Northern States Power Companies
(NSP-MN & NSP-WI)
Transmission Customer Meeting
October 27, 2015
Rate Discussion: Attachment O, GG & MM
1
Legal Disclosure
This document contains certain statements that describe the NSP Companies
management’s beliefs concerning future business conditions and prospects,
growth opportunities and the outlook for the electric transmission industry
based upon information currently available. Such statements are “forwardlooking” statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Wherever possible, NSP Companies has identified these
forward-looking statements by words such as “anticipates”, “believes”, “intends”,
“estimates”, “expects”, “projects” and similar phrases. These forward-looking
statements are based upon assumptions management believes are reasonable.
Such forward-looking statements are subject to risks and uncertainties which
could cause actual results, performance and achievements to differ materially
from those expressed in, or implied by, these statements.
2
Meeting Purpose / Objective
The purpose of today’s meeting:
• Present the projected Attachment O, GG and MM revenue requirements
for the rates that will be effective January 1 through December 31, 2016.
These revenue requirements were calculated using the NSP Companies
Tariff templates using projected net revenue requirement and projected
load.
• Review the 2016 Attachment O, GG and MM formula rate calculation cost
components relative to the 2015 calculations currently in effect.
• Discuss the pending update to the formula template to address the issue
of prorating Accumulated Deferred Income Taxes to comply with IRS
regulation Section 1.167(l)-1(h)(6)
The dates and schedules, and even the projects themselves, represent our best estimates for
projects to be initiated and completed. Please be aware that many factors could alter those
schedules, including regulatory approvals, construction resources, availability of materials, weather,
and other unforeseen events.
3
Attachment O, GG & MM Formula Rate for 2016
• Originally filed with MISO and posted on OASIS on August 31, 2015
• Update information was posted on OASIS on October 16, 2015
• MISO review of the Company’s:
Attachment O, GG, and MM with 2014 Actual Costs - Completed
Attachment O, GG and MM with 2016 Costs – In Process
The information currently on OASIS is incorporated in this presentation.
4
Attachment O Budgeted Rate Effective 1/1/2016
Based upon total Revenue Requirements Submitted to MISO
Annual Cost ($/kW/Yr)
$ 55.373
Network & P-to-P Rate ($/kW/Mo)
$ 4.614
Peak Rate
Off-Peak
Rate
Point-To-Point Rate ($/kW/Wk)
$
1.065
$ 1.065
Point-To-Point Rate ($/kW/Day)
$
0.213
$ 0.152
Point-To-Point Rate ($/MWh)
$ 13.311
$ 6.321
This is not the NSP Zone Rate. MISO calculates Zonal Rate.
5
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
6
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
7
Change in Operating Costs Detail
Operating costs in 2015 Rate
$316.0M
Increase in depreciation
$ 11.0M
Increase in income taxes
$ 5.5M
Increase in taxes other than income
$ 4.1M
Increase in O&M costs (Transmission and A&G)
$ 1.5M
Net Increase in Operating Costs
$ 22.1M
Operating costs in 2016 Rate
$338.1M
8
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
9
True-Up Calculation
2016
Prior Year Annual True-up
ATRR Component
Divisor Component
Interest on True-up
Total
2015
2014 Actual
2013 Actual
$(13.4M)
$ 9.9M
$ (0.2M)
$ (3.7M)
$ (14.8M)
$ (7.7M)
$ (1.5M)
$ (24.0M)
Change
$ 20.3M
10
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
11
Annual Revenue Requirement Determination
Function of:
Rate Base
x
Weighted Cost of Capital
12
Change in Rate Base
Total Rate Base – 2015
$2,469.6M
Net plant in service increase
$ 364.6M
Decrease in CWIP
$ (122.2M)
Increase in accumulated deferred taxes
$ (99.0M)
Decrease in other working capital
$
Net increase in rate base
Total Rate Base – 2016
(2.3M)
$141.1M
$2,610.7M
13
Change in Cost of Capital
Weighted Cost of Capital
2016
2015
D/E Ratio
Cost
D/E Ratio
Cost
LTD
47%
2.27%
47%
2.34%
Equity
53%
6.56%
53%
6.62%
8.83%
8.96%
14
Reconciliation of Change in Return for 2016
Change in Rate Base
$141.1M x 8.83%
$12.5M
PY Rate base x decrease in WCC $2,469.6M x (0.13%)
$ (3.2M)
Net change in return
$ 9.3M
The increase in the return is driven by the increase in rate base for 2016.
Actual calculation performed on whole values
15
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
16
Change in Net Revenue Credits
Revenue Credits Estimated in 2015 Rate
$(18.0M)
Lower Projected Firm Transmission GFA
$ 6.2M
Lower Projected PTP/Contracts
$ 1.9M
Revenue Credits Estimated in 2016 Rate
$ (9.9M)
Difference which increased 2016 Revenue Req
$ 8.1M
17
Comparison of 2016 Revenue Requirement to
2015 Revenue Requirement
Attachment O Net Revenue Requirement 2015
$359.2M
Cost Drivers in 2016:
Increase in Operating Costs
$ 22.1M
Decrease in Annual True-up
$ 20.3M
Increase in Return Requirement
$
9.3M
Decrease in Revenue Credits
$
8.1M
Increase in Attachment GG & MM Rev Req
$ (17.4M)
Attachment O Net Revenue Requirement 2016
$401.6M
18
MTEP Projects Included in Attachment GG Calculation
The following RECB project costs were included in the Attachment GG:
In service
1.
2.
3.
4.
5.
6.
7.
8.
9.
Cannon Falls (MTEP 1456)
Yankee (Colville) Station (MTEP 1366)
Ulik Wind (MTEP 2765)
St. Cloud – Sauk River (MTEP 1953)
Nobles Gen Station (MTEP 1457)
Upgrades for G349 (MTEP 1458)
Upgrades for G809 (MTEP 2109)
Upgrades for G417 (MTEP 2119)
Pleasant Valley-Byron (MTEP 2178)
10. Glenco-West Waconia (MTEP 1285)
11. MN Valley Kerkhoven (MTEP 3312)
12. Kohlman Lake Goose Lake (MTEP 3317)
13. Coudry Osprey (MTEP 3375)
14. Wilmarth Sub (MTEP 3104)
15. CAPX202-Bemidji-Grand Rapids 230Kv line (MTEP 279)
16. CAPX2020-Fargo- St. Cloud 345Kv line (MTEP 286)
17. CAPX2020-Rochester-Lacrosse 345Kv line (MTEP 1024)
CWIP
None at this time the Company has authority to include in the formula rate.
Total project costs included in Attachment GG : $592.6M
19
MTEP Projects Included in Attachment MM Calculation
The following RECB project costs were included in the Attachment MM:
In service
1.
CAPX2020-Brookings (MTEP 1203)
CWIP
None at this time the Company has authority to include in the formula rate
Total project costs included in Attachment MM : $444.3M
20
Components of Attachment GG & MM
Attachment GG
Attachment MM
Operating expenses (1)
$ 10.9M
$ 3.5M
Depreciation expense
$ 11.7M
$ 8.5M
Taxes other
$ 7.2M
$ 5.4M
Income taxes
$ 20.5M
$ 15.3M
Return
$ 40.2M
$ 30.2M
Rev Req for 2016 (Attachment O Deduct)
$ 90.5M
$ 62.9M
Rev Req for 2015
$ 76.2M
$ 59.8M
Increase 2016 over 2015
$ 14.3M
$ 3.1M
$17.4M
Attachment GG & MM revenue requirements are deducted from Attachment O
revenue requirements
(1) Includes Common & General depreciation calculation
21
Total Revenue Requirements Attachment GG & MM
Attachment GG
Attachment MM
2016 Annual Revenue Requirements
$ 90.5M
$ 62.9M
True-Up Adjustment
$ (3.6M)
$ 4.0M
Total 2016 MISO Billings
$ 86.9M
$ 66.9M
22
Pending Updates to Formula Template
Calculation of Accumulated Deferred Income Taxes in accordance
with IRS Regulation Section 1.167(l)-1(h)(6).
IRS requires future looking rate calculations to use a pro-rate
calculation to develop the ADIT rate base balance.
The Company is still working through the calculations and does
not have a final impact at this time.
The Company is working with other MISO TO’s to updated the
formula template and will request this update become effective
January 1, 2016.
The Company will post the updated 2016 revenue requirements for
Attachment O, GG and MM on OASIS once the calculation is
completed and the template change request filing has been filed with
FERC.
23
Questions?
Thank you all for attending today’s meeting
Contacts:
Carolyn M Wetterlin
Sr. RTO Manager
612-330-6599
Thomas E Kramer
Principal Rate Analyst
612-330-5866
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