206456
NM-2020-Richard-R-Schrubbe BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF SOUTHWESTERN )
PUBLIC SERVICE COMPANY'S
)
APPLICATION FOR: (1) REVISION OF )
ITS RETAIL RATES UNDER ADVICE )
NOTICE NO. 292; (2) AUTHORIZATION )
AND APPROVAL TO ABANDON ITS
)
PLANT X UNIT 3 GENERATING
)
STATION; AND (3) OTHER
)
ASSOCIATED RELIEF,
)
)
SOUTHWESTERN PUBLIC SERVICE )
COMPANY,
)
)
APPLICANT.
)
)
CASE NO. 20-00238-UT
DIRECT TESTIMONY of
RICHARD R. SCHRUBBE on behalf of
SOUTHWESTERN PUBLIC SERVICE COMPANY
TABLE OF CONTENTS
GLOSSARY OF ACRONYMS AND DEFINED TERMS............................................... iii
LIST OF ATTACHMENTS ............................................................................................... v
I. WITNESS IDENTIFICATION AND QUALIFICATIONS .................................. 1
II. ASSIGNMENT AND SUMMARY OF TESTIMONY ......................................... 4
III. PENSION AND BENEFITS OVERVIEW ............................................................ 9
IV. RECOVERY OF PENSION AND OTHER POST-EMPLOYMENT BENEFITS EXPENSE ......................................................................................... 13
A. QUALIFIED PENSION .................................................................................. 13
B. NON-QUALIFIED PENSION.......................................................................... 24
C. RETIREE MEDICAL ..................................................................................... 27
D. SELF-INSURED LONG-TERM DISABILITY ................................................... 28
E.
REASONABLENESS OF SPS'S PENSION AND OTHER POST-
EMPLOYMENT AND RETIREMENT BENEFITS EXPENSE................................ 31
V. HEALTH AND WELFARE COSTS.................................................................... 32
A. ACTIVE HEALTH CARE .............................................................................. 32
B. THIRD PARTY-INSURED LONG-TERM DISABILITY ..................................... 35
C. LIFE INSURANCE ........................................................................................ 36
D. MISCELLANEOUS BENEFITS ....................................................................... 37
E. REASONABLENESS OF HEALTH AND WELFARE COSTS ............................... 38
VI. WORKERS' COMPENSATION COSTS ............................................................ 39
VII. OTHER BENEFIT COSTS .................................................................................. 41
A. 401(K) MATCH........................................................................................... 41
B. MISCELLANEOUS RETIREMENT-RELATED COSTS ...................................... 43
C. REASONABLENESS OF OTHER BENEFIT COSTS ........................................... 43
VIII. SPS'S PREPAID PENSION ASSET ................................................................... 44
VERIFICATION............................................................................................................... 60
ii
GLOSSARY OF ACRONYMS AND DEFINED TERMS
Acronym/Defined Term Meaning
ADIT
Accumulated Deferred Income Taxes
Base Period
October 1, 2019 through September 30, 2020
Commission
New Mexico Public Regulation Commission
ERISA
Employee Retirement Income Security Act
EROA
Expected Return on Assets
FAS
Statement of Financial Accounting Standard
FERC
Federal Energy Regulatory Commission
GAAP
Generally Accepted Accounting Principles
HSA
Health Savings Account
IBNR
Incurred But Not Reported
IRC
Internal Revenue Code
LTD
Long-Term Disability
NCE
New Century Energies
O&M
Operation and Maintenance
PBGC
Pension Benefit Guaranty Corporation
PBO
Projected Benefit Obligation
SPS
Southwestern Public Service Company, a New
Mexico corporation
Test Year
Historical Test Year Period consisting of the Base Period and further incorporating all proper adjustments and capital additions
iii
Acronym/Defined Term Meaning
WACC
Weighted Average Cost of Capital
Xcel Energy
Xcel Energy Inc.
XES
Xcel Energy Services Inc.
iv
Attachment RRS-1
RRS-2 RRS-3 RRS-4
RRS-5 RRS-6
RRS-7
LIST OF ATTACHMENTS
Description
Total Company Amounts and Jurisdictional Percentages (Filename: RRS-1.xls)
2019 Actuarial Report Excerpts (Non-native format)
2020 Actuarial Report Excerpts (Non-native format)
Calculation of Actuarially Determined Pension and Benefit Amounts (Filename: RRS-4.xls)
Calculation of Active Health and Welfare Amounts (Filename: RRS-5.xlsx)
Average Balances of Qualified and Non-Qualified Pension Fund Amounts (Filename: RRS-6.xls)
Development of Prepaid Pension Asset Balance (Filename: RRS-7.xlsx)
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe I. WITNESS IDENTIFICATION AND QUALIFICATIONS Please state your name and business address. My name is Richard R. Schrubbe. My business address is 401 Nicollet Mall, Minneapolis, Minnesota 55401. On whose behalf are you testifying in this proceeding? I am filing testimony on behalf of Southwestern Public Service Company, a New Mexico corporation ("SPS"). SPS is a wholly-owned electric utility subsidiary of Xcel Energy Inc. ("Xcel Energy"). By whom are you employed and in what position? I am employed by Xcel Energy Services Inc. ("XES"), the service company subsidiary of Xcel Energy, as Area Vice-President of Financial Analysis and Planning. Please briefly outline your responsibilities as Area Vice-President of Financial Analysis and Planning. My responsibilities include the oversight and management of the Business Area Finance group, which includes Energy Supply, Transmission, Distribution, Gas Engineering & Operations, Nuclear and Corporate Services. Within that group, I oversee budget planning, reporting, and analysis. I am also responsible for the accounting for all employee benefits programs, playing a liaison role with the
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Human Resources department, external actuaries, and senior management with benefit fiduciary roles for Xcel Energy and its subsidiaries. I am also responsible for coordinating the benefits operation and maintenance ("O&M") and capital budgeting and forecasting processes, as well as the monthly analysis of actual results against these budgets and forecasts. Please describe your educational background. I received a Bachelor of Science degree, with a major in finance, from Marquette University in 1996. Please describe your professional experience. From 2000 to 2005, I was employed by the DoALL Company, first as a Staff Accountant, later as Assistant Controller, and then as Corporate Controller. From 2005 to 2007, I was employed by Wilsons Leather as a Financial Analyst. In 2007, I joined XES as a Consultant. I became the Manager of Corporate Accounting in 2010 and the Director of Corporate and Benefits Accounting in 2013. Additionally, in 2014, I was assigned responsibilities associated with the oversight of the administration of XES, including accounting, billing, allocations, policies and procedures, service agreements, internal audits, external audits, and external reporting to state and federal regulatory agencies. In 2016, I was promoted to my current position.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Have you testified or filed testimony previously before any regulatory
authorities?
Yes. I testified on SPS's behalf in New Mexico Public Regulation Commission ("Commission") Case No. 17-00255-UT1 on pension and other post-employment
benefit expenses, active health care expenses, and the proper treatment of SPS's
prepaid pension asset, among other issues. I also submitted pre-filed testimony to the Commission on those same issues in Case Nos. 19-00170-UT2 and 15-00296-UT.3 In addition, I have testified or submitted pre-filed written testimony
on pension and benefit issues in numerous cases before the Public Utility
Commission of Texas, the Colorado Public Utilities Commission, and the
Minnesota Public Utilities Commission.
1 In the Matter of Southwestern Public Service Company's Application for Revision of Its Retail Rates Under Advice Notice No. 272, Case No. 17-00255-UT, Direct Testimony of Richard R. Schrubbe (Oct. 27, 2017).
2 In the Matter of Southwestern Public Service Company's Application for: (1) Revision of Its Retail Rates Under Advice Notice No. 282;(2) Authorization and Approval to Shorten the Service Life of and Abandon Its Tolk Generating Station Units; and (3) Other Related Relief, Case No. 19-00170-UT, Direct Testimony of Richard R. Schrubbe (Jul. 1, 2019).
3 In the Matter of Southwestern Public Service Company's Application for Revision of Its Retail Rates Under Advice Notice No. 256, Case No. 15-00296-UT, Direct Testimony of Richard R. Schrubbe (Oct. 16, 2016).
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
II. ASSIGNMENT AND SUMMARY OF TESTIMONY
What is your assignment in this proceeding?
My testimony addresses five topics related to SPS's employee pensions and other
non-cash benefits:
1. I support SPS's request to recover its reasonable and necessary expenses for qualified and non-qualified pension benefits calculated under Statement of Financial Accounting Standard ("FAS") 87,4 retiree medical expense calculated under FAS 106, and self-insured long-term disability ("LTD") expense calculated under FAS 112;
2. I support SPS's request to recover its active health and welfare expense, which includes costs incurred for active health care, miscellaneous benefits, life insurance, and third party-insured LTD benefits;
3. I support SPS's request to recover the reasonable and necessary costs incurred for workers' compensation benefits;
4. I support SPS's request to recover costs incurred in connection with other reasonable and necessary benefits such as the 401(k) match, certain benefitrelated consulting costs, and deferred compensation; and
5. I quantify SPS's prepaid pension asset and support the request that the Commission continue to allow SPS to include that prepaid pension asset in rate base and to earn a return at SPS's weighted average cost of capital ("WACC").
4 In 2009, FAS 87 was renamed Accounting Standards Codification 715-30, but for the sake of brevity I will refer to it in this testimony as "FAS 87." I will also refer to the other accounting standards by their former FAS designations.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Please summarize your testimony and recommendations. I support SPS's request for recovery of New Mexico retail jurisdictional pension and other post-employment and retirement benefits expense. I recommend that SPS be authorized to recover $2,750,840 ($9,150,444 total company) of pension and other post-employment benefits expense. That amount is composed of $2,602,157 ($8,655,864 total company) of qualified pension expense; $139,088 ($462,665 total company) of non-qualified pension expense; $(7,130) ($(23,717) total company) of FAS 106 retiree medical expense; and $16,725 ($55,633 total company) of FAS 112 self-insured LTD expense.
I also support SPS's request to recover its reasonable and necessary active health and welfare costs, and I recommend that SPS be authorized to recover $4,508,445 ($14,996,975 total company) for active health and welfare costs. That amount is composed of $4,173,178 ($13,881,738 total company) of active health care costs; $147,259 ($489,846 total company) of third-party-insured LTD costs; $20,007 ($66,552 total company) of life insurance costs; and $168,000 ($558,839 total company) of miscellaneous benefit costs.
I further support SPS's request to recover third party-insured workers' compensation costs, and I recommend that SPS be authorized to recover $258,593
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe ($860,189 total company) of third party-insured workers' compensation costs. I also recommend that SPS be authorized to recover $1,027,334 ($3,417,343 total company) of other pension and benefit-related costs, which include 401(k) matching expense, consulting expense, and deferred compensation.
Finally, I recommend that SPS continue to be allowed to include its prepaid pension asset in rate base in accordance with the standard ratemaking treatment of prepayments and Commission precedent. Customers earn a return on the prepaid pension asset in the form of reduced annual pension cost, and therefore it is appropriate for SPS to earn a return on the asset as well. SPS's thirteen-month average net prepaid pension asset balance as of September 30, 2020 was $46,343,138 on a New Mexico retail basis ($155,314,373 total company). SPS requests that it be allowed to include the prepaid pension asset in rate base and to earn a return on that asset at SPS's WACC, consistent with Commission precedent. Is any other SPS witness addressing compensation or benefit issues? Yes. SPS witness Michael T. Knoll discusses the cash compensation paid by SPS and the overall reasonableness of Xcel Energy's Total Rewards Package, which consists of both the cash and non-cash components of the compensation and benefits offered to SPS and XES employees.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe How were the New Mexico retail jurisdictional amounts in your testimony and attachments calculated? Throughout this testimony, I quantify the expense and asset amounts on a New Mexico retail basis based upon the jurisdictional allocation percentages SPS witness Stephanie N. Niemi uses to develop the New Mexico retail revenue requirement in her Attachment SNN-6. Ms. Niemi is responsible for calculating jurisdictional allocation percentages that apply to the various cost components in the cost of service. My staff and I conferred with Ms. Niemi and her staff to determine these New Mexico retail jurisdictional amounts presented in my testimony and attachments. If the percentages used to allocate amounts to the New Mexico retail jurisdiction change, those new allocation percentages will need to be applied to the total company numbers to derive updated New Mexico retail amounts. Attachment RRS-1 contains the total company numbers and the jurisdictional percentages used to derive the New Mexico retail amounts in my testimony. Were Attachments RRS-1 and RRS-4 through RRS-7 prepared by you or under your direct supervision and control? Yes.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
Are Attachments RRS-2 and RRS-3 true and correct copies of the documents
that you have represented them to be?
Yes.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
III. PENSION AND BENEFITS OVERVIEW
Please summarize the pension and other benefits that SPS offers to its eligible
employees.
In addition to the cash compensation discussed by Mr. Knoll, SPS and XES offer
the following non-cash benefits to their employees:
pension and other post-employment and retirement benefits, which include:
o a defined benefit qualified pension plan that provides eligible employees with a defined benefit amount upon retirement;
o a non-qualified pension restoration benefit that allows SPS to attract and retain employees who would otherwise be disadvantaged by the restrictions imposed under the qualified pension plan;
o a retiree medical plan available to certain retired employees; and
LTD benefits;
active health and welfare benefits, which include medical, dental, pharmaceutical, vision, life insurance, and other miscellaneous benefits;
workers' compensation benefits, including both self-insured and third-party-insured benefits; and
other types of benefits, including a 401(k) defined contribution plan and certain types of deferred compensation.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe What is the requested amount for each of the elements of non-cash
compensation offered by SPS?
Table RRS-1 (on the next page) sets forth the total company and New Mexico retail
amounts of the pension and benefit costs that SPS seeks to recover in rates. Column
B represents the per book amount for each element of expense during the Base
Period, which is the twelve-month period from October 1, 2019 through September
30, 2020. Column C shows the known and measurable adjustments to the Base Period amounts. Column D contains the total company amounts for the Test Year,5
and Column E shows the New Mexico retail amount for each element of expense
that is included in the cost of service in this case.
5 The Test Year is the Historical Test Year Period consisting of the Base Period and further incorporating all proper adjustments and capital additions.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1
Table RRS-1
A Benefit
B
Base Period (12 months ended
September 30, 2020)
C
Known and Measurable Adjustment
D
Test Year Amount (Total Company)
E6
Test Year Amount Included in Cost of Service
Qualified Pension
$8,739,363
$(83,499)
$8,655,864
$2,602,157
Non-Qualified Pension
438,251
24,414
462,665
139,088
FAS 106 Retiree Medical
(28,131)
4,414
(23,717)
(7,130)
FAS 112 Long-Term Disability (Self-Insured)
Active Health Care7
30,832 13,103,614
24,801 778,124
55,633 13,881,738
$16,725 4,173,178
Long-Term Disability (Third Party-Insured)
489,846
-
489,846
147,259
Life Insurance
66,552
-
66,552
20,007
Miscellaneous Benefit Programs and Costs
558,839
-
558,839
168,000
401(k) Match
3,126,454
87,904
3,214,358
966,312
Miscellaneous Retirement-Related Costs
202,985
-
202,985
$61,022
Workers Compensation (Third Party-Insured)
860,190
-
860,190
258,593
Total Pension and Benefits Expense
$27,588,795
$836,158 $28,424,953
$8,545,212
6 Amounts in Column D are multiplied by the jurisdictional allocator for Federal Energy Regulatory Commission ("FERC") Accounts 925 and 926 to arrive at the New Mexico retail amount included in the cost of service. The jurisdictional allocator for both FERC Accounts 925 and 926 is 30.0624%.
7 The per book amount for active health care in the cost of service is $13,103,614. That amount is an estimate, and it must be adjusted to reflect health care claims that were incurred near the end of the Base Period but not reported until after the Base Period. After adding the Incurred But Not Reported ("IBNR") amount, which is $(7,635), and the known and measurable adjustment of $785,759 that are discussed later in my testimony, the Test Year amount is $13,881,738.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
Is SPS seeking to recover any other amounts related to pension and benefits?
Yes. SPS also seeks Commission approval to continue including a prepaid pension
asset in rate base and to earn a return on that asset at SPS's WACC, consistent with
the Commission's treatment of SPS's prepaid pension asset in Case No.
12-00350-UT8 and Case No. 17-00255-UT.9
8 In the Matter of Southwestern Public Service Company's Application for Revision of Its Retail Electric Rates Under Advice Notice No. 245, Case No. 12-00350-UT, Final Order Partially Adopting Recommended Decision at 11 (Mar. 26, 2014).
9 In the Matter of Southwestern Public Service Company's Application for Revision of Its Retail Electric Rates Under Advice Notice No. 272, Case No. 17-00255-UT, Final Order Adopting Recommended Decision with Modifications at 17-18 (Sept. 5, 2018).
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe IV. RECOVERY OF PENSION AND OTHER POST-
EMPLOYMENT BENEFITS EXPENSE What topic do you discuss in this section of your testimony? I discuss the amounts requested for pension and other post-employment benefit expenses, which include qualified pension expense, non-qualified pension expense, FAS 106 retiree medical expense, and FAS 112 LTD benefits. Are the pension and other post-employment and retirement benefit amounts that SPS seeks to include in the cost of service determined by actuarial studies or similar studies prepared in accordance with Generally Accepted Accounting Principles ("GAAP")? Yes. SPS's pension and other post-employment and retirement benefit expense amounts are calculated in accordance with GAAP and the applicable actuarial standards, and the results are set forth in actuarial studies that are attached to my testimony as Attachment RRS-2 and Attachment RRS-3.
A. Qualified Pension
How are qualified pension costs determined? Pension costs are determined under FAS 87, Employers' Accounting for Pensions.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Please describe SPS's qualified pension plan and the nature of the costs of the plan. The qualified pension plan is a traditional defined benefit pension plan, which promises bargaining employees monthly pension annuity payments based upon their level of pay and years of service. It promises non-bargaining employees a choice of either a lump sum payout or a monthly pension annuity based upon their level of pay and years of service. Under a defined benefit pension plan, the promised pensions are a commitment by SPS. Do accounting rules and laws determine the cost for SPS's pension plan? Yes. As I noted earlier, SPS accounts for the cost of its pension plan under the rules set forth in FAS 87, which prescribes the rules that companies must follow in determining whether their pension costs comply with GAAP. However, FAS 87 does not dictate how a company must fund the plan. The funding of the plan is determined based upon prudent business practices, with constraints imposed by the requirements of the Pension Protection Act of 2006, the Employee Retirement Income Security Act ("ERISA"), and the Internal Revenue Code ("IRC"):
there are minimum required contributions; there are maximum contributions that can be deducted for tax purposes;
and
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
SPS has a fiduciary responsibility to prudently protect the interests of the plan participants and beneficiaries.
The minimum and maximum funding rules set forth under the Pension Protection
Act, ERISA, and the IRC are different from the methodology used under FAS 87
to determine pension cost. Over the long run, the cumulative employer
contributions made to a plan should equal the cumulative recognized pension
expense calculated under FAS 87, but in the short and intermediate run there can
be significant differences.
How is pension cost determined under FAS 87?
Under FAS 87, pension cost is composed of the following:
1. the value of pension benefits that employees will earn during the current year (service cost);
2. increases in the present value of the pension benefits that plan participants have earned in previous years (interest cost);
3. investment earnings on the pension plan assets that are expected to be earned during the year (expected return on assets ("EROA"));
4. recognition of costs (or income) resulting from experience that differs from the assumptions (amortization of unrecognized gains and losses); and
5. recognition of the cost of benefit changes the plan sponsor provides for service the employees have already performed (amortization of unrecognized prior service cost).
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Taking each of these five components in order, how is the service cost component calculated? The service cost component recognized in a period is the actuarial present value of benefits attributed by the pension benefit formula to current employees' service during that period. Actuarial assumptions are used to reflect the time value of money (the discount rate) and the probability of payment (assumptions as to mortality, turnover, early retirement, and so forth). Next, how is the interest cost component calculated? The interest cost component recognized in a fiscal year is determined as the increase in the projected benefit obligation ("PBO") due to the passage of time. Measuring the PBO as a present value requires accrual of an interest cost at a rate equal to the assumed discount rate. Essentially, the interest cost identifies the time value of money by recognizing that anticipated pension benefit payments are one year closer to being paid from the pension plan. How is the third component, EROA, calculated? The dollars in the pension trust are invested in a portfolio of stocks, bonds, commodities, and other types of income-producing assets. The EROA is determined based on the expected long-term rate of return on plan assets and the market-related value of plan assets. The market-related value of plan assets for SPS
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe is a calculated value that recognizes changes in the fair value in a systematic and rational manner over five years. With regard to the fourth component, what are the unrecognized gains and losses? Unrecognized gains and losses are the asset gains and losses or the liability gains and losses from prior periods. In effect, those asset or liability gains and losses arise when the experience in a prior period differ from what was expected. Please explain the distinction between asset gains and losses and liability gains and losses. SPS experiences an asset gain when the actual return in a particular year exceeds the EROA for that year, and SPS experiences an asset loss when the actual return is less than the EROA for that year. Suppose, for example, that the plan has an EROA of 7% on $1 billion of pension trust assets, which would produce an expected return of $70 million. If the actual return in that year is 9%, the plan earns a return of $90 million, which produces an asset gain of $20 million. Of course, the opposite can also occur. If the EROA is 7% and the actual return on the assets is 5%, the plan realizes a $20 million asset loss.10
10 The $20 million loss in this example is not an actual loss in the value of the trust assets. In the example, the pension has earned a return of $50 million, meaning that the trust's value has increased by $50 million, all else being equal. But because the expected return was $70 million, the pension trust records a $20 million actuarial loss.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Liability gains and losses arise when the components of pension cost affecting the PBO differ from expectations. Those components include such things as the discount rate, the expected number of retirements, mortality rates, and wage increases. For example, if SPS assumes a 4% discount rate at the beginning of the year but the actual discount rate measured at year end for the next year turns out to be 5%, SPS will have a liability gain because the higher discount rate reduces the amount SPS must set aside to satisfy future pension liabilities. Is the distinction between asset gains and losses and liability gains and losses important? Yes. The distinction is important because, as I will discuss in more detail below, the asset gains and losses are phased in over time, whereas the liability gains and losses are not. Asset gains and losses are phased into an amortization "pool," for lack of a better term, over a five-year period. Liability gains and losses are not phased in, but instead are placed into the amortization pool in a single year. Because gains and losses may reflect refinements in estimates as well as real changes in economic values, and because some gains in one period may be offset by losses in another or vice versa, FAS 87 does not require recognition of gains and losses as a component of net pension cost in the period in which they arise.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Please describe what you mean by the term "phase-in" of gains or losses. The term "phase-in" is used to describe the process of moving asset gains or losses into an amortization pool. Under FAS 87, the asset gains or losses are incorporated into the calculation of pension cost over a period of five years. Thus, 20% of an asset gain or loss is phased into the amortization pool during the first year after the gain or loss occurs, another 20% is phased into the amortization pool during the second year after the gain or loss occurs, and so forth until the fifth year, when the full amount of the asset gain or loss is phased-in. Unlike asset gains or losses, liability gains and losses are not phased in, as I mentioned earlier. The gains and losses that enter the amortization pool are then amortized over a specific period of years if they satisfy the criteria I discuss below. Why does SPS phase-in asset gains and losses and then amortize them over the average years to retirement of active employees? When SPS moved to FAS 87 accounting in 1987, it elected to phase-in asset gains and losses and to amortize these gains and losses over a period not to exceed the average remaining service life (average years to retirement) of employees. The purpose of the election was to reduce financial statement volatility in individual accounting periods by ensuring that gains and losses are spread out over time, and that they are not recognized in just the period that they occur. This phase-in and
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe amortization approach reduces volatility in recognized costs by smoothing gains and losses over the longest allowed duration. Why are asset gains and losses phased-in but not liability gains and losses? The assumptions used to establish pension liability (e.g., mortality rates, discount rates, etc.) typically do not vary greatly from year to year, and therefore the drafters of FAS 87 did not consider it necessary to require the phase-in of liability gains and losses. In contrast, the market returns on pension fund assets can vary greatly from year to year, as evidenced by the dramatic difference between the EROA and the actual returns that SPS experienced on its pension fund assets in 2019.11 Because of the effects that such volatility would have on businesses' income statements, the drafters of FAS 87 decided that it was appropriate to phase-in market gains and losses. How are unrecognized gains and losses amortized? SPS aggregates its current year's gains or losses with the prior years' gains or losses to calculate a net unamortized gain or loss. That net unamortized gain or loss is then compared to the present value of the PBO and to the market-related value of the assets in the pension trust. If the net unamortized gain or loss is outside a 10%
11 For example, in 2019, the EROA was approximately 7.0%, but the actual return exceeded 20.0%. In other years, the actual return has been less than the EROA.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe corridor that is, if it is more than 10% of the greater of the PBO or the marketrelated value of the trust assets SPS must amortize that net gain or loss. If amortization of the unrecognized gains or losses is required, the amortization amount is equal to the amount of the unrecognized gain or loss in excess of the corridor divided by the average remaining future service of the active participants in the plan. For SPS's bargaining employees this is approximately 15 years, and for SPS's non-bargaining employees it is approximately 10 years. Returning to the five elements of FAS 87 pension cost, what is the fifth element unrecognized prior service cost? Unrecognized prior service cost results from pension plan amendments that change benefits based on services rendered in prior periods. FAS 87 does not generally require the cost of providing such retroactive benefits (prior service cost) to be included in net periodic pension cost entirely in the year of the amendment but instead provides for recognition over the future years. How is unrecognized prior service cost amortized? Unrecognized prior service cost is amortized in the same manner as unrecognized gains and losses, with the exception of the 10% corridor.
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12 A.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
Please summarize the calculation that is required to be used under FAS 87 to
quantify annual pension cost.
Annual pension cost is quantified using the following calculation:
Current service cost
+ Interest cost
-
EROA
+/- Loss (gain) due to difference between expected and actual experience of
plan assets or liabilities from prior periods
+/- Amortization of unfunded prior service cost
= Annual pension cost
Is the annual pension cost produced by this formula always a positive number?
No. In some years, the negative amounts in the calculation (i.e., the EROA and the
gains resulting from the difference between expected and actual experience from
prior periods) can be larger than the positive amounts. When that happens, the
annual pension cost is actually negative. And if that occurs in a rate case test year,
the annual pension cost included in the cost of service may be a negative number,
which reduces the overall cost of service. But even when the annual pension cost
is negative, shareholders are still providing the capital to fund the prepaid pension
asset.
What amount of expense did SPS incur during the Base Period for qualified
pension expense?
SPS incurred $2,627,259 ($8,739,363 total company) for qualified pension
expense.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Is SPS proposing to make any known and measurable changes to the qualified pension expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $(25,102), which is $(83,499) on a total company basis, for qualified pension expense. This known and measurable amount is based on the 2020 calendar year qualified pension expense included in the Attachment RRS-3 actuarial report. What amount of qualified pension expense is SPS requesting in the cost of service? SPS is requesting approval of $2,602,157 ($8,655,864 total company) of qualified pension expense. Ms. Niemi has included the qualified pension expense in the cost of service. Have you provided the numbers and assumptions that SPS used to determine its qualified pension expense amount in the cost of service? Yes. Attachment RRS-4 contains the calculation of the total company qualified pension expense amounts included in the cost of service.12 Attachments RRS-2 and RRS-3 contain the source documents for those calculations.
12 SPS's actuary, Willis Towers Watson, calculates the pension and benefit amounts on a total company basis. Thus, the amounts in Attachments RRS-2 through RRS-7 are presented on a total company basis. Please refer to Attachment RRS-1 for the conversion of those amounts to New Mexico retail amounts.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
B. Non-Qualified Pension
What is the purpose of a non-qualified pension plan?
A non-qualified pension plan is designed to provide comparable benefits to certain
employees whose compensation exceeds the limits provided by tax law for
deducting pension-related expense.
How does a non-qualified pension plan differ from a qualified pension plan?
Qualified plans are those that "qualify" under Section 400 of the IRC, which
confers significant tax advantages on both the employer and employee. Those
advantages include:
the employer receives a current tax deduction for contributions to the plan;
the employee is not taxed on the contributions, but instead is taxed only when he or she receives benefits;
the plan assets accumulate tax-free until they are distributed; and the plan assets are placed in a trust that is beyond the reach of creditors. In exchange for those advantages, the employer and employee must strictly follow
the restrictions set forth in the IRC, which include limits on the amount of annual
benefits awarded to the employee. Currently, the IRC limits the maximum annual
benefit that can be paid through a defined benefit plan to $230,000 per year. In
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe addition, the maximum amount of compensation that can be included in determining benefits in a qualified pension plan is $285,000.
In contrast, there is no statutory restriction on the amount of the benefit that may be offered under a non-qualified pension plan, which is used to restore the amount of retirement benefits that employees lose as a result of the limitations on the qualified plans. How are non-qualified pension costs determined? Non-qualified pension costs are determined under the same standard as qualified pension costs, which is FAS 87. Unlike the qualified pension, however, the nonqualified pension does not have trust assets set aside for the payment of the benefit. Therefore, it does not have an EROA. It also does not have prior-period asset gains or losses, although it may have prior-period liability gains and losses that result from changes in the discount rate. What amount of expense did SPS incur during the Base Period for nonqualified pension expense? SPS incurred $131,749 ($438,251 total company) for non-qualified pension expense.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Is SPS proposing to make any known and measurable changes to the nonqualified pension expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $7,339 ($24,414 total company), for non-qualified pension expense. This known and measurable adjustment is based on the 2020 calendar year non-qualified pension expense included in the Attachment RRS-3 actuarial report. What amount of non-qualified pension expense is SPS requesting in the cost of service? SPS is requesting approval of $139,085 ($462,655 total company) of non-qualified pension expense. Ms. Niemi has included the non-qualified pension expense in the cost of service. Have you provided the numbers and assumptions that SPS used to determine its non-qualified pension expense amount in the cost of service? Yes. Attachment RRS-4 contains the calculation of the non-qualified pension expense amount included in the cost of service. Attachments RRS-2 and RRS-3 contain the source documents for those calculations.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
C. Retiree Medical
How are retiree medical costs determined? Retiree medical costs are determined under FAS 106, Employers' Accounting for Post-Retirement Benefits Other than Pensions. The components and calculation are identical to FAS 87, with one exception: the pension asset gains and losses are phased into the loss amortization calculation by 20% each year, whereas retiree medical asset gains and losses are not. Please describe SPS's retiree medical plan and the plan expenses. SPS's plan consists primarily of retiree medical benefits, but it also includes retiree life and dental insurance. SPS eliminated those benefits for all active nonbargaining employees more than ten years ago, and SPS bargaining employees hired on or after January 1, 2012 are no longer eligible to receive retiree medical benefits. Thus, the current expense for retiree medical benefits is a legacy of the prior programs. What amount of expense did SPS incur during the Base Period for retiree medical expense? SPS incurred $(8,457) ($(28,131) total company), for retiree medical expense.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Is SPS proposing to make any known and measurable changes to the retiree medical expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $1,327 ($4,414 total company) for retiree medical expense. This known and measurable is based on the 2020 calendar year retiree medical expense included in the Attachment RRS-3 actuarial report. What amount of retiree medical expense is SPS requesting in the cost of service? SPS is requesting approval of $(7,130) ($(23,717) total company) for retiree medical expense. Ms. Niemi has included that amount of retiree medical credit in the cost of service. Have you provided the numbers and assumptions that SPS used to determine its retiree medical expense amounts? Yes. Attachment RRS-4 contains the calculations of the retiree medical expense amounts. Attachments RRS-2 and RRS-3 contain the source documents for those calculations.
D. Self-Insured Long-Term Disability
Please describe LTD in more detail and explain how it is accounted for. The LTD costs are attributable to benefits provided by SPS to former or inactive employees after employment but before retirement. The LTD plan provides
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe employees with income protection by paying a portion of an employee's income while he or she is disabled by a covered physical or mental impairment.
SPS has two types of LTD a self-insured benefit and a third party-insured benefit. In a third party-insured plan, which I will discuss in more detail later in this testimony, SPS purchases an insurance plan from an outside insurance provider that assumes the risk. In a self-insured plan, SPS provides the benefits to the covered individuals and therefore effectively acts as the insurer. For the selfinsured piece, SPS is required to accrue for LTD costs under FAS 112, Employers' Accounting for Post-Employment Benefits. The FAS 112 accrual represents the expected disability benefit payments for employees that are not expected to return to work. Which groups of employees are covered under the self-insured plan and which groups are covered under the third party-insured plan? Within the LTD benefit, all employees disabled before January 1, 2008 are covered under the self-insured plan, and all employees disabled on and after January 1, 2008 are covered under a third party-insured plan. What amount of expense did SPS incur during the Base Period for self-insured LTD expense? SPS incurred $9,269 ($30,832 total company) for self-insured LTD expense.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Is SPS proposing to make any known and measurable changes to the selfinsured LTD expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $7,456 ($24,801 total company) for self-insured LTD expense. This known and measurable amount is based on the 2020 calendar year self-insured LTD expense included in the Attachment RRS-3 actuarial report. What amount of self-insured LTD expense is SPS requesting in the cost of service? SPS is requesting approval of $16,725 ($55,633 total company) of self-insured LTD expense. Ms. Niemi has included that amount of self-insured LTD expense in the cost of service. Have you provided the numbers and assumptions that SPS used to determine its self-insured LTD benefits expense amounts in the Test Year? Yes. Attachment RRS-4 contains the calculations of the self-insured LTD benefits expense amounts. Attachments RRS-2 and RRS-3 contain the source documents for those calculations.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
E. Reasonableness of SPS's Pension and Other PostEmployment and Retirement Benefits Expense
Are the amounts of SPS's pension and other post-employment and retirement
benefits expense reasonable?
Yes. SPS follows a well-established, objective, and verifiable process to determine
the assumptions used within the actuarial calculations that yield the pension and
other post-employment and retirement benefits expense amounts. The assumptions
and the actuarially calculated total cost amounts appear in my Attachment RRS-4.
In addition, Mr. Knoll discusses the reasonableness of Xcel Energy's Total
Rewards Program design, which includes pension and other post-employment and
retirement benefits.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe V. HEALTH AND WELFARE COSTS What topics do you discuss in this section of your testimony? I discuss four types of active health and welfare costs: (1) active health care costs; (2) third-party-insured LTD costs; (3) life insurance costs; and (4) miscellaneous benefit costs.
A. Active Health Care
What types of costs are included in active health care? Active health care costs are all costs associated with providing health care coverage to employees. Those costs include medical, pharmacy, dental and vision claims, administrative fees, employee withholdings, pharmacy rebates, Health Savings Account ("HSA") contributions, transitional reinsurance fees, trustee fees, and interest income. What amount of active health care expense is SPS seeking to include in the cost of service? SPS is requesting approval of $4,173,178 ($13,881,738 total company) for active health care expense. Ms. Niemi has included that amount of active health care expense in the cost of service.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Does the Test Year amount match the per book amount of active health care costs? No. The per book numbers for active health care amounts include estimates because there is generally an average lag of approximately 30 days between when health care is provided and when SPS receives a bill for that care.13 Therefore, the actual amount of active health care expense was not available at the time SPS recorded its per book amount at the end of September 2020. Because SPS needs to close its books before it receives all of those health care claims, it takes the actual amounts recorded through a certain point in the year and estimates the additional amount that will be incurred but not reported by the end of the year, which is the IBNR reserve. During the following quarter, SPS receives the actual amounts attributable to care provided in the last part of the prior year, and at that time it trues up the IBNR estimate to the actual incurred expense. Is SPS proposing to make any known and measurable changes to the active health care expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $233,922 ($778,124 total company) for active health care expense.
13 The difference between the estimated amount and the actual amount is generally not material enough to restate SPS's GAAP books when the actual amount becomes known.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Please discuss the process that SPS undertook to determine the Active Health Care amounts for the Test Year. SPS first took the Base Period per book amounts after making a reduction of $(2,295) ($(7,635) total company) IBNR reserve adjustments described above and then applied a known and measurable adjustments to arrive at the Test Year active health care amount: SPS applied a 6% trend increase to the HTY incurred medical amount, which increased costs by $236,218 ($785,759 total company). These adjustments result in a net increase of $233,922 ($778,124 total company) to the overall amount. Is that known and measurable adjustment to active health care expense related to the Covid-19 pandemic? No. SPS routinely makes known and measurable adjustments to active health care expense in Commission rate cases to account for the year-over-year increases that SPS experiences with respect to health care costs.14 The requested increase is unrelated to Covid-19.
14 See, e.g., Case No. 19-00170-UT, Direct Testimony of Richard R. Schrubbe at 33.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Did Covid-19 have any effect on SPS's health care costs during the Base Period? Yes. Like many other employers, SPS saw its active health care costs drop in 2020 because of reluctance on the part of employees and their dependents to seek routine medical and dental care in the midst of the pandemic. Because SPS's active health care costs were anomalously low during the Base Period, SPS's requested amount of active health care expense is likely conservative relative to the amount of active health care expense that SPS will incur during the period the rates set in this case will be in effect. What amount of active health care expense is SPS requesting in the cost of service? SPS is requesting approval of $4,173,178 ($13,881,738 total company) of active health care expense. Ms. Niemi has included that amount of active health care expense in the cost of service.
B. Third Party-Insured Long-Term Disability
Please describe the third party-insured LTD costs that SPS incurs. As explained earlier, SPS offers long-term disability coverage that provides benefits to former or inactive employees after employment but before retirement.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe The LTD plan provides employees with income protection by paying a portion of an employee's income while he or she is disabled by a covered physical or mental impairment. In a third-party-insured plan, SPS purchases an insurance plan from an outside insurance provider that assumes the risk, and the cost of the third-partyinsured piece is simply the cost of the insurance premium incurred each year along with any other miscellaneous costs. What groups of employees are covered under the third party-insured benefit? As noted earlier, the third-party insured plan covers all employees disabled on and after January 1, 2008. What amount of third party-insured LTD benefit expense is SPS seeking to recover? SPS is requesting approval of $147,259 ($489,846 total company) of third partyinsured LTD expense for the Test Year. Ms. Niemi has included that amount of third party-insured LTD benefits expense in the cost of service.
C. Life Insurance
Please describe the life insurance cost that SPS incurs. The life insurance category consists of life insurance premiums and offsetting employee life insurance withholdings. Life insurance is provided to non-bargaining
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe employees at 100% of base pay and to SPS bargaining employees at 50% of base
pay. Employees also have the option to purchase additional life insurance.
What amount of expense is SPS seeking to recover for life insurance benefits?
SPS is requesting approval of $20,007 ($66,552 total company) of life insurance
expense. Ms. Niemi has included that amount of life insurance expense in the cost
of service.
D. Miscellaneous Benefits
What types of miscellaneous benefit programs does SPS offer to its employees?
The types of costs included in the miscellaneous benefit programs and costs
category are:
tuition reimbursement; Employee Assistance Program costs; wellness program costs; costs incurred by the HR Service Center to answer employee retirement
or benefit questions; health and welfare plan actuarial and audit fees; administrative fees for short-term and long-term disability plans; and administrative fees for employee flexible spending and HSAs.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe What amount of expense did SPS incur during the Base Period for miscellaneous benefits? SPS incurred $168,000 ($558,839 total company) of miscellaneous benefit expense for the Base Period. Ms. Niemi has included that amount of miscellaneous benefits expense in the cost of service.
E. Reasonableness of Health and Welfare Costs
Are the amounts of SPS's health and welfare expense reasonable? Yes. It is appropriate for the cost of service to include these benefits because they reflect a reasonable and necessary level of expense. As Mr. Knoll explains in more detail, Xcel Energy's compensation plans and benefits are required for Xcel Energy and its subsidiaries to attract, retain, and motivate employees needed to perform the work necessary to provide quality services for SPS customers. Without these benefits, SPS and XES would have to pay significantly higher current compensation to attract employees.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe VI. WORKERS' COMPENSATION COSTS Is SPS seeking recovery of the costs associated with workers' compensation benefits? Yes. SPS is seeking recovery of third party-insured workers' compensation benefits. Please briefly describe SPS's third-party-insured workers' compensation program. For employees injured on or after August 1, 2001, all workers compensation benefits are covered under a third party-insured program. The only cost to Xcel Energy for this benefit cost is the insurance premium. In a third-party-insured plan, SPS purchases an insurance plan from an outside insurance provider that assumes the risk, and the cost of the third-party-insured piece is simply the cost of the insurance premium incurred each year along with any other miscellaneous costs. How are third-party-insured workers' compensation amounts determined? The actuaries of the vendor from whom SPS purchases the insurance calculate the workers' compensation premium amounts. The actuaries presumably base the costs on company-specific historical loss data and payroll to determine exposure related to the policy period.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe What amount of expense is SPS seeking to recover for third party-insured workers' compensation benefits? SPS is requesting approval of $258,593 ($860,190 total company) of third partyinsured workers' compensation expense. Ms. Niemi has included that amount of third party-insured workers' compensation expense in the cost of service. Is it reasonable for the cost of service to include third party-insured workers' compensation costs incurred by SPS? Yes. It is appropriate for the cost of service to include these benefits because they reflect a reasonable and necessary level of expense. Xcel Energy's workers' compensation plans and benefits are required for Xcel Energy and its subsidiaries to attract, retain, and motivate employees needed to perform the work necessary to provide quality services for SPS customers. Without these benefits, SPS and XES would have to pay significantly higher current compensation to attract employees.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe VII. OTHER BENEFIT COSTS Is SPS seeking recovery of any retirement benefits in addition to the ones discussed earlier? Yes. SPS is seeking recovery of 401(k) match costs and miscellaneous retirementrelated costs.
A. 401(k) Match
Please briefly describe SPS's 401(k) Match plan. SPS's retirement income plan is based on a combination of a defined benefit pension plan and a 401(k) plan, which is a defined contribution plan. Unlike some defined benefit pension plans, SPS's defined benefit pension plan is not intended to provide an employee's total retirement income. Rather, the defined benefit pension plan and 401(k) plan are designed so that the two plans in combination provide retirement income to SPS and XES employees. How are the 401(k) Match costs determined? The 401(k) plan is a defined contribution plan to which employees must contribute in order to obtain employer matching. It is based on the amount that employees contribute as a percentage of their salary with a maximum match of 4%. For the majority of SPS's workforce, the employee must contribute 8% of eligible income for SPS to contribute the maximum company match of 4% of eligible income. The
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe remaining employees, who are in the Traditional Plan, receive a maximum match of $1,400. What amount of expense did SPS incur during the Base Period for 401(k) Match benefits? SPS incurred $939,886 ($3,126,454 total company) for 401(k) Match benefits. Is SPS proposing to make any known and measurable changes to the 401(k) Match expense for events occurring after the end of the Base Period? Yes. SPS is requesting a known and measurable adjustment of $26,426 ($87,904 total company) for 401(k) Match expense. Because the 401(k) Match is based on the amount that employees contribute as a percentage of their salary, escalation factors of 3.0% and 2.5% have been applied to non-bargaining and bargaining employees, respectively. For justification of the merit increase, please refer to Mr. Knoll's direct testimony. What is the amount of 401(k) Match expense included in the cost of service? After including the known and measurable adjustment mentioned above, the 401(k) Match expense requested by SPS is $966,312 ($3,214,358 total company). Ms. Niemi has included the 401(k) Match expense in the cost of service.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
B. Miscellaneous Retirement-Related Costs
What costs are included in miscellaneous retirement-related costs? This category includes costs such as 401(k) plan administration fees, compensation consulting and survey costs, retirement plan actuarial and audit fees, and a small amount for the deferred compensation plan. What amount of expense did SPS incur during the Base Period for miscellaneous retirement-related costs? SPS incurred $61,022 ($202,985 total company) for miscellaneous retirementrelated costs. Ms. Niemi has included the miscellaneous retirement-related expense in the cost of service.
C. Reasonableness of Other Benefit Costs
Is it reasonable for the cost of service to include the 401(k) Match and miscellaneous retirement-related costs incurred by SPS? Yes. It is appropriate for the cost of service to include these benefits because they reflect a reasonable and necessary level of expense. Xcel Energy's compensation plans and benefits are required for Xcel Energy and its subsidiaries to attract, retain, and motivate employees needed to perform the work necessary to provide quality services for SPS customers. Without these benefits, SPS and XES would have to pay significantly higher current compensation to attract employees.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe VIII. SPS'S PREPAID PENSION ASSET What topic do you discuss in this section of your testimony? I describe SPS's prepaid pension asset, and I explain that the net prepaid pension asset should be included in rate base and should earn a return at SPS's WACC. What is a prepaid pension asset? A prepaid pension asset represents the difference between: (1) the cumulative actuarially determined net periodic pension cost calculated in accordance with FAS 87; and (2) the cumulative cash contributions to the pension trust fund. Please provide an example of how the difference arises. Suppose that the pension plan has been in existence for five years, and that the cash contribution to the pension trust for each of five years has been $100 million. Further suppose that the pension cost calculated in accordance with FAS 87 has been $90 million in each of those five years. Table RRS-3 (next page) shows how the excess of cash contributions each year creates a cumulative prepaid pension asset:
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1
Table RRS-3 (amounts in millions)
Year
1 2 3 4 5 Total
Pension Contribution
$100 $100 $100 $100 $100 $500
Pension Cost
$90 $90 $90 $90 $90 $450
Cumulative Prepaid
Pension Asset $10 $20 $30 $40 $50 $50
2
At the end of the five-year period, the utility has cumulative cash contributions of
3
$500 million and cumulative pension cost of $450 million, which produces a
4
prepaid pension asset of $50 million, as shown in Figure RRS-1:
5
Figure RRS-1 (amounts in millions)
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Why are the contributions and cost different in any given year? As I explained earlier in my discussion of qualified pension expense, the annual pension expense calculation is governed by FAS 87, but the contributions are driven by federal law requirements under ERISA, the IRC, and the Pension Protection Act. Although the cost and contribution calculations both use accrual methodologies, the assumptions, attribution methods, and periods of time over which the costs are required to be recognized are different and thus can often result in different annual amounts. Can a utility withdraw the prepaid pension asset and use it to fund capital requirements or to pay for O&M expense? No. Federal law prohibits the withdrawal of any amounts from the pension trust fund except for the payment of benefits and plan expenses. After the utility makes the contributions, they are essentially locked away. Moreover, all of the earnings on the assets in the trust are locked away. Does SPS currently have a prepaid pension asset? Yes. The thirteen-month average of SPS's net prepaid pension asset balance as of September 30, 2020 was $46,343,138 on a New Mexico retail basis.15
15 The net prepaid pension asset that appears in the cost of service is $155,314,373 on a total company basis. That is the net of the prepaid qualified pension asset of $155,743,854 and the non-qualified pension unfunded liability of $(429,482). See Attachment RRS-6. Multiplying the net total company amount of $155,314,373 by the 29.8383% New Mexico retail allocator produces a net prepaid pension asset of $46,343,138.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Is SPS seeking to include that prepaid pension asset in rate base? Yes. SPS is requesting Commission approval to include the prepaid pension asset in rate base and to earn a return on the asset at the WACC that SPS has proposed in this case, which is 7.61%. Do you recommend that the Commission include the prepaid pension asset in rate base? Yes. The standard ratemaking practice is for prepayments to earn a return at the utility's WACC. For example, Accumulated Deferred Income Taxes ("ADIT") balances, which reflect customer prepayments of taxes before they must be paid to the Internal Revenue Service, are subtracted from rate base, effectively earning a WACC return for customers.
Moreover, the prepaid pension asset is a used and useful utility asset because the pension plan earns a return on the prepaid pension asset, and that return reduces the pension expense included in rates on a dollar-for-dollar basis. There is no reason to treat the used and useful prepaid pension asset any differently than other used and useful assets, such as transmission and distribution lines.
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Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe Please explain what you mean when you state that the return on the prepaid pension asset reduces the pension expense included in rates on a dollar-fordollar basis. As I explained in a prior section of my testimony, the assets in the pension trust are invested in stocks, bonds, and other asset classes. Under FAS 87, the total amount of the assets in the trust, inclusive of contributions, is multiplied by the expected return on those assets (i.e., the EROA), and the resulting amount reduces the annual pension expense on a dollar-for-dollar basis.16 Suppose, for example, that a pension trust has assets of $500 million and is expected to earn a return of 7% in the current year, for an annual return of $35 million. Under those assumptions, $35 million would be included in the annual pension cost calculation as a reduction to pension expense.
16 I explained earlier in my testimony that annual pension expense is calculated in accordance with the following formula:
Current service cost
+
Interest cost
-
EROA
+/- Loss (gain) due to difference between expected and actual experience of plan assets or
liabilities from prior periods
+/- Amortization of unfunded prior service cost
=
Annual pension cost
48
1 Q. 2 3 A. 4 5 6
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
Does the pension trust asset balance that is multiplied by the EROA include
the prepaid pension asset?
Yes. As shown in Figure RRS-2, customers receive the benefit of the expected
return on the entire amount of assets in the pension trust, not just the amount that
has been recognized in annual pension cost.
Figure RRS-217
7
That means all of the assets in the pension trust, including the assets that comprise
8
the prepaid pension asset, are used and useful to SPS's New Mexico retail
9
customers.
17 The amounts in this figure are just examples that have been simplified for ease of understanding.
49
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1 Q. Please turn now from the hypothetical examples you have been discussing to
2
SPS's actual prepaid pension asset. How much are SPS's New Mexico retail
3
customers saving in annual pension cost as a result of the prepaid pension
4
asset?
5 A. As Table RRS-4 shows, SPS's New Mexico retail customers are saving $3,147,075
6
in annual pension costs because of the return on the prepaid pension asset.
7
Table RRS-4
Pension Plan
Total Company Qualified
Prepaid Pension Asset 13-Month
Average
EROA
Total Company Cost Reduction from Prepaid Pension Asset
New Mexico Retail Cost Reduction from Prepaid Pension
Asset
NCE NonBargaining18
$22,925,502 6.90%
$1,581,860
$472,000
SPS Bargaining
Total
$132,818,352 $155,743,85419
6.75%
$8,965,239 $10,547,098
$2,675,075 $3,147,075
8 Q. Please explain SPS's request regarding its prepaid pension asset.
9 A. SPS is requesting that the net prepaid pension asset, which is $46,343,138 on a New
10
Mexico retail basis, be included in rate base to provide a corresponding return to
18 NCE refers to New Century Energies, Inc., which merged with Northern States Power Company in 2000 to create Xcel Energy.
19 The unfunded liability for the non-qualified pension plan is an offset for ratemaking purposes only; it does not reduce the amount on which customers earn a return. That is why this number is larger than the total company prepaid pension asset included in the cost of service, which is $155,314,373.
50
1 2 3 4 5 Q. 6 7 A. 8 9 10 11 12 Q. 13 14 A. 15 16
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe shareholders. The calculation to support the prepaid pension asset thirteen-month average can be found in my Attachment RRS-6, and the cumulative qualified prepaid pension asset balance since the adoption of FAS 87 can be found in my Attachment RRS-7. If SPS had an unfunded accrued cost instead of a prepaid pension asset, would you be recommending that amount be subtracted from rate base? Yes. In fact, that is the situation with SPS's FAS 106 retiree medical balance, FAS 87 non-qualified expense balance, and FAS 112 LTD balance. For those elements of cost, the cumulative amount of expense recognized for GAAP purposes is larger than the cumulative contributions by SPS to the trusts. Thus, SPS has reduced its rate base to reflect those accrued liabilities. Is SPS's requested WACC return on the prepaid pension asset higher than the EROA return that customers earn on the prepaid pension asset? Yes. In this case, SPS's requested WACC is 7.61% and the weighted average of the 2020 EROA for the SPS Bargaining Plan and the NCE Non-Bargaining Plan is 6.77%.20
20 The EROA for the SPS Bargaining Plan is 6.75%, and the EROA for the NCE Non-Bargaining Plan is 6.90%. The weighted average of those amounts is 6.77%.
51
1 Q.
2
3 A.
4
5 6 7 8 9 10 11 12 13 Q.
14
15
16 A.
17
18
19
20
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
Given that the WACC is higher than the EROA, it is fair to customers to use
the WACC as the return on the prepaid pension asset?
Yes. It is fair and reasonable for customers to pay the WACC return for three
separate reasons:
1. The SPS pension plan balance on which customers earn an EROA return is much larger than the balance on which they pay a WACC return.
2. Customers earn a return on the XES prepaid pension asset, but they do not pay any return on that asset because it is not included in rate base for ratemaking purposes.
3. The prepaid pension asset allows the Company to avoid paying incremental Pension Benefit Guaranty Corporation ("PBGC") premiums that would otherwise be added to the pension expense paid by customers.
Please explain the first reason, which is that the balance of the SPS prepaid
pension asset on which customers earn an EROA return is much larger than
the balance on which they pay a WACC return.
The 6.77% EROA is applied to the full amount of the SPS prepaid pension asset,
which totals approximately $46.5 million on a New Mexico retail basis.21 As
shown in Table RRS-4, that reduces the pension expense included in rates by more
than $3.1 million per year on a New Mexico retail basis. In contrast, SPS is asking
that customers pay a 7.61% percent WACC return on approximately $30.7 million
21 The amount SPS seeks to include in rate base is $46.3 million, but that includes the offset for the non-qualified pension unfunded liability. As noted earlier, qualified pension expense is reduced by the return on the full amount of the prepaid pension asset, which is $46.5 million.
52
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1
because the net prepaid pension asset included in rate base is reduced by offsets for
2
ADIT and for the unfunded liabilities for non-qualified pension, FAS 106 and FAS
3
112. Because the balance on which customers earn a return is far larger than the
4
balance on which they pay a return, customers realize a net benefit even when the
5
WACC exceeds the EROA.
6 Q. The second reason you listed earlier is that customers earn a return on the
7
XES prepaid pension asset but do not pay a return on it. What is the balance
8
of the XES plan prepaid pension asset?
9 A. The thirteen-month average balance of the XES Plan net prepaid pension asset
10
associated with the New Mexico retail electric retail jurisdiction is approximately
11
$5.2 million. With an EROA of 7.10% for the XES Plan, SPS's New Mexico retail
12
customers receive the benefit of $365,997 of return, and that amount reduces the
13
pension expense included in rates on a dollar-for-dollar basis. SPS's customers,
14
however, do not pay any return on the XES Plan prepaid pension asset.
15 Q. The third reason you listed for why it is reasonable for customers to pay a
16
WACC return on the prepaid pension asset is that the asset allows SPS to avoid
17
incurring PBGC premiums that would otherwise be included within the
18
annual pension cost charged to customers. Please describe the PBGC.
19 A. The PBGC is a federal agency established by Congress as part of ERISA to insure
20
pension benefits under private sector defined benefit pension plans. If a pension
53
1 2 3 4 5 Q. 6 A. 7 8 9 10 Q. 11 A. 12 13 Q. 14 A. 15
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe plan is terminated without sufficient money to pay all benefits, PBGC's insurance program will pay employees the benefits promised under the pension plan, up to the limits set by law. The funding for the PBGC comes partly from premiums charged to pension sponsors and partly from returns on assets held by the PBGC. What types of premiums does the PBGC charge? The PBGC charges two types of premiums: (1) a per capita premium that is charged to all single-employer defined benefit plans; and (2) a variable premium charged to underfunded plans. The amounts of the premiums are set by Congress and must be paid by sponsors of the defined benefit plans, such as SPS. Are the variable premiums applicable to underfunded plans increasing? Yes. For 2020, the variable-rate premium for a single-employer plan such as that of SPS is $45 per $1,000 of unfunded vested benefits. Are SPS's pension plans currently underfunded? Yes. And absent the prepaid pension asset, the plan would be further underfunded.22
22 As I explained earlier, a plan can be underfunded at the same time it has a prepaid pension asset because they measure different things. The prepaid pension asset is the amount by which cumulative contributions exceed cumulative recognized pension expense. A pension plan is underfunded when its pension benefit obligations exceed the value of its assets.
54
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1 Q. By how much would the pension plans be underfunded in the absence of the
2
prepaid pension asset?
3 A. In the absence of the prepaid pension asset, the SPS pension plans would be further
4
underfunded by $46.5 million on a New Mexico retail basis ($155.3 million total
5
company).
6 Q. By how much would the PBGC premiums increase in 2020 in the absence of
7
the prepaid pension asset?
8 A. The PBGC premiums would be $531,342 higher in 2020 on a New Mexico retail
9
basis without the prepaid pension asset.
10 Q. Are PBGC premiums included in the annual pension cost?
11 A. Yes. PBGC premiums are included in the annual pension cost calculation. Therefore,
12
the existence of the prepaid pension asset avoids the need for SPS's New Mexico
13
retail customers to pay an additional $531,342 of annual pension expense in 2020.
14 Q. Can you demonstrate mathematically that, because of the three factors you
15
have discussed, SPS's New Mexico retail customers benefit from the prepaid
16
pension asset even when they pay a WACC return on that asset?
17 A. Yes. Table RRS-5 (below) shows that SPS's New Mexico customers receive
18
approximately $3.1 million of benefit as a result of EROA that is applied to the SPS
19
prepaid pension asset. In addition, they receive $365,997 of return on the XES
55
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1
prepaid pension asset, even though they pay no return on that asset. Because of the
2
prepaid pension asset, customers also avoid $531,342 PBGC premiums. Together,
3
those amounts save customers more than $4 million in annual pension expense that
4
would otherwise be included in base rates.
5
In contrast, after offsetting the pension-related ADIT and unfunded
6
pension-related liabilities, the net prepaid pension asset included in rate base is
7
$30.7 million. Multiplying that amount by the 7.61% WACC requested by SPS
8
results in a return of approximately $2.3 million on a New Mexico retail
9
basis. Even when that amount is grossed up for taxes, the total amount paid by
10
customers is $3,024,739, which is $1,018,706 less than the savings that customers
11
realize from the prepaid pension asset.23
23 If the Commission were to approve a WACC lower than 7.61%, the net benefit to customers would be even larger than $1,018,706.
56
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1
Table RRS-5
2
All Amounts are New Mexico Retail
Prepaid pension asset balance (excluding the $46,471,288
a
XES prepaid pension asset)
Weighted average EROA for SPS Bargaining
6.77%
b
and NCE Non-Bargaining Plans
Initial return benefit to customers
$3,146,106
a * b = c
Balance of XES prepaid pension asset
$5,154,886
d
EROA for XES prepaid pension asset
7.10%
e
Return on XES prepaid pension asset
$365,997
d * e = f
Avoided PBGC premiums
$531,342
g
Total annual reduction in rates attributable to prepaid pension assets
$4,043,445
c+f +g=h
Prepaid pension asset net of ADIT and after $30,748,238
i
unfunded liability offsets
Requested WACC
7.61%
j
Requested return on prepaid pension asset
$2,339,941
i * j = k
Tax gross-up factor
1.292656
l
Total return paid by customers
$3,024,739
k * l = m
Net benefit to customers from prepaid pension asset
$1,018,706
h m = n
57
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1 Q. Would including SPS's prepaid pension asset in rate base be consistent with
2
New Mexico precedent?
3 A. Yes. In Case No. 12-00350-UT, the Commission allowed SPS to include its prepaid
4
pension asset in rate base and to earn a WACC return on it.24 The New Mexico
5
Attorney General appealed that issue to the New Mexico Supreme Court, which
6
upheld the Commission's decision to include the prepaid pension asset in rate base:
7
It is uncontested that SPS investors made contributions to the
8
pension fund that are required by law. These contributions
9
exceeded expenses and generating earnings that effectively reduced
10
SPS's and consequently the ratepayers' pension expense. Had
11
the ratepayers advanced the contributions to the pension fund, their
12
contributions would not have been included in rate base. [Citation
13
omitted]. However, because the ratepayers did not make the
14
contributions, the investors, not the ratepayers, absorbed the cost of
15
funding the pension program, and therefore the net prepaid pension
16
asset was property included in the rate base.25
17
In Case No. 17-00255-UT, the Commission again rejected parties' arguments that
18
SPS's prepaid pension asset should be excluded from rate base and should earn no
19
return.26
24 Case No. 12-00350-UT, Final Order Partially Adopting Recommended Decision at 11 (Mar. 26, 2014).
25 New Mexico Attorney General v. New Mexico Public Regulation Comm'n, 2015-NMSC-032 at ¶ 21.
26 Case No. 17-00255-UT, Final Order Adopting Recommended Decision with Modifications at 17-18 (Sept. 5, 2018).
58
Case No. 20-00238-UT Direct Testimony of
Richard R. Schrubbe
1 Q. Is there any material difference between the prepaid pension assets at issue in
2
those earlier cases and the prepaid pension asset that SPS seeks to include in
3
rate base in this case?
4 A. No.
5 Q. Please summarize SPS's request with respect to the prepaid pension asset.
6 A. SPS requests that the prepaid pension asset be included in rate base and that the
7
prepaid pension asset be allowed to earn a WACC. That is how other prepayments
8
are treated, including prepayments by customers, and there is no reason to treat the
9
prepaid pension asset differently. Moreover, customers realize a significantly
10
greater rate reduction from the prepaid pension asset than the return they are asked
11
to pay, so it is reasonable and equitable for the prepaid pension asset to be included
12
in rate base and to earn a WACC return. Finally, including the prepaid pension
13
asset in rate base is consistent with Commission precedent and New Mexico
14
Supreme Court precedent.
15 Q. Does this conclude your pre-filed direct testimony?
16 A. Yes.
59
BEFORE THE NEW MEXICO PUBLIC REGULATION COMMISSION
IN THE MATTER OF SOUTHWESTERN )
PUBLIC SERVICE COMPANY'S
)
APPLICATION FOR: (1) REVISION OF )
ITS RETAIL RATES UNDER ADVICE )
NOTICE NO. 292; (2) AUTHORIZATION ) CASE NO. 20-00238-UT
AND APPROVAL TO ABANDON ITS
)
PLANT X UNIT 3 GENERATING
)
STATION; AND (3) OTHER
)
ASSOCIATED RELIEF,
)
)
SOUTHWESTERN PUBLIC SERVICE )
COMPANY,
)
)
APPLICANT.
)
)
VERIFICATION
On this day, December 21, 2020, I, Richard R. Schrubbe, swear and affirm under penalty of perjury under the law of the State of New Mexico, that my testimony contained in Direct Testimony of Richard R. Schrubbe is true and correct.
/s/ Richard R. Schrubbe RICHARD R. SCHRUBBE
60
Southwestern Public Service Company Total Company Amounts and Jurisdictional Percentages
Line
No. Witness
Description
1 Schrubbe Section II - Total Pension and Other Post-Employment
2 Schrubbe Section II - Qualified Pension
3 Schrubbe Section II - Non-Qualified Pension
4 Schrubbe Section II - FAS 106 Retiree Medical
5 Schrubbe Section II - FAS 112 Self-Insured LTD
6 Schrubbe Section II - Active Health & Welfare
7 Schrubbe Section II - Active Healthcare
8 Schrubbe Section II - Third-Party LTD
9 Schrubbe Section II - Life Insurance
10 Schrubbe Section II - Miscellaneous Benefits
11 Schrubbe Section II - Third-Party-Insured Workers' Compensation
12 Schrubbe Section II - Other Pension and Benefit-Related
13 Schrubbe Section II - Thirteen-Month Average Net Prepaid Asset
14 Schrubbe Section III - Qualified Pension
15 Schrubbe Section III - Non-Qualified Pension
16 Schrubbe Section III - FAS 106 Retiree Medical
17 Schrubbe Section III - FAS 112 Long-Term Disability (Self-Insured_
18 Schrubbe Section III - Active Health Care
19 Schrubbe Section III - Long-Term Disability (Third-Party-Insured)
20 Schrubbe Section III - Life Insurance
21 Schrubbe Section III - Miscellaneous Benefit Programs and Costs
22 Schrubbe Section III - 401(k) Match
23 Schrubbe Section III - Miscellaneous Retirement-Related Costs
24 Schrubbe Section III - Workers Compensation (Third-Party-Insured)
25 Schrubbe Section IV - Qualified Pension (Base Period)
26 Schrubbe Section IV - Qualified Pension (K&M Adjustment)
27 Schrubbe Section IV - Qualified Pension
28 Schrubbe Section IV - Non-Qualified Pension (Base Period)
29 Schrubbe Section IV - Non-Qualified Pension (K&M Adjustment)
30 Schrubbe Section IV - Non-Qualified Pension
31 Schrubbe Section IV - FAS 106 Retiree Medical (Base Period)
32 Schrubbe Section IV - FAS 106 Retiree Medical (K&M Adjustment)
33 Schrubbe Section IV - FAS 106 Retiree Medical
34 Schrubbe Section IV - FAS 112 Self-Insured LTD (Base Period)
35 Schrubbe Section IV - FAS 112 Self-Insured LTD (K&M Adjustment)
36 Schrubbe Section IV - FAS 112 Self-Insured LTD
Page
Total Company Number Allocator
No. Line No.
Amount
Scale (Name)
5
3 $ 9,150,444 dollars LABXAG
5
5 $ 8,655,864 dollars LABXAG
5
5&6 $ 462,665 dollars LABXAG
5
6 $ (23,717) dollars LABXAG
5
7&8 $
55,633 dollars LABXAG
5
11 $ 14,996,975 dollars LABXAG
5
12 $ 13,881,738 dollars LABXAG
5
13 $ 489,846 dollars LABXAG
5
14 $
66,552 dollars LABXAG
5
14 $ 558,839 dollars LABXAG
5
17&18 $ 860,189 dollars LABXAG
5
19 $ 3,417,343 dollars LABXAG
6
9 $ 155,314,373 dollars LABOR
10 Table RRS-1 $ 8,655,864 dollars LABXAG
10 Table RRS-1 $ 462,665 dollars LABXAG
10 Table RRS-1 $ (23,717) dollars LABXAG
10 Table RRS-1 $
55,633 dollars LABXAG
10 Table RRS-1 $ 13,881,738 dollars LABXAG
10 Table RRS-1 $ 489,846 dollars LABXAG
10 Table RRS-1 $
66,552 dollars LABXAG
10 Table RRS-1 $ 558,839 dollars LABXAG
10 Table RRS-1 $ 3,214,358 dollars LABXAG
10 Table RRS-1 $ 202,985 dollars LABXAG
10 Table RRS-1 $ 860,190 dollars LABXAG
22
3 $ 8,739,363 dollars LABXAG
23
8&9 $ (83,499) dollars LABXAG
23
14 $ 8,655,864 dollars LABXAG
25
3 $ 438,251 dollars LABXAG
25
8$
24,414 dollars LABXAG
25
14 $ 462,655 dollars LABXAG
27
10 $ (28,131) dollars LABXAG
27
13 $
4,414 dollars LABXAG
28
3 $ (23,717) dollars LABXAG
29
14 $
30,832 dollars LABXAG
29
17 $
24,801 dollars LABXAG
30
5$
55,633 dollars LABXAG
TY Allocator (%)
0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.298383 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624
NM Retail
Amount
$ 2,750,840
$ 2,602,157
$ 139,088
$ (7,130)
$ 16,725
$ 4,508,445
$ 4,173,178
$ 147,259
$ 20,007
$ 168,000
$ 258,593
$ 1,027,334
$ 46,343,138
$ 2,602,157
$ 139,088
$ (7,130)
$ 16,725
$ 4,173,178
$ 147,259
$ 20,007
$ 168,000
$ 966,312
$ 61,022
$ 258,593
$ 2,627,259
$ (25,102)
$ 2,602,157
$ 131,749
$
7,339
$ 139,085
$ (8,457)
$
1,327
$ (7,130)
$
9,269
$
7,456
$ 16,725
Attachment RRS-1 Page 1 of 2
Case No. 20-00238-UT
Southwestern Public Service Company Total Company Amounts and Jurisdictional Percentages
Line
No. Witness
Description
37 Schrubbe Section V - Active Health Care
38 Schrubbe Section V - Active Health Care (K&M Adjustment)
39 Schrubbe Section V - Active Health Care (K&M Adjustment)
40 Schrubbe Section V - Active Health Care (K&M Adjustment 2)
41 Schrubbe Section V - Active Health Care (K&M Adjustment)
42 Schrubbe Section V - Active Health Care
43 Schrubbe Section V - Third-Party LTD
44 Schrubbe Section V - Life Insurance
45 Schrubbe Section V - Miscellaneous Benefit Programs and Costs (Base)
46 Schrubbe Section VI - Third-Party-Insured Workers' Compensation
47 Schrubbe Section VII - 401(k) Match (Base Period)
48 Schrubbe Section VII - 401(k) Match (K&M Adjustment)
49 Schrubbe Section VII - 401(k) Match
50 Schrubbe Section VII - Miscellaneous Retirement-Related Costs (Base)
51 Schrubbe Section VIII - Prepaid Pension Asset (13-Month Average)
52 Schrubbe Section VIII - Prepaid Pension Asset
Page No.
32 33 34 34 34 35 36 37 38 40 42 42 42 43 46 51
Total Company Number Allocator
Line No.
Amount
Scale (Name)
15 $ 13,881,738 dollars LABXAG
16&17 $ 778,124 dollars LABXAG
4$
(7,635) dollars LABXAG
7 $ 785,759 dollars LABXAG
8 $ 778,124 dollars LABXAG
10 $ 13,881,738 dollars LABXAG
17 $ 489,846 dollars LABXAG
10 $
66,552 dollars LABXAG
9 $ 558,839 dollars LABXAG
5 $ 860,190 dollars LABXAG
5 $ 3,126,454 dollars LABXAG
8$
87,904 dollars LABXAG
16 $ 3,214,358 dollars LABXAG
8 $ 202,985 dollars LABXAG
17 $ 155,314,373 dollars LABOR
5 $ 155,314,373 dollars LABOR
TY Allocator (%)
0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.300624 0.298383 0.298383
NM Retail Amount
$ 4,173,178 $ 233,922 $ (2,295) $ 236,218 $ 233,922 $ 4,173,178 $ 147,259 $ 20,007 $ 168,000 $ 258,593 $ 939,886 $ 26,426 $ 966,312 $ 61,022 $ 46,343,138 $ 46,343,138
Attachment RRS-1 Page 2 of 2
Case No. 20-00238-UT
Attachment RRS-2 Page 1 of 14
Case No. 20-00238-UT
May 17, 2019
Mr. Richard R. Schrubbe AVP, Financial Analysis & Planning Xcel Energy Inc. 401 Nicollet Mall 3rd Floor Minneapolis, Minnesota 55401
2019 VALUATION RESULTS AND 2020-2024 COST ESTIMATES
Dear Rick:
This letter summarizes the results of the 2019 pension plans. Also included are final 2019 costs and updated 2020-2024 cost estimates for the Long-Term Disability (LTD) and Workers Compensation plans. The results for these plans have been updated from the March 29, 2019, results to reflect 2019 census data for both plans. Costs for all other plans are unchanged from March 29, 2019.
Attached to this letter are benefit cost exhibits and an exhibit that provides plan specific details of the cost reconciliations for the qualified pension plans.
PENSION PLAN FUNDING
Summary of Key Results
The key results for each plan are provided in the following table:
($ in Millions)
Xcel Energy Pension Plan
NCE Nonbargaining
Plan
Effective Interest Rate
5.36%
5.25%
Contribution Requirements for the 2019 Plan Year (as of January 1, 2019)
Minimum Required Contribution Before Funding Balance
$98.8
$12.5
Minimum Required Contribution After
$0.0
$8.0
Funding Balance
2019 PBGC Premiums PBGC Variable Rate Premiums
$5.5
$0.9
SPS Bargaining
Plan 5.53%
$12.8
$0.0
$0.9
PSCo Bargaining
Plan 5.50%
$40.9
$0.0
$3.5
For all plans except the NCE Nonbargaining Plan, there is sufficient funding balance to satisfy the entire 2019 plan year minimum funding requirements. For the NCE Nonbargaining Plan, there is not enough funding
Suite 1700 8400 Normandale Lake Boulevard Minneapolis, MN 55437
T +1 952 842 7000 F +1 952 842 7001 W willistowerswatson.com
Willis Towers Watson US LLC
http://natct.internal.towerswatson.com/clients/609084A/XcelRETActuarial-2019/Documents/Projections/May/L_05172019_Schrubbe_2019_Cost_Funding.docx
Page 1 of 10
Attachment RRS-2 Page 2 of 14
Case No. 20-00238-UT
balance remaining to satisfy the entire 2019 plan year requirement. As a result, the following contributions, reflecting interest from the January 1, 2019 valuation date to the payment due date, are required:
$1.1 million by July 15, 2019 $2.9 million by October 15, 2019 $2.9 million by January 15, 2020 $1.8 million by September 15, 2020.
Under the current contribution forecast, Xcel Energy has a planned contribution of $15 million to the NCE Nonbargaining Plan for the 2019 plan year, expected to be contributed in January 2020. Our recommendation is to split the contribution into two payments. For example, an initial payment of $4 million before July 15, 2019 to cover the 2019 plan year requirements due in 2019 and a second payment of $11 million before January 15, 2020.
Funded Status
assets. The following table summarizes the 2019 plan year funded percentages:
Minimum Funding and Benefit Restrictions 2019 ($ in Millions)
Xcel Energy Pension Plan
NCE Nonbargaining
Plan
SPS Bargaining
Plan
PSCo Bargaining
Plan
1. Effective Interest Rate
5.36%
5.25%
5.53%
5.50%
2. Target Liability as of January 1
$1,500.4
$241.3
$325.1
$920.2
3. Actuarial Value of Assets as of January 1
$1,530.4
$230.6
$358.6
$907.6
4. Funding Balance as of January 1
$202.2
$4.5
$61.2
$117.9
5. Funded Percentage before funding balance reduction from plan assets [(3) / (2)]
102.0%
95.6%
110.3%
98.6%
6. Funded Percentage with funding balance reduction from plan assets (FTAP) [((3) (4)) / (2)]
88.5%
93.7%
91.5%
85.8%
7. Preliminary Adjusted Funding Target Attainment Percentage (AFTAP)1
102.0%
93.7%
110.3%
1 If Actuarial Value of Assets/Target Liability >= 100%, the AFTAP matches line 5; otherwise it matches line 6
85.8%
Benefit Restrictions
Based on the 2019 funding results, benefit restrictions are not expected to apply for the 2019 plan year since the preliminary AFTAP for each plan exceeds 80.0%. We will provide our certification of the funded status for the plans prior to the September 30, 2019 deadline.
Funding Balances
The following summarizes the funding balance activity for the Xcel Energy pension plans.
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Case No. 20-00238-UT
($ in Millions) Funding Balances at January 1, 2018
Funding Balances used for the 2018 plan year
Excess contributions elected to be added to funding balance
Investment experience adjustments
Amount of funding balance forfeited for AFTAP purposes
Funding Balances at January 1, 2019
NCE
Xcel Energy Nonbargaining
Pension Plan
Plan
SPS Bargaining
Plan
$191.7
$11.4
$60.2
(44.3)
(7.5)
(6.9)
61.1
0.8
10.2
(6.3)
(0.2)
(2.3)
0.0
0.0
0.0
$202.2
$4.5
$61.2
PSCo Bargaining
Plan $102.0 (12.2)
32.0
(3.9)
0.0
$117.9
PBGC Premiums
The PBGC variable rate premium amounts in the table on page one are based on the Standard Premium Funding Target for the PSCo Bargaining Plan and the NCE Nonbargaining Plan. The Alternative Premium Funding Target is used for the Xcel Energy Pension Plan and the SPS Bargaining Plan, but both plans are eligible to switch to the Standard Premium Funding Target method. If the method is changed, the 2019 premiums shown above and the contributions required to eliminate variable rate premiums shown below would be lower. Similar to prior years, we will analyze and discuss the option to switch methods with you in early September before a final decision is required in early October. The PSCo Bargaining Plan and the NCE Nonbargaining Plan are above the per-participant cap and the variable rate premium is limited to $541 per participant.
The plans can eliminate variable rate premiums with the September 15, 2019 contribution amounts below:
Contribution to Avoid PBGC Variable Rate Premium ($ in Millions)
Contribution (as of September 15, 2019)
NCE
Xcel Energy Nonbargaining
Pension Plan
Plan
$134.0
$38.4
SPS Bargaining
Plan
$22.7
PSCo Bargaining
Plan
$147.2
ERISA 4010 Funded Status
An ERISA 4010 filing is required if any 4010 Funding Target Attainment Percentage (4010 FTAP) for a plan within the controlled group of the plan sponsor is less than 80%. For this purpose, the target liability is calculated using interest rates that do not reflect interest rate stabilization and plan assets are reduced by the amount of the prefunding balance and funding standard carryover balance. This determination is done as of the valuation date for the plan year ending within the information year ending December 31, 2019 (i.e., the 2019 plan year). The valuation date for the 2019 plan year is January 1, 2019. The January 1, 2019 4010 FTAPs for all Xcel Energy pension plans are as follows:
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4010 FTAP 2019 ($ in Millions)
1. Effective Interest Rate
2. Target Liability as of January 1
3. Actuarial Value of Assets as of January 1
4. Funding Balance as of January 1
5. Funded Percentage with funding balance reduction from plan assets (4010 FTAP) [((3) (4)) / (2)]
NCE
Xcel Energy Nonbargaining
Pension Plan
Plan
3.87%
3.76%
$1,700.4
$269.3
$1,530.4
$230.6
$202.2
$4.5
SPS Bargaining
Plan
4.01%
$385.8
$358.6
$61.2
PSCo Bargaining
Plan
3.99%
$1,081.6
$907.6
$117.9
78.1%
84.0%
77.1%
73.0%
Based on the results above, a filing will be required for the 2019 information (fiscal) year unless additional contributions for the 2018 plan year are made on or before September 15, 2019. Alternatively, funding balances may be forfeited such that the 4010 FTAP for each plan is above 80%. More specifically, Xcel Energy can avoid an ERISA 4010 filing with contributions and/or funding balance forfeitures by September 15, 2019 of $32.1 million, $11.2 million, and $75.6 million to the Xcel Energy Pension Plan, SPS Bargaining Plan, and PSCo Bargaining Plan respectively (amounts as of January 1, 2019). If no action is taken and a 4010 filing is required for the 2019 information year, the submission deadline will be April 15, 2020.
LONG-
The combined 2019 cost/(income) for the
plan and the Long-Term Disability plan is
($1.9) million, a $1.4 million increase in income (decrease in cost) from our March estimate of ($0.5) million.
The final discount rate used for these plans is 4.25%, which is a 2 basis point increase from our March
results.
The actual 2019 cost/(income) for the Long-Term Disability plan is $(0.1) million, which is the same as the 2019 estimated cost/(income) for the plan provided in March. The actual 2019 cost/(income) Compensation plan is ($1.8) million, which is a $1.4 million increase in income from the estimated 2019 cost/(income) of ($0.4) million for the plan provided in March. The decrease is primarily due to favorable indemnity claims experience in Minnesota and South Dakota.
RESULTS EXHIBITS
Final 2019 benefit costs (prior to potential settlement charges) and 2020-2024 benefit cost forecasts are attached to the end of this letter. Benefit cost results for all plans except the plans have not been updated from the results provided on March 29, 2019. 2019 benefit costs and estimates of 2020-2024 benefit costs summarized by legal entity are presented in the attached exhibits as follows:
Exhibit I: Benefit Cost Estimates Qualified Pension Plans Exhibit II: Benefit Cost Estimates Nonqualified Pension Plans Exhibit III: Benefit Cost Estimates Retiree Medical and Life Insurance Plan Exhibit IV: Liabilities Exhibit V: Claims and Expenses Exhibit VI: Benefit Cost Estimates Exhibit VII: Benefit Cost Reconciliation Details Qualified Pension Plans
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Case No. 20-00238-UT
Plans Valued
The attached exhibits include estimates for the following employee benefit plans maintained by Xcel Energy Inc. (Xcel Energy):
Xcel Energy Pension Plan Xcel Energy Inc. Nonbargaining Pension Plan (South) [NCE Nonbargaining Plan] New Century Energies Inc. Retirement Plan for SPS Bargaining Unit Employees and Former Nonbargaining Unit Employees [SPS Bargaining Plan] New Century Energies Inc. Retirement Plan for PSCo Bargaining Unit Employees and Former Nonbargaining Unit Employees [PSCo Bargaining Plan] Xcel Energy Nonqualified Defined Benefit Plan Xcel Energy SERP SPS SERP Employment Agreements Fort St. Vrain Nuclear Operations Personnel Plan NMC SERP Part A Xcel Energy Retiree Medical and Life Insurance Plan (including Executive Life Insurance)
Xcel Energy Long-Term Disability (LTD) Income
FORECAST RESULTS Forecast results are based on the information summarized below. The following provides a reconciliation of actual 2019 costs to 2020 estimated costs, prior to regulatory effects and potential settlement charges: Reconciliation of Benefit Costs (prior to regulatory effects and potential settlement charges)
($ in Millions)
Final 2019 Historical asset performance Expected liability, asset, and loss amortization changes Initial 2020 Estimate
Qualified Pension1
$107.0 11.5
(14.2)
$104.3
Nonqualified Pension
$3.6 0.0
Retiree Medical
Compensation
Long Term Disability
($2.0) ($1.8)
($0.1)
0.0
0.0
0.0
Total
$106.7 11.5
0.0
1.3
2.1
0.5
(10.3)
$3.6
($0.7)
$0.3
$0.4
$107.9
1Qualified Pension Plan costs reflect the assumption that NSP-MN and Xcel Energy Nuclear costs are determined under the Aggregate Cost Compensation Method. No additional regulatory deferrals have been reflected. See Exhibit VII for additional details.
DATA, ASSUMPTIONS, METHODS AND PLAN PROVISIONS FOR BENEFIT COSTS
The 2019 benefit costs, and estimated 2020-2024 costs reflect the following data, assumptions, methods and
plan provisions:
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Case No. 20-00238-UT
Data
For the qualified and nonqualified pension plans and the retiree medical plan, the 2019 benefit cost results and estimates for 2020-2024 are based on participant data as of January 1, 2018, projected to the end of the year based on status, compensation and benefit changes through November 30, 2018, and known retirements for December 2018. Actual new entrants through November 30, 2018, and expected new entrants through December 31, 2018, are included. See our March 29, 2019, letter for more details. For the
-Term Disability plans, the 2019 benefit cost results and estimated costs for 2020-2024 are based on participant data as of January 1, 2019.
Economic Assumptions
The key assumptions used to determine the actual 2019 and estimated 2020-2024 benefit cost results are provided below. The assumptions used to calculate the cost under the aggregate cost method are the same as used to prepare the ASC 715 results, except as noted. Actual asset returns net of administrative expenses are assumed to equal the expected return on assets assumptions throughout the forecast period.
Benefit Cost Discount Rate ASC 715:
Xcel Energy Pension Plan NCE Nonbargaining Pension Plan SPS Bargaining Pension Plan PSCo Bargaining Pension Plan Nonqualified Pension Plan Retiree Medical and Life Insurance Plan
Expected Return on Assets Assumption Pension: Xcel Energy Pension Plan NCE Nonbargaining Pension Plan SPS Bargaining Pension Plan PSCo Bargaining Pension Plan Weighted Average Expected Return
Expected Return on Assets Assumption VEBA (Bargaining/Nonbargaining) Discount Rate Aggregate Cost Salary Scale1 Initial Medical Trend:
Pre-Medicare Post-Medicare Ultimate Medical Trend Year Ultimate Trend is Reached
May 17, 2019 Results
4.31% 4.25% 4.37% 4.36% 4.26% 4.32% 4.25%
7.10% 6.90% 6.75% 6.50% 6.87% 5.30% 7.10% 3.75%
6.50% 5.30% 4.50% 2023
1 Career average of age-graded table (nonbargaining) and service-graded table (bargaining)
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The interest rate for converting lump sums to annuities and annuities to lump sums was updated from 3.50% to 4.10% in all years. The pre-PPA lump sum conversion interest rate was updated from 2.75% to 3.10%.
The interest crediting rate for the 5% cash balance formula was updated from 2.75% to 3.10%. The interest crediting rate for the Retirement Spending Account was updated from 2.50% to 3.60%.
The HRA trend assumption remains at 2.0%.
Demographic Assumptions
Active participant counts are assumed to remain level throughout the forecast period.
The mortality assumption is the RP-2014 tables (blue collar for bargaining participants and white collar for nonbargaining participants, as adjusted for 2014 Xcel Energy mortality study) projected with generational mortality improvements using an adjusted SOA MP-2016 methodology.
The mortality assumption for converting lump sums to annuities or annuities to lump sums is the 2018 IRS mortality tables projected to the commencement date using the SOA MP-2017 methodology.
Retirement rates were updated to reflect later retirement ages as indicated in our January 4, 2019 letter. The decrement timing model was also updated from beginning of year to middle of year decrements.
Pension Contributions
The benefit cost forecasts reflect 2019 contributions of $150 million made on January 2, 2019, and planned contributions provided by Xcel Energy for 2020 through 2024. The table below summarizes the amounts assigned to each plan over the forecast period:
Plan Xcel Energy Pension Plan NCE Nonbargaining Plan SPS Bargaining Plan PSCo Bargaining Plan Total Contribution
2019 $ 90.0
5.0 15.0 40.0 $ 150.0
2020 $ 85.0
15.0 10.0 40.0 $ 150.0
Year
2021
2022
$ 68.0 $ 48.0
12.0
12.0
10.0
5.0
35.0
35.0
$ 125.0 $ 100.0
2023 $ 45.0
10.0 10.0 35.0 $ 100.0
2024 $ 60.0
5.0 0.0 35.0 $ 100.0
Contributions in 2020 and beyond are assumed to be paid on January 15 and assigned to the prior plan year.
The above planned contributions may not be sufficient to meet minimum requirements under all economic scenarios. As noted above, an additional contribution of $4 million is required during calendar year 2019 to satisfy minimum funding requirements. The planned contributions will be reviewed later this
Plan Provision Updates
Effective February 22, 2018, employees hired or rehired into the PSCo Bargaining Plan receive a 5% Cash Balance benefit. Due to the one year participation requirement, new hires will not be included in the valuation until year-end 2019. Rehired employees and transfers participate immediately.
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Case No. 20-00238-UT
DATA, ASSUMPTIONS, METHODS AND PLAN PROVISIONS FOR PENSION PLAN FUNDING
Data
The 2019 pension funding results are based on data as of January 1, 2019. The January 1, 2019 census data will be summarized in our upcoming data memos which are expected to be provided within the next month.
Economic Assumptions
All economic assumptions for the funding results are the same as noted above under the Benefit Cost section, except the discount rates. The discount rates equal to the effective interest rates which are noted in the results sections above. The effective interest rates were determined using the following 3-segment rates:
3-segment rates reflecting stabilization (3.74% / 5.35% / 6.11%)
3-segment rates not reflecting stabilization (2.28% / 3.87% / 4.46%)
Applicable month: September
Demographic Assumptions
All demographic assumptions for the funding results are the same as noted above under the Benefit Cost section, except the mortality assumption. The mortality assumption reflects the IRS prescribed static mortality assumption for 2019 valuations.
Plan Provision Updates
All plan provisions valued for the funding results are the same as noted above under the Benefit Cost section.
ACTUARIAL CERTIFICATION
As requested by Xcel Energy Inc., this report provides results of the actuarial valuations of the Xcel Energy Inc. employee benefit plans indicated above. This report should not be used for other purposes, distributed to others outside Xcel Energy Inc. or relied upon by any other person without prior written consent from Willis Towers Watson. Except where we expressly agree in writing, this report should not be disclosed or provided to any third party, other than as provided below. In the absence of such consent and an express assumption of responsibility, no responsibility whatsoever is accepted by us for any consequences arising from any third party relying on this report or any advice relating to its contents.
Xcel Energy Inc. may make a copy of this report available to auditors or appropriate governmental agencies of the plan or the plan sponsor, but we make no representation as to the suitability of this report for any purpose other than that for which it was originally provided and accept no responsibility or liability to the auditors in this regard. Xcel Energy Inc. should draw the provisions of this paragraph to the attention of the auditors or appropriate governmental agencies when providing this report to them.
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Case No. 20-00238-UT
In preparing this valuation, we have relied upon information and data provided to us by Xcel Energy Inc. and other persons or organizations designated by Xcel Energy Inc. We have relied on all the data and information provided as complete and accurate. We have reviewed this information for overall reasonableness and consistency, but have neither audited nor independently verified this information. Based on discussions with and concurrence by the plan sponsor, assumptions or estimates may have been made if data were not available. We are not aware of any errors or omissions in the data that would have a significant effect on the results of our calculations. The results presented in this report are directly dependent upon the accuracy and completeness of the underlying data and information. Any material inaccuracy in the data, assets, plan provisions or other information provided to us may have produced results that are not suitable for the purposes of this report and such inaccuracies, as corrected by Xcel Energy Inc., may produce materially different results that could require that a revised report be issued.
This valuation reflects our understanding of the relevant provisions of the Pension Protection Act of 2006. The IRS has yet to issue final guidance with respect to certain aspects of this law. It is possible that such guidance may conflict with our understanding of the law and could therefore affect results shown in this report.
The results summarized in this report involve actuarial calculations that require assumptions about future events. We believe the assumptions and methods used in this report are reasonable and appropriate for the purposes for which they have been used. In our opinion, all methods, assumptions and calculations are in accordance with requirements of the Internal Revenue Code and ERISA, and the applicable financial accounting standards, including ASC 712 and 715 and the procedures followed and presentation of results are in conformity with generally accepted actuarial principles and practices.
As required by U.S. GAAP, the actuarial assumptions and methods employed in the development of the pension and other postretirement benefit cost and other financial reporting have been selected by Xcel Energy Inc. Willis Towers Watson has concurred with these assumptions and methods. U.S. GAAP requires
estimate of a particular future event. Xcel Energy Inc. uses the standards set out in ASC 715 to calculate pension cost for each plan in total; pension cost for the subsidiaries is calculated based on plan assets allocated to each subsidiary in proportion to the PBO for each subsidiary. Beginning in fiscal 2010, Discontinued Operations is allocated assets in proportion to its PBO, similar to nondiscontinued operations. The gain/(loss) amortization is allocated to each subsidiary in proportion to the gain/(loss) balance for each subsidiary (excluding deferred asset gains and losses). This
pension plans since January 1, 2001. A similar methodology is used for the ASC 715 costs for the Retiree Medical and Life Plan, except separate asset accounts are used for each subsidiary.
Except as otherwise provided herein, the results presented are based on the data, assumptions, methods, plan provisions and other information, outlined in the actuarial valuation reports to determine accounting requirements for the plan for the plan year beginning January 1, 2019 dated March 29, 2019. Therefore, such information, and the reliances and limitations of the valuation report and its use, should be considered part of this letter.
The funding results prepared in this letter are subject to Actuarial Standard of Practice (ASOP) 51 regarding disclosure of significant risks related to the calculation of actuarially determined contributions. We will follow up with our ASOP 51 statement within 30 days and this statement should be considered part of this report.
Standards for Actuaries Issuing Statements of Actuarial Opinion in
pension and
postretirement welfare plans. Our objectivity is not impaired by any relationship between the plan sponsor
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Case No. 20-00238-UT
NEXT STEPS If you have any questions or would like to discuss, please contact Mark at 952-842-6445, Kristoff at 952-8426359 or Ali at 952-842-6225. Sincerely,
Mark A. Afdahl, FSA, EA Director, Retirement
Kristoff M. Hendrickson, FSA, EA Director, Retirement
Ali Rehan Rattansi, ASA, EA Associate Director, Retirement
cc: Todd Degrugillier Xcel Energy Inc. Darla Figoli Xcel Energy Inc. Levi Glines Xcel Energy Inc. Kris Lindemann Xcel Energy Inc. Ruth Lowenthal Xcel Energy Inc. Garrett Mikrut Xcel Energy Inc. Debbie Robin Xcel Energy Inc. Jeff Savage Xcel Energy Inc. Sarah Soong Xcel Energy Inc. Brian Van Abel Xcel Energy Inc. Greg Zick Xcel Energy Inc.
Mark Anderson Willis Towers Watson Mark Bilderback Willis Towers Watson Beth Fernandez Willis Towers Watson Scott Lund Willis Towers Watson Jim Shaddy Willis Towers Watson Tyler Tanck Willis Towers Watson Ariah Tough Willis Towers Watson
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XCEL ENERGY INC. - Qualified Pension Plans Cost by Legal Entity ($ in Thousands)
EXHIBIT I Page 1 of 6
2019
Xcel Energy Pension Plan (XEPP) Discontinued Operations2 Xcel Energy Nuclear NSP - MN NSP - WI Xcel Services3 XEPC (former EMI) Total XEPP
Service Cost Interest Cost
Expected Return
on Assets
Amortizations
Prior Service Net Cost (Gain)/Loss
5,834 19,598 4,433
21,737 -
51,602
3,051 4,153 32,928 5,709
26,095 23
71,959
(4,468) (6,079) (48,176) (8,356)
(38,200) (33)
(105,312)
(214) 100
(30)
(985) -
(1,129)
3,050 630
29,580 4,447
13,112 2
50,821
Net Cost
Settlement Charge 1
1,633
-
4,324
-
34,030
-
6,203
-
21,759
-
(8)
-
67,941
-
Aggregate Cost Compensation
Method
Aggregate Cost 20-year Amortization
Method
January 1 Prepaid (Accrued)
N/A 3,834 30,873
N/A
N/A N/A 34,707
N/A 3,392 27,312
N/A
N/A N/A 30,704
33,632 (8,658) 313,067 43,681
84,737 (58)
466,401
Contribution
3,785 5,052 41,669 7,239 32,227
28 90,000
NCE Non-Bargaining Pension Plan Discontinued Operations - Cheyenne PSCo SPS Total NCE
3,915 2,431 6,346
146 7,642 3,347 11,135
(203) (10,625)
(4,645) (15,473)
(165) (137) (302)
146 3,321 2,608 6,075
89
-
4,088
-
3,604
-
7,781
-
N/A
N/A
1,545
65
N/A
N/A
17,104
3,434
N/A
N/A
23,427
1,501
N/A
N/A
42,076
5,000
SPS Bargaining Plan SPS Total SPS
6,377
16,788
(23,998)
-
6,377
16,788
(23,998)
-
8,741 8,741
7,908
-
7,908
-
N/A
N/A
120,664
15,000
N/A
N/A
120,664
15,000
PSCo Bargaining Plan Discontinued Operations - Cheyenne PSCo Total PSCo
-
416
(547)
-
421
290
-
21,667
43,985
(57,881)
(3,212)
22,122
26,681
-
21,667
44,401
(58,428)
(3,212)
22,543
26,971
-
N/A
N/A
6,218
386
N/A
N/A
242,695
39,614
N/A
N/A
248,913
40,000
Total Xcel Energy
85,992
144,283
(203,211)
(4,643)
88,180
110,601
-
34,707
30,704
878,054
150,000
1 Settlement accounting may be required if lump sum benefit payments exceed the sum of service cost and interest on a plan by plan basis. No settlements have been estimated at this time. 2 Includes NRG, BMG, Viking, Natro Gas, Utility Engineering, Seren, Quixx, Crockett and QPS 3 Includes Eloigne
Assumptions
Discount Rate - U.S. GAAP
XEPP
4.31%
NCE
4.25%
SPS
4.37%
PSCo
4.36%
Discount Rate - Aggregate Normal Cost
7.10%
Salary Scale
3.75%
Expected Return on Assets
XEPP
7.10%
NCE
6.90%
SPS
6.75%
PSCo
6.50%
Assumed Mortality Table
Bargaining Participants
RP-2014 Blue Collar projected with generational mortality improvements using an adjusted SOA MP-2016 methodology
Non-bargaining Participants
RP-2014 White Collar, as adjusted for 2014 Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA MP-2016 methodology
See May 17, 2019 letter for additional information on data, assumptions, methods, and plan provisions.
Contributions already made are allocated in accordance with the January 2, 2019 contribution directives.
© 2019 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
PBO
73,890 100,213 806,830 139,764 632,568
546 1,753,811
3,601 187,999
83,030 274,630
394,752 394,752
9,963 1,041,247 1,051,210
3,474,403
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XCEL ENERGY INC. - Nonqualified Pension Plans Cost by Legal Entity ($ in Thousands)
2019
Discontinued Operations2 Xcel Energy Nuclear NSP - MN NSP - WI PSCo3 SPS Xcel Services4 XEPC (former EMI)
Total Xcel Energy
Service Cost
80 33 17 41 11 721 903
Interest Cost
Expected Return on Assets
30
-
22
-
142
-
19
-
126
-
67
-
898
-
-
-
1,304
-
Amortizations
Prior Service Cost
133 133
Net (Gain)/Loss
Settlement Charge1
(53)
-
(13)
-
318
-
2
-
300
-
120
-
578
-
(3)
-
1,249
-
Net Cost
January 1 Prepaid (Accrued)
(23) 89 493 38 467 198 2,330 (3)
3,589
(1,291) (663) (272) (458) (58) (462)
(16,717) (27)
(19,948)
1 Settlement accounting may be required if lump sum benefit payments exceed the sum of service cost and interest cost. No settlements have been estimated at this time. 2 Includes NRG, BMG, Viking, Natrogas, Quixx, Seren and UE 3 Includes Fort St. Vrain 4 Includes Eloigne
Assumptions Discount Rate Salary Scale (career average) Assumed Mortality Table
4.26% 3.75% RP-2014 White Collar, as adjusted for 2014 Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA MP-2016 methodology
See May 17, 2019 letter for additional information on data, assumptions, methods and plan provisions.
© 2019 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
EXHIBIT II Page 1 of 6
Expected Benefit Payments 91 42
472 49
416 251 4,048 5,369
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XCEL ENERGY INC. - Postretirement Benefits U.S. GAAP Cost Estimates by Legal Entity ($ in Thousands)
EXHIBIT III Page 1 of 6
Amortizations
2019
Discontinued Operations 1 Xcel Energy Nuclear NSP - MN2 NSP - WI PSCo SPS3 Xcel Services3 XEPC (former EMI)
Total Xcel Energy
Service Cost
14 112 27 478 879 43 1,553
Interest Cost
309 36
3,091 528
15,626 1,741 1,132 1
22,464
Expected Return on Assets
(71) (129) (23) (18,936) (2,039) (33) -
(21,231)
Prior Service Cost
(110) 57
(3,075) (351)
(5,399) (466) (565) -
(9,909)
Net (Gain)/Loss
79 (15) 1,523 299 2,936 (420) 676
(4)
5,074
January 1 Prepaid
Net Cost
(Accrued)
207 92
1,522 480
(5,295) (305)
1,253 (3)
(4,760) (822)
(50,755) (6,998) 47,175
(13,234) (12,591)
(117)
(2,049)
(42,102)
Contribution 658 17
7,187 1,168
1,587
5 10,622
1Includes NRG, BMG, Viking, Natrogas, Cheyenne, Quixx and UE. 2Includes Eloigne and Seren. 3Includes Executive Life Insurance benefits.
Assumptions
Discount Rate
4.32%
Expected Return on Assets
5.30%
Medical Trend
Pre-65
Post-65
Initial (2019)
6.50%
5.30%
Ultimate
4.50%
4.50%
Year Ultimate Reached
2023
2023
Assumed Mortality Table
Bargaining:
RPH-2014 Blue Collar headcount-weighted table adjusted for Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA
MP-2016 methodology.
Non-bargaining:
RPH-2014 White Collar headcount-weighted table adjusted for Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA
MP-2016 methodology.
Contributions for PSCo and SPS are assumed equal to the net cost, but not less than zero. Contributions for other legal entities are assumed equal to the expected benefit payments.
See May 17, 2019 letter for additional information on data, assumptions, and plan provisions.
© 2019 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
Attachment RRS-2 Page 13 of 14
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Fiscal Year Ending
Xcel Energy Inc. - LTD and Workers' Compensation Benefit Cost Estimates by Legal Entity ($ in Thousands)
2018
2019
2020
2021
2022
2023
Exhibit VI
Page 1 of 1
2024
U.S. GAAP Discount Rate- Workers' Compensation
Former NSP - Workers' Compensation 1 MN/SD MI/WI Subtotal
Former NCE - Workers' Compensation 1 Colorado - PSCo
Deductible States - Workers' Compensation Deductible States - SPS (KS, OK, NM, and TX)
Actual 3.51%
Actual 4.25%
Budget 4.25%
Budget 4.25%
Budget 4.25%
Budget 4.25%
Budget 4.25%
339
(1,517)
270
253
235
220
205
(53)
(22)
3
3
3
4
3
286
(1,539)
273
256
238
224
208
555
-250
52
51
48
48
46
-3
0
0
0
0
0
0
Total Xcel Energy Workers' Compensation
838
(1,789)
325
307
286
272
254
Discount Rate - LTD Income
3.51%
4.25%
4.25%
4.25%
4.25%
4.25%
4.25%
LTD Income Discontinued Operations - Cheyenne Discontinued Operations 2 NSP-MN NSP-WI PSCo SPS Utility Engineering Xcel Services XEPC
Total Xcel Energy LTD Income
Total Xcel Energy U.S. GAAP
(21)
11
4
3
3
2
1
89
89
22
20
19
18
17
(22)
(153)
226
212
200
187
176
(258)
(16)
48
45
43
41
38
(117)
70
37
29
25
19
15
(7)
(76)
16
10
8
4
2
(3)
(3)
1
1
2
1
1
91
3
8
6
6
6
5
3
-
-
-
-
-
-
(245)
(75)
362
326
306
278
255
593
(1,864)
687
633
592
550
509
1 Results for former NSP states include income replacement and medical benefits as well as reserve for bankrupt insurers. Colorado results include reserve for bankrupt insurers.
2 Includes NRG, BMG, Viking and Natrogas.
3 See May 17, 2019 letter for additional information on data, assumptions, methods, and plan provisions.
© 2019 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
5/17/2019 http://natct.internal.towerswatson.com/clients/609084A/XcelRETActuarial-2019/Documents/Projections/May/2019 Benefit Costs and 2020-2024 Benefit Cost Estimates - May 2019.xlsx\f112 expense
Attachment RRS-2 Page 14 of 14
Case No. 20-00238-UT
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XCEL ENERGY INC. - Qualified Pension Plans Cost by Legal Entity ($ in Thousands)
EXHIBIT I Page 1 of 6
2020
Xcel Energy Pension Plan (XEPP) Discontinued Operations 2 Xcel Energy Nuclear NSP - MN NSP - WI Xcel Services3 XEPC (former EMI) Mankato Energy Center4 Total XEPP
Service Cost Interest Cost
Expected Return
on Assets
Amortizations
Prior Service
Net
Cost
(Gain)/Loss
5,830 21,118 4,723
23,511 -
78 55,260
2,572 3,543 27,680 4,790
22,522 21
61,128
(4,525) (6,236) (48,698) (8,441)
(39,614) (35)
(107,549)
(214) 179
(24)
(985) -
(1,044)
3,345 874
31,625 4,764
15,191 7
55,806
Net Cost
Settlement Charge 1
1,392
-
3,797
-
31,904
-
5,812
-
20,625
-
(7)
-
78
-
63,601
-
Aggregate Cost Compensation
Method
Aggregate Cost 20-year Amortization
Method
January 1 Prepaid (Accrued)
N/A 3,529 27,855
N/A
N/A N/A
N/A 31,384
N/A 3,222 25,437
N/A
N/A N/A
N/A 28,659
35,792 (7,919) 320,792 44,732
95,273 (22)
488,648
NCE Non-Bargaining Pension Plan Discontinued Operations - Cheyenne PSCo SPS Total NCE
3,875 2,484 6,359
116 6,204 2,632 8,952
(200) (10,688)
(4,525) (15,413)
(165) (137) (302)
151 3,891 2,639 6,681
67
-
3,117
-
3,093
-
6,277
-
N/A
N/A
1,426
N/A
N/A
15,687
N/A
N/A
20,024
N/A
N/A
37,137
SPS Bargaining Plan SPS Total SPS
7,148 7,148
15,243 15,243
(24,816) (24,816)
-
10,477
-
10,477
8,052
-
8,052
-
N/A
N/A
127,961
N/A
N/A
127,961
PSCo Bargaining Plan Discontinued Operations - Cheyenne PSCo Total PSCo
-
351
(529)
-
448
270
-
26,603
39,586
(59,815)
(2,650)
25,984
29,708
-
26,603
39,937
(60,344)
(2,650)
26,432
29,978
-
N/A
N/A
6,314
N/A
N/A
255,652
N/A
N/A
261,966
Total Xcel Energy
95,370
125,260
(208,122)
(3,996)
99,396
107,908
-
31,384
28,659
915,712
1 Settlement accounting may be required if lump sum benefit payments exceed the sum of service cost and interest on a plan by plan basis. No settlements have been estimated at this time. 2 Includes NRG, BMG, Viking, Natro Gas, Utility Engineering, Seren, Quixx, Crockett and QPS 3 Includes Eloigne 4 Cost reflects final census data. See May 15, 2020 letter for additional details.
Assumptions
Discount Rate - U.S. GAAP
XEPP
3.48%
NCE
3.39%
SPS
3.58%
PSCo
3.58%
Discount Rate - Aggregate Normal Cost
7.10%
Salary Scale
3.75%
Expected Return on Assets
XEPP
7.10%
NCE
6.90%
SPS
6.75%
PSCo
6.50%
Assumed Mortality Table
Bargaining Participants
Pri-2012 Blue Collar, as adjusted for 2019 Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA MP-2019 methodology
Non-bargaining Participants
Pri-2012 White Collar, as adjusted for 2019 Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA MP-2019 methodology
See May 15, 2020 letter for additional information on data, assumptions, methods, and plan provisions.
Contributions already made are allocated in accordance with the January 2, 2020 contribution directives.
© 2020 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
Contribution
3,493 4,846 39,113 6,734 30,787
27 78 85,078
193 10,379
4,428 15,000
10,000 10,000
354 39,646 40,000
150,078
PBO
76,854 105,931 836,251 143,385 675,394
714 1,838,529
3,579 191,074
81,928 276,581
436,854 436,854
10,217 1,138,688 1,148,905
3,700,869
Attachment RRS-3 Page 13 of 16
Case No. 20-00238-UT
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XCEL ENERGY INC. - Nonqualified Pension Plans Cost by Legal Entity ($ in Thousands)
2020
Discontinued Operations2 Xcel Energy Nuclear NSP - MN NSP - WI PSCo3 SPS Xcel Services4 XEPC (former EMI)
Total Xcel Energy
Service Cost
98 34 17 54 15 840 1,058
Interest Cost
Expected Return on Assets
22
-
23
-
104
-
15
-
87
-
64
-
848
-
-
-
1,163
-
Amortizations
Prior Service Cost
133 133
Net (Gain)/Loss
Settlement Charge1
(58) 2
309 4
294 170 1,143
(2)
1,862
2,000 -
2,000
Net Cost
January 1 Prepaid (Accrued)
(36) 123 447
36 435 249 4,964
(2)
6,216
(1,265) (715) (345) (448) (8) (416)
(17,481) (24)
(20,702)
1 Settlement charge of $2M is a high-level estimate and assumes $3.6 million of lump sum payments representing approximately 9% of the projected liability 2 Includes NRG, BMG, Viking, Natrogas, Quixx, Seren and UE 3 Includes Fort St. Vrain 4 Includes Eloigne
Assumptions Discount Rate Salary Scale (career average) Assumed Mortality Table
3.33% 3.75% Pri-2012 White Collar, as adjusted for 2019 Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA MP-2019 methodology
See May 15, 2020 letter for additional information on data, assumptions, methods, and plan provisions. © 2020 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
EXHIBIT II Page 1 of 6
Expected Benefit Payments 91 63
436 50 472
275 6,663
8,050
Attachment RRS-3 Page 14 of 16
Case No. 20-00238-UT
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XCEL ENERGY INC. - Postretirement Benefits U.S. GAAP Cost Estimates by Legal Entity ($ in Thousands)
Amortizations
2020
Discontinued Operations1 Xcel Energy Nuclear NSP - MN2 NSP - WI PSCo SPS3 Xcel Services3 XEPC (former EMI)
Total Xcel Energy
Service Cost
16 143 35 248 1,021 54 1,517
Interest Cost
242 33
2,466 429
12,690 1,448 968 1
18,277
Expected Return on Assets
(75) (115) (14) (17,378) (1,897) (37) -
(19,516)
Prior Service Cost
(111) 95
(3,014) (337)
(3,762) (425) (365) -
(7,919)
Net (Gain)/Loss
57 (9) 1,279 240 1,542 (411) 577 (3)
3,272
January 1 Prepaid
Net Cost
(Accrued)
113 135 759 353 (6,660) (264) 1,197
(2)
(4,270) (914)
(44,593) (6,736) 55,187
(12,837) (12,250)
(114)
(4,369)
(26,527)
Contribution 606 20
6,880 1,140
1,645
2
10,293
1Includes NRG, BMG, Viking, Natrogas, Cheyenne, Quixx and UE. 2Includes Eloigne and Seren. 3Includes Executive Life Insurance benefits.
Assumptions
Discount Rate
3.47%
Expected Return on Assets
4.50%
Medical Trend
Pre-65
Post-65
Initial (2020)
6.00%
5.10%
Ultimate
4.50%
4.50%
Year Ultimate Reached
2023
2023
Assumed Mortality Table
Bargaining:
PriH-2012 Blue Collar headcount-weighted table adjusted for Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA
MP-2019 methodology.
Non-bargaining:
PriH-2012 White Collar headcount-weighted table adjusted for Xcel Energy mortality study, projected with generational mortality improvements using an adjusted SOA
MP-2019 methodology.
Contributions for PSCo and SPS are assumed equal to the net cost, but not less than zero. Contributions for other legal entities are assumed equal to the expected benefit payments.
See May 15, 2020 letter for additional information on data, assumptions, methods, and plan provisions.
© 2020 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
EXHIBIT III Page 1 of 6
Attachment RRS-3 Page 15 of 16
Case No. 20-00238-UT
5/27/2020 http://natct.internal.towerswatson.com/clients/609084A/XcelRETActuarial-2020/Documents/Projections/May/2020 Benefit Costs and 2021-2025 Benefit Cost Estimates - May 2020.xlsx: PRW __ _
Xcel Energy Inc. - LTD and Workers' Compensation Benefit Cost Estimates by Legal Entity ($ in Thousands)
Exhibit VI
Page 1 of 1
Fiscal Year Ending
2019
2020
2021
2022
2023
2024
2025
U.S. GAAP Discount Rate- Workers' Compensation
Former NSP - Workers' Compensation 1 MN/SD MI/WI Subtotal
Former NCE - Workers' Compensation 1 Colorado - PSCo
Deductible States - Workers' Compensation Deductible States - SPS (KS, OK, NM, and TX)
Actual 4.25%
Actual 3.41%
Budget 3.41%
Budget 3.41%
Budget 3.41%
Budget 3.41%
Budget 3.41%
(1,517)
707
210
197
182
171
159
(22)
(46)
2
2
3
2
3
(1,539)
661
212
199
185
173
162
(250)
95
40
39
37
36
34
-
-
-
-
-
-
-
Total Xcel Energy Workers' Compensation
(1,789)
756
252
238
222
209
196
Discount Rate - LTD Income
4.25%
3.41%
3.41%
3.41%
3.41%
LTD Income Discontinued Operations - Cheyenne Discontinued Operations 2 NSP-MN NSP-WI PSCo SPS Utility Engineering Xcel Services XEPC
Total Xcel Energy LTD Income
Total Xcel Energy U.S. GAAP
11
(27)
3
1
2
89
93
19
17
17
(153)
516
177
166
156
(16)
(54)
36
33
31
70
177
25
21
16
(76)
79
9
6
4
(3)
(3)
1
1
1
3
93
6
6
4
-
-
-
-
-
(75)
874
276
251
231
(1,864)
1,630
528
489
453
1 Results for former NSP states include income replacement and medical benefits as well as reserve for bankrupt insurers. Colorado results include reserve for bankrupt insurers.
2 Includes NRG, BMG, Viking and Natrogas. See May 15, 2020 letter for additional information on data, assumptions, methods, and plan provisions.
© 2020 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only
5/27/2020 http://natct.internal.towerswatson.com/clients/609084A/XcelRETActuarial-2020/Documents/Projections/May/2020 Benefit Costs and 2021-2025 Benefit Cost Estimates - May 2020.xlsx\f112 expense
3.41%
2 15 146 29 14
2 2 4 -
214
423
3.41%
14 137 28 11
1 -
3 -
194
390
Attachment RRS-3 Page 16 of 16
Case No. 20-00238-UT
Southwestern Public Service Company Calculation of Actuarially Determined Pension and Benefit Amounts
Total Cost Amounts from Actuarial Reports
SPS-NCE SPS-Barg SPS Total Xcel Service
QUALIFIED PENSION
2019
2020
3,604,000
3,093,000
7,908,000
8,052,000
11,512,000
11,145,000
21,759,000 (1)
20,625,000 (5)
OPEB RETIREE MEDICAL
2019
2020
(305,000)
1,253,000 (3)
(264,000)
1,197,000 (7)
Calculation of Total Cost Amounts to Cost of Service Amounts
QUALIFIED PENSION
SPS SPS-NCE Total Cost SPS-Barg Total Cost Total SPS Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Xcel Service Xcel Service Total Cost Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Test Year 12 Months Ending
9/30/20
3,220,750 8,016,000 11,236,750
57.76% 6,490,160
2020 Cost
Known & Measurable Incr/(Decr) from Test Year
3,093,000 8,052,000 11,145,000
57.76% 6,437,167
(127,750) 36,000 (91,750)
(52,993)
20,908,500 10.76%
2,249,194
20,625,000 10.76%
2,218,697
(283,500) (30,497)
OPEB RETIREE MEDICAL
Test Year 12 Months Ending
9/30/20
2020 Cost
Known & Measurable Incr/(Decr) from Test Year
(274,250) 57.76%
(158,402)
1,211,000 10.76%
130,271
(264,000) 57.76%
(152,482)
1,197,000 10.76%
128,765
10,250 5,920
(14,000) (1,506)
Affiliate Charges
Total Amount to SPS O&M
1) Attachment RRS-2, Exhibit I Page 1 of 6 3) Attachment RRS-2, Exhibit III Page 1 of 6 5) Attachment RRS-3, Exhibit I Page 1 of 6 7) Attachment RRS-3, Exhibit III Page 1 of 6
8 8,739,363
8,655,864
(8) (83,498)
(28,131)
(23,717)
4,414
Attachment RRS-4 Page 1 of 2
Case No. 20-00238-UT
Southwestern Public Service Company Calculation of Actuarially Determined Pension and Benefit Amounts
Total Cost Amounts from Actuarial Reports
SPS Xcel Service
NON-QUALIFIED PENSION
2019
2020
198,000
249,000
2,330,000
2,964,000
(2)
(6)
FAS 112 LONG-TERM DISABILITY
AND WORKERS COMPENSATION
2019
2020
(76,000)
79,000
3,000
93,000
(4)
(8)
Calculation of Total Cost Amounts to Cost of Service Amounts
SPS SPS Total Cost Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Xcel Service Xcel Service Total Cost Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Affiliate Charges
Total Amount to SPS O&M
NON-QUALIFIED PENSION
Test Year 12 Months Ending
9/30/20
2020 Cost
Known & Measurable Incr/(Decr) from Test Year
236,250 57.76%
136,454
249,000 57.76%
143,818
12,750 7,364
FAS 112 LONG-TERM DISABILITY AND WORKERS COMPENSATION
Test Year 12 Months Ending
9/30/20
2020 Cost
Known & Measurable Incr/(Decr) from Test Year
40,250 57.76% 23,248
79,000 57.76% 45,629
38,750 22,381
TOTAL NON-QUALIFIED PENSION, FAS 112 LONG-TERM DISABILITY & FAS 112 WORKERS COMPENSATION
Test Year 12 Months Ending
9/30/20
2020 Cost
Known & Measurable Incr/(Decr) from Test Year
276,500 57.76%
159,702
328,000 57.76%
189,447
51,500 29,746
2,805,500 10.76%
301,797
2,964,000 10.76%
318,847
-
158,500 17,050 -
70,500 10.76% 7,584
-
93,000 10.76% 10,004
-
22,500 2,420 -
2,876,000 10.76%
309,381
-
3,057,000 10.76%
328,851
-
181,000 19,471 -
438,251
462,665
24,415
30,832
55,633
24,802
469,082
518,299
49,216
2) Attachment RRS-2, Exhibit II Page 1 of 6 4) Attachment RRS-2, Exhibit VI 6) Attachment RRS-3, Exhibit II Page 1 of 6. (Does not include Settlement Charge) 8) Attachment RRS-3, Exhibit VI
Attachment RRS-4 Page 2 of 2
Case No. 20-00238-UT
Southwestern Public Service Company Calculation of Health and Welfare Costs and the Active Health Care Known and Measurable Adjustment
Calculation of Total Cost Amounts to Cost of Service Amounts
SPS Total Cost Per Book Amount Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Xcel Service Total Cost on Incurred Basis Percent to SPS O&M FERC 926 Amount to SPS O&M FERC 926
Affiliate/Other Charges
ACTIVE HEALTH CARE
Known &
Measurable
Test Year 12
Incr/(Decr) from
Months Ending Amount Included Base Period
9/30/20
in Cost of Service
Adjusted
15,566,151 57.75%
8,989,537
16,561,554 57.76%
9,565,679
576,142
38,104,762 10.80%
4,114,066
11
40,121,964 10.76%
4,316,048
11
201,982 0
MISC BENEFIT PROGRAMS AND LIFE
INSURANCE
Known &
Measurable
Test Year 12
Incr/(Decr) from
Months Ending Amount Included Base Period
9/30/20 in Cost of Service Adjusted
823,419
823,419
57.76%
57.76%
475,593
475,593
-
5,946,119
5,946,119
10.76%
10.76%
639,643
639,643
-
1
1
-
TOTAL HEALTH AND WELFARE
Known &
Test Year 12
Measurable
Months Ending Amount Included Incr/(Decr) from
9/30/20 in Cost of Service Test Year Adjusted
16,389,570 57.76%
9,465,130
17,384,973 57.76%
10,041,272
576,142
44,050,881 10.76%
4,753,709
12
46,068,083 10.76%
4,955,691
12
201,982 0
Total Amount to SPS O&M FERC 926
13,103,614
13,881,738
778,124
1,115,237
1,115,237
-
14,218,851
14,996,975
778,124
Attachment RRS-5 Page 1 of 1
Case No. 20-00238-UT
Southwestern Public Service Company Average Balances Qualified and Non-Qualified
Prepaid Pension Asset - Qualified
FERC JDE Object SAP Object
Account
Account
Account
Account Desciption
228.3
431110.1000 2421006 Accrd Qual Pen Post 15
182.3
150201.1700 1151021 FAS 158 Reg Asset Pensi
182.3
244510.9997 1402006 FAS 158 RA Pension Cont
182.3
244510.1700 1402006 FAS 158 Reg Asset Pensi
Total Prepaid Pension Asset - Qualified
Sep LTD (2019)
Oct LTD (2019)
Nov LTD (2019)
Dec LTD (2019)
Jan LTD (2020)
Feb LTD (2020)
Mar LTD (2020)
$ (68,113,000) $ (68,138,000) $ (68,163,000) $ (60,640,000) $ (46,059,167) $ (45,906,333) $ (45,753,500) $ 11,093,500 $ 11,093,500 $ 11,093,500 $ 11,054,000 $ (11,054,000) $ (11,054,000) $ (12,578,750) $ (11,093,500) $ (11,093,500) $ (11,093,500) $ (11,054,000) $ 11,054,000 $ 11,054,000 $ 12,578,750 $ 221,280,109 $ 220,345,776 $ 219,411,442 $ 208,761,253 $ 207,543,670 $ 206,462,086 $ 205,380,503 $ 153,167,109 $ 152,207,776 $ 151,248,442 $ 148,121,253 $ 161,484,503 $ 160,555,753 $ 159,627,003
Prepaid Pension Asset - Non-Qualified
FERC JDE Object SAP Object
Account
Account
Account
Account Desciption
182.3
244510.1800 1402001 FAS 158 Reg Asset Nqual
$
358,861 $
355,748 $
352,635 $
693,869 $
687,882 $
681,895 $
675,909
182.3
150201.1800 1151001 FAS 158 RA Non Qualified Curr $
(36,606) $
(36,606) $
(36,606) $
(49,712) $
(49,712) $
(49,712) $
(70,842)
182.3
244510.9998 1402001 FAS 158 RA NQual Pensio
$
36,606 $
36,606 $
36,606 $
49,712 $
49,712 $
49,712 $
70,842
242
338310.1000 2244031 A/P NonQualified Pen Po
$ (251,000) $ (251,000) $ (251,000) $ (275,000) $ (275,000) $ (275,000) $ (275,000)
219
488200.160 3152011 OCI NonQ Pension FAS 158
$
794,089 $
787,202 $
780,315 $
947,545 $
939,365 $
931,185 $
923,005
228.3
431440
2421036 Accrued Nonqual Pension
$ (1,321,331) $ (1,310,400) $ (1,299,468) $ (1,783,000) $ (1,772,152) $ (1,761,304) $ (1,750,455)
Total Prepaid Pension Asset - Non-Qualified
$ (419,381) $ (418,449) $ (417,518) $ (416,586) $ (419,904) $ (423,223) $ (426,541)
Total Net Prepaid Pension Costs
$ 152,747,728 $ 151,789,327 $ 150,830,925 $ 147,704,667 $ 161,064,598 $ 160,132,530 $ 159,200,462
Attachment RRS-6 Page 1 of 2
Case No. 20-00238-UT
Southwestern Public Service Company Average Balances Qualified and Non-Qualified
Prepaid Pension Asset - Qualified
FERC JDE Object SAP Object
Account
Account
Account
Account Desciption
228.3
431110.1000 2421006 Accrd Qual Pen Post 15
182.3
150201.1700 1151021 FAS 158 Reg Asset Pensi
182.3
244510.9997 1402006 FAS 158 RA Pension Cont
182.3
244510.1700 1402006 FAS 158 Reg Asset Pensi
Total Prepaid Pension Asset - Qualified
Apr LTD (2020)
May LTD (2020)
June LTD (2020)
Jul LTD (2020)
Aug LTD (2020)
Sep LTD (2020)
13 Month Average
$ (45,600,667) $ (45,447,833) $ (45,295,000) $ (45,142,167) $ (44,989,333) $ (44,836,500) $ (12,578,750) $ (12,578,750) $ (12,178,500) $ (12,178,500) $ (12,178,500) $ (11,778,250) $ 12,578,750 $ 12,578,750 $ 12,178,500 $ 12,178,500 $ 12,178,500 $ 11,778,250 $ 204,298,920 $ 203,217,336 $ 202,135,753 $ 201,054,170 $ 199,972,586 $ 198,891,003 $ 158,698,253 $ 157,769,503 $ 156,840,753 $ 155,912,003 $ 154,983,253 $ 154,054,503 $ 155,743,854
Prepaid Pension Asset - Non-Qualified
FERC JDE Object SAP Object
Account
Account
Account
Account Desciption
182.3
244510.1800 1402001 FAS 158 Reg Asset Nqual
$
669,922 $
663,935 $
657,948 $
651,961 $
645,974 $
639,988
182.3
150201.1800 1151001 FAS 158 RA Non Qualified Curr $
(70,842) $
(70,842) $
(67,342) $
(67,342) $
(67,342) $
(65,092)
182.3
244510.9998 1402001 FAS 158 RA NQual Pensio
$
70,842 $
70,842 $
67,342 $
67,342 $
67,342 $
65,092
242
338310.1000 2244031 A/P NonQualified Pen Po
$ (275,000) $ (275,000) $ (275,000) $ (275,000) $ (275,000) $ (275,000)
219
488200.160 3152011 OCI NonQ Pension FAS 158
$
914,826 $
906,646 $
898,466 $
890,286 $
882,106 $
873,927
228.3
431440
2421036 Accrued Nonqual Pension
$ (1,739,607) $ (1,728,759) $ (1,717,911) $ (1,708,657) $ (1,700,456) $ (1,692,255)
Total Prepaid Pension Asset - Non-Qualified
$ (429,860) $ (433,178) $ (436,497) $ (441,409) $ (447,375) $ (453,340) $
(429,482)
Total Net Prepaid Pension Costs
$ 158,268,393 $ 157,336,325 $ 156,404,256 $ 155,470,594 $ 154,535,878 $ 153,601,162 $ 155,314,373
Attachment RRS-6 Page 2 of 2
Case No. 20-00238-UT
Southwestern Public Service Company Prepaid Qualified Pension Asset
($ in Thousands) Begining Balance Pension Asset (Liability)
Actual Aug. 31
1988 $ 2,706
Actual Aug. 31
1989 $ 3,724
Actual Aug. 31
1990 $ 3,902
Actual Aug. 31
1991 $ 4,531
Actual Actual Actual Actual Actual Actual Actual Actual
Aug. 31 Aug. 31 Aug. 31 Aug. 31 Aug. 31 Sep. - Dec. Dec. 31 Dec. 31
1992
1993
1994
1995
1996 Transition 1997
1998
$ (5,955) $ (7,207) $ (7,347) $ (7,039) $ (7,045) $ (6,905) $ (6,548) $
-
Pension (Expense) Credit Accrual Net Employer Contributions Other
$ 1,018 $
$
-$
(471) $ (1,332) $ (2,464) $ (2,487) $ (1,354) $
649 $ 1,961 $
- $ 1,235 $ 1,214 $
$ (8,022)
(761) $ (1,097) $ 1,069 $ 1,091 $
(855) $ 995 $
9 $ 12,645 $ 15,175 348 $ (6,097)
$ 9,436
Ending Balance Pension Asset (Liability) $ 3,724 $ 3,902 $ 4,531 $ (5,955) $ (7,207) $ (7,347) $ (7,039) $ (7,045) $ (6,905) $ (6,548) $
- $ 24,611
Attachment RRS-7 Page 1 of 3
Case No. 20-00238-UT
Southwestern Public Service Company Prepaid Qualified Pension Asset
($ in Thousands) Begining Balance Pension Asset (Liability)
Actual Dec. 31
1999 $ 24,611
Actual Dec. 31
2000 $ 40,087
Actual Dec. 31
2001 $ 61,359
Actual Dec. 31
2002 $ 82,503
Actual Dec. 31
2003 $ 105,044
Actual Dec. 31
2004 $ 121,580
Actual Dec. 31
2005 $ 132,757
Actual Dec. 31
2006 $ 143,309
Actual Dec. 31
2007 $ 150,827
Actual Dec. 31
2008 $ 158,778
Actual Dec. 31
2009 $ 169,516
Actual Dec. 31
2010 $ 184,514
Pension (Expense) Credit Accrual Net Employer Contributions Other
$ 15,476 $ 21,352 $ 21,131 $ 22,235 $ 16,536 $ 11,177 $
$
-$
-$
-$
-$
-$
-$
$ (80) $
14 $ 306
9,102 $ 1,450 $
6,934 $ 584 $
7,951 $ 10,738 $
-$
-$
6,644 $ (5,793)
8,354 $
-
Ending Balance Pension Asset (Liability) $ 40,087 $ 61,359 $ 82,503 $ 105,044 $ 121,580 $ 132,757 $ 143,309 $ 150,827 $ 158,778 $ 169,516 $ 184,514 $ 178,721
Attachment RRS-7 Page 2 of 3
Case No. 20-00238-UT
Southwestern Public Service Company Prepaid Qualified Pension Asset
($ in Thousands) Begining Balance Pension Asset (Liability)
Actual Dec. 31
2011 $ 178,721
Actual Dec. 31
2012 $ 171,936
Actual Dec. 31
2013 $ 167,329
Actual Dec. 31
2014 $ 167,773
Actual Dec. 31
2015 153,681
Actual Dec. 31
2016 147,626
Actual Dec. 31
2017 144,174
Actual Dec. 31
2018 153,002
Actual Dec. 31
2019 144,091
Forecast Dec. 31
2020 148,121
Pension (Expense) Credit Accrual Net Employer Contributions Other
$ (11,961) $ (17,624) $ (21,571) $ (16,829)
$ 5,176 $ 13,060 $ 22,015 $ 4,869
$ (44)
$ (2,132)
(17,706) 11,651
(15,404) 18,088 (6,135)
(14,566) 23,503
(109)
(13,732) 8,033 (3,212)
(11,512) 17,916 (2,374)
(11,145) 14,428
(136)
Ending Balance Pension Asset (Liability) $ 171,936 $ 167,329 $ 167,773 $ 153,681 $ 147,626 $ 144,174 $ 153,002 $ 144,091 $ 148,121 $ 151,268
Attachment RRS-7 Page 3 of 3
Case No. 20-00238-UT
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