BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION

Transcription

1 BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF SOUTHWESTERN PUBLIC SERVICE COMPANY S ENERGY EFFICIENCY COMPLIANCE APPLICATION THAT REQUESTS AUTHORIZATION TO: () PER APPROVED VARIANCE, CONTINUE ITS: (A) 0 ENERGY EFFICIENCY AND LOAD MANAGEMENT PROGRAMS FOR PLAN YEAR 0; (B) 0 ENERGY SAVINGS GOAL FOR PLAN YEAR 0; (C) ENERGY EFFICIENCY TARIFF RIDER TO RECOVER THE THREE PERCENT FUNDING LEVEL FOR PLAN YEAR 0 AND RECONCILIATION OF 0 EXPENDITURES AND COLLECTIONS; AND (D) 0 FINANCIAL INCENTIVE FOR PLAN YEAR 0 AND RECOVER THE INCENTIVE THROUGH ITS ENERGY EFFICIENCY TARIFF RIDER; AND () RECOVER THE 0 RECONCILED FINANCIAL INCENTIVE THROUGH THE ENERGY EFFICIENCY TARIFF RIDER. SOUTHWESTERN PUBLIC SERVICE COMPANY, APPLICANT. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CASE NO UT DIRECT TESTIMONY RUTH M. SAKYA on behalf SOUTHWESTERN PUBLIC SERVICE COMPANY July, 0

2 TABLE OF CONTENTS GLOSSARY OF ACRONYMS AND DEFINED TERMS... iii LIST OF ATTACHMENTS... v I. WITNESS IDENTIFICATION AND QUALIFICATIONS... II. ASSIGNMENT AND RECOMMENDATIONS... III. BACKGROUND... A. EUEA REQUIREMENTS... B. VARIANCE REQUESTED FOR SPS S APPLICATION... IV. 0 PROGRAM BUDGET DEVELOPMENT... V. SPS S 0 EE RIDER IS CONSISTENT WITH THE EUEA AND EE RULE... 0 A. DESCRIPTION AND CALCULATION OF THE 0 EE RIDER... 0 B. EE RIDER INTEREST... C. EE RIDER BILL IMPACTS... D. SPS S COMPLIANCE WITH OTHER EUEA REQUIREMENTS FOR THE EE RIDER... E. ADVICE NOTICE... VI. SPS s PROPOSED CONTINUATION OF THE 0 PY FINANCIAL INCENTIVE FOR THE 0 PY... VII. WACC CALCULATION FOR USE IN THE UCT... VERIFICATION... ii

3 GLOSSARY OF ACRONYMS AND DEFINED TERMS Acronym/Defined Term Meaning 0 Stipulation Stipulation approved by the Commission in Case No. -00-UT 0 Plan SPS s 0 Energy Efficiency and Load Management Plan Commission EE/LM EE Rider EE Rule EPE EUEA FERC GWh June th Order kwh PY PUA PUCT New Mexico Public Regulation Commission Energy Efficiency and Load Management Energy Efficiency Rider Energy Efficiency Rule,.. NMAC El Paso Electric Company Efficient Use Energy Act (NMSA, Sections -- through --) Federal Energy Regulatory Commission Gigawatt-hour Final Order Adopting Certification Stipulation in Case No. -00-UT Kilowatt-hour Program Year Public Utility Act (NMSA, Sections -- et seq.) Public Utility Commission Texas iii

4 Acronym/Defined Term SPS WACC Xcel Energy XES Meaning Southwestern Public Service Company, a New Mexico corporation Weighted Average Cost Capital Xcel Energy Inc. Xcel Energy Services Inc. iv

5 LIST OF ATTACHMENTS Attachment RMS- RMS- RMS- RMS- RMS- RMS-(CD) Description 0 EE Plan Budget and Incentive Calculation and 0 Under-Recoveries Proposed 0 Plan Year Revenue Requirement Bill Impact Each Component the Revenue Requirement Bill Impact Estimates at Different Levels Usage EE Tariff Rider Workpapers v

6 Case No UT I. WITNESS IDENTIFICATION AND QUALIFICATIONS Q. Please state your name and business address. A. My name is. My business address is 0 Ducale Drive SE, Rio Rancho, New Mexico. Q. On whose behalf are you testifying in this proceeding? A. I am filing testimony on behalf Southwestern Public Service Company, a New Mexico corporation ( SPS ) and wholly-owned electric utility subsidiary Xcel Energy Inc. ( Xcel Energy ). Xcel Energy is a registered holding company that owns several electric and natural gas utility operating companies, a regulated natural gas pipeline company, and transmission development companies. Q. By whom are you employed and in what position? A. I am employed by SPS, as Manager, Regulatory Policy. Xcel Energy is the parent company four utility operating companies: Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin corporation; Public Service Company Colorado, a Colorado corporation; and SPS. Xcel Energy s natural gas pipeline subsidiary is WestGas InterState, Inc. Through a subsidiary, Xcel Energy Transmission Holding Company, LLC, Xcel Energy also owns three transmission-only operating companies: Xcel Energy Southwest Transmission Company, LLC; Xcel Energy Transmission Development Company, LLC; and Xcel Energy West Transmission Company, LLC, all which are either currently regulated by the Federal Energy Regulatory Commission ( FERC ) or expected to be regulated by FERC.

7 Case No UT Q. Please briefly outline your responsibilities as Manager, Regulatory Policy. A. I am responsible for determining the appropriate regulatory policy for SPS. In this role, I direct and prepare comments, testimony, and briefing materials for policy matters impacting SPS. Among my responsibilities are SPS s renewable energy, energy efficiency, and load management matters before the New Mexico Public Regulation Commission ( Commission ) and the Public Utility Commission Texas ( PUCT ), including changes to the Commission s rules related to renewable energy, energy efficiency, and cost recovery riders. In carrying out my responsibilities regarding these matters, I have become familiar with the Commission s rules and applicable statutes affecting these areas. Q. Please describe your educational background. A. I graduated from the University Wyoming in with a Bachelor Science degree in Finance and, in 00, with a Master Science degree in Finance, with an emphasis in Regulatory Economics. I completed the coursework and successfully passed the qualifying exams toward a Ph.D. in Public Affairs from the University Colorado, Denver.

8 Case No UT Q. Please describe your pressional experience. A. I began my career in as an intern with the Illinois Commerce Commission and in 000 joined the PUCT as a Senior Policy Analyst. I have held various other positions, including Rate Analyst at a multi-jurisdictional electric and gas utility, and Senior Analyst and then Supervising Analyst with a consulting firm specializing in services to regulatory agencies and municipal entities. In 00, I accepted a position with Xcel Energy Services Inc. ( XES ) as Senior Rate Analyst. In 00, I accepted a position with XES as Manager, Regulatory Policy. Beginning January, 0, my position as Manager, Regulatory Policy was transferred to SPS, where my job responsibilities continue to be the same as they have been since 00. Q. Have you testified or filed testimony before any regulatory authorities? A. Yes. I have filed testimony before the Commission, the PUCT, and the Colorado Public Utilities Commission in numerous cases, including SPS s prior EE Plan filings. I have also testified before each these regulatory authorities regarding, among other things, the topics discussed in this direct testimony.

9 II. Case No UT ASSIGNMENT AND RECOMMENDATIONS Q. What is the purpose your testimony? A. The purpose my testimony is to support a modified version SPS s Application for its 0 energy efficiency and load management plan ( 0 Plan ), which is based on the Commission s approval a variance from Section the Commission s Energy Efficiency Rule (.. NMAC) that was granted on March, 0. The approved variance allows SPS to file a compliance filing for 0 rather than a full EE/LM plan filing. The modified EE/LM plan addresses the following topics: (a) reconciliation SPS s 0 Commission-approved incentive; (b) establish an incentive mechanism for the 0 program year ( PY ); (c) address the status report actual three percent collections in accordance with Section --(A) the Efficient Use Energy Act ( EUEA ) and forecasted three percent collections and request Commission approval for inclusion its over- or under-recovery program costs as either a regulatory asset (for under-recovery) or a regulatory liability (for over-recovery); and (d) address any EE program updates or modifications for the 0 PY. Case No UT, In the Matter Southwestern Public Service Company s Application Requesting Approval : () its 0 Energy Efficiency and Load Management Plan and Associated Programs; () Continuation its Energy Efficiency Tariff Rider and Recovery the Difference Between SPS s Plan Year 0 Collections and Expenditures through its Energy Efficiency Tariff Rider; and () a Financial Incentive for Plan Year 0 and Recovery the Incentive through its Energy Efficiency Tariff Rider, Order Granting Variance (Mar., 0).

10 Case No UT I address the first three items above. In addition, I address: () how SPS determined the funding level for its 0 PY Energy Efficiency and Load Management ( EE/LM ) Programs; () the calculation the 0 Energy Efficiency Rider ( EE Rider ); and () the appropriate weighted average cost capital ( WACC ) to use when calculating the cost-effectiveness EE/LM programs and the overall portfolio. Q. What specific topics do you address in your testimony? A. My testimony addresses the following: an introduction SPS s other witness in this case; a summary SPS s request for relief in this case; an explanation how SPS determined the funding level for its 0 PY EE/LM Programs, which, along with necessary adjustments, formed the basis for the budget for the 0 PY EE/LM Programs 0 the calculation the 0 EE Rider, which includes program and administrative costs, the proposed financial incentive, the reconciliation the 0 EE Rider, and the reconciliation prior period under-collections, and the resultant projected customer bill impacts; SPS s request to continue the same 0 PY incentive approved by the Commission for 0 PY; a reconciliation SPS s Commission-approved 0 PY incentive; a discussion the use after-tax WACC for UCT calculations; and

11 Case No UT the timing a status report actual 0 three percent collections and forecasted three percent collections and a request for Commission approval to include the over- or under-recovery program costs as either a regulatory asset (for under-recovery) or a regulatory liability (for over-recovery). 0 Q. Please introduce the other witness supporting SPS s 0 application. A. Donna A. Beaman supports and addresses the modifications to the 0 Commission-approved programs based on the 0 funding level (also referred to as the 0 PY budget). In addition, Ms. Beaman provides the calculation the earned 0 incentive and the proposed baseline 0 incentive. Q. Please summarize the requested relief in this case. A. Below, I provide a summary and cite which witness supports the requested relief. SPS s application requests the Commission: (a) approve SPS s request to continue its Commission-approved 0 PY EE/LM programs for 0 PY and authorize SPS to fund its 0 EE/LM programs at three percent customer bills (the three percent funding level ) in accordance with Section --(A) the EUEA and...(c)() NMAC; (Beaman) (b) approve SPS s request to continue its Commission-approved 0 energy savings goal for 0 PY; (Beaman) (c) approve the continuation for 0 PY the incentive mechanism the Commission approved for 0 PY and authorize recovery through SPS s EE Rider; (Sakya and Beaman)

12 Case No UT 0 (d) approve the reconciliation SPS s Commission-approved 0 PY incentive and recovery the under-recovered amount through SPS s EE Rider; (Sakya) (e) authorize a regulatory asset for the under-recovered difference between SPS s 0 PY EE collections and expenditures and to amortize the regulatory asset through a reduction to the 0 and 0 EE program funding levels in conformity with the stipulation approved by the Commission in Case No. -00-UT ( 0 Stipulation ); (Sakya) (f) approve an overall 0 EE Rider revenue requirement and authorization to recover these costs through SPS s EE Rider; (Sakya) and (g) grant all other approvals, authorizations, and relief that may be required under the EUEA, the Energy Efficiency Rule,.. NMAC ( EE Rule ), and the New Mexico Public Utility Act (NMSA, Sections -- et seq., PUA ) for SPS to implement the approved 0 Plan and EE Rider. Q. Is SPS submitting a 0 EE/LM Plan? A. No. As noted earlier, SPS is requesting the Commission-approved 0 PY EE/LM programs be continued for 0 PY. Thus, SPS is only providing updated appendices to the 0 PY Plan to show the impact the new three percent funding level for programs in 0 PY. Such an approach is consistent with the Commission s approval SPS s request to submit a modified EE filing for the 0 PY. The updated appendices are provided as attachments to the Donna A. Beaman. In addition, for ease reference, SPS

13 Case No UT has provided a copy SPS s 0 Annual EE Report as Attachment DAB-(CD) to Ms. Beaman s testimony. Q. Please summarize your testimony. A. My testimony demonstrates that SPS has reasonably estimated and should be allowed to establish its 0 EE Rider revenue requirement at $,,0, for a total 0 EE Rider rate.0 percent. The EE Rider is comprised three components. First, consistent with the EE Rule and 0 Stipulation, SPS established its 0 PY budget (i.e., program and administrative expenses) based on the lower three percent a customer s bill or $,000 per year per customer, excluding gross receipts taxes and franchise and right--way access fees (Section --(A)) (i.e., the three percent funding level ), adjusted for reconciliations required by the EE Rule and 0 Stipulation. The three percent funding level for 0 PY is $,,. Consistent with Section -- the EUEA and Section...(C) the EE Rule, the Commission should authorize SPS to collect its three percent funding through SPS s EE Rider. Next, SPS s request to continue the Commission-approved 0 PY financial incentive mechanism for the 0 PY should be approved as consistent

14 Case No UT with the EUEA and EE Rule. My testimony demonstrates that the Commission-approved 0 PY financial incentive mechanism provides SPS an opportunity to earn an incentive that appropriately encourages SPS to maximize EE/LM savings, while ensuring the majority the benefits inure to customers. The total financial incentive $, which includes the reconciliations authorized by the Commission through the 0 Stipulation, is reasonable and should be authorized for collection through the EE Rider. The third component the EE Rider Revenue requirement is the reconciliation prior period costs ($,0). These costs were approved for collection through the EE Rider by the Commission in Case No. -00-UT and are thus appropriately reconciled through the EE Rider. When considered together, the Commission should authorize a total revenue requirement $,,0 to be collected through the 0 EE Rider, subject to future reconciliation(s). Finally, my testimony addresses SPS s disagreement with the after-tax WACC required to be used, in its next EE case, by El Paso Electric Company

15 Case No UT ( EPE ) in Case No. -00-UT. While SPS provides alternative cost-effectiveness calculations in its filing using the after-tax WACC, the Commission should make any policy changes like this through a rulemaking. Q. Were Attachments RMS- through RMS- and certain workpapers contained in RMS-(CD) prepared by you or under your direct supervision and control? A. Yes. Q. Are the referenced documents included in Attachment RMS-(CD) true and correct copies the referenced documents? A. Yes. In the Matter the Application El Paso Electric Company for Approval 0 Energy Efficiency and Load Management Plan, Utility Incentive and Revised Rate No. Efficient Use Energy Recovery Factor, Case No. -00-UT, Final Order Approving Recommended Decision (Feb., 0).

16 Case No UT A. EUEA Requirements III. BACKGROUND Q. What are the EUEA general requirements for electric utilities? A. The EUEA requires public utilities to obtain cost-effective and achievable energy efficiency and load management, with energy reductions no less than five percent 00 retail sales by 0 and eight percent by 00 (Section --(G)). However, the Commission can find, with sufficient evidence, that a lower goal is appropriate (Section --(H)). Program funding is established at the lower three percent a customer s bill or $,000 per year per customer, excluding gross receipts taxes and franchise and right--way access fees (Section --(A)) (i.e., the three percent funding level ). In addition, a minimum five percent spending must be dedicated to cost-effective, low-income programs (Section --(A)). Finally, the Commission is required to identify and remove regulatory disincentives to EE/LM and provide an opportunity for utilities to earn a prit on cost-effective EE/LM programs (Section --(F)). Q. What are SPS s savings requirements pursuant to the EUEA? A. In 00, SPS s retail sales were,0, megawatt-hours. Therefore, the EUEA requirements equate to targets. gigawatt-hours ( GWh ) energy

17 Case No UT efficiency savings (at the customer meter) by 0 and 00 GWh by 00 (at the customer meter). In accordance with Section --(H) the EUEA, the Commission lowered SPS s 0 minimum cumulative savings requirements to. GWh (net customer). SPS met the EUEA 0 requirements. GWh in 0. SPS s 0 Plan, as discussed by Ms. Beaman, allows SPS to make reasonable and continued progress toward meeting the 00 requirement. B. Variance Requested for SPS s Application Q. How does the Commission s EE Rule relate to the EUEA? A. The EE Rule implements the EUEA by establishing specific requirements regarding annual applications and reports. However, as I mentioned earlier, the Commission granted SPS a variance, allowing SPS to file a modified application for 0. Case No. -00-UT, In the Matter Southwestern Public Service Company s Application for Approval its (A) 0 Energy Efficiency and Load Management Plan and Associated Programs, (B) Request for Financial Incentives for 0-0; (C) Cost Recovery Tariff Rider, and (D) Request to Establish Lower Minimum Savings Requirements for 0 under the Efficient Use Energy Act, Final Order Adopting Certification Stipulation (Jun., 0) ( June th Order ). See Certification Stipulation (Reissued as Corrected), FoF No. (Apr., 0), as adopted by June th Order.

18 Case No UT Q. Why did SPS seek a variance to submit a modified EE application for the 0 PY? A. SPS s intent was to streamline the processing EE/LM cases, while ensuring progress toward the EUEA goals was maintained. On January, 0, the Commission issued notice a rulemaking in Case No UT. At the time, the rule-making proposed new filing deadlines for utilities to submit annual applications under Section...(A). The proposed revisions to Section...(A) would have authorized a utility not to file an application in 0, but instead file in 0. While SPS favored extending the dates for filing EE applications, as a result the 0 Stipulation, SPS needed to submit some updates to the signatories and Commission. For example, under Section., SPS was obligated to submit a status report its calendar year collections as compared to its forecasted collections. Also: () under Section., SPS was to recover $, for a 0 PY under-recovery; and () under Section., SPS was to include $0, previously unreported collections from 0 PY as a part the 0 Case No UT, In the Matter Amending the Energy Efficiency Rule.. NMAC. On June, 0 the Commission issued an Order Adopting Final Rules Amending Rule.. NMAC On Energy Efficiency. The Commission s Order Adopting Final Rules Amending Rule.. NMAC On Energy Efficiency requires SPS to file an EE application every three years beginning in 0.

19 Case No UT PY reconciliation. Finally, under Section.(b), SPS agreed that EE/LM program budgets will be based on the most recent calendar year s actual three percent collections through customer bills, with limited known and measurable changes. Thus, there were items to update in the interim until the rulemaking was finalized and afterward, as a transition mechanism; therefore, SPS sought authorization to submit a modified EE/LM application for the 0 PY. Q. Is it fair to characterize the approved variance as allowing SPS to continue its 0 EE/LM programs until a full EE/LM is required by the EE Rule in 0? A. Yes, subject to updates for the new 0 PY program budget and to account for required reconciliations as per the 0 Stipulation. As Ms. Beaman describes, SPS s modified filing meets the objections the Commission to streamline the processing EE cases, while allowing SPS to remain on the trajectory meeting its 00 EUEA goals. Q. Has SPS complied with the requirement (...(B) NMAC) to post its annual report on a publicly accessible website? A. Yes. SPS s 0 Annual Report can be accessed at the following website: _Mexico_Demand-Side_Management.

20 Case No UT Q. Is SPS requesting removal regulatory disincentives in this proceeding under... NMAC? A. No. Q. Are there any audit costs to be recovered under... NMAC? A. No, not at this time. Q. Does SPS have any obligations or Commission directives from prior cases to address in this case? A. Yes. SPS has several obligations from prior cases that are addressed in this case. Ms. Beaman discusses each these obligations in her direct testimony.

21 IV. Case No UT 0 PROGRAM BUDGET DEVELOPMENT Q. What is SPS s 0 PY budget for program and administrative expenses? A. The 0 PY budget, or three percent funding level, is $,,. This amount only pertains to program and administrative expenses as authorized by the EUEA and...(c)() and...(b) NMAC. The performance incentive and other reconciliations are not included in the 0 PY budget and are discussed later in my testimony. Please refer to Attachment RMS- for the components the 0 PY budget. Q. How was the 0 PY budget developed? A. SPS developed its 0 PY budget consistent with the methodologies established by...(c) NMAC and Section.(b) the 0 Stipulation. Specifically, the 0 PY budget is determined through four calculations (see Attachment RMS-):. 0 PY Overage/Underage per the requirements...(e) NMAC (Lines -) $,0;. The difference between 0 PY actual collection versus actual expenses (NMSA, --(A)), which, consistent with the 0 Stipulation, is amortized over two-years $(0,00) (Lines -); The 0 budget was $,, and the 0 budget was $,,.

22 Case No UT. Prior period adjustments $(,) (Lines -); and. Determination the 0 projected program revenue $,, (Line ). Finally, interest was applied at the customer deposit interest rate (resulting in an additional $, (Line ) added to the 0 PY budget). In total, SPS derived a 0 PY budget $,, (Line ). Q. Beginning with Step, please describe the overage/underage calculation. A....(D) and (E) NMAC require a reconciliation SPS s Commission-approved budget (authorized funding) compared to actual expenditures. In 0, SPS s Commission-authorized funding was established at $,,, compared to spending $,0,, resulting in an underage $,0. In other words, SPS spent. percent its 0 Commission-authorized funding level. Consistent with...(e) NMAC, SPS added the underage to the 0 requested Commission-authorized funding. See Attachment RMS-, Lines through. Q. What was the next step in calculating the 0 PY budget? A. Next, SPS calculated the difference between spending and collection, in accordance with Section --(C) the EUEA and...(c) NMAC. In 0, SPS collected $,, and expended $,0,, for an under-collection

23 Case No UT 0 $0,0. Pursuant to Section., the 0 under-collection was amortized over a two-year period and applied as a reduction to the 0 PY budget. See Attachment RMS-, Lines through. Q. Please describe how the prior period adjustments impact the 0 PY budget. A. The 0 Stipulation addressed two prior-period adjustments: (i) the inclusion unrecognized 0 revenue; and (ii) amortization the 0 under-collection. In net, the prior period adjustments reduce the 0 PY budget by $,. See Attachment RMS-, Lines through. Q. Finally, how was the 0 projected program revenue determined? A. SPS: Determined its 0 revenue by multiplying rates by the number customer bills, kilowatt-hours ( kwh ), and kilowatt ( kw ) billed for usage in 0. Base rates were established by the Commission in Case No. -00-UT, fuel and purchased power expenses were based on projections for 0 (as presented in Case No. -00-UT), and the RPS Rider revenue was based on the 0 RPS Rider rate $0.00 per applicable kwh. The unadjusted result was $. million. The $. million in total revenue was adjusted to remove approximately $0. million in billings to large customers that would result in energy efficiency charges exceeding $,000 a year. This resulted in estimated 0 revenues applicable to the Energy Efficiency Rider totaling $. million.

24 Case No UT Finally, SPS multiplied the net result approximately $. million by three percent to determine the three percent funding level, which totals $,,. See Attachment RMS-, Line for the net result. Q. Were any other amounts added to the budget? A. Yes. SPS was authorized to apply interest at the customer deposit intrest rate per the stipulation in Case No. -00-UT (Section -- the PUA and..0.(b)()(a) NMAC). The net interest calculation resulted in an increase to the 0 PY budget $, (i.e., customers received interest). See Attachment RMS-, Line. The result each these steps results in a 0 PY budget $,,. See Attachment RMS-, Lines through.

25 Case No UT V. SPS S 0 EE RIDER IS CONSISTENT WITH THE EUEA AND EE RULE A. Description and Calculation the 0 EE Rider Q. What is SPS s proposed 0 PY revenue requirement? A. SPS proposes to collect $,,0 through its 0 EE Rider. Please refer to Attachment RMS-. Q. Does SPS currently have authorization to recover energy efficiency plan expenses through its EE Rider? A. Yes. Most recently in Case No. -00-UT, the Commission authorized the continuation SPS s EE Rider to recover EE/LM program costs and the 0 PY incentive, which is consistent with Section --(A) the EUEA and...(b) NMAC. SPS designs its EE Rider to recover its annual energy efficiency plan expenses over a -month period. Q. Is SPS proposing to recover its 0 program and administrative expenses through the EE Rider? A. Yes, SPS proposes to continue program and administrative expense recovery (i.e., the three percent funding) through the EE Rider. As I discussed in the previous section, the program and administrative expenses reflect the 0 PY three percent funding level, with adjustments as authorized by the EE Rule and the 0

26 Case No UT Commission s final order in Case No. -00-UT. The 0 PY budget for program and administrative expenses is $,, (Line ). Q. In addition to program and administrative expenses, are there any other components to the EE Rider? A. Yes. The EE Rider also includes: (i) an estimate the baseline 0 financial incentive (Line ); (ii) a reconciliation both the actual 0 financial incentive earned and 0 actual spending compared to collection (Lines and ); and (iii) a reconciliation prior period uncollected expenses, as authorized by the Commission in Case No. -00-UT (Lines -). Each these components is in addition to the three percent funding level. Q. How was the financial incentive calculated? A. First, Ms. Beaman provided me with the 0 baseline financial incentive. She provides the exact formula and derives the baseline incentive $,0. To the baseline incentive, there are two reconciling items which were added. First, actual revenue ($,) was compared to the 0 authorized baseline incentive ($,0) and interest was applied on the net monthly under-collection balance ($,); the result was an under-collection $, (Line ). Next the baseline incentive was compared to the earned incentive ($,0); the result

27 Case No UT was an under-collection $,. In net, the financial incentive component the revenue requirement is $, (Line ). Q. Is the financial incentive for the 0 PY subject to reconciliation? A. Yes. The amount that is actually collected for the incentive may deviate from the amount approved because the amount collected will be based on actual sales. In addition, the incentive mechanism is subject to adjustments due to the level spending on low-income EE/LM programs and SPS s ability to meet its SPS s 0 cumulative energy savings threshold. A reconciliation will ensure actual spending and achievements are incorporated into the incentive, thus ensuring only the incentive amount authorized is earned by SPS. Q. Discuss further the prior period uncollected expenses authorized by the Commission in Case No. -00-UT. A. On December, 0, SPS submitted an application to implement a surcharge 0.% through its EE Rider that enabled SPS to recover $,, representing its unrecovered: (i) 0 EE Tracker balance in the amount $,0,; (ii) 0 EE/LM program costs in the amount $,0; and (iii) Commission-authorized EE/LM incentives for 0 and 0 totaling $,. The Commission approved the request, except for $, interest, in an order

28 Case No UT issued on January 0, 0. SPS applied the surcharge from February, 0 through December, 0. Of the $,0,0 authorized for recovery (Line ), SPS collected $,,0 (Line ), with a resultant under-collection $,0 (Line ). Q. Does SPS request Commission approval to create a regulatory asset for the 0 PY under-collected expenses? A. Yes. Pursuant to Section. the 0 Stipulation, SPS seeks a regulatory asset for the under-collection $0,0 for the difference between spending and collection in 0. As set forth in Section., SPS seeks to amortize the amount equally over a two-year period. Q. Please identify the tariff schedules to which the 0 EE Rider is applied. A. The 0 EE Rider will be applied to all SPS s New Mexico retail rate schedules. This is appropriate because all customers have the opportunity to participate in SPS s EE programs. B. EE Rider Interest Q. Does SPS propose to apply interest to the EE Rider? A. Yes. SPS proposes to use the annual customer deposit interest rate set by the Commission under Section -- the PUA and..0.(b)()(a)

29 Case No UT NMAC to assess symmetrical carrying charges. In 0, SPS will use the new customer deposit interest rate set by the Commission. If SPS s expenditures exceed its revenues, then the carrying charges will be negative (SPS earns interest), whereas if the revenues exceed expenditures, the carrying charges will be positive (SPS pays interest). The inclusion interest on incentive reconciliations was most-recently approved by the Commission in Case No. -00-UT and has also been approved for SPS s renewable portfolio standard rider. Q. Why is it appropriate to calculate interest? A. Interest is appropriate due to the timing differences and application the reconciliation balance. That is, there will be a somewhat significant lag for the correction the EE Rider balance. For example, under SPS s proposal, the 0 balance will be calculated and reviewed in 0 and then collected/returned in 00. In total, there will be a two-year difference between the first accrual and the last balance. Accordingly, reasonable carrying charges (which are symmetrical between SPS and its customers) should continue to be applied.

30 Case No UT C. EE Rider Bill Impacts Q. What is the total bill impact the EE Rider on a residential customer s monthly bill, based on usage 0 kwh? A. At the adjusted funding level, excluding gross receipts tax and franchise fees, charges under the EE Rider account for approximately $.0 a month, or.0%, on a 0 kwh year-round average residential customer s bill. Attachment RMS- provides the percent bill impact each component the revenue requirement and Attachment RMS- includes bill impact estimates different levels usage for residential and other customers. Q. What impact will recovery the three percent funding level in the EE Rider have on a residential customer s monthly bill, based on usage 0 kwh? A. The three percent funding will account for.00 percent, or $.0 on the customer s bill. This is the total EE Rider bill impact not a comparison the current EE Rider to proposed EE Rider bill impact.

31 Case No UT Q. What impact will recovery the proposed incentive through the EE Rider have on a residential customer s monthly bill, based on usage 0 kwh? A. The incentive for 0 is estimated to have a 0. percent impact on customer bills (Attachment RMS-, Line ). For a 0 kwh year-round average monthly residential customer s bill, this would add approximately $0.. Q. What impact will the prior under-collected expenses through the EE Rider have on a residential customer s monthly bill, based on usage 0 kwh? A. The prior under-collected expenses $,0 is estimated to have a 0. percent impact on customer bills (Attachment RMS-, Line ). For a 0 kwh year-round average monthly residential customer s bill, this would add approximately $0.. Q. Is there a maximum amount that can be billed to individual customers for program costs under the EE Rider? A. Yes....(C)() NMAC establishes funding for program costs for investor-owned electric utilities at three percent customer bills or $,000 per year, whichever is less. The EUEA defines a customer as a utility customer at a single, contiguous field, location or facility, regardless the number meters at that field, location or facility. (Section --(D)).

32 Case No UT Q. What customers can potentially exceed $,000 in annual billings under the EE Rider? A. Based on current rates and SPS s specific customer demographics, at a three percent EE Rider rate, customers that are billed more than $. million in a year are potential candidates for EE Rider billings $,000 per year. Only a small number customers are billed a total at least $. million in a year, and as a result, only a small number customers may potentially reach the $,000 annual cap. These customers generally fall into the Large General Service Transmission or Primary General Service customer class. Q. Has SPS developed a representative customer impact analysis? A. Yes. Table RMS- shows how the proposed EE Rider will impact representative customers in each rate class. The monthly bill is based on SPS s present rates. $,000 three percent cap on Energy Efficiency billing = $. million.

33 Case No UT Table RMS-: Average Customer Impacts by Rate Schedule Rate Schedule Residential Service -- 0 kwh Small General Service --,00 kwh Secondary General Service -- 0 kw; 0,000 kwh Large General Service Transmission --,000 kw; 00,000 kwh Monthly Bill excluding EE Rider Total Monthly EE Rider Charge Total Monthly EE Rider Charge as % Bill $. $.0.0% $. $..0% $,. $..0% $,.0 $,..0% Q. When will the EE Rider be implemented? A. As noted above, the EE Rider will be implemented upon issuance and in conformity with an order by the Commission approving the 0 Plan, but no earlier than January, 0. Q. How does the amount being collected currently in the 0 EE Rider compare to the amount requested for recovery the 0 EE Rider? A. At.0 percent customer bills, the proposed 0 EE Rider is higher than the current.0 percent EE Rider, which is primarily a result prior period undercollections.

34 Case No UT 0 D. SPS s Compliance with other EUEA Requirements for the EE Rider Q. Are there other requirements related to tariff riders under the EUEA and EE Rule? A. Yes. Section --(A) the EUEA and...(c)() NMAC require tariff riders, unless otherwise ordered by the Commission, to include a message on customer bills explaining program benefits EE/LM programs. SPS proposes to continue to include the following message on all customer bills to address this requirement: Energy Efficiency programs result in cost savings and benefit the environment. For every $.00 spent on energy efficiency programs, customers save nearly double that amount over time on the cost providing electricity. Customers who participate in programs will save even more. Learn more about these programs and rebates that may be available to you at SPS has used this same language in several prior energy efficiency filings. A copy the proposed tariff rider is Attachment RMS- to my direct testimony. E. Advice Notice Q. Is SPS filing an advice notice with its application? A. Yes. Consistent with...(c)() NMAC, SPS has filed an advice notice concurrently with its application, which requires the Commission to act on SPS s

35 Case No UT advice notice within 0 days filing, unless suspended for not more than 0 days. In accordance with the EE Rule, SPS has served all individuals and entities required by... NMAC. F. Status Report 0 Calendar Year Collections Compared to Forecasted Collections Q. Have you provided a status report the 0 Calendar Year Collections Compared to Forecasted Collections as required under Section. the 0 Stipulation? A. Not at this time. SPS will submit the required comparison in July or August, once it has accounting data through June. At that time, SPS will have a more-comprehensive analysis with which to provide an update and any needed recommendations. 0

36 VI. Case No UT SPS s PROPOSED CONTINUATION OF THE 0 PY FINANCIAL INCENTIVE FOR THE 0 PY Q. What do you discuss in this section your testimony? A. This section my testimony: presents SPS s proposed incentive mechanism for 0 PY, which is identical to the currently-effective incentive mechanism approved by the Commission through the 0 Stipulation; and demonstrates the reasonableness the proposed approach. Q. Does Ms. Beaman also discuss incentives? A. Yes. In her testimony, Ms. Beaman outlines the proposed methodology for calculating SPS s proposed incentives and the resulting 0 projected incentive. Again, this methodology is exactly the same as approved by the Commission for the 0 PY. Q. Does SPS s proposed incentive comport with the EUEA requirements? A. Yes. Consistent with the EUEA, the proposed incentive: (i) provides an opportunity (not guarantee) for SPS to earn an incentive; (ii) is based on actual performance, where performance is measured by EUEA spending and achievement goals; and (iii) at this time, provides a satisfactory basis to prefer demand-side over supply-side resources.

37 Case No UT Q. How does the incentive properly balance the interests customers with that SPS? A. As required by...(l)() NMAC, the proposed incentive does not exceed the product (in dollars) SPS s WACC multiplied by annual program costs. As proposed, the 0 baseline incentive is $,0, while the calculated incentive cap is $, (see Table RMS-). Under SPS s proposal,.0 percent is the baseline incentive percentage SPS could earn, while the maximum incentive could be $, (. percent ) if SPS exceeds its annual energy savings forecast, which is less than the maximum authorized by the EE Rule. Therefore, the incentive properly balances the interests customers with that SPS. Table RMS-: Incentive Cap Calculation Approved WACC (%).% Multiplied by Annual Program Costs ($) $,, Equals Annual Incentive Maximum ($) $, $,0/$,,. $,/$,,. Case No UT, In the Matter Southwestern Public Service Company s Application for Revision its Retail Rates Under Advice Notice No., Final Order Partially Adopting Recommended Decision, Ordering (Mar., 0). This was the last rate case where a return on equity was specifically approved. Case No. -00-UT was resolved through a settlement.

38 Case No UT Q. Please elaborate on how customers retain the vast majority the energy savings benefits under the proposed incentive. A. Table RMS- quantifies the customer share the estimated benefits $,0, under the proposed incentive. Table RMS-: Customer Share Calculation SPS Share Customer Share Amount Benefits $,0, Base Incentive $,0.%.% Maximum Incentive $,.%.% Q. Does the proposed incentive meet the satisfactory performance criteria...(l) NMAC? A. Yes. The minimum cumulative energy savings threshold (equal to GWh) is the cumulative amount SPS needs to achieve by the end 0 to maintain a trajectory to meet the mandated percent 00 retail sales by 00. In addition, the incentive mechanism authorizes additional incentive amounts between.0 percent and. percent if SPS exceeds the minimum cumulative energy savings threshold.

39 VII. Case No UT WACC CALCULATION FOR USE IN THE UCT Q. Ms. Beaman provided alternative UCT calculations using the after tax WACC as required in EPE s EE proceeding, Case No. -00-UT. What was your understanding why EPE was required to use the after tax WACC to calculate UCTs in its future EE applications? A. The Commission adopted the Recommended Decision in Case No. -00-UT, which stated, A utility s actual cost capital, and the amount paid by ratepayers, is not the Commission-approved WACC, but is the tax-adjusted WACC. Therefore, if EPE uses its WACC to discount costs in calculating the UCTs its EE/LM programs, it should use its PRC-approved WACC grossed up to incorporate EPE s payment taxes on the equity component and the adjusted down to reflect tax deductions that EPE receives for its interest payments on the debt component. [] (emphasis added) Q. When you say after tax WACC, to what are you referring? A. As emphasized in the citation from the Recommended Decision in Case No. -00-UT, I m referring to the WACC that is grossed up to [] In the Matter the Application El Paso Electric Company for Approval 0 Energy Efficiency and Load Management Plan, Utility Incentive and Revised Rate No. Efficient Use Energy Recovery Factor, Case No. -00-UT, Final Order Approving Recommended Decision (Feb., 0), Recommended Decision at and.

40 Case No UT incorporate payment taxes on the equity component and then adjusted down to reflect tax deductions for interest payments on the debt component. Q. How is the WACC used for determining cost-effectiveness EE/LM programs? A. The WACC is the discount rate used by SPS in determining the cost-effectiveness EE/LM programs. Q. When determining cost-effectiveness, to what are the EE/LM programs compared? A. The EE/LM programs are compared to supply-side resources. Under NMSA, --(K), in calculating a program s UCT, a utility compares the monetary costs incurred to develop, acquire, and operate EE or LM resources on a life cycle basis with the estimated avoided monetary costs associated with developing, acquiring, and operating associated supply-side resources. Q. Does the after tax WACC reflect the monetary costs associated with developing, acquiring, and operating supply-side resources? A. No. The unadjusted WACC reflects the costs SPS considers for developing, acquiring, and operating supply-side resources. Thus, the decision in the EPE case results in an inconsistent comparison where the after tax WACC is used to

41 Case No UT determine the costs the EE/LM programs but are not used for determining the costs for developing, acquiring, and operating supply-side resources. Q. Does the use the after tax WACC create a mismatch for the cost equity and after-tax cost debt? A. Yes. The WACC is a blend the cost equity and after-tax cost debt. The WACC is calculated by multiplying the cost each capital source (debt and equity) by its relevant weight, and then adding the products together to determine the WACC value. However, the EPE decision results in a mismatch between the two capital components, because one component (equity) is grossed up for taxes and the other (debt) is reduced for taxes. Q. Has SPS ever used the after tax WACC to determine the cost-effectiveness its EE/LM programs in past EE applications with the Commission? A. No, and prior programs have been approved by the Commission as costeffective. Thus, the decision in EPE s case would represent a change in practice or policy for SPS. If the Commission wants to make a change in policy, it should do so through a rulemaking.

42 Case No UT Q. Does SPS use unadjusted, Commission-approved WACC, (i.e., not grossed up to incorporate payment taxes on the equity component and then adjusted down to reflect tax deductions) in other regulatory filings before the Commission? A. Yes. For example, in SPS s supply-side analysis provided in its currently-pending wind acquisition certificate convenience and necessity case (Case No UT), SPS used the WACC that is not grossed up to incorporate payment taxes on the equity component and then adjusted down to reflect tax deductions for interest payments on the debt component. SPS also uses the unadjusted, Commission-approved WACC as the criteria under...(l)() NMAC to show that the proposed incentive does not exceed the WACC. Q. Do any Xcel Energy Operating Companies use the after-tax WACC to assess the cost-effectiveness EE/LM programs in other regulatory jurisdictions? A. Ms. Beaman addresses this in her testimony, but the answer is no. All Xcel Energy Operating Companies use the same practice SPS has used historically in New Mexico. Thus, if EPE s decision were adopted for SPS, New Mexico would be the only jurisdiction that requires the use the after tax WACC.

43 Case No UT Q. Does this conclude your pre-filed direct testimony? A. Yes.

44

45 Attachment RMS- Page Case No UT Southwestern Public Service Company EE Program Budget Calculation For PY 0 Line No. Description Amount Notes. Calculate Overage/Underage per...(e) NMAC Authorized 0 Budget $,,.00 Per Stipulation, Section. at Acutal 0 Spend,0,. (Overage)/Underage (L - L) $,0..0% budget. Reconcile Collections Versus Spending ( (A)) 0 Program Revenue $,,. Less 0 Actual Spend,0,. 0 Undercollection (L - L) $ (0,0.0) -Year Amortization (L/) $ (0,0.) Per Stipulation, Section. at. Prior Period Adjustments 0 Program Revenue (-Year Amortization, as 0) $,0. Per Stipulation, Section. at 0 Undercollection Amortization (,.00) Per Stipulation, Section. at Total Prior Period Adjustments (L + L) $ (,.). Budget Calculation 0 Projected Revenue $,,. Per Stipulation, Section.(b) at 0 Plus (Overage)/Underage (L),0. Plus Undercollection (L) (0,0.) Plus Period Period Adjustments (L) (,.) Budget, before Interest (Sum L:) $,,0.0 Plus Interest (.%/*Avg. Monthly Balance),.0 At Annual Customer Deposit Rate Total Budget (L + L) $,,.0

46 Attachment RMS- Page Case No UT Southwestern Public Service Company EE Revenue Requirement Calculation For PY 0 Line No. Description Amount Notes Program Budget 0 Program Budget $,,.0 Attachment RMS-, Line Incentive 0 Baseline Incentive v. Actual Collection (Under-Collection) $,. Case - Stip, Sec, as Modified 0 Baseline Incentive v. Earned Incentive (Under-Collection),.00 Case - Stip, Sec, as Modified 0 Baseline Incentive,0.00 Beaman Direct Total Incentive $,. Prior Period Reconciliation per Case No. -00-UT Authorized Recovery $,0,0.00 Excludes Interest per Final Order Actual Recovery in 0,,0.0 Under-recovery Prior Period Reconciliation $,.0 Total Revenue Requirement Program Budget (L) $,,.0 Incentive (L),. Prior Period Reconciliation (L),.0 Total Revenue Requirement (Sum L:L) $,,0.

47 Attachment RMS- Page Case No UT Southwestern Public Service Company EE Rider - Percent Bill Calculations For the 0 EE Rider Line No. Description Amount Notes Calculation Financial Incentive as a Percent Bill 0 Projected Revenue $,, Attachment RMS-, Line % Funding Requirement.00% Revenue Attributed to EE, Net Caps $,,00 Line / Line Financial Incentive $, Attachment RMS-, Line Financial Incentive as a Percent Bill 0.% Line / Line Calculation Historical Reconciliation as a Percent Bill Revenue Attributed to EE, Net Caps $,,00 Line Under-Recovery Prior Period Reconciliation $,0 Attachment RMS-, Line Historical Reconciliation as a Percent Bill 0.% Line / Line Summary 0 Rider Rate Calculation 0 Program Funding Percent Bill.000% Line 0 Base Financial Incentive Percent Bill 0.% Line Historical Reconciliation as a Percent Bill 0.% Line 0 Rider Rate as a Percent Bill.0%

48 Southwestern Public Service Company Bill Impact Presentation For the 0 EE Rider Attachment RMS- Page Case No UT Residential Service Annualized Monthly Bill Bill Change Including 0 EE 0 EE Proposed Proposed Rate (.0%) Rate (.0%) $ Change % Change Consumption Level Present kwh $. $.0 $ % 0 kwh $. $. $ % 00 kwh $. $.0 $ 0. 0.% 0 kwh $. $. $ 0. 0.% 00 kwh $. $.0 $ 0. 0.% 000 kwh $ 0. $ 0. $ % Small General Service Annualized Monthly Bill Bill Change Including 0 EE 0 EE Proposed Proposed Rate (.0%) Rate (.0%) $ Change % Change Consumption Level Present kwh $. $.0 $ % 0 kwh $. $. $ 0. 0.% 00 kwh $. $. $ 0. 0.% 0 kwh $. $. $ % 00 kwh $.0 $. $ 0. 0.% 000 kwh $. $. $ 0. 0.%

49 Southwestern Public Service Company Bill Impact Presentation For the 0 EE Rider Attachment RMS- Page Case No UT Secondary General Service Annualized Monthly Bill Bill Change Including 0 EE 0 EE Proposed Proposed Rate (.0%) Rate (.0%) $ Change % Change Consumption Level Present kw; 000 kwh $ 0. $ 0. $ % kw; 00 kwh $. $.0 $. 0.% kw; 000 kwh $. $. $.0 0.% 0 kw; 0 kwh $.0 $. $. 0.% 0 kw; 00 kwh $,0. $,0. $.00 0.% 0 kw; 0000 kwh $,. $,. $. 0.% Large General Service Transmission ( kv)* Annualized Monthly Bill Bill Change Including 0 EE 0 EE Proposed Proposed Rate (.0%) Rate (.0%) $ Change % Change Consumption Level Present kw; kwh $,.0 $,. $. 0.% 000 kw; kwh $,. $,. $. 0.% 000 kw; 0000 kwh $,. $,.0 $ % 000 kw; kwh $,. $,. $ 0. 0.% 000 kw; kwh $,. $,. $. 0.% 000 kw; kwh $,. $,. $ % * Section...(C)() the EE Rule establishes funding for program costs for investor-owned electric utilities at three percent customer bills or $,000 per year, whichever is less.

50 Attachment RMS- Page Case No UT

51 Attachment RMS- Page Case No UT

52 Attachment RMS- Page Case No UT CASE NO UT IN THE MATTER OF SOUTHWESTERN PUBLIC SERVICE COMPANY S ENERGY EFFICIENCY COMPLIANCE APPLICATION THAT REQUESTS AUTHORIZATION TO: () PER APPROVED VARIANCE, CONTINUE ITS: (A) 0 ENERGY EFFICIENCY AND LOAD MANAGEMENT PROGRAMS FOR PLAN YEAR 0; (B) 0 ENERGY SAVINGS GOAL FOR PLAN YEAR 0; (C) ENERGY EFFICIENCY TARIFF RIDER TO RECOVER THE THREE PERCENT FUNDING LEVEL FOR PLAN YEAR 0 AND RECONCILIATION OF 0 EXPENDITURES AND COLLECTIONS; AND (D) 0 FINANCIAL INCENTIVE FOR PLAN YEAR 0 AND RECOVER THE INCENTIVE THROUGH ITS ENERGY EFFICIENCY TARIFF RIDER; AND () RECOVER THE 0 RECONCILEDFINANCIAL INCENTIVE THROUGH ITS ENERGY EFFICIENCY TARIFF RIDER. Attachment RMS-(CD)