

11. For I&M’s non-normalized ADIT, I&M proposes to amortize the amount over 10

years and credit customers the annual amount via I&M’s proposed Tax Reform C

Rider.

12. I&M represents that the proposed Credit C credits to its electric rates, as

supported by its testimony and exhibits, are just, reasonable, in the public interest,

and provide for its electric customers to enjoy the benefits of the tax reduction on

a timely basis.

WHEREFORE, I&M respectfully requests that this Commission:

1. Approve this Application.

2. Find and determine that I&M’s proposed Credit C credits as supported by its

testimony and exhibits are reasonable and prudent.

3. Authorize and approve I&M’s Tax Reform Credit C Rider.

STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * * In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan rate-regulated electric steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit C as described in orders U-18494 and U-20107.

U-20317


U-20316

______________________________________

In the matter, on the Commission's own motion, to consider changes in the rates of all the following Michigan rate-regulated electric, steam, and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: ALPENA POWER COMPANY, CONSUMERS ENERGY COMPANY, DETROIT THERMAL, LLC, DTE ELECTRIC COMPANY, DTE GAS COMPANY, INDIANA MICHIGAN POWER COMPANY, NORTHERN STATES POWER COMPANY, UPPER PENINSULA POWER COMPANY, UPPER MICHIGAN ENERGY RESOURCES CORPORATION, WISCONSIN ELECTRIC POWER ) COMPANY, PRESQUE ISLE ELECTRIC & GAS CO-OP, MICHIGAN GAS UTILITIES CORPORATION, and SEMCO ENERGY GAS COMPANY.

U-18494

______________________________________


U-20107

_______________________________________

PRE-FILED DIRECT TESTIMONY

OF

BRYAN S. OWENS

BRYAN OWENS-1 CASE NO. U-20317

PRE-FILED DIRECT TESTIMONY OF BRYAN S. OWENS ON BEHALF OF

INDIANA MICHIGAN POWER COMPANY CASE NO. U-20317

Q. Please state your name and business address. 1

A. My name is Bryan S. Owens and my business address is Indiana Michigan Power 2

Center, P.O. Box 60, Fort Wayne, Indiana 46801. 3

Q. By whom are you employed and in what capacity? 4

A. I am employed by Indiana Michigan Power Company (I&M or Company) as a 5

Regulatory Analysis & Case Manager in the Regulatory Services Department. 6

Q. Please describe your educational and professional experience. 7

A. I graduated from the University of Missouri, Kansas City in 1996 with a Bachelor 8

of Liberal Arts degree and in 1998 with a Bachelor of Science degree in 9

Accounting. In May 2003, I earned a Certified Public Accountant (CPA) 10

certificate in Missouri. In July 2010, I obtained a Colorado CPA license (0028436 11

– Inactive) and in May 2018, I obtained an Indiana CPA license (CP11800151). 12

I began my professional career in 1998, when I joined the accounting firm of 13

KMPG, LLP. I was employed at KMPG from August 1998 to July 2001, as a 14

senior auditor and senior tax specialist performing financial statement audits and 15

preparing federal and state tax returns for individuals and corporations. From 16

July 2001 to June 2004, I was employed by Overland Consulting, Inc., in 17

Overland Park, Kansas as a senior consultant performing audits of utility FERC 18

financial statements as part of general rate case reviews before the California 19

Public Utilities Commission. From June 2004 to July 2008, I was employed by 20

BRYAN OWENS - 2 CASE NO. U-20317

Aquila, Inc., in Kansas City, Missouri, as a senior regulatory analyst preparing 1

rate case filings and managing compliance filings for several state jurisdictions 2

including Missouri, Kansas and Colorado. In July 2008, Aquila, Inc. was acquired 3

by Black Hills Corporation and Great Plains Energy, Inc. I joined Kansas City 4

Power and Light (a wholly owned subsidiary of Great Plains Energy, Inc.) before 5

joining Black Hills Corporation in December 2008. At Black Hills Corporation I 6

was Manager, Colorado Electric Regulatory Affairs. In that role, I had 7

responsibility for providing various financial analyses in support of utility 8

operations and managing regulatory filings for the electric utility operations of 9

Black Hills/Colorado Electric utility Company, LP. 10

In November 2014, I joined Empire District Electric Company (Empire) as 11

Assistant Director of Planning and Regulatory where I had responsibility for 12

providing various financial analyses in support of utility operations and managing 13

regulatory filings for the electric utility operations of Empire. 14

In May 2017, I joined Indiana Michigan Power Company and assumed my 15

current position as Regulatory Analysis & Case Manager. 16

Q. What are your responsibilities as Regulatory Analysis & Case Manager? 17

A. I am responsible for the preparation of regulatory filings and analyses. 18

Q. Have you previously testified before any regulatory proceedings? 19

A. Yes. I have submitted testimony on behalf of I&M before the Michigan Public 20

Service Commission (“Commission”) in the following proceedings: 21

• Case No. U-18243 (Renewable Energy and Cost Reconciliation) 22

• Case No. U-18263 (Energy Waste Reduction Plan) 23


• Case No. U-18353 (Voluntary Green Pricing Program) 1

• Case No. U-20107 (Determination of Credit A) 2

I have also testified before the Arkansas Public Service Commission, the 3

Colorado Public Utilities Commission, the Indiana Utility Regulatory Commission, 4

the Kansas Corporation Commission, the Missouri Public Service Commission, 5

and the Oklahoma Corporation Commission. 6

Q. Are you sponsoring any exhibits in this proceeding? 7

A. Yes. I am sponsoring Exhibit IM-1 (BSO-1), Annual Protected and Un-Protected 8

Excess ADIT Amortization, as described and referred to in my testimony. 9

Q. Was this exhibit prepared by you or under your direction and supervision? 10

A. Yes. 11

PURPOSE OF TESTIMONY 12

Q. What is the purpose of your direct testimony in this proceeding? 13

A. The purpose of my testimony is to support the Company’s Calculation C revenue 14

requirement resulting from the Tax Cuts and Jobs Act of 2017 (“Tax Act”), 15

described in the Commission’s February 22, 2018 Order in Case No. U-18494. 16

More specifically, my testimony addresses the impact of the Tax Act on the 17

Company’s current Accumulated Deferred Income Tax (ADIT) balances. 18

Company witness High provides the Calculation C rate design and related tariff. 19


DISCUSSION 1

Q. What is the purpose of I&M’s proposed Calculation C revenue 2

requirement? 3

A. In the February 22, 2018 Order in Case No. U-18494 the Commission directed, 4

among other things, I&M to file an application for Calculation C by October 1, 5

2018. The Calculation C filing is to address all remaining impacts of the Tax Act, 6

not addressed in Case No. U-20107 (Credit A) or Case No. U-201316 (Credit B). 7

Q. What remaining impacts of the Tax Act are not addressed by the Company 8

in its Credit A filing or Credit B filing? 9

A. I&M’s Calculation C will address the effects of the Tax Act on the Company’s 10

current excess ADIT balances as of June 30, 2018. The Company’s Credit A 11

and Credit B filings primarily address the impact of the Tax Act on income tax 12

expense and the gross revenue conversion factor (GRCF) authorized in Case 13

No. U-18370. 14

Q. Please describe the impact of the Tax Act on the Company’s ADIT balances 15

as of June 30, 2018. 16

A. In general, ADIT represents the difference between accelerated depreciation for 17

income tax purposes and straight line depreciation for book purposes. This 18

difference in depreciation methods results in an income tax liability that is 19

deferred into the future. The change in the federal income tax rate from 35 20

percent to 21 percent associated with the Tax Act results in a deferral balance 21

that is smaller than existed prior to the Tax Act change. This change in balance 22

is excess deferral or excess ADIT. 23


Q. Please discuss protected and unprotected excess ADIT? 1

A. There are two components of excess ADIT, - “protected” excess ADIT and 2

“unprotected” excess ADIT. These two components are treated differently under 3

the Tax Act. The Tax Act requires that protected excess ADIT of a regulated 4

utility company be amortized over “the remaining lives of the property as used in 5

its regulated books of account which gave rise to the reserve for deferred taxes.”1 6

For I&M this amortization period is based on the Average Rate Assumption 7

Method (“ARAM”). While the amortization period for the protected excess ADIT 8

will not be known with certainty until the filing of the Company’s 2017 tax returns 9

in 2018, a reasonable estimate using the method dictated by the Tax Act is 10

approximately 70 years. The unprotected excess ADIT is to be amortized over a 11

period to be approved by the MPSC. The Company is proposing the unprotected 12

excess ADIT balance be amortized over a ten year period. This amortization 13

period is a balanced approach that provides customers both an immediate rate 14

decrease while retaining flexibility to offset further increases in cost of service. 15

Q. Has the Company estimated its excess ADIT? 16

A. Yes. I&M estimates that its retail generation and distribution functions excess 17

ADIT total $105,727,896. Of this total, I&M currently estimates that $68,348,684 18

is protected excess ADIT and $37,379,212 is unprotected excess ADIT. Both the 19

total excess ADIT balance and the allocation of the total excess ADIT between 20

protected and unprotected is preliminary and will not be finally determined until 21

1 See Tax Act Subtitle C, Part I, Sec. 13001(d)(3)(B).


the 2017 federal income tax return is completed and filed in the fourth quarter 1

2018. 2

Q. Please describe the ARAM. 3

A. The ARAM reduces the excess tax reserve over the remaining regulatory lives of 4

the property that gave rise to the reserve for deferred taxes during the years in 5

which the deferred tax reserve related to such property is reversing. That is, 6

when the tax depreciation for a given asset becomes less than the book 7

deprecation, the excess tax reserve is reduced by the difference between the 8

taxes required under the old 35 percent rate and the taxes required under the 9

new 21 percent rate. The excess reserve is not reduced until, and only to the 10

degree, that tax benefits for a given asset expire. The ARAM provides that the 11

utility will not have to refund excess taxes to ratepayers any faster than it would 12

have had to pay those taxes to the federal government had the tax rates not 13

been reduced. 14

Q. Are there restrictions imposed by the Internal Revenue Service (IRS) for the 15

amount of excess ADIT returned to customers? 16

A. Yes. The IRS prohibits excess ADIT for protected or depreciable plant from being 17

used to reduce customer rates more rapidly than the actual annual excess ADIT 18

determined by the ARAM. If I&M reduced customer rates more rapidly than the 19

actual amount determined by the ARAM, then I&M would be in violation of IRS 20

normalization rules and could potentially be disqualified from utilizing accelerated 21

depreciation methods and other tax benefits in the future. Because accelerated 22


depreciation is, by far, the largest component of ADIT, this loss would result in 1

higher rates due to the loss of this rate base reduction. 2

Q. How does I&M propose to implement the Calculation C for the benefit of its 3

customers? 4

A. The Company will amortize and credit to customers the retail generation and 5

distribution excess ADIT arising from the Tax Act as follows: 6

(1) Protected Excess ADIT: The Company will amortize the excess protected 7

ADIT amount over the remaining life of the assets using ARAM prescribed 8

by the Tax Act. The annual amortization is estimated to be $951,579 as 9

shown in Exhibit IM-1 (BSO-1). To the extent that the actual annual 10

amortization differs from the estimated amount, the amortization of the 11

unprotected excess ADIT will be increased or decreased to ensure that 12

the annual amount of protected excess ADIT required to be amortized in 13

accordance with ARAM is credited to customers to avoid a normalization 14

violation. The actual remaining unamortized protected excess ADIT 15

balance will be reflected in the calculation of rates proposed by I&M in its 16

next base rate case. 17

(2) Unprotected Excess ADIT: Unprotected excess ADIT will be amortized 18

over a proposed ten years. The annual amortization is estimated to be 19

$3,737,921 as shown in Exhibit IM-1 (BSO-1). The actual remaining 20

unamortized unprotected excess ADIT balance will be reflected in the 21

calculation of rates proposed by I&M in its next base rate case. 22


Q. Please discuss the ARAM amount accumulating from January 1, 2018 to 1

the date that the proposed Calculation C rates are effective. 2

A. In accordance the February 22, 2018 Order in Case No. U-18494, I&M has 3

established a provision for refund to accumulate the ARAM amount from January 4

1, 2018 to the date that Calculation C rates are effective. The Company is 5

proposing this provision for refund balance be addressed in the calculation of 6

rates proposed by I&M in its next base case. 7

Q. How is I&M proposing to refund to customers the excess ADIT arising from 8

the Tax Act? 9

A. As further described by Company witness High, I&M proposes to flow the benefit 10

of the Calculation C reduction, associated with the “protected” and “unprotected” 11

excess ADIT, to each rate class in a manner that reflects the federal income tax 12

expense included in the respective class rates set in Case No. U-18370. I&M 13

proposes to establish a Tax Reform Calculation C Rider (TRCR), that will remain 14

in effect until new base rates are set in a subsequent base rate proceeding. 15

Q. Does this conclude your direct testimony? 16

A. Yes. 17

Michigan Public Service Commission Case No.: U-20317Indiana Michigan Power Company Exhibit No.: IM-1 (BSO-1)Calculation C Witness: Bryan S. OwensAnnual Protected and Un-Protectred Excess ADIT Amortization

Description Distribution Generation Nuclear TotalTotal Company (105,576,545)$ (40,780,595)$ (190,917,113)$ (337,274,253)$ Jurisdictional Allocator 15.66% 14.73% 15.77%

(16,533,287)$ (6,008,903)$ (30,107,630)$ (52,649,819)$ Less: Reclass (1,734,531)

(16,533,287)$ (4,274,372)$ (30,107,630)$ (50,915,289)$

Mortality - Years 72 19 117

Annual Amount (230,952)$ (221,424)$ (256,488)$ (708,864)$ Gross-Up Factor 1.3424 1.3424 1.3424 1.3424Total Annual Amortization (310,030)$ (297,240)$ (344,310)$ (951,579)$

Description Distribution Generation Nuclear TotalTotal Company (35,015,932)$ (43,339,551)$ (57,130,616)$ (135,486,099)$ Jurisdictional Allocator 18.23% 16.43% 22.07%

(6,382,228)$ (7,119,946)$ (12,608,359)$ (26,110,532)$ Less: Reclass 1,734,531

(6,382,228)$ (8,854,476)$ (12,608,359)$ (27,845,063)$

Amortization Period - Years 10 10 10

Annual Amount (638,223)$ (885,448)$ (1,260,836)$ (2,784,506)$ Gross-Up Factor 1.3424 1.3424 1.3424 1.3424Total Annual Amortization (856,750)$ (1,188,625)$ (1,692,546)$ (3,737,921)$

Total Un-Protected Annual Amortization

Total Protected Annual Amortization

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan rate-regulated electric steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit C as described in orders U-18494 and U-20107.

U-20317


U-20316

______________________________________

In the matter, on the Commission's own motion, to consider changes in the rates of all the following Michigan rate-regulated electric, steam, and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: ALPENA POWER COMPANY, CONSUMERS ENERGY COMPANY, DETROIT THERMAL, LLC, DTE ELECTRIC COMPANY, DTE GAS COMPANY, INDIANA MICHIGAN POWER COMPANY, NORTHERN STATES POWER COMPANY, UPPER PENINSULA POWER COMPANY, UPPER MICHIGAN ENERGY RESOURCES CORPORATION, WISCONSIN ELECTRIC POWER ) COMPANY, PRESQUE ISLE ELECTRIC & GAS CO-OP, MICHIGAN GAS UTILITIES CORPORATION, and SEMCO ENERGY GAS COMPANY. ______________________________________

U-18494


U-20107

_______________________________________

PRE-FILED DIRECT TESTIMONY

OF

DANIEL E. HIGH

DANIEL HIGH – 1

PRE-FILED DIRECT TESTIMONY OF DANIEL E. HIGH ON BEHALF OF

INDIANA MICHIGAN POWER COMPANY

Q. Please state your name, business address, and title. 1

A. My name is Daniel E. High, and my business address is 1 Riverside Plaza, 2

Columbus, Ohio 43215. My current title is Staff Regulatory Consultant. 3

Q. By whom are you employed and what is your position? 4

A. I am employed by the American Electric Power Service Corporation (AEPSC) as 5

a Staff Regulatory Consultant in Regulated Pricing and Analysis. AEPSC 6

supplies engineering, financing, accounting, and planning and advisory services 7

to the eleven electric operating companies of the American Electric Power (AEP) 8

System, one of which is Indiana Michigan Power Company (I&M or the 9

Company). 10

Q. Please describe your educational and professional background. 11

A. In December 1989, I received a Bachelor of Science Degree in Energy 12

Management from West Liberty University. In May 1997, I received a Master of 13

Business Administration degree from Ashland University. 14

In February 1990, I joined Columbus Southern Power Company as a 15

Marketing and Customer Services Representative in the Marketing and 16

Customer Services Department of the Columbus Region. In August 1998, I 17

joined the Regulated Pricing & Analysis Department as a Regulatory Consultant. 18

From 2006 through 2008, I performed duties as a Regulatory Consultant in 19

Transmission & Interconnection Services under the Regulatory Services 20

Department, where I was responsible for rate design and maintaining wholesale 21

DANIEL HIGH – 2

contracts. In January 2009, I returned to Regulated Pricing & Analysis under the 1

Regulatory Services Department as a Staff Regulatory Consultant. 2

Q. What are your responsibilities as a Staff Regulatory Consultant? 3

A. My responsibilities include preparation of cost-of-service studies, rate design and 4

tariff provisions for AEP operating companies, as well as other projects related to 5

regulatory issues and proceedings, individual customer requests, and general 6

rate matters. 7

Q. Have you previously submitted testimony in any regulatory proceedings? 8

A. Yes. I have submitted testimony before the Michigan Public Service Commission 9

(“MPSC” or “Commission”); before the Public Service Commission of Kentucky 10

on behalf of Kentucky Power Company; and the Indiana Utility Regulatory 11

Commission on behalf of I&M; and before the Public Utilities Commission of Ohio 12

on behalf of Ohio Power Company. 13

PURPOSE OF TESTIMONY 14

Q. What is the purpose of your testimony in this proceeding? 15

A. The purpose of my testimony is to support the Company’s Calculation C rate 16

design and rider tariff sheet resulting from the Tax Cuts and Jobs Act of 2017 17

(“TCJA”), described in the Commission’s February 22, 2018 Order in Case No. 18

U-18494. 19

Q. Are you sponsoring any exhibits in this proceeding? 20

A. Yes, I am sponsoring the following exhibits: 21

Exhibit IM-2 (DEH-1): Proposed Calculation C Rate Design 22

Exhibit IM-3 (DEH-2): Proposed Tax Reform Calculation C Rider 23

DANIEL HIGH – 3

Q. Were these exhibits prepared by you or under your direction or 1

supervision? 2

A. Yes. 3

Q. What is the purpose of the Company’s Calculation C filing? 4

A. The purpose of the Company’s Calculation C filing is to reflect the impact of 5

TCJA tax law changes not captured in the Company’s Credit A and Credit B 6

filings as explained in greater detail by Company witness Owens. More 7

specifically, I&M’s Calculation C will address the effects of TCJA on the 8

Company’s accumulated deferred income tax (ADIT) balances as of June 30, 9

2018. The Company’s Credit A filing (Case U-20107), approved by the 10

Commission on August 28, 2018, addressed the going forward tax credit 11

reflecting the reduction in federal income tax rate from 35% to 21%. The 12

purpose of the Company’s Credit B filing (Case U-20316) is to reflect the 13

backward-looking tax changes or reduction of the corporate tax rate from 35% to 14

21% for the period April 26, 2018 through August 31, 2018. 15

Q. What is the source of data used to prepare the Company’s Calculation C 16

rates? 17

A. Company witness Owens’ Exhibit IM-1 (BSO-1) provides the Calculation C 18

amount used in computing the class-by-class Calculation C reduction. 19

Additionally, the Company’s billing units approved in the Company’s most recent 20

base case U-18370 were used to calculate the Calculation C rates. 21

DANIEL HIGH – 4

Q. Please explain the process used to compute the Company’s proposed 1

Calculation C amount for each tariff class. 2

A. In order to compute the proposed Calculation C amount for each tariff class, I 3

first obtained the Calculation C production and distribution-related revenue 4

reduction from Company witness Owens’ Exhibit IM-1 (BSO-1). These 5

Calculation C amounts are allocated to the tariff classes using gross plant 6

allocation factors, which is consistent with both the nature of these costs as 7

primarily plant-related and the treatment of accumulated deferred income taxes 8

as a reduction in the cost of capital in the Company’s last base case (U-18370). 9

More specifically, the production-related Calculation C is allocated using 10

production gross plant allocation factors, while distribution-related Calculation C 11

is allocated using distribution gross plant allocation factors. These allocation 12

factors are shown on page 3 of Exhibit IM-2 (DEH-1). 13

The resulting class-by-class Calculation C reduction amounts are reflected 14

on page 1 of Exhibit IM-2 (DEH-1), which are used to design the Calculation C 15

rates also reflected on page 1 of this Exhibit. 16

Q. Please discuss the Company’s proposed calculation of Calculation C rates 17

for each tariff class. 18

A. The Company is proposing to develop Calculation C rates for each tariff class 19

using the forecasted 12 month test year billing determinants that support the 20

Commission-approved rates in Case No. U-18370, the Company’s most recent 21

base rate case. Exhibit IM-2 (DEH-1) on page 1 computes the Calculation C 22

DANIEL HIGH – 5

rates for each tariff class by dividing the individual class Calculation C revenue 1

reductions as described previously by the class-specific billing determinants 2

(energy and/or demand). 3

Q. Please discuss Exhibit IM-3 (DEH-2). 4

A. The Company proposes to establish a new rider, titled “Tax Reform Calculation C 5

Rider” as shown in Exhibit IM-3 (DEH-2), to address the impact of TCJA on the 6

Company’s accumulated deferred income tax. The Calculation C rates 7

calculated in Exhibit IM-2 (DEH-1) are reflected in Exhibit IM-3 (DEH-2) and are 8

applicable to both Standard and Open Access Distribution (OAD) service tariff 9

customers. 10

Q. What is the period of time that the Calculation C rates will be in effect? 11

A. The effective date of Calculation C will be the first billing cycle after the 12

Commission’s final order. 13

Q. Does this conclude your pre-filed direct testimony? 14

A. Yes, it does. 15

M.P.S.C. 16 - ELECTRIC INDIANA MICHIGAN POWER COMPANY STATE OF MICHIGAN (TRCC CASE U-20317)

ORIGINAL SHEET NO. D-___.00

TAX REFORM CALCULATION C RIDER (TRCC)

ISSUED _____________ BY TOBY L. THOMAS PRESIDENT FORT WAYNE, INDIANA

EFFECTIVE FOR BILLS RENDERED BEGINNING WITH THE BILLING MONTH OF ______________ ISSUED UNDER AUTHORITY OF THE MICHIGAN PUBLIC SERVICE COMMISSION DATED __________________ IN CASE NO. U-20317

All customer bills subject to the provisions of this rider, including any bills rendered under special contract, shall be adjusted by the Tax Reform Calculation C Rider adjustment factors per kW and per kWh as follows:

Power Supply Non-Capacity Delivery

Tariff Energy ¢/kWh

Demand $/kW

Energy ¢/kWh

Demand $/kW

RS, RS-TOD, RS-OPES/PEV, RS-SC and RS-TOD2 (0.1323) - (0.0582) -

GS Secondary, GS-TOD, GS-TOD2 (0.1414) - (0.0480) -

GS Primary (0.1357) - (0.0274) - GS Subtransmission (0.1347) - (0.0041) - LGS Secondary - (0.52) - (0.13) LGS LM-TOD (0.1107) - (0.0283) - LGS Primary - (0.51) - (0.09) LGS Subtransmission - (0.50) - - LP Secondary - (0.52) - (0.13) LP Primary - (0.55) - (0.09) LP Subtransmission - (0.50) - - LP Transmission - (0.38) - - MS - (0.30) - (0.11) WSS Secondary (0.1029) - (0.0385) - WSS Primary (0.1046) - (0.0171) - WSS Subtransmission (0.1048) - (0.0003) - EHS - (0.34) - (0.11) IS (0.2212) - (0.1281) - OSL (0.0318) - (0.2964) - SLS, SLC, ECLS AND SLCM (0.0318) - (0.1675) -

Case No. U-20317 Exhibit IM-3 (DEH-2)

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8933

STATE OF MICHIGAN

BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION

* * * * *

In the matter, on the Commission's own motion, to consider changes in the rates of all the Michigan rate-regulated electric steam and natural gas utilities to reflect the effects of the federal Tax Cuts and Jobs Act of 2017: INDIANA MICHIGAN POWER COMPANY (ELECTRIC) files an application for determination of Credit C as described in orders U-18494 and U-20107.

U-20317

______________________________________

PROOF OF SERVICE

Rebecca L. Grenawalt, an employee of Dykema Gossett PLLC, being first duly sworn,

deposes and says that on the 1st day of October, 2018, she served Indiana Michigan Power

Company’s Application, Testimony and Exhibits upon:

ABATE:

Sean P. GallagherClark Hill 212 E. Grand River Ave.Lansing, MI [email protected]

Attorney General

Celeste R. Gill 525 W Ottawa St, Fl 6 Lansing, MI 48933-1067 [email protected]

Via email at the addresses above.

Rebecca Grenawalt

U-20137 - Application, Testimony and Exhibits 4843-3003 ...

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