BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION IN THE MATTER OF SOUTHWESTERN PUBLIC SERVICE COMPANY S APPLICATION REQUESTING APPROVAL TO RETIRE AND ABANDON ITS PLANT X GENERATING STATION UNIT, PLANT X GENERATING STATION UNIT, AND CUNNINGHAM GENERATING STATION UNIT, AND DETERMINATION OF RELATED RATEMAKING PRINCIPLES AND TREATMENT. SOUTHWESTERN PUBLIC SERVICE COMPANY, APPLICANT. CASE NO. -00-UT SUPPLEMENTAL DIRECT TESTIMONY MELISSA L. OSTROM on behalf SOUTHWESTERN PUBLIC SERVICE COMPANY DECEMBER 0, 0
TABLE OF CONTENTS GLOSSARY OF ACRONYMS AND DEFINED TERMS... iii LIST OF ATTACHMENTS... iv I. WITNESS IDENTIFICATION AND PURPOSE OF SUPPLEMENTAL TESTIMONY... II. ACCOUNTING ORDER... III. RESPONSES TO OTHER QUESTIONS... VERIFICATION... ii
GLOSSARY OF ACRONYMS AND DEFINED TERMS Acronym/Defined Term Commission Meaning New Mexico Public Regulation Commission Cunningham Cunningham Generating Station Unit Plant X Plant X Generating Station Unit Plant X Plant X Generating Station Unit SPS Southwestern Public Service Company, a New Mexico corporation iii
LIST OF ATTACHMENTS Attachment MLO-S Description Capital Additions to Plant X, Plant X and Cunningham since Case No. -000-UT iv
0 I. WITNESS IDENTIFICATION AND PURPOSE OF SUPPLEMENTAL TESTIMONY Q. Please state your name and business address. A. My name is. My business address is 0 Nicollet Mall, Minneapolis, Minnesota 0. 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. Q. Are you the same who filed direct testimony on behalf SPS in this docket? A. Yes. Q. What is the purpose your supplemental direct testimony? A. The purpose my supplemental direct testimony is to respond to certain the questions posed by the Hearing Examiner during and after the November 0, 0 Prehearing Conference in this case. In particular, I provide responses to the questions related to depreciation and dismantling expense. I also describe the accounting treatment the amounts that SPS seeks to record in deferred accounts for later recovery.
0 Q. Are any other witnesses filing supplemental direct testimony on behalf SPS? A. Yes. SPS witness William A. Grant responds to questions regarding the relief requested by SPS in this case, and he responds to certain questions about the operations Plant X Generating Station Unit ( Plant X, Plant X Generating Station Unit ( Plant X, and Cunningham Generating Station Unit ( Cunningham. SPS witness Randy J. Larson also responds to questions regarding the operation and eventual dismantling the three units. Q. Was attachment MLO-S prepared by you or under your supervision? A. Yes.
II. ACCOUNTING ORDER 0 Q. What topic do you address in this section your supplemental direct testimony? A. I respond to questions regarding the accounting orders that SPS has requested approval with respect to Plant X, Plant X, and Cunningham. Q. Please describe briefly the relief that SPS has requested insar as the accounting orders are concerned. A. In connection with its request to retire and abandon Plant X, Plant X, and Cunningham, SPS has requested that the New Mexico Public Regulation Commission ( Commission issue an order authorizing SPS to: 0 record in a deferred account the remaining net plant balance each unit, including the remaining unrecovered estimated dismantling costs associated with each unit; recover the remaining net plant balances and remaining estimated dismantling costs in a later proceeding; record in a deferred account the difference between the estimated and actual dismantling costs for each the three units; and refund or recover the difference between the estimated and actual dismantling costs after the units are dismantled and the actual dismantling costs are known.
0 Q. In the first bullet point the previous answer, you refer to the remaining net plant balance each unit, including the remaining unrecovered estimated dismantling costs. Are depreciation costs set to recover dismantling costs? A. Yes. When SPS conducts a depreciation study, it includes dismantling costs in the requested amount depreciation expense. Thus, for example, if the total cost an asset is $00 million and the dismantling costs are projected to be $ million, depreciation rates are set to recover a total $0 million over the life the asset. Q. Will the unrecovered net plant balances the three units include some amount unrecovered dismantling costs? A. Yes. Recovery the dismantling costs is spread over the service life an asset, so SPS has already recovered the vast majority the estimated dismantling costs associated with Plant X, Plant X, and Cunningham. But SPS has not recovered the entire amount depreciation and dismantling expense, so some amount the estimated dismantling costs remains unrecovered.
0 Q. Is it possible that the estimated dismantling costs for the three units will change? A. Yes. The estimated dismantling costs identified in my direct testimony were quantified using the depreciation and dismantling study that formed the basis for the depreciation rates established in Case No. -000-UT. SPS will perform a new depreciation and dismantling study for its upcoming base rate case, so it is possible that the estimated dismantling costs will change. Q. How does SPS propose to track and collect the amounts established pursuant to the accounting order? A. Upon retirement each unit, SPS will know, based on its plant accounting records, the total plant balance as well as the accumulated reserve at the retirement date. The deferred account established for the unrecovered plant investment will be equal to the difference between the plant cost and the accumulated reserve. A separate deferred account will be created for this amount. In the rate proceeding following the retirement, SPS will request recovery the deferred account and establish an appropriate amortization period at that time. In the Matter Southwestern Public Service Company s Application for Revision its Retail Rates Under Advice Notice No., Case No. -000-UT, Final Order Partially Adopting Recommended Decision (Mar., 0.
0 For the dismantling costs, SPS will record in a deferred account the estimated dismantling cost for each unit at the time that unit s retirement. At some later time when the unit is dismantled, SPS will compare the estimated dismantling costs to the actual dismantling costs and record the difference in the deferred account. In a subsequent case, SPS will ask the Commission for permission to refund or recover the difference between those two amounts. Q. When would the deferred accounts be created if the Commission were to approve SPS s request? A. The deferred account related to the unrecovered net plant and estimated dismantling accounts would be created upon retirement the units. Q. When would the accounts terminate? A. The deferred account related to unrecovered net plant would be terminated when the account is fully amortized and no longer affects rate base. The deferred account related to dismantling costs would terminate upon Commission authorization to either recover or refund the difference between actual and estimated dismantling costs. Q. Does SPS seek to recover carrying costs on the amounts in the accounts? A. SPS is seeking permission to include in rate base the deferred balance that reflects the remaining unrecovered depreciation and estimated dismantling costs, and to
0 earn a return on that balance at its weighted average cost capital. After the units are dismantled, SPS will seek to include in rate base the regulatory asset or regulatory liability that reflects the difference between estimated and actual dismantling costs and to earn a return on it. Q. Do the net plant balances for Plant X, Plant X, and Cunningham currently earn a return to SPS? A. Yes. The undepreciated plant balances are part the plant included in rate base, just like other net plant assets. SPS earns a return on rate base at its weighted average cost capital. Q. If SPS is able to reuse components from Plant X, Plant X, and Cunningham upon decommissioning, will SPS seek to make an adjustment to the accounting orders to reflect that added value? A. No. If SPS identifies any reusable components at decommissioning, the value those components will be subtracted from the actual dismantling costs. That, in turn, will affect the calculation the difference between the actual and estimated dismantling costs, but it will not necessitate any adjustments to the accounting orders requested by SPS in this case.
III. RESPONSES TO OTHER QUESTIONS 0 Q. Has SPS made capital additions to Plant X, Plant X, or Cunningham since the end the test year approved by the Commission in Case No. -000-UT? A. Yes. The test year approved by the Commission in Case No. -000-UT was calendar year 0. My Attachment MLO-S lists the capital additions to all three units since January, 0. Q. Has SPS made any changes to the service lives Plant X, Plant X, or Cunningham since the current depreciation rates were established in Case No. -000-UT? A. No. SPS requested that the Commission accelerate depreciation expense for Cunningham in Case No. -00-UT, SPS s most recent base rate case, but the Commission denied that request. Q. Does this conclude your prefiled supplemental direct testimony? A. Yes. In the Matter Southwestern Public Service Company s Application for Revision its Retail Electric Rates Pursuant to Advice Notice No., Case No. -00-UT, Final Order Adopting Recommended Decision with Modifications at (Sept., 0.
Southwestern Public Service Company Attachment MLO-S Page Capital Additions January 0 - October 0 Unit Plant Description Amount Cunningham Analyzer. Boiler Feedwater Chemical Analyzers $, Cunningham Transformer Auto 00V and Less,0 Cunningham Forced Draft Fan System-Motor, Cunningham Valve 0, Cunningham CHCC-Rpl Lab Analyzers 0,0 Cunningham Valve - DA Level Control Valves ( Cunningham Total $,0 Plant X Generator Emergency Power Supply $, Plant X Pump,0 Plant X Building Other,0 Plant X Valve 0, Plant X Fuel Transfer System (, Plant X Total $, Plant X Analyzer. CEMS $, Plant X Pump, Plant X Valve 0,0 Plant X Fuel Transfer System Piping & Valves, Plant X Forced Draft Fan System-Motor, Plant X Valve - Oil Pump Aux Steam Line Plant X Total $ 0,