PUBLIC DOCUMENT - TRADE SECRET DATA EXCISED
Direct Testimony and Schedules
Darla A. Figoli
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-13-868
Exhibit___(DAF-1)
Employee Compensation and Benefits
November 4, 2013
Table of Contents
I.
Introduction
1
II.
Executive Summary
3
III.
Necessity of Providing Competitive Level of Compensation and
Benefits
A. Demand for Skilled Workforce
4
B. Hiring Challenges
7
C. Retention Challenges
IV.
12
Total Rewards Program Overview
15
A. Compensation and Benefits Offered by Company
13
B. Compensation and Benefit Levels Are Comparable to
Market
1. Total Cash Compensation Study
17
2. Health, Welfare and Retirement Benefits Study
V.
VI.
5
18
22
Cash Compensation
25
A. Base Salary
25
B. AIP
29
1. Test Year AIP Expense
30
2. Benefits of Incentive Compensation
32
3. Structure of the Company’s AIP
34
4. Changes to the AIP
39
5. Reasonableness of Including AIP in Rates
41
6. AIP Compliance
42
C. Nuclear Retention Program
50
D. Spot on Award Recognition Program
53
Active Health and Welfare Costs
i
57
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VII.
VIII.
Employee Retirement Programs
65
A. Defined Benefit Plan
66
B. Pension Restoration Expense
73
C. Defined Contribution Plan
76
D. Retiree Medical Expense
77
E. Summary of Progress on Reducing Retirement Costs
78
Conclusion
80
Schedules
Statement of Qualifications
Schedule 1
Program Components and Costs
Schedule 2
Towers Watson Compensation Study (Non-Public)
Schedule 3
Towers Watson BENVAL® Study (Non-Public)
Schedule 4
2011, 2012, and 2013 AIP Documents
Schedule 5
Dental, Vision, Life Insurance, and Disability Summary
Schedule 6
Prefiled Discovery (Non-Public)
Appendix A
ii
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I. INTRODUCTION
2
3
Q. PLEASE STATE YOUR NAME AND OCCUPATION.
4
A.
5
My name is Darla A. Figoli. I am the Vice President, Human Resources for
Xcel Energy Services Inc.
6
7
Q. PLEASE SUMMARIZE YOUR QUALIFICATIONS AND EXPERIENCE.
8
A.
As Vice President of Human Resources (HR), I oversee Workforce Strategy
9
and Consulting, Talent Management (Staffing, Recruiting, EEO and
10
Employee Relations, and Learning and Development), Total Rewards
11
(Compensation, Employee Benefits for Retirement and Health and Welfare),
12
Payroll and HR Operations, and HR Strategy and Performance (Strategy,
13
Workforce Planning and Analytics).
14
Exhibit___(DAF-1), Schedule 1.
My resume is included as
15
16
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
17
A.
I support Northern States Power Company’s (NSPM or the Company) request
18
to recover in electric rates the 2014 test-year costs associated with our
19
employee compensation and benefits, which are elements of the Company’s
20
Total Rewards Program.
21
22
Q. ARE
YOU PROVIDING ANY INFORMATION IN RESPONSE TO THE ORDERING
23
POINTS IN THE COMMISSION’S SEPTEMBER 3, 2013 ORDER IN DOCKET NO. 12-
24
961?
25
26
27
28
A.
Yes. In Section V.B. of this testimony, I respond to ordering point number
30, which provides as follows:
Xcel shall evaluate the goals set for its annual incentive program to
determine if they are too lenient or if they actually require stretching
1
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1
2
3
to meet; the Company shall file the results of the evaluation in its
next rate case.
4
Further, in Section VII.A. of this testimony, I respond to ordering point
5
number 45, which provides as follows:
6
7
8
9
10
11
12
13
In the initial filing of its next rate case, Xcel shall discuss the extent
of any and all of its exploration and evaluation of freezing, or
otherwise amending, prior pension benefits and expanding the
application of the five percent Cash Balance pension fund
formulary to its veteran active employees hired prior to
introduction of this formulary benefit (for both the non-bargaining
and bargaining unit employees).
14
Company witness Mr. Gene H. Wickes also responds to ordering point
15
number 45.
16
17
Q. DO
18
19
YOU
PROVIDE
ANY
ADDITIONAL
INFORMATION
RELATED
TO
COMPENSATION AND BENEFITS?
A.
Yes. To prepare testimony for this case, we reviewed the discovery related to
20
compensation and benefits from Docket No. 12-961. I have incorporated
21
some of those discovery responses into my testimony through expanded
22
discussion and schedules. We are also providing additional information in the
23
form of pre-filed discovery, which can be found in Appendix A to my
24
testimony. Appendix A also provides a list of each information request from
25
the 2013 rate case that we have incorporated into this case, indicating where it
26
is included in my testimony or schedules, or if it is provided in Appendix A.
27
2
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II. EXECUTIVE SUMMARY
2
3
Q. PLEASE PROVIDE AN EXECUTIVE SUMMARY OF YOUR TESTIMONY.
4
A.
In the Company’s recently concluded rate case, (Docket No. 12-961), I
5
provided testimony describing not only the components of our Total Rewards
6
Program, but also the HR challenges the Company is facing.
7
testimony, I again describe the elements of the Total Rewards Program, most
8
of which are unchanged. I will also explain that the HR challenges described
9
in several previous rate cases are continuing and in fact have become more
10
acute. For instance, I have previously discussed that our workforce is aging
11
and that we expect retirements to increase. As I will discuss in more detail,
12
those retirements have begun to materialize, and we expect to have to replace
13
at least half of our workforce within the next 10 years due to retirements and
14
other types of attrition.
In this
15
16
Stability among our employee base is particularly crucial in a complex and
17
highly skilled industry such as ours. Many of our positions require several years
18
of experience and hands-on training before employees can make meaningful
19
contributions to our workforce. Thus, it is imperative that we retain these
20
employees and make use of their skills after we have invested the necessary
21
resources and training in them. It is equally important that we retain more
22
seasoned employees, especially as more and more of them near retirement.
23
These individuals are key contributors with a deep understanding of our
24
business. Transitioning their knowledge to our younger generation of workers
25
in an orderly fashion will help our business be prepared for our customer’s
26
future energy needs.
27
3
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My testimony will demonstrate that the Company’s Total Rewards Program
2
costs are reasonable, market-competitive and necessary to run our business.
3
Although there is not one overall market study to support our entire Total
4
Rewards Program, we use several independent market studies to confirm that
5
our individual compensation components are in line with the median. We are
6
therefore confident that our overall Total Rewards Program is comparable to
7
what other utilities and companies offer.
8
9
The increasing pressure of our recruiting, retention, and retirement challenges
10
is exacerbated by the fact that we have not been recovering our full cost of
11
doing business. Further under-recovery of our Total Rewards Program costs
12
will jeopardize our ability to attract, retain, and motivate the employees
13
necessary to provide essential utility services. The Commission’s approval of
14
the full recovery of these fundamental costs is necessary to allow the Company
15
to sustain our performance going forward, and to provide safe, reliable electric
16
service to our customers.
17
18
19
20
21
III. NECESSITY OF PROVIDING COMPETITIVE LEVEL OF
COMPENSATION AND BENEFITS
Q. WHAT
22
23
CHALLENGES IS THE
COMPANY
FACING WITH RESPECT TO ITS
WORKFORCE?
A.
The Company is facing a multitude of challenges with respect to its workforce.
24
The electric industry is becoming more complex and technically demanding,
25
with additional reliability and environmental requirements at both the federal
26
and state levels. At the same time, we are facing more competition than ever
27
for the employees who have the skills and training to fulfill those roles in the
28
Company, particularly as the overall economy improves.
4
Moreover, a
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significant portion of the Company’s workforce is eligible for retirement,
2
which makes it imperative for us to hire, train, and retain new employees as
3
well as retain those who are retirement eligible so that knowledge transfer can
4
occur. Critical to meeting these challenges is offering compensation and
5
benefits that are comparable to the compensation and benefits offered by the
6
employers with whom we compete for talent (i.e., market comparable).
7
8
9
A.
Q. WHAT TYPES OF EMPLOYEES ARE NECESSARY FOR THE COMPANY TO PROVIDE
10
11
Demand for Skilled Workforce
ELECTRIC SERVICE TO ITS CUSTOMERS?
A.
The Company needs a wide range of employees to help us provide reliable and
12
safe energy, such as linemen, accountants, human resource specialists,
13
engineers, protection system technicians, transmission and balancing authority
14
operators, welders, chemists, call center representatives, technical instructors,
15
pricing consultants, power traders, load forecasters, fleet mechanics, billing
16
specialists, radiation protection specialists, reliability analysts, compliance
17
coordinators, environmental analysts, and many more.
18
19
Q. DO YOU HAVE A BREAKDOWN OF YOUR OVERALL WORKFORCE?
20
A.
Yes. At a high level, over 75 percent of the Company’s employees based in
21
Minnesota are linemen, engineers, plant system operators, and other
22
employees in skilled field positions. The remaining employees support our
23
customers, regulators, investors, other employees, and the administration of
24
our business.
25
26
Q. WHAT TYPES OF SKILLS ARE NECESSARY TO PERFORM THESE JOBS?
5
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1
A.
We expect our employees to have a variety of technical, communication,
2
interpersonal and educational skills. From entry-level positions through the
3
Company’s senior management team, the requisite skill-set bar is high.
4
For example, the Transmission Control Center is responsible for monitoring
5
and controlling the high-voltage electric grid owned by NSPM in Minnesota,
6
South Dakota, and North Dakota. The Transmission Control Center employs
7
staff on a 24/7 basis to ensure a continuity of power supply from generating
8
sources to distribution supply points. These employees must have detailed
9
knowledge of each transmission function to effectively accomplish their job.
10
11
Q. USING CONTROL CENTER
12
13
OPERATORS AS AN EXAMPLE, IS IT DIFFICULT TO
FIND QUALIFIED CANDIDATES TO FILL THOSE JOBS?
A.
Yes. The Control Center operators interface with many different engineering
14
and field departments on a daily basis and require knowledge of those
15
specialties to effectively communicate with their peers. Specifically, they must
16
have an understanding of the physics of power flow similar to that of an
17
electrical engineer, must have a mechanical understanding of substation
18
equipment similar to our field forces, and must understand protective relay
19
devices similar to a relay technician.
20
required to be certified by the North American Electric Reliability
21
Corporation (NERC) and must maintain their certification by completing 200
22
hours of approved training every three years. In addition to needing that
23
knowledge, the Control Center employees are operating a dynamic system that
24
requires them to respond to system events in a matter of minutes to ensure
25
that the NSPM transmission system is operated reliably and that customers
26
who experience outages regain service as quickly as possible. Working in a
27
Transmission Control Center is a stressful job, similar to that of air traffic
6
Control Center staff members are
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controllers, and our operators must be available at all times to ensure that our
2
customers have reliable access to electricity. This combination of skills is not
3
readily found in the market place.
4
5
Q. WITH WHOM DOES XCEL ENERGY COMPETE FOR QUALIFIED EMPLOYEES?
6
A.
Xcel Energy competes for talent within both the utility and the non-utility
7
sectors. Utility-sector competition generally takes place for jobs specific to
8
utility operations and the delivery of utility services, such as Control Center
9
operators like those discussed above, engineers, plant operators, technicians,
10
welders, and machinists. We also compete with other utilities for corporate
11
employees such as regulatory accountants and load forecasters. In addition,
12
we compete with non-utility employers for jobs that are not specific to
13
utilities, such as finance and accounting analysts, marketing analysts, designers,
14
information technology specialists, human resource generalists, and customer
15
service representatives.
16
17
B.
Hiring Challenges
18
Q. PLEASE DESCRIBE THE RECRUITING CHALLENGES.
19
A.
Prospective employees with the specific skill sets and training required for
20
technical or specialized careers are in high demand. There is a limited pool of
21
candidates, and the Company competes for them on a national, regional and
22
local basis. In fact, some of the employee positions that we need to fill, such
23
as engineers and nuclear technicians, are in such high demand that their
24
compensation rates are growing faster than other positions.
25
unique nature of many of our highly technical utility jobs, we need to hire
26
experienced employees that can perform in their roles quickly as opposed to
27
being able to source entry-level talent.
7
Due to the
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Q. PLEASE PROVIDE AN EXAMPLE OF THE COMPANY’S RECRUITING CHALLENGES.
2
A.
One example relates to our ability to attract engineers.
In addition to
3
competing with other utilities, we compete with consulting firms who
4
generally offer significantly higher pay and benefits, according to feedback we
5
receive from candidates. Due to the highly technical nature of the engineering
6
responsibilities at Xcel Energy, we must often hire engineers with a senior
7
level of experience, which is difficult to accommodate in our pay range.
8
Recently we searched for two engineer openings and found no candidates that
9
were willing to accept pay in the range in which we offer. It isn’t uncommon
10
for us to have to hire at higher job levels and provide additional benefits such
11
as paid time off to mitigate the overall compensation loss for newly hired
12
engineers.
13
14
As another example, we have experienced challenges finding Senior Technical
15
Instructors for our Safety area, particularly those that have experience as
16
substation journeymen, relay technicians, and substation engineers. They are
17
difficult to hire either because we cannot match their salary expectations or
18
because they accept offers from other utilities.
19
20
Lastly, we have experienced difficulty hiring Senior Accounting/Financial
21
professionals who have Big 4 Public Accounting experience. These applicants
22
are in high demand, and many other companies have pay ranges that are more
23
attractive to candidates than our pay ranges.
24
25
26
Q. AT A NATIONAL LEVEL, WHAT IS DRIVING THE INCREASE IN COMPETITION IN
THE COMPANY’S LABOR MARKET?
8
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1
A.
There are several developments on a national level that are making it more
2
difficult to recruit qualified applicants.
3
As discussed in more detail later in my testimony as well as by Company
4
witness Mr. Timothy J. O’Connor, the nuclear industry is facing a shortage of
5
experienced and highly-skilled workers. Employees with utility and nuclear
6
generation-related experiences are in short supply, working at nuclear plants
7
requires an extensive set of specific skills, knowledge and expertise, and there
8
is national and international demand for this unique skill set. The persistent
9
demand for nuclear employees has caused and continues to cause market
10
compensation rates to rise in comparison to other professions. There will be
11
increased pressure going forward to match market rates and be competitive.
12
In fact, in 2012 we implemented a retention program for key nuclear
13
employees in critical positions to mitigate our retention risk and slow down
14
management turnover. I will explain the success of this program later in my
15
testimony.
16
17
In addition, attacks on cyber security are becoming increasingly common, and
18
threats to information security can significantly impact any business.
19
defend against emerging threats, we are raising the level of employee expertise
20
and sophistication of our critical systems by making investments in our people
21
and our technology. Xcel Energy has over 50 critical systems that are deemed
22
to be required for delivery of our gas and electric services, satisfaction of
23
regulatory compliance requirements, and continuation of core business
24
functions. There is a competitive market for skilled cyber security talent
25
among utilities and other businesses who are facing similar threats to their
26
information systems.
To
27
28
Q. ARE THERE REGIONAL RECRUITING ISSUES?
9
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1
A.
Yes. In recent months the unemployment rates in North Dakota and South
2
Dakota have stood at 3.0 percent and 3.8 percent, respectively, the lowest and
3
second lowest rates in the nation.1 In fact, the demand for workers in North
4
Dakota has caused the average annual wage in the oil and gas industry to
5
approach $80,000 in some parts of the state.2 It is reasonable to assume that
6
the employment opportunities in North Dakota and South Dakota are
7
contributing to some of our recruiting challenges.
8
9
Q. ARE
10
11
THERE ANY UNIQUE RECRUITING CHALLENGES WITHIN THE STATE OF
MINNESOTA?
A.
Yes. According to the Bureau of Labor Statistics, Minnesota had a 5.1 percent
12
unemployment rate in August 2013, the tenth lowest in the country and well
13
below the national average of 7.2 percent. According to the Minnesota
14
Department of Employment and Economic Development, Minnesota has
15
more Fortune 500 firms per capita than all but one state, and Minnesota has
16
the tenth-most Fortune 500 companies in the nation.3 The 19 Fortune 500
17
companies in the state include some of the world’s most recognized brands
18
and firms, such as 3M and General Mills, with whom we compete for
19
engineers and other skilled employees. In addition, there are five investor-
20
owned electric utilities that serve Minnesota, as well as numerous cooperatives
http://www.bls.gov/web/laus/laumstrk.htm (accessed on Oct. 17, 2013).
http://www.twincities.com/national/ci_23813112/north-dakota-oil-county-workers-had-highest-state
(accessed on Oct. 17, 2013).
3 http://www.positivelyminnesota.com/Business/Locating_in_Minnesota/Major_Companies_
Employers/Fortune_500_Companies.aspx (accessed on Oct. 17, 2013).
1
2
10
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with whom we also compete for talent.4
2
Minneapolis and St. Paul are above the national average.5
Finally, the costs of labor in
3
4
Q. HAS THE COMPANY EXPERIENCED DIFFICULTY IN ATTRACTING EMPLOYEES TO
5
6
WORK IN MINNESOTA?
A.
Yes. As one example, we recently tried to hire relay technicians who are
7
responsible for conducting the final system check and testing of relays after
8
the engineering design work has been completed. Because relay technicians
9
have specific skills that can only be learned on the job, employees with those
10
skills are in high demand throughout the United States, and we often have to
11
conduct national searches to find qualified candidates. Recently, we met with
12
15 relay technicians who worked for a plant that was shutting down in
13
California. For various reasons, none of the 15 candidates wanted to relocate
14
to Minnesota.
15
16
Q. WHAT IS THE COMPANY DOING TO ADDRESS THESE RECRUITING CHALLENGES?
17
A.
The Company has developed creative ways to address our recruiting
18
challenges.
For example, we have an award-winning program expressly
19
designed to recruit and hire veterans of the United States armed forces.6 We
20
actively recruit veterans because their skills translate well to a utility
21
environment, and their work ethic is outstanding. Service in the military
22
demonstrates leadership skills, high performance standards, and commitment
23
to teamwork. Currently, about 10 percent of Xcel Energy’s employees are
http://www.puc.state.mn.us/puc/electricity/utility-companies/investor-owned-electric/index.html;
http://www.puc.state.mn.us/puc/electricity/utility-companies/cooperatives/index.html (accessed on Oct.
17, 2013)
5 Source: ERI, September 2013 data.
6 Xcel Energy was named one of GI Jobs’ Top 100 Military Friendly Employers for the last five years and
won the Most Valuable Employer for Military by CivilianJobs.com.
4
11
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military veterans, with many represented in management, but the need for
2
new, qualified employees grows with more than half of our workforce eligible
3
to retire.
4
5
C.
Retention Challenges
6
Q. PLEASE DESCRIBE THE RETENTION ISSUES FACING THE COMPANY.
7
A.
Many of our retention issues are related to our recruiting challenges. Just as
8
we have a need for skilled candidates, so do other utilities and energy industry
9
participants.
Our employees are viable candidates for other utilities and
10
energy industry participants because of the experience, knowledge and skills
11
they have acquired while working for the Company.
12
13
For example, we face competition in both recruitment and retention of our IT
14
employees, specifically those who deal with our Energy Management System
15
(EMS) and SCADA (Supervisory Control and Data Acquisition). Retention
16
has been a challenge due to a number of reasons, including significant
17
demands on the staff, limited resources, and higher compensation offers from
18
competing utilities. Also, the learning curve for an EMS Electric SCADA
19
analyst is significant, typically three-plus years. Based on the experience
20
required and the steep learning curve, we typically recruit highly experienced
21
analysts with utility experience for open positions, and there is a very limited
22
pool of applicants for our positions.
23
24
Q. DO YOU HAVE CONCERNS OVER ATTRITION LEVELS WITHIN THE COMPANY?
25
A.
26
Yes. As shown in Table 1 below, except for 2009, when employees felt
uncertain about retiring or pursuing new job opportunities because of the
12
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deep recession the U.S. economy experienced beginning in 2008, NSPM’s
2
attrition rate has held steady in the five to six percent range.
3
4
5
Table 1
NSPM Attrition by Year
2009
2010
2011
2012
2013
3.29%
5.58%
4.96%
6.03%
6.10%*
6
7
*Includes actual numbers through August 2013 and is trended through year end.
8
On a going-forward basis, we project that attrition will remain at the same
9
level or rise even higher; particularly as many members of our aging workforce
10
retire. 7 Our attrition projection, which is shown in Figure 1, has had an 88
11
percent accuracy rate in the prior year.
12
13
14
Figure 1
NSPM Attrition Forecast
Attrition Forecast of the Current Workforce
(Retirement and Non‐retirement)
70%
60%
50%
NSPM Leadership
40%
NSPM Engineers
NSPM Technical Union
30%
NSPM Company (NSPM Total)
20%
Service Company (XS Total)
10%
0%
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
15
Retirement projections for the current year are based on employee age, years of service, and retirement
program. For future years, these values are updated, and the results are recalculated. The probability-ofretirement metrics are based on actuarial studies by Towers Watson using Company data. Non-retirement
attrition includes resignation, death, termination for cause, severance, etc. Projections are for employees
not eligible to retire and are based on historical Company attrition. Data represented is cumulative.
7
13
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Although annual attrition in the five to six percent range may not seem
2
significant at first glance, it essentially means that we will need to replace over
3
half of our workforce within the next 10 years, including many employees with
4
specialized knowledge.
5
6
Q. IS THE COMPANY PREPARING FOR THIS UPCOMING LOSS OF KNOWLEDGE AND
7
8
9
10
SKILLS?
A.
Yes. We are taking a number of steps to ensure that we are developing and
capturing the knowledge and skills needed to run our systems effectively:
• Apprenticeships. We have over 30 apprenticeship programs across our
11
generation, transmission, and distribution functions.
In these
12
apprenticeship programs, which may span two, three or even four years,
13
employees receive formal and on-the-job training to develop technical
14
skills, and we have oversight committees to measure the employees’
15
development and progress.
16
• Technical Skills. We provide training programs that support over 1,400
17
qualification programs which ensure employees' technical skills are
18
maintained, and we videotape specialized subject matter experts
19
performing key plant functions and technical activities in order to
20
preserve that knowledge for future new employees.
21
• Knowledge Transfer. We have a self-directed knowledge transfer process in
22
place to ensure that key information is transferred from one employee
23
to another employee. The goal of the process is to help managers
24
identify, prioritize, and transfer critical knowledge from employees who
25
are leaving the organization due to retirement or other forms of
26
attrition.
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• Leadership Program. We have a pre-supervisory leadership development
1
2
program and a core leadership program.
We have a leadership
3
succession plan with development plans for successors for critical
4
positions.
5
program; in 2014, we are enhancing our new leader development
6
program and creating a high-potential development program.
In 2013, we added a frontline leadership development
• Rotational Programs. Many business areas have rotational programs where
7
8
employees learn different skills that enable knowledge transfer.
• e-Learning. We have over 50 e-learning options on non-technical topics.
9
10
11
Q. DO THESE INITIATIVES ENSURE THAT THE COMPANY WILL BE ABLE TO OFFSET
12
13
THE DETRIMENTAL EFFECTS OF ATTRITION?
A.
No. These initiatives will help us impart, preserve, and transfer knowledge,
14
but they must be offered in tandem with a compensation package that is
15
sufficient to attract and retain employees.
16
17
IV.
TOTAL REWARDS PROGRAM OVERVIEW
18
19
A.
Compensation and Benefits Offered by the Company
20
Q. WHAT ARE THE ELEMENTS OF THE TOTAL REWARDS PROGRAM?
21
A.
22
The Total Rewards Program includes the following components of
compensation and benefits:
23
• Total Cash Compensation consisting of our base salary, the Annual
24
Incentive Program (AIP), a nuclear attraction and retention program for
25
certain nuclear employees, and a recognition program.
26
• Active health and welfare programs primarily consisting of medical,
27
pharmacy, dental, disability, vision, and life insurance coverage for our
15
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employees and their families, plus employee long-term disability and
2
workers’ compensation.
3
• Retirement Program consisting of a defined benefit pension plan, a defined
4
contribution 401(k) savings plan, and retiree medical benefits for
5
employees who retired prior to the year 2000.
6
7
Q. IS
8
9
THE
COMPANY
SEEKING TO INCLUDE ALL OF THE COSTS OF THE
TOTAL
REWARDS PROGRAM IN ITS TEST YEAR COST OF SERVICE?
A.
No. We are not requesting rate recovery of long-term incentive compensation
10
costs, we are capping our requests for AIP recovery, and we are not seeking
11
recovery of costs associated with certain pension benefits for our senior
12
executives.
13
14
Q. WHAT
15
16
IS THE TEST YEAR LEVEL OF COSTS THAT THE
COMPANY
SEEKS TO
RECOVER FOR EACH ELEMENT?
A.
17
Table 2 sets forth Total Rewards Programs costs on a Minnesota electric basis
for the Test Year.
18
19
20
Table 2
Total Rewards Program Costs in 2014 Test Year
Type of Benefit
AIP
Test Year Expense Amount
(State of MN Electric Jurisdiction8)
$17,584,311
Nuclear retention
$694,736
Pension
$20,626,967
(Qualified tax treatment: $19,938,109
Non-qualified tax treatment: $688,858)
8
Numbers are provided net of Interchange Agreement billings to NSPW where appropriate.
16
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Supplemental Executive Retirement Plan
(SERP)
$0
401(k)
$8,012,615
Active health and welfare
$36,443,475
Retiree medical
$4,099,992
LTD and workers’ compensation
$3,789,620
Spot On Award Recognition
$179,051
1
2
Q. HOW DO THOSE TEST YEAR AMOUNTS COMPARE TO ACTUAL TOTAL REWARDS
3
4
PROGRAM COSTS IN PRIOR YEARS AS WELL AS THE 2013 BUDGET?
A.
The actual amounts of Total Reward Program Costs for prior years and the
5
2013 budget, segregated by capital and expense, are set forth in my
6
Exhibit___(DAF-1), Schedule 2.
7
8
9
B.
Q. DO ANY INDEPENDENT STUDIES DEMONSTRATE THAT THE COMPANY’S TOTAL
10
11
Compensation and Benefit Levels Are Comparable to Market
REWARDS PROGRAM IS CONSISTENT WITH MARKET VALUES?
A.
Yes. Although I am not aware of a single study that compares the entire array
12
of cash compensation, health and welfare benefits, and retirement benefits
13
among companies, we have an independent study from Towers Watson
14
showing the reasonableness of the Company’s total cash compensation. We
15
have another independent study showing the reasonableness of the
16
Company’s health and welfare benefits and retirement benefits. I provide
17
both of these studies as Exhibit___(DAF-1), Schedules 3 and 4, respectively.
18
Together, these studies demonstrate that the Company’s Total Rewards
19
Program is reasonable.
20
17
Docket No. E002/GR-13-868
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1
Q.
2
3
WHY DOESN’T THE COMPANY USE A SINGLE STUDY TO COMPARE TOTAL CASH
COMPENSATION AND BENEFIT PROGRAMS AMONG COMPANIES?
A.
It is my experience as an HR professional that broad-based studies evaluating
4
both cash compensation and benefits are neither helpful nor insightful for
5
confirming market comparability. Where separate studies are able to analyze
6
individual components of a benefit program, overall studies need to be
7
adjusted for demographic differences across multiple organizations so that the
8
analysis is focused on differences in plan design provisions, as opposed to an
9
actual dollar value of a program. Therefore, it is more typical, efficient, and
10
meaningful for companies, including ourselves, to assess the market-
11
competitiveness of these components separately. I will also note, a single
12
study would be more difficult to administer because overall benefit programs
13
are broad-based with numerous complex components that are measured
14
differently than pay.
15
participants, such as us, could be less certain about responding to survey
16
questionnaires.
This could lead to less reliable results as study
17
18
1.
19
Q. BRIEFLY
20
21
Total Cash Compensation Study
SUMMARIZE THE FINDINGS OF THE TOTAL CASH COMPENSATION
STUDY PERFORMED BY TOWERS WATSON.
A.
As shown in Table 3 below, the 2013 Towers Watson compensation study
22
finds that, with the inclusion of the AIP, Xcel Energy’s median total cash
23
compensation levels are generally in line with or slightly below those of other
24
utilities. Without the AIP, however, the median total cash compensation
25
provided by Xcel Energy would be well below the overall utility market and
26
would put Xcel Energy at a material disadvantage in the competition for
27
employees with the skills the Company needs.
18
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1
2
Table 3
Components of
Xcel Energy
Compensation
Compared to Base
Salaries and Incentive
of Utilities with Similar
Revenues (Revenue
Sample)
Compared to Base
Salaries and
Incentive of Utilities
Across the Nation
(National Sample)
Base Salary Only
Below Market
By 15.5%
Below Market
By 12.9%
Target Total Cash
Compensation
(Base Salary + Target
Incentive)
Below Market
by 3.8%
Below Market
by 0.1%
Total Cash Compensation
(Base Salary + Incentive
Capped at 15% )
Below Market by 5.9%
Below Market by 3.1%
3
4
Q. WHAT INFORMATION IS THE TOWERS WATSON COMPENSATION STUDY BASED
5
6
ON?
A.
Towers Watson obtains the information through an annual survey that is open
7
to participants for a few months each year. In 2013, the survey was conducted
8
from March through May. The survey information requested is reflective of
9
the pay rates and incentive compensation in effect at a single point in time.
10
We provided the Company rates of pay that were effective as of March 2013,
11
per the survey instructions.
12
The other participants in the survey, which are part of a comparison group of
13
U.S. electric and gas companies similar in size to Xcel Energy Inc. with median
14
revenues of $4 billion, also provided information to Towers Watson during
15
the period of March through May 2013.
16
19
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1
Q. DOES
THE COMPENSATION INFORMATION SUBMITTED BY OTHER COMPANIES
2
INCLUDE
3
RATES?
4
A.
2014
INCREASES, OR DOES IT INCLUDE ONLY
2013
COMPENSATION
The pay rates used reflect the compensation levels in place at the time the
5
survey was completed (March – May 2013) in accordance with the survey
6
instructions.
7
8
Q. WHAT
9
SALARY INFORMATION SUBMITTED TO
10
11
WAS THE PERCENTAGE INCREASE REFLECTED IN THE
TOWERS WATSON
COMPANY’S
AS COMPARED TO
THE PREVIOUS YEAR’S STUDY?
A.
We provided Towers Watson the pay rates that were in effect as of March 16,
12
2013, which was a three-percent average increase over the pay rates effective
13
March 2012.
14
15
Q. IS IT COMMON FOR COMPANIES TO RELY UPON STUDIES SUCH AS THE TOWERS
16
WATSON COMPENSATION STUDY FOR COMPENSATION COMPARISON PURPOSES?
17
A.
Yes.
It is very common for companies trying to ensure that their
18
compensation is market-competitive to use independent consulting firm
19
survey data for benchmarking purposes.
20
21
Q. IS
THE
TOWERS WATSON
22
COMPANY
23
COMPENSATION LEVELS?
24
A.
COMPENSATION STUDY THE ONLY STUDY THE
RELIES UPON FOR PURPOSES OF BENCHMARKING ITS TOTAL CASH
No. The Company routinely uses a number of additional third-party surveys
25
to compare its total cash compensation levels, merit pay increases, and
26
programs to those of other firms, including both other utilities and non-
20
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1
utilities. These studies are discussed further below in the section regarding the
2
Company’s cash compensation.
3
4
Q.
5
6
WHAT IS THE
COMPANY’S
PRINCIPAL OBJECTIVE WHEN IT PERFORMS ITS
BENCHMARKING COMPARISONS?
A.
Our goal in reviewing such survey information is to determine the market-
7
competitive compensation rate for a given job and skill set, considering
8
companies with which Xcel Energy competes for talent.
9
10
Q. DOES THE COMPANY SET SALARIES FOR POSITIONS USING SUCH THIRD-PARTY
11
12
DATA?
A.
Yes. Using the data provided by third-party surveys, the Company selects
13
benchmark positions that are representative of the Company’s similar
14
positions. We then use the compensation data provided by the survey (for the
15
position being evaluated) to select the appropriate pay grade within our salary
16
structure for that position. After we determine where a particular position
17
should be placed within our salary structure, an employee’s compensation
18
within the pay grade will be determined based on several factors, including
19
experience, skills, and performance.
20
For each eligible pay grade within the salary structure, the Company also sets
21
annual incentive compensation targets. The employees in those pay grades
22
have the ability to earn a target AIP payout if levels of performance are met
23
under Xcel Energy’s AIP. Just as we determine our base salary ranges by
24
looking to market survey data, we also set our AIP targets to deliver market-
25
comparable total cash compensation based on those same surveys. Survey
26
data is refreshed and received every year so that we can ensure our salaries and
27
incentive opportunities remain competitive.
21
Docket No. E002/GR-13-868
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1
2
Q. WHAT
3
4
DO YOU CONCLUDE REGARDING THE MARKET-COMPETITIVE NATURE
OF THE COMPANY’S TOTAL CASH COMPENSATION?
A.
The Towers Watson compensation study demonstrates that, with the inclusion
5
of the AIP, the Company’s total cash compensation levels are in line with the
6
market. However, if the AIP were excluded, our total cash compensation
7
would lag the market by 15.5 percent (compared to utilities with similar
8
revenues), which would put us at a material disadvantage when competing for
9
talented employees.
10
11
Q. PLEASE
EXPLAIN WHAT YOU MEAN WHEN YOU STATE THAT AN EMPLOYEE’S
12
TOTAL CASH COMPENSATION WOULD LAG THE MARKET BY
13
WITHOUT AIP.
14
A.
15.5
PERCENT
Assume that the market rate for a particular job is $100 per year, and that
15
other employers are paying $100 per year to employees who are capable of
16
performing that job. Our base salary for that job would be $84.50, but with
17
the AIP the employee would have the opportunity to earn $100. Or stated in
18
the negative, without the AIP, the Company’s employees would earn only
19
$84.50 for performing the same job that other employers would pay them
20
$100 to perform.
21
22
23
2.
Q. YOU
Health, Welfare and Retirement Benefits Study
INDICATED EARLIER THAT THE
COMPANY
ALSO HAS AN INDEPENDENT
24
STUDY DEMONSTRATING THE REASONABLENESS OF THE HEALTH AND
25
WELFARE AND RETIREMENT PROGRAM BENEFITS COMPONENT OF ITS
26
REWARDS PROGRAM. PLEASE DESCRIBE THAT STUDY.
22
TOTAL
Docket No. E002/GR-13-868
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1
A.
Towers Watson collects health, welfare, and retirement benefit plan provisions
2
from hundreds of employers in all industry sectors and measures the value of
3
these programs. The study or analysis, known as BENVAL®, is conducted for
4
each benefit separately as well as on an entire health, welfare and retirement
5
benefit program basis. The study presents relative value assessments of the
6
competitiveness of a corporation’s entire benefit program. It is based on a
7
common set of actuarial assumptions and a standard employee population that
8
is a representative sample of large U.S. companies. Thus, the analysis
9
establishes a controlled environment in which differences in value among
10
employer plans are exclusively a function of differences in plan design
11
provisions. The results are normalized to a scale where a company providing
12
the average benefit value would be shown at 100. Higher amounts reflect
13
companies who provide benefits above the average, while lower amounts are
14
shown for companies whose benefits are below the peer group average.
15
16
Q. BRIEFLY SUMMARIZE THE FINDINGS OF THE BENEFITS STUDY PERFORMED BY
17
18
TOWERS WATSON.
A.
The BENVAL® study compares new hire retirement and health and welfare
19
benefit programs provided by 42 energy industry companies. As shown in
20
Table 4 below, the Company’s overall new hire health, welfare, and retirement
21
benefit program is ranked in the lowest quartile. For additional information
22
please see Exhibit ____ (DAF-1), Schedule 4, which is a copy of the study.
23
24
Table 4
New Hire
Benefit Program
Non-bargaining
Ranking
23
NSP Bargaining
Ranking
Docket No. E002/GR-13-868
Figoli Direct
Entire Program
(Health, Welfare and
Retirement)
Retirement
(defined benefit, defined
contribution, retiree
medical)
Health and Welfare
(medical, dental, paid time
off, life insurance, disability
insurance)
38 of 42
39 of 42
39 of 42
39 of 42
17 of 42
29 of 42
1
2
Q. WHERE DOES YOUR NEW HIRE RETIREMENT PROGRAM RANK IN COMPARISON
3
4
TO PEER COMPANIES?
A.
Our retirement program for new hires ranks as one of the lowest among peer
5
companies. When we changed our pension plan from the Pension Equity
6
Plan (PEP) to a 5% Cash Balance Plan for new hires, we knew we were
7
leading the industry with the reduction in our pension benefit level.
8
Ultimately, we thought that we would be closer to the median once other
9
companies began making the same type of pension benefit reductions.
10
However, we have found that our peer companies have not moved as quickly
11
as Xcel Energy with this particular change.
12
13
Q. WHERE DOES YOUR LEGACY RETIREMENT PROGRAM RANK IN THIS STUDY?
14
A.
This program was not evaluated in the study, but based on our knowledge of
15
plan designs we believe our legacy retirement program would benchmark
16
slightly lower than our peer companies median retirement programs.
17
18
Q. WHAT
19
20
21
DO THE TWO STUDIES SHOW INSOFAR AS THE
COMPANY’S
OVERALL
CASH COMPENSATION AND BENEFITS PROGRAMS ARE CONCERNED?
A.
The two studies demonstrate that the Company’s overall level of
compensation and benefits is at or, in our current case, slightly below the
24
Docket No. E002/GR-13-868
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1
median level of total compensation and benefits offered by peer companies.
2
We believe an overall level of total rewards that is at or slightly below the
3
median strikes a fair balance between the interests of the Company and its
4
customers.
5
6
V. CASH COMPENSATION
7
8
Q. WHAT COSTS FOR CASH COMPENSATION HAS THE COMPANY INCLUDED IN THE
9
10
2014 TEST YEAR?
A.
The components of cash compensation in the test year are base salary
11
(including Paid Time off (PTO)), AIP, the nuclear retention program, and our
12
Spot On Recognition program. In combination, these components are used
13
to compensate employees at a level that is consistent with the market. I will
14
discuss each of them in the following subsections.
15
16
A.
Base Salary
17
Q. HOW ARE BASE SALARY MERIT INCREASES EARNED?
18
A.
Consistent with the Company’s pay-for-performance and market-competitive
19
pay philosophy, managers determine the merit increase amount to award
20
based on an employee’s performance (including additional skills acquired by
21
the employee), position in the salary range (an indicator of market), and
22
internal equity. Because merit increases are based on these factors, some
23
employees may earn less than the budgeted increase or no increase at all, while
24
some employees may earn more than the budgeted increase percentage. Merit
25
increases are not cost-of-living increases, and we do not have a separate cost-
26
of-living raise.
25
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1
Q. WHAT IS INCLUDED IN THE 2014 TEST YEAR BUDGET AS IT PERTAINS TO MERIT
2
3
BASE SALARY INCREASES FOR NON-BARGAINING EMPLOYEES?
A.
4
We included the costs budgeted for providing non-bargaining employees with
2014 merit increases equal to a three percent increase in base salary.
5
6
Q. HOW WAS THE 2014 TEST YEAR BUDGET CALCULATED?
7
A.
In accordance with our budgeting process described below, we used the
8
headcount and base salaries in effect as of March 2013 and applied a three
9
percent increase to those values.
10
11
Q. DOES YOUR BUDGET INCLUDE PAID TIME OFF (PTO)?
12
A.
Yes. Though we do not carve out the costs of PTO separately for rate
13
recovery, it is included as a component of an employee’s base salary and
14
therefore in the base salary cost.
15
16
Q. HOW
17
18
DOES THE
COMPANY
DETERMINE THE ANNUAL BUDGET FOR MERIT
INCREASES?
A.
For non-bargaining employees, we initially budget for merit increases on a
19
five-year forward-looking basis. Each March, we refine the budget using our
20
current workforce information and each employee’s base salary at that time.
21
We then calculate the budgeted merit increase for the following five years
22
using target merit increase percentage values that are based on several factors,
23
including:
24
• review of external market surveys regarding base salary increases;
25
• comparison of potential or negotiated wage increases to our bargaining
26
27
employees;
• economic conditions; and
26
Docket No. E002/GR-13-868
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• Company performance.
1
2
3
By balancing these several considerations, the budgeted merit increase allows
4
us to meet our challenges while being fair and reasonable to our employees
5
and customers.
6
7
For bargaining unit employees, the general wage increases are part of the
8
negotiation process and are included in the collective bargaining agreements.
9
10
Q. WHAT IS INCLUDED IN THE 2014 TEST YEAR BUDGET AS IT PERTAINS TO MERIT
11
12
BASE SALARY INCREASES FOR BARGAINING EMPLOYEES?
A.
At the time the rate case cost of service was closed during the third quarter of
13
2013, the collective bargaining contract was set to expire, and the Company
14
had not yet reached a new contract with the union. For that reason, the
15
Company assumed a three percent increase for bargaining employees in the
16
test year. We felt this was reasonable since it is consistent with market values.
17
18
Q. PRIOR TO FILING THIS RATE CASE, DID THE COMPANY MAKE ANY PROGRESS IN
19
20
REACHING A NEW COLLECTIVE BARGAINING AGREEMENT?
A.
Yes, in fact, on October 24, 2013, the union ratified a new collective
21
bargaining agreement with the Company.
The new collective bargaining
22
agreement, which will be in effect during the test year, reflects a 2.6 percent
23
merit increase. The Company appreciates the merit increase it budgeted for in
24
the test year and the merit increase agreed to in the new collective bargaining
25
agreement are different.
26
propose an adjustment in rebuttal testimony to resolve this difference.
It is my understanding that the Company will
27
27
Docket No. E002/GR-13-868
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1
Q. WHY
2
3
IS A THREE PERCENT MERIT BASE SALARY INCREASE FOR NON-
BARGAINING EMPLOYEES APPROPRIATE FOR 2014?
A.
The Company regularly compares its total cash compensation levels merit pay
4
increases, and programs to those of other companies, including other utilities
5
and non-utilities. Surveys demonstrate that a three percent increase in base
6
salary is comparable to what the market is providing in 2014.9 In particular,
7
six different survey sources10 project 2014 base salary increases to fall within
8
the following ranges:
• 3.0 - 3.3 percent for all utilities on a national basis;
9
10
• 2.8 - 3.0 percent for all companies on a national basis; and
11
• 3.0 percent for the Minneapolis area.
12
13
These independent surveys include a comprehensive representation of many
14
companies, both in the utility and general industry. The number of companies
15
participating in the surveys ranges from 300 to 2,124. Using numerous salary
16
increase survey sources provides us with reliable data on the salary increase
17
trends in the market.
18
19
Q. IN
THE
2012
ELECTRIC RATE CASE, THE
20
GLOBAL INSIGHT
21
TEST YEAR AMOUNT FOR MERIT INCREASES.
22
THE SAME APPROACH AGAIN?
COMPANY
AGREED TO USE THE
INFLATION FACTOR FOR PURPOSES OF DETERMINING THE
WHY DIDN’T THE COMPANY TAKE
See http://www.usatoday.com/story/money/personalfinance/2013/09/18/how-much-of-a-pay-raisecan-you-expect-in-2014/2832791/ (accessed on Oct. 17, 2013).
10 WorldatWork ”2013-2014 Salary Budget Survey;” The Conference Board “2013-2014 Salary Increase
Budget Survey Results;” Towers Watson, “2013 General Industry Salary Budget Survey;” Culpepper,
“Salary Budget & Compensation Planning Survey Results 2013-2014;” Mercer “2013/2014 US
Compensation Planning Survey Report;” and Aon Hewitt “U.S. Salary Increase Survey 2013-2014.”
9
28
Docket No. E002/GR-13-868
Figoli Direct
1
A.
As we have explained in prior rate cases, the Global Insight inflation factor
2
does not measure market values of cash compensation. Rather it is simply an
3
inflationary factor used for general budgeting purposes. Additionally, I believe
4
the Global Insight inflation factor consistently undervalues the level of cash
5
compensation we need to provide to be comparable to market values. As a
6
result, we calculated our test year costs for merit increases from reliable market
7
data points designed specifically for this purpose rather than the Global
8
Insight inflation factor.
9
10
Q. WHAT WOULD BE THE OUTCOME IF YOUR MERIT BASE SALARY INCREASES ARE
11
12
NOT CONSISTENT WITH OTHER UTILITIES?
A.
The Towers Watson compensation study cites Xcel Energy’s Total Cash
13
Compensation as lagging the market by 3.8 percent. Over a series of years, if
14
not allowed to maintain a yearly market competitive program, or if required to
15
continue the use of Global Insight inflation factors for calculating merit
16
increases, the gap between our base salaries and market base salaries will
17
continue to grow and further impact our ability to attract and retain the
18
employees needed to provide service to our customers.
19
20
B.
AIP
21
Q. WHAT IS THE COMPANY’S ANNUAL INCENTIVE PROGRAM?
22
A.
The Company’s AIP is a form of incentive compensation offered to exempt,
23
non-bargaining employees. Please see Exhibit ____ (DAF-1), Schedule 5 for a
24
copy of the most current AIP document, which is the 2013 document, as well
25
as the AIP documents for 2011 and 2012.11
11 The AIP document is not generally approved and finalized until the first quarter of the year, and
therefore the 2014 AIP document will not be available until early 2014.
29
Docket No. E002/GR-13-868
Figoli Direct
1
2
1.
3
Q. WHAT
4
YEAR?
5
A.
6
Test Year AIP Expense
AMOUNT OF
AIP
EXPENSE IS THE
COMPANY
SEEKING FOR THE
TEST
The AIP costs included in the 2014 test year are $17,584,311 for the State of
Minnesota, Electric Jurisdiction.
7
8
Q. HAVE YOU CAPPED YOUR AIP REQUEST IN THIS CASE IN ANY WAY?
9
A.
Yes. We have excluded any AIP amounts over 15 percent of any individual’s
10
base salary, which carries out the Commission’s intent when it originally
11
implemented the base salary cap in our 1992 Rate Case.12 This is also consistent
12
with the outcome of our last electric rate case.13 Please see Ms. Heuer’s
13
testimony for a description of this adjustment to the test year.
14
15
Q. IS THERE ANY OTHER WAY YOU HAVE LIMITED YOUR AIP REQUEST?
16
A.
Yes. We have again used the four-year average methodology we used in the past
17
several electric rate cases. Specifically, our request in this case reflects the four-
18
year average ratio of payout to the AIP performance target. Table 5 below
19
shows the actual AIP and target AIP for the most recent four-year period (2009
20
to 2012). As shown, the four-year average is 107 percent. We do not scale the
21
request for a four-year average above 100 percent.
22
23
24
Table 5
NSPM (Total Company) AIP Amount Paid Compared to Target
Year
12
13
Actual AIP
($000s)
Docket Nos. E002/GR-92-1185 and G002/GR-92-1186.
Docket No. E002/GR-12-961.
30
Target AIP
($000s)
% Paid to
Target
Docket No. E002/GR-13-868
Figoli Direct
2009
$27,891
$24,708
113%
2010
$28,218
$27,283
103%
2011
$27,343
$28,995
94%
2012
$29,731
$25,302
118%
4-Year Average Payout (2009 through 2012)
107%
1
2
Q. HOW HAS THE COMPANY’S BUDGETING PROCESS HISTORICALLY COMPARED TO
3
4
LEVELS OF AIP ACTUALLY PAID?
A.
As noted above, our budgeting process is conservative because it does not
5
account for any AIP costs that may be paid above the target level of AIP, and
6
it is subject to review by other internal business units like Accounting, who
7
take other factors into consideration and may reduce the budget level further.
8
As a result, and as evidenced by Table 6 below, our budgeting process has
9
historically resulted in AIP budgets that have been lower than the actual level
10
of AIP paid.
11
12
13
Table 6
NSPM (Total Company) Budgeted versus Actual AIP
Year
100% Target AIP
Budgeted AIP
Actual AIP
($000s)
($000s)
($000s)
2009
$24,708
$24,708
$27,891
2010
$27,283
$23,191
$28,218
2011
$28,995
$24,646
$27,343
2012
$25,302
$21,507
$29,731
2013
$25,412
$25,412
Not yet paid
14
15
Thus, because of our conservative budgeting process, the 15 percent cap of base
16
salary, and our use of a four-year average capped at 100 percent, our AIP
31
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Figoli Direct
1
request for rate recovery is narrow and will most likely be below our actual AIP
2
costs in the 2014 test year.
3
4
Q.
DO
ANY INDEPENDENT STUDIES DEMONSTRATE THAT THE
5
OVERALL
6
CONSISTENT WITH MARKET VALUES?
7
A.
CASH
COMPENSATION
PROGRAM,
INCLUDING
COMPANY’S
THE
AIP,
IS
Yes, as I described earlier, the Towers Watson compensation study compares
8
our cash compensation program to programs offered by other utilities and
9
demonstrates that without the AIP, our median total cash compensation
10
would be well below the overall utility market.
11
12
13
2.
Q. IS
14
15
Benefits of Incentive Compensation
INCENTIVE COMPENSATION A COMMON APPROACH TO PROVIDING CASH
COMPENSATION IN THE UTILITY AND GENERAL INDUSTRIES?
A.
Yes. Companies generally provide cash compensation either through base
16
salary only, or through a combination of base salary and incentive
17
compensation. Like NSPM, most companies use a combination of base pay
18
and incentive compensation.
19
20
The use of incentive compensation by employers is a prevalent practice
21
throughout the United States. In fact, performance-based award programs, in
22
which compensation must be re-earned each year, remained very high in 2013,
23
with 90 percent of employers using this type of program according to an Aon
24
Hewitt survey of 1,147 U.S. companies.14 According to the 2013 Towers
25
Watson total cash compensation study, 99 percent of utilities in the national
14
Aon Hewitt “US Salary Increase Survey,” 2013.
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1
sample maintain an annual incentive plan, and 100 percent of utilities in the
2
revenue-based sample maintain an annual incentive plan.
3
4
Q. WHY
5
6
DO YOU BELIEVE THE USE OF INCENTIVE COMPENSATION IS SO
COMMON?
A.
I believe the widespread use of incentive compensation is due to two
7
fundamental benefits: (1) it promotes superior employee performance; and (2)
8
it reduces labor costs.
9
10
Q. HOW DOES INCENTIVE COMPENSATION AFFECT EMPLOYEE PERFORMANCE?
11
A.
A fundamental tenet of incentive compensation is that it is a powerful way to
12
promote superior employee performance. The role of incentive pay is to align
13
compensation with results, and it is better than a base-pay-only approach in
14
this respect. Research has shown that pay-for-performance can positively
15
impact performance, but it must be seen as being tied to performance.15 In
16
particular, the incentive amount can be reduced or eliminated, resulting in
17
below-market cash compensation, when performance metrics are not met.
18
This approach motivates employees to perform at a higher level because they
19
are compensated for doing so.
20
21
Q. HOW
22
23
DOES THE
COMPANY’S AIP
PROMOTE SUPERIOR PERFORMANCE FROM
EMPLOYEES?
A.
Incentive pay is one of the strongest ways to motivate employee performance
24
consistent with Company objectives. In our case, providing reliable, safe
25
electric service to our customers is the most important objective. Our AIP
See http://www.shrm.org/hrdisciplines/compensation/articles/pages/cms_005592.aspx, (accessed
Oct. 17, 2013)
15
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1
directly aligns Company objectives and customers’ interests by awarding
2
incentive compensation when individual, business area and corporate
3
components achieve goals that promote overall customer satisfaction,
4
reliability, and safety. By reinforcing positive employee performance that is
5
tied to customer benefit-oriented components, the AIP serves as a catalyst for
6
improving customer service and satisfaction.
7
superior employee performance that consequently benefits customers through
8
more efficient and higher quality service.
Thus, the AIP helps drive
9
10
Q. DOES XCEL ENERGY’S AIP PROVIDE COST SAVINGS FOR CUSTOMERS?
11
A.
Yes. If the Company offered only a base-salary approach, a merit increase
12
would become an annual fixed cost on the entire cash-based compensation.
13
In contrast, the AIP requires the employee to re-earn the incentive reward
14
every year, and if performance expectations are not met incentive pay is
15
reduced or eliminated.
16
permanent fixed cost. Thus, by moving a portion of each employee's pay
17
from base pay to incentive pay, the AIP reduces our overall labor costs by
18
avoiding the compounding effect of annual base pay increases. Utilizing
19
incentive compensation also tends to reduce benefit costs. An employee’s
20
base salary is a core factor in calculations that determine benefits earned under
21
retirement programs and certain health and welfare programs.
22
Company was to pay all cash compensation in base salaries, total benefit costs
23
would most likely increase as well.
Incentive pay, therefore, does not become a
If the
24
25
26
3.
Structure of the Company’s AIP
Q. PLEASE DESCRIBE THE COMPANY’S AIP PROGRAM.
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1
A.
The Company’s AIP uses metrics specifically focused on providing benefits to
2
customers in the form of greater efficiencies in operations, increased customer
3
satisfaction,
4
environmental leadership, and higher safety levels. Each eligible employee has
5
a targeted annual incentive expressed as a percentage of base salary. The
6
percentage is determined by position or level within the organization and,
7
when combined with the employee’s base salary, delivers a market-competitive
8
level of total cash compensation. If an individual employee has unsatisfactory
9
performance for the year, he or she will not receive an incentive award
10
improved
reliability,
increased
employee
engagement,
regardless of corporate and business area performance.
11
12
Q. PLEASE DESCRIBE IN MORE DETAIL THE PERFORMANCE COMPONENTS OF THE
13
14
AIP.
A.
The AIP includes the following components in Table 7:
15
16
Table 7
Performance
Component
Types of Goals within
Component
Purpose of Goals within
Component
Individual
The individual component is based
on the individual performance
results of specific goals identified
by the employee and his or her
manager.
Goals are tied specifically to
the employee’s job functions
and competencies and are
developed in alignment with
business area and corporate
objectives.
Business Area
The business area component
consists of goals and key
performance indicators specific to
the business area in which the
employee works.
Goals are typically comprised
of measures related to
operational performance and
are aligned to the corporate
scorecard goals and priorities.
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Corporate
The corporate component consists
of goals and key performance
indicators focused on operational,
environmental and safety
measures. There are no financial
measures or goals on the corporate
scorecard.
Goals represent customer and
employee interests.
1
2
Q. HOW ARE THE GOALS IN EACH COMPONENT MEASURED?
3
A.
For the individual component, employees have performance goals tied to their
4
job functions and their leaders assess their performance against these goals no
5
less than twice per year. The business area and corporate components use key
6
performance indicators (KPIs), which are designed to measure the relevant
7
goals. Each business area uses a scorecard that contains several KPIs specific
8
to that business function.
9
10
Q. HOW ARE SCORECARDS AND KPIS DESIGNED?
11
A.
Scorecards and KPIs are designed to drive superior employee performance,
12
which in turn delivers benefits to our customers. The program’s success is
13
dependent on setting the right goals.
14
professional, this makes sense because if the goals are too easy to achieve, the
15
Company and its customers gain little because incentives are paid for goals the
16
employees would have likely achieved without the AIP. If the goals are too
17
difficult to achieve, employees may see them as a disincentive. I will discuss
18
below the process the Company undertakes to ensure that the goals are
19
sufficiently demanding but do not represent a disincentive.
From my perspective as an HR
20
21
Q. HAS THE CORPORATE SCORECARD BEEN MODIFIED?
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1
A.
Yes. Earnings Per Share (EPS) of Xcel Energy stock was removed as a
2
Corporate Goal beginning in 2012.
The goals and KPIs for the 2013
3
Corporate Scorecard are provided in Table 8 below:
4
Table 8
Goal
Operational
Excellence
Value to the
Customer
Employee
Safety and
Engagement
Environmental
Leadership
Key
Performance
Indicator (KPI)
Measurement
System Average
Interruption
Duration Index
(SAIDI)
SAIDI measures the average annual duration of
sustained interruptions seen by the average electric
customer on our system.
Unplanned
Outage Rate
(UOR)
UOR measures the percentage of time when a
generating plant is not available for reasons other
than planned outages.
Public Safety
Index
The Public Safety Index measures our performance
in public safety.
Customer Value
The existing Voice of the Customer (VOC) survey,
which has been conducted since 2005, measures
survey responses from residential, small business,
and large business customers to the question:
Considering the price you pay relative to the quality of the
products and services you receive, how would you rate Xcel
Energy’s overall value?
OSHA
Recordable
Incident Rate
The Occupational Safety & Health Administration
(OSHA) Incident Rate is used to measure safety
performance. OSHA Incident Rate is the standard
measurement used in the utility and general industry.
Employee
Engagement
Our ability to utilize the full potential of our
workforce requires that we foster a culture of
engagement. Research shows that engaged
employees are safer, more productive, commit more
of their discretionary effort, and bring more positive
energy to the communities we serve.
Demand Side
Management
(GWh)
We measure actual results compared to goals
presented in Demand-Side Management (DSM)
programs filed and accepted by state regulators.
5
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1
Q. HOW DO THESE CORPORATE GOALS BENEFIT CUSTOMERS?
2
A.
These corporate goals are designed to benefit all of our customers. The
3
Operational Excellence goal benefits our customers because it focuses on
4
reliability. Our SAIDI KPI focuses our employees on ensuring SAIDI is kept
5
at a reasonable level. The UOR KPI is focused on reducing unplanned
6
outages through improved work scheduling and planning, quality assurance,
7
and human capital. The Company works to achieve a level of reliability that is
8
consistent with the value our customers attribute to reliability compared to the
9
cost.
10
11
The Value to Customer goal benefits customers because it measures whether
12
we are meeting our customers’ expectations. The Public Safety Index KPI
13
measures our public safety performance. The Public Safety Index includes a
14
variety of metrics, including contacts to our electric service lines, contractor
15
communication to provide information concerning working safely where
16
overhead lines are present; and training for electric first responders.
17
Customer Value KPI helps to ensure that we are meeting our customers’
18
expectations in other areas: it measures our customers’ perception of customer
19
service, service reliability, price, communications, company image, and billing.
20
The Employee Safety and Engagement goal helps to ensure that we have a
21
safe and productive workforce to deliver service to our customers. Safety is a
22
core value of Xcel Energy:
23
reinforces its importance. The higher the safety level of our employees, the
24
more productive and reliable the service. Similarly, engaged employees are
25
necessary to every facet of our business – especially in today’s environment, as
26
we seek to improve productivity and keep our costs competitive for our
27
customers.
The
the OSHA Recordable Incident Rate KPI
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1
2
Finally, the Environmental Leadership goal also benefits customers. Demand-
3
Side Management (DSM) represents the energy saved by Xcel Energy’s
4
efficiency and demand side management programs, which helps with our
5
efforts to comply with state mandates regarding conservation and emission
6
reductions.
7
8
Q. IS IT REASONABLE TO INCLUDE EPS AS AN AFFORDABILITY TRIGGER?
9
A.
Yes.
Payment of incentive compensation in the face of poor financial
10
performance is not reasonable. The trigger is used as to ensure payment of
11
the AIP can be made, not to guarantee payments are made. Individuals must
12
earn incentive pay through performance by achieving individual, business unit,
13
and corporate goals. As previously described, the corporate scorecard is based
14
exclusively on operational goals. This serves to balance healthy financial
15
performance and operational excellence to truly deliver maximum benefits
16
possible to customers.
17
18
19
4.
Q. HAVE THE METRICS THAT ARE USED FOR THE AIP BEEN CHANGED IN RECENT
20
21
Changes to the AIP
YEARS?
A.
Yes. Earnings Per Share was removed from the Corporate scorecard in 2012.
22
However, as noted earlier, the Company continues to use EPS as an overall
23
affordability trigger for payments. If the EPS trigger for payment is not met,
24
the program does not pay.
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1
2
Q. HAVE THE AIP GOALS BEEN MODIFIED IN RECENT YEARS?
3
A.
Yes. The goals were modified to bring greater focus on the service we provide
4
to our customers.
Our employees can earn an AIP award when they
5
individually, collectively and organizationally meet the Company’s goals, which
6
concentrate on reliability, public safety, customer service, employee safety and
7
engagement and environmental leadership. The detailed goals for the 2013
8
AIP are provided in Exhibit___(DAF-1), Schedule 5.
9
10
Q. IN
11
12
ADDITION TO RESTRUCTURING THE
AIP,
HAS THE
COMPANY
TAKEN ANY
OTHER STEPS TO MITIGATE AIP COSTS?
A.
Yes, in 2011 we eliminated AIP payments to non-exempt, non-bargaining
13
employees, who previously were included in the AIP at a six percent target
14
payout percentage. To ensure these employees continued to receive market-
15
competitive compensation, their base wages were raised three percent as a
16
one-time adjustment when their AIP eligibility changed.
17
18
In the last several years we have also made other cost-saving design changes to
19
the program.
20
October 1 of a program year because they will not have been in the job long
21
enough to produce results for that year. Another change is that incentive
22
awards are prorated for employee job movement that results in a change in
23
incentive opportunity. In other words, if an employee moves from a position
24
with a six percent target to position with a 10 percent target, the award will be
25
calculated based on the actual time the employee was in each job rather than
26
the higher target for the entire year. We also added a provision that employees
27
must be employed with Xcel Energy on the actual date the AIP is paid,
We eliminated eligibility for employees hired on or after
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meaning that employees who voluntarily leave the Company will not receive
2
an award if they leave before the payment date. Finally, we eliminated all
3
incentive pay (not just the amount linked to individual performance) for any
4
employee who was not performing at a successful level.
5
6
5.
Reasonableness of Including AIP Costs in Rates
7
Q.
DO YOU BELIEVE IT IS APPROPRIATE TO RECOVER AIP COSTS IN RATES?
8
A.
Yes.
If we were to rely on current base salary alone, the Company’s
9
compensation levels would be well below market levels and it would limit our
10
ability to motivate and reward our employees for superior performance.
11
Incentive pay directly aligns employee, corporate, and customer interests. In
12
addition, incentive pay helps reduce overall compensation costs by requiring
13
the employee to re-earn the reward every year and reducing the base salary
14
costs with which other benefit costs are based upon.
15
16
Q. DO
17
18
YOU BELIEVE THERE ARE ADEQUATE CUSTOMER PROTECTIONS IN PLACE
WITH RESPECT TO AIP?
A.
Yes. First, we are requesting rate recovery of our incentive compensation
19
costs subject to a four-year average payout of AIP – capped at 100 percent
20
performance target and limited to a cap of 15 percent of base salary.
21
Therefore, customers are not funding the full cost of employee compensation.
22
This cap not only implements the Commission’s original intent in excluding
23
recovery of incentive compensation costs related to executives, it also excludes
24
recovery of incentive compensation paid to middle management employees as
25
part of their total compensation package.
26
27
Second, we are proposing to retain the refund mechanism that would provide
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1
customer refunds if actual incentive compensation payouts are lower than the
2
test-year level approved in rates.
3
Commission safeguard, we are able to further balance the interests of our
4
customers while providing our employees with market-competitive cash
5
compensation.
By including this previously approved
6
7
Finally, we only request recovery of target level incentive opportunity, so if our
8
employees reach a maximum level of performance against the Company’s
9
operational goals, our customers receive this added benefit at no extra cost.
10
11
12
6.
Q. IN
AIP Compliance
ITS ORDER IN
DOCKET NO. 12-961,
THE
COMMISSION
13
POINT NO. 30
14
CASE TO DETERMINE WHETHER THE
15
HAS THE COMPANY PERFORMED THAT ANALYSIS?
16
A.
DIRECTING THE
ISSUED
ORDER
COMPANY
TO PROVIDE AN ANALYSIS IN THIS
AIP
TARGETS ARE TOO EASY TO MEET.
Yes. The Company has evaluated its AIP targets to determine whether they
17
are too easy to meet. Based upon the process for setting AIP goals and the
18
fact that employees have not been able to achieve their AIP goals on some
19
occasions, the Company concludes that our AIP goals strike the right balance
20
between being difficult enough to challenge our employees, while not being so
21
difficult as to serve as a disincentive.
22
23
Q. WHAT IS THE INTENT OF A PERFORMANCE GOAL OR KPI?
24
A.
The intent of a performance goal is to motivate employees to provide
25
excellent service to the Company and its customers. In order to serve as a
26
motivation, however, the KPIs must be set at levels that can be met with the
27
requisite amount of talent and effort. Goals that are not truly attainable
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1
actually serve as a disincentive, because employees know they will not be
2
rewarded for the extra effort they give.
3
4
Q. DOES THE ACHIEVEMENT OF A KPI LEAD TO A “BONUS” FOR THE EMPLOYEE?
5
A.
No. If the goals are achieved and AIP is paid at target (or 100 percent), the
6
employee’s compensation level for that year is just then meeting market levels.
7
Anything less than 100 percent of the full AIP amount puts the employee at a
8
compensation level below what other companies and utilities are paying.
9
10
Q. YOU
TESTIFIED THAT SOME BUSINESS AREAS HAVE NOT MET THEIR
KPIS
IN
11
THE PAST.
12
IN WHICH BUSINESS AREAS DID NOT MEET PERFORMANCE GOALS AND
13
THEREFORE THE EMPLOYEES IN THOSE BUSINESS AREAS DID NOT RECEIVE ANY
14
AIP COMPENSATION INSOFAR AS THAT KPI WAS CONCERNED.
15
A.
PLEASE PROVIDE SOME EXAMPLES OF INSTANCES IN RECENT YEARS
Several of our witnesses, such as Mr. Steven H. Mills and Gary J. O’Hara,
16
discuss their aggressive scorecard goals and the difficulty meeting them. By
17
way of a specific example, Mr. Steven Foss discusses the difficulties we had in
18
meeting our SAIDI (System Average Interruption Duration Index) target in
19
2012. The target was 83.95 minutes and our actual result exceeded that target
20
at 86.42 minutes. However, the distribution business unit still set their 2013
21
SAIDI target even lower than their 2012 performance, at 83.65 minutes.
22
23
While our witnesses certainly have many stories of success in meeting their
24
goals, these stories are meant to illustrate that these targets are, in fact,
25
challenging and difficult to meet.
26
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1
Q. ARE
2
3
4
5
6
ANY OTHER WITNESSES SUPPORTING THE REASONABLENESS OF
KPIS
IN
THEIR BUSINESS AREAS?
A.
Yes. The following Company witnesses support the reasonableness of their
specific KPIs or business area scorecards:
• Corporate Services scorecard - myself, David C. Harkness, Michael C.
Gersack
7
• Distribution Operations scorecard – Stephen R. Foss
8
• Energy Supply scorecard – Steven H. Mills
9
• Financial Operations scorecard – Amy L. Stitt
10
• Nuclear scorecard – Timothy J. O'Connor
11
• Supply Chain scorecard – Gary J. O'Hara
12
• Revenue Group Scorecard – David M. Sparby
13
• Transmission scorecard – Daniel P. Kline
14
15
I note that we are addressing the Commission’s Order point requiring further
16
discussion about our AIP goals for those business areas that have provided
17
testimony in support of our rate request. There are additional scorecards and
18
KPIs that are not discussed in this case that are either supported by business
19
areas that do not have testimony in this case or are not related to AIP. I
20
further note the overall Corporate scorecard, which I discussed earlier in my
21
testimony, consists of KPIs linked to the goals in the business area scorecards
22
set forth above.
23
regarding the goals on their respective business area scorecards relates to the
24
KPIs on the Corporate scorecard.
For that reason, the discussion of individual witnesses
25
26
Q. ARE YOU SUPPORTING THE REASONABLENESS OF ANY OF THE KPIS?
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1
A.
Yes. I support the reasonableness of the KPIs for the Human Resources
2
business unit, which is a part of the Corporate Services business area
3
scorecard. I will also address the Employee Engagement Survey KPI on the
4
Corporate scorecard.
5
6
Q. WHAT HUMAN RESOURCE KPIS ARE INCLUDED IN THE CORPORATE SERVICES
7
8
SCORECARD?
A.
There are currently two Human Resource KPI’s included in the Corporate
9
Services business area scorecard: employee engagement and medical and
10
pharmacy cost management, which is one of five components measured for
11
the overall Value Creation index. They are both provided in Table 9.
12
13
Table 9
Human Resource KPIs
Key
Performance
Description
Indicator
Employee
Results of
Engagement
Corporate
Survey
Services
employees
responses to
engagement
questions in
employee survey
Value Creation* Manage
healthcare costs
2012 Target
2012 Result
2013 Target
75%
85%
86%
N/A
N/A
≤ 7.76%
5-year average
cost growth
* One of five measures in the Corporate Services scorecard value creation index.
14
15
Q. HOW WERE THESE KPI’S IDENTIFIED?
16
A.
The two KPIs were chosen by looking at what measures are the most
17
important within our organization to drive desired outcomes for the
18
Company, our customers, and our employees. In particular, employee
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engagement is critical to the long term success of an organization. A highly
2
engaged workforce results in greater productivity, staffing stability, and a safer
3
workplace – all which ultimately reduce Company costs. Managing healthcare
4
costs benefits our employees, the Company, and impacts customer costs.
5
6
Q. WHY DOES YOUR BUSINESS AREA HAVE AN EMPLOYEE ENGAGEMENT KPI?
7
A.
A highly engaged workforce reduces costs by impacting employee retention.
8
According to the Center for Associate Leadership, companies that have
9
sustainably engaged employees have a 54 percent lower turnover rate than
10
companies with low engagement.
The three reasons employees leave a
11
company are: relationship with manager, opportunity to grow and develop,
12
and lack of challenging and purposeful work. The Company’s engagement
13
survey directly measures these three categories, called engaged, enabled, and
14
energized. By understanding our employees and their needs we are able to
15
take action to keep turnover to a minimum and reduce related costs.
16
17
Engagement also impacts safety, another KPI on Corporate and Business
18
Area scorecards. According to Towers Watson,16 a workforce with low
19
teamwork and greater workload is associated with 62 percent higher safety
20
incident rate in comparison to companies where empowerment is present
21
which shows a 74 percent lower accident rate.
22
23
Q. WHY
24
25
DOES YOUR BUSINESS AREA HAVE THE
HUMAN RESOURCES VALUE
CREATION KPI AND HOW IS IT MEASURED?
A.
26
The Human Resources Value Creation KPI is based upon our efforts to
effectively manage and contain cost increases for medical and pharmacy costs
16
Towers Watson, “Building a Safer Workplace,” 2010.
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1
for active employees and their dependents.
This KPI is measured by
2
calculating the five-year average of total annual net medical and pharmacy
3
costs cost per member per year and comparing it to the previous year’s five-
4
year average.
5
healthcare costs. Averages are a realistic view of long-term plan performance.
6
Plan design changes or new programs may take several years for us to start
7
seeing impact on member behavior or spending patterns. Also, the “good”
8
years often come with the “bad” years, so a one-year view does not paint the
9
full picture of a plan’s overall performance.
The benefits include both hard cost savings and avoided
10
11
Q. COMPANY
12
13
WITNESS
MR. MARK P. MOELLER
INDICATES USING A
5
PERCENT
INFLATION FACTOR. WHY IS THE KPI SET AT 7.76 PERCENT?
A.
These are not the same healthcare measures. Mr. Moeller is using an inflation
14
factor measure focusing on year-over-year cost growth. In this case, to do
15
financial budgeting for 2014 healthcare costs compared to the 2013 forecast.
16
Our healthcare KPI target is different. We set the goal around the longer
17
term five-year trend average, which allows for the smoothing of cost spikes
18
and dips that result from plan usage and design changes. The inflation factor is
19
a one-year look back to make a forward-looking budget assumption on the
20
total growth of plan cost for the next year. Our KPI is measuring individual
21
member cost growth (cost per member per year) and uses a five-year average
22
look back of member cost to measure past performance.
23
24
Q. WHO APPROVES YOUR KPIS?
25
A.
The overall Corporate Services scorecard and the KPIs that roll up to it are
26
approved by the Company’s Chief Administrative Officer and Chief Executive
27
Officer.
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1
2
Q. HOW DID YOU DETERMINE THE PERFORMANCE TARGETS FOR THE KPIS?
3
A.
Each year we typically look at our historical performance to gain an idea of
4
how we have performed to date. Based on our 2012 engagement score we set
5
the 2013 targets with guidance from Towers Watson on industry
6
benchmarking and what would be realistically attainable. According to this
7
guidance, if an engagement score is between 70-79 percent then a three to four
8
percent increase is attainable; if the score is 80-89 percent then a one to two
9
percent increase is attainable. Once an engagement score is at or close to 90
10
percent it becomes sustainable and not realistic to expect improvement; in
11
fact, a decrease in engagement percentage is not out of the norm.
12
13
The Corporate Services business area 2013 target was set based on improving
14
one percent over our 2012 results, which is four percent above the Corporate
15
target and two percent above the industry benchmark of 85 percent. Our
16
Corporate Services business area target is higher than the Corporate target
17
because what is achievable in Corporate Services may not be achievable in
18
another business area due to employee population, type of work, location, skill
19
sets, etc.
20
Company benchmark, Corporate Services employees demonstrate higher than
21
average engagement and therefore a higher target was set.
When compared to the industry benchmark and the overall
22
23
For healthcare, we carefully analyze our medical and pharmacy claims history
24
for our population’s health risks, plan utilization and demographics such as
25
age and gender mix and its influence our trend. Additionally, we look at what
26
plan design features have been implemented in the recent past to determine if
27
we can start to see any behavior changes that will begin to positively influence
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healthcare cost. We consider whether or not any plan design changes planned
2
for the upcoming year could significantly impact behavior or plan utilization
3
patterns. Lastly, we consider the utility industry average trends to ensure our
4
goal aligns with companies that have similar make-up to our company. These
5
are the main factors in setting our target for healthcare trend.
6
7
Q. IN YOUR OPINION, ARE THE HUMAN RESOURCE KPIS TOO LENIENT?
8
A.
No. As I mentioned, our performance goals must be set at difficult but not
9
unattainable levels in order to truly incent employees to try and meet them and
10
earn their AIP compensation. Based on the criteria recommended by Towers
11
Watson as defined above, a one percent increase on engagement for
12
Corporate Services employees is a difficult but an attainable goal. Likewise, a
13
two percent increase from 80 percent to 82 percent for Xcel Energy is difficult
14
but attainable target. Such an accomplishment would require extraordinary,
15
sustained performance and therefore is a reasonable performance goal.
16
17
The healthcare KPI is also a difficult goal for the Company. As outlined
18
below, the Company faces significant challenges in mitigating our healthcare
19
trend:
20
• Health care reform has required the removal certain benefit limits and
21
add or increase coverage levels for newly defined preventive services;
22
allow for dependents on the plan due to less restrictive rules for
23
dependents; and has added various taxes/fees that are covered by the
24
Company.
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• Xcel Energy’s age/gender risk score is eight percent higher than
1
2
UnitedHealthcare’s book of business norm.17 Age/gender risk score is
3
an indicator that the age and gender mix of our population will likely
4
drive more cost than the benchmark.
5
• Xcel Energy’s specialty drug costs are increasing dramatically in 2012 –
6
up 22.6 percent year over year. Specialty drug spend makes up 23.5
7
percent of our overall pharmacy costs compared to the Express Scripts
8
energy book of business at 18.7 percent.
9
10
Plus, as with any type of insurance, there is the inherent risk of the
11
unexpected, such as accidents or rare diseases. As outlined in more detail in
12
Section IV. Active Health and Welfare Costs, I believe that the Company has
13
taken many steps to mitigate our healthcare trend in spite of our challenges
14
and we will continue to do so into the future.
15
16
C.
Nuclear Retention Program
17
Q. WHAT IS THE NUCLEAR RETENTION PROGRAM?
18
A.
The Nuclear Retention Program is a compensation tool to help attract and
19
retain employees that are qualified to work in our nuclear plants. Although
20
initially created to retain 33 employees in key positions, the program was
21
expanded to use attraction, retention and performance elements to recruit,
22
hire and retain hard-to-source positions like engineering supervisors and
23
employees for critical nuclear projects, such as refueling outages and the steam
24
generator replacement at Prairie Island. In combination with our other Total
25
Rewards Program elements, the Nuclear Retention Program allows the
17 The norm is UnitedHealthcare’s national employer accounts book of business that represents 10.4
million members
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Company to maintain stable leadership and to attract and maintain new talent
2
for two of our most reliable carbon-free baseload electric generating assets.
3
4
Q. WHAT
5
6
LEVEL OF TEST YEAR EXPENSE IS THE
COMPANY
SEEKING FOR THE
NUCLEAR RETENTION PROGRAM?
A.
7
We are requesting $694,736 in costs associated with the Nuclear Retention
Program.
8
9
Q. HOW
10
11
DID THE
COMPANY
DETERMINE THE
NUCLEAR RETENTION PROGRAM
TEST YEAR AMOUNT?
A.
We determined that our attraction and retention needs in 2014 will be similar
12
to our needs in 2013, so used our 2013 expenses as a guide. In the first three
13
quarters of 2013, we have had to offer one-time attraction bonuses in the sum
14
of $320,000. Trending at this same level for the remainder of the year would
15
place the total at approximately $426,000 for 2013. Additionally, we have
16
committed $105,000 to existing employees who have signed retention
17
agreements in 2013, and $185,000 in payments for secondary installments of
18
attraction bonuses.
19
approximately $716,000.
20
retention efforts in 2014. Therefore, our test year expense of $694,736 is a
21
conservative, yet realistic, budget.
The estimated total expenditures for 2013 will be
We anticipate a similar need for attraction and
22
23
Q. IN THE LAST ELECTRIC RATE CASE THE COMPANY REQUESTED RECOVERY OF
24
THREE COMPENSATION COMPONENTS SPECIFIC TO NUCLEAR EMPLOYEES.
25
YOU SEEKING RECOVERY OF ALL THREE OF THOSE COMPONENTS IN THIS
26
CASE?
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A.
No. In our previous case we requested recovery of our Long-Term Incentive
2
agreements offered to nuclear employees, our Nuclear Stock Based Retention
3
agreements, and finally our Nuclear Cash-Based Retention agreements. In this
4
case, we are seeking recovery of just one component, the Nuclear Cash-Based
5
Retention agreements.
6
components and believe they are imperative to attracting and retaining these
7
valuable nuclear employees, we have not traditionally requested recovery of
8
costs associated with our long-term incentive programs.
While we continue to offer all three of these
9
10
Q. IS
11
12
THE TEST YEAR LEVEL REPRESENTATIVE OF COSTS YOU EXPECT TO SEE IN
THIS TYPE OF PROGRAM GOING FORWARD?
A.
Yes. There is an ongoing need for retention agreements to attract and retain
13
nuclear employees going forward. The Company has a need to attract and
14
retain employees for many years to come as we have recently made significant
15
improvements to our nuclear plants and we expect the plants will continue to
16
serve the needs of our ratepayers through 2030.
17
18
Q. WHY
19
20
IS IT NECESSARY TO HAVE A COMPENSATION PROGRAM DEDICATED TO
THE ATTRACTION AND RETENTION OF NUCLEAR EMPLOYEES?
A.
The nuclear industry labor market is unique and is experiencing a significant
21
constraint in supply of qualified and skilled employees. There are a variety of
22
factors contributing to this constraint, including:
23
• Limited Market – With fewer than 70 nuclear generating facilities in the
24
United States, the domestic market is small and tightly knit, creating a
25
highly competitive market for the limited resources.
26
• Aging Workforce – the Nuclear Energy Institute (NEI) predicts that
27
approximately 38 percent of nuclear industry employees will be eligible
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for retirement in the next few years. In fact, we have had 24 nuclear
2
employees retire so far in 2013.
3
• Lack of Entry Level Candidates – in addition to the lack of graduates from
4
nuclear programs, higher education nuclear programs are not widespread.
5
Once a potential candidate is selected into many of our nuclear roles,
6
there is a substantial investment of resources for training.
7
• Increased Demand- the demand for qualified and skilled employees has
8
increased dramatically over the past 10 years, likely due to increased
9
regulations and oversight. The NEI projects that approximately 25,000
10
employees will need to be hired into the nuclear industry by 2016 just to
11
maintain the current workforce.
12
13
It is for all these reasons that attraction and retention programs have become
14
more commonplace throughout the nuclear industry for critical talent and
15
leadership.
16
17
Q. HAVE
18
19
THE RECENT NUCLEAR PLANT CLOSINGS MADE MORE NUCLEAR
EMPLOYEES AVAILABLE TO HIRE?
A.
Not really.
It is true that the Kewaunee Nuclear Generating Station in
20
Wisconsin and the San Onofre Nuclear Generating Station in California have
21
recently stopped nuclear power generating operations, and Entergy has
22
announced that it will also stop generating power at the Vermont Yankee
23
nuclear plant in late 2014. But the closure and decommissioning processes for
24
those plants will take approximately 10 years. During that period, the utilities
25
will need to maintain staffing levels and expertise to ensure the safety and
26
security of the plants and their communities. Thus, the utilities that own those
27
plants are offering lucrative retention programs to retain many of those
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employees. Moreover, we face stiff competition from other nuclear plants for
2
the employees that are leaving those plants.
3
4
Q. HAS
5
6
THE
COMPANY
MADE EFFORTS TO HIRE SOME OF THE EMPLOYEES AT
THOSE PLANTS?
A.
Yes. We have tried to hire employees from these closed plants, but our
7
success has been limited. Some of the challenges in attracting talent from
8
those locations include geography and climate, wages, taxes, and the impact of
9
moving a family, in addition to their existing retention agreements. The same
10
factors exist when trying to attract candidates from other operational nuclear
11
facilities throughout the country. Although we have taken full advantage of
12
the opportunity to attract the available talent from these closing sites, the offer
13
acceptance level is below 50 percent.
14
Kewaunee employees, but only 26 have accepted.
15
extended 12 offers to San Onofre employees and six have accepted.
We have extended 56 offers to
In addition, we have
16
17
Q. HAS THE NUCLEAR RETENTION PROGRAM BEEN SUCCESSFUL?
18
A.
Yes. No nuclear executives have left the Company since implementing the
19
initial retention agreements and only one manager in a critical role has exited.
20
As Mr. O’Connor discusses, our nuclear industry performance has improved,
21
and this leadership stability has benefited our nuclear operations in several
22
ways.
23
24
Q. DO RETENTION AND ATTRACTION CONCERNS STILL EXIST?
25
A.
Yes. Currently, the Company has approximately 92 total vacant positions
26
compared to a full staffing level.
27
Company has hired 129 new nuclear employees in 2013 through August. With
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that said, it is time consuming to fill these vacancies. For example, during the
2
September 2012 – August 2013 timeframe, there were 121 nuclear supervisory
3
through director level openings. The average time to fill remained just over 80
4
days, but there were 35 positions open longer than 100 days. On top of these
5
existing recruiting challenges, we also had 39 employees who left the Company
6
and all but one were not eligible for the Nuclear Retention Program.
7
8
Q. IS THERE STILL A NEED FOR A NUCLEAR RETENTION PROGRAM?
9
A.
Yes. The employee departures that I discussed above demonstrate that we
10
need to continue offering retention agreements to incoming employees and to
11
continue making retention payments to our existing employees.
12
13
Q. PLEASE EXPLAIN WHY IT IS REASONABLE FOR CUSTOMERS TO BEAR THE COSTS
14
15
OF THE NUCLEAR RETENTION PROGRAM.
A.
The Company’s nuclear facilities are an integral part of generation fleet plants
16
that provide safe and reliable electric service to our customers, and we will be
17
operating those nuclear facilities for at least 20 more years. Attracting and
18
retaining the qualified individuals is and will be vital to the safe, reliable
19
operation of our nuclear units. We have found that the best way to accomplish
20
those goals is to offer attraction and retention payments.
21
22
D.
Spot On Award Recognition Program
23
Q. WHAT IS THE SPOT ON AWARD RECOGNITION PROGRAM?
24
A.
The Spot On Award program, which was implemented in January 2011, allows
25
managers to recognize and reward non-exempt, non-bargaining employees
26
with a recognition award for outstanding performance close to the time when
27
the employee has made the contribution.
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1
2
Q. ARE AIP-ELIGIBLE
3
4
EMPLOYEES ALSO ELIGIBLE FOR THE
SPOT ON AWARD
PROGRAM?
A.
No. Employees eligible for the AIP are not eligible for the Spot On Program.
5
6
Q. WHY DID THE COMPANY INITIATE THE SPOT ON AWARD PROGRAM?
7
A.
The Company initiated the program because the elimination of the AIP for
8
non-exempt, non-bargaining employees left them with no form of incentive
9
compensation. The Spot On Award program is designed to motivate non-
10
exempt, non-bargaining employees to provide superior performance.
11
12
Q. WHAT IS THE REQUESTED LEVEL OF SPOT ON AWARD PROGRAM EXPENSE FOR
13
14
2014?
A.
15
The Company requests program expense of $179,051 (State of Minnesota,
Electric Jurisdictions) for 2014.
16
17
Q. HOW DID THE COMPANY ARRIVE AT THE TEST YEAR NUMBER?
18
A.
The test year number is from the 2014 budgeting process and is based on
19
assuming an average award payable for employees eligible for the Program.
20
The average award is based on past practice, and similar to merit increases the
21
actual awards are relative to the level of individual performance – some are
22
higher, some are lower, and employees who do not perform above and
23
beyond receive no award. This further supports our pay-for-performance
24
philosophy to allow us to ensure awards are appropriate to the situation,
25
effort, and results.
26
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Q. HOW
2
3
MANY EMPLOYEES ARE ELIGIBLE FOR THE SPOT
ON AWARD
PROGRAM
AND HOW MANY EMPLOYEES HAVE BEEN GRANTED AN AWARD?
A.
Table 10 provides the employees eligible for the Spot On Award program, the
4
number of employees granted an award, and the number of dollars awarded
5
since its inception in 2011.
6
7
8
Table 10
Spot On Award Program
2011
2012
2013
1,641
1,614
1,601
Number of employees granted an
award
624
720
In progress
Total Dollars awarded
(NSPM Total Company – O&M)
$206,464
$224,218
In progress
Total Dollars awarded
(State of MN, Electric Jurisdiction)
$181,473
$197,128
In progress
Number of eligible employees
based on budget estimates
9
10
Q. IS
11
12
IT REASONABLE FOR
SPOT ON AWARD
PROGRAM EXPENSES TO BE
INCLUDED IN THE COMPANY’S COST OF SERVICE?
A.
Yes. The Spot On Award program rewards employees who provide superior
13
service that benefits customers. Because the service benefits customers, it is
14
appropriate for it to be included in the cost of service.
15
16
VI.
ACTIVE HEALTH AND WELFARE COSTS
17
18
Q.
WHAT TOPIC DO YOU DISCUSS IN THIS SECTION OF YOUR TESTIMONY?
19
A.
I describe the active healthcare and welfare programs that the Company offers
20
to eligible employees, and I further describe the changes that the Company
21
has made in recent years to control health and welfare costs. Company
22
witness Mr. Mark P. Moeller discusses the actual amounts of health and
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welfare costs in his testimony, and he describes the cost trends that the
2
Company is experiencing.
3
4
Q.
5
6
WHAT
ACTIVE HEALTH AND WELFARE PROGRAMS DOES THE
COMPANY
OFFER?
A.
The Company’s active health and welfare programs primarily consist of
7
providing medical, pharmacy, dental, disability, vision, and life insurance
8
coverage to our bargaining and non-bargaining employees and their families.
9
10
Q.
11
12
PLEASE
DESCRIBE THE
COMPANY’S
MEDICAL AND PHARMACY PLAN FOR
EMPLOYEES AND THEIR FAMILIES.
A.
The Company offers employees one medical plan option, the High
13
Deductible Health Plan (HDHP) with a Health Savings Account (HSA).
14
Employees and their eligible dependents are responsible for an upfront annual
15
deductible of $2,500 per individual or $5,000 per family. After that deductible
16
is satisfied, the Plan begins to share any additional costs.
17
Exhibit___(DAF-1), Schedule 5 for the annual premiums employees pay as
18
well as the type of services covered by the HDHP.
Please see
19
20
Q.
WHAT IS THE SHARING RATIO AFTER THE DEDUCTIBLE IS MET?
21
A.
After the deductible is met, the plan covers 90 percent of costs, with
22
employees or their dependents contributing 10 percent of costs until they
23
reach an annual out-of-pocket maximum, which is $3,500 per individual or
24
$7,000 per family. After the out-of-pocket maximum is met, the Plan covers
25
the remaining eligible medical and pharmacy expenses for the calendar year.
26
Employees pay a monthly premium for this HDHP, and a combination of
27
their out-of-pocket expenses and premiums covers 25 percent of the total
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cost. The plan provides lower levels of benefits coverage for using out-of-
2
network medical providers. The Health Savings Account is a tax-advantaged
3
medical savings account that the Company offers to employees to provide a
4
vehicle for them to save for their out-of-pocket costs under the Plan. The
5
HDHP and HSA are both administered by UnitedHealthcare in partnership
6
with Medica.
7
8
Q.
9
10
PLEASE
DESCRIBE BRIEFLY THE NATURE AND STRUCTURE OF THE OTHER
HEALTHCARE BENEFITS OFFERED TO EMPLOYEES AND THEIR FAMILIES.
A.
11
I provide a brief description of the Company’s dental and vision plans as well
as the disability benefits and life insurance in Exhibit___(DAF-1), Schedule 6.
12
13
Q.
14
15
WHAT IS THE REQUESTED LEVEL OF ACTIVE HEALTH AND WELFARE COSTS FOR
2014?
A.
We have included $36,443,475 (State of Minnesota Electric Jurisdiction) of
16
health and welfare costs in the 2014 test year. These costs, and our budgeting
17
process, are discussed further by Mr. Moeller.
18
19
Q. DO
20
21
YOU BELIEVE THE
COMPANY’S 2014 TEST YEAR
BUDGET FOR ACTIVE
HEALTH AND WELFARE COSTS IS REASONABLE?
A.
Yes. Although our health and welfare costs have increased for the reasons
22
discussed in Company witness Mr. Mark P. Moeller’s testimony, the Company
23
has implemented several design changes and wellness programs to help
24
mitigate cost increases associated with our health and welfare program. Our
25
efforts have kept our health and welfare program costs consistent with the
26
experiences of other private sector businesses.
27
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Q. IS
2
3
IT TRUE THAT HEALTHCARE COSTS ARE HIGHER FOR AN OLDER
WORKFORCE?
A.
Yes. The average age of Xcel Energy’s employees who enrolled in medical
4
coverage in 2012 was 46.5 years. This compares to UnitedHealthcare’s norm
5
age18 of 43.7 years.
6
dependent. After the first year of life, healthcare costs are lowest for children,
7
rise slowly throughout adult life, and increase significantly after age 50. There
8
are numerous studies and statistics that support this claim, one of which is
9
included in the Table 11 below:
10
11
12
13
14
The distribution of healthcare costs is strongly age
Table 11
2011 Medical and Drug Charges and Payments per Capita by Age
Male and Female HDHP Enrollees19
(Active Employees and their Spouses and Dependents)
Age
Allowed Charges *
Plan Payments
0
$
5,896
$
5,123
1-14
$
1,620
$
1,159
15-19
$
2,404
$
1,785
20-24
$
2,299
$
1,695
25-29
$
2,626
$
1,868
30-34
$
3,154
$
2,307
35-39
$
3,338
$
2,476
40-44
$
3,853
$
2,970
45-49
$
4,620
$
3,641
50-54
$
5,674
$
4,566
55-59
$
6,904
$
5,624
60-64
$
8,547
$
7,026
The norm is UnitedHealthcare’s national employer accounts book of business that represents 10.4
million members
19 Source: Towers Watson analysis of the Truven Health MarketScan 2011 Commercial Claims and
Encounters Database
18
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2
*Allowed charges: Charges for services covered by the plan and within the fee limits that the plan allows.
3
Q. DISCUSS SOME OF THE MEASURES THE COMPANY HAS TAKEN TO MANAGE THE
4
5
COSTS ASSOCIATED WITH THE HEALTH AND WELFARE BENEFITS.
A.
The Company has made the following design changes:
6
• It has reduced the number of health insurance plans available to
7
employees from four to one. Since 2009, the only medical plan that the
8
Company has made available to employees is the HDHP plan I
9
described earlier.
10
• Beginning in 2011, the Company increased employees’ out-of-pocket
11
costs in the HDHP by introducing co-insurance, which means that even
12
after meeting their high deductible, our employees continue to pay co-
13
insurance on additional medical and pharmacy claims up to $3,500 per
14
individual or $7,000 per family.
15
• Beginning in 2011, the Company implemented pharmacy cost-
16
containment programs that require employees to pay additional out-of-
17
pocket expenses if they choose to purchase drugs in a less cost-effective
18
manner.
19
20
21
22
• In 2012, the Company re-introduced a monthly employee premium
under the HDHP.
• In 2010, adult orthodontia coverage was eliminated from the nonbargaining and bargaining dental plans.
23
• In 2011, the Short-term Disability program was reduced from 100%
24
income replacement for 26 weeks to 100% for the first 13 weeks, and
25
then 70% of income replacement for the remaining 13 weeks.
26
27
• In 2012, the Company launched a new wellness program, My Health
Choices.
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1
2
Q. WHAT HAS BEEN THE EFFECT OF THESE CHANGES?
3
A.
While many of these changes have directly increased costs for our employees,
4
they have also allowed the Company to better manage overall healthcare costs
5
and the rate at which our costs increase. Employee contributions to health and
6
welfare benefits have increased, but how our employees access healthcare and
7
consume healthcare services have improved. For example, we have seen
8
improved use of urgent care facilities as opposed to hospital visits for acute
9
injuries and illness, and also have a very high rate of generic prescription drug
10
use.
This change in behavior has the ability to mitigate healthcare cost
11
increases for the Company as well as the employee.
12
13
Although it is difficult to identify direct savings from these changes, the intent
14
of the plan modifications was to mitigate cost increases on a long-term basis,
15
in part by motivating employees to be more cost-conscious consumers of
16
medical and dental care. We also know that it can take time to see cost
17
impacts resulting from program design changes and that health care reform
18
presents us with some unknown impacts to our costs. Based upon the cost
19
trends discussed by Mr. Moeller, it appears that our efforts to slow the pace of
20
health care cost increases are succeeding.
21
22
Q. WHAT ELSE HAS THE COMPANY DONE IN REGARD TO COSTS ASSOCIATED WITH
23
24
THE HEALTH AND WELFARE BENEFITS?
A.
We have increased communications around a series of programs that have
25
been designed to help control our costs by improving the overall health and
26
welfare of our employees. These programs include counseling and coaching
27
for members who are seeking treatment for a condition, engaging members
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proactively to help modify behaviors and health risks, and providing education
2
materials to help patients make informed decisions.
3
The Company also renegotiates contracts with benefit vendors on an ongoing
4
basis.
5
performance guarantees and rebates, and improved discounts on provider
6
networks. All contribute to our ability to mitigate the increasing healthcare
7
costs and benefit administration costs charged by third parties.
These negotiations focus on administrative fee reductions, better
8
9
Q. PLEASE
10
11
ELABORATE ON SOME WELLNESS PROGRAMS THE
COMPANY
HAS
IMPLEMENTED.
A.
We introduced My Health Choices, a wellness program that encourages healthy
12
choices and engagement by providing a Company contribution to a HSA for
13
employees who are healthy or trying to become healthier. We also offer a
14
variety of wellness events, including on-site flu vaccinations, on-site health
15
screening events in which employees can find out their core health
16
measurements, online health assessments, and webinars on various wellness
17
topics.
18
19
Q. DO
20
21
YOU BELIEVE THE
COMPANY’S
ESTIMATE OF MEDICAL COSTS IS
REPRESENTATIVE OF WHAT YOU CAN EXPECT TO INCUR IN FUTURE YEARS?
A.
Yes. While the changes we have implemented help control the pace of growth
22
in our healthcare costs, I believe the budgeted amounts are representative of
23
future costs. I have already pointed out several factors that complicate the
24
budgeting process, such as the time for employee behavior changes to take
25
effect, health care reform, and the inherent risk found in insurance programs
26
of unknown future events. As discussed further by Mr. Moeller, medical costs
27
continue to increase and are expected to increase annually at a rate of
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approximately five percent. Accordingly, we do not expect to see a reduction
2
in our healthcare costs going forward.
3
4
Q. WHAT
5
6
ADDITIONAL PLANS DOES THE
COMPANY
HAVE TO HELP MITIGATE
HEALTH AND WELFARE COSTS?
A.
The Company is closely examining emerging benefit design strategies that
7
would drive our employees and their covered family members to high quality,
8
cost-efficient healthcare providers. We are following marketplace activity
9
changes that are a result of health care reform and assessing the resulting
10
impact to our employer-provided coverage. We are also reviewing treatment
11
decision support programs that help employees make informed decisions on
12
significant medical procedures to ensure that the treatment is reasonable and
13
that individuals are informed about the quality of care delivered by their
14
medical providers. Additionally, we are assessing the possibility of adding
15
higher medical costs to those employees and their dependents who use
16
tobacco products.
17
18
Q. DO YOU HAVE ANY STUDIES DEMONSTRATING THAT THE COMPANY’S ACTIVE
19
20
HEALTH CARE PROGRAMS ARE REASONABLE?
A.
Yes, we use the BENVAL® benchmarking study to help us evaluate our
21
benefits design. The BENVAL® study compares the value, based on plan
22
provisions, of Xcel Energy’s benefits with those of a utility industry peer
23
group. The Company uses this study to consider redesign options, check-in
24
on strategy decisions, review the balance of program elements, and assess what
25
value needs to be communicated to employees. The 2013 results showed that
26
our non-bargaining active medical and dental benefit programs ranked 24 out
27
of 42 peer utilities, placing us below the median value of our competitors.
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2
Q. ARE CUSTOMERS BEARING THE ENTIRE COST OF ACTIVE HEALTHCARE?
3
A.
No. As I testified earlier, employees are responsible for healthcare costs
4
through the use of monthly premiums, upfront deductibles, and cost sharing
5
after deductibles have been met.
6
7
Q. WHY
IS IT REASONABLE FOR CUSTOMERS TO BEAR PART OF THE COSTS FOR
8
ACTIVE HEALTH AND WELFARE BENEFITS FOR EMPLOYEES AND THEIR
9
FAMILIES?
10
A.
The Company designs programs that promote a culture of personal
11
accountability for employees’ physical and financial well-being, while ensuring
12
the long-term financial health of our programs.
13
managing healthcare cost as a scorecard KPI that impacts payment of the AIP.
14
The active health and welfare benefits that the Company offers to its
15
employees are important elements of the Total Rewards Program. Without
16
health and welfare benefits that are comparable to those offered by other
17
utilities and other companies with whom we compete for employees, the
18
Company would find it very difficult to attract and retain qualified employees,
19
including current employees with many years of training that benefits the
20
Company and its customers. Therefore, the Company and its customers share
21
an interest in ensuring that the Company is able to offer a competitive package
22
of health and welfare benefits.
We have also included
23
24
VII. EMPLOYEE RETIREMENT PROGRAMS
25
26
Q. WHAT RETIREMENT BENEFITS DOES XCEL ENERGY OFFER ITS EMPLOYEES?
27
A.
Xcel Energy provides eligible employees the following retirement benefits:
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• A defined benefit pension plan, which is also referred to as a “qualified”
1
2
pension plan;
3
• A “non-qualified” pension plan, which is the same as the qualified
4
pension plan, but maintains a consistent level of benefit to that of the
5
qualified defined pension benefit for employee wages over the IRS wage
6
limitations in effect. This is commonly referred to as a “restoration”
7
plan because it restores benefits to impacted employees that would have
8
been provided under the qualified plan but for the limits imposed by
9
the IRS;
10
• A 401(k) defined contribution plan;
11
• Retiree medical benefits for certain employees that retired before 2000;
12
and
13
• A Supplemental Executive Retirement Plan (SERP), which provides
14
supplemental compensation to assure that the total rewards programs
15
are market-competitive for certain executives. The SERP is no longer
16
offered to new executives and only covers two remaining executives.
17
The Company is not seeking recovery of the SERP-related costs.
18
19
I will describe each of these plans for which the Company is seeking recovery,
20
and I quantify the test year costs in this section of my testimony.
21
22
A.
Defined Benefit Plan
23
Q. PLEASE DESCRIBE THE COMPANY’S DEFINED BENEFIT PLAN.
24
A.
We offer newly hired employees a 5% Cash Balance Plan that provides for an
25
annual five percent Company contribution of the employee’s annual salary
26
into a notional account. This account has interest credited to it annually based
27
on the 30-year Treasury rates. This plan is similar to a savings account or a
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1
401(k) plan, so employees easily understand the plan value. Non-bargaining
2
employees hired prior to January 1, 2012 and bargaining employees hired prior
3
to January 1, 2011 are eligible for the 10 percent Pension Equity Plan, which
4
results in employees receiving 10 percent of their highest 48 months of
5
consecutive earnings.
6
7
Q. IS IT COMMON IN THE UTILITY INDUSTRY TO HAVE A DEFINED BENEFIT PLAN?
8
A.
Yes, it is very common. Of the 48 utilities in the Fortune 1000, 32 (67
9
percent) continue to provide defined benefit pension benefits to all employees,
10
13 (27 percent) provide defined benefit pension benefits to all employees
11
except those hired after a certain date, and only three have fully or partially
12
discontinued the defined benefit pension benefit for employees.20
13
14
Q. WOULD
15
16
IT BE REASONABLE TO ELIMINATE THE DEFINED BENEFIT PENSION
PLAN AND RELY ENTIRELY ON A DEFINED CONTRIBUTION PLAN?
A.
No. Offering a defined pension plan provides us the opportunity to remain
17
competitive with other utilities that we compete against for talent. Today, we
18
offer a lower valued pension plan compared with other utilities as
19
demonstrated by the BENVAL® study. We believe that offering a pension
20
plan, along with a 401(k) savings plan, provides employees with a retirement
21
program in which employee participation is required, assets are fully
22
diversified, and future investment risk is shared. Our retirement program is
23
cost effective and helps us manage our workforce appropriately for the
24
following reasons:
25
• The defined benefit pension plan, along with our defined contribution
26
plan, aligns with our total rewards strategy to provide a shared
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1
responsibility between employee and employer to accumulate
2
retirement assets. By providing a pension plan in which the employee
3
can count on a defined amount of retirement benefits, we are able to
4
manage an orderly transition of employees into retirement. This
5
provides Xcel Energy an opportunity to effectively manage our
6
workforce at the end of the employees’ careers, appropriately prepare
7
for knowledge transfer, and manage our training and succession
8
planning.
9
• Given the same benefit levels, pension plans can be a less expensive
10
vehicle for delivering retirement benefits than a defined contribution
11
plan, in both the short term and the long term. That is because the
12
Company is able to utilize investment earnings to fund future benefit
13
obligations; which reduces future cash flow requirements. In a defined
14
contribution plan, those earnings on the Company’s contributions
15
belong to the employee.
16
• Recent studies show that due to recent market conditions, more
17
employees, including younger and less-tenured employees, value the
18
security a defined benefit pension plan provides.
19
20
Q. HAS THE COMPANY UNDERTAKEN ANY INITIATIVES TO REDUCE THE COSTS OF
21
22
ITS DEFINED BENEFIT PENSION EXPENSE?
A.
Yes. We made the following changes to our defined benefit plan:
23
• Effective January 1, 2011, bargaining employees who are hired, rehired
24
and transferred into the bargaining unit on or after January 1, 2011 are
25
no longer eligible for the 10 percent Pension Equity Plan (PEP).
26
Instead, these employees participate in a 5% Cash Balance Plan formula
20
Information gathered from annual reports for the Fortune 1000 utilities.
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1
without pension supplements (i.e., Retirement Savings Account or
2
Social Security Supplement).
3
• Effective January 1, 2012, non-bargaining new hires and rehired
4
employees hired on or after January 1, 2012, are no longer eligible for
5
the 10 percent PEP. Instead, these employees participate in a 5% Cash
6
Balance Plan formula without pension supplements (i.e., Retirement
7
Savings Account or Social Security Supplement).
8
9
Q. THE
10
11
RETIREMENT PROGRAM CHANGES YOU DESCRIBED ARE FOCUSED ON
PROSPECTIVE EMPLOYEES. IS THIS PRACTICE COMPARABLE TO THE MARKET?
A.
Yes. As also discussed by Company witness Mr. Wickes, it is a common
12
practice for employers when making changes to their retirement offerings to
13
eliminate or reduce defined benefit pension plan benefits for new hires only.
14
Based on a Towers Watson study of pension changes in the last decade, 48
15
percent of defined benefit plan sponsors significantly changed their program
16
for current employees at some point in the last 10 years.
17
prevalence is considerably different within the utility industry, which showed
18
only 34 percent of utilities significantly change their programs for current
19
employees.21 This is due to some of the following reasons:
However, the
20
• Union limitations. Our industry is heavily unionized and must consider
21
the risks associated with varying benefits levels for union and non-
22
union populations, including workforce and succession planning
23
considerations and risk and costs of additional unionization efforts. We
24
have and will continue to work with the union leaders to ensure our
25
benefits are at the appropriate levels.
21
Towers Watson, “Pensions in Transition: Retirement Plan Changes and Employer Motivations,” 2012
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1
• Disruption to existing employees. Like many utilities, a significant portion of
2
our employees are already eligible to retire or very close to retirement.
3
Significant benefit reductions can result in employees retiring early
4
rather than staying with the Company. Unplanned early retirements
5
pose concerns due to our specialized skill sets, supply of viable
6
candidates, and the need for a seamless knowledge transition.
7
• Complexity. Changing benefits for existing employees involves significant
8
transition rules required under the laws governing qualified pension
9
plans. These transitions increase costs to communicate and administer
10
the benefits.
11
12
Q. HAS
13
14
THE
COMMISSION
ASKED THE
COMPANY
TO ADDRESS THE POSSIBLE
FREEZING OR AMENDING OF PENSION BENEFITS?
A.
Yes. In Order Point 45 from Docket No. 12-961, the Commission directed
15
the Company to provide the following information: “In the initial filing of its
16
next rate case, Xcel shall discuss the extent of any and all of its exploration and
17
evaluation of freezing, or otherwise amending, prior pension benefits and
18
extending the application of the 5% Cash Balance pension fund formulary to
19
its veteran active employees hired prior to introduction of this formulary
20
benefit (for both the non-bargaining and bargaining unit employees).”
21
22
Q. HAS
THE
COMPANY
EXPLORED AND EVALUATED FREEZING OR AMENDING
23
PRIOR PENSION BENEFITS AND EXTENDING THE APPLICATION OF THE
24
CASH BALANCE PROGRAM?
25
A.
5%
Yes, as part of the analysis to move to the 5% Cash Balance Plan, the
26
Company did explore expanding the 5% Cash Balance Plan to current
27
employees, taking into consideration a number of factors, including the
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1
impacts to our employees and the financial impact to our business. We also
2
considered the practices of other utilities, the effect on potential unionization,
3
and the legal risks.
4
5
Q. WHAT DID THE COMPANY DISCOVER DURING THIS ANALYSIS?
6
A.
A large portion of our highly skilled workforce is already eligible to retire.
7
Changing the pension benefits for these employees would have increased the
8
risk of them leaving earlier, resulting in a significant loss of necessary
9
knowledge to run our business. Our analysis demonstrated that projected cost
10
savings were not significant enough to offset this risk. Our attrition rate, which
11
was previously discussed, has been rising as a result of our aging population
12
and the number of employees eligible to retire. As more employees are
13
retiring and replacement employees are going into the 5% Cash Balance Plan,
14
we knew we could achieve our benefit objectives more effectively by simply
15
making the change for new hires. This business decision eliminated the
16
complexity and disruption associated with changing an employee’s existing
17
vested benefit, as well as allowing us to achieve our financial objectives.
18
19
Q. WERE
20
21
THESE THE ONLY CONSIDERATIONS IN THE
COMPANY’S
DECISION TO
MAINTAIN THE CURRENT PENSION PLAN FOR EXISTING EMPLOYEES?
A.
No, there were other considerations. During 1998-1999, employees were
22
provided with a choice between two pension formulas. This choice was given
23
to existing employees because we were changing the pension formula for new
24
hires. We wanted to give existing employees the opportunity to choose the
25
new plan or stay in their existing plan. This is because the two plan choices
26
were very different from each other – the new plan accrued benefits evenly
27
over the course of an employee’s career and the existing plan accrued the
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1
majority of the benefits at the end of a career. Therefore an employee’s
2
ultimate benefit could be impacted by the amount of time they were in each
3
plan. Our analysis showed that we would be assuming legal risk if we if we
4
moved these employees into the 5% Cash Balance Plan because it would have
5
negatively impacted their pension value. For many employees their choice
6
would have been different if they knew that the pension design would change
7
again before they left the Company.
8
9
Q. YOU
10
11
ALSO MENTIONED POTENTIAL
“UNION
IMPACTS.”
COULD
YOU PLEASE
ELABORATE ON THIS COMMENT?
A.
We knew from our own experience and from the experience of peer utilities
12
that it is difficult to obtain benefit reductions during labor negotiations and as
13
a result, substantial transitional benefits may be required to mitigate the impact
14
on employees. Transitional benefits would significantly erode any savings
15
associated with the 5% Cash Balance Plan. We also believe that our unions
16
would have viewed a change to their pension plan as a potential strike issue,
17
requiring cost-prohibitive preparations to maintain the continuity of service
18
levels for our customers.
19
20
Q. WHY NOT MAKE CHANGES TO YOUR NON-UNION WORKFORCE ONLY?
21
A.
Having similarly valued benefit programs for bargaining and non-bargaining
22
employees is critical to our workforce strategy. Similar programs provide
23
opportunities to transition employees from bargaining positions into
24
supervisory positions. These transitions are important because former union
25
employees understand the work and have credibility with other union
26
employees.
27
unionization, which leads to higher labor costs.
Also, having similar benefit programs limits the risk of
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1
programs between union and non-union workforces is not uncommon in the
2
utility industry. In the Towers Watson BENVAL® study previously described,
3
63 percent of the companies provide benefit levels to their non-union
4
employees that are aligned with or better than union benefits. Based on all of
5
these factors, the Company determined a gradual transition to limit disruption
6
to current employees was the most appropriate course of action and was well
7
within the practices of others within our industry.
8
offering the 5% Cash Balance Plan to newly hired and rehired union and non-
9
union employees and to employees transitioning from a non-union position to
10
This resulted in our
a union position.
11
12
Q. WHY
13
14
IS IT REASONABLE FOR DEFINED BENEFIT PENSION EXPENSE TO BE
INCLUDED IN RATES?
A.
Including defined benefit pension expense in rates is reasonable because nearly
15
all of the utilities with whom we compete for employees offer defined benefit
16
plans. It is important for the Company to attract and retain employees by
17
offering total compensation and benefits that align with the companies with
18
whom we compete for talent.
19
20
B.
21
Q. PLEASE
22
23
Pension Restoration Expense
DESCRIBE THE REASON FOR REQUESTING RECOVERY OF
COMPANY’S
RESTORATION PENSION PLAN.
A.
Restoration plans are common not only in the utility industry, but also in other
24
industries as well.
In a 2011 Towers Watson study, 79 percent of
25
organizations provide some level of non-qualified benefits.
26
percent provide restoration benefits and the remaining 40 percent provide
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1
additional benefits in excess of the restoration level.22 Please keep in mind
2
that we are not requesting any recovery on our legacy Supplemental Executive
3
Retirement Plan (SERP) – a supplemental pension benefit for two remaining
4
executives.
5
between SERP and the restoration plan and would like to clarify this request.
I believe that there may be confusion about the difference
6
7
Q. PLEASE EXPLAIN WHAT YOU MEAN BY A RESTORATION PLAN.
8
A.
Regular retirement plans, known as “qualified” retirement plans, are generally
9
offered to a broad population of employees. Under the rules of a qualified
10
plan, the IRS places limits on the amount of compensation that can be
11
considered when calculating the benefits. As a result, almost all companies
12
offer “non-qualified” plans to restore the benefits lost under the qualified plan
13
due to the IRS pay limitations. These plans are commonly referred to as
14
restoration plans.
15
16
Q. ARE
17
18
THE EMPLOYEES WHO HAVE COMPENSATION ABOVE THESE LIMITS
GETTING A LARGER BENEFIT THAN THE BROAD-BASED POPULATION?
A.
No. As a percent of pay replacement they are getting the same benefit as the
19
broad population when you consider the combined benefits of the qualified
20
and restoration benefits. Without the restoration plan, they would actually be
21
getting a smaller benefit than the broader population.
22
23
Q. IF
24
25
THE
IRS
INTENDS TO LIMIT THESE BENEFITS, WHY WOULD A COMPANY
NEED TO OFFER A RESTORATION PLAN?
A.
26
Restoration plans are offered by companies for three reasons. First, the IRS
limits are in place for employer tax revenue purposes, not because the IRS
22
Towers Watson, “Executive Retirement Benefits Practices, 2011 Report,” September 2011.
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1
deems the limits to generate an inappropriate level of benefits. The IRS fully
2
recognizes the need for restoration plans; they just limit a company’s ability to
3
prefund the benefits on a tax preferred basis. Second, the plans are market-
4
competitive practice. Third, the plans allow for a common pay replacement
5
across the population.
6
7
Q. WHY IS A RESTORATION PLAN DIFFERENT THAN A SUPPLEMENTAL BENEFIT?
8
A.
A supplemental benefit provides a higher level of benefit for a portion of the
9
employee population and a restoration plan does not. A restoration plan
10
simply makes up for any benefits lost under the qualified pension plan as a
11
result of IRS compensation limits. Using the 5% Cash Balance Plan as an
12
example, the purpose of the restoration plan is to ensure that an employee
13
with compensation in excess of the IRS wage limits receives a pension benefit
14
equal to 5 percent of their pay, the same benefit any other employee would
15
receive.
16
through two plans (the qualified plan and the restoration plan). The two plans
17
are necessary only because the Company must pay taxes on benefits provided
18
through the restoration plan due to IRS requirements.
In this case, however, the employee would receive the benefit
19
20
Q. IS
21
22
THIS PLAN IMPORTANT TO YOUR ABILITY TO ATTRACT AND RETAIN
EMPLOYEES?
A.
Absolutely. Without this plan the amount of pay replacement for higher paid
23
employees would result in a lesser total pension benefit than that of other
24
employees not impacted by the IRS wage limits.
25
demonstrates that our new hire retirement values are already lower than peer
26
companies. The loss of this restorative benefit would reduce the pension
27
value even more. Providing this benefit is an important part of a Total
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1
Rewards Program package that gives us the ability to attract and retain the
2
right management talent necessary for our business.
3
4
C.
Defined Contribution Plan
5
Q. PLEASE DESCRIBE THE COMPANY’S DEFINED CONTRIBUTION PLAN.
6
A.
The Company’s defined contribution plan, which is a 401(k) savings plan,
7
provides an employer contribution equal to a maximum of four percent of an
8
employee’s eligible compensation (i.e. base salary). The Company matches 50
9
cents on the dollar up to eight percent of an employee’s contribution.
10
11
Q. WHAT IS THE COMPANY’S TEST YEAR AMOUNT OF 401(K) EXPENSE?
12
A.
13
The Company has included $8,012,615 (State of Minnesota Electric
Jurisdiction) in 401(k) expenses in the test year.
14
15
Q. DOES
16
17
THE
COMPANY
HAVE ANY STUDIES SUPPORTING THE
TEST YEAR
AMOUNT OF 401(K) EXPENSE?
A.
Yes. The Company’s 401(k) plan is slightly lower in value than the relevant
18
market. The BENVAL® study showed that our combined 5% Cash Balance
19
Plan and 401(k) savings plan falls in the lower third of other utilities
20
benchmarked.
21
22
Q. WHY IS IT REASONABLE FOR 401(K) EXPENSE TO BE INCLUDED IN RATES?
23
A.
The expense is reasonable not only because it is an important part of our
24
benefit program to attract and retain talent, as stated above, our 5% Cash
25
Balance Plan and 401(k) savings plan combined provide a lower benefit than
26
most of the companies we compete against for talent.
27
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1
D.
Retiree Medical Expense
2
Q. PLEASE DESCRIBE THE COMPANY’S RETIREE MEDICAL BENEFIT.
3
A.
For bargaining employees who retired prior to 2000 and non-bargaining
4
employees who retired prior to 1999, the Company provides subsidized
5
medical and pharmacy coverage at varying levels based on the year in which
6
the employee retired. Employees who retired after those dates receive access
7
to medical coverage but are responsible for 100 percent of the cost.
8
I provide more details about the health plans and premiums offered to retirees
9
in Appendix A.
10
11
Q. WHAT IS THE REQUESTED LEVEL OF RETIREE MEDICAL EXPENSE FOR 2014?
12
A.
13
We have included $4,099,992 (State of Minnesota Electric Jurisdiction) in
retiree medical costs in the 2014 test year.
14
15
Q. DOES
16
17
THE
COMPANY
HAVE ANY STUDIES SUPPORTING THE
TEST YEAR
AMOUNT OF RETIREE MEDICAL EXPENSE?
A.
Yes. The BENVAL® study compares the value, based on plan provisions, of
18
the Company’s benefits to those of a peer group based on industry and
19
geography. This study indicates most other utility peers (25 of 42) still offer
20
subsidized retiree medical coverage to their newly hired employees. The
21
Company has not offered subsidized retiree medical coverage since 2000, and
22
therefore we are only asking for recovery of expenses from these previous
23
commitments.
24
25
26
Q. HAS THE COMPANY UNDERTAKEN ANY INITIATIVES TO REDUCE THE COSTS OF
ITS RETIREE MEDICAL EXPENSE?
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1
A.
Yes. We recently completed a thorough evaluation of the healthcare options
2
available to Medicare-eligible retirees through the individual market related to
3
medical and prescription drug coverage, and we found that those plans
4
provide broad, comprehensive coverage at affordable costs. Therefore, we
5
took a new approach effective Jan. 1, 2013 to transition our Medicare-eligible
6
retirees and their Medicare-eligible spouses and dependents from the
7
Company plan options to the individual market. This reduced the company’s
8
financial liability and administrative responsibilities, and it gave us the
9
opportunity for significant cost savings for retiree groups that still had
10
premium subsidies.
11
12
Q. HAVE THE INITIATIVES RESULTED IN REDUCED RETIREE MEDICAL EXPENSE?
13
A.
14
Yes, as discussed by Mr. Moeller, these actions have significantly reduced
retiree medical expense.
15
16
Q. WHY IS IT REASONABLE FOR RETIREE MEDICAL EXPENSE TO BE INCLUDED IN
17
18
RATES?
A.
Our retirees contributed greatly to the success of our company and to the
19
products, services and infrastructure that our customers use today and as
20
demonstrated above is a key element in competitive market practices. The
21
Company has pursued and continues to aggressively pursue benefit design
22
options for our retirees that manage or reduce our retiree expenses while
23
fulfilling our obligations for their past service with the Company.
24
25
E.
26
Q. PLEASE
27
Summary of Progress on Reducing Retirement Costs
SUMMARIZE
HOW
THE
COMPANY
ARRIVED AT ITS CURRENT
RETIREMENT PROGRAM.
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1
A.
We continually monitor and evaluate our retirement program to ensure we
2
align with the market as well as our workforce needs. This effort has resulted
3
in a number of modifications that have resulted in steadily lower total pay
4
replacement income levels for employees. Table 12 identifies our efforts to
5
date:
6
7
Table 12
Dates
Defined Benefit Plan
(Pension)
Pre-1999
Traditional Plan
2000
Pension Equity Plan (PEP)
- Traditional was closed to nonbargaining employees
- Choice was implemented for bargaining
employees
Post Retirement Medical (PRMB)
was replaced with a lower level
benefit/subsidy via pension plan
• Retirement Spending
Account (RSA)
• Social Security Supplement
(SSS)
2007
No change in plan
2011
Defined Contribution Plan
(401(k))
Dollar for Dollar Match;
maximum of $1400
4% employer contribution based on
employee contribution of 5% was
implemented for those in the PEP
4% employer contribution based on
employee contribution of 8%
5% Cash Balance Plan (NSP
Bargaining)
- Employee contribution minimum was
increased to receive the full employer
match and to align with Company
philosophy that employees need to
participate in saving for retirement
No change in plan
- Traditional and PEP was closed to
Bargaining employees
Elimination of RSA/SSS
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Dates
Defined Benefit Plan
(Pension)
2012
5% Cash Balance Plan (Nonbargaining)
Defined Contribution Plan
(401(k))
No change in plan
- PEP was closed to Non-bargaining
employees
Elimination of RSA/SSS
1
2
These changes and the other changes I discussed in relation to particular
3
benefits have resulted in significant cost savings for our customers.
4
5
Q. WHAT
6
7
DO YOU CONCLUDE REGARDING THE
COMPANY’S RETIREMENT
PROGRAM?
A.
The Company provides a retirement program that is comparable to the
8
relevant market in which we compete for talent, but it reflects considerable
9
cost savings as a result of plan changes the Company has been able to achieve
10
through the measures discussed in this testimony. Minnesota customers have
11
benefitted from those changes. The BENVAL® study supports that we are
12
below the market median and therefore reducing these benefits even further
13
would most definitely compromise our ability to attract and retain employees.
14
15
VIII. CONCLUSION
16
17
Q. PLEASE SUMMARIZE YOUR TESTIMONY AND RECOMMENDATIONS.
18
A.
Our Total Rewards Program is integral to recruiting properly-qualified
19
candidates and retaining our valuable employees so that we can continue to
20
provide the level of service expected of us.
21
22
My organization continues to experience the same staffing challenges we have
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1
described in several previous rate cases, and indeed those challenges are
2
growing. The increasing pressure of our recruiting, retention, and retirement
3
issues is exacerbated by the fact that we have not been recovering our full cost
4
of doing business. Further under-recovery of our Total Rewards Program
5
costs will jeopardize our ability to attract, retain, and motivate the employees
6
necessary to provide essential utility services.
7
8
Our Total Rewards Program costs are reasonable and market competitive.
9
Several independent market surveys confirm that our individual compensation
10
and benefits components are in line with the median and are comparable to
11
what other utilities and companies offer. I recommend the Commission grant
12
the Company’s request to recover the full 2014 test year level costs of the
13
Total Rewards Program in base electric rates.
14
15
Q. DOES THIS CONCLUDE YOUR TESTIMONY?
16
A.
Yes, it does.
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Northern States Power Company
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Schedule 1
Page 1 of 1
Statement of Qualifications
Darla Figoli
Current Responsibilities
As Vice President of Human Resources for Xcel Energy Services Inc., the service
company for Xcel Energy Inc. (Xcel Energy), my areas of responsibility include: Talent
Management, Total Rewards, Workforce Strategy & Business Consulting and Human
Resources Strategy & Performance. I also oversee HR Operations including our Service
Center, Payroll and Data Management.
Previous Employment
Xcel Energy Services Inc.
Vice President, Human Resources
Director, Commercial Accounting Services
Director, Gas & Fuels Accounting & Reporting
Jan 2010 - Present
March 2005 – Jan 2010
Jan 2000 – March 2005
e prime, Inc (inactive subsidiary of Xcel Energy)
Vice President and Controller
Director, Accounting
Jan 2003 - current
Nov 1996 – Jan 2003
Multifoods Distribution Group
Corporate Accounting Manager
June 1994 – Oct 1996
Leprino Foods Company
May 1988 – May 1994
Regional Marketing Accounting Manager-Foodservice Distribution
Foodservice Distribution Accounting Projects Manager
Eastern Region Marketing Accounting Supervisor
Education
University of Colorado-Denver
MBA with Accounting Emphasis
May 1988
Fort Lewis College
BA Accounting
April 1984
Previous Testimony
I have testified before the Minnesota Public Utilities Commission, the Public Utility
Commission of Texas, the Colorado Public Utilities Commission, and the Public Service
Commission of Wisconsin.
Docket No. E002/GR-13-868
Exhibit No.___(DAF-1), Schedule 2
Page 1 of 3
Northern States Power Company
Benefit Costs
NSPM Total Company Electric O&M
2008
Actual
2009
Actual
2010
Actual
2011
Actual
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
NMC Employer Retirement Contribution
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
6,944,808
(414,955)
1,762,283
33,874
251,001
514,978
1,455,659
10,547,647
7,326,584
2,008,544
1,514,117
30,507
569,965
606,174
1,328,983
17,403
13,402,278
8,031,325
8,675,150
1,558,508
35,482
731,608
959,018
615,858
12,231
20,619,181
8,335,273
14,050,084
1,620,098
39,731
642,479
634,256
1,960
25,323,881
8,614,884
27,213,366
1,529,493
33,933
735,539
776,232
2,929,505
(221,490)
41,611,461
8,565,287
18,404,321
0
34,723
792,693
741,145
28,538,169
8,846,745
26,565,308
1,281,686
33,760
749,869
745,429
498,844
52,775
38,774,415
9,152,672
22,750,335
786,870
37,475
871,746
763,244
34,362,342
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
29,200,148
5,673,239
9,233,782
(285,707)
50,655
43,872,117
37,623,503
5,355,795
8,535,028
594,834
52,109,159
36,803,984
4,812,687
7,206,190
874,630
49,697,491
33,774,902
3,765,990
6,464,635
1,232,511
45,238,038
34,746,183
3,536,596
7,020,001
1,166,909
46,469,688
35,241,869
3,950,969
4,453,268
697,267
44,343,374
36,217,546
3,972,940
4,974,620
1,389,143
46,554,249
37,996,954
3,631,799
4,683,350
667,603
46,979,705
26,332,502
-
27,887,767
-
21,567,357
-
26,737,113
-
21,514,675
-
21,514,675
-
20,059,904
-
Annual Incentive (A) (B)
Perquisite Benefits
203,909
2012
Actual
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) (C) with Updates
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
54,623,673
(1,455,659)
53,168,014
91,843,939
(1,328,983)
90,514,956
98,204,439
(615,858)
97,588,581
92,129,276
92,129,276
114,818,262
(2,929,505)
111,888,757
94,396,217
94,396,217
Paid Leave (not included in benefits)
41,271,546
43,725,479
45,616,208
44,216,224
45,825,646
52,131,438
2014 Test
Year
106,843,339 101,401,951
(498,844)
106,344,495 101,401,951
50,956,684
57,007,094
(A) For actual years, the annual incentive plan amounts represent the actual payout for each year.
(B) 2013 amounts are not final. Incentive is accrued during 2013, and the amount listed is an estimate. The final amount will be paid in March 2014.
(C) The entire amount for 2013 rate case adjustments were applied to O&M even though they were calculated for O&M and capital.
NSPM Electric O&M for Minnesota Jurisdiction
2008
Actual
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
NMC Employer Retirement Contribution
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
Annual Incentive (A) (B)
Perquisite Benefits
2009
Actual
2010
Actual
2011
Actual
6,019,135
(359,646)
1,527,388
29,359
217,545
446,336
1,261,634
9,141,751
6,340,939
1,738,335
1,310,423
26,403
493,288
524,626
1,150,195
15,062
11,599,270
7,035,120
7,599,084
1,365,191
31,080
640,860
840,062
539,467
10,714
18,061,578
7,326,371
12,349,461
1,424,002
34,922
564,714
557,486
1,723
22,258,678
7,576,825
23,934,264
1,345,195
29,844
646,909
682,699
2,576,511
(194,802)
36,597,446
7,522,120
16,162,858
0
30,494
696,151
650,881
(101,402)
24,961,103
7,744,794
23,230,088
1,122,039
29,554
656,465
652,578
436,708
46,202
33,918,429
8,012,615
19,933,516
688,858
32,807
763,161
668,174
30,099,132
25,308,061
4,917,053
8,003,011
(247,625)
43,903
38,024,402
32,562,013
4,635,279
7,386,811
514,811
45,098,914
32,238,818
4,215,721
6,312,334
766,141
43,533,014
29,686,788
3,310,154
5,682,156
1,083,328
39,762,426
30,559,407
3,110,450
6,174,119
1,026,301
40,870,276
30,949,435
3,469,781
3,910,905
612,347
(157,228)
38,785,239
31,706,289
3,478,071
4,354,981
1,216,111
40,755,452
33,264,053
3,179,422
4,099,992
584,446
41,127,913
23,010,387
-
24,517,816
-
17,020,466
-
23,513,110
-
18,889,769
-
18,889,769
-
17,584,311
-
176,730
2012
Actual
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) (C) with Updates
2014 Test
Year
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
47,342,883
(1,261,634)
46,081,249
79,708,570
(1,150,195)
78,558,375
86,112,408
(539,467)
85,572,941
79,041,570
79,041,570
100,980,833
(2,576,511)
98,404,322
82,636,111
82,636,111
93,563,649
(436,708)
93,126,941
88,811,356
88,811,356
Paid Leave (not included in benefits)
35,770,462
37,843,090
39,957,974
38,864,292
40,303,839
45,782,350
44,609,519
49,906,290
(A) For actual years, the annual incentive plan amounts represent the actual payout for each year.
(B) 2013 amounts are not final. Incentive is accrued during 2013, and the amount listed is an estimate. The final amount will be paid in March 2014.
(C) The entire amount for 2013 rate case adjustments were applied to O&M even though they were calculated for O&M and capital.
Docket No. E002/GR-13-868
Exhibit No.___(DAF-1), Schedule 2
Page 2 of 3
Northern States Power Company
Benefit Costs
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
NMC Employer Retirement Contribution
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
Annual Incentive
Perquisite Benefits
NSPM TOTAL COSTS (O&M, Capital, COGS, Clearing, Deferred)
2012
Actual
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) with Updates
2008
Actual
2009
Actual
2010
Actual
2011
Actual
7,160,524
1,365,000
310,515
613,618
9,449,657
7,624,152
796,000
612,734
412,828
1,103,000
29,965
10,578,679
8,235,070
6,481,000
616,000
796,959
777,538
20,387
16,926,954
8,565,194
12,728,000
515,000
692,327
630,040
3,266
23,133,827
9,030,658
29,958,000
554,000
10,449
782,988
689,276
(363,127)
40,662,244
8,959,096
36,855,000
563,000
846,645
704,166
47,927,907
9,178,773
41,706,000
466,000
7,648
807,526
704,166
2,122
52,872,235
9,551,937
36,804,000
569,000
8,927
917,802
632,296
48,483,962
31,282,044
6,109,055
13,958,000
140,000
51,489,099
39,982,458
4,310,307
13,419,000
1,097,000
58,808,766
41,765,735
4,258,829
10,643,000
1,875,000
58,542,564
36,459,331
3,056,157
10,460,000
2,095,000
52,070,488
37,785,621
2,879,431
11,220,000
1,910,000
53,795,052
46,465,589
3,690,766
6,206,000
1,142,000
57,504,355
42,669,934
3,690,766
6,873,000
2,292,000
55,525,700
45,180,445
3,274,424
6,307,000
1,078,000
55,839,869
43,749
16,357,764
-
17,914,552
-
13,170,200
-
17,469,523
-
15,085,420
-
15,085,420
-
15,641,278
119,965,109
119,965,109
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
60,982,505
60,982,505
85,745,208
(1,103,000)
84,642,208
93,384,070
93,384,070
88,374,515
88,374,515
111,926,819
111,926,819
120,517,682
120,517,682
123,483,355
123,483,355
Paid Leave (not included in benefits)
45,295,394
48,781,311
50,664,010
48,949,287
51,555,731
56,845,599
55,579,537
2014 Test
Year
60,274,094
XES TOTAL COSTS (O&M, Capital, COGS, Clearing, Deferred)
2008
Actual
2009
Actual
2010
Actual
2011
Actual
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
6,296,896
(1,347,000)
2,605,000
109,959
355,508
4,725,263
6,204,947
6,390,000
3,242,000
97,056
1,040,278
2,190,000
6,673,346
14,660,000
3,651,000
112,000
1,300,933
1,944,000
6,938,177
19,515,000
4,113,000
127,000
629,085
-
12,745,626
19,164,280
28,341,279
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
26,162,058
5,024,231
1,175,000
(1,218,000)
164,700
31,307,989
33,270,661
7,165,672
1,648,000
(187,000)
Annual Incentive
Perquisite Benefits
498,688
2012
Actual
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) with Updates
7,154,513
29,971,000
3,642,000
119,811
864,871
-
31,322,262
6,821,770
27,735,000
3,974,000
87,946
981,662
9,900,000
49,500,378
29,462,858
6,394,152
601,000
(1,159,000)
28,208,623
5,164,887
681,000
(74,000)
41,897,333
35,299,010
34,564,007
-
2014 Test
Year
41,752,195
7,271,072
33,394,000
3,397,000
96,953
864,871
1,716,000
175,300
46,915,196
7,214,679
27,697,000
3,951,000
106,397
1,074,440
40,043,516
28,927,854
4,956,601
749,000
20,000
32,333,534
4,481,807
2,423,000
35,000
30,735,190
4,481,807
2,644,000
(12,000)
33,963,168
4,183,167
2,605,000
18,000
33,980,510
34,653,455
39,273,341
37,848,997
40,769,335
33,800,899
-
23,479,649
-
32,489,917
-
24,459,694
-
24,459,694
-
25,937,672
-
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
44,552,303
(4,725,263)
39,827,040
95,625,620
(2,190,000)
93,435,620
97,441,188
(1,944,000)
95,497,188
88,782,421
88,782,421
116,643,750
(9,900,000)
106,743,750
105,485,230
105,485,230
Paid Leave (not included in benefits)
13,839,669
14,774,810
14,926,480
14,698,082
15,039,106
19,444,010
109,223,887 106,750,523
(1,716,000)
107,507,887 106,750,523
20,080,458
23,042,842
Docket No. E002/GR-13-868
Exhibit No.___(DAF-1), Schedule 2
Page 3 of 3
Northern States Power Company
Benefit Costs
NSPM Total Company Electric Charged to Capital
2008
Actual
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
NMC Employer Retirement Contribution
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
Annual Incentive
Perquisite Benefits
1,184,377
(42,896)
267,832
3,502
42,350
101,920
150,480
1,707,564
6,023,418
1,173,591
2,361,753
(14,599)
5,128
9,549,291
-
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) (A) with Updates
2009
Actual
2010
Actual
2011
Actual
2012
Actual
2014 Test
Year
1,413,710
170,426
242,470
2,589
42,754
100,755
296,128
8,525
2,277,356
1,415,823
1,544,353
189,204
2,442
65,543
156,165
42,383
4,015
3,419,927
1,472,884
2,875,969
185,641
2,836
49,940
117,267
655
4,705,191
1,559,514
6,445,782
227,375
4,139
44,265
141,033
303,495
(73,904)
8,651,700
1,632,195
8,231,504
242,578
4,506
53,949
147,910
10,312,642
1,494,931
8,871,648
147,599
2,768
49,762
129,951
50,896
3,106
10,750,661
1,601,893
7,738,043
224,313
4,519
46,060
131,246
9,746,075
7,939,809
951,265
2,413,952
189,014
7,726,734
865,369
1,841,966
297,407
7,096,744
649,983
1,847,463
365,354
7,181,989
598,367
2,327,163
391,477
8,973,509
739,388
1,346,868
233,678
7,595,459
635,013
1,444,877
473,263
8,269,802
601,884
1,321,441
216,895
11,494,040
10,731,476
9,959,544
10,498,996
11,293,443
10,148,611
10,410,022
2,118,450
-
1,991,187
-
1,836,716
-
2,601,967
-
1,820,705
-
1,820,705
-
1,697,593
-
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
11,256,855
(150,480)
11,106,375
15,889,846
(296,128)
15,593,718
16,142,590
(42,383)
16,100,206
16,501,451
16,501,451
21,752,662
(303,495)
21,449,167
23,426,790
23,426,790
22,719,977
(50,896)
22,669,081
21,853,689
21,853,689
Paid Leave (not included in benefits)
10,229,465
11,564,258
11,417,458
11,255,753
12,555,743
12,480,548
14,928,209
16,077,231
(A) The entire amount for 2013 rate case adjustments were applied to O&M even though they were calculated for O&M and capital.
NSPM Electric Charged to Capital for Minnesota Jurisdiction
2008
Actual
2009
Actual
2010
Actual
2011
Actual
2012
Actual
Amount Included in
Docket No.
2013
E002/GR-12-961
Forecast
(2013 Test Year) (A) with Updates
2014 Test
Year
Retirement
401K Match
Qualified Pension
Nonqualified Pension
Deferred Compensation Plan
NMC Employer Retirement Contribution
Retirement & Compensation Consulting
FAS 88 nonqualified settlement
Other
Total Retirement
1,026,512
(37,179)
232,132
3,035
36,705
88,335
130,422
1,479,963
1,232,165
148,541
211,333
2,256
37,263
87,816
258,100
7,430
1,984,903
1,246,505
1,359,665
166,577
2,150
57,705
137,489
37,315
3,534
3,010,940
1,301,700
2,541,713
164,065
2,506
44,136
103,638
579
4,158,336
1,373,309
5,676,160
200,227
3,645
38,980
124,194
267,258
(65,080)
7,618,692
1,435,593
7,240,001
213,359
3,963
47,451
130,094
9,070,462
1,311,338
7,782,117
129,473
2,428
43,650
113,992
44,646
2,725
9,430,367
1,404,385
6,783,969
196,656
3,962
40,381
115,064
8,544,418
Health & Welfare
Active Health Care
Life & LTD insurance, Misc Ben Programs
FAS 106 Retiree Medical
FAS 112 LTD (long-term disability)
Other
Total Health & Welfare
5,220,557
1,017,163
2,046,955
(12,653)
4,444
8,276,466
6,920,197
829,106
2,103,958
164,741
10,018,002
6,802,698
761,880
1,621,686
261,840
9,448,104
6,271,933
574,439
1,632,744
322,891
8,802,007
6,324,464
526,922
2,049,302
344,735
9,245,423
7,892,630
650,327
1,184,634
205,531
9,933,123
6,662,657
557,027
1,267,431
415,141
8,902,255
7,250,164
527,674
1,158,512
190,152
9,126,502
1,846,403
-
1,753,061
-
1,623,246
-
2,291,294
-
1,601,397
-
1,597,103
-
1,488,286
-
Annual Incentive
Perquisite Benefits
-
Total Benefits
Less FAS 88 nonqualified settlement
Total Benefits excluding amts not recovered in rates
9,756,429
(130,422)
9,626,007
13,849,308
(258,100)
13,591,209
14,212,105
(37,315)
14,174,790
14,583,589
14,583,589
19,155,409
(267,258)
18,888,151
20,604,981
20,604,981
19,929,726
(44,646)
19,885,080
19,159,206
19,159,206
Paid Leave (not included in benefits)
8,865,979
10,079,203
10,052,050
9,947,566
11,056,595
10,977,239
13,094,868
14,094,965
(A) The entire amount for 2013 rate case adjustments were applied to O&M even though they were calculated for O&M and capital.
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Schedule 3
Page 1 of 2
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Schedule 3
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
Page 2 of 2
ENTIRE DOCUMENT IS NON-PUBLIC
NON-PUBLIC DOCUMENT - CONTAINS TRADE SECRET
INFORMATION
ENTIRE DOCUMENT IS NON-PUBLIC
Schedule 3 – Competitive Annual Incentive and Total Cash
Compensation Analysis
Schedule 3 contains Non-Public compensation and benefits information that
we believe qualifies as trade secret data pursuant to Minn. Stat. § 13.37, subd.
1(b). This compensation and benefits information has important economic
value to the Company as a result of its not being public, and the Company
takes efforts to prevent its public disclosure. The Company has identified the
Trade Secret and other Non-Public information pursuant to Minn. Rule
7829.0500.
[TRADE SECRET BEGINS
TRADE SECRET ENDS]
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
ENTIRE DOCUMENT IS NON-PUBLIC
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Schedule 4
Pages 1 of 1
NON-PUBLIC DOCUMENT - CONTAINS TRADE SECRET
INFORMATION
ENTIRE DOCUMENT IS NON-PUBLIC
Schedule 4 – Towers Watson 2013 Energy Industry Benefits Study
Schedule 4 contains Non-Public compensation and benefits information that
we believe qualifies as trade secret data pursuant to Minn. Stat. § 13.37, subd.
1(b). This compensation and benefits information has important economic
value to the Company as a result of its not being public, and the Company
takes efforts to prevent its public disclosure. The Company has identified the
Trade Secret and other Non-Public information pursuant to Minn. Rule
7829.0500.
[TRADE SECRET BEGINS
TRADE SECRET ENDS]
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
ENTIRE DOCUMENT IS NON-PUBLIC
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Schedule 5
Pages 1 of 1
NON-PUBLIC DOCUMENT - CONTAINS TRADE SECRET
INFORMATION
ENTIRE DOCUMENT IS NON-PUBLIC
Schedule 5 – Xcel Energy Non-Bargaining Exempt Employee,
Managing Director and Business Unit VP Annual Incentive Program
Schedule 5 contains Non-Public compensation and benefits information that
we believe qualifies as trade secret data pursuant to Minn. Stat. § 13.37, subd.
1(b). This compensation and benefits information has important economic
value to the Company as a result of its not being public, and the Company
takes efforts to prevent its public disclosure. The Company has identified the
Trade Secret and other Non-Public information pursuant to Minn. Rule
7829.0500.
[TRADE SECRET BEGINS
TRADE SECRET ENDS]
Northern States Power Company
Docket No. E002/GR-13-868
Exhibit No.___(DAF-1), Schedule 6
Page 1 of 2
Dental Plan- Bargaining employees are offered one dental plan option that
includes orthodontia coverage. Non-bargaining employees have the choice of
two dental plans, one that includes orthodontia coverage and one that does not.
All three plans use a common design with an upfront deductible (ranging from
$25 to $150) and annual benefit limit that caps the amount of coverage
provided by the plan ($1,000 to $2,000). The additional orthodontia benefit
($1,500 or $2,500) is a lifetime amount, and the plans provide greater coverage
for using in-network dental providers who participate in the Delta Dental
network. Employees pay a monthly premium that represents 25 percent of the
total cost.
Vision Plan- The vision plan provides annual coverage allowances eye exams,
glasses or contact lenses, plus access to discounts on additional services
through the Vision Services Plan (VSP) provider network. Employees pay a
monthly premium that covers the full cost of this benefit.
Disability Benefits- Disability benefits include both short-term and long-term
disability income replacement programs for non-bargaining employees who are
unable to work due to medical conditions. Both programs are administered by
The Hartford. Short-term disability provides income replacement after a one
week elimination period is met. Weeks two through thirteen are supplemented
at 100 percent, and weeks fourteen through twenty-six are supplemented at 70
percent. Long-term disability is for illness that extends beyond twenty-six
weeks and provides 60 percent income replacement.
plan.
This is a fully insured
Northern States Power Company
Docket No. E002/GR-13-868
Exhibit No.___(DAF-1), Schedule 6
Page 2 of 2
Life Insurance- Life insurance for both bargaining and non-bargaining employees
includes Company-provided coverage equal to one times base salary.
Employees are given the option to purchase additional benefits at the full cost.
These include higher levels of life insurance, accidental death and
dismemberment insurance, as well as those coverages for their eligible
dependents.
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Employee Compensation and Benefits - 2013 Electric Rate Case
Index
IR No.
Question
DOC
120
DOC
121
DOC
164
DOC
MCC
MCC
DOC
OAG
Subject: Towers Watson Study A. What pay rates are used in the 2013 study? B. Do the results of the 2013 Towers Watson Study
referenced above refer to compensation levels during the year 2013 or during test year 2014? C. On what date did Xcel Energy
provide Towers Watson the pay rates referenced in the study? D. With regard to the response to (C) above, what percentage
increase in base compensation over the previous year was included by Xcel Energy for: (1) Bargaining unit employees; and (2) Nonbargaining unit employees. E. With regard to the response to (C) above, what period of time did Xcel Energy tell Towers Watson
that the pay rates were effective? F. On what date(s) did each of the utilities included in what is referred to as the comparison group
of U.S. electric and gas companies with median revenues of $3.6 billion provide Towers Watson the compensation referenced in the
study? G. With regard to the response to (E) above, what period of time did each of the utilities included in what is referred to as the
comparison group of U.S. electric and gas companies with median revenues of $3.6 billion tell Towers Watson that the pay rates and
Subject: Compensation – Towers Watson Studies A. How often does Xcel Energy provide Towers Watson information regarding its
compensation? B. How often do other companies that Towers Watson uses for comparison purposes, provide Towers Watson
information regarding their compensation?
Subject: Employee Benefits Reference: A. Please provide a comprehensive list of all employee benefits (current and retirees) and
compensation provided by the Company to its employees, including: • An estimated cost of each benefit for 2007 to 2013, • Amount
of each benefit included in the test year (including breakout between capital and expense) • Actual cost of each benefit for the years
2007 to 2012 (including breakout between capital and expense), • And amount included and approved in the last rate case for each
employee benefit (including a breakout between capital and expense). B. Please provide both total company and MN jurisdictional,
including support for allocations, for amounts for each employee benefit in a spreadsheet format.
1114 Subject: Recognition Program Are Annual Incentive Plan (AIP) eligible employees also eligible for the ‘Recognition Program”
awards? Please explain. B. With regard to the “Recognition Program” awards during each of the years 2011, 2012, and 2013,
please provide the following: (1) Number of employees eligible for the awards; (2) Number of employees granted an award; (3) Total
Dollars awarded (Total Company and Minnesota Jurisdictional); and (4) Why it is appropriate that ratepayers pay for these awards.
109 With respect to health plans provided for current employees and retirees, please identify the following: (a) Employee contribution to
the plan; (b) Required copays for each plan; (c) Coverage for each plan; (d) Is each plan for employees only or for employees and
their families? Please provide how answer differs with respect to (a) to (c) above for employee versus family.
120 Does Xcel's Minnesota employee total compensation get affected by rate cases or profitability in other jurisdictions, such as
Colorado? Similarly, do employees in other jurisdictions have compensation affected by profitability of Minnesota operations?
1113 Subject: Incentive Compensation For each year during the period 2011 through 2013, please provide a copy of all detailed incentive
compensation plans.
36 Provide the authorized level of incentive comp recognized for each of the years 2009 through 2012 and projected for 2013. Provide
the dollar range of incentive comp per person, the average per person and show the top 20 individuals, with amounts, for each of
Page 1 of 1
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request No. MCC 109
__________________________________________________________________
Question:
With respect to health plans provided for current employees and retirees, please
identify the following:
(a)
(b)
(c)
(d)
Employee contribution to the plan;
Required copays for each plan;
Coverage for each plan;
Is each plan for employees only or for employees and their families?
Please provide how answer differs with respect to (a) to (c) above for employee versus
family.
Response:
The only medical plan available to active employees is the High Deductible Health
Plan (HDHP). The plan costs are shared between Xcel Energy and its employees,
with Xcel Energy funding 75% of the total costs and the employees funding 25%.
Plan costs are based on the total cost for the prospective plan year as determined by
professional actuarial methods, including any employee premiums.
The HDHP requires an out-of-pocket deductible cost of $2,500 (individual)/$5,000
(family). The Company implemented co-insurance in 2011, which means that even
after meeting their high deductible, employees continue to pay co-insurance on
additional medical claims up to $3,500 (individual)/$7,000 (family). Employee
premiums vary based on the level of coverage selected:
2014 Annual Premiums - Non-Bargaining Active
Employees (HDHP)
Employee Only
$234.24
Employee and Spouse
$515.52
Employee and Child(ren)
$410.16
Employee and Family
$702.96
2014 Annual Premiums - NSP Bargaining Active
Employees (HDHP)
Employee Only
$114.24
Employee + 1
$228.48
Employee + 2 or more
$342.72
a)
b)
Employee contributions to the plan equal 25% of total plan cost.
There are no required co-pays. Employees pay deductibles and co-insurance for
covered services.
c)
Please see Attachment A to this response for the HDHP coverage details.
d)
The plan is offered to eligible employees and their families.
Xcel Energy medical plans available to retired employees who are not yet Medicare
eligible include the HDHP and PPO $200 Deductible. The plan, cost share and
annual premium amount varies based on when the employee retired and if they were
previously non-bargained or bargained. Medicare eligible retirees are offered individual
coverage options through a Medicare supplement health insurance exchange and may
receive a contribution from Xcel Energy depending on when the employee retired and
if they were previously non-bargained or bargained.
a)
b)
Please see Attachment B to this response for retired employee contributions.
There are no required co-pays for the Xcel Energy plans. Retired employees
pay deductibles and co-insurance for covered services.
c)
See Attachment C to this response for PPO $200 coverage details.
The plans are offered to eligible retirees and their families.
__________________________________________________________________
Preparer:
Title:
Department:
Kirsten Wick
Compensation Business Partner
Total Rewards
2
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request MCC-0109, Attachment A
Cost of Services - HDHP
Benefit
Deductible
Annual Out-of-Pocket Maximum
Preventive Visit
Office Visit
Specialist Visit
ER
Inpatient Hospital
Mental Health Office Visit
Durable Medical Equipment
Ambulance
Chiropractic
Prescription Drug
High Deductible Health Plan (HDHP)
In-network benefits
$2,500 individual
$5,000 family
$3,500 individual
$7,000 family
$0
10% after deductible
0% after out-of-pocket maximum
10% after deductible
0% after out-of-pocket maximum, 20 visits per year
After deductible:
¾ Generics – 20% ($10 min, $20 max)
¾ Formulary Brand – 20% ($20 min, $50 max)
¾ Non Formulary Brand – 50% ($35 min, $90 max)
After out-of-pocket maximum: 0%
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request MCC-0109, Attachment B
Retired Employee Annual Contributions
Non-bargaining Retired Employees
Date of Retirement
Prior to 1994
01/01/1994 – 12/31/1998
01/01/1999 – current
Retiree
Contribution
$0
40%
100%
Spouse/Dependent
Contribution
$240
40%
100%
NSP Bargaining Retired Employees
Date of Retirement
Prior to 1994
01/01/1994 – 12/31/1996
01/01/1997 – 12/31/1999
01/01/2000 – current
Retiree
Contribution
$0
40%
25%
100%
Spouse/Dependent
Contribution
$240
40%
25%
100%
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request MCC-0109, Attachment C
Cost of Services – PPO $200
Benefit
1
PPO $200
In-network benefits
Deductible
$200 individual
$400 family
Annual Out-of-Pocket Maximum 1
$1,500 individual
$3,000 family
Preventive Visit
20%, No deductible
Office Visit Coinsurance
Specialist Visit Coinsurance
ER Coinsurance
Inpatient Hospital
Mental Health Office Visit Coinsurance
Ambulance Coinsurance
Chiropractic Coinsurance
20% after deductible
Prescription Drug Coinsurance
¾ Generics - 20% ($10 min, $20 max)
¾ Formulary Brand – 20% ($20 min, $50 max)
¾ Non Formulary Brand – 50% ($35 min, $90
max)
20% after deductible, 20 visits per year
Out-of-Pocket Maximum:
o Office visit co-insurance accumulates towards the annual out of pocket maximum. Prescription drug co-insurance does not
accumulate towards the annual out-of-pocket maximum.
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request No. MCC 120
__________________________________________________________________
Question:
Does Xcel's Minnesota employee total compensation get affected by rate cases or
profitability in other jurisdictions, such as Colorado? Similarly, do employees in other
jurisdictions have compensation affected by profitability of Minnesota operations?
Response:
Total compensation for all of Xcel Energy Services Inc. and Non-bargaining NSPM
employees is determined by evaluations of market-competitive compensation and our
need to attract and retain qualified personnel. The total compensation costs included
in the test-year cost of service reflect NSPM’s forecasted total compensation costs for
base pay, Annual Incentive Program (AIP), and other compensation costs. The
forecasted AIP included in the 2014 Test Year reflects a forecast of the AIP costs
assuming the NSPM achieves certain Key Performance Indicators, subject to the
limitations on rate recovery of AIP costs discussed in Company witness Ms. Darla
Figoli’s Direct Testimony.
Actual AIP awards paid to individual employees (and thus by the Company as a
whole) for 2014 will be affected by a variety of factors, including NSPM’s
performance with respect to its 2014 KPIs, the performance of the business unit
where the employee works, and the individual employee’s performance. Payment of
the AIP is subject to an earnings-per-share (EPS) “affordability trigger.” If Xcel
Energy Inc. does not achieve minimum EPS levels, the AIP will not be paid. Since
the revenues and costs of all Xcel Energy operating companies factor into the parent
company EPS, the 2014 AIP awards issued to NSPM employees could be affected by
the financial performance of other Xcel Energy operating companies. Similarly, the
actual 2014 AIP awards issued to employees of other Xcel Energy operating
companies could be affected by the financial performance of NSPM in 2014.
Consistent with the prior safeguard approved by the Commission and currently in
place, the Company has proposed to retain the refund mechanism such that if actual
AIP paid to employees for 2014 (to be paid in 2015) is less than the amount included
in the Test Year, the Company will refund the unpaid amount to customers.
__________________________________________________________________
Preparer:
Title:
Department:
Kirsten Wick
Compensation Business Partner
Total Rewards
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
Docket No. E002/GR-12-961
Information Request No. OAG-0036
__________________________________________________________________
Question:
Provide the authorized level of incentive comp recognized for each of the years 2009
through 2012 and projected for 2013. Provide the dollar range of incentive comp per
person, the average per person and show the top 20 individuals, with amounts, for
each of the years. Also, for each of the years show the test year amount used to set
rates.
Response:
The AIP ranges earned by eligible employees for the past four years are included
below in Table 1. We note that the lowest amount is $0 because each year we had
eligible employees who did not earn any AIP compensation. The highest amount is
the AIP compensation earned by the Xcel Energy Inc Chief Executive Officer; this
amount has not been allocated to the Minnesota Electric jurisdiction.
Table 1: Range of Individual AIP Paid
Year
2009
2010
2011
2012
Low
$0
$0
$0
$0
High
$1,933,808
$1,481,400
$1,215,280
$1,650,000
To provide the average AIP per person, we identified the AIP compensation paid to
all Xcel Energy employees, which includes employees of all operating companies, the
service company, and any other affiliates (e.g., Xcel Energy Foundation), and divided
that amount by the number of Xcel Energy employees eligible to earn AIP each year.
The results are provided in Table 2 below. The totals and averages are on an Xcel
Energy basis and have not been allocated to the NSPM Minnesota electric
jurisdiction.
Table 2: Average AIP Per Person
Year
Number of
Total AIP (Xcel
Average AIP per
Eligible Employees
Energy)
Employee per year
1
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
$11,190
2009
4,540
$50,802,702
2010
4,460
$50,340,897
$11,287
2011*
4,011
$55,238,370
$13,772
2012
4,068
$68,004,481
$16,717
*We note that we have updated the 2011 numbers from our previously provided IR response.
__________________________________________________________________
Preparer:
Title:
Department:
Kirsten Wick
Compensation Business Partner
Total Rewards
2
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-12-961
Information Request No. OAG-0036, Attachment A
Name
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
2009 (Paid in 2010)
Gross AIP Amount Total Company (NSP
Company Code
Paid
MN O&M)
MN Jurisdiction
[TRADE SECRET INFORMATION BEGINS
Highly Confidential
Information Redacted
TRADE SECRET INFORMATION ENDS]
Total Paid
EE Count
Average
$ 50,802,701.89
4,540
$
11,190.02
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-12-961
Information Request No. OAG-0036, Attachment A
Name
2010 (Paid in 2011)
Incentive Amount
Company Code
Paid
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
NSP MN
MN Jurisdiction
[TRADE SECRET INFORMATION BEGINS
Highly Confidential
Information Redacted
TRADE SECRET INFORMATION ENDS]
Total Paid
EE Count
Average
$ 50,340,896.88
4,460
$
11,287.20
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-12-961
Information Request No. OAG-0036, Attachment A
Name
Fowke,Ben
Kelly,Dick
Sparby,Dave
Connelly,Michael
Madden,Teresa
Larson,Kent Taylor
Wilensky,Scott M
McDaniel, Marvin
Koehl,Dennis L
Poferl,Judy
Palmer,Robert Roy
2011 (Paid in 2012)
Incentive Amount
Company Code
Paid
XS
$
1,288,197
XS
$
979,942
XS
$
383,839
XS
$
320,171
XS
$
318,239
XS
$
298,627
XS
$
291,667
XS
$
277,084
MN
$
232,298
MN
$
218,097
XS
$
171,244
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
$
$
$
$
$
$
$
$
$
$
$
NSP MN
370,660.40
298,882.31
116,084.22
93,002.13
95,276.51
85,925.82
80,871.36
80,871.36
202,961.91
64,865.57
52,229.42
MN Jurisdiction
$
325,795.67
$
262,705.60
$
102,033.39
$
81,745.15
$
83,744.24
$
75,525.36
$
71,082.69
$
71,082.69
$
178,395.40
$
57,014.24
$
45,907.57
[TRADE SECRET INFORMATION BEGINS
Highly Confidential
Information Redacted
TRADE SECRET INFORMATION ENDS]
Total Paid
EE Count
Average
$
$
55,238,370
4,011
13,772
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED
Docket No. E002/GR-12-961
Information Request No. OAG-0036, Attachment A
Name
Fowke,Ben
Sparby,David M
McDaniel Jr,Marvin E
Madden,Teresa S
Larson,Kent Taylor
Wilensky,Scott M
Poferl,Judy Marie
Palmer,Robert Roy
O'Connor,Timothy J.
2012 (Paid in 2013)
Incentive Amount
Company Code
Paid
$1,650,000
XS
XS
$527,085
XS
$455,813
XS
$448,500
XS
$439,238
XS
$417,300
$288,750
MN
XS
$279,000
MN
$243,524
Docket No. E002/GR-13-868
Exhibit___(DAF-1), Appendix A
$
$
$
$
$
$
$
$
$
NSP MN
479,160.00
153,065.48
132,367.95
130,244.40
121,888.41
121,183.92
265,938.75
81,021.60
204,535.56
MN Jurisdiction
$
421,579.34
$
134,671.60
$
116,461.29
$
114,592.93
$
107,241.08
$
106,621.25
$
233,980.89
$
71,285.23
$
179,956.53
[TRADE SECRET INFORMATION BEGINS
Highly Confidential
Information Redacted
TRADE SECRET INFORMATION ENDS]
Total Paid
EE Count
Average
$
$
68,004,481
4,068
16,717