3 of 6 - Depreciation and Remaining Lives - Perkett Testimony
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Direct Testimony and Schedules Lisa H. Perkett Before the Minnesota Public Utilities Commission State of Minnesota In the Matter of the Application of Northern States Power Company for Authority to Increase Rates for Electric Service in Minnesota Docket No. E002/GR-15-826 Exhibit___(LHP-1) Depreciation and Remaining Lives November 2, 2015
3 of 6 - Depreciation and Remaining Lives - Perkett Testimony
Before the Minnesota Public Utilities Commission State of
Minnesota
In the Matter of the Application of Northern States Power Company
for Authority to Increase Rates for Electric Service in
Minnesota
Docket No. E002/GR-15-826 Exhibit___(LHP-1)
Depreciation and Remaining Lives
B. Traditional Approach for 2016, 2017, and 2018
........................................ 17
IV. Passage of Time
..................................................................................................
24
V. Depreciation for Production Assets
...................................................................
27
A. 2015 Remaining Lives Filing (2016 Impact)
............................................... 29
B. 2017 through 2020 Remaining Lives Changes
........................................... 40
VI. Depreciation for TD&G Assets
........................................................................
41
A. 2017 Five-year Depreciation Study
..............................................................
41
B. Regulatory Asset for TD&G Theoretical Reserve Adjustments
............. 43
VII. Triennial Nuclear Decommissioning Costs
.................................................... 47
VIII. Tax and Deferred
.............................................................................................
50
IX. Other Asset Issues
...............................................................................................
57
X. Conclusion
.............................................................................................................
63
Schedules Statement of Qualifications Schedule 1 CWIP, Plant, and
Accumulated Depreciation Roll Forwards by
Functional Class Schedule 2
CWIP Roll Forward by Business Area Witness Schedule 3 Expenditures
and Additions by Business Area Witness Schedule 4 Roll Forward Link
to Heuer and Burdick Revenue Requirement Schedule 5 Passage of Time
Exhibit Schedule 6 2016 Depreciation Impact from 2015 Remaining
Lives Filing Schedule 7 New or Revised Remaining Life due to
Additions Schedule 8 2016 – 2018 Depreciation Impact for Forecasted
Additions Schedule 9 Theoretical Reserve Amortization Summary
Schedule 10 Accumulated Deferred Taxes Prorate Method Schedule 11
Like-Kind Exchange Accumulated Depreciation Adjustment Schedule 12
Pre-Filed Discovery Appendix A
ii Docket No. E002/GR-15-826 Perkett Direct
I. INTRODUCTION 1
Q. PLEASE STATE YOUR NAME AND OCCUPATION. 3
A. My name is Lisa H. Perkett. I am the Director of Capital Asset
Accounting for 4
Xcel Energy Services Inc. (XES), which provides services to
Northern States 5
Power Company (NSPM or the Company). 6
7
Q. PLEASE SUMMARIZE YOUR QUALIFICATIONS AND EXPERIENCE. 8
A. I have 35 years of experience in utility accounting. In my
current role, I am 9
responsible for managing the Company’s capital asset accounting
policies, 10
maintaining accounting and tax records for capital assets, ensuring
capital 11
asset-related reporting and regulatory requirements are met,
maintaining plant 12
information for ratemaking purposes, and managing the capital
investment 13
cost recovery process. My resume is included as Exhibit ___(LHP-1),
14
Schedule 1. 15
16
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
17
A. I support the level of depreciation expense included in the test
year, providing 18
information on remaining lives, net salvage rates, and depreciation
expense for 19
all Company assets. My testimony also provides discussion on the
overall 20
structure of forecasted capital assets in this case for the test
year of 2016 and 21
for the plan years 2017 and 2018. I provide information on various
plant and 22
plant related issues that have been included in this case. Unless
noted 23
specifically, all numbers presented in my testimony are at Total
Company 24
(Minnesota, North Dakota and South Dakota) level. 25
26
1 Docket No. E002/GR-15-826 Perkett Direct
A. I recommend that the Commission adopt the amounts the Company
has 1
calculated for the forecast depreciation in this proceeding, based
on the 2
recommended changes in useful life and net salvage percentage.
3
4
Q. HOW IS THE REMAINDER OF YOUR TESTIMONY STRUCTURED? 5
A. I have organized the remainder of my testimony in eight parts.
First, I 6
provide some general background on the issue of depreciation along
with a 7
brief discussion of other dockets that impact the consideration of
the 8
depreciation issues in this case. 9
10
Second, I discuss the accounting for the Company’s capital
expenditures, or 11
“Capital Additions,” including a discussion of construction work in
progress 12
(CWIP), allowance for funds during construction (AFUDC),
depreciation 13
expense and accumulated depreciation. In this section of my
testimony, I also 14
discuss how the Company’s business areas work within their capital
forecasts, 15
yet deal with the business realities they face, including the need
to occasionally 16
pursue similar yet different projects than originally anticipated
in order to 17
respond to emergent issues and typical yet unanticipated business
changes. I 18
also discuss how the Company’s overall capital additions over time
align with 19
budgeted capital additions in any given year and how variances in
the 20
Company’s capital additions and capital expenditures in any given
year tend to 21
balance out with regard to revenue requirements impacts. 22
23
Third, I discuss the concept of “passage of time,” as it relates to
depreciation, 24
including an analysis of CWIP, plant balances, book depreciation
expense, and 25
depreciation reserve over the term of the Company’s multi-year rate
plan. I 26
2 Docket No. E002/GR-15-826 Perkett Direct
explain how the Company’s rate request has appropriately
incorporated the 1
impact of passage of time. 2
3
Fourth, I discuss depreciation for the Company’s production assets.
This 4
section discusses the impact of the Company’s 2015 Remaining Lives
filing 5
and the impact of the Commission investigation regarding net
salvage 6
percentages. In this section, I also discuss the significant new
projects that 7
impact depreciation expense in this case. 8
9
Fifth, I discuss depreciation for the Company’s transmission,
distribution and 10
general (TD&G) assets. As I note, the Company will file a new
five-year 11
depreciation study for TD&G assets in 2017 and this rate case
filing reflects 12
and changes to depreciation that are known at this time for 2017
and beyond. 13
This section of my testimony also discusses the Company’s
theoretical 14
depreciation reserve adjustments and the impact of the “unwinding”
of the 15
theoretical reserve surplus and the necessary accounting and
regulatory 16
responses to this change in the Company’s accumulated depreciation
position. 17
18
Sixth, I discuss the impact of the Commission’s decision in the
Company’s 19
Triennial Nuclear Decommissioning docket and how this rate case
filing 20
reflects that decision. This section also includes discussion of
Department of 21
Energy settlement payments and how those payments have been
incorporated 22
into the rate request. 23
24
Seventh, I discuss certain other asset issues, including
distribution meters and 25
line transformers, a like-kind exchange issue, and the accounting
for 26
Monticello extended power uprate (EPU). 27
3 Docket No. E002/GR-15-826 Perkett Direct
Finally, I discuss two tax issues that impact tax depreciation in
this case, and 1
the potential for additional bonus tax depreciation and the proper
calculation 2
of deferred taxes to avoid a normalization violation with the
Internal Revenue 3
Service (IRS). As I explain, the resolution of these issues is
currently uncertain 4
as Congress has not yet acted on a tax bill. However, resolution of
this issue is 5
anticipated before January 1, 2017 and, should that resolution
occur, the 6
impacts of any tax law changes should be incorporated into the
final decision 7
in this proceeding. Also, the Company presents deferred taxes in
this case 8
that are compliant with all IRS regulations including IRS Code
section 9
1.167(l)-1(h)(6)(i). Without this compliance, the accelerated tax
methods are at 10
risk of being disallowed. 11
12
14
Q. IS THE ISSUE OF DEPRECIATION IMPACTED BY VARIOUS COMMISSION
DOCKETS 15
AND DECISIONS? 16
A. Yes. While the Commission can make depreciation decisions in
rates cases 17
(which happened in the Company’s 2012 and 2013 rate cases, Docket
Nos. 18
E002/GR-12-961 and 13-868), the Commission also investigates and
makes 19
depreciation decisions in separate proceedings for: 20
• Production assets, 21
• Nuclear decommissioning costs. 23
24
Q. DID THE COMPANY RECENTLY RECEIVE A FINAL DECISION FROM THE
25
COMMISSION WITH RESPECT TO ANY OF THESE MATTERS? 26
4 Docket No. E002/GR-15-826 Perkett Direct
A. Yes. As discussed further in Section VII, below, the Company
submitted its 1
Triennial Review of Nuclear Decommissioning on December 1, 2014. In
the 2
Triennial Review, the Company requested the approval of the nuclear
3
decommissioning accrual for years 2016 through 2018. The Commission
4
recently approved this Triennial Review of Nuclear Decommissioning
and the 5
Commission’s ordered accruals have been incorporated into this rate
case. 6
This miscellaneous filing also included a change to the end of life
nuclear fuel 7
accrual that the Commission approved on August 27, 2015. The effect
of 8
these recently approved changes is a decrease to nuclear
decommissioning 9
accrual for the Minnesota jurisdiction of $0.2 million ($0.7
million Total 10
Company) decrease to the end of life nuclear accrual. 11
12
Q. DOES THE COMPANY CURRENTLY HAVE ANY SIGNIFICANT UNDECIDED
13
DOCKETS RELATED TO DEPRECIATION BEFORE THE COMMISSION? 14
A. No. However, while two important dockets have been decided,
written orders 15
have not been issued. The Company’s 2015 Annual Remaining Lives
petition, 16
Docket No. E,G002/D-15-46 (Docket 15-46) was decided by the
17
Commission on October 22, 2015. In addition, the Commission’s
recent 18
decision in its investigation to discontinue the use of
probabilities in the 19
calculation of net salvage percentages (Docket No.
E,G999/CI-13-626) has a 20
bearing on the Annual Remaining Lives petition. 21
22
Q. WHAT IS THE RELATIONSHIP BETWEEN THE ANNUAL REMAINING LIVES
23
PROCEEDING AND THE CURRENT GENERAL RATE CASE? 24
A. Since Docket 15-46 was undecided until October 22 and no written
Order 25
has yet been received, the Company was not able to reflect the
Commission’s 26
decision regarding depreciation in this Initial Filing. For
purposes of the 27
5 Docket No. E002/GR-15-826 Perkett Direct
Initial Filing, the Company incorporated its proposals from Docket
15-46, as 1
well as certain future expected changes in depreciation, to
calculate the 2016 2
test-year revenue requirement. However, the Company agrees that the
3
Commission’s final decision should be incorporated into the final
calculation 4
of the revenue requirement in this case and will update the case as
this 5
proceeding moves forward. In addition, while we did not have the
time to 6
revise all of the Schedules and supporting work papers to reflect
the 7
Commission’s oral decision, we were able to reflect our
understanding of the 8
Commission’s decision in our the interim rate request, as explained
by 9
Company witness Ms. Anne E. Heuer. 10
11
Q. PLEASE SUMMARIZE THE ESTIMATED IMPACT OF DOCKET 15-46. 12
A. The Company included its filed position with proposed changes
resulting in a 13
$1.4 million (Total Company) increase to electric production
depreciation 14
expense for 2016. This amount differs from the 2015 annual
remaining lives 15
depreciation filing which reported a $5.1 million increase and was
an estimate 16
based on beginning balances for the period. The adjustment shown in
this 17
case for the 2016, 2017, and 2018 test years has incorporated the
18
recommended depreciation changes when calculating depreciation in
its rate 19
request using forecasted monthly balances. The difference between
the 20
remaining life filing and this case for 2016 is explained later in
the testimony. 21
In addition, the Commission’s final decision in Docket 15-46 should
be 22
incorporated into the calculation of the revenue requirement in
this case and 23
the decrease resulting from this decision is estimated to be $11.2
million (Total 24
Company). 25
6 Docket No. E002/GR-15-826 Perkett Direct
Q. HAVE YOU REVIEWED OTHER ASPECTS OF DEPRECIATION FOR THIS 1
PROCEEDING? 2
A. Yes. I have reviewed the depreciation lives, net salvage rates
and, where 3
applicable, the depreciation rates for the 2016, 2017, and 2018
test years. This 4
review included the following: 5
• Known changes to the remaining lives of the production assets
6
resulting from the forecasted changes to plant balances; 7
• New facilities coming on line for production assets; 8
• Treatment of the theoretical depreciation reserve amount for the
2016, 9
2017, and 2018 test years; and 10
• Amortization of the regulatory asset established for the
unwinding of 11
the theoretical depreciation reserve surplus and the request for
12
amortization rates. 13
14
Q. IN THIS CASE, THE COMPANY SEEKS APPROVAL OF A MULTI-YEAR RATE
PLAN 15
(MYRP). GIVEN THE MULTI-YEAR NATURE OF THIS FILING, WHAT 16
DEPRECIATION INFORMATION IS REQUIRED? 17
A. The Commission’s June 17, 2013 Order Establishing Conditions,
and 18
Procedures for Multiyear Rate Plans, contains the following
requirements 19
related to depreciation that apply to our MYRP request:1 20
• Depreciation lives related to capital additions in each year of
the plan. 21
This requirement applies to capital additions in 2016, 2017, and
2018 22
and is provided in Schedule 8; and 23
1 Docket No. E,G999/M-12-587, June 17, 2013, Order Point 18.
7 Docket No. E002/GR-15-826 Perkett Direct
• Changes expected in the lives of all depreciable assets for two
years 1
after the plan. This requirement applies to all depreciable assets
during 2
2019 and 2020. 3
In addition, given the multi-year nature of the Company’s request,
we explain 4
how the Company adjusts rates in years following the first year for
the passage 5
of time, showing all increased and decreased adjustments clearly,
and provide 6
support for how the Company’s calculations tie out to the rate case
revenue 7
requirement requested by the Company. I discuss the issue of
passage of time 8
in Section IV of my testimony, and Exhibit____(LHP-1), Schedule 6
reflects 9
its impact on the case. The impact is also discussed in in the
Multi-Year Rate 10
Plan testimony of Company witness Mr. Charles Burdick. 11
12
Q. ARE YOU ANTICIPATING ANY CHANGES IN DEPRECIABLE ASSETS IN 2019
AND 13
2020? 14
A. No, we therefore have not reflected those years in Schedule 8
and 15
Exhibit____(LHP-1), Schedule 9. 16
A. General Structure of Plant Forecast 20
Q. HOW IS THE FORECASTED PLANT INFORMATION PROVIDED IN THIS
21
PROCEEDING? 22
A. The Company’s approach mirrors that taken in the past several
rate cases. 23
The Company has laid out the capital forecasted information by
utility (electric 24
and common) and by functional class within utility production,
transmission, 25
distribution, general, and intangible (where applicable). In this
case we have 26
also provided a further breakdown for the CWIP showing capital
budget 27
8 Docket No. E002/GR-15-826 Perkett Direct
groupings, the categories which the business areas used to identify
capital 1
projects and create their overall capital budgets. The forecasted
plant 2
process begins with the determination of the necessary capital
expenditures 3
for the forecast period. Capital expenditures are the sum of both
the 4
construction and removal work, where construction expenditures are
part of 5
CWIP and removal expenditures are part of retirement work in
progress 6
(RWIP) in the accumulated depreciation account. 7
8
CWIP is built using the forecasted construction expenditures,
adding AFUDC 9
while the work is being completed, and closing the construction
work to plant 10
in-service on the forecasted in-service date. The plant in-service
balance will 11
show the addition of the construction expenditures in the month
CWIP closes 12
for that work. AFUDC is stopped when the in-service date is
achieved; 13
depreciation begins when the addition is recognized. Depreciation
expense is 14
added to accumulated depreciation once the asset is placed
in-service. 15
16
The CWIP, plant, and accumulated depreciation information is shown
17
monthly through the entire forecast period, 2016, 2017, and 2018 in
Exhibit 18
___(LHP-1), Schedule 2. These reports are referred to as “roll
forwards” 19
because the monthly information is rolled forward from the
beginning balance 20
in a month by adding the monthly changes to arrive at the ending
balance. 21
This ending balance then becomes the beginning balance in the next
month. 22
This is similar to rolling forward your checking account by adding
deposits 23
and subtracting withdrawals to get to the balance at the end of the
month. 24
CWIP balances increase with construction expenditures and AFUDC,
and 25
decrease with plant closings. Plant balances increase with
additions and 26
decrease with retirements. Accumulated depreciation balances
increase with 27
9 Docket No. E002/GR-15-826 Perkett Direct
depreciation expense and salvage recognized and decreases with
retirements 1
and removal expense spent. 2
3
Q. PLEASE DESCRIBE WHAT YOU MEAN BY THE TERM “CAPITAL BUDGET
4
GROUPINGS” FOR EACH BUSINESS AREA? 5
A. Capital Budget groupings are the major categories of work
performed within a 6
particular business area. 7
8
In essence, business areas calculate their budgets based on what
work they 9
deem critical to assure continued operation of the system,
identifying projects 10
by these capital budget groupings. Therefore, the Company has
presented the 11
CWIP information aligned with each business area’s capital budget
groupings 12
and the budgeted projects within these groupings are shown in
Exhibit 13
___(LHP-1), Schedule 3. The budgeting process is discussed in more
detail in 14
the various business unit witnesses’ testimonies and in the
Budgeting 15
testimony of Company witness Mr. Greg Robinson. 16
17
Of course, as new facts are discovered, the individual projects
performed by a 18
business unit may change to deal with the new situations, but
overall the 19
business areas stay within the overall construction and removal
expenditure 20
amounts budgeted. As the Commission recognized in the Company’s
last rate 21
case, substituting one project for another is a natural part of
operating a 22
business. 23
24
Q. DID THIS FLUIDITY IN CONSTRUCTION WORK EXIST IN PRIOR CASES?
25
A. Yes. In the Company’s most recent case, the Company explained
that capital 26
expenditures were shifted out of the 2014 test year and were offset
by other 27
10 Docket No. E002/GR-15-826 Perkett Direct
capital projects that were being shifted into the 2014 test year.
The ALJ and 1
Commission agreed that these new projects should be included for
rate 2
making purposes. A prudently managed Company simply must respond to
3
changes in the condition of equipment, severe weather events,
changes to 4
business or customer priorities, or the emergence of regulatory
requirements 5
that were not foreseen at the time its budget was created.
Additionally, a 6
change in any one of these factors from what was assumed when
calculating 7
the budget can impact the timing of capital project completion
(either through 8
delay or acceleration). 9
10
Q. CAN YOU PROVIDE MORE SPECIFIC INFORMATION ABOUT THESE CHANGES?
11
A. Yes. For simplicity I have summarized the changes into three
general 12
categories where the Company has experienced necessary replacement
13
projects: (1) like-kind replacements, (2) emergent work, and (3)
normal 14
business changes. These three categories are discussed in more
detail below. 15
16
Q. WHAT ARE LIKE-KIND REPLACEMENTS? 17
A. Like-kind replacements are new projects with work similar in
scope, timing, 18
and cost to the original projects. An example of a like-kind
replacement is 19
that of motor replacement/rewind projects. Often these projects are
intended 20
to assure safe and reliable operation through the period of plant
operations. 21
However, as inspections are conducted throughout the year, the
Company 22
determines with more certainty which motors require capital
repairs. The 23
motors that require capital repairs may have been forecasted in the
first year of 24
the budget or they may have been included in a later year. If
motors were 25
originally forecasted to be replaced in the first year, but based
on the 26
Company’s business and engineering judgment as the year progresses,
the 27
11 Docket No. E002/GR-15-826 Perkett Direct
Company determines that replacement is not necessary during the
first year; it 1
will postpone the originally forecasted motor projects to a future
year of the 2
budget. At the same time, the Company may determine that it needs
to bring 3
new motors needing replacement or repair into the current year
forecast. This 4
reprioritized motor replacement schedule can be driven by the
following 5
factors: plant scheduling, manufacture lead-time and efficiencies,
budget 6
constraints due to regulatory project costs, and assuring the
availability of the 7
spare motors during the installation of new motors for risk
reduction and 8
assurance. Overall plant reliability, and project scope, timing and
cost will not 9
be significantly impacted by this exchange of like-kind
replacements. In fact, 10
by moving lower priority items out of the forecasted year and
bringing higher 11
priority items into the forecasted test year, overall plant
reliability is 12
maintained. 13
Q. WHAT IS EMERGENT WORK? 15
A. During the course of a year, the Company’s business areas may
encounter 16
work that was not originally planned for during the budgeting
process (e.g., 17
major break-fix projects, projects needed to be responsive to new
regulatory 18
requirements, etc.). This is known as emergent work. Once emergent
work is 19
identified, the business areas determine whether room exists within
the 20
current budget to support the additional work or if the emergent
work is 21
higher priority than work currently underway or planned for the
year. In the 22
latter case, the Company reallocates funds to the emergent work and
delays or 23
cancels the initially budgeted capital projects. An example of
emergent work 24
from the last case was the bin wall project at the Company’s
Monticello 25
nuclear generating facility. During the Fukushima Daiichi flooding
reviews 26
initiated by the Nuclear Regulatory Commission (NRC), the NRC
determined 27
12 Docket No. E002/GR-15-826 Perkett Direct
that Monticello needed to take further action to minimize risks
associated with 1
river flooding. This required an emergent capital project to
mitigate those 2
risks by constructing additional flood protection structures at the
river. After 3
reviewing the capital budget for 2014 and assessing which projects
needed to 4
go into service that year as compared to which projects could be
delayed, the 5
Company decided to move forward with the bin wall project, while
delaying 6
several other capital projects at the plant. 7
8
Q. WHAT ARE NORMAL BUSINESS CHANGES? 9
A. During the course of a year, the Company’s business areas may
postpone or 10
cancel a project and replace it with a different, more
time-sensitive project that 11
can be completed during the year. Although the cancelled project
would no 12
longer be pursued in that year, the capital associated with it will
be reallocated 13
to other priorities. These changes can occur due to unpredictable
events that 14
require unbudgeted capital expenditures after the budget is
finalized. For 15
example, Energy Supply may postpone a new roof or the resurfacing
of a 16
parking area in favor of an emergent project needed to maintain or
even 17
improve plant reliability. Ultimately, the Company will manage its
capital 18
projects to operate within its budget, comply with regulatory
requirements, 19
and adapt to changing circumstances. The flexibility to adapt to
changing 20
circumstances allows the Company to reprioritize capital projects,
which 21
ultimately benefits its customers. 22
23
Q. WERE ANY PROJECTS CANCELLED OR ABANDONED? 24
A. Based on the premise that there is fluidity in the capital
projects as 25
circumstances change, there are projects that are not done to allow
others to 26
take their place. This is a normal occurrence. Thus, truly
cancelled or 27
13 Docket No. E002/GR-15-826 Perkett Direct
abandoned projects in the normal context of construction means that
the 1
forecasted dollars do not get used elsewhere as the business works
within its 2
capital budgeting expectations. With that definition in mind, there
is one 3
project that we determined we would not complete and that has not
been 4
replaced by other projects. This is highly unusual as generally
other needed 5
projects will simply replace any cancelled projects. The St. Cloud
Loop 6
project was cancelled after a fire at the Verso Paper Mill on May
29, 2012 that 7
eventually resulted in permanent closure of the plant. This project
was 8
originally proposed in a prior budget and there were no
substitutions made for 9
it. 10
11
Q. YOU HAVE EXPLAINED HOW BUDGETS NEED TO BE FLEXIBLE BECAUSE
12
CIRCUMSTANCES CHANGE, BUT HOW DOES THE ESTIMATED IN SERVICE DATE
13
IMPACT THE CAPITAL ADDITION? 14
A. Think of the estimated in-service date as the asset’s birth
date. At the 15
beginning of the planning cycle, the business areas estimate the
time it will 16
take to get ready for construction (obtain permits or certificate
of needs, order 17
material, perform required studies, and complete the required
engineering or 18
project planning), the time it will take to actually build or
create the asset, and 19
then to complete construction (testing the asset, connecting it to
the grid, 20
satisfying permit requirements, and gaining the necessary agency
approvals). 21
After they lay out this process, then the business area can
estimate the 22
estimated in service date. Only when all the actual work is
complete will the 23
business area know whether their estimated in service date was
precise. 24
However, the business areas understand the necessary steps to get a
project to 25
its in service date and have significant experience moving them
through this 26
process, so we can reasonably anticipate that the estimated in
service date will 27
14 Docket No. E002/GR-15-826 Perkett Direct
be in line with expectations, absent some changed circumstance that
1
significantly alters the expected timeline. 2
3
Q. WITH ALL OF THESE CHANGES HAPPENING IN ANY GIVEN YEAR, HOW CAN
THE 4
COMMISSION HAVE CONFIDENCE THAT THE COMPANY’S CAPITAL BUDGETS
5
PROVIDE A REASONABLE BASIS FOR SETTING RATES? 6
A. Mr. Robinson discuss this in greater detail, but from a capital
asset accounting 7
perspective, it is important to recognize that overall actual
capital additions 8
have closely aligned with budgeted additions. There are slight
variations in 9
any given year; however, the overall impact to the revenue
requirement is 10
small. For example, if a project is forecasted to be in service in
July and it 11
actually goes into service one month earlier or later, the impact
for a $1 12
million project assuming a 40 year useful life is approximately
$2,000 in 13
change in revenue requirement. Even if the addition was forecast to
be a 14
December occurrence and ending up occurring January of the next
year, the 15
impact to revenue requirements is not dramatic, since the inclusion
of CWIP 16
in rate base leaves the revenue requirement difference to be
basically one 17
month’s depreciation. 18
19
Variations in capital expenditures may have an even more indirect
impact on 20
the revenue requirements, especially when the total spend to the
project is met 21
and the in service date does not change. The variation of capital
expenditures 22
may not change the overall level of additions in a given year.
Thus, capital 23
expenditures need to affect the level of additions in order to
cause an impact 24
to the revenue requirement. Lastly, capital expenditures in one
project work 25
order may vary in one direction with another varying in the
opposite direction. 26
This may also occur with capital additions. For all of these
reasons, the total 27
15 Docket No. E002/GR-15-826 Perkett Direct
capital expenditure and addition picture must be considered when
evaluating 1
the impact to the revenue requirement and considering whether the
2
Company’s capital budgets provide a reasonable basis for setting
rates. 3
4
Q. DO YOU PROVIDE AN ANALYSIS ON ACTUAL CAPITAL EXPENDITURES AND
5
ADDITIONS COMPARED TO BUDGET? 6
A. Yes. We compared 2010 through 2014, the last five full actual
years, for both 7
capital expenditures and additions. The following table shows the
comparison 8
for capital expenditures: 9 Table 1 10
Capital Expenditures for 2010 through 2014 11 12 13 14 15 16
17
This shows that the Company on average spent 103.8 percent of what
it 18
forecast. This represents the overall construction spend, excluding
projects 19
that were unusual and are not representative of base construction
for our 20
routine course of business, such as replacing assets at the end of
their life, 21
solving capacity constraints, meeting environment criteria, and new
customer 22
business requirements. The excluded projects were Merricourt,
Monticello 23
EPU, Prairie Island EPU, and the earlier version of Black Dog Unit
6. 24
However, this is just the beginning of the necessary analysis,
because how 25
these capital expenditures resulted in capital additions influences
the overall 26
impact on revenue requirements. After removing the same projects
27
16 Docket No. E002/GR-15-826 Perkett Direct
mentioned above, the following table shows the comparison for
capital 1
additions for the past five years: 2 Table 2 3
Plant Additions for 2010 through 2014 4 5 6 7 8 9 10
11
Thus, the actual capital additions over this five-year period were
within one 12
percent of budgeted additions, for those additions representative
of routine 13
course of business. This, combined with the capital expenditures
analysis, 14
demonstrates the reliability of the Company’s budgeting process and
the 15
reasonableness of using the Company’s capital budgets as the basis
for setting 16
rates. 17
Q. WHAT IS THE TRADITIONAL APPROACH? 20
A. The traditional approach means that the expenditures are
forecasted at project 21
level in order to provide the appropriate spend within the various
business 22
areas. The projects have been summarized by the capital budget
groupings for 23
each business area in Exhibit___(LHP-1), Schedule 3, and the annual
effect of 24
these additions is included in the calculation of revenue
requirements for the 25
years 2016, 2017, and 2018. In addition, Exhibit___(LHP-1),
Schedule 4 26
provides detail on the expenditures and additions by each Business
Area 27
witness. 28
17 Docket No. E002/GR-15-826 Perkett Direct
Q. WHAT IS THE INTENT OF THESE CAPITAL BUDGET GROUPINGS? 1
A. The capital budget groupings by business area were created to
help identify and 2
categorize the critical work needed to be done by each business
unit. 3
4
Q. CAN YOU PROVIDE THE CAPITAL BUDGET GROUPINGS THAT ARE USED FOR
5
CAPITAL IN 2016, 2017, AND 2018? 6
A. Yes. The following table summarizes the capital budget groupings
by business 7
area for the capital work in 2016, 2017, and 2018, including the
witness 8
supporting the business area. These same groupings are used for the
entire 9
forecast as well, continuing for 2019 and 2020. 10
Table 3 11 Capital Budget Groupings by Business Area 12
13
Nuclear – Timothy O’Connor
Transmission – Ian Benson
18 Docket No. E002/GR-15-826 Perkett Direct
Distribution – Kelly Bloch
• Asset Health & Reliability • New Business • Capacity • Fleet,
Tools, and Equipment
Business Systems – David Harkness
Facilities – Lisa Perkett
• Buildings and General 1
Q. ARE YOU SUPPORTING PART OF THE CAPITAL EXPENDITURES IN THIS
CASE? 2
A. Yes. I am presenting a small part of the capital expenditure
forecast. No 3
business area witness has been provided for some miscellaneous
capital for the 4
general facilities used by the Company. While I do not directly
oversee the 5
construction or purchase of these assets, I can speak to the
capital budget 6
groupings. The facilities capital expenditures are shown under the
capital 7
budgeting group Buildings and General. This grouping includes work
on the 8
building systems, furniture, leasehold improvements, structural
components, 9
tools, and other equipment necessary to support the operations of
the office 10
buildings and service centers. 11
12
Q. CAN YOU DESCRIBE THE CAPITAL WORK BEING DONE IN THE BUILDINGS
AND 13
GENERAL? 14
A. The work in this grouping can be subdivided into three
categories as follows: 15
• New construction at 401 Nicollet Mall, 16
• Renovations at 414 Nicollet Mall, and 17
19 Docket No. E002/GR-15-826 Perkett Direct
• Renovations at various other facilities. 1
2
The capital expenditures and additions that are included in this
case for 2016 – 3
2018 for this grouping are as follows: 4
5
6
7
8
Q. CAN YOU DESCRIBE THE CAPITAL WORK BEING DONE AT 401 NICOLLET
MALL? 9
A. Xcel Energy’s 10-year lease for office space at 250 Marquette
Plaza will be 10
terminating at the end of June 2016. We evaluated various scenarios
for 11
housing half our general office staff in Minneapolis. In this
process, we 12
considered rental rates, proximity to the owned headquarter
facility, improving 13
adjacencies, and finding ways to increase collaborative work and
productivity. 14
Ultimately, we determined to move forward with OPUS (both builder
and 15
landlord) to build a new facility, as the cost effective solution
to meet our 16
needs and specifications. As with moving from one leased building
to 17
another, leasehold improvements are needed to complete the
build-out of the 18
new leased space for items that are not included within the tenant
19
improvement funds provided by the landlord. This includes interior
offices, 20
phone and data equipment, furniture, and other equipment that is
necessary 21
for the Company to operate the facility. The new location will be
at 401 22
Nicollet Mall and be leased for 15 years. The addition associated
with this 23
new location is approximately $16.7 million. 24
25
Capital expenditures will include new interior construction of the
corporate 26
headquarters campus and includes the design and engineering for all
27
20 Docket No. E002/GR-15-826 Perkett Direct
architectural, mechanical, electrical, and special systems to be
incorporated in 1
the new facility. It also includes the labor and material to build
out the space 2
per design, including all furniture, fixtures, and equipment
(inclusive of 3
business systems, security, and property) to make the new building
functional 4
for assigned work groups. 5
6 Q. CAN YOU DESCRIBE THE CAPITAL WORK BEING DONE AT 414 NICOLLET
MALL? 7 8 A. The move to the new leased facility at 401 Nicollet
Mall allows the Company 9
to align office space functionality with changing business unit
needs. Thus, 10
the Company evaluated how to most effectively use the space at 401
and 414 11
Nicollet Mall and allow us to better utilize the old space as well
as the new. In 12
order to fully utilize the old space, it will be renovated to meet
current and 13
future office needs. These changes will improve operations by
co-locating 14
like-groups together (groups or departments that benefit by being
next to 15
another department), improve adjacencies of groups to better
productivity. 16
For example, the Business Systems staff would be located in the
same building 17
and adjacent to their computer and server rooms, the Transmission
group 18
could be located next to its control room, and the Nuclear group
would be 19
adjacent to their disaster recovery center. These changes, along
with 20
providing space for more collaborative work will help with
recruiting and 21
retaining a talented workforce. Capital projects have been forecast
for new 22
windows, plumbing, realigning heating, ventilating and air
conditioning 23
(HVAC) and building control systems, and overall renovations.
24
25
Additional expenditures will include design, and engineering to
re-purpose the 26
floors as well as labor and material to build out the space per
design to 27
accommodate the operations groups that will be relocated to the
facility. The 28
21 Docket No. E002/GR-15-826 Perkett Direct
entire plumbing system will be replaced due to aging and to address
continued 1
leaks, bursts, floods, sewer gas odors, and air quality complaints.
Windows 2
also will be replaced across the entire facility, as the existing
windows are 3
original from 1965 and cause increasing energy loss with age. The
existing 4
roof will be replaced with a new energy efficient roofing system.
Aging and 5
multiple roof penetrations from mechanical projects have caused
deterioration 6
over the years. Capital additions for 414 Nicollet Mall are
estimated at $3.2 7
million for 2016, $9.8 million for 2017, and $1.3 million for 2018.
8
9
Q. CAN YOU DESCRIBE THE RENOVATION AND REPLACEMENT CAPITAL WORK
10
BEING DONE ACROSS THE REMAINING PROPERTY SERVICES PORTFOLIO?
11
A. Property Services is responsible for operating and maintaining
Company 12
owned and leased sites for regional and headquarters offices,
service centers, 13
and call centers. They are not responsible for facilities at power
plants, 14
substations, gas regulator sites, or transmission sites. Capital
projects are 15
required to bring sites up to code and keep the asset in
operations. 16
17
Building capital projects typically include replacing the
electrical, mechanical 18
and plumbing systems, as well as replacing structural components
such as 19
windows and roofs, and replacing carpet. Pavement replacements
address 20
deteriorating surfaces which hinder vehicle traffic and parking.
Mechanical 21
projects typically include replacing HVAC equipment for control of
offices, 22
and exhausting and heating vehicle and warehouse areas. Roof
replacements 23
are completed based on age and condition, and expanded upon when
24
necessary to include any repairs caused by leaks or other issues
(mold 25
remediation, condensation, etc.). Dollars are also budgeted for
emergencies 26
that may arise such as storm damage or flooding causing interior
and exterior 27
22 Docket No. E002/GR-15-826 Perkett Direct
damage. The capital additions for this section are expected to be
$6.3 million 1
in 2016, $7.2 million in 2017, and $25.6 million in 2018. 2
Major projects include the following: 3
• Rice Street Service Center – Complete renovations to the 1st and
2nd 4
floors and the locker rooms, roof replacement, construction of a
new 5
meter warehouse, and replacement of outdoor lighting. Substantial
6
aging and deterioration at this facility have necessitated
substantial 7
capital investment. 8
• Chestnut Service Center – Renovations to the fleet garage office
and 9
locker rooms, chiller and cooling tower replacements, pavement
10
replacement, HVAC replacement at the meter building, and Siemens
11
panel upgrades. Substantial aging and deterioration at this
facility have 12
necessitated substantial capital investment. 13
• Other major projects include renovations to the Edina, Winona,
and 14
Grand Forks Service Centers, replacement of the HVAC system at
15
White Bear Lake, and roof replacement at Fargo. 16
17 Q. MUCH OF THIS CONSTRUCTION WORK IS TO COMMON FACILITIES. ARE
THE 18
COSTS OF THESE ASSETS SHARED WITH OTHER OPERATING COMPANIES WITHIN
19
XCEL ENERGY? 20
A. To the extent that the NSPM common facility is used by employees
that 21
perform functions for more than one operating company, the costs of
the 22
facility are shared among all operating companies. This sharing of
the asset 23
costs has been used since the merger that created Xcel Energy. The
asset is 24
fully on NSPM asset records along with its depreciation and
deferred taxes. 25
To compensate Minnesota customers for the portion used by the other
26
operating companies, a revenue (or expense credit) is issued to
NSPM for the 27
23 Docket No. E002/GR-15-826 Perkett Direct
use of its common assets shared within Xcel Energy. Basically, a
revenue 1
requirement is calculated for the NSPM shared assets and this
amount is 2
charged to Xcel Energy Services which in turn bills the various
operating 3
companies. 4
7
Q. PLEASE EXPLAIN WHY THE CONCEPT OF PASSAGE OF TIME IS RELEVANT TO
8
THIS CASE. 9
A. The concept of passage of time pertains to how the Company’s
rate base and 10
revenue requirements change from one year to each subsequent year.
This 11
includes an analysis of CWIP, plant balances, book depreciation
expense, and 12
accumulated depreciation reserve over the course of a multi-year
plan. 13
14
Q. HOW DOES THE RATE BASE CHANGE FOR A SINGLE ASSET AS IT PASSES
15
THROUGH TIME? 16
A. The first year an asset is in use, the beginning and ending
average is based on 17
the beginning CWIP balance (if there is one) and the ending plant
balance. 18
This asset is only partially included in rate base, assuming that
the CWIP 19
balance at the beginning of the year was less than the total asset
value when it 20
moved to plant in service. The second year and beyond, the asset’s
original 21
cost remains constant until the year it is retired, which is a
partial year. The 22
accumulated depreciation grows each year with the depreciation
expense 23
recognized, with the first and last years of the asset’s life being
a partial 24
expense. Combining the plant and accumulated depreciation each year
for 25
this single asset, one would see a decreasing rate base until the
asset is fully 26
depreciated. 27
24 Docket No. E002/GR-15-826 Perkett Direct
Q. HOW DOES A PLANT RETIREMENT IMPACT RATE BASE OVER THE PASSAGE OF
1
TIME? 2
A. A retirement transaction results in the plant and reserve
balances being 3
decreased by the same amount. The act of “retirement” has no direct
effect 4
on rate base, but it does have an indirect impact as discussed
below. 5
6
Q. CAN RETIREMENTS IMPACT DEPRECIATION AND THUS INDIRECTLY IMPACT
7
RATE BASE OVER THE PASSAGE OF TIME? 8
A. Yes, but it depends on the type of asset and depreciation method
used for that 9
asset as to whether there is a depreciation impact resulting from
the 10
retirement. A retirement reduces the plant balance and the
accumulated 11
depreciation by the same amount when the transaction is recognized
, 12
resulting in no impact to rate base from the transaction. However,
there are 13
assets where the depreciation is calculated from the original cost
of the plant 14
and not the net plant value. For those assets (depreciation on
original cost), 15
the retirement does change the calculation of the depreciation
going forward 16
and this change impacts the accumulated depreciation and, hence,
rate base. 17
For all transmission and distribution assets and general plant
buildings, there is 18
an impact on the depreciation expense going forward from the point
a 19
retirement is made because the retirement decreases the original
cost of plant 20
and these assets use a depreciation rate applied to the original
cost of plant. 21
Thus, indirectly these retirements impact the overall rate base
because of the 22
change to depreciation expense in the year the asset retires and
its change to 23
accumulated depreciation. 24
25
For electric production assets, the remaining life method of
depreciation is 26
used, which depreciates the net plant over the remaining life. For
these assets 27
25 Docket No. E002/GR-15-826 Perkett Direct
a retirement does not change the net plant, thus there is no change
to 1
depreciation expense going forward from the retirement of the
asset. Thus 2
there is no impact to rate base for the electric production
retirements. For 3
plant assets using the vintage group method as described in Federal
Energy 4
Regulatory Commission (FERC) Accounting Release No. 15 (AR-15),
5
distribution meters, line transformers, and general plant assets
(excluding 6
general plant buildings), a retirement is not recognized until the
assets for a 7
particular vintage are fully depreciated. There is no impact to
rate base for the 8
vintage group retirements. 9
10
Q. HAS THE COMPANY INCORPORATED THE FULL PASSAGE OF TIME CHANGES
11
INTO THE 2017 AND 2018 PLAN YEAR? 12
A. Yes. All assets in plant at the end of 2016 were advanced
forward into the 13
2017 plan year, and 2017 balances were advanced forward into the
2018 plan 14
year. The Company has included all changes in plant balances,
depreciation 15
expense, and accumulated depreciation during 2017 and 2018 in its
request for 16
both plan years, using a full cost of service approach, which is
addressed in 17
Mr. Burdick’s testimony. The roll forward of CWIP, plant, and
accumulated 18
depreciation are included in Exhibit___(LHP-1), Schedule 2. We also
19
provided a summary for 2016, 2017, and 2018 in Exhibit___(LHP-1),
20
Schedule 5. This schedule provides a link from the information in
my 21
Exhibit___(LHP-1), Schedule 2 to Ms. Heuer’s Schedule 9 for the
2016 test 22
year and provides the unadjusted information for the 2017 and 2018
test years. 23
24
Q. HOW IS THIS DIFFERENT FROM THE LAST RATE CASE THE COMPANY FILED?
25
A. In the Company’s previous rate case (Docket No. E002/GR-13-868),
it did 26
not use a full cost of service model for the second year of the
multi-year plan. 27
26 Docket No. E002/GR-15-826 Perkett Direct
In the current case, the Company is using a full cost of service
model for 1
2016, 2017, and 2018, which captures both additions and retirements
for 2
complete rate base and revenue requirement recognition. Mr. Burdick
3
discusses this approach in more detail in his Direct Testimony.
4
5
7
Q. WHAT PROCESS DOES THE COMMISSION USE TO REVIEW DEPRECIATION FOR
8
PRODUCTION ASSETS? 9
A. In general, each year in February, the Company files an annual
review of 10
remaining lives for production assets, proposing changes to
depreciation 11
expense based on any changes to remaining lives or net salvage
rates identified 12
in its annual review. This year, however, the Company requested and
received 13
Commission approval for an extension to submit its 2015 Review of
14
Remaining Lives petition. 15
16
Q. PLEASE DESCRIBE THE PROCESS USED TO IDENTIFY CHANGES THAT THE
17
COMPANY INCLUDED IN A REVIEW OF REMAINING LIVES FILING. 18
A. The Company follows the same process used to complete each
remaining life 19
filing. Annually, the Company’s depreciation analysts meet with the
20
employees who are knowledgeable about the planning, construction,
and 21
operations at each facility. During these meetings, the Company
reviews each 22
facility to: 23
projects performed in the past few years; 25
• Consider the scope of current and upcoming projects; and 26
27 Docket No. E002/GR-15-826 Perkett Direct
• Forecast the likelihood of the facility achieving the
currently-approved 1
remaining life in light of the past, current, and near future
projects. 2
If the Company determines that the current remaining life is no
longer 3
appropriate, the Company proposes a modification to the remaining
life for 4
that facility. 5
6
The Company also considers the likelihood that a planned major
overhaul, 7
rebuild, or routine construction project will occur in the next 10
to 12 months, 8
and its probable effect on each facility. If there is uncertainty
whether the 9
work will occur, the Company reduces the weight given to this
factor in its 10
remaining life analysis. Each year, the Company reviews the
projects 11
scheduled for each plant to gauge if there is more or less
certainty of 12
completion, and it adjusts its analysis accordingly. 13
14
Occasionally, there is a significant individual event that
influences a change to 15
remaining life – for example, the operating license renewal at
Monticello. 16
More often, however, it is a culmination of several smaller factors
that, when 17
considered together, support a change in the remaining life. If
just one or two 18
of these small changes are present, the factors may not be strong
enough to 19
influence a life change. As time passes each year, more of these
smaller 20
factors may be realized such that a change would become
appropriate. 21
22
Q. WHY DOES THE COMPANY PRESENT A REVIEW OF REMAINING LIVES IN THIS
23
RATE CASE? 24
A. The Commission’s June 16, 2010 Order in the Company’s 2010
Remaining 25
Lives proceeding (Docket No. E,G002/D-10-173) requires that rate
case 26
filings provide information on significant changes to depreciation
that the 27
28 Docket No. E002/GR-15-826 Perkett Direct
Company requests in its annual remaining lives filing.
Specifically, the 1
Commission required Xcel Energy “in its pre-filed direct testimony
in its next 2
rate case, to identify significant additions to plant investment
proposed to be 3
included in rates, and discuss how a life extension for each such
plant has 4
been reflected in the depreciation rates used in the rate case, or
why a life 5
extension has not been proposed.” The Company has provided such
6
information since it was so ordered. 7
8
A. 2015 Remaining Lives Filing (2016 Impact) 9
Q. PLEASE SUMMARIZE THE STATUS OF THE COMPANY’S 2015 REVIEW OF
10
REMAINING LIVES. 11
A. The Company submitted its 2015 Annual Remaining Lives petition i
on May 12
18, 2015. The Commission made its oral decision on October 22, 2015
in this 13
docket, however no final Order has been issued and there was not
enough 14
time between the decision and the filing of this case to
incorporate the 15
Commission’s decision to change the remaining lives for Sherco Unit
1, Angus 16
Anson Units 2 and 3, and Granite City Units 1 through 4. Thus, the
17
Company used its proposed position from our supplemental reply
comments 18
as the initial position in this case. We will incorporate the
remainder of the 19
Commission’s decision into this case as it progresses. 20
21
Q. WHY DOES THE COMPANY PRESENT INFORMATION ON ITS 2015 REVIEW OF
22
REMAINING LIVES IN THIS RATE CASE? 23
A. Typically, the changes requested in the annual filing are
incorporated into the 24
rate case data. This year, the Company requested the changes to
expense be 25
effective for 2016 instead of 2015. While the 2015 Review of
Remaining Lives 26
is not technically a future docket, it is anticipated that this
filing will replace a 27
29 Docket No. E002/GR-15-826 Perkett Direct
2016 filing. As a result this docket is assumed to provide both the
estimation 1
of current effective depreciation lives and net salvage rates for
2016. 2
3
Q. WHAT DID THE COMPANY INCLUDE FROM 2015 REMAINING LIVES FILING IN
4
THE INITIAL CASE? 5
A. The remaining lives and net salvage rates currently in use were
approved in the 6
Company’s 2014 Annual Remaining Lives filing (Docket No.
E,G002/D-14-7
181). In the Company’s 2015 filing, it requested approval of
changes to both 8
electric and gas production facilities. The Company included its
supplemental 9
reply position which included the following: 10
• Reduction of one year to move forward the remaining lives for all
11
electric facilities from the life previously approved that were not
12
recommended for a further change; 13
• Modification to the remaining life extensions for Blue Lake Units
1 14
through 4, Red Wing, and Wilmarth; 15
• Initial remaining lives and net salvage rates for Pleasant Valley
Wind 16
and Borders Wind Projects; 17
• Modifications to net salvage rates for all electric production
facilities 18
based on an updated Dismantling Cost study without the use of
19
probabilities; 20
• Reallocation of depreciation reserve between electric production
21
facilities to fully depreciate Minnesota Valley, Key City and Black
Dog 22
Units 3 and 4 electric production facilities based on updated
23
dismantling cost estimates; and 24
• Transfer of Wind to Battery assets to the new FERC Account 348.1.
25
• Effective date for the changes to be January 1, 2016 26
27
30 Docket No. E002/GR-15-826 Perkett Direct
The Company’s supplemental reply comments reflected an increase in
Total 1
Company depreciation for 2016 of $5.1 million based on beginning
year 2
balances for electric production assets not presently included in
rate riders. 3
4
On October 1, 2015, in Docket No. E,G999/CI-13-626, In the Matter
of a 5
Commission Inquiry into Decommissioning Policies Related to
Depreciation, the 6
Commission decided to discontinue the use of decommissioning
probabilities, 7
and the Company’s supplemental reply comments to its 2015 Annual
8
Remaining Lives filing removed the probabilities from the
calculation of the 9
net salvage rates to align with the Commission’s decision. We have
included 10
the depreciation expense in this case based on our proposed lives
and net 11
salvage rates as presented in our supplemental reply comments.
12
13
Q. DOES THE CHANGE TO DEPRECIATION EXPENSE IN 2016 IN THIS
PROCEEDING 14
ALIGN WITH THE AMOUNT PROPOSED IN THE SUPPLEMENTAL REPLY 15
COMMENTS? 16
A. The depreciation lives and net salvage rates do align with what
was provided 17
in the reply comments. However the amount of change to depreciation
18
expense in this case is a factor of the life and rate changes
applied to the 19
forecasted changing plant balances. Thus, the change in 2016
between the 20
2015 Annual Remaining Lives filing and this rate proceeding can be
seen in 21
Table 4. 22
31 Docket No. E002/GR-15-826 Perkett Direct
Table 4 1 Comparison of Remaining Life Filing To Rate Case for 2016
2
3 4 5 6 7 8 9 10 11 12
13
The calculation of the rate case impact of these changes can be
seen in 14
Exhibit___(LHP-1), Schedule 7. Ms. Heuer presents the revenue
requirement 15
impact of these adjustments in her testimony. 16
17
Q. CAN YOU EXPLAIN WHY THE STEAM PRODUCTION IMPACT FOR 2016 IS A
18
DECREASE FOR THIS CASE WHEN THE IMPACT WAS SHOWN AS AN INCREASE IN
19
THE 2015 ANNUAL REMAINING LIVES FILING? 20
A. This difference is being driven primarily by the Red Wing and
Wilmarth 21
facilities. In the Annual Remaining Lives filing, depreciation is
estimated 22
based on beginning of period balances. In that filing, additions
during the 23
year are ignored in order to better present the impact driven only
by changes 24
in the remaining life or net salvage rate. In this proceeding, all
additions 25
during the period are taken into account when calculating the
depreciation. 26
In the cases of Red Wing and Wilmarth, they have additions of over
$5 million 27
and $3.5 million respectively that were not accounted for in the
Remaining 28
Life filing that are reflected in this case. This higher amount of
plant leads to 29
32 Docket No. E002/GR-15-826 Perkett Direct
a significantly higher recommended change, especially when you take
into 1
account that the currently approved remaining life for each plant
is only two 2
years as of the beginning of 2016. 3
4
The larger recommended decreases for Red Wing and Wilmarth outweigh
any 5
changes in the rest of the steam production facilities, which are
mostly 6
increases. A summary by plant of the differences between our
Remaining Life 7
filing recommended changes versus the changes recommended in this
case are 8
shown in Table 5 below. 9 Table 5 10
2016 Steam Production Depreciation Change Comparison 11 12 13 14 15
16 17 18 19 20 21
Q. CAN YOU DISCUSS THE OTHER CHANGES THAT HAVE NOW BEEN APPROVED BY
22
THE COMMISSION BUT HAVE NOT YET BEEN INCLUDED IN THIS CASE?
23
A. Yes. On October 22, 2015, the Commission orally approved changes
to 24
Sherco Unit 1, Angus Anson Units 2 and 3, and Granite City Units 1
through 25
4. The remaining life for Sherco Unit 1 and Angus Anson Units 2 and
3 were 26
lengthened to 10 years beginning January 1, 2016. This is results
in an 27
estimated decrease of depreciation of $8.6 million for Sherco Unit
1 and a 28
decrease of $2.4 million for the two Angus Anson units. The
remaining lives 29
33 Docket No. E002/GR-15-826 Perkett Direct
for the Granite City units were extended to 8 years resulting in an
estimated 1
decrease of $0.2 million. The total estimated impact is $11.2
million that will 2
be included in this case as it proceeds. While we were not able to
incorporate 3
the impact of the Commission’s decision into our Initial Filing, we
will do so 4
as this case moves forward. In order to inform the record at this
time, I show 5
the calculation of the impact of the Commission’s decision in my
Appendix A. 6
Ms. Heuer discusses the revenue requirement impact of this change
as well as 7
its inclusion in interim rates. 8
9
Q. CAN YOU BRIEFLY DISCUSS THE REASONS FOR THE INCREASE IN THE
10
MINNESOTA VALLEY REMOVAL COST ESTIMATE? 11
A. The cost estimate for the Minnesota Valley facility increased
due to an 12
increase in the amount of estimated asbestos and lead contaminants
that need 13
to be removed. Estimating the volume of these two contaminants is
very 14
difficult as the amounts are not readily visible thus lending it to
easy 15
measurement. The estimate also increased due to the change in
Minnesota 16
rules that requires the Company to excavate down below the
foundation and 17
remove all this structure, whereas the previous requirements only
required 18
removal of three feet below grade. Lastly, there were increased
labor costs 19
due to increases in craft labor rates and additional dismantling
planning and 20
additional costs to remove the coal pile on the site. 21
22
Q. THE REMAINING LIFE FILING EMPLOYED A RESERVE REALLOCATION. CAN
23
YOU DISCUSS WHY THIS IS A PRUDENT WAY TO HANDLE THE IMBALANCE IN
24
COSTS AT THE END OF FACILITIES LIFE? 25
A. Yes. The Company proposed a reserve reallocation in order to
balance the 26
impact of the change in cost estimate for several facilities that
were beyond 27
34 Docket No. E002/GR-15-826 Perkett Direct
their end of life and had changes in their removal cost estimates.
In the steam 1
production functional class, this reserve reallocation encompassed
the 2
Minnesota Valley plant where the estimate showed not enough was
recovered 3
for removal costs and Black Dog Units 3 and 4, where it was
estimated that 4
too much would be recovered for removal costs. The reserve
reallocation in 5
this case had the benefit of balancing out plants that had
variations in cost 6
estimates after the end of their useful life. 7
8
Reserve reallocations have been used by the Company in similar
situations in 9
the past. This includes a previous reallocation of reserve for
Minnesota Valley 10
in 2012, when the cost of removal estimate increased to account for
the 11
increased cost to remove the dam. The Company also used a reserve
12
reallocation in 2010 when the West Faribault plant was dismantled
and had 13
approximately $3 million in excess reserve collected for removal
costs. In this 14
case, the reserve reallocation benefited customers by decreasing
the amount of 15
depreciation that needed to be collected from other facilities to
which it was 16
spread. 17
18
While the Company has used the reserve reallocation method in the
past, it 19
recognizes that this technique should not be used as a substitute
for providing 20
the best estimate of the needed recovery for dismantling costs. The
Company 21
will continue to complete estimates every five years to account for
changes in 22
removal costs and when changes occur within this five year span, we
will bring 23
those changes forward in the interim in the annual depreciation
filing. 24
Spreading these costs over the useful life of the asset is the goal
of estimating 25
net salvage and coming as close as possible with estimates is key
to this goal. 26
27
35 Docket No. E002/GR-15-826 Perkett Direct
However, as long as the reserve reallocation is used sparingly, and
is used both 1
when a plant estimate is too low and too high, the method can
provide a 2
benefit to customers by allowing the Company to be conservative
with its net 3
salvage estimates and not over estimate the costs to assure full
recovery. If 4
the Company believed there was no recourse to account for small
shortfalls 5
that may occur when estimating removal costs well before
dismantlement, 6
then the natural inclination would be to provide overly pessimistic
removal 7
costs estimates. While doing so would ensure that the Company
collects 8
enough to complete dismantling, it would correspondingly increase
the risk 9
that customers overpay for removal during the life of the plant.
Having 10
reserve reallocation as an option, allows the Company to provide
realistic 11
removal cost estimates. 12
13
Q. HAS THE COMPANY PERFORMED ANY ADDITIONAL ANALYSIS TO COMPLY WITH
14
THE 2010 ANNUAL REMAINING LIVES ORDER? 15
A. As required by that Order, the Company included an evaluation of
the 16
“significant” additions to plant investment expected in the next
several years. 17
As the Company does for each remaining life filing, it reviewed the
18
appropriateness of the currently approved end-of-life dates for
production 19
facilities. The Company also reviewed any significant changes to
operating 20
plans or other regulatory changes that could provide an impetus to
change the 21
remaining life in this proceeding. 22
23
Q. HOW DID THE COMPANY DEFINE THE TERM “SIGNIFICANT” AS SET FORTH
IN 24
THE 2010 ANNUAL REMAINING LIVES ORDER? 25
A. For purposes of my testimony, “significant” additions refer to
any 26
construction activities that either singly or in combination with
another 27
36 Docket No. E002/GR-15-826 Perkett Direct
project lead to a probable extension of the current remaining life
of a 1
particular facility or unit. I believe this definition is
consistent with the 2010 2
Remaining Lives Order as it addresses the Commission’s concerns
related to 3
changes in remaining lives and the impacts of the changes on rates
for 4
customers. 5
6
Q. ARE THERE SIGNIFICANT PROJECTS THAT WOULD FURTHER IMPACT THE
7
DEPRECIATION EXPENSE IN 2016 AND ARE THESE IMPACTS INCLUDED IN THIS
8
CASE? 9
A. Yes, there are two significant production projects that would
impact 10
depreciation expense in 2016, however only one is included in this
rate case. 11
There is a new capital project at the fully depreciated St. Croix
Falls hydro 12
production facility that will be completed in July 2016. The
Company is 13
requesting a new remaining life for the facility in order to
depreciate this asset 14
over its useful life. The impact for this hydro addition has been
included in 15
this case. 16
17
In addition, the Courtenay Wind Project will go into service in
2016. Due to 18
the production assets, the Courtenay Wind Project is considered a
significant 19
addition for 2016. The Courtenay Wind Project is a 200 MW wind farm
to be 20
located near Courtenay, North Dakota. However, the Company expects
this 21
project will be included as a part of the Renewable Energy Standard
rate rider. 22
As such, Ms. Heuer explains in her testimony that the asset costs
of the 23
Courtenay Wind Project and their related depreciation are removed
from 24
general rates. Company witness Mr. Steven Mills also provides
further 25
discussion of the Courtenay Wind project. 26
27
37 Docket No. E002/GR-15-826 Perkett Direct
Q. PLEASE EXPLAIN THE NEW SIGNIFICANT PROJECT AT THE ST. CROIX
HYDRO 1
PRODUCTION FACILITY 2
A. The St. Croix Falls Hydro facility is a 23.2 MW hydro production
plant located 3
on the St. Croix River on the border between Minnesota and
Wisconsin. The 4
production facility is owned by Northern States Power
Company-Wisconsin. 5
NSPM owns the west end portion of the dam for the hydro plant that
is 6
located on the Minnesota side of the river. This portion of the
facility consists 7
of one small control house and one spillway gate. The facility is
still being 8
used to produce electricity for Northern States Power
Company-Wisconsin, 9
which may provide service to NSPM customers through the interchange
10
agreement. 11
12
On the Minnesota side, the remaining life for depreciation purposes
was 13
allowed to expire on December 31, 1996. Since that time, there have
not been 14
any major capital additions to the Minnesota portion of the
facility, so annual 15
depreciation has remained at zero dollars. In July 2016, the
Company is 16
expecting a project to replace the overlay wall on the Minnesota
side of the 17
river to go into service. The project will have a capitalized value
of 18
approximately $2.3 million to go in-service. 19
20
Q. WHAT DOES THE COMPANY RECOMMEND RELATED TO DEPRECIATION OF THE
21
NEW PROJECT AT ST. CROIX FALLS? 22
A. Without a new remaining life being approved for the facility,
the entire $2.3 23
million addition would be expensed through depreciation during
2016. To 24
avoid this situation and to acknowledge the fact that the facility
is still in use 25
for its intended purpose, the Company recommends that the remaining
life be 26
38 Docket No. E002/GR-15-826 Perkett Direct
set to correspond with the term of the facility’s current FERC
operating 1
license, which is set to expire in December 31, 2027. 2
3
Accordingly, the Company is recommending a remaining life of 12
years as of 4
January 1, 2016. With this new remaining life, 2016 depreciation
will be 5
approximately $97,000. Depreciation will be approximately $215,000
in 2017 6
when a full year of depreciation is taken on the new project. These
7
depreciation amounts are reflected in the depreciation impact shown
in Table 8
5. 9
10
Q. WHAT DOES THE COMPANY RECOMMEND FOR THE REMAINING LIFE AND NET
11
SALVAGE FOR THE NEW COURTENAY WIND PROJECT? 12
A. The Company proposes the remaining life be set to 25 years for
the Courtenay 13
Wind Project at its in service date of October 2016, which is
consistent with 14
the treatment of the Company’s Grand Meadow and Nobles Wind Farms.
15
This 25-year life is comparable to the expected remaining life
stated by the 16
manufacturer of the turbines being used at these facilities. While
wind farms 17
have become more common over the last decade, there is little
retirement 18
history available to analyze when assessing whether a different
remaining life 19
may be more accurate. The main components that would influence the
life of 20
a wind turbine are the life of the nacelle and the blade. The
Company has 21
experienced some early failures of these components, but not to a
magnitude 22
that would suggest that a different life is more appropriate.
23
24
The Company is also recommending a net salvage rate of negative 8.5
percent 25
for this project. This is consistent with the net salvage rate
proposed for the 26
new Borders Wind and Pleasant Valley Wind Projects. 27
39 Docket No. E002/GR-15-826 Perkett Direct
B. 2017 through 2020 Remaining Lives Changes 1
Q. ARE THERE SIGNIFICANT PROJECTS IN 2017 AND BEYOND THAT WOULD
2
FURTHER IMPACT THE DEPRECIATION EXPENSE IN THIS CASE? 3
A. Yes. For the production assets, the Black Dog Unit 6 Project is
a 215 MW 4
simple cycle gas plant in Burnsville, Minnesota. Please see the
Direct 5
Testimony of Mr. Mills for further discussion of this project.
6
7
Q. WHAT DOES THE COMPANY RECOMMEND FOR THE REMAINING LIFE AND NET
8
SALVAGE FOR THE NEW BLACK DOG UNIT 6? 9
A. The Company proposes the remaining life be set to 40 years for
the Black 10
Dog Unit 6 simple cycle gas plant, measured from its in-service
date of March 11
2018. The 40-year remaining life is consistent with the lives
assumed for 12
another recently added gas-fired unit, the High Bridge Other
Production plant. 13
The Company also proposes to use a net salvage of negative five
percent. 14
15
Based on the expected capital additions in 2018 for Black Dog Unit
6, the 16
proposed remaining life of 40 years as of the in-service date of
the facility, and 17
the proposed net salvage rate of negative five percent, the Company
is 18
estimating 2018 depreciation for Black Dog Unit 6 of approximately
$2.2 19
million. This represents 9.5 months of depreciation based on
project being in 20
service in mid-March 2018. A schedule showing the Total Company
21
calculation of the depreciation expense for the new gas plant is
provided as 22
Schedule 8. 23
24
Q. ARE THERE SIGNIFICANT PROJECTS IN 2019 AND 2020 THAT WOULD
FURTHER 25
IMPACT THE DEPRECIATION EXPENSE IN THIS CASE? 26
40 Docket No. E002/GR-15-826 Perkett Direct
A. At this time there we do not know of any specific projects that
would modify 1
the remaining lives or net salvage rates in 2019 and 2020. The next
removal 2
cost study for non-nuclear generating units will be filed in 2020.
However, we 3
do not have any estimate of the impact that study will have at this
time. 4
5
7
A. 2017 Five-year Depreciation Study 8
Q. WHAT IS THE PROCESS FOR CONDUCTING A TD&G STUDY? 9
A. The five-year TD&G Depreciation Study is an analysis of
annual depreciation 10
for depreciable plant in service as of a certain date. The
Depreciation Study 11
recommends new depreciation rates for Transmission Plant,
Distribution 12
Plant, and General Plant based on average life calculations and net
salvage 13
rates. 14
15
The Depreciation Study encompasses four distinct phases. The first
phase 16
involves data collection and field interviews. The second phase is
an initial 17
data analysis. The third phase evaluates the information and
analysis. Finally, 18
the fourth phase involves the calculation of depreciation rates and
documents 19
the corresponding recommendations. 20
21
Q. WHAT CHANGES DOES THE COMPANY FORESEE RESULTING FROM ITS NEXT
22
FILING? 23
A. At this time we do not foresee changes in the current average
service lives and 24
net salvage rates, except for two new assets. First, we do know
that a second 25
large base software system will be in service late in 2016 and
early in 2017. 26
This system is the Work and Asset Management (WAM) system and is
part of 27
41 Docket No. E002/GR-15-826 Perkett Direct
the conversion to the SAP system. This system replaces the PassPort
and the 1
Maximo systems. There are two versions of the PassPort system in
use at 2
NSPM, one for nuclear and one for all non-nuclear work. Since three
work 3
management systems are being replaced, the WAM additions are
projected to 4
occur over a 10 month period from November 2016 through August
2017. 5
Company witness Mr. David Harkness discusses this project in more
detail. 6
My testimony discusses the asset because we are requesting that the
WAM 7
system be assigned a 15-year amortization period, the same
amortization 8
period approved for the new general ledger system on SAP. The
system is 9
estimated to have additions of $29.4 million in 2016 and $92.1
million in 2017. 10
This results in a depreciation of $0.3 million in 2016, $5.6
million in 2017, and 11
$8.1 million in 2018. 12
13
Also, there is the new general ledger that will go into service in
December 14
2015 and the Company is not recommending any change to the
amortization 15
period from what was approved in the last case for this 2015
project. In the 16
last rate proceeding, the Company proposed a 15-year amortization
period for 17
the new general ledger system when it goes into service in December
2015. 18
The new general ledger is a large base system, which is expected to
be used 19
over a 15-year period similar to the current JD Edwards general
ledger system 20
that is being replaced. The total addition is estimated to be $35.2
million, with 21
$32.4 million being placed in service in December 2015 and $2.8
million of 22
trailing charges as bills are finalized in the first three months
of 2016. It will 23
have a half month of depreciation in 2015 with a full year of
amortization in 24
2016. The 2016 amortization is estimated to be $2.3 million.
25
Second, there are new leasehold improvements for the new general
office 26
building at 401 Nicollet Mall. The Company recommends that the
leasehold 27
42 Docket No. E002/GR-15-826 Perkett Direct
improvements be recovered over the period of the lease, which is 15
years. 1
The leasehold improvements are an addition of $16.7 million with
the 2
depreciation expense being $0.5 million in 2016 and $1.2 million in
2017 and 3
beyond. 4
5
Q. IN TOTAL, WHAT IMPACT TO DEPRECIATION EXPENSE HAS THE COMPANY
6
INCLUDED IN THIS CASE FOR 2017? 7
A. Based on the expected capital additions in 2017 of $527 million,
the Company 8
is estimating 2017 depreciation to increase approximately $13.4
million. A 9
schedule showing the Total Company calculation of the depreciation
expense 10
for the new gas plant is provided in Schedule 8. 11
12
Q. IS THE COMPANY RECOMMENDING ANY OTHER CHANGES TO AVERAGE
13
SERVICE LIVES OR NET SALVAGE PERCENTAGES FOR TD&G ASSETS IN
THIS 14
FILING? 15
B. Regulatory Asset for TD&G Theoretical Reserve Adjustments
18
Q. WHAT IS A THEORETICAL RESERVE SURPLUS? 19
A. A theoretical reserve is calculated by determining what the
depreciation 20
reserve would be at a point in time, if the current information and
21
assumptions about the life, salvage, and cost of removal had been
known since 22
the beginning of each asset’s life. For NSPM, the theoretical
reserve is 23
currently lower than the actual book depreciation reserve,
resulting in a 24
theoretical reserve surplus. It is possible for the opposite to be
true - that the 25
theoretical reserve is higher than the actual book depreciation
reserve, 26
resulting in a theoretical reserve deficiency. 27
43 Docket No. E002/GR-15-826 Perkett Direct
Q. DID THE COMMISSION’S ORDER FROM THE COMPANY’S LAST RATE CASE,
1
DOCKET NO. E-002/GR-13-868, DEFINE HOW THE REMAINING THEORETICAL
2
RESERVE SURPLUS WAS TO BE APPLIED TO 2014 THROUGH 2016? 3
A. Yes. The Commission approved the Company’s proposal to
accelerate the 4
previously approved amortization of the theoretical reserve surplus
relating to 5
transmission, distribution, and general plant from eight years to
three years. 6
Pursuant to the Commission’s decision, Xcel Energy is reducing its
book 7
depreciation reserve to the theoretical reserve by amortizing the
reserve 8
surplus of $261.2 million by 50 percent of the remaining surplus in
2014, 30 9
percent in 2015, and 20 percent in 2016. The following table shows
the 10
annual unwinding of the surplus over the four year period for a
total of $261.2 11
million, on a Minnesota jurisdictional basis. 12 Table 6 13
Theoretical Reserve Surplus 14 15 16 17 18 19 20 21
In 2017, the accumulated depreciation will no longer be in a
surplus position, 22
the negative amortization of the surplus will be complete, and
total 23
depreciation expense will therefore increase. Also, the rate base
over the four-24
year period increases by $261.2 million, resulting in additional
upward pressure 25
on revenue requirement. 26
44 Docket No. E002/GR-15-826 Perkett Direct
Q. WHAT WILL HAPPEN TO DEPRECIATION IN 2017 AND BEYOND AFTER THE
1
NEGATIVE AMORTIZATION OF THEORETICAL RESERVE SURPLUS ENDS? 2
A. It will increase due to the expiration of the amortization of
the theoretical 3
reserve surplus. Currently, the depreciation rates for the TD&G
assets are set 4
based on the average service lives and net salvage rates as
approved in Docket 5
E,G002/D-12-858. The amortization of the theoretical reserve
surplus over 6
the last four years rebalances the reserve to where it should be
for the 7
currently approved rates, assuming that these current rates were in
effect since 8
each asset’s in service date. Thus, the depreciation expense in
this case is 9
based on the approved average service life rates. 10
11
Q. DOES THIS AMORTIZATION OF THE THEORETICAL RESERVE CREATE A
12
REGULATORY ASSET? 13
A. Yes. The FERC required the Company to set up the negative
amortization of 14
the theoretical reserve surplus in Account 182.3, Other Regulatory
Assets, 15
when the Company reversed the depreciation expense through Account
407.3, 16
Regulatory Debits. In other words, the FERC does not allow the
Company to 17
record the negative amortization of the theoretical reserve surplus
in FERC 18
Account 403, Depreciation Expense and does not allow it to be
offset against 19
Account 108, Accumulated Depreciation. Therefore, the Company’s
20
reporting of depreciation expense for Minnesota regulatory purposes
21
represents Depreciation Expense, as offset by the Regulatory
Debits. 22
23
Q. IS THE COMPANY RECOMMENDING ANY CHANGES IN THIS PROCEEDING TO
24
DEAL WITH THIS THEORETICAL RESERVE REGULATORY ASSET? 25
45 Docket No. E002/GR-15-826 Perkett Direct
A. Yes. The Company proposes to unwind this regulatory asset and
requests 1
Commission approval of amortization rates to do this. These rates
are shown 2
in Exhibit___(LHP-1), Schedule 10. 3
4
Q. DOES THIS AMORTIZATION OF THE REGULATORY ASSET CHANGE THE TOTAL
5
DEPRECIATION EXPENSE RECOGNIZED IN THIS CASE? 6
A. No. This regulatory asset is the presentation used for the
Company’s U.S 7
generally accepted accounting principles (GAAP) books, and does not
affect 8
regulatory reporting or ratemaking. The amortization expense for
Minnesota 9
regulatory purposes is still computed and booked based on the
average service 10
life depreciation rates applied to the original plant balance. The
only 11
difference is that a portion of this depreciation expense is
recorded in 12
depreciation expense, and a portion is recorded in amortization
expense. In 13
the same manner, the accumulated depreciation for Minnesota
regulatory 14
purposes consists of both accumulated depreciation and the
regulatory asset. 15
This accounting is necessary to comply with the FERC’s
requirements. 16
17
Q. WHEN DOES THE COMPANY PROPOSE TO BEGIN AMORTIZING THE 18
REGULATORY ASSETS? 19
A. The Company proposes to begin amortizing the regulatory assets
in 2017, 20
after the completion of the amortization of the theoretical reserve
surplus that 21
created the regulatory assets. 22
23
Q. HOW WERE THE PROPOSED AMORTIZATION RATES CALCULATED? 24
A. For most asset accounts, the amortization rates were calculated
to amortize 25
the regulatory assets over the average remaining life of that asset
account as of 26
the beginning of 2017. Exceptions to this are proposed for assets
with 27
46 Docket No. E002/GR-15-826 Perkett Direct
average remaining lives of less than five years as of the beginning
of 2017. 1
For those assets, the Company proposes to amortize the regulatory
asset over 2
five years. 3
6
Q. WHAT IS NUCLEAR DECOMMISSIONING? 7
A. Nuclear decommissioning is the method used to accumulate the
final removal 8
costs for the Company’s three nuclear units. The amounts collected
through 9
general rates are funded externally in a trust fund per NRC rules.
The annual 10
accruals are calculated from a detailed engineering cost estimate
to remove the 11
plant and to store the fuel until the federal government takes
possession of all 12
the fuel assemblies. 13
14
Q. PLEASE FURTHER EXPLAIN THE COMPANY’S PROPOSAL REGARDING NUCLEAR
15
DECOMMISSIONING COSTS? 16
A. The Company submitted its petition for approval of the 2016-2018
Nuclear 17
Decommissioning accrual in Docket No. E002/M-14-761 on December 1,
18
2014. The accrual was to be effective January 1, 2016. The Company
19
received approval for the Minnesota Retail jurisdiction accrual in
the amount 20
of $14.0 million on August 27, 2015. 21
22
Q. HOW WILL THIS ACCRUAL BE FACTORED INTO THE CURRENT REVENUE
23
REQUIREMENT? 24
A. The new accrual has been factored into the revenue requirement
starting in 25
2016, as approved by the Commission. 26
27
Q. WHAT WAS THE PREVIOUSLY APPROVED NUCLEAR DECOMMISSIONING 1
ACCRUAL? 2
A. The previously approved Minnesota Retail jurisdictional accrual
was 3
approximately $14.2 million dollars. This amount will be accrued
through the 4
end of 2015, before switching to the new approved level on January
1, 2016. 5
6
Q. WERE THERE ANY OTHER RELEVANT CHANGES REQUESTED IN THE 2014
7
NUCLEAR DECOMMISSIONING FILING? 8
A. Yes. The study included an updated analysis of the End-of-Life
(EOL) nuclear 9
fuel to be recovered over the life of the plant. The EOL nuclear
fuel is a 10
mechanism to estimate the spike in fuel amortization that will
occur in the in 11
the last two reload periods and to spread that increase to
customers over the 12
remaining life of the nuclear units. Due to improved fuel
utilization from 13
updated multi-cycle core designs and decreased projected nuclear
fuel 14
commodity prices, the total amount to be accrued decreased by
approximately 15
$28 million. 16
17
Q. WHAT WAS THE RESULTING IMPACT OF THIS DECREASE TO THE EOL
NUCLEAR 18 FUEL TO BE RECOVERED? 19
A. The decrease in the amount of EOL nuclear fuel to be recovered
had a 20
resulting decrease of $505,514 over the accrual calculated using
the previous 21
EOL nuclear fuel cost estimate. The new accrual for EOL nuclear
fuel in the 22
Minnesota jurisdiction is $2,020,602. The accrual using the
previously 23
approved components was $2,526,116. 24
25
Q. HAS THIS IMPACT BEEN INCLUDED IN THE 2016 REVENUE REQUIREMENT?
26
48 Docket No. E002/GR-15-826 Perkett Direct
A. Yes, the update to the EOL nuclear fuel accrual has been
included in the base 1
data for the revenue requirement. 2
3
Q. HOW IS THE COMPANY PROPOSING TO HANDLE THE USE OF SETTLEMENT
4
PAYMENTS RECEIVED FROM THE U.S. DEPARTMENT OF ENERGY (DOE)? 5
A. The Company proposes that settlement payments received from the
DOE 6
related to spent nuclear fuel storage costs be refunded to
customers at the 7
time that the amount is known. We believe this addresses the
Commission’s 8
order point 9 in Docket 14-761 which states; 9
10
Within 120 days of the date of this order or in its next rate case,
Xcel 11 shall make a filing to enable the Commission to determine
the 12 appropriate method for crediting any future Department of
Energy 13 Settlement proceeds resulting from the Settlement
extension. 14
15
We will also address this in the compliance filing in the DOE
Settlement 16
Payment Docket , Docket No. E002/M-11-807, that we will file when
we get 17
our next DOE payment (which is expected in the next 120 days).
18
19
Q. IS THIS TREATMENT DIFFERENT FROM HOW THE COMPANY PREVIOUSLY
20
TREATED THESE CREDITS? 21
A. Yes. In the triennial study approved by the Commission in
December 2012 22
(Docket No. E002/M-11-939), the Company funded its annual nuclear
23
decommissioning accrual using the