Rate Matters

Pending and Recently Concluded Regulatory Proceedings — CPUC

Colorado 2015 Multi-Year Gas Rate Case — In March 2015, PSCo filed a multi-year request with the CPUC to increase Colorado retail natural gas base rates by $66.2 million over three years. The request was based on a HTY ended June 30, 2014 adjusted for known and measurable expenses and capital additions for each of the periods in the MYP and an equity ratio of 56 percent. In addition, PSCo requested an extension of its PSIA rider through 2020 to recover costs associated with its pipeline integrity efforts. The rider would recover incremental revenue of $42.8 million over three years.

In July 2015, PSCo filed rebuttal testimony with adjustments and modified recovery between base rates and the PSIA rider. The revised request is summarized below:



(Millions of Dollars)	2015			2016 Step			2017 Step
PSCo’s filed base rate request	$	40.5		$	7.6		$	18.1
Shift O&M expenses between PSIA and base rates	—			7.0			6.4
Rebuttal corrections and adjustments	—			—			(7.7		)
Total base rate increase	$	40.5		$	14.6		$	16.8
Incremental PSIA rider revenues	(0.1		)	14.7			21.7
Total revenue impact from rebuttal	$	40.4		$	29.3		$	38.5
Requested ROE	10.1		%	10.1		%	10.3		%
Rate base	$	1,260		$	1,310		$	1,360

In November 2015, the ALJ issued his recommended decision, which reflected a 2014 HTY with a 13-month average rate base, the Cherokee pipeline investment adjusted to year-end rate base, a ROE of 9.5 percent and an equity ratio of 56.51 percent. In addition, the ALJ’s recommendation included a three-year extension (2016 through 2018) of the PSIA rider with all O&M expenses transferred to base rates as well as certain other projects shifting between the PSIA rider and base rates, beginning January 2016.

The ALJ also recommended that certain expenses, including property taxes and damage prevention costs that exceed the 2014 HTY level, be deferred. He further recommended a pension cost tracker and certain other deferral related items.

In February 2016, the CPUC issued their written order. Key matters are as follows:


•	2014 HTY, with a 13-month average rate base, with the exception of the Cherokee pipeline which is included at a year-end level;


•	Extension of the PSIA rider through 2018 with all O&M expenses transferred to base rates;


•	A ROE of 9.5 percent; and


•	An equity ratio of 56.51 percent.

The following table reflects the ALJ’s position and the CPUC’s written order (estimated):



(Millions of Dollars)	ALJ			CPUC’s Written Order
PSCo’s filed 2015 base rate request^(a)	$	40.5		$	40.5
ROE	(7.8		)	(7.8		)
Capital structure and cost of debt	(0.5		)	(0.5		)
Cherokee pipeline adjustment	4.1			4.1
Move to 2014 HTY	(14.1		)	(14.1		)
O&M expenses	(3.0		)	(2.4		)
Other, net	(1.1		)	(1.1		)
Overall recommended rate increase	$	18.1		$	18.7


^(a)	The ALJ’s recommendation and the CPUC’s written order also includes approximately $20.0 million of PSIA costs be transferred to base rates, effective Jan. 1, 2016.

The ALJ’s recommendation, as well as the CPUC’s written order for the PSIA rider, are as follows (estimated):



	ALJ						CPUC’s Written Order
(Millions of Dollars)	2016			2017			2016			2017
PSCo’s filed incremental PSIA request	$	21.7		$	21.2		$	21.7		$	21.2
Transfer PSIA costs to base rates	(20.5		)	—			(20.5		)	—
PSIA cost recovery remaining in base	(4.3		)	—			(4.3		)	—
Projects not recovered through the PSIA	(3.6		)	(2.0		)	(3.3		)	(0.8		)
ROE and capital structure	(0.3		)	(1.6		)	(0.3		)	(1.6		)
Total	$	(7.0	)	$	17.6		$	(6.7	)	$	18.8

The following table summarizes the estimated annual pre-tax impact of the CPUC’s written order:



(Millions of Dollars)	2015			2016			2017
Base rate increase	$	18.7		$	19.7		$	—
Incremental PSIA rider revenues	(0.2		)	(6.7		)	18.8
Expense deferrals, net amortization ^(a)	(3.6		)	1.5			5.2
Estimated pre-tax impact	$	14.9		$	14.5		$	24.0


^(a)	Deferral and amortization impacts relate primarily to recognition of accelerated amortization of prepaid pension assets and deferrals of pension expense in excess of the amount approved in the prior general gas rate case.

Interim rates, subject to refund, went into effect Oct. 1, 2015. PSCo has recognized management’s best estimate of the potential customer refund obligation.

Colorado 2015 Steam Rate Case — In November 2015, PSCo filed a request to increase Colorado retail steam rates by $3.5 million in 2016. In December 2015, the CPUC approved the filed request which recovers costs related to upgrades for the state steam plant as well as the Zuni Station and permits use of the Zuni Station exclusively for steam business. Final rates are implemented in two steps with $2.8 million, which began on Jan. 1, 2016, and the remaining $0.7 million which will be effective Nov. 1, 2016.

Annual Electric Earnings Test — In February 2015, in the Colorado 2014 Electric Rate Case, the CPUC approved an annual earnings test in which PSCo shares with customers earnings that exceed the authorized ROE threshold of 9.83 percent for 2015 through 2017. As of Dec. 31, 2015, PSCo has recognized management’s best estimate of the expected customer refund obligation for the 2015 earnings test of $15 million. PSCo will file its 2015 earnings test with the CPUC in April 2016. The final sharing obligation will be based on the CPUC approved tariff and could vary from the current estimate.

Electric, Purchased Gas and Resource Adjustment Clauses

DSM and the DSMCA — Energy efficiency and DSM costs are recovered through a combination of the DSMCA riders and base rates. DSMCA riders are adjusted biannually to capture program costs, performance incentives, and any over- or under-recoveries are trued-up in the following year. Savings goals were 384 GWh in 2014 and 400 GWh in 2015 with incentives awarded in the year following plan achievements. PSCo is able to earn $5 million upon reaching its annual savings goal along with an incentive on five percent of net economic benefits up to a maximum annual incentive of $30 million. For the years 2016 through 2020, the annual electric energy savings goal is 400 GWh per year with an annual spending limit of $84.3 million.

In July 2015, the CPUC approved PSCo’s 2015-2016 DSM plan:


•	A 2015 DSM electric budget of $81.6 million and a natural gas budget of $13.1 million; and


•	A 2016 DSM electric budget of $78.7 million and a natural gas budget of $13.6 million.

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 RESA regulatory asset balance. PSCo credited to the RESA regulatory liability balance approximately $5.5 million and $0.6 million in 2015 and 2014, respectively. The cumulative credit to the RESA regulatory liability balance was $110.6 million and $105.1 million at Dec. 31, 2015 and Dec. 31, 2014, respectively. The credits include the customers’ share of REC trading margins and the unspent share of carbon offset funds. The current sharing mechanism, without modification, extends through 2017.