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September 21, 2018 Ms. Kavita Kale Executive Secretary Michigan

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September 21, 2018 Ms. Kavita Kale Executive Secretary Michigan Founded in 1852 MICHIGAN: Ann Arbor Detroit Grand Rapids by Sidney Davy Miller " Kalamazoo " Lansing " Troy FLORIDA: Tampa ILLINOIS: Chicago NEW YORK: New York OHIO: Cincinnati PAUL M. COLLINS Miller, Canfield, Paddock and Stone, P.L.C. TEL (517) 483-4908 One Michigan Avenue, Suite 900 CANADA: Toronto " Windsor FAX (517) 374-6304 Lansing, Michigan 48933 CHINA: Shanghai E-MAIL [email protected] TEL (517) 487-2070 MEXICO: Monterrey FAX (517) 374-6304 POLAND: Gdynia www.millercanfield.com Warsaw " "&%$(#' September 21, 2018 Ms. Kavita Kale Executive Secretary Michigan Public Service Commission 7109 W. Saginaw Highway, 3rd Floor Lansing, MI 48917 Re: Upper Peninsula Power Company 2018 Rate Case MPSC Case No. U-20276 Dear Ms. Kale: Enclosed for electronic filing in the above matter are: (1) Application; (2) Notice of Hearing; (3) Affidavit of Gradon R. Haehnel; (4) Direct Testimony of James C. Larsen; (5) Direct Testimony and Exhibits of Nicholas E. Kates, Gradon R. Haehnel, Eric W. Stocking, Keith E. Moyle, Jason Brynick, and Adrien M. McKenzie; (6) Documentation which complies with Part II of the Rate Case Filing Requirements established by the Commission’s order dated July 31, 2017, issued in Case No. U- 18238; (7) Protective Order; and (8) Appearances of Sherri A. Wellman, Paul M. Collins, Matthew S. Carstens. A compact disc containing this filing; workpapers in native electronic format, and documentation addressing Part III of the Rate Case Filing Requirements in Case No. U-18238; is being served today on the Commission Staff and all intervening parties in Case No. U-17895, the Company’s last electric rate case. The proposed Notice of Hearing has also been e-mailed to Angela Sanderson. MILLER,CANFIELD,PADDOCK AND STONE, P.L.C. Ms. Kavita Kale -2- September 21, 2018 If you have any questions, please call me at the number above, or call Paul M. Collins at (517) 483-4908. Very truly yours, Miller, Canfield, Paddock and Stone, P.L.C. Fkikvcnn{!ukipgf!d{<!Rcwn!Eqnnkpu FP<!EP!?!Rcwn!Eqnnkpu!gockn!?! Rcwn!EqnnkpueqnnkpurBoknngtecphkgnf/eqo!E!?!WU By: Fcvg<!3129/1;/32!1;<58<42!.15(11( Paul M. Collins PMC/kf Enclosures cc: Gradon Haehnel STATE OF MICHIGAN BEFORE THE MICHIGAN PUBLIC SERVICE COMMISSION * * * * * In the matter of the application of ) UPPER PENINSULA POWER COMPANY ) for authority to increase retail electric rates. ) Case No. U-20276 ________________________________________ ) APPLICATION UPPER PENINSULA POWER COMPANY (“UPPCO” or the "Company”) requests authority from the Michigan Public Service Commission (“Commission”) to increase its rates for retail electric service, and in support thereof respectfully represents as follows: INTRODUCTION 1. UPPCO is a public utility engaged in the generation, purchase, distribution and sale of electric energy to approximately 54,000 retail customers in 118 communities in the Upper Peninsula of Michigan. UPPCO serves certain cities, villages and townships located in the counties of Alger, Baraga, Delta, Houghton, Iron, Keweenaw, Marquette, Menominee, Ontonagon and Schoolcraft. 2. UPPCO is a corporation organized under the laws of the state of Michigan, with its principal office located at 1002 Harbor Hills Drive, Marquette, Michigan 49855, and is authorized to transact business in the state of Michigan. UPPCO is a subsidiary of Upper Peninsula Power Holding Company (“UPPHC”). UPPHC acquired UPPCO pursuant to an Order Approving Settlement Agreement issued June 6, 2014, in Case No. U-17564, in which the Commission approved, pursuant to Section 6q of 2008 PA 286, MCL 460.6q, the sale of UPPCO by Integrys Energy Group, Inc. 3. UPPCO’s retail electric service business is subject to the jurisdiction of the Commission pursuant to 1909 PA 106, as amended, MCL 460.551 et seq.; 1919 PA 419, as amended, MCL 460.54 et seq.; 1939 PA 3, as amended, MCL 460.1 et seq.; 1969 PA 306, as amended, MCL 24.201 et seq.; and the Michigan Administrative Hearing System’s Administrative Hearing Rules, R 792.10401 et seq. Pursuant to said statutory provisions, the Commission has power and jurisdiction to regulate UPPCO’s retail electric rates for service rendered in the State of Michigan. 4. This Application is being filed in accordance with filing requirements contained in the Commission’s Order in Case No. U-18238, dated July 31, 2017. 5. UPPCO’s present electric rates are based on the schedule of rates authorized by the Commission in its Order dated September 8, 2016, in Case No. U-17895. That Order granted rate relief of $4,647,975 million annually, based on a 10.00% return on common equity, effective September 23, 2016. The Commission approved rates were based on a 2016 test year. 6. UPPCO’s rates for retail electric service established in Case No. U-17895 do not reflect the current costs of providing retail electric service, and UPPCO requires further rate relief. The proposed revenue increase described in this Application, as supported by the Company’s testimony, exhibits, and workpapers, is necessary to allow UPPCO to continue to provide safe and reliable electric service, to meet service quality and reliability expectations, and to allow UPPCO a reasonable opportunity to recover its costs of operation, including a reasonable rate of return. REQUESTED RELIEF 7. For purposes of this case, UPPCO has undertaken a complete examination of its investments, expenses and revenues based on a projected 2019 calendar test year. Using a 2019 test year and a return on common equity of 10.5%, UPPCO calculates a base rate 2 revenue deficiency of $9,982,604. Therefore, UPPCO requests the Commission authorize the Company to adjust its retail electric rates so as to provide additional revenue in the amount of $9,982,604 annually, an overall retail rate increase of approximately 9.71%. UPPCO represents that such an increase is just and reasonable under the circumstances, and is necessary to provide a reasonable return on UPPCO’s electric utility plant and resources required to provide service in Michigan. 8. The key drivers contributing to this revenue deficiency are (a) declining sales volumes, and (b) the necessity of continuing investment in reliability infrastructure, including Advanced Metering Infrastructure (AMI). In addition to UPPCO’s continuing efforts to reduce costs and to minimize the amount of rate relief required, UPPCO proposes to mitigate the rate impact of these drivers on and to pass cost savings through to its customers through the following: (a) Tax Cut and Jobs Act (TCJA) savings of approximately $0.9 million pursuant to the Company’s Calculation C filing requirement, and (b) lower depreciation and amortization expense of approximately $1.8 million, consistent with the Company’s proposal in the concurrent depreciation rate proceeding in Case No. U-18467. 9. UPPCO represents that in order to establish rates for retail electric service which are just and reasonable, it is essential that the Commission order an increase in retail electric base rates that will produce additional revenues on an annual basis of approximately $9,982,604, an overall retail rate increase of approximately 9.71%. 10. UPPCO represents that its present return on investment is and will be below that required by sound regulation; that UPPCO’s present retail electric rates and charges are unjust and unreasonable because they will produce increasingly inadequate retail electric service revenues to UPPCO unless UPPCO further represents that rate relief is required to permit UPPCO to continue to achieve its goal of rendering adequate retail electric service to the public; and that rate relief, effective in the near future, is necessary to protect the rights of UPPCO and to prevent it from being deprived of its property contrary to the Fourteenth Amendment of the 3 Constitution of the United States of America and contrary to the provisions of the Constitution of 1963 of the State of Michigan. RATE DESIGN, TARIFF AND OTHER PROPOSALS 11. UPPCO’s proposed rates for each customer class rate schedule are shown on Schedule F2 of Exhibit A-16. These rates are designed to recover the revenue deficiency, and also reflect an update to the Company’s class cost of service study evidenced in Schedule F1 of Exhibit A-16. UPPCO requests Commission approval of the proposed rates. 12. In addition, UPPCO proposes various revisions to its electric tariffs, including to (a) consolidate the residential rate schedules A-1 and A-2 classes of the Integrated and Iron River divisions; (b) consolidate the dusk to dawn outdoor security lighting service rate Schedules Z-3 and Z-4; (c) add a new Distribution Generation Rider tariff pursuant to the Order in Case No. U-18383; (d) modify its current Parallel Generation (i.e., net metering) tariffs pursuant to the Order in Case No. U-18383, and (e) establish a new Power Supply Cost Recovery (PSCR) base rate. IMPLEMENTATION OF RATES 13. UPPCO proposes to implement its revised rates no later than July 21, 2019, after the Commission issues an order approving UPPCO’s request. TESTIMONY AND EXHIBITS 14. UPPCO is filing herewith written testimonies, exhibits and work papers in support of the requested rate increase and related approvals requested herein. The positions and relief described in the direct testimony and exhibits should be considered as if specifically requested in this Application. UPPCO is also filing a proposed Protective Order to govern the release, use and disclosure of certain testimony and responses in Part III that contain confidential information, or in future response to discovery. 4 15. UPPCO represents that the proposals contained in this Application, and in the supporting testimonies, exhibits and work papers are just, reasonable and in the public interest. WHEREFORE, UPPER PENINSULA POWER COMPANY requests that this Commission: A. Set an early hearing date on this Application for rate relief; B.
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