Xcel Energy 2006 Annual Report Download - page 108

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SPP Energy Imbalance Service — On June 15, 2005, SPP, the RTO for the SPS system, filed proposed tariff provisions to establish
an Energy Imbalance Service (EIS) wholesale energy market for the SPP region. This market is the first step in a phased approach
toward the development of a more comprehensive regional energy market, which is expected to eventually include an ancillary
services component and perhaps financial congestion costs known as FTRs. SPP implemented the EIS market Feb. 1, 2007. Xcel
Energy and other market participants are working with the SPP to resolve implementation issues related to the new market.
Pending and Recently Concluded Regulatory Proceedings — PUCT
Fuel Cost Recovery Mechanisms — Fuel and purchased energy costs are recovered in Texas through a fixed-fuel and purchased
energy recovery factor, which is part of SPS’ retail electric rates. The Texas retail fuel factors change each November and May based
on the projected cost of natural gas. If it appears SPS will materially over-recover or under-recover these costs, the factor may be
revised based on application by SPS or action by the PUCT.
Texas Retail Fuel Surcharge Case — On May 5, 2006, SPS requested authority to surcharge approximately $45.5 million of Texas
retail fuel and purchased energy cost under-collection that accrued from October 2005 through March 2006. The case was referred to
the State Office of Administrative Hearing (SOAH) for a contested hearing. During the course of this proceeding, certain customers
challenged whether a wholesale firm sales contract that SPS has with El Paso Electric Company (EPE) satisfied the terms of a non-
unanimous stipulation, dated April 25, 2005, and the PUCT’s final order, dated Dec. 19, 2005. This order established the terms under
which SPS would be allowed to recover system average fuel cost from certain wholesale firm sales contracts until the issue is
addressed in SPS’ base rate case. In October 2006, the PUCT announced its decision that the contract with EPE, which was entered
into in July 2004 did not conform to the non-unanimous stipulation and the PUCT’s December 2005 final order. As a result, the PUCT
disallowed approximately $1.8 million in fuel costs for the period covering October 2005 through March 2006. The PUCT rejected
two requests for rehearing on the EPE contract. SPS has accrued $8.1 million as of Dec. 31, 2006. The order will remain in effect until
the end of SPS’ general rate case proceeding at which time the terms of the non-unanimous settlement on the treatment of wholesale
sales are set to expire. Recovery of the remaining portion of the surcharge of approximately $39 million began on Oct. 1, 2006.
Texas Retail Fuel Factor Change — On Oct. 6, 2006, SPS filed an application to change its fuel factors effective Nov. 1, 2006, to
more accurately track fuel cost during the winter months. On Oct. 16, 2006, the PUCT granted interim approval of the factor changes
effective Nov. 2006. On Nov. 30, 2006, the PUCT granted final approval.
Texas Retail Base Rate And Fuel Reconciliation Case — On May 31, 2006, SPS filed a Texas retail electric rate case requesting an
increase in annual revenues of approximately $48 million, or 6.0 percent. The rate filing is based on a historical test year, an electric
rate base of $943 million, a requested return on equity of 11.6 percent and a common equity ratio of 51.1 percent.
In addition, SPS has a pending fuel reconciliation filing, which seeks approval of approximately $957 million of Texas jurisdictional
fuel and purchased power costs for 2004 through 2005. The fuel reconciliation case was transferred to the SOAH with the base rate
case and has the same procedural schedule. As a part of the fuel reconciliation case, fuel and purchased energy costs, which are
recovered in Texas through a fixed-fuel and purchased energy recovery factor as a part of SPS’ retail electric rates, will be reviewed.
Various parties have filed testimony on base rate and fuel issues, including the Office of Public Utility Counsel; the state of Texas;
Texas Industrial Energy Consumers; Alliance of Xcel Municipalities; Occidental Permian; and the PUCT staff. Intervenors
recommendations ranged from a base rate reduction of $56 million to a base rate increase of $31 million.
In the fuel reconciliation portion of the proceeding, the parties recommended several adjustments related to SPS’s fuel reconciliation
filing, including the methodology for assigning average fuel costs to certain firm wholesale sales, coal mitigation activities, the
treatment of fuel losses and other items. The recommendation for disallowances ranged from $8 million to a disallowance of $120
million. In addition, the Alliance of Xcel Municipalities challenged the prudence of the decision to enter into certain coal contracts in
2005 and 2006. The proposed disallowances over the life of two contracts through 2010 and 2017, respectively, is in excess of
$100 million.
SPS’ rebuttal testimony was filed in January 2007. SPS is confident that the rebuttal case adequately addressed many of the concerns
raised by intervenors. As of Dec. 31, 2006 SPS has recognized what it believes is an appropriate level of reserves for this potential
liability.
Pending and Recently Concluded Regulatory Proceedings — NMPRC
New Mexico Fuel Review — On Jan. 28, 2005, the NMPRC accepted the staff petition for a review of SPS’ fuel and purchased power
cost. The staff requested a formal review of SPS’ fuel and purchased power cost adjustment clause (FPPCAC) for the period of Oct. 1,
2001 through August 2004. The hearing in the fuel review case was held April 22, 2006. A proposed recommended decision was filed
by the parties on July 28, 2006, and the hearing examiner’s recommendation and a NMPRC decision are expected in early 2007.
New Mexico Fuel Factor Continuation Filing — On Aug. 18, 2005, SPS filed with the NMPRC requesting continuation of the use
of SPS’ FPPCAC and current monthly factor cost recovery methodology. This filing was required by NMPRC rule. Testimony has
been filed in the case by staff and intervenors objecting to SPS’ assignment of system average fuel costs to certain wholesale sales and