8-KOther Events

XCEL ENERGY INC 8-K Report, Corporate Update (Aug 28, 2020)

Filed August 28, 2020For Securities:XELXELLL

Summary

Xcel Energy Inc. (XEL) subsidiary, Southwestern Public Service Company (SPS), has reached a settlement regarding its 2019 electric rate case with the Public Utility Commission of Texas (PUCT). Initially seeking an increase of approximately $141 million, the request was revised to $130 million before an uncontested settlement was reached in May 2020. The PUCT approved this settlement on August 27, 2020, with minor adjustments. The settlement grants an $88 million electric rate increase and establishes a zero Transmission Cost Recovery Factor. It also specifies an allowed Return on Equity (ROE) of 9.45% for AFUDC purposes and outlines specific depreciation rates for key generating units and transmission assets. Furthermore, the settlement includes robust ring-fencing measures designed to protect SPS's financial standing, such as provisions related to credit agreements, financial covenants, asset pledging, and maintaining a stand-alone credit facility. The retroactive effective date of the rate increase, September 12, 2019, means SPS will file in Q4 2020 to surcharge the final under-recovered amount. Investors should note the authorized ROE and the implemented depreciation schedules as key drivers for future revenue and cost recovery.

Key Highlights

  • 1SPS reached an uncontested settlement for its 2019 Texas electric rate case.
  • 2The approved settlement includes an $88 million electric rate increase.
  • 3The Transmission Cost Recovery Factor (TCRF) will be reset to zero.
  • 4An allowed Return on Equity (ROE) of 9.45% is set for AFUDC purposes.
  • 5Specific depreciation rates were agreed upon for Tolk and Hale generating units, with others at SPS's proposed rates.
  • 6The settlement includes significant ring-fencing measures to enhance SPS's financial stability.
  • 7Rates are retroactively effective from September 12, 2019, with a surcharge filing expected in Q4 2020.

Frequently Asked Questions

The settlement allows for an $88 million increase in retail electric base rates for SPS, which will positively impact XEL's overall revenue. Additionally, a surcharge filing in Q4 2020 will address the under-recovered amount since the retroactive effective date of September 12, 2019.

The settlement establishes an allowed ROE of 9.45% for allowance for funds used during construction (AFUDC) purposes. This is lower than the initially requested ROE in the rate case.

Ring-fencing measures are financial protections designed to isolate SPS's assets and operations, preventing them from being negatively impacted by other Xcel Energy affiliates. These include restrictions on asset pledging, cross-default provisions in credit agreements, and maintaining a stand-alone credit facility. For investors, these measures enhance the creditworthiness and financial stability of SPS, reducing risk.

The settlement was approved on August 27, 2020, and is retroactively effective from September 12, 2019. SPS will file in the fourth quarter of 2020 to surcharge the amount of revenue under-recovered since that date. The full financial impact of the $88 million rate increase will be realized as these new rates and surcharges are implemented.