Rate Matters

Pending and Recently Concluded Regulatory Proceedings — PUCT

Appeal of the Texas 2015 Electric Rate Case Decision — In 2014, SPS had requested an overall retail electric revenue rate increase of $64.8 million, which it subsequently revised to $42.1 million. In 2015, the PUCT approved an overall rate decrease of approximately $4.0 million, net of rate case expenses. In April 2016, SPS filed an appeal, with the Texas State District Court, of the PUCT’s order that had denied SPS’ request for rehearing on certain items in SPS’ Texas 2015 electric rate case related to capital structure, incentive compensation and wholesale load reductions. A decision by the Texas State District Court is pending.

Texas 2016 Electric Rate Case — In February 2016, SPS filed a retail electric, base 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 historic test year 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. In September 2016, SPS revised its requested rate increase to $61.5 million and along with recovery of rate case expenses made for an overall revised request of $65.5 million.

In December 2016, SPS reached an unopposed settlement that resolves all issues in the rate case. The following table reflects the total estimated impact:



(Millions of Dollars)	Settlement
Base rate increase, retroactive to July 20, 2016	$	35.2
Power factor revenues ^(a)	12.6
Rate case expenses to be addressed in a separate proceeding	4.0
Total estimated impact	$	51.8


^(a)	SPS’ request assumed customers would adjust their power factors, which would reduce revenue. To the extent power factor revenues are less than $12.6 million, a mechanism will be established to ensure SPS recovers this amount and effectively offset lower anticipated power factor charges.

Additional key terms are as follows:


•	SPS’ next TCRF application will have a cap of $19 million in additional annual revenue and parties will make reasonable efforts to obtain PUCT approval within 100 days of SPS’ initial filing;


•	No disallowance of SPS’ requested capital additions; and


•	No restrictions on filing future rate cases or rate riders.

Pursuant to legislation passed in Texas in 2015, the final rates established in the case will be effective retroactive to July 20, 2016. In December 2016, an ALJ approved interim rates, effective as of Dec. 10, 2016. In the fourth quarter of 2016, SPS deferred certain costs associated with this rate case. In January 2017, the PUCT approved the settlement and no refund of interim rates was necessary. SPS expects to file a surcharge to recover the additional revenue associated with final rates, for the period of July 20, 2016 through Dec. 9, 2016, by the third quarter of 2017.

Texas 2016 TCRF Application — In February 2017, SPS filed an application with the PUCT to recover additional annual revenue of approximately $16.1 million through its TCRF, or 1.79 percent. The filing is based upon expenses and investments through Dec. 31, 2016. Based on the settlement agreement approved in the Texas 2016 electric rate case, SPS expects a PUCT decision and implementation of TCRF rates by mid-2017.

Pending Regulatory Proceedings — NMPRC

New Mexico 2016 Electric Rate Case — In November 2016, SPS filed an electric rate case with the NMPRC for an increase in base rates of approximately $41.4 million, representing a total revenue increase of approximately 10.9 percent. The rate filing is based on a future test year ending June 30, 2018, a requested return on equity of 10.1 percent, an equity ratio of 53.97 percent and an electric rate base of approximately $832 million.

SPS has excluded fuel and purchased power costs from base rates. This base rate case also takes into account the decline in sales of 380 MW in 2017 from certain wholesale customers and seeks to adjust the service life of SPS’ Tolk power plant to a remaining life of 2030 based on the investments to provide cooling water and the risks of investments in additional environmental controls.

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



(Millions of Dollars)	Request
Capital expenditures	$	20.1
Allocator changes, including wholesale load reductions	11.5
Transmission expense, net of revenue, including charges paid to SPP for construction of regionally shared transmission projects	4.7
Depreciation, including adjustment of service life for the Tolk generating station	3.6
Rate case expenses	1.1
Other, net	0.4
Requested rate increase	$	41.4

Key dates in the procedural schedule are as follows:


•	Deadline for settlement — Feb. 28, 2017;


•	Staff and intervenor testimony — April 14, 2017;


•	Rebuttal testimony — May 3, 2017;


•	Hearings — May 15, 2017; and


•	An NMPRC decision and implementation of final rates is anticipated in the second half of 2017.

Pending Regulatory Proceedings — FERC

SPP Open Access Transmission Tariff (OATT) Upgrade Costs — Under the SPP OATT, costs of participant-funded, or “sponsored,” transmission upgrades may be recovered, in part, from other SPP customers whose transmission service depends on capacity enabled by the upgrade. The SPP OATT has allowed SPP to collect charges since 2008, but SPP had not been charging its customers any amounts attributable to these upgrades.

In April 2016, SPP filed a request with the FERC for a waiver that would allow SPP to recover the charges not billed since 2008. The FERC approved the waiver request in July 2016. SPS and certain other parties requested rehearing of the FERC order. Amounts due to SPP are expected to be paid over a five-year period commencing November 2016 under an optional payment plan that was approved by the FERC in September 2016 and elected by SPS in October 2016. In October 2016, SPS filed applications for deferred accounting and future recovery of related costs in Texas and New Mexico. In November 2016, SPP billed SPS a net amount, for the period from 2008 through August 2016, of $12.8 million for these charges. In December 2016, SPS’ New Mexico application was consolidated with its base rate case and SPS’ Texas application was referred to the ALJ for hearing. A decision is expected in the first half of 2017. SPS anticipates these costs will be recoverable through regulatory mechanisms.