Rate Matters

Except to the extent noted below, the circumstances set forth in Note 10 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2016, appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending Regulatory Proceedings — Public Utility Commission of Texas (PUCT)

Appeal of the Texas 2015 Electric Rate Case Decision — SPS had requested an overall retail electric revenue rate increase of $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. On March 6, 2017, the Travis County District Court denied SPS’s appeal. On April 4, 2017, SPS appealed the District Court’s decision to the Court of Appeals.

Texas 2016 Electric Rate Case — In February 2016, SPS filed a retail electric rate case in Texas 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 return on equity (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, along with recovery of rate case expenses, for an overall revised request of $65.5 million.

In December 2016, SPS reached a settlement that resolves all issues in the rate case. The total estimated rate impact is $51.8 million. The final rates established in the case are effective retroactive to July 20, 2016. In December 2016, an Administrative Law Judge (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. In April 2017, SPS filed a surcharge to recover $13.8 million for the additional revenue recovered by applying the final rates to customer billing units for the period of July 20, 2016 through Dec. 9, 2016.

Texas 2016 Transmission Cost Recovery Factor (TCRF) Application — In February 2017, SPS filed with the PUCT to recover additional annual revenue of approximately $16.1 million through its TCRF, or 1.8 percent. The filing is based upon capital transmission additions made during 2016. SPS expects a PUCT decision and implementation of TCRF rates by mid-2017.

Pending Regulatory Proceeding — New Mexico Public Regulation Commission (NMPRC)

New Mexico 2016 Electric Rate Case — In November 2016, SPS filed an electric rate case with the NMPRC seeking 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 requested ROE of 10.1 percent, an equity ratio of 53.97 percent, an electric rate base of approximately $832 million and a future test year ending June 30, 2018.

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 megawatts (MW) in 2017 from certain wholesale customers and seeks to adjust the service life of SPS’ Tolk power plant to a remaining life through 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 Southwest Power Pool, Inc. (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

On April 10, 2017, the hearing examiner determined that SPS’ rate filing was deficient and recommended the NMPRC extend the procedural schedule by one month and restart the suspension period once it is determined that the deficiencies are resolved. On April 19, 2017, the NMPRC ruled to dismiss SPS’ rate case and required SPS to refile a future test year rate case. SPS filed a motion for reconsideration on April 21, 2017 and the NMPRC is expected to consider that motion on May 10, 2017.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

Southwest Power Pool, Inc. (SPP) Open Access Transmission Tariff (OATT) Upgrade Costs — Under the SPP OATT, costs of participant-funded, or “sponsored,” transmission upgrades may be recovered 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 for 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 request in July 2016. SPS and certain other parties requested rehearing of the FERC order. In November 2016, SPP billed SPS a net amount, for the period from 2008 through August 2016, of $12.8 million for these charges, to be paid over a five-year period commencing November 2016. In October 2016, SPS filed applications for deferred accounting and future recovery of related costs in Texas and New Mexico. In December 2016, SPS’ New Mexico application was consolidated with its base rate case and in March 2017, SPS withdrew its Texas application and will address the issue in its next base rate case. SPS anticipates these SPP charges authorized by FERC will be recoverable through regulatory mechanisms.