Rate Matters

Except to the extent noted below, the circumstances set forth in Note 11 to the consolidated financial statements included in PSCo’s Annual Report on Form 10-K for the year ended Dec. 31, 2013 appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending and Recently Concluded Regulatory Proceedings — CPUC

Colorado 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 forecast test year (FTY), a 10.5 percent return on equity (ROE), a rate base of $1.3 billion and an equity ratio of 56 percent. Interim rates, subject to refund, went into effect in August 2013.

In April 2013, PSCo 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 included amounts to be transferred from the Pipeline System Integrity Adjustment (PSIA) rider mechanism.

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 historic test year (HTY) with an end of year rate base and an equity ratio of 56 percent.

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
PSIA — base rate transfer to rider mechanism	(13.8		)
Incremental base revenue	$	15.8

Rates and conforming changes made to the PSIA were effective Jan. 1, 2014. In April 2014, the CPUC approved PSCo’s request to refund $6.6 million to customers, excluding amounts related to the PSIA rider mechanism. The refund represents the difference between the interim rates collected and the final approved rates and will be returned between April 2014 and March 2015.

Colorado 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 Office of Consumer Counsel (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. Final rates allowing a rate increase of $2.3 million annually 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 that exceed PSCo’s authorized ROE threshold of 10 percent. PSCo filed a tariff for the 2013 earnings test with the CPUC on April 30, 2014, proposing a refund obligation of $45.7 million to electric customers to be returned between August 2014 and July 2015. As of March 31, 2014, PSCo has also recognized management’s best estimate of an accrual for 2014.

Electric Commodity Adjustment (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 Administrative Law Judge (ALJ), will primarily consider if replacement power costs during outages of certain jointly owned facilities were properly allocated between wholesale and retail customers. A decision is anticipated later in 2014.

2012 PSIA Report — In April 2013, PSCo filed its 2012 PSIA report, requesting $43.5 million for recovery of expenditures. The OCC and CPUC Staff requested that 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 February 2014, PSCo, the CPUC Staff and the OCC agreed to a settlement amount of $43.4 million for recovery of 2012 expenditures, subject to final approval. This includes a one-time disallowance of approximately $0.1 million of operating and maintenance (O&M) expenditures in 2012 and an agreement not to disallow capital expenditures related to a pipeline replacement project. In March 2014, the ALJ waived the need for a hearing on the settlement. An ALJ recommended decision is anticipated later in 2014.

Electric, Purchased Gas and Resource Adjustment Clauses

Renewable Energy Credit (REC) Sharing — In 2011, the CPUC approved margin sharing on stand-alone REC transactions at 10 percent to PSCo and 90 percent to customers for 2014. 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 renewable energy standard adjustment (RESA) regulatory asset balance. PSCo’s credit to the RESA regulatory asset balance was not material for the three months ended March 31, 2014. For the three months ended March 31, 2013, PSCo credited the RESA regulatory asset balance $4.0 million. The cumulative credit to the RESA regulatory asset balance was $104.6 million and $104.5 million at March 31, 2014 and Dec. 31, 2013, respectively. The credits include the customers’ share of REC trading margins and the unspent share of carbon offset funds.

This sharing mechanism will be effective through 2014. The CPUC is then expected to review the framework and evidence regarding actual deliveries before determining whether 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 2014, the ALJ and the CPUC 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 was a decrease of approximately 7.4 percent, or $4.3 million, and was reflected in 2013 earnings.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

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 December 2013, the FERC approved a partial settlement resolving 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 2014 transmission revenues. The ROE issue is now subject to an evidentiary hearing process.

In March 2014, the FERC Staff filed testimony supporting an ROE of 8.91 percent for July 2012 to November 2012, and an ROE of 8.70 percent thereafter. The case is scheduled for a hearing before an ALJ in May 2014, with the ALJ recommended decision expected by September 2014.