Rate Matters

Pending and Recently Concluded Regulatory Proceedings — PUCT

Texas 2015 Electric Rate Case — In December 2014, SPS filed a retail electric rate case in Texas seeking an overall increase in annual revenue of approximately $64.8 million, or 6.7 percent. The filing was based on a HTY ending June 2014, adjusted for known and measurable changes, a ROE of 10.25 percent, an electric rate base of approximately $1.6 billion and an equity ratio of 53.97 percent.

SPS requested a waiver of the PUCT post-test year adjustment rule which would allow for inclusion of $392 million (SPS total company) additional capital investment for the period July 1, 2014 through Dec. 31, 2014. In June 2015, SPS revised its requested rate increase to $42.1 million.

In December 2015, the PUCT made the following decisions:


•	Disallowed SPS’ proposed adjustment to jurisdictional allocation factors to reflect Golden Spread Electric Cooperative, Inc.’s (Golden Spread’s) wholesale load reductions from 500 MW to 300 MW, effective June 1, 2015;


•	Disallowed incentive compensation;


•	Approved an equity ratio of 51.00 percent instead of the actual 53.97 percent; and


•	A ROE of 9.70 percent.

The following table reflects the ALJs’ position and PUCT’s decision.



	ALJs’ Proposal			PUCT
(Millions of Dollars)	for Decision			Decision
SPS’ revised rate request	$	42.1		$	42.1
Investment for capital expenditures — post-test year adjustments	(8.9		)	(8.9		)
Lower ROE	(6.3		)	(6.3		)
Lower capital structure	—			(3.7		)
Annual incentive compensation	(0.2		)	(0.3		)
O&M expense adjustments	(4.6		)	(4.6		)
Depreciation expense	(2.7		)	(2.7		)
Property taxes	(0.9		)	(0.9		)
Revenue adjustments	(1.1		)	(1.6		)
Wholesale load reductions	—			(11.5		)
SPP transmission expansion plan	(4.2		)	(4.2		)
Other, net	1.4			(1.2		)
Total, gross of rate case expenses	$	14.6		$	(3.8	)
Adjustment to move rate case expenses to a separate docket	(0.2		)	(0.2		)
Total, net of rate case expenses	$	14.4		$	(4.0	)
New depreciation rates	(11.2		)	(11.2		)
Earnings impact	$	3.2		$	(15.2	)

In January 2016, SPS filed its motion for rehearing on capital structure, incentive compensation and known and measurable adjustments, including wholesale load reductions and post test-year capital additions. On Feb. 11, 2016, the PUCT orally denied requests for rehearing. SPS plans to file a second motion for rehearing within 20 days of the date of the PUCT’s written order.

SPS – Texas 2016 Electric Rate Case — On Feb. 16, 2016, SPS filed a retail electric, non-fuel rate case in Texas with each of its Texas municipalities and the PUCT requesting an overall increase in annual base rate revenue of approximately $71.9 million, or 14.4 percent. The filing is based on a HTY ended Sept. 30, 2015, a requested ROE of 10.25 percent, an electric rate base of approximately $1.7 billion, and an equity ratio of 53.97 percent.

As part of its request, SPS included estimated information regarding increases and decreases in SPS’ cost of service, including certain expenses, capital investments, cost of capital and sales for the period of Oct. 1, 2015 through Dec. 31, 2015. Subsequent to the filing, (i.e., 45 days), the estimated information will be updated to reflect actual results.

The following table summarizes the net request:



(Millions of Dollars)	Request
Capital expenditure investments	$	38.6
Change in jurisdictional allocation factors	10.9
Changes in ROE and capital structure	11.7
Estimated rate case expenses ^(a)	4.5
Other, net	6.2
Total	$	71.9


^(a)	SPS anticipates rate case expenses, for this proceeding, to be separated from the request for consideration in a separate docket.

The final rates established at the end of the case will be made effective retroactive to July 20, 2016 and SPS will be entitled to collect a surcharge for usage from July 20, 2016 through the date SPS implements final rates. A PUCT decision is anticipated in the first quarter of 2017.

Pending Regulatory Proceedings — NMPRC

SPS – New Mexico 2015 Electric Rate Case — In October 2015, SPS filed a New Mexico electric rate case with the NMPRC for a net increase in base rates of approximately $24.3 million. The proposed net amount reflects an increase in non-fuel base rates of $45.4 million and a decrease in base fuel revenue of approximately $21.1 million. The decrease in base fuel revenue will be reflected in adjustments collected through the fuel and purchased power adjustment clause. The rate filing is based on a June 30, 2015 HTY adjusted for known and measurable changes, a requested ROE of 10.25 percent, an electric jurisdictional rate base of approximately $734 million and an equity ratio of 53.97 percent.

The major components of the requested rate increase are summarized below:



(Millions of Dollars)	Request
2015 base period deficiency	$	19.7
Capital expenditures — post-test year adjustments	12.3
Depreciation, higher rates reflecting changes in depreciable lives, interim retirements and net salvage	3.7
Transmission revenue and expense, including charges paid to SPP for construction of regionally shared transmission projects	2.0
ROE, reflecting an increase from 9.96 percent to 10.25 percent	1.6
Rider revenue adjustments - gross receipts tax	1.3
Other, net	4.8
Requested rate increase	$	45.4

The next steps in the procedural schedule are expected to be as follows:


•	Settlement conference — Feb. 29, 2016;


•	Staff and intervenor direct testimony — April 1, 2016;


•	Rebuttal testimony — April 18, 2016; and


•	Evidentiary hearing begins — April 28, 2016.

A NMPRC decision and implementation of final rates is anticipated in the second half of 2016.

In response to the original 2015 electric rate case previously dismissed, SPS has appealed that decision to the New Mexico Supreme Court. SPS and the NMPRC have filed a joint agreed motion to dismiss the appeal with the New Mexico Supreme Court. The motion provides for the case to be remanded to the NMPRC for entry of an order affirming SPS’ right to use a FTY that begins up to 13 months after SPS files a rate case. SPS will not resume the previously dismissed rate case and will proceed with the October 2015 rate case.

Pending and Recently Concluded Regulatory Proceedings — FERC and Other

SPS – Global Settlement Agreement — In August 2015, SPS, Golden Spread, four New Mexico Cooperatives, West Texas Municipal Power Agency, PNM and Tri-County Electric Cooperative, Inc. filed a settlement agreement with the FERC that would provide a comprehensive resolution of nine pending matters in dispute between SPS and these wholesale production and transmission customers, including the 2013 SPS complaint orders and three pending ROE complaints. In October 2015, the FERC issued an order approving the settlement agreement. As a result of the settlement, SPS issued refunds to Golden Spread and PNM of $49.1 million, but recognized a reversal of previously recorded reductions in revenue of approximately $7.9 million in the fourth quarter of 2015. The settlement provides a ROE for production services of 10.0 percent and transmission services of 10.5 percent, beginning Oct. 20, 2014, and subject to a moratorium on filings for ROE changes, effective prior to Jan. 1, 2020. On Jan. 29, 2016, the FERC approved the SPS compliance filings required by the settlement and FERC order.

Sale of Texas Transmission Assets — In March 2015, SPS reached an agreement to sell certain segments of SPS’ transmission lines

to Oncor Electric Delivery Company LLC. In November 2015, the transaction closed with the required regulatory approvals and SPS recognized a $3.9 million pre-tax gain after the impacts of sharing with Texas retail customers.

SPP Open Access Transmission Tariff (OATT) Upgrade Costs — Under the SPP OATT, costs of participant-funded transmission upgrades may be recovered, in part, from other SPP customers whose transmission service is dependent upon capacity enabled by the upgrades. To date, SPP has not charged its customers any amounts attributable to these upgrades. SPP recently indicated it may attempt to quantify and assess charges beginning in late 2016, including amounts for prior periods. Due to the limited information available and lack of historical precedent, the potential loss, if any, is not currently estimable. No accrual has been recorded for this matter.