DTE Energy 2008 Annual Report Download - page 19

adopting the adjustments proposed by the MPSC Staff, resulting in an $8 million disallowance. Expense related to the disallowance was
recorded in 2007. The MPSC authorized MichCon to roll a net over-recovery, inclusive of interest, of $20 million into its 2006-2007 GCR
reconciliation. In December 2007, MichCon filed an appeal of the case with the Michigan Court of Appeals. MichCon is currently unable to
predict the outcome of the appeal.
2006-2007 Plan Year — In June 2007, MichCon filed its GCR reconciliation for the 2006-2007 GCR year. The filing supported a total under-
recovery, including interest through March 2007, of $18 million. In March 2008, the parties reached a settlement agreement that allowed for
full recovery of MichCon’s GCR costs during the 2006-2007 GCR year. The under-recovery, including interest through March 2007 agreed to
under the settlement is $9 million, which nets the $18 million under-recovery for the 2006-2007 GCR reconciliation with the roll-forward of
the 2005-2006 GCR reconciliation disallowance of $7.6 million plus related interest, as ordered in the 2005-2006 GCR reconciliation case. The
$9 million under-recovery was included in the 2007-2008 GCR reconciliation. An MPSC order was issued on April 22, 2008 approving the
settlement.
2007-2008 Plan Year / Base Gas Sale Consolidated — In August 2006, MichCon filed an application with the MPSC requesting permission to
sell base gas that would become accessible with storage facilities upgrades. In December 2006, MichCon filed its 2007-2008 GCR plan case
proposing a maximum GCR factor of $8.49 per Mcf. In August 2007, a settlement agreement in this proceeding was reached by all intervening
parties that provided for a sharing with customers of the proceeds from the sale of base gas. In addition, the agreement provided for a rate case
filing moratorium until January 1, 2009, unless certain unanticipated changes occur that impact income by more than $5 million. The
settlement agreement was approved by the MPSC in August 2007. Under the settlement terms, MichCon delivered 13.4 Bcf of this gas to its
customers through 2007 at a savings to market-priced supplies of approximately $41 million. This settlement also provided for MichCon to
retain the proceeds from the sale of 3.6 Bcf of base gas, of which MichCon sold 0.8 Bcf of base gas in 2007 at a pre-tax gain of $5 million and
2.8 Bcf in December 2008 at a pre-tax gain of $22 million. In June 2008, MichCon filed its GCR reconciliation for the 2007-2008 GCR year.
The filing supported a total under-recovery, including interest through March 2008, of $10 million.
2008-2009 Plan Year — In December 2007, MichCon filed its GCR plan case for the 2008-2009 GCR Plan year. MichCon filed for a
maximum GCR factor of $8.36 per Mcf, adjustable by a contingent mechanism. In June 2008, MichCon made an informational filing
documenting the increase in market prices for gas since its December 2007 filing and calculating its new maximum factor of $10.76 per Mcf
based on its contingent mechanism. On August 26, 2008, the MPSC approved a partial settlement agreement which includes the establishment
of a new maximum base GCR factor of $11.36 per Mcf that will not be subject to adjustment by contingent GCR factors for the remainder of
the 2008-2009 GCR plan year. An MPSC order addressing the remaining issues in this case is expected in 2009.
2009-2010 Plan Year — In December 2008, MichCon filed its GCR plan case for the 2009-2010 GCR Plan year. MichCon filed for a
maximum GCR factor of $8.46 per Mcf, adjustable by a contingent mechanism. An MPSC order in this case is expected in 2009.
2009 Proposed Base Gas Sale — In July 2008, MichCon filed an application with the MPSC requesting permission to sell an additional 4 Bcf
of base gas that will become available for sale as a result of better than expected operations at its storage fields. On March 5, 2009, the MPSC
approved a settlement agreement that provides for MichCon to retain the profit on 2 Bcf of the base gas to be sold at market prices and for the
remaining 2 Bcf of base gas to be held in storage on behalf of GCR customers until utilized as gas supply per the direction of the MPSC. In
addition, the settlement agreement provides that MichCon is subject to a moratorium on a general rate case filing until June 1, 2009.
2009 MichCon Depreciation Filing
D
epreciation Filing — On June 26, 2007, the MPSC issued its final order in the generic hearings on depreciation for Michigan electric and gas
utilities. The MPSC ordered Michigan utilities to file depreciation studies using the current method, a FAS 143 approach that considers the
time value of money and an inflation adjusted method proposed by the Company that removes excess escalation. In compliance with the MPSC
order MichCon filed its ordered depreciation studies on November 3, 2008. The various required depreciation studies indicate composite
depreciation rates from 2.07% to 2.55%. The Company has proposed no change to its current composite depreciation rate of 2.97%. The
Company expects an order in this proceeding in the fourth quarter of 2009.
Other
In September 2007, the Court of Appeals of the State of Michigan published its decision with respect to an appeal by MichCon and others of
certain provisions of a November 2004 MPSC order, including reversing the MPSC’s denial of recovery of merger control premium costs. In
its published decision, the Court of Appeals held that MichCon is entitled to recover its allocated share of the merger control premium and
remanded this matter to the MPSC for further proceedings to establish the precise amount and timing of this recovery. Other parties have filed
requests for leave to appeal to the Michigan Supreme Court from the Court of Appeals September 2007 decision and in September 2008, the
Michigan Supreme Court granted the requests to address the merger control premium. However, proceedings resulting from this remand cannot
be initiated by the MPSC until appeals by other parties of the September 2007 decision have been resolved by the Michigan Supreme Court.
MichCon is unable to predict the financial or other outcome of any such legal or regulatory proceedings at this time.
The Company is unable to predict the outcome of the regulatory matters discussed herein. Resolution of these matters is dependent upon future
MPSC orders and appeals, which may materially impact the financial position, results of operations and cash flows of the Company.
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