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3 of 6 - Depreciation and Remaining Lives - Perkett Testimony PDF

464 Pages·2015·7.81 MB·English
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Preview 3 of 6 - Depreciation and Remaining Lives - Perkett Testimony

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 i Docket No. E002/GR-15-826 Perkett Direct 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 ii Docket No. E002/GR-15-826 Perkett Direct 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. 1 Docket No. E002/GR-15-826 Perkett Direct 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 2 Docket No. E002/GR-15-826 Perkett Direct 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). 3 Docket No. E002/GR-15-826 Perkett Direct 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? 4 Docket No. E002/GR-15-826 Perkett Direct 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 5 Docket No. E002/GR-15-826 Perkett Direct 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 6 Docket No. E002/GR-15-826 Perkett Direct 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. 7 Docket No. E002/GR-15-826 Perkett Direct

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