Rate Matters

Pending Regulatory Proceedings — Public Service Commission of Wisconsin (PSCW)

NSP-Wisconsin 2015 Electric Rate Case — In May 2014, NSP-Wisconsin filed a request with the PSCW to increase electric rates by $20.6 million, or 3.2 percent, effective Jan. 1, 2015. The request is for the limited purpose of updating 2015 electric rates to reflect anticipated increases in the production and transmission fixed charges and the fuel and purchased power components of the interchange agreement with NSP-Minnesota. No changes are being requested to the capital structure or the 10.2 percent return on equity (ROE) authorized by the PSCW in the 2014 rate case. As part of an agreement with stakeholders to limit the size and scope of the case, NSP-Wisconsin also agreed to an earnings cap for 2015 only, in which 100 percent of the earnings above the authorized ROE would be refunded to customers.

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



(Millions of Dollars)	Request
Production and transmission fixed charges	$	28.1
Fuel and purchased power	13.9
Sub-Total	$	42.0

NSP-Minnesota transmission depreciation reserve	$	(16.2	)
Monticello extended power uprate deferral	(5.2		)
Total	$	20.6

The next steps in the procedural schedule are expected to be as follows:


•	Direct Testimony (PSCW staff and intervenors) — Oct. 3, 2014;


•	Rebuttal Testimony — Oct. 17, 2014;


•	Surrebuttal Testimony — Oct. 24, 2014; and


•	Evidentiary Hearing — Oct. 28, 2014;

A final PSCW decision is anticipated by the end of the year with final rates implemented in January 2015.

Recently Concluded Regulatory Proceedings — Michigan Public Service Commission (MPSC)

Michigan 2014 Natural Gas Rate Case — In December 2013, NSP-Wisconsin filed a request with the MPSC to increase rates for natural gas distribution service by $527,000, or 8.8 percent and implement a gas meter pressure correction factor. The filing was based on a 2014 forecast test year, a ROE of 10.4 percent, an equity ratio of 52.54 percent and a forecasted average rate base of approximately $4.7 million. The MPSC staff was the only other party to the proceeding.

In May 2014, the MPSC issued an order approving the settlement agreement reached by NSP-Wisconsin and the MPSC staff, authorizing an increase of $500,000 or 8.4 percent, based on a 10.2 percent ROE and accepting the proposed gas meter pressure correction factor. Under the terms of the settlement agreement, the rate increase will be phased in over two years, with phase one rates effective July 1, 2014 and phase two rates effective July 1, 2015.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

MISO ROE Complaint — In November 2013, a group of customers filed a complaint at the FERC against MISO transmission owners, including NSP-Minnesota and NSP-Wisconsin. The complaint argues for a reduction in the ROE applicable to transmission formula rates in the MISO region from 12.38 percent to 9.15 percent, a prohibition on capital structures in excess of 50 percent equity, and the removal of ROE adders (including those for regional transmission organization (RTO) membership and being an independent transmission company), effective Nov. 12, 2013.

In January 2014, Xcel Energy filed an answer to the complaint asserting that the 9.15 percent ROE would be unreasonable and that the complainants failed to demonstrate the NSP System equity capital structure was unreasonable. The MISO transmission owners separately answered the complaint, arguing the complainants do not have standing to challenge the MISO Tariff provisions, have not met their burden of proof to demonstrate that the current FERC-approved ROE, capital structure and other incentives are unjust and unreasonable, and the complaint should be dismissed. Other parties filed comments supporting a reduction in the MISO regional ROE, the equity capital structure limitations, and limits on ROE incentives, and supported the proposed effective date. In January 2014, the complainants filed an answer to the MISO transmission owners’ motion to dismiss. The complaint is pending FERC action.

In June 2014, the FERC issued an order in a different ROE proceeding adopting a new ROE methodology for electric utilities. The new ROE methodology requires electric utilities to use a two-step discounted cash flow analysis to estimate cost of equity that incorporates both short-term and long-term growth projections, instead of only short-term growth. The FERC set the issue of the appropriate long-term growth rate for further hearing procedures. The FERC could order settlement judge procedures, and if necessary a hearing, to apply the new methodology to MISO transmission owners. The new FERC ROE methodology is expected to reduce transmission revenue, net of expense, between $5 million and $7 million annually for NSP-Minnesota and NSP-Wisconsin.