Rate Matters

Pending and Recently Concluded Regulatory Proceedings — PUCT

Texas 2014 Electric Rate Case — On Jan. 7, 2014, SPS filed a retail electric rate case in Texas with each of its Texas municipalities and the PUCT for a net increase in annual revenue of approximately $52.7 million, or 5.8 percent. The net increase reflects a base rate increase, revenue credits transferred from base rates to rate riders or the fuel clause, and resetting the TCRF to zero when the final base rates become effective, as shown in the following table:



(Millions of Dollars)	SPS Request
Base rate increase	$	81.5
Resetting TCRF	(12.9		)
Credit to customers for gain on sale to Lubbock moved to a rider	(4.9		)
Net increase in base revenue	63.7
Fuel clause offsets	(11.0		)
Retail customer net bill impact	$	52.7

The rate filing is based on a HTY ending June 2013, a requested ROE of 10.40 percent, an electric rate base of approximately $1.27 billion and an equity ratio of 53.89 percent. The requested rate increase reflects an increase in depreciation expense of approximately $16 million.

The PUCT has suspended SPS' proposed rates through Oct. 31, 2014. If the PUCT has not issued a final order by July 11, 2014, then SPS' current rates will not change, but the final rates will be made effective retroactive to July 12, 2014.

Next steps in the procedural schedule are as follows:


•	Intervenor testimony — May 22, 2014;


•	PUCT Staff testimony — May 29, 2014;


•	Cross-rebuttal testimony — June 12, 2014;


•	Rebuttal testimony — June 16, 2014;


•	Evidentiary hearing — June 25, 2014; and


•	A PUCT decision and implementation of final rates are anticipated in the third quarter of 2014.

Texas 2012 Electric Rate Case — In November 2012, SPS filed an electric rate case in Texas with the PUCT for an increase in annual revenue of approximately $90.2 million. The rate filing is based on a historic 12 month test year ended June 30, 2012 (adjusted for known and measurable changes), a requested ROE of 10.65 percent, an electric rate base of $1.15 billion and an equity ratio of 52 percent. In June 2013, the PUCT approved a settlement agreement in which SPS’ base rate increased by $37 million, effective May 1, 2013 and by an additional $13.8 million on Sept. 1, 2013.

Electric, Purchased Gas and Resource Adjustment Clauses

TCRF Rider — In November 2013, SPS filed with the PUCT to implement the TCRF for Texas retail customers. The requested increase in revenues is $13 million. The PUCT issued an order allowing the TCRF to go into effect on an interim basis effective Jan. 1, 2014.

Next steps in the procedural schedule are as follows:


•	Intervenor testimony — April 17, 2014;


•	Rebuttal testimony — May 6, 2014; and


•	Evidentiary hearings — May 15 - May 16, 2014.

Pending Regulatory Proceedings — NMPRC

New Mexico 2014 Electric Rate Case — In December 2012, SPS filed an electric rate case in New Mexico with the NMPRC for an increase in annual revenue of approximately $45.9 million effective in 2014. The rate filing is based on a 2014 forecast test year (FTY), a requested ROE of 10.65 percent, an electric rate base of $479.8 million and an equity ratio of 53.89 percent. In June 2013, SPS revised its requested rate increase to $43.3 million.

In August 2013, the NMPRC Staff (Staff), the NMAG, the Federal Executive Agencies, the Coalition of Clean Affordable Energy, Occidental Permian, Ltd. and New Mexico Gas Company filed testimony.

The following table summarizes certain parties’ recommendations from SPS’ revised request:



(Millions of Dollars)	Staff Testimony August 2013			NMAG Testimony August 2013
SPS revised request	$	43.3		$	43.3
Rate rider for renewable energy costs ^(a)	(14.5		)	(8.5		)
Present revenues (sales growth and weather)	(4.4		)	(6.4		)
ROE (9.8 percent and 8.63 percent, respectively)	(3.2		)	(8.1		)
Capital structure	(1.5		)	(1.1		)
Employee benefits	(2.8		)	(1.8		)
Reduced recovery for payroll expense	(0.1		)	(0.1		)
Gain on sale of transmission assets	—			(1.7		)
Fuel clause revenue	6.0			—
Other, net	(5.0		)	(6.6		)
Recommended rate increase	$	17.8		$	9.0
Means of recovery:
Base revenue	$	8.8		$	(6.0	)
Rider revenue	7.3			13.3
Fuel cost adjustment revenue	1.7			1.7
	$	17.8		$	9.0


^(a)	Adjustments represent recommended deferrals, extended amortizations and moving costs from rider to fuel in base rates.

In September 2013, SPS filed rebuttal testimony, revising its requested rate increase to $32.5 million, based on updated information and an ROE of 10.25 percent. This reflects a base and fuel increase of $20.9 million, an increase of rider revenue of $12.1 million and a decrease to other of $0.5 million.

In January 2014, the hearing examiner released her recommended decision. SPS estimates the recommendation reduces the requested rate increase by approximately $6.2 million, resulting in a base revenue increase of $14.7 million. The recommendation proposes an ROE of 9.73 percent, an equity ratio of 53.89 percent, an FTY with certain adjustments and excludes certain employee benefits and other costs. In February 2014, the hearing examiner released a supplemental recommended decision proposing the approval of the requested $12.1 million renewable energy rider revenue recovery. Parties have filed exceptions to the hearing examiner’s recommendations. An NMPRC decision and final rates are expected to be effective in the second quarter of 2014.

Pending and Recently Concluded Regulatory Proceedings — FERC

2004 FERC Complaint Case Orders — In August 2013, the FERC issued an order on rehearing related to a 2004 Complaint case brought by Golden Spread Electric Cooperative, Inc. (Golden Spread), a wholesale cooperative customer, and PNM and an Order on Initial Decision in a subsequent 2006 rate case filed by SPS.

The original Complaint included two key components: 1) PNM’s claim regarding inappropriate allocation of fuel costs and 2) a base rate complaint, including the appropriate demand-related cost allocator. The FERC previously determined that the allocation of fuel costs and the demand-related cost allocator utilized by SPS was appropriate.

In the August 2013 Orders, the FERC clarified its previous ruling on the allocation of fuel costs and reaffirmed that the refunds in question should only apply to firm requirements customers and not PNM’s contractual load. The FERC also reversed its prior demand-related cost allocator decision. The FERC stated that it had erred in its initial analysis and concluded that the SPS system was a 3CP rather than a 12CP system.

The pre-tax impact to 2013 earnings from these orders is approximately $36 million. Pending the timing and resolution of this matter, the annual impact to revenues through 2014 could be up to $6 million and decreasing to $4 million on June 1, 2015.

In September 2013, SPS filed a request for rehearing of the FERC ruling on the CP allocation and refund decisions. SPS asserted that the FERC applied an improper burden of proof and that precedent did not support retroactive refunds. PNM also requested rehearing of the FERC decision not to reverse its prior ruling.

In October 2013, the FERC issued orders further considering the requests for rehearing. These matters are currently pending the FERC’s action. If unsuccessful in its rehearing request, SPS will have the opportunity to file rate cases with the FERC and its retail jurisdictions seeking to change all customers to a 3CP allocation method.

Wholesale Rate Complaint — In April 2012, Golden Spread filed a rate complaint alleging that the base ROE included in the SPS production formula rate of 10.25 percent, and the SPS transmission base formula rate ROE of 10.77 percent, are unjust and unreasonable. Golden Spread alleged that the appropriate base ROE is 9.15 percent, or an annual difference of approximately $3.3 million. An additional 50 basis point incentive is added to the base ROE for the transmission formula rate for SPS’ participation in the SPP RTO. Golden Spread is not contesting this transmission incentive. The FERC has taken no action on this complaint. If granted, the complaint could reduce SPS revenues approximately $3.1 million per year prospectively from the effective date established by the FERC.

Sale of Texas Transmission Assets — In March 2013, SPS reached an agreement to sell certain segments of SPS’ transmission lines and two related substations to Sharyland. In 2013, SPS received all necessary regulatory approvals for the transaction. On Dec. 30, 2013, SPS received $37.1 million and recognized a pre-tax gain of $13.6 million. The gain is reflected in the statement of income as a reduction to O&M expenses. Regulatory liabilities were recorded for jurisdictional gain sharing of $7.2 million.