DOCKET NO. APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY FOR AUTHORITY TO CHANGE RATES PUBLIC UTILITY COMMISSION OF TEXAS DIRECT TESTIMONY of JENNIFER S. PYTLIK on behalf of SOUTHWESTERN PUBLIC SERVICE COMPANY (Filename: PytlikRRDirect.doc) Table of Contents GLOSSARY OF ACRONYMS AND DEFINED TERMS... I. WITNESS IDENTIFICATION AND QUALIFICATIONS... II. ASSIGNMENT AND SUMMARY OF TESTIMONY AND RECOMMENDATIONS... III. SPONSORED OR CO-SPONSORED SCHEDULES... IV. ACCOUNTING PROCEDURES FOR THE COST OF SERVICE... V. ACCOUNTING FOR BAD DEBT EXPENSE... AFFIDAVIT... Pytlik Direct Revenue Requirement Page RR - Page of 000
GLOSSARY OF ACRONYMS AND DEFINED TERMS Acronym/Defined Term ASC Commission FERC GAAP MWh PSCo RFP SPS Meaning Accounting Standards Codification Public Utility Commission of Texas Federal Energy Regulatory Commission Generally Accepted Accounting Principles Megawatt-hour Public Service Company of Colorado, a Colorado corporation Rate Filing Package Southwestern Public Service Company, a New Mexico corporation Test Year October, 0 through September 0, 0 Update Period October, 0 through December, 0 Xcel Energy XES Xcel Energy Inc. Xcel Energy Services Inc. Pytlik Direct Revenue Requirement Page RR - Page of 00
DIRECT TESTIMONY OF JENNIFER S. PYTLIK 9 0 I. WITNESS IDENTIFICATION AND QUALIFICATIONS Q. Please state your name and business address. A. My name is Jennifer S. Pytlik. My business address is 00 Larimer Street, th Floor, Denver, Colorado 00. Q. On whose behalf are you testifying in this proceeding? A. I am filing testimony on behalf of Southwestern Public Service Company, a New Mexico corporation, ( SPS ) and wholly-owned electric utility subsidiary of 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 three electric transmission companies. Q. By whom are you employed and in what position? A. I am employed by Xcel Energy Services Inc. ( XES ), the service company subsidiary of Xcel Energy. My position is Director, Utility Accounting. Q. Please briefly outline your responsibilities as Director, Utility Accounting. A. I am responsible for managing accounting personnel performing accounting and financial services related to SPS. My teams support the regulatory, transmission, and market operations accounting functions. Xcel Energy is the parent company of four utility operating companies: Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin corporation; Public Service Company of Colorado ( PSCo ), a Colorado corporation; and SPS. Xcel Energy s natural gas pipeline company 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 of which are either currently regulated by the Federal Energy Regulatory Commission ( FERC ) or expected to be regulated by FERC. Pytlik Direct Revenue Requirement Page RR - Page of 00
9 0 9 0 Q. Please describe your educational background. A. I obtained a Bachelor of Arts degree in Business Economics from the University of California, Santa Barbara, in 00, and a Master of Business Administration degree from North Dakota State University in 00. Q. Please describe your professional experience. A. I have been employed by XES since 00 and have held various finance and accounting positions within the company. In 00, I started at XES in the Commercial Accounting organization as a Financial Analyst. I was promoted to Senior Financial Analyst in 00 and Principal Financial Consultant in 00. In Commercial Accounting, I was responsible for the accounting and reporting related to PSCo commodity purchases and transport for natural gas, coal, and electricity. In 00, I was selected for the Rotational Program within the Controller s organization. I completed rotations in Commercial Accounting, Corporate Accounting, External Reporting, Regulatory Accounting, Retail Accounting, and Transmission Accounting. In these rotations, I gained knowledge of the regulatory environment and rate structure, deferred accounting, budget create and forecasting, technical contract review and accounting, and Securities and Exchange Commission reporting. In 00, after the Rotational Program, I joined the Transmission Accounting team as a Principal Financial Consultant. In 0, I was promoted to Manager, Transmission Accounting. In that capacity, I was responsible for budgeting, forecasting, margin reporting, and accounting activities related to Pytlik Direct Revenue Requirement Page RR - Page of 00
wholesale transmission revenue. In addition, I performed the same duties for XES s Commercial Operations organization related to its transmission expenses incurred through the use of third-party transmission assets to support the movement of energy. I assumed my current position in August 0. Prior to joining XES, I worked as a General Ledger Accountant at StarTek, Inc. from 00 to 00. StarTek, Inc. was a business process outsourcing services company. In this role, I was responsible for month-end close duties, special projects, and process improvement initiatives. Pytlik Direct Revenue Requirement Page RR - Page of 00
II. ASSIGNMENT AND SUMMARY OF TESTIMONY AND RECOMMENDATIONS 9 Q. What is your assignment in this proceeding? A. First, I will describe the accounting methods used to record base rate expenses on SPS s books for the period October, 0 through September 0, 0 ( Test Year ). Second, I will describe SPS s method for accounting for bad debt and support the amount of bad debt, or uncollectible, expense included in SPS s request. Additionally, I sponsor or co-sponsor as the accounting witness the following Schedules in SPS s Rate Filing Package ( RFP ): Schedule E. Schedule G Schedule H,,.,.a,.b,.c,.d,.,.a,.b,.c,.,.a,.b,.c,.d,.e,,.,.a,.b,.,.,, 0,,, and.,.a,.c,.b,.c,.d, and.e Schedule I.,., and. Schedule J 0 In addition, I sponsor or co-sponsor the portions of the Executive Summary that contain information from these Schedules. Q. Will your testimony be updated for actual costs incurred in the three months following the Test Year, October through December 0? A. No, however, information related to my testimony will be. As discussed by SPS witness Evan D. Evans, SPS will file an update days after filing this application, which will include updates to replace estimates of certain costs and investments incurred in the time period of October, 0 to December, 0, Pytlik Direct Revenue Requirement Page RR - Page of 00
9 0 9 0 referred to as the Update Period, with actuals. In this case update filing, SPS will also provide updates to certain schedules as required in the RFP instructions. For example, Schedule G-, which I sponsor in part, will be updated with information available after September 0, 0, the end of the Test Year in this case. The update will provide all information available for the period after the Test Year end but not previously provided in the RFP. Q. Please summarize your testimony and conclusions. A. SPS has properly accounted for its revenues and operating expenses using Generally Accepted Accounting Principles ( GAAP ) and recorded such revenues and expenses in accounts prescribed by FERC s Uniform System of Accounts. Regulatory liabilities and assets have been accounted for and amortized in accordance with Financial Accounting Standards Board Accounting Standards Codification ( ASC ) 90, Regulated Operations, (formerly Statement No. ). In addition, SPS incurs bad debt expense when customers fail to pay their bills. SPS s write-off policy requires specific action a write-off or further collection efforts when a customer account is 9 working days past the final bill due date. SPS is requesting $,, (total company) of bad debt expense in this case. Q. Do you incorporate the portions of SPS s RFP schedules you sponsor or co-sponsor into this testimony? A. Yes. Pytlik Direct Revenue Requirement Page RR - Page of 00
III. SPONSORED OR CO-SPONSORED SCHEDULES Q. What topic do you discuss in this section of your testimony? A. In this section of my testimony, I describe the RFP schedules that I sponsor or co-sponsor. Q. Please describe the RFP schedules that you sponsor and co-sponsor in this proceeding. A. The following chart provides the RFP schedules that I sponsor and co-sponsor along with an explanation of the information contained in the schedules. Schedule E-.: Short Term Assets Policies G-: Bad Debt Expense Content Provides a schedule detailing all changes in policy of accounting for the book balances for all items included in Schedule E-. I co-sponsor this schedule with SPS witness Arthur P. Freitas. I sponsor information related to accounting policies. Provides: SPS s policy of writing off bad debts; the methodology for calculating bad debt expense; the monthly amount of revenues, corresponding uncollectible expense, and the amount of net bad debts written off for three prior years and the Test Year; and provides an explanation of any monthly fluctuation in uncollectible expense and net write-offs greater than %. I co-sponsor this schedule with SPS witness S. Michelle Edwards. I sponsor the accounting for bad debt expense reflected on the schedule. Pytlik Direct Revenue Requirement Page RR - Page of 00
Schedule Content G- Series The G- series of schedules presents advertising, contributions, and dues expenses subject to the 0.% limitation required by Tex. Admin. Code.(b)()(E). Detailed information related to Advertising, Contributions & Donations, and Membership Dues Expenses is provided on the G- schedules. I co-sponsor these schedules with Mr. Evans. I sponsor the accounting of the expenses reflected on these schedules. G-: Summary of Exclusions from Test Year Expense G-.: Analysis of Legislative Advocacy G-.a: Payments to Registered Lobbyists G-.b: Payments for Monitoring Legislation G-.: Summary of Penalties and Fines G-.: Other Exclusions Provides a summary of all Test Year expenditures in specific categories to be excluded both above and below the line. I co-sponsor this schedule with Mr. Freitas. I sponsor the accounting of the exclusions reflected on the schedule. Provides a line item detail of advocacy expense. I co-sponsor this schedule with Mr. Evans. I sponsor the accounting of the expenses reflected on this schedule. Provides a summary of payments to individuals registered to lobby for SPS during the Test Year. These costs are not requested in SPS s cost of service. Provides a summary of all payments to individuals or firms who monitored legislation for SPS during the Test Year. I co-sponsor this schedule with Mr. Evans. I sponsor the accounting of the expenses reflected on this schedule. Provides a summary of all penalties and fines included in Test Year expense. I co-sponsor this schedule with Mr. Freitas. I sponsor the accounting for the penalties and fines. Provides a summary of other exclusions related to political organizations not shown in Schedules G-.d, G-.e, G-., and G-.. I co-sponsor this schedule with Mr. Freitas. Pytlik Direct Revenue Requirement Page 9 RR - Page 9 of 00
Schedule G-: Outside Services Employed - FERC 900 Series Expenses G-0: Factoring Expense G-: Deferred Expense from Prior Dockets G-: Below the Line Expenses G-: Monthly O&M Expense H-.: Supply and Load Data Content Provides information on all outside services SPS used during the Test Year that appear in FERC 900 series accounts. I co-sponsor this schedule with Mr. Evans. Provides information on factoring expense. This schedule is not applicable because SPS does not sell any of its accounts receivable to a third party. Provides information concerning all amortization expense either included in the Test Year or requested in SPS s application. I co-sponsor this schedule with Mr. Freitas and SPS witness Ruth M. Sakya. I sponsor the accounting of the expenses reflected on this schedule. Provides a complete detailed analysis of all expenses charged below the line during the Test Year. I co-sponsor this schedule with Mr. Freitas. I sponsor the accounting of the expenses reflected on this schedule. Provides SPS s operations and maintenance expense according to each account within the Uniform System of Accounts. I co-sponsor this schedule with Mr. Freitas. I sponsor the accounting of the expenses reflected on this schedule. Provides SPS s supply and load data on the prescribed form. I co-sponsor this schedule with SPS witness Richard M. Luth. I sponsor the accounting for the supply and system own use on this schedule. Pytlik Direct Revenue Requirement Page 0 RR - Page 90 of 009
Schedule H-.a and H-.c: Firm and Non-firm Purchased Power and related costs H-.b H-.e: Off-System Sales I-.: Fuel by Account Number I-.: Fuel Burned I-.: Fossil Fuel Purchased J-(V)(CD): Consolidated Financial Statements Content These schedules provide SPS s information regarding SPS s firm and non-firm purchased power along with energy costs, fixed costs, and costs per megawatt-hour ( MWh ). I co-sponsor these schedules with SPS witness Jeffrey C. Klein. I sponsor the accounting of the expenses reflected on these schedules. These schedules provide data related to SPS s off-system sales and revenues, including the energy charge component, fixed charge component, and energy charge per MWh. Provides fuel expense by subaccount numbers for each month included in the Test Year. I co-sponsor this schedule with Mr. Evans and SPS witness H. Craig Romer. I sponsor the accounting of the expenses reflected on this schedule. Provides fuel expense by each generating station for each month in the Test Year. I co-sponsor this schedule with Mr. Evans and Mr. Romer. I sponsor the accounting of the expenses reflected on this schedule. Provides fossil fuel purchased by each generating station for each month in the Test Year. The information is provided for each fuel type and supplier. I co-sponsor this schedule with Mr. Evans and Mr. Romer. I sponsor the accounting of the expenses reflected on this schedule. Provides the consolidated financial statement of Xcel Energy and its subsidiaries, including SPS. Pytlik Direct Revenue Requirement Page RR - Page 9 of 000
IV. ACCOUNTING PROCEDURES FOR THE COST OF SERVICE 9 0 9 0 Q. What method of accounting does SPS use to record revenues and expenses associated with activities incurred as a result of business operations? A. SPS uses the accrual method of accounting as required by GAAP to record revenues and expenses. These revenues and expenses are recorded in accounts prescribed by the FERC Uniform System of Accounts and are in accordance with the Public Utility Commission of Texas ( Commission s ) Substantive Rules. Q. How did SPS determine its expenses used in the cost of service and RFP schedules? A. SPS started with the amounts recorded to the General Ledger for the Test Year. As required by GAAP, SPS employs the accrual method of accounting, under which SPS records an estimated amount for expenses incurred during the month. This may include amounts for which an invoice has not yet been received. After SPS receives the invoice or obtains more (or better) information related to an estimate, or there is a change in a regulatory or accounting principle, the expense is trued-up. In the case of an expense related to an invoice, the books are trued-up to the actual invoiced amount. This true-up typically occurs the following month. Thus, in a given month, expenses may include the accrual for the current month, the true-up of the prior month s accrual to actual invoiced amounts, and adjustments as they become known. Pytlik Direct Revenue Requirement Page RR - Page 9 of 00
9 0 Q. Are there any other reasons the expense amounts shown on those schedules may be trued-up? A. Yes. In general, true-up adjustments are also made necessary by such things as resolved billing disputes, corrections of errors, changes in the method used to develop estimates, the acquisition of more or better information about the cost estimate, changes in regulatory principles, and changes in accounting principles. Q. How does SPS account for regulatory assets and liabilities? A. SPS accounts for certain income and expense items in accordance with ASC 90, Regulated Operations (formerly Statement No. ). Under ASC 90, certain costs that would otherwise be charged to expense are deferred as regulatory assets based upon the ability to recover those costs in future rates. In addition, certain credits that would otherwise be reflected as income are deferred as regulatory liabilities based upon the expectation that they will be refunded to customers in future rates. Consequently, estimates for recovering deferred costs and refunding deferred credits are based upon specific ratemaking decisions or precedents for each particular item. These regulatory assets and liabilities are amortized consistent with the period approved by the Commission. Pytlik Direct Revenue Requirement Page RR - Page 9 of 00
9 0 9 0 V. ACCOUNTING FOR BAD DEBT EXPENSE Q. What topic do you address in this section of your testimony? A. In this section of my testimony, I address SPS s accounting for bad debt expense and the amount of bad debt expense included in SPS s request. Q. What is bad debt expense? A. Bad debt expense is billed commodity revenue for electric service that is considered uncollectible from customers. Commodity revenue refers to the revenue billed to SPS s customers for the cost of utility service, including fuel charges and all regulated charges to customers, such as riders. This definition represents virtually all of SPS s billed retail customer revenue. It does not include comparatively minor ancillary charges such as damage claims. Please refer to Schedule G- in SPS s RFP for more information on SPS s bad debt expense. Q. What is SPS s policy for writing off a customer account receivable as a bad debt? A. SPS has a write-off policy that it follows with respect to customer accounts that are past due. For SPS, when a customer account is 9 working days past the final bill due date, the write-off policy requires specific actions. Smaller balances ($,000 or less) are directly written off, while additional procedures are mandated for larger balances. Q. What items affect commodity bad debt expense? A. All else being equal, commodity bad debt expense varies directly with commodity revenues. Other factors affecting bad debt expense include changes in credit policy, external considerations such as the economy, low-income energy Pytlik Direct Revenue Requirement Page RR - Page 9 of 00
9 0 9 0 assistance programs, as well as the efficiency of SPS s supporting processes and operations. Q. How does SPS account for bad debt expense? A. There are two major accounting entries that SPS makes on a monthly basis that impact bad debt expense. First, the net write-off entry records the gross write-offs less any recoveries during a particular month. The entry debits bad debt expense and credits an accounts receivable balance sheet account. Second, a reserve change entry is accrued and recorded each month to properly reserve for the outstanding accounts receivable balance at the end of each month. This entry could be a debit or a credit based on the position of each aging category of accounts receivable at the end of the month compared to the previous month. The offset to this entry is the Accounts Receivable Commodity Reserve Account. Q. Is bad debt expense accounted for separately for each of SPS s retail jurisdictions? A. No. Bad debt expense is attributed to SPS on a total company basis. Mr. Freitas calculates the jurisdictional amount of expense attributable to Texas in the cost of service study he presents. Mr. Luth provides the allocation of bad debt expense among SPS s Texas-retail customer classes in the class cost of service study he presents. Q. What is the amount of bad debt expense on a total company basis included in this filing? A. SPS seeks to recover $,, of bad debt expense on a total company basis. Pytlik Direct Revenue Requirement Page RR - Page 9 of 00
Q. Does SPS take steps to manage its level of bad debt expense? A. Yes. Ms. Edwards describes, in her direct testimony, the many steps that SPS takes to manage bad debt expense. Q. Does this conclude your pre-filed direct testimony? A. Yes. Pytlik Direct Revenue Requirement Page RR - Page 9 of 00
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