3 of 6 - Depreciation and Remaining Lives - Perkett Testimony

464 Pages·2015·7.81 MB·English

Direct Testimony and Schedules
Lisa H. Perkett

Before the Minnesota Public Utilities Commission
State of Minnesota

In the Matter of the Application of Northern States Power Company
for Authority to Increase Rates for Electric Service in Minnesota

Docket No. E002/GR-15-826
Exhibit___(LHP-1)

Depreciation and Remaining Lives

November 2, 2015
Table of Contents

I. Introduction .......................................................................................................... 1
II. Background ........................................................................................................... 4
III. Capital Additions ................................................................................................... 8
A. General Structure of Plant Forecast .............................................................. 8
B. Traditional Approach for 2016, 2017, and 2018 ........................................ 17
IV. Passage of Time .................................................................................................. 24
V. Depreciation for Production Assets ................................................................... 27
A. 2015 Remaining Lives Filing (2016 Impact) ............................................... 29
B. 2017 through 2020 Remaining Lives Changes ........................................... 40
VI. Depreciation for TD&G Assets ........................................................................ 41
A. 2017 Five-year Depreciation Study .............................................................. 41
B. Regulatory Asset for TD&G Theoretical Reserve Adjustments ............. 43
VII. Triennial Nuclear Decommissioning Costs .................................................... 47
VIII. Tax and Deferred ............................................................................................. 50
IX. Other Asset Issues ............................................................................................... 57
X. Conclusion ............................................................................................................. 63

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Schedules

Statement of Qualifications Schedule 1
CWIP, Plant, and Accumulated Depreciation Roll Forwards by
Schedule 2
Functional Class
CWIP Roll Forward by Business Area Witness Schedule 3
Expenditures and Additions by Business Area Witness Schedule 4
Roll Forward Link to Heuer and Burdick Revenue Requirement Schedule 5
Passage of Time Exhibit Schedule 6
2016 Depreciation Impact from 2015 Remaining Lives Filing Schedule 7
New or Revised Remaining Life due to Additions Schedule 8
2016 – 2018 Depreciation Impact for Forecasted Additions Schedule 9
Theoretical Reserve Amortization Summary Schedule 10
Accumulated Deferred Taxes Prorate Method Schedule 11
Like-Kind Exchange Accumulated Depreciation Adjustment Schedule 12

Pre-Filed Discovery Appendix A
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1 I. INTRODUCTION
2
3 Q. PLEASE STATE YOUR NAME AND OCCUPATION.
4 A. My name is Lisa H. Perkett. I am the Director of Capital Asset Accounting for
5 Xcel Energy Services Inc. (XES), which provides services to Northern States
6 Power Company (NSPM or the Company).
7
8 Q. PLEASE SUMMARIZE YOUR QUALIFICATIONS AND EXPERIENCE.
9 A. I have 35 years of experience in utility accounting. In my current role, I am
10 responsible for managing the Company’s capital asset accounting policies,
11 maintaining accounting and tax records for capital assets, ensuring capital
12 asset-related reporting and regulatory requirements are met, maintaining plant
13 information for ratemaking purposes, and managing the capital investment
14 cost recovery process. My resume is included as Exhibit ___(LHP-1),
15 Schedule 1.
16
17 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING?
18 A. I support the level of depreciation expense included in the test year, providing
19 information on remaining lives, net salvage rates, and depreciation expense for
20 all Company assets. My testimony also provides discussion on the overall
21 structure of forecasted capital assets in this case for the test year of 2016 and
22 for the plan years 2017 and 2018. I provide information on various plant and
23 plant related issues that have been included in this case. Unless noted
24 specifically, all numbers presented in my testimony are at Total Company
25 (Minnesota, North Dakota and South Dakota) level.
26
27 Q. PLEASE PROVIDE A SUMMARY OF YOUR RECOMMENDATION.
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1 A. I recommend that the Commission adopt the amounts the Company has
2 calculated for the forecast depreciation in this proceeding, based on the
3 recommended changes in useful life and net salvage percentage.
4
5 Q. HOW IS THE REMAINDER OF YOUR TESTIMONY STRUCTURED?
6 A. I have organized the remainder of my testimony in eight parts. First, I
7 provide some general background on the issue of depreciation along with a
8 brief discussion of other dockets that impact the consideration of the
9 depreciation issues in this case.
10
11 Second, I discuss the accounting for the Company’s capital expenditures, or
12 “Capital Additions,” including a discussion of construction work in progress
13 (CWIP), allowance for funds during construction (AFUDC), depreciation
14 expense and accumulated depreciation. In this section of my testimony, I also
15 discuss how the Company’s business areas work within their capital forecasts,
16 yet deal with the business realities they face, including the need to occasionally
17 pursue similar yet different projects than originally anticipated in order to
18 respond to emergent issues and typical yet unanticipated business changes. I
19 also discuss how the Company’s overall capital additions over time align with
20 budgeted capital additions in any given year and how variances in the
21 Company’s capital additions and capital expenditures in any given year tend to
22 balance out with regard to revenue requirements impacts.
23
24 Third, I discuss the concept of “passage of time,” as it relates to depreciation,
25 including an analysis of CWIP, plant balances, book depreciation expense, and
26 depreciation reserve over the term of the Company’s multi-year rate plan. I
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1 explain how the Company’s rate request has appropriately incorporated the
2 impact of passage of time.
3
4 Fourth, I discuss depreciation for the Company’s production assets. This
5 section discusses the impact of the Company’s 2015 Remaining Lives filing
6 and the impact of the Commission investigation regarding net salvage
7 percentages. In this section, I also discuss the significant new projects that
8 impact depreciation expense in this case.
9
10 Fifth, I discuss depreciation for the Company’s transmission, distribution and
11 general (TD&G) assets. As I note, the Company will file a new five-year
12 depreciation study for TD&G assets in 2017 and this rate case filing reflects
13 and changes to depreciation that are known at this time for 2017 and beyond.
14 This section of my testimony also discusses the Company’s theoretical
15 depreciation reserve adjustments and the impact of the “unwinding” of the
16 theoretical reserve surplus and the necessary accounting and regulatory
17 responses to this change in the Company’s accumulated depreciation position.
18
19 Sixth, I discuss the impact of the Commission’s decision in the Company’s
20 Triennial Nuclear Decommissioning docket and how this rate case filing
21 reflects that decision. This section also includes discussion of Department of
22 Energy settlement payments and how those payments have been incorporated
23 into the rate request.
24
25 Seventh, I discuss certain other asset issues, including distribution meters and
26 line transformers, a like-kind exchange issue, and the accounting for
27 Monticello extended power uprate (EPU).
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1 Finally, I discuss two tax issues that impact tax depreciation in this case, and
2 the potential for additional bonus tax depreciation and the proper calculation
3 of deferred taxes to avoid a normalization violation with the Internal Revenue
4 Service (IRS). As I explain, the resolution of these issues is currently uncertain
5 as Congress has not yet acted on a tax bill. However, resolution of this issue is
6 anticipated before January 1, 2017 and, should that resolution occur, the
7 impacts of any tax law changes should be incorporated into the final decision
8 in this proceeding. Also, the Company presents deferred taxes in this case
9 that are compliant with all IRS regulations including IRS Code section
10 1.167(l)-1(h)(6)(i). Without this compliance, the accelerated tax methods are at
11 risk of being disallowed.
12
13 II. BACKGROUND
14
15 Q. IS THE ISSUE OF DEPRECIATION IMPACTED BY VARIOUS COMMISSION DOCKETS
16 AND DECISIONS?
17 A. Yes. While the Commission can make depreciation decisions in rates cases
18 (which happened in the Company’s 2012 and 2013 rate cases, Docket Nos.
19 E002/GR-12-961 and 13-868), the Commission also investigates and makes
20 depreciation decisions in separate proceedings for:
21 • Production assets,
22 • Transmission, distribution and general assets, and
23 • Nuclear decommissioning costs.
24
25 Q. DID THE COMPANY RECENTLY RECEIVE A FINAL DECISION FROM THE
26 COMMISSION WITH RESPECT TO ANY OF THESE MATTERS?
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1 A. Yes. As discussed further in Section VII, below, the Company submitted its
2 Triennial Review of Nuclear Decommissioning on December 1, 2014. In the
3 Triennial Review, the Company requested the approval of the nuclear
4 decommissioning accrual for years 2016 through 2018. The Commission
5 recently approved this Triennial Review of Nuclear Decommissioning and the
6 Commission’s ordered accruals have been incorporated into this rate case.
7 This miscellaneous filing also included a change to the end of life nuclear fuel
8 accrual that the Commission approved on August 27, 2015. The effect of
9 these recently approved changes is a decrease to nuclear decommissioning
10 accrual for the Minnesota jurisdiction of $0.2 million ($0.7 million Total
11 Company) decrease to the end of life nuclear accrual.
12
13 Q. DOES THE COMPANY CURRENTLY HAVE ANY SIGNIFICANT UNDECIDED
14 DOCKETS RELATED TO DEPRECIATION BEFORE THE COMMISSION?
15 A. No. However, while two important dockets have been decided, written orders
16 have not been issued. The Company’s 2015 Annual Remaining Lives petition,
17 Docket No. E,G002/D-15-46 (Docket 15-46) was decided by the
18 Commission on October 22, 2015. In addition, the Commission’s recent
19 decision in its investigation to discontinue the use of probabilities in the
20 calculation of net salvage percentages (Docket No. E,G999/CI-13-626) has a
21 bearing on the Annual Remaining Lives petition.
22
23 Q. WHAT IS THE RELATIONSHIP BETWEEN THE ANNUAL REMAINING LIVES
24 PROCEEDING AND THE CURRENT GENERAL RATE CASE?
25 A. Since Docket 15-46 was undecided until October 22 and no written Order
26 has yet been received, the Company was not able to reflect the Commission’s
27 decision regarding depreciation in this Initial Filing. For purposes of the
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1 Initial Filing, the Company incorporated its proposals from Docket 15-46, as
2 well as certain future expected changes in depreciation, to calculate the 2016
3 test-year revenue requirement. However, the Company agrees that the
4 Commission’s final decision should be incorporated into the final calculation
5 of the revenue requirement in this case and will update the case as this
6 proceeding moves forward. In addition, while we did not have the time to
7 revise all of the Schedules and supporting work papers to reflect the
8 Commission’s oral decision, we were able to reflect our understanding of the
9 Commission’s decision in our the interim rate request, as explained by
10 Company witness Ms. Anne E. Heuer.
11
12 Q. PLEASE SUMMARIZE THE ESTIMATED IMPACT OF DOCKET 15-46.
13 A. The Company included its filed position with proposed changes resulting in a
14 $1.4 million (Total Company) increase to electric production depreciation
15 expense for 2016. This amount differs from the 2015 annual remaining lives
16 depreciation filing which reported a $5.1 million increase and was an estimate
17 based on beginning balances for the period. The adjustment shown in this
18 case for the 2016, 2017, and 2018 test years has incorporated the
19 recommended depreciation changes when calculating depreciation in its rate
20 request using forecasted monthly balances. The difference between the
21 remaining life filing and this case for 2016 is explained later in the testimony.
22 In addition, the Commission’s final decision in Docket 15-46 should be
23 incorporated into the calculation of the revenue requirement in this case and
24 the decrease resulting from this decision is estimated to be $11.2 million (Total
25 Company).
26
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1 Q. HAVE YOU REVIEWED OTHER ASPECTS OF DEPRECIATION FOR THIS
2 PROCEEDING?
3 A. Yes. I have reviewed the depreciation lives, net salvage rates and, where
4 applicable, the depreciation rates for the 2016, 2017, and 2018 test years. This
5 review included the following:
6 • Known changes to the remaining lives of the production assets
7 resulting from the forecasted changes to plant balances;
8 • New facilities coming on line for production assets;
9 • Treatment of the theoretical depreciation reserve amount for the 2016,
10 2017, and 2018 test years; and
11 • Amortization of the regulatory asset established for the unwinding of
12 the theoretical depreciation reserve surplus and the request for
13 amortization rates.
14
15 Q. IN THIS CASE, THE COMPANY SEEKS APPROVAL OF A MULTI-YEAR RATE PLAN
16 (MYRP). GIVEN THE MULTI-YEAR NATURE OF THIS FILING, WHAT
17 DEPRECIATION INFORMATION IS REQUIRED?
18 A. The Commission’s June 17, 2013 Order Establishing Conditions, and
19 Procedures for Multiyear Rate Plans, contains the following requirements
1
20 related to depreciation that apply to our MYRP request:
21 • Depreciation lives related to capital additions in each year of the plan.
22 This requirement applies to capital additions in 2016, 2017, and 2018
23 and is provided in Schedule 8; and

1 Docket No. E,G999/M-12-587, June 17, 2013, Order Point 18.
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