Xcel Energy 2015 Annual Report Download - page 42
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Wind — SPS acquires its wind energy from independent power producers (IPP) contracts and qualified facilities (QF) tariffs with
wind farm owners, primarily located in the Texas Panhandle area of Texas and New Mexico. SPS currently has 37 of these
agreements in place, with facilities ranging in size from under two MW to 250 MW for a total capacity greater than 1,800 MW.
• SPS had approximately 1,775 MW and 1,500 MW of wind energy on its system at the end of 2015 and 2014, respectively. In
addition to receiving purchased wind energy under these agreements, SPS also typically receives wind RECs, which are used
to meet state renewable resource requirements.
• The average cost per MWh of wind energy under the IPP contracts and QF tariffs was approximately $24 and $26 for 2015
and 2014, respectively. The cost per MWh of wind energy varies by contract and may be influenced by a number of factors
including regulation, state-specific renewable resource requirements and the year of contract execution. Generally, contracts
executed in 2015 continued to benefit from improvements in technology, excess capacity among manufacturers, and
motivation to commence new construction prior to the anticipated expiration of the Federal PTCs. In December 2015, the
Federal PTCs were extended through 2019 with a phase down beginning in 2017.
Wholesale and Commodity Marketing Operations
SPS conducts various wholesale marketing operations, including the purchase and sale of electric capacity, energy, ancillary services
and energy related products. SPS uses physical and financial instruments to minimize commodity price and credit risk and hedge sales
and purchases. See Item 7 for further discussion.
Summary of Recent Federal Regulatory Developments
The FERC has jurisdiction over rates for electric transmission service in interstate commerce and electricity sold at wholesale, hydro
facility licensing, natural gas transportation, asset transactions and mergers, accounting practices and certain other activities of Xcel
Energy Inc.’s utility subsidiaries and transmission-only subsidiaries, including enforcement of NERC mandatory electric reliability
standards. State and local agencies have jurisdiction over many of Xcel Energy Inc.’s utility subsidiaries’ activities, including
regulation of retail rates and environmental matters. In addition to the matters discussed below, see Note 12 to the accompanying
consolidated financial statements for a discussion of other regulatory matters.
FERC Order, New ROE Policy — In June 2014, the FERC adopted a new two-step ROE methodology for electric utilities. In March,
2015, FERC upheld the new ROE methodology and denied rehearing. The issue of how to apply the new FERC ROE methodology is
being contested in various complaint proceedings. As part of a global settlement approved by the FERC in October 2015, three ROE
complaints against SPS were resolved. FERC is not expected to issue orders in any litigated ROE complaint proceedings until at least
mid-2016. See Note 12 to the consolidated financial statements for discussion of the MISO ROE Complaints.
SPS Asset Transfer to XEST — In October 2015, SPS submitted filings to the PUCT, NMPRC and Kansas Corporation Commission
(KCC) seeking approval to transfer ownership of SPS’ 345kV transmission assets in Kansas and Oklahoma to XEST at net book
value, estimated at approximately $103 million as of Dec. 31, 2015. After the proposed asset transfer, the transmission facilities
would remain subject to SPP functional control, with revenue requirements recovered through the SPP Tariff. SPS and XEST also
proposed to enter into a transmission operation and maintenance agreement (O&M Agreement) under which SPS would operate and
maintain the transferred facilities and be reimbursed for providing those services to XEST at cost.
The KCC is expected to issue a decision within 10 months of the October filing. The hearings in the NMPRC and PUCT proceedings
are scheduled for August 2016 and October 2016, respectively, with each decision expected several months later. Requests for FERC
approval of the asset transfer and O&M Agreement were submitted in January 2016, and requested FERC action by June 30, 2016.
Based on the procedural schedules for the required regulatory approvals, SPS expects the proposed asset transfer to take place no
earlier than late 2016 or early 2017.
NERC Critical Infrastructure Protection Requirements — The FERC has approved Version 5 of NERC’s critical infrastructure
protection standards, which added additional requirements to strengthen grid security controls. Requirements must be applied by Xcel
Energy to high and medium impact assets by April 1, 2016 and to low impact assets by April 1, 2017. Xcel Energy is currently in the
process of implementing initiatives to meet the compliance deadlines. The additional cost for compliance is anticipated to be
recoverable through rates.
NERC Physical Security Requirements — In November 2014, the FERC approved NERC’s proposed critical infrastructure
protection standard related to physical security for bulk electric system facilities. The new standard became enforceable in October
2015 with staggered milestone deliverable dates through 2016. Xcel Energy has performed an initial risk assessment and is in the
process of developing physical security plans in accordance with the requirements of the standard. The additional cost for compliance
is anticipated to be recoverable through rates.