Rate Matters

Pending and Recently Concluded Regulatory Proceedings — CPUC

2013 Gas Rate Case — In December 2012, PSCo filed a multi-year request with the CPUC to increase Colorado retail natural gas rates by $48.5 million in 2013 with subsequent step increases of $9.9 million in 2014 and $12.1 million in 2015. The request was based on a 2013 FTY, a 10.5 percent ROE, a rate base of $1.3 billion and an equity ratio of 56 percent. PSCo requested an extension of its PSIA rider mechanism to collect the costs associated with its pipeline integrity efforts, including accelerated system renewal projects. PSCo estimated that the PSIA would increase by $26.8 million in 2014 with a subsequent step increase of $24.7 million in 2015 in addition to the proposed changes in base rate revenue. Interim rates, subject to refund, went into effect in August 2013.

In April 2013, several parties filed testimony. PSCo filed rebuttal testimony and revised its requested annual rate increase to $44.8 million for 2013, with subsequent step increases of $9.0 million for 2014 and $10.9 million for 2015, based on an ROE of 10.3 percent. This requested increase includes amounts to be transferred from the PSIA rider mechanism. The deficiency, based on an FTY, was $30.6 million.

In December 2013, the CPUC approved a natural gas base rate increase of approximately $15.8 million based on an ROE of 9.72 percent, a HTY with an end of year rate base and an equity ratio of 56 percent. As of Dec. 31, 2013, PSCo accrued revenue subject to refund of approximately $20.9 million.

While the CPUC rejected PSCo’s request of an FTY and multi-year rate plan, they made clear they supported the benefits that rate certainty brings to customers and PSCo. The CPUC did not reverse the ALJ’s failure to approve expansion and acceleration of PSCo’s pipeline integrity projects. However, the CPUC discussed the importance of pipeline integrity and safety matters and extended the PSIA recovery mechanism for one year to allow for PSCo to file an application for full consideration of all new projects and acceleration.

The following table summarizes the CPUC decision:



(Millions of Dollars)	CPUC Decision
PSCo deficiency based on a FTY	$	44.8
HTY adjustment	(5.4		)
ROE and capital structure adjustments	(8.3		)
Revenue adjustments	(1.4		)
Other	(0.1		)
Recommendation	29.6
Neutralize PSIA - base rate transfer	(13.8		)
Incremental base revenue	$	15.8

Rates and conforming changes made to the PSIA were effective Jan. 1, 2014.

2013 Steam Rate Case — In December 2012, PSCo filed a request to increase Colorado retail steam rates by $1.6 million in 2013 with subsequent step increases of $0.9 million in 2014 and $2.3 million in 2015. The request was based on a 2013 FTY, a 10.5 percent ROE, a rate base of $21 million for steam and an equity ratio of 56 percent.

In October 2013, PSCo, the CPUC Staff, the OCC and Colorado Energy Consumers filed a comprehensive settlement, which tied the outcome of the steam rate case to key issues to be decided in the natural gas rate case, including ROE and capital structure. The settlement allowed the filed rates to be effective on Jan. 1, 2014, subject to refund, resulting in a minimum 2014 annual rate increase of $1.2 million. The settlement also withdrew the rate relief request for 2015 without prejudice to PSCo seeking prospective rate relief at any time through the filing of a future steam case. In November 2013, the settlement became final. Final rates were implemented on Feb. 1, 2014.

Annual Electric Earnings Test — An earnings sharing mechanism is used to apply prospective electric rate adjustments for earnings in the prior year over PSCo’s authorized ROE threshold of 10 percent. In June 2013, PSCo entered into a comprehensive settlement of issues with all parties associated with the 2012 earnings test, resulting in a refund obligation of approximately $8.2 million to be refunded through June 2014. As of Dec. 31, 2013, PSCo has also recognized management’s best estimate of an accrual for the 2013 test year.

SmartGridCity (SGC) Cost Recovery — PSCo requested recovery of the revenue requirements associated with $45 million of capital and $4 million of annual O&M costs incurred to develop and operate SGC as part of its 2010 electric rate case. In February 2011, the CPUC allowed recovery of approximately $28 million of the capital cost and all of the O&M costs. In December 2011, PSCo requested CPUC approval for the recovery of the remaining capital investment in SGC. In April 2013, the CPUC denied the application with prejudice. Based on the ALJ’s previous recommended decision to deny recovery, PSCo recognized a $10.7 million pre-tax charge in 2012, representing the net book value of the disallowed investment, which is included in O&M expense.

ECA Prudence Review — In September 2013, the CPUC Staff requested that the 2012 annual ECA prudence review be set for hearing. The prudence review, as determined by the ALJ, will primarily consider if replacement power costs during the outage of jointly owned facilities were properly allocated between wholesale and retail customers.

2012 PSIA Report — In April 2013, PSCo filed its 2012 PSIA report. The OCC and CPUC Staff requested the CPUC set the matter for hearing to review in detail the information provided, including a review of the prudence of expenditures in 2012, and to develop standards for future filings. In July 2013, the CPUC approved the request and assigned the matter to an ALJ.

In January 2014, the CPUC Staff recommended a disallowance of $3.7 million of capital expenditures related to a pipeline replacement project and a disallowance related to an inspection program. Collectively, these represent approximately $0.6 million of disallowances related to 2012 revenue requirements. On Feb. 6, 2014, PSCo filed rebuttal testimony addressing the CPUC Staff’s recommended disallowances.

Next steps in the procedural schedule are as follows:


•	Evidentiary hearing — March 3 - March 7, 2014;


•	Initial brief — March 28, 2014; and


•	Reply brief — April 11, 2014.

Electric, Purchased Gas and Resource Adjustment Clauses

DSM and the DSMCA — The CPUC approved higher savings goals and a slightly higher financial incentive mechanism for PSCo’s electric DSM energy efficiency programs starting in 2012. Savings goals are 356 GWh in 2013 and 384 GWh in 2014 with incentives awarded in the year following plan achievements. PSCo is able to earn an incentive on 11 percent of net economic benefits and a maximum annual incentive of $30 million.

The CPUC approved the PSCo electric and gas DSM budget of $115.5 million and $13.3 million, respectively, effective Jan. 1, 2013. Energy efficiency and DSM costs are recovered through a combination of the DSMCA riders and base rates. Electric DSMCA rates are designed to collect $26.8 million in 2013 with the remainder of the electric DSM expenditures collected through base rates. PSCo filed its 2014 DSM plan in July 2013 and reached a settlement with all but one party. Hearings were held in December 2013 seeking approval of a 2014 DSM electric budget of $87.8 million and a gas budget of $12.3 million. A decision by the ALJ is anticipated by the end of the first quarter of 2014. DSMCA riders are adjusted biannually to capture program costs, performance incentives, and any over- or under-recoveries are trued-up in the following year.

REC Sharing — In May 2011, the CPUC determined that margin sharing on stand-alone REC transactions would be shared 20 percent to PSCo and 80 percent to customers and ultimately becoming 10 percent to PSCo and 90 percent to customers by 2014. The CPUC also approved a change to the treatment of hybrid REC trading margins (RECs that are bundled with energy) that allows the customers’ share of the margins to be netted against the RESA regulatory asset balance.

In 2012, the CPUC approved an annual margin sharing on the first $20 million of margins on hybrid REC trades of 80 percent to the customers and 20 percent to PSCo. Margins in excess of the $20 million are to be shared 90 percent to the customers and 10 percent to PSCo. The CPUC authorized PSCo to return to customers unspent carbon offset funds by crediting the RESA regulatory asset balance. PSCo credited the RESA regulatory asset balance $22 million and $46 million in 2013 and 2012, respectively. The cumulative credit to the RESA regulatory asset balance was $104.5 million and $82.8 million at Dec. 31, 2013 and Dec. 31, 2012, respectively. The credits include the customers’ share of REC trading margins and the customers’ share of carbon offset funds.

This sharing mechanism will be effective through 2014. The CPUC is then expecting to review the framework and evidence regarding actual deliveries before determining to continue the sharing mechanism.

ECA / RESA Adjustment — In July 2013, PSCo advised the CPUC that it had inadvertently allocated purchased power expense between the deferred accounts for the ECA and the RESA from 2010 to 2012. PSCo proposed to transfer from the RESA deferred account to the ECA deferred account approximately $26.2 million and to amortize the recovery of this amount over 12 months. In addition, interest of $4.4 million was accrued on the amount related to the RESA. In January 2014, the ALJ determined that the $26.2 million was prudently incurred and recommended full recovery through the ECA over a 12 month period with interest accrued at the ECA interest rate. The difference between the RESA interest rate and the ECA interest rate is a decrease of approximately 7.4 percent, or $4.3 million.

Pending and Recently Concluded Regulatory Proceedings — FERC

Production Formula Rate ROE Complaint — In August 2013, PSCo’s wholesale production customers filed a complaint with the FERC, and requested it reduce the stated ROEs ranging from 10.1 percent through 10.4 percent to 9.04 percent in the PSCo power sales formula rates effective Sept. 1, 2013, which could reduce revenues approximately $2 million per year prospectively. The matter is currently pending the FERC’s action.

Transmission Formula Rate Cases — In April 2012, PSCo filed with the FERC to revise the wholesale transmission formula rates from a HTY formula rate to a forecast transmission formula rate and to establish formula ancillary services rates. PSCo proposed that the formula rates be updated annually to reflect changes in costs, subject to a true-up. The request would increase PSCo’s wholesale transmission and ancillary services revenue by approximately $2.0 million annually. Various transmission customers taking service under the tariff protested the filing. In June 2012, the FERC issued an order accepting the proposed transmission and ancillary services formula rates, suspending the increase to November 2012, subject to refund, and setting the case for settlement judge or hearing procedures.

In June 2012, several wholesale customers filed a complaint with the FERC seeking to have the transmission formula rate ROE reduced from 10.25 to 9.15 percent effective July 1, 2012. If implemented, the ROE reduction would reduce PSCo transmission and ancillary rate revenues by approximately $1.8 million annually. In October 2012, the FERC issued an order accepting the complaint, consolidating the complaint with the April 2012 formula rate change filing, establishing a refund effective date of July 1, 2012, and setting the complaint for settlement judge and hearing procedures.

In October 2013, PSCo and the wholesale customers filed a partial settlement that would resolve all issues related to the April 2012 transmission rate filing and June 2012 complaint other than ROE. The settlement is not expected to materially increase 2013 transmission revenues. In December 2013, the FERC approved the partial settlement. The ROE issue is now in an evidentiary hearing process. Initial testimony was filed in December 2013. PSCo filed testimony supporting the current ROE of 10.25 percent, while customers filed testimony recommending an ROE of 9.07 percent for the period July 2012 to November 2012, and an ROE of 8.92 percent thereafter. The case is scheduled for a hearing before an ALJ in May 2014, with the ALJ recommended decision by September 2014.