Direct Testimony of James T. Selecky On Behalf of ABATE

Before the
Public Service Commission
of the State of Michigan
Case No. U-12639
Direct Testimony of
James T. Selecky
On Behalf of
ABATE
May 2001
Project 7414

1
2
3
4
5
6
7
8
9
10
11
12
INTRODUCTION
Before the
Public Service Commission of the State of Michigan
Case No. U-12639
Direct Testimony of James T. Selecky
Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A James T. Selecky; 1215 Fern Ridge Parkway, Suite 208; St. Louis, Missouri, 63141.
Q WHAT IS YOUR OCCUPATION AND BY WHOM ARE YOU EMPLOYED?
A I am a consultant in the field of public utility regulation and a principal in the firm of
Brubaker & Associates, Inc., energy, economic and regulatory consultants.
Q PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
A These are set forth in Appendix A to this testimony.
Q ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PROCEEDING?
A I am presenting testimony on behalf of the Association of Businesses Advocating
Tariff Equity (ABATE). Member companies of ABATE are substantial purchasers of
electricity from The Detroit Edison Company (DECo or Company).
BRUBAKER & ASSOCIATES, INC.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 2
Q HAVE YOU PRESENTED TESTIMONY IN PRIOR DECo PROCEEDINGS BEFORE
THE MICHIGAN PUBLIC SERVICE COMMISSION (COMMISSION OR MPSC)?
A Yes. I have been involved in many prior DECo proceedings before this Commission.
Q WHAT ISSUES ARE BEING ADDRESSED IN YOUR TESTIMONY?
A My testimony addresses the level of net stranded cost appropriate for DECo and the
development of a net stranded cost credit or negative surcharge. I will also discuss
DECo’s method for calculating its net stranded cost and DECo’s proposed
Equalization Transition Charge Adjustment (ETCA).
SUMMARY OF CONCLUSIONS AND RECOMMENDATIONS
Q PLEASE SUMMARIZE YOUR CONCLUSIONS AND RECOMMENDATIONS OF
YOUR TESTIMONY.
A The summary of my conclusions and recommendations is listed below:
1. DECo’s net stranded costs are negative. That is, DECo’s net stranded benefits
exceed its net stranded costs.
2. The Commission should establish a net stranded cost credit or negative
surcharge.
3. The net stranded cost credit would only apply to customers who participate in the
open access program.
4. The Commission should reject DECo’s method for calculating net stranded cost
because it will not promote open access.
5. DECo’s ETCA should be rejected because it is inconsistent with Public Act 141
(Act 141) in that it violates the rate freeze provisions. DECo’s ETCA requires the
commercial secondary and industrial/commercial primary customers to continue
to subsidize the residential customers in the open market.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
LEVEL OF NET STRANDED COST
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 3
Q HAS ABATE FILED EVIDENCE ADDRESSING THE APPROPRIATE LEVEL OF
NET STRANDED COST?
A Yes. ABATE has filed evidence to assist the Commission in its mandate to determine
the net stranded costs for DECo. ABATE witness Christopher Seiple of RDI
Consulting, a division of Financial Times Energy, using a discounted cash flow
approach, concludes that DECo’s generating assets have a market value of at least
$5.702 billion, and a net book value, excluding Fermi 2, of $2.565 billion at December
31, 2000. This results in a net stranded benefit of more than $3.137 billion. Factoring
in the Commission’s Case No. U-12478 net book cost of $2.333 billion for Fermi 2
and the net stranded costs associated with power purchase and power sales
contracts reduces the net stranded benefit to $0.760 billion. That is, DECo does not
have any stranded costs.
In addition, ABATE witness Dr. Richard Tabors, using a comparative
generation sales analysis, concludes that DECo’s generating units have a market
value of $5.724 billion, and net book value of $4.898 billion including Fermi 2. This
results in a net stranded benefit of $0.826 billion for generating assets owned by
DECo.
Q SHOULD THE COMMISSION UTILIZE THESE ESTIMATES TO DETERMINE THE
LEVEL OF DECo’S NET STRANDED COSTS?
A Yes. To meet the requirements of Section 10a. (10) of the June 5, 2000 Act 141, the
Commission should rely on the ABATE estimates of net stranded costs. The
methods put forth by ABATE clearly address the methods the Commission needs to
consider in determining DECo’s stranded cost.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 4
ABATE consultants have used two different administrative valuation
approaches to calculate stranded costs. As indicated above, both approaches
produced similar results. The fact that Dr. Tabors’ estimate produces a slightly higher
market value for DECo’s generating assets is not surprising. As indicated in the
testimony of Mr. Seiple of RDI, he would expect the actual sale of the assets to yield
a higher market value. Mr. Tabors’ analysis, which is a comparative generation sales
analysis, captures some of the sources of value that would be present in a true
auction that are not captured by Mr. Seiple’s analysis.
Q SHOULD THE COMMISSION DEVELOP A STRANDED BENEFIT SURCHARGE?
A Yes. The Commission should develop a stranded benefit credit or negative
surcharge that would be applicable to customers that participate in the customer
choice or open access program. This stranded benefit credit would be an offset or
reduction to the securitization charge that results from the Commission’s order in
Case No. U-12478.
Q HAVE DECo’S SECURITIZATION CHARGES BEEN ESTABLISHED?
A Yes. On March 16, 2001, DECo filed a letter with the Commission indicating the
following:
“Using the formula approved by the Commission in the Financing
Order, this filing establishes the variables used in the calculation of the
initial SB Charge and provides the resulting SB Charge and SB Tax
Charge. Attachment A shows the values for each of the variables
used in calculating the initial SB Charge and SB Tax Charge which is
3.2 (mills/kWh) and 0.5 (mills/kWh) respectively. It is anticipated that
the SB Charge and SB Tax Charge will be in effect from March 26,
2001 through February 28, 2002 at which time the charges may be
modified pursuant to the true-up procedures established in the
Financing Order.”

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 5
These two charges produce a total securitization charge of .37¢ per kWh that
will recover DECo’s stranded costs, which include Fermi 2 and various other
regulatory assets net of certain regulatory liabilities.
Q WHY SHOULD THE COMMISSION ESTABLISH A STRANDED BENEFIT CREDIT?
A Without this determination, the purposes of Act 141, which was to create customer
choice for DECo customers, will not be met. Specifically, Section 10 of Act 141 states
the purposes of this recently passed legislation. The stated purposes are:
“(a) To ensure that all retail customers in this state of electric power
have a choice of electric suppliers.
(b) To allow and encourage the Michigan public service commission to
foster competition in this state in the provision of electric supply and
maintain regulation of electric supply for customers who continue to
choose supply from incumbent electric utilities.
(c) To encourage the development and construction of merchant
plants which will diversify the ownership of electric generation in this
state.
(d) To ensure that all persons in this state are afforded safe, reliable
electric power at a reasonable rate.
(e) To improve the opportunities for economic development in this
state and to promote financially healthy and competitive utilities in this
state.” (Public Act No. 141 of 2000, Sec. 10 (2))
The Commission has authorized DECo to securitize $1.750 billion of costs. It
is implied that a significant portion of those costs is stranded and DECo would not be
able to collect those costs in a competitive market. If the Commission does not
establish a credit to recognize DECo’s stranded benefits and DECo’s securitization
charges as authorized remain in place, the development of a competitive electric
utility market would be severely impeded. Assessing DECo’s customers that
participate in the customer choice program, a charge that only recognizes claimed
stranded costs would have an adverse effect on the ability of customers to use open

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 6
access service and the development of merchant plants that are needed to provide
the State with future capacity additions to provide a reliable source of electricity.
Q WHAT IS THE BASIS FOR YOUR STATEMENT THAT DECo’S PROPOSED
LEVEL OF STRANDED COSTS WOULD IMPEDE COMPETITION AND THE
DEVELOPMENT OF MERCHANT PLANTS IN THE STATE OF MICHIGAN?
A In a report, the Commission had the following comment regarding an electric industry
restructuring proposal:
“The Commission has thoroughly examined the Electric Industry
Restructuring Proposal put forth by the Chamber of Commerce and
Consumers Energy Company, which has subsequently been amended
by a number of other parties. The Commission has also examined the
proposal put forth by Detroit Edison. The Commission has two
concerns over the transition charge in the Chamber-Consumers
Energy proposal, as amended by Detroit Edison. These concerns are:
(1) the transition charge is too large and will thus preclude effective
competition, and (2) the transition charge will continue for 15 years for
Detroit Edison, and 25 years for Consumers Energy, thus locking in
Michigan to a no-competition or limited competition mode while most,
or all other states, will pass us by competitively.
It is estimated that the transition charge for customers in
Consumers Energy’s territory will be between 6 and 7 mills (0.6 to 0.7
cents) while the transition charge for customers in Detroit Edison’s
territory will be approximately 3.5 mills (0.35 cents). These charges,
which cannot be adjusted by the Michigan Public Service Commission
even if they prove unworkable, will remain until they expire. The
Commission believes that a transition charge of 3 mills (0.3 cents) is
the maximum charge in which to foster a competitive market. This is
usually a number given by most customer groups and potential
competitors.”
As previously stated, DECo’s securitization charge will be 3.7 mills per kWh or
0.37¢ per kWh. Based on the above quote, it is likely that the stated purposes of Act
141 will not be met, i.e., a competitive electric market will not develop. Without this
market, the development and construction of merchant plants will be severely
hindered because it will not be economical for buyers and sellers to participate in the
open access market.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 7
Q HAVE YOU DEVELOPED A STRANDED BENEFIT CREDIT OR NEGATIVE
SURCHARGE THAT WOULD BE APPLICABLE TO ALL CUSTOMERS THAT
PARTICIPATE IN THE CUSTOMER CHOICE PROGRAM?
A Yes. I have developed a stranded benefit credit using the same rate design that the
Commission authorized DECo in Case No. U-12478, to collect its securitized cost. In
that case, DECo is authorized to apply a uniform securitization surcharge per kWh to
all metered customers. In this case, I am proposing that a stranded benefit credit or
negative surcharge of 4.18 mills per kWh be assessed to all customers that
participate in the open access program.
Because DECo is obligated to serve bundled customers, the stranded benefit
credit will not be applied to their usage. Although a bundled customer pays the
securitization charges, their base energy charge is reduced by an equal amount.
Therefore, the securitization charge does not currently adversely affect their power
costs.
Q HOW DID YOU DEVELOP YOUR PROPOSED STRANDED BENEFIT CREDIT?
A My stranded benefit credit was developed from comparing the costs that DECo will
securitize with the results of the net stranded cost analyses presented in this
proceeding by ABATE witnesses.
Q WOULD YOU PLEASE SUMMARIZE THE COST THAT DECo WILL SECURITIZE?
A On April 9, 2001, DECo supplied to the Commission a 30-day securitization report. In
that report, DECo indicated that it would securitize $1.750 billion of cost net of tax.
Table 1 below summarizes those costs on a before tax and net of tax basis.

1
2
3
4
5
6
7
8
9
10
11
12
TABLE 1
DECo’s Securitized Costs
Before Tax Cost Net of Tax Cost
Description
($Million)
($Million)
Fermi 2 $2,273 $1,478
Reacquired Debt 63 41
FAS 109 156 101
FAS 106 82 54
Implementation 30 19
Issuing Costs 30 20
Retiring Securities 58 38
Total
$2,692 $1,750
Total w/o Fermi 2
BRUBAKER & ASSOCIATES, INC.
$ 419 $ 272
James T. Selecky
Page 8
As Table 1 above shows, excluding Fermi 2, the Commission authorized
DECo to securitize $419 million of costs.
Q WHAT DO THE ABATE ANALYSES SHOW RELATIVE TO DECo’S NET
STRANDED COSTS?
A The ABATE analyses show that DECo has net stranded benefits. That is, the
stranded benefits associated with its generating assets and power purchase and
power sales contracts exceed its stranded cost.
ABATE witness Christopher Seiple’s analysis shows that DECo has net
stranded benefits from power purchase and power sales obligations and generating
assets of $3.093 billion, excluding the net book value of Fermi 2. Factoring in the net
book value of Fermi 2 produces a net benefit of $760 million. A summary of Mr.
Seiple’s analysis is shown in Table 2 below.

1
2
3
4
5
6
TABLE 2
Christopher Seiple Analysis
Description
BRUBAKER & ASSOCIATES, INC.
Net Benefit
($Million)
Steam $3,294
Pump Storage (51)
Gas Turbines (106)
Power Purchases (44)
Subtotal
$3,093
Fermi 2
Total
($2,333)
$ 760
James T. Selecky
Page 9
ABATE witness Dr. Richard Tabors provided an analysis that determined
DECo’s net stranded costs to be a negative $826 million. DECo’s stranded benefit
exceeds its stranded cost. Since Dr. Tabors’ analysis did not reflect any net stranded
costs associated with DECo’s power purchase and power sales obligations, I have
utilized the results of the power purchase analysis performed by Mr. Seiple, and
included that in Dr. Tabors’ analysis. The results are shown below in Table 3.
TABLE 3
Richard Tabors Analysis
Comparable Book Net
Value Value Benefit
Description ($Million) ($Million) ($Million)
Generation $5,724 $4,898 $826
Power Purchases – – ($44)
Total
$782

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 10
As Table 3 shows, DECo has net stranded benefits of $782 million, including
power purchase obligations.
Q HOW DID YOU UTILIZE THE RESULTS OF ABATE ANALYSES TO DEVELOP A
STRANDED BENEFIT CREDIT?
A As Table 1 shows, the Commission authorized DECo to securitize costs, excluding
Fermi 2, of approximately $419 million. The analyses performed by ABATE
witnesses shown in Tables 2 and 3 indicate that including Fermi 2 costs, DECo has
net stranded benefits of $760 million and $782 million, respectively. That is, using the
results of these analyses, the average net stranded benefit for DECo is $771 million.
These net benefits can be used to offset DECo’s stranded net regulatory asset cost,
excluding Fermi 2. Fermi 2 is excluded because it is included in the development of
the net stranded costs of DECo’s generation assets as determined by the ABATE
witnesses.
This average net benefit of $771 million offsets DECo’s securitized net
regulatory costs, excluding Fermi 2, of $419 million (see Table 1). This results in
DECo having net generation-related benefits of $352 million ($771 million - $419
million) greater than the costs, excluding Fermi 2 that the Commission authorized
DECo to securitize. Therefore, DECo’s net stranded benefit credit should be larger
than DECo’s proposed securitization surcharge.
Q HOW DID YOU DEVELOP A SPECIFIC STRANDED BENEFIT SURCHARGE?
A As indicated in the previous answer, DECo’s net benefits associated with its
generation assets are $352 million greater than the costs that DECo is authorized to
securitize. As indicated in Table 1, DECo is authorized to securitize costs before its

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 11
net of tax adjustment of $2,692 million. Since the net benefits produced by the
ABATE analyses are 13.1% greater than DECo’s proposed securitized costs, I
recommend that the net benefit credit be 13.1% greater than the securitization
surcharge. Therefore, if the securitization surcharge is 3.7 mills per kWh for DECo,
the net benefit credit should be 4.18 mills per kWh. It should be remembered that the
net benefit credit is a negative surcharge and is only applicable to those customers
who participate in the open access program.
Alternatively, the Commission could implement a stranded benefit credit equal
to the securitization surcharge. The $352 million of net stranded benefits that is not
included in the credit would be used to offset future implementation costs. However,
in the event that the available net stranded benefits exceed the implementation costs,
any excess should be fed back to the customers.
Q DO YOU HAVE ANY COMMENTS TO MAKE REGARDING THE DEVELOPMENT
OF A STRANDED BENEFIT CREDIT?
A Yes. If the Commission, in the unbundling case to be filed, requires that a
securitization surcharge be developed separately for each rate class, a similar
approach has to be taken for the development of the stranded benefit credit.
However, the same approach that is used to develop the securitization surcharge
should also be used to develop the stranded benefit credit.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 12
Q AS A RESULT OF SECURITIZATION, WILL DECo HAVE ANY EXCESS
SECURITIZATION SAVINGS AFTER FUNDING THE 5% RATE REDUCTIONS AND
THE LOW INCOME ENERGY FUND?
A Yes. DECo witness Van Haerents indicates in response to discovery question EMDE
4.22/129 that DECo will have the following annual amounts in excess of the 5% rate
reduction and low income and energy efficiency fund:
TABLE 4
Excess Securitization Savings
Year
Amount
(000)
2002 $82,976
2003 $30,249
2004 $28,141
2005 $20,455
2006 $ 8,726
2007 $ 554
2008 $44,092
Q HOW SHOULD THESE FUNDS BE UTILIZED?
A These funds should be utilized to either reduce stranded cost or reasonable
implementation costs related to customer choice. This is consistent with Act 141 of
2000 and the Commission’s Orders in Case No. U-12478.
DECo should be required to create a separate account to record these excess
securitization savings on an annual basis along with interest or a carrying charge.
The use of the funds would be addressed in the annual true-up proceedings. Finally,
if the retail access program is unsuccessful, the excess securitization savings should

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 13
be passed on to the ratepayers in the form of a permanent rate reduction and any
unrecovered implementation costs should be disallowed.
Q IS THERE ANY OTHER SOURCE OF REVENUES THAT SHOULD BE USED TO
OFFSET STRANDED COSTS?
A Yes. As a result of DECo’s securitization, for a period of six years approximately $50
million per year of the reduction in DECo’s revenue requirement associated with
securitization is allocated to the low-income and energy efficiency fund administered
by the MPSC. At the end of the six-year period, these funds should be used to further
reduce stranded cost. It is my understanding that the MPSC has not previously
addressed the disposition of these funds at the end of the six-year period.
DECo’S POSITION
Q BEFORE YOU DISCUSS DECo’S PROPOSAL FOR CALCULATING NET
STRANDED COSTS, WHAT IS MEANT BY THE TERM “NET STRANDED COST”?
A Generally, the term refers to costs that are permitted to be collected from customers
under regulation, but cannot be recovered in a competitive market. ABATE witness
Mr. Phillips addresses the term “net stranded cost” in detail in his prefiled testimony.
Q HAS DECo PROVIDED A METHOD FOR RECOVERING ITS CLAIMED NET
STRANDED COST?
A DECo has proposed a method for recovering what it defines as net stranded cost.
Under DECo’s definition, net stranded cost is the net economic harm or benefit
experienced by DECo as a result of customers participating in the retail electric
choice program. That is, if a customer chooses to take generation service from an

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 14
alternate provider, DECo experiences harm in the form of lost revenues. DECo
receives offsetting benefits if it can sell the freed-up power to the market. Simply put,
the difference between the lost revenues and the revenues received by off-system
sales produces DECo’s net stranded cost. DECo witness A. Zakem describes in
detail the method used to calculate DECo’s net stranded cost.
Q CAN NET STRANDED COSTS BE PROPERLY DETERMINED BY ANALYZING
THE REVENUES LOST BY THE UTILITY FROM CUSTOMERS SWITCHING TO AN
ALTERNATIVE SUPPLIER?
A No. A proper definition of net stranded costs should be based on the valuation the
market would give to utility assets. This asset-based approach recognizes that it is
the value of an asset in competitive markets that is the ultimate determinant of utility
strandable costs, not the amount of utility revenue lost because of a switch in
generation suppliers.
Q PLEASE BRIEFLY DESCRIBE DECo’S PROPOSAL FOR RECOVERING ITS
CLAIMED NET STRANDED COST.
A DECo is proposing a two-year program with a zero transition charge in 2002. This
transition charge is separate from the securitization charge. The first transition
charge will be applied to 2003 customer choice sales, and will be designed to recover
the actual economic harm or benefit incurred in 2002. Finally, DECo is proposing to
allow customers who exercise customer choice to save up to 10% of the average
supply revenue before DECo requests recovery of its net economic harm resulting
from retail electric choice. The savings is subject to an annual cap of $25 million in
economic harm to DECo.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 15
Q HAS DECo PROPOSED ANY OTHER RATE ADJUSTMENTS THAT ARE
UNIQUE?
A Yes. In addition, DECo is proposing the creation of Equalization Transition Charge
Adjustment (ETCA), which is intended to eliminate rate skewing. This results in an
increase in the RAST rates for commercial secondary and commercial/industrial
primary customers and a rate reduction for residential customers.
Q DO YOU AGREE WITH DECo’S DEFINITION OF NET STRANDED COST?
A No. DECo’s definition of net stranded cost is not specifically related to its generation
assets. In fact, DECo’s procedure would include earnings of the Company in excess
of its last authorized rate of return. For example, in Case No. U-11495, the
Administrative Law Judge issued a proposal for decision that stated DECo was
earning $101.6 million in excess of its authorized rate of return. Since Act 141 froze
DECo’s rates, customers never realized a rate reduction. Under DECo’s proposed
plan, the Company would be allowed to retain most of this overearning.
DECo’s proposed calculation of net stranded cost does not focus on costs
specifically, but focuses on lost revenues. When the Commission established costs
to be securitized, an analysis was made of specific cost. DECo’s definition of net
stranded cost should be more appropriately referred to as lost revenue. It is critical
that the Commission examine DECo’s cost and determine which costs are stranded,
and not rely on lost revenue calculations.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 16
Q DECo WITNESS MR. GERARD ANDERSON IS CRITICAL OF STRANDED COST
DETERMINATIONS UTILIZING A DISCOUNTED CASH FLOW ANALYSIS AND
POWER PLANT SALE ANALYSIS TO DETERMINE STRANDED COST. PLEASE
COMMENT ON MR. ANDERSON’S CRITICISM.
A The discounted cash flow analysis and the comparative power plant analysis
performed by ABATE witnesses to determine DECo’s stranded cost are recognized
methods of calculating net stranded costs. These administrative valuation techniques
have been employed by other commissions to establish net stranded costs. As
DECo’s customers participate in retail access, portions of DECo’s generation are
freed-up. This generation can be used to make sales into the open or competitive
market. The discounted cash flow analysis and the comparative plant analysis
provide for the value of that generation.
In addition, administrative valuations have been used by the MPSC to
establish stranded cost estimates for DECo. In its order in Case No. U-11726, the
MPSC provided for a rapid amortization of Fermi 2 that would “promote competition
by reducing future stranded costs.” (Order in Case No. U-11726, page 37.) Clearly,
to make this finding, the MPSC was relying on an administrative valuation. To
dismiss the ABATE provided administrative analysis would be inconsistent with
previous MPSC rulings.
Q IS IT IMPORTANT THAT DECo’S GENERATION-RELATED NET STRANDED
COST BE DETERMINED ACCURATELY?
A Yes. As previously indicated, one of the stated purposes of Act 141 is to encourage
the development and construction of merchant plants to diversify the ownership of
electric generation in Michigan. For this to occur, stable estimates of net stranded

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 17
cost are imperative. Without stable estimates, a customer choice market will not
develop. Without stable estimates, customers will be uncertain as to the price they
will pay for electricity. Therefore, it will be difficult for customers to make long-range
commitments as to who will be their suppliers. Without this commitment, developers
will be unwilling to build new generation in the state.
Q WHY DO YOU BELIEVE DECo’S PROPOSAL DOES NOT ACCOMPLISH THE
STATED OBJECTIVE OF ENCOURAGING THE DEVELOPMENT AND
CONSTRUCTION OF MERCHANT PLANTS?
A Under DECo’s proposal, customers that exercise customer choice will be paying rates
approximately equal to DECo’s current rates. This arises because DECo relies on
historic hub energy prices to develop its net stranded cost estimates. The hub energy
prices are likely representative of prices customers are paying for generation
services. Therefore, there is little incentive for customers to leave the system since
the electricity cost they incur by leaving the system will be almost the same as the
electricity cost they would incur by remaining a DECo retail customer.
Q YOU INDICATED EARLIER THAT DECo HAS CREATED AN ETCA. WHAT IS
THE PURPOSE OF THIS ADJUSTMENT?
A The purpose of this adjustment is to eliminate the rate skewing that currently exists.
Under the current rates, the residential class is paying rates below cost of service,
while the commercial secondary and industrial/commercial primary customers are
paying rates in excess of their cost.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 18
Q DOES DECo PROPOSE TO ELIMINATE RATE SKEWING FOR ITS RETAIL AND
CUSTOMER CHOICE CUSTOMERS?
A No. DECo’s proposal only affects the retail access program.
Q WHAT IS THE RATE IMPACT OF DECo’S PROPOSAL ON RAST RATES?
A Under DECo’s proposal, the commercial secondary and industrial/commercial primary
customers will be assessed an ETCA surcharge of 1.89¢ per kWh and .21¢ per kWh,
respectively. Conversely, the residential class will see a negative surcharge of 1.11¢
per kWh.
Q SHOULD THE COMMISSION ADOPT DECo’S ETCA PROPOSAL?
A No. DECo’s proposal violates the rate freeze provisions of Act 141. Specifically,
Section 10d. of Act 141 froze rates as of May 1, 2000. The only exceptions to the
rate freeze were the mandated 5% rate reduction for the residential customers and
the pass on of any reduction in the revenue requirement associated with
securitization. Act 141 required that the rate freeze would remain in effect until
December 31, 2003. As a result of DECo’s proposal, the commercial secondary and
industrial/commercial primary customers will be seeing rate increases in their
distribution rates. This is in violation of the Act 141 mandated rate freeze since DECo
is increasing rates above the level that existed at May 1, 2000.
Also, DECo’s proposal continues the residential rate subsidy that has existed
for a number of years. The Commission, for whatever reasons, has authorized the
residential rates below cost of service. So that DECo was not adversely affected
financially, the difference between the residential cost of service and the residential
revenues has been made up by the other rate classes. In order to send proper

1
2
3
4
5
6
7
BRUBAKER & ASSOCIATES, INC.
James T. Selecky
Page 19
signals, the Commission should not implement non-cost-based rates or surcharges
applicable to those customers taking service in the competitive market.
Therefore, the Commission should reject DECo’s ETCA proposal. Customers
should be able to participate in the customer choice program based on cost-based
rates.
Q DOES THIS CONCLUDE YOUR TESTIMONY AT THIS TIME?
A Yes.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Qualifications of James T. Selecky
Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
BRUBAKER & ASSOCIATES, INC.
Appendix A
A James T. Selecky. My business mailing address is P. O. Box 412000, 1215 Fern
Ridge Parkway, Suite 208, St. Louis, Missouri 63141-2000.
Q PLEASE STATE YOUR OCCUPATION.
A I am a consultant in the field of public utility regulation and am a principal in the firm of
Brubaker & Associates, Inc., energy, economic and regulatory consultants.
Q PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND PROFESSIONAL
EMPLOYMENT EXPERIENCE.
A I graduated from Oakland University in 1969 with a Bachelor of Science degree with a
major in Engineering. In 1978 I received the degree of Master of Business Admin-
istration with a major in Finance from Wayne State University.
I was employed by The Detroit Edison Company (DECo) in April of 1969 in its
Professional Development Program. My initial assignments were in the engineering
and operations divisions where my responsibilities included evaluation of equipment
for use on the distribution and transmission system; equipment performance testing
under field and laboratory conditions; and trouble-shooting and equipment testing at
various power plants throughout the DECo system. I also worked on system design
and planning for system expansion.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
BRUBAKER & ASSOCIATES, INC.
Appendix A
James T. Selecky
Page 2
In May of 1975, I transferred to the Rate and Revenue Requirement area of
DECo. From that time, and until my departure from DECo in June 1984, I held various
positions which included economic analyst, senior financial analyst, supervisor of
Rate Research Division, supervisor of Cost-of-Service Division and director of the
Revenue Requirement Department. In these positions, I was responsible for overseeing
and performing economic and financial studies and book depreciation studies,
developed fixed charge rates and parameters and procedures used in economic studies,
providing a financial analysis consulting service to all areas of DECo, developing and
designing rate structure for electrical and steam service, analyzing profitability of various
classes of service and recommending changes therein, determining fuel and purchased
power adjustments and all aspects of determining revenue requirements for ratemaking
purposes.
In June of 1984, I joined the firm of Drazen-Brubaker & Associates, Inc. (DBA).
In April 1995 the firm of Brubaker & Associates, Inc. (BAI) was formed. It includes most
of the former DBA principals and staff. At DBA and BAI I have testified in electric, gas
and water proceedings involving almost all aspects of regulation. I have also performed
economic analyses for clients related to energy cost issues.
In addition to our main office in St. Louis, the firm also has branch offices in
Kerrville, Texas; Plano, Texas; Denver, Colorado; and Chicago, Illinois.
Q HAVE YOU PREVIOUSLY APPEARED BEFORE A REGULATORY COMMISSION?
A Yes. I have testified on behalf of DECo in its steam heating and main electric cases. In
these cases I have testified to rate base, income statement adjustments, changes
in book depreciation rates, rate design, and interim and final revenue deficiencies.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
BRUBAKER & ASSOCIATES, INC.
Appendix A
James T. Selecky
Page 3
In addition, I have testified before the regulatory commissions of the States of
Colorado, Connecticut, Georgia, Illinois, Indiana, Kansas, Maryland, Massachusetts,
Missouri, New Hampshire, New Jersey, North Carolina, Ohio, Oklahoma, Tennessee,
Texas, Utah, Wisconsin, and Wyoming, and the Provinces of Saskatchewan and
Alberta. I also have testified before the Federal Energy Regulatory Commission. In
addition, I have filed testimony in proceedings before the regulatory commissions in the
States of Iowa, Montana, New York, and Pennsylvania. My testimony has addressed
revenue requirement issues, cost of service, rate design, financial integrity, accounting-
related issues, merger-related issues, and performance standards. The revenue
requirement testimony has addressed book depreciation rates, decommissioning
expense, O&M expense levels, and rate base adjustments for items such as plant held
for future use, working capital, and post test year adjustments. In addition, I have
testified on deregulation issues such as stranded cost estimates and rate design.
Q ARE YOU A REGISTERED PROFESSIONAL ENGINEER?
A Yes, I am a registered professional engineer in the State of Michigan, based upon state
examinations.