Southwestern Public Service Company Seeks Rate Increase Amid Regulatory Discussions

Strategic Insights -

Southwestern Public Service Company, a wholly owned subsidiary of Xcel Energy, has filed an electric rate case with the Public Utility Commission of Texas (PUCT) seeking a rate increase of $149 million (13% impact on customer bills) in February 2023. The request was later updated to $158 million (14% impact on customer bills) in March 2023. The rate increase is based on a return on equity (ROE) of 10.65%, an equity ratio of 54.6%, a retail rate base of $3.6 billion, and the acceleration of the Tolk coal plant depreciation life from 2034 to 2028. A black box settlement was filed on December 22, 2023, which includes key terms such as a base rate increase of $65 million, a 9.55% ROE, and an acceleration of the Tolk coal plant depreciation life to 2028.

Key Takeaways:

  • Southwestern Public Service Company seeks a rate increase of $158 million (14% impact on customer bills) based on a return on equity (ROE) of 10.65% and an equity ratio of 54.51%.
  • The rate increase is effective back to July 13, 2023, and a 9.55% ROE, a 54.51% equity ratio, and a 7.11% weighted average cost of capital (WACC) will be used for calculating the company's allowance for funds used during construction and other proceedings filed before the PUCT.
  • A rate rider of approximately $18 million will be established to recover various deferred expenses over a three-year period.
  • A Public Utility Commission of Texas (PUCT) decision is expected in the first quarter of 2024.
  • The settlement also accelerates the depreciation life of Tolk coal plant to 2028.
  • Various factors could cause the actual results to differ materially from management expectations, including operational safety, successful long-term operational planning, commodity risks, rising energy prices, and regulatory changes.

Statistics:

  • The requested rate increase is $158 million (14% impact on customer bills).
  • The return on equity (ROE) requested is 10.65%.
  • The equity ratio requested is 54.51%.
  • The weighted average cost of capital (WACC) used for calculating the company's allowance for funds used during construction and other proceedings filed before the PUCT is 7.11%.
  • The rate rider established to recover various deferred expenses over a three-year period is approximately $18 million.
  • The expected PUCT decision is in the first quarter of 2024.

Sources:

  • UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 22, 2023