Rate Matters

Except to the extent noted below, the circumstances set forth in Note 10 to the financial statements included in SPS’ Annual Report on Form 10-K for the year ended Dec. 31, 2015, appropriately represent, in all material respects, the current status of other rate matters, and are incorporated herein by reference.

Pending Regulatory Proceedings — Public Utility Commission of Texas (PUCT)

Texas 2015 Electric Rate Case — In December 2014, SPS filed a retail electric rate case in Texas seeking an overall increase in annual revenue of approximately $64.8 million, or 6.7 percent. The filing was based on a historic test year (HTY) ending June 2014, adjusted for known and measurable changes, a return on equity (ROE) of 10.25 percent, an electric rate base of approximately $1.6 billion and an equity ratio of 53.97 percent.

SPS requested a waiver of the PUCT post-test year adjustment rule which would allow for inclusion of $392 million (SPS total company) additional capital investment for the period July 1, 2014 through Dec. 31, 2014. In June 2015, SPS revised its requested rate increase to $42.1 million.

In December 2015, the PUCT made the following decisions:


•	Disallowed SPS’ proposed adjustment to jurisdictional allocation factors to reflect Golden Spread Electric Cooperative, Inc.’s wholesale load reductions from 500 MW to 300 MW, effective June 1, 2015;


•	Disallowed incentive compensation;


•	Approved an equity ratio of 51.00 percent instead of the actual 53.97 percent; and


•	A ROE of 9.70 percent.

The following table reflects the administrative law judges’ (ALJs’) position and PUCT’s decision:



	ALJs’ Proposal			PUCT
(Millions of Dollars)	for Decision			Decision
SPS’ revised rate request	$	42.1		$	42.1
Investment for capital expenditures — post-test year adjustments	(8.9		)	(8.9		)
Lower ROE	(6.3		)	(6.3		)
Lower capital structure	—			(3.7		)
Annual incentive compensation	(0.2		)	(0.3		)
O&M expense adjustments	(4.6		)	(4.6		)
Depreciation expense	(2.7		)	(2.7		)
Property taxes	(0.9		)	(0.9		)
Revenue adjustments	(1.1		)	(1.6		)
Wholesale load reductions	—			(11.5		)
SPP transmission expansion plan	(4.2		)	(4.2		)
Other, net	1.4			(1.2		)
Total, gross of rate case expenses	$	14.6		$	(3.8	)
Adjustment to move rate case expenses to a separate docket	(0.2		)	(0.2		)
Total, net of rate case expenses	$	14.4		$	(4.0	)
New depreciation rates	(11.2		)	(11.2		)
Earnings impact	$	3.2		$	(15.2	)

In January 2016, SPS filed its motion for rehearing on capital structure, incentive compensation and known and measurable adjustments, including wholesale load reductions and post test-year capital additions. In February 2016, the PUCT orally denied requests for rehearing. A second motion for rehearing was filed by SPS in March 2016. The PUCT took no action on the motions for rehearing and, as a result, the motions were overruled by operation of law. In April 2016, SPS filed an appeal of the PUCT’s order on rehearing.

Texas 2016 Electric Rate Case — In February 2016, SPS filed a retail electric, non-fuel rate case in Texas with each of its Texas municipalities and the PUCT requesting an overall increase in annual base rate revenue of approximately $71.9 million, or 14.4 percent. The filing is based on a HTY ended Sept. 30, 2015, a requested ROE of 10.25 percent, an electric rate base of approximately $1.7 billion, and an equity ratio of 53.97 percent. In April 2016, SPS revised its request to $68.6 million. The modification reflects actual results for the period of Oct. 1, 2015 through Dec. 31, 2015.

The following table summarizes the revised net request:



(Millions of Dollars)	Request
Capital expenditure investments	$	38.9
Change in jurisdictional allocation factors	9.8
Changes in ROE and capital structure	11.6
Estimated rate case expenses	4.5
Other, net	3.8
Total	$	68.6

Key dates in the procedural schedule are as follows:


•	Intervenor direct testimony — Aug. 16, 2016;


•	PUCT Staff direct testimony — Aug. 23, 2016;


•	PUCT Staff and Intervenors’ cross-rebuttal testimony — Sept. 7, 2016;


•	SPS’ Rebuttal testimony — Sept. 9, 2016; and


•	Hearings — Sept. 27 - Oct. 7, 2016.

The final rates established at the end of the case will be made effective relating back to July 20, 2016. A PUCT decision is expected in the first quarter of 2017.

Pending Regulatory Proceedings — New Mexico Public Regulation Commission (NMPRC)

New Mexico 2015 Electric Rate Case — In October 2015, SPS filed an electric rate case with the NMPRC seeking an increase in non-fuel base rates of $45.4 million. The proposed increase would be offset by a decrease in base fuel revenue of approximately $21.1 million. The decrease in base fuel revenue will be reflected in adjustments collected through the fuel and purchased power cost adjustment clause (FPPCAC). The rate filing is based on a June 30, 2015 HTY adjusted for known and measurable changes, a requested ROE of 10.25 percent, an electric jurisdictional rate base of approximately $734 million and an equity ratio of 53.97 percent.

On May 2, 2016, SPS, the NMPRC Staff and all other parties filed a unanimous black-box stipulation that resolves all issues in the case. Under the stipulation, SPS will implement a non-fuel base rate increase of $23.5 million and a decrease in base fuel revenue of approximately $21.1 million. The decrease in base fuel revenue will be reflected in adjustments collected through the FPPCAC. The stipulation places no restriction on when SPS may file its next base rate case.

The stipulation is subject to approval by the NMPRC. A decision by the NMPRC on the settlement and implementation of final rates is expected by August 2016.

Pending Regulatory Proceedings — Federal Energy Regulatory Commission (FERC)

SPP Open Access Transmission Tariff (OATT) Upgrade Costs — Under the SPP OATT, costs of participant-funded (or “sponsored”) transmission upgrades may be recovered, in part, from other SPP customers whose transmission service depends on capacity enabled by the sponsored upgrade. The SPP OATT has allowed SPP to collect charges since 2008, but to date SPP has not charged its customers any amounts attributable to these upgrades.

On April 1, 2016, SPP filed a request with the FERC to recover the charges not billed since 2008. The SPP has indicated the investment subject to the retroactive charges could total $720 million, but the SPP filing does not quantify the charges that might be billed to individual SPP transmission customers, including SPS. SPS could also collect revenues as it has constructed a sponsored upgrade. On April 22, 2016, SPS protested the SPP filing, arguing that SPP has failed to establish that it is justified. Due to the limited information available and lack of historical precedent, the potential loss to SPS, if any, is not currently estimable. No accrual has been recorded for this matter.