DOCKET NO. 42004
APPLICATION OF SOUTHWESTERN
PUBLIC SERVICE COMPANY FOR
AUTHORITY TO CHANGE RATES
AND TO RECONCILE FUEL AND
PURCHASED POWER COSTS FOR
THE
PERIOD
JULY
1,
2012
THROUGH JUNE 30, 2013
§
§
§
§
§
§
§
PUBLIC UTILITY COMMISSION
OF TEXAS
DIRECT TESTIMONY
of
MICHAEL J. RODRIGUEZ
on behalf of
SOUTHWESTERN PUBLIC SERVICE COMPANY
(filename: RodriguezFRDirect.doc)
Table of Contents
GLOSSARY OF ACRONYMS AND DEFINED TERMS................................................ 2
I.
WITNESS IDENTIFICATION AND QUALIFICATIONS .................................. 3
II.
ASSIGNMENT AND SUMMARY OF TESTIMONY AND
RECOMMENDATIONS ........................................................................................ 6
III.
ACCOUNTING PROCEDURES ........................................................................... 7
IV.
DELOITTE REVIEW OF RATE FILING PACKAGE ....................................... 13
V.
CONCLUSION ..................................................................................................... 14
AFFIDAVIT ..................................................................................................................... 15
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GLOSSARY OF ACRONYMS AND DEFINED TERMS
Acronym/Defined Term
Meaning
ASC
Accounting Standards Codification
Commission
Public Utility Commission of Texas
Deloitte
Deloitte & Touche, L.L.P.
Exelon
Exelon Generating Company, L.L.C.
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles
NOx
Nitrogen oxide
Operating Companies
Northern States Power Company, a Minnesota
corporation; Northern States Power Company, a
Wisconsin corporation; PSCo; and SPS
PSCo
Public Service Company of Colorado, a Colorado
corporation
Reconciliation Period
July1, 2012 – June 30, 2013
RFP
Rate Filing Package
SO2
Sulfur dioxide
SPS
Southwestern Public Service Company, a New
Mexico corporation
Total Company or total
company
Total SPS (before any jurisdictional allocation)
Xcel Energy
Xcel Energy Inc.
XES
Xcel Energy Services Inc.
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DIRECT TESTIMONY
OF
MICHAEL J. RODRIGUEZ
1
I.
WITNESS IDENTIFICATION AND QUALIFICATIONS
2
Q.
Please state your name and business address.
3
A.
My name is Michael J. Rodriguez. My business address is 1800 Larimer Street,
12th Floor, Denver, Colorado 80202.
4
5
Q.
On whose behalf are you testifying in this proceeding?
6
A.
I am filing testimony on behalf of Southwestern Public Service Company, a New
7
Mexico corporation (“SPS”) and wholly-owned electric utility subsidiary of Xcel
8
Energy Inc. (“Xcel Energy”). Xcel Energy is a registered holding company and
9
owns several electric and natural gas utility operating companies.1
10
Q.
By whom are you employed and in what position?
11
A.
I am employed by Xcel Energy Services Inc. (“XES”), the service company
12
subsidiary of Xcel Energy. My position is Director, Utility Accounting.
13
Q.
Please briefly outline your responsibilities as Director, Utility Accounting.
14
A.
In this role, I am responsible for managing accounting personnel and performing
15
accounting and financial services related to the SPS operating company. My
16
teams support the regulatory, transmission, and market operations accounting
17
functions.
1
Xcel Energy is the parent company of four wholly owned electric utility operating companies:
Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin
corporation; Public Service Company of Colorado (“PSCo”), a Colorado corporation; and SPS
(collectively, “Operating Companies”). Xcel Energy’s natural gas pipeline subsidiary is WestGas
InterState, Inc.
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1
Q.
Please describe your educational background.
2
A.
I obtained a Bachelor of Science degree in Business Administration with an
3
emphasis in Finance from the University of Colorado, Boulder, in 1995, and a
4
Master of Business Administration degree with an emphasis in Finance and
5
Accounting from Regis University in 2011.
6
Q.
Please describe your professional experience.
7
A.
I have been employed by XES since 2005 and have held various finance and
8
accounting positions within the company.
9
In 2005, I started at XES in the Commercial Accounting organization as a
10
Team Lead. In this role, I was responsible for the accounting and settlements
11
related to SPS and PSCo commodity purchases and transport for natural gas, coal,
12
and electricity. In addition, our team handled the accounting and settlement of
13
energy purchased from independent power producers. We also worked with
14
various counterparties to settle and account for financial power and natural gas
15
hedging programs. In 2007, I was promoted to Manager, Commercial Accounting
16
Settlements and became responsible for these activities for all the Operating
17
Companies.
18
In 2009, I was promoted to Senior Manager, Wholesale Transmission
19
Revenue and Expense Accounting.
In that capacity, I was responsible for
20
budgeting, forecasting, margin reporting, and accounting activities related to
21
wholesale transmission revenue.
22
Commercial Operations organization related to its transmission expenses incurred
I performed the same duties for XES’
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1
through the use of third party transmission assets to support the movement of
2
energy. I assumed my current position in April 2012.
3
Prior to joining XES, I worked as a Senior Operations Manager at
4
Transamerica Real Estate Tax Service from 2000 to 2004. Transamerica Real
5
Estate Tax Service was a financial information services company owned by
6
Transamerica Insurance.
7
operational teams, project management, and process improvement initiatives.
In this role, I was responsible for leading various
8
Prior to Transamerica, I worked as a Finance and Accounting Officer in
9
the United States Air Force from 1995 to 2000. During my tenure with the Air
10
Force, I led teams providing financial analysis and accounting activities for both
11
flying and operations support units.
12
Q.
Have you previously filed testimony before any regulatory authorities?
13
A.
Yes. I filed testimony at the Public Utility Commission of Texas (“Commission”)
14
in Docket No. 40824, SPS’s last general rate case, on, among other topics, the
15
accounting method used to record fuel and purchased power energy expenses and
16
revenues incurred during the previous reconciliation period. I have also filed
17
testimony before the Federal Energy Regulatory Commission (“FERC”) in
18
Docket No. ER10-1377 on the settlement processes related to Northern States
19
Power Company grandfathered transmission customers.
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1
2
II.
ASSIGNMENT AND SUMMARY OF TESTIMONY AND
RECOMMENDATIONS
3
Q.
What is your assignment in this proceeding?
4
A.
I will describe the accounting method used to record fuel and purchased power
5
energy expenses and revenues incurred during the period July 1, 2012 through
6
June 30, 2013 (“Reconciliation Period”), and describe how potential
7
contingencies are handled.
8
reconciliation schedules performed by SPS’s independent auditor, Deloitte &
9
Touche, L.L.P. (“Deloitte”). Finally, I sponsor or co-sponsor the following Rate
10
Filing Package (“RFP”) Schedules related fuel and purchase power costs: H-12.1,
11
H-12.4a, H-12.4b, H-12.4c, H-12.4d, H-12.4e, H-12.4f, H-12.4g, H-12.5b,
12
H-12.5c, H-12.5d, H-12.5e, I-1.1, I-16, I-16.1, I-16.2, I-16.3, S, S-1, S-2, S-3, S-4,
13
S-5, S-6, and the portions of the Executive Summary that contain information
14
from these Schedules.
I also briefly discuss the review of the fuel
15
Q.
Please summarize the recommendations and conclusions in your testimony.
16
A.
SPS has properly accounted for its fuel expenses and revenues using Generally
17
Accepted Accounting Principles (“GAAP”).
18
following:
19
20
21
22
23
24
25
26
27
28
29
•
•
•
•
Specifically, SPS has done the
properly recorded eligible fuel and purchased power expenses in accounts
prescribed by FERC’s Uniform System of Accounts, including accounting
for the expenses and revenues related to emission allowances, as
authorized by the Commission;
properly accounted for potential fuel costs or liabilities in compliance with
Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 450, Contingencies, (formerly Statement No. 5);
properly accounted for revenue amounts collected under SPS’s fuel factors
and fuel surcharges by recording the revenue in the appropriate FERC
Operating Revenue Account; and
provided Deloitte’s report, reviewing SPS’s rate filing package schedules.
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1
2
III.
Q.
3
4
ACCOUNTING PROCEDURES
What method of accounting does SPS use to record revenues and expenses
associated with activities incurred as a result of business operations?
A.
SPS uses the accrual method of accounting as required by GAAP to record
5
revenues and expenses. These revenues and expenses are recorded in accounts
6
prescribed by the FERC Uniform System of Accounts and are in accord with the
7
Substantive Rules adopted by the Commission.
8
Q.
9
H-12.4b, H-12.4c, H-12.4d, H-12.4e, H-12.4f, H-12.4g, H-12.5b, H-12.5c,
10
11
How did SPS determine the expenses shown on Schedules H-12.1, H-12.4a,
H-12.5d, and H-12.5e?
A.
SPS used the amounts recorded to the General Ledger for the Reconciliation
12
Period. As required by GAAP, SPS employs the accrual method of accounting,
13
under which SPS records an estimated amount for expenses incurred during the
14
month. This estimate may include amounts for which an invoice has not yet been
15
received. After SPS receives the invoice or obtains more (or better) information
16
related to an estimate, or there is a change in a regulatory or accounting principle,
17
the expense is trued-up. In the case of an expense related to an invoice, the books
18
are revised to reflect the actual invoiced amount. This true-up typically occurs the
19
following month. Thus, in a given month, recorded expenses may include the
20
accrual for the current month, the true-up of the prior month’s accrual to actual
21
invoiced amounts, and adjustments as they become known.
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1
Q.
2
3
Are there any other reasons the expense amounts shown on those schedules
may be trued-up?
A.
Yes. In general, true-up adjustments are also made necessary by such things as
4
resolved disputes, corrections of errors, changes in the method used to develop
5
estimates, the acquisition of more or better information about the cost estimate,
6
changes in regulatory principles, and changes in accounting principles.
7
Q.
8
9
Why is there sometimes a difference between costs reported on fuel
reconciliation schedules and SPS’s General Ledger?
A.
The amounts shown on the schedules may not match the monthly amounts
10
recorded on SPS’s books because of timing differences. Fuel and purchased
11
power energy expenses are recorded in the General Ledger based upon estimates
12
for the current month. The following month these estimates are trued-up to the
13
actual verified invoice costs.
14
Reconcilable Fuel Costs, are actual invoiced amounts for the operational month.
15
These actual invoiced amounts are reflected in the books, but are usually recorded
16
in the following month’s set of General Ledger entries. For this reason, the
17
amounts recorded in the Reconciliation Period portion of these schedules may not
18
match the amounts on the SPS General Ledger.
19
Q.
20
21
22
For example, the amounts on Schedule I-16,
In what accounts does SPS record eligible fuel and purchased power
expenses?
A.
Fuel costs are recorded in FERC Accounts 501-Fuel from Steam Generation,
503-Steam from Other Sources, and 547-Steam from Other Generation.
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1
Purchased power energy expenses are recorded in FERC Account 555-Purchased
2
Power.
3
Q.
4
5
How did SPS determine its fuel and purchased power energy expenses for the
schedules in the Rate Filing Package?
A.
SPS used actual invoiced fuel expenses for fuel for the operational month as
6
found in Schedules I-16 and I-17. SPS used amounts recorded to the General
7
Ledger for purchased power expenses as found in Schedules H-12.4 and I-22.
8
Q.
9
10
Please describe the types of events that result in accounting adjustments to
fuel and purchased power energy expenses.
A.
Accounting adjustments for fuel and purchased power energy expense include,
11
but are not limited to, items such as corrected invoices, transportation and
12
interruptible delivery services paid but not accrued, compensating tax not accrued,
13
allowances received from suppliers, corrections of data input errors, and
14
resolution of disputed amounts.
15
Q.
16
17
Aside from accounting adjustments, were any fuel-related costs included in
fuel expense during this Reconciliation Period?
A.
Yes. The cost of emission allowances and the revenues for sales of emission
18
allowances for sulfur dioxide (“SO2”) and nitrogen oxide (“NOx”) were included
19
in fuel costs in accordance with authorization granted in prior dockets. In Docket
20
No. 29801,2 SPS was authorized to include both the revenues and costs of selling
21
and purchasing SO2 allowances as eligible fuel revenues and expenses. In Docket
2
Application of Southwestern Public Service Company for: (1) Reconciliation of Its Fuel Costs
for 2002 and 2003; (2) a Special Circumstances Finding; and (3) Related Relief, Docket No. 29801,
Findings of Fact Nos. 53-56 (Dec. 19, 2005).
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1
No. 38147, SPS was authorized to include all costs of selling and purchasing NOx
2
allowances as eligible fuel revenues and expenses.3
3
Q.
4
5
What is the total amount of SO2 and NOx emission costs and credits included
in the fuel reconciliation?
A.
During the Reconciliation Period, SPS credited $251 (total company) to eligible
6
fuel expense for SO2 allowances sold. SPS did not incur any costs for SO2
7
allowances during the Reconciliation Period.
8
eligible fuel expense $2,492 (total company) of NOx allowance costs. SPS did
9
not sell any NOx allowances during the Reconciliation Period.
10
Q.
11
12
SPS incurred and included in
What are the accounting criteria for recognizing potential fuel costs or
liabilities as incurred fuel costs for accounting purposes?
A.
Under GAAP, according to FASB ASC 450, Contingencies (formerly Statement
13
No 5), there is a specific set of conditions that must be satisfied before a claim or
14
a potential liability for fuel costs is recorded in the books of SPS. The conditions
15
that must be met are briefly described as follows:
16
(1)
it is probable (likely to occur) that a liability was incurred; and
17
(2)
the amount of the liability may be reasonably estimated.
18
Accordingly, a claim or a potential liability may be asserted against SPS by a
19
third party, but if the claim or potential liability does not meet the conditions of
20
FASB 450 as applied by SPS, then no liability for the fuel cost is currently
21
accrued for accounting purposes.
3
Application of Southwestern Public Service Company For Authority to Change Rates And To
Reconcile Fuel and Purchased Power Costs for 2008 and 2009, Docket No. 38147, Finding of Fact No.
18(i) (March 25, 2011).
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1
Q.
Please describe a situation where GAAP prescribes an accounting treatment
2
that will result in the recording of a fuel cost that may have occurred in a
3
prior period.
4
A.
The most common situation in which this issue arises involves a dispute between
5
SPS and a third party regarding a potential cost. If and when it is ultimately
6
determined that SPS owes additional money, the amount found to be due would
7
be recognized as an accrued liability for fuel cost at that time. When that occurs,
8
the liability for that fuel cost would be considered probable and reasonably
9
estimable and it would be recorded in the month the conditions were determined
10
to have been met. In many cases, the timing of when the liability is recorded
11
would be considered as an out-of-period adjustment for fuel reconciliation
12
purposes.
13
Q.
Are there any significant potential fuel costs that SPS has not recorded under
14
GAAP as accrued costs because SPS contests the validity of the claim
15
asserted by the third party?
16
A.
I am aware of only one such situation. SPS is required by law to purchase wind
17
energy from qualifying facilities now owned by multiple entities that are indirect
18
subsidiaries of Exelon Generation Company, L.L.C. (“Exelon”). Exelon acquired
19
the facilities from John Deere Renewables, L.L.C.
20
underpaid it by tens of millions of dollars for wind energy delivered since 2005,
21
and SPS disputes these claims.
22
overview of this litigation in his fuel reconciliation direct testimony. SPS has not
Exelon claims SPS has
SPS witness Jeffrey C. Klein provides an
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1
recognized the disputed amount as a purchased power expense, but will do so in
2
the future if and when the conditions of FASB ASC 450 are met.
3
Q.
Are there situations in which significant potential fuel costs are accrued
4
because SPS believes it has incurred a fuel cost liability, but subsequent
5
events lead to a contrary conclusion?
6
A.
Yes. SPS will accrue a liability if it is determined to meet the criteria consistent
7
with FASB ASC 450 described above. If at a later date SPS determines that the
8
conditions for the liability no longer exist, the accrual for the liability will be
9
reversed. Favorable FERC decisions, legal outcomes, or Commission rulings are
10
11
examples of changing circumstances that may lead to a reversal.
Q.
In addition to fuel and purchased power energy expenses, Schedule I-22
12
contains revenue amounts that were collected under SPS’s fuel factors and
13
fuel surcharges. How has SPS accounted for these revenue amounts?
14
A.
As required by the FERC Uniform System of Accounts, SPS has properly
15
accounted for this revenue by recording it in FERC Operating Revenue Accounts:
16
440-Residential Sales; 442-Commercial and Industrial Sales; 444-Public Street
17
and Highway Lighting; and 445-Other Sales to Public Authorities.
18
Q.
Are the revenue amounts ever adjusted?
19
A.
Yes.
Revenues billed to SPS customers may be adjusted due to billing
20
corrections, meter reading problems, and data entry errors. These adjustments are
21
made when identified and the customers’ bills are adjusted accordingly. The net
22
adjustment is reflected in the revenues of SPS’s books for the month in which the
23
correction is completed.
24
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2
IV.
Q.
3
4
DELOITTE REVIEW OF RATE FILING PACKAGE
Has anyone else reviewed SPS’s RFP schedules containing accounting and
financial related information for fuel costs?
A.
Yes. In addition to the SPS witnesses who sponsor or co-sponsor SPS’s RFP
5
schedules, SPS’s independent auditor, Deloitte, reviewed the schedules containing
6
the accounting and financial related information, including the fuel-related
7
schedules. The Deloitte review of the Reconciliation Period was based upon the
8
scope and procedures outlined in Schedule S-1 of the RFP. Deloitte’s report is
9
provided in the S Schedules to the RFP.
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1
2
V.
Q.
3
CONCLUSION
Were the portions of the RFP schedule(s) you sponsor or co-sponsor
prepared by you or under your supervision and control?
4
A.
Yes.
5
Q.
Do you incorporate the portions of SPS’s RFP schedule(s) sponsored or
6
co-sponsored by you into this testimony?
7
A.
Yes.
8
Q.
Does this conclude your pre-filed direct testimony?
9
A.
Yes.
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