8-KOther Events

XCEL ENERGY INC 8-K Report, Corporate Update (Aug 31, 2015)

Filed August 31, 2015For Securities:XELXELLL

Summary

Xcel Energy Inc. reported on August 31, 2015, that its wholly-owned subsidiary, Southwestern Public Service Company (SPS), along with several wholesale customers, filed an offer of settlement and settlement agreement with the Federal Energy Regulatory Commission (FERC). This agreement aims to resolve nine pending disputes between SPS and its wholesale production and transmission customers. The settlement is significant as it provides a comprehensive resolution to long-standing rate and cost allocation issues that have led to multiple FERC complaints and appeals. The settlement terms include substantial payments to Golden Spread Electric Cooperative, Inc. ($44.9 million) and Public Service Company of New Mexico ($4.2 million) to resolve disputes related to a 2013 FERC order on cost allocation. It also addresses return on equity (ROE) complaints, agreeing to a reduction in transmission ROE to 10.5% and production ROE to 10.0% for certain customers, effective October 20, 2014, with a moratorium on changes until December 31, 2019. Furthermore, the agreement mandates the use of a 12-coincident peak (CP) production cost allocation methodology for key customers and includes adjustments to rates and depreciation effective dates. Xcel Energy also reaffirmed its 2015 earnings guidance of $2.00 to $2.15 per share.

Key Highlights

  • 1Xcel Energy's subsidiary, SPS, has reached a settlement agreement with wholesale customers to resolve nine pending FERC disputes.
  • 2The settlement involves payments totaling $49.1 million to Golden Spread ($44.9M) and PNM ($4.2M) related to cost allocation and refund obligations.
  • 3Key rate adjustments include a reduction in SPS transmission ROE to 10.5% and production ROE to 10.0% for certain customers, effective October 20, 2014, with a moratorium through December 31, 2019.
  • 4The agreement mandates the adoption of a 12 CP production cost allocation methodology for specific customers, effective January 1, 2015.
  • 5SPS will reduce production formula rates retroactively to January 1, 2015, to reflect implemented cost reductions sooner than previously allowed by FERC.
  • 6The settlement includes provisions for sharing wholesale transmission asset sale gains starting January 1, 2016.
  • 7Xcel Energy reaffirms its 2015 ongoing earnings per share guidance of $2.00 to $2.15.

Frequently Asked Questions

The primary purpose of the settlement agreement is to provide a complete and comprehensive resolution of nine pending matters in dispute at the Federal Energy Regulatory Commission (FERC) between SPS and its wholesale production and transmission customers. This aims to end long-standing rate and cost allocation disputes.

The settlement involves significant financial components. SPS will make payments totaling $49.1 million to Golden Spread and PNM. Additionally, there are adjustments to rates, including reduced ROEs and the adoption of a new cost allocation methodology, which are expected to impact future revenues and costs. The company has recorded sufficient reserves to cover these obligations. Despite these, Xcel Energy reaffirmed its 2015 earnings guidance.

The settlement will result in reduced rates for certain customers, specifically lowering the SPS transmission ROE to 10.5% and the production ROE to 10.0% effective October 20, 2014, with a moratorium on further changes until December 31, 2019. It also mandates the use of a 12 CP production cost allocation methodology for specific customers from January 1, 2015, and retroactively applies certain cost reductions to production formula rates from January 1, 2015.

The settlement agreement terms will become effective 30 days after the FERC issues an order approving it. The parties have requested FERC approval by November 30, 2015, and anticipate that the filing will be uncontested, suggesting a relatively prompt review process.