Xcel Energy 2007 Annual Report Download - page 123

required to make any fuel refunds to Golden Spread that were the subject of the Complaint under the terms of
the Settlement.
• An extended partial requirements contract at system average cost, with a capacity amount that ramps down over
the period 2012 through 2019 from 500 MW to 200 MW. The extended agreement requires that the cost
assignment treatment receive Texas and New Mexico state approvals and provides for alternative pricing terms
and quantities to hold SPS harmless from cost disallowances in the event that adverse regulatory treatment occurs
or state approvals are not obtained. Golden Spread agreed to hold SPS harmless from any future adverse
regulatory treatment regarding the proposed sale and SPS agreed to contingent payments ranging from
$3 million to a maximum of $12 million, payable in 2012, in the event that there is an adverse cost assignment
decision or a failure to obtain state approvals.
• Resolution of base rates in the Complaint without any adjustment to the existing rates for the period January
2005 through June 30, 2006. The Settlement also resolves all base rate issues in SPS’ rate case application for
the period July 1, 2006 through June 30, 2008 other than the three month coincident peak (3 CP) or 12 month
coincident peak (12CP) method of allocation of demand related costs and sets forth two sets of agreed on rates
that are dependent on the ultimate resolution of that issue. If SPS prevails in its support of the 12 CP demand
allocation method, there would be no impact to earnings for this period. If Golden Spread prevails, SPS would
be required to refund Golden Spread and PNM approximately $4 million for the period through the end of
2007.
• For July 1, 2008 and beyond, Golden Spread will be under a formula rate for production plant, similar to a
formula rate for transmission investment. The rate will be based on the most recent historic year actuals adjusted
for known and measurable changes and trued up to the actual performance in a calendar year. The formula will
begin based on a 10.25 percent ROE and either party will have a right to seek changes to the ROE beginning
with the 2009 formula rate filing. SPS will share margins from its sales to WTMPA and EPE in that year but
will assign system average fuel and energy costs to those agreements for purposes of calculating Golden Spread’s
monthly fuel cost.
The Settlement is subject to approval by the FERC; however, no parties contested the Settlement. SPS does not expect
to settle with all parties to the Complaint and expects the FERC to issue an order addressing the ALJ’s recommended
decision and all aspects of the Complaint. The FERC could issue the order with respect to non-settling parties, prior to
taking action on the Settlement. As of December 2007, based upon the expectation that the Golden Spread settlement
is approved and offers made to the various parties in the Complaint, SPS believes the appropriate accrual has been
recorded for this matter.
Wholesale 2005 Power Base Rate Application — In December 2005, SPS filed for a $2.5 million increase in wholesale
power rates to certain electric cooperatives. In January 2006, the FERC conditionally accepted the proposed rates for
filing and the $2.5 million power rate increase became effective on July 1, 2006, subject to refund. The FERC also set
the rate increase request for hearing and settlement judge procedures. In September 2006, offers of settlement with
respect to the five full-requirements customers and with respect to PNM were filed for approval. In September 2007,
the FERC accepted the settlement with the full-requirements customers. The PNM settlement is still pending before
the FERC.
The Wholesale 2005 Power Base Rate Application relating to Golden Spread was settled in conjunction with the
Wholesale Rate Complaint Settlement discussed above. Therefore, SPS has settled with all parties in the Wholesale
2005 Power Base Rate Application except for with respect to the 3 CP/12 CP demand allocation methodology
discussed above.
SPS Formula Transmission Rate Case — In December 2007, Xcel Energy submitted an application to implement a
transmission formula rate for the SPS zone of the Xcel Energy OATT. The SPP made a companion filing in January
2008, to implement the same pricing in the SPS zone of the SPP regional OATT. The changed rates will affect all
wholesale transmission service customers using the SPS transmission network under either the SPP Regional OATT or
the Xcel Energy OATT.
SPS made the filing in anticipation of approximately $290 million of transmission capital additions from 2008 to 2012.
A formula rate will help facilitate the financing and construction of the new transmission facilities while providing an
adequate rate of return on invested capital. The proposed rates would be updated annually each July 1st based on SPS’
prior year actual costs and loads plus the revenue requirements associated with projected current year transmission plant
additions. The proposed rate of return on common equity is 12.7 percent, including a 50 basis point adder for SPS’
participation in the SPP RTO, consistent with FERC precedent. The proposed rates would provide first year
incremental annual transmission revenue for SPS of approximately $5.5 million.
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