Rate Matters

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

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.

In October 2014, the PSCW Staff filed their direct testimony and recommended an electric rate increase of $16.1 million, or 2.5 percent. The majority of the PSCW Staff’s adjustments are related to the fuel cost forecast, and are primarily the result of more recent data than was available at the time the initial filing was prepared last spring.

In October 2014, NSP-Wisconsin, the PSCW Staff and other parties reached an agreement that resolved all contested issues in the case and accepted the PSCW staff recommendation to increase NSP-Wisconsin’s electric rates by approximately $16.1 million, effective January 2015.

The major cost components of the requested increase and the PSCW Staff recommendation are summarized below:



(Millions of Dollars)	NSP-Wisconsin Request			PSCW Staff Recommendation
Production and transmission fixed charges	$	28.1		$	26.4
Fuel and purchased power	13.9			11.1
Sub-Total	$	42.0		$	37.5

NSP-Minnesota transmission depreciation reserve	$	(16.2	)	$	(16.2	)
Monticello extended power uprate deferral	(5.2		)	(5.2		)
Total	$	20.6		$	16.1

A final PSCW decision is anticipated by the end of 2014.

Pending Regulatory Proceedings — Michigan Public Service Commission (MPSC)

Michigan 2015 Electric Rate Case — In October 2014, NSP-Wisconsin filed a request with the MPSC to increase rates for electric service by $900,000, or 6.1 percent. The filing was based on a 2015 forecast test year, a 10.3 percent ROE, an equity ratio of 52.59 percent and a forecasted average rate base of approximately $35.2 million. The primary drivers of the requested increase is continuing investment in transmission and distribution infrastructure. The filing also included a request for a $289,000, or 1.9 percent, step increase in 2016, to reflect the expiration in 2016 of certain credits that were used to offset the 2015 rate request. A prehearing conference has been scheduled for Nov. 19, 2014.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

Midcontinent Independent System Operator, Inc. (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 complaint should be dismissed.

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.

In October 2014, the FERC upheld the determination of the long term growth rate to be used together with a short term growth rate in its new ROE methodology. The FERC separately set the ROE complaint against the MISO transmission owners for settlement judge and hearing procedures, which are expected to begin later this year. The FERC directed parties to apply this methodology, but denied the complaints related to equity capital structures and ROE adders. The FERC established a Nov. 12, 2013 refund effective date. NSP-Minnesota recorded a current regulatory liability representing the current best estimate of a refund obligation associated with the new ROE as of Sept. 30, 2014. The new FERC ROE methodology is estimated to reduce transmission revenue, net of expense, between $5 million and $7 million annually for NSP-Minnesota and NSP-Wisconsin.