RR8 - Page 377 of 495

Transcription

1 DOCKET NO. APPLICATION OF SOUTHWESTERN PUBLIC SERVICE COMPANY FOR AUTHORITY TO CHANGE RATES PUBLIC UTILITY COMMISSION OF TEXAS DIRECT TESTIMONY of SHAWN M. WHITE on behalf of SOUTHWESTERN PUBLIC SERVICE COMPANY (Filename: WhiteRRDirect.doc) Table of Contents GLOSSARY OF ACRONYMS AND DEFINED TERMS... LIST OF ATTACHMENTS... I. WITNESS IDENTIFICATION AND QUALIFICATIONS... II. ASSIGNMENT AND SUMMARY of TESTIMONY AND RECOMMENDATIONS... 8 III. AFFILIATE EXPENSES FOR THE MARKETING CLASS OF SERVICES... 1 A. SUMMARY OF AFFILIATE EXPENSES FOR THE MARKETING CLASS OF SERVICES... 1 B. THE MARKETING AFFILIATE CLASS OF SERVICES ARE NECESSARY SERVICES... C. THE MARKETING AFFILIATE CLASS OF SERVICES ARE PROVIDED AT A REASONABLE COST OBJECTIVE EVIDENCE (BENCHMARKING).... BUDGET PLANNING.... COST TRENDS STAFFING TRENDS COST CONTROL AND PROCESS IMPROVEMENT INITIATIVES... 8 D. THE COSTS FOR THE MARKETING AFFILIATE CLASS OF SERVICES ARE PRICED IN A FAIR MANNER... 8 IV. CUSTOMER OPERATIONS O&M BENCHMARKING AND NATIVE COSTS... AFFIDAVIT... 1 White Direct Revenue Requirement Page 1 RR8 - Page 77 of

2 GLOSSARY OF ACRONYMS AND DEFINED TERMS Acronym/Defined Term CAGR Costs or costs Commission DSM EE EECRF Meaning Compound Annual Growth Rate O&M expenses and administrative and general expenses collectively Public Utility Commission of Texas Demand-Side Management Energy Efficency Energy Efficiency Cost Recovery Factor EE Rule 16 Tex. Admin. Code.181 EUEA FERC ICO LM M&V NMPRC O&M Operating Companies Operating Company SPS New Mexico Efficient Use of Energy Act (NMSA 1978, Sections through ) Federal Energy Regulatory Commission Interruptible Credit Option Load Management Measurement and verification New Mexico Public Regulation Commission Operation and maintenance Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin corporation; Public Service Company of Colorado, a Colorado corporation; and SPS One of the Operating Companies Southwestern Public Service Company, a New Mexico corporation White Direct Revenue Requirement Page RR8 - Page 78 of

3 Acronym/Defined Term Meaning Test Year October 1, 01 through September 0, 01 Total Company or total company Total SPS (before jurisdictional allocation) Update Period October 1, 01 through December 1, 01 Xcel Energy XES Xcel Energy Inc. Xcel Energy Services Inc. White Direct Revenue Requirement Page RR8 - Page 79 of

4 LIST OF ATTACHMENTS Attachment SMW-RR-1 SMW-RR- SMW-RR-A SMW-RR-B SMW-RR-C SMW-RR-D Description Organization Chart for Marketing (Non-native format) SPS Energy Efficiency and Load Management Costs (Filename: SMW-RR-.xlsx) Summary of XES Expenses to SPS by Affiliate Class and Billing Method (Filename: SMW-RR-ABCD.xlsx) XES Expenses to all Affiliates by Affiliate Class, Activity, Billing Method and FERC Account (Filename: SMW-RR-ABCD.xlsx) Exclusions from XES Expenses to SPS by Affiliate Class and FERC Account (Filename: SMW-RR-ABCD.xlsx) Pro Forma Adjustments to XES Expenses by Affiliate Class and FERC Account (Filename: SMW-RR-ABCD.xlsx) White Direct Revenue Requirement Page RR8 - Page 80 of 9 099

5 DIRECT TESTIMONY OF SHAWN M. WHITE I. WITNESS IDENTIFICATION AND QUALIFICATIONS Q. Please state your name and business address. A. My name is Shawn M. White. My business address is 1 Nicollet Mall, Minneapolis, Minnesota 01. Q. On whose behalf are you testifying in this proceeding? A. I am filing testimony on behalf of Southwestern Public Service Company, a New Mexico corporation ( SPS ) and wholly-owned electric utility subsidiary of Xcel Energy Inc. ( Xcel Energy ). Xcel Energy is a utility holding company that owns several electric and natural gas utility operating companies, a regulated natural gas pipeline company, and three electric transmission companies. 1 Q. By whom are you employed and in what position? A. I am employed by Xcel Energy Services Inc. ( XES ), the service company subsidiary of Xcel Energy, as Manager of the Demand-Side Management ( DSM ) Regulatory Strategy & Planning group. 1 Xcel Energy is the parent company of four utility operating companies: Northern States Power Company, a Minnesota corporation; Northern States Power Company, a Wisconsin corporation; Public Service Company of Colorado, a Colorado corporation; and SPS (collectively, Operating Companies ; individually, Operating Company ). Xcel Energy s natural gas pipeline company is WestGas InterState, Inc. Through a subsidiary, Xcel Energy Transmission Holding Company, LLC, Xcel Energy also owns three transmission-only operating companies: Xcel Energy Southwest Transmission Company, LLC; Xcel Energy Transmission Development Company, LLC; and Xcel Energy West Transmission Company, LLC, all of which are either currently regulated by the Federal Energy Regulatory Commission ( FERC ) or expected to be regulated by FERC. White Direct Revenue Requirement Page RR8 - Page 81 of 9 099

6 Q. Please briefly outline your responsibilities as Manager, DSM Regulatory Strategy & Planning. A. As Manager of the DSM Strategy & Financial Operations group within the Marketing organization, my responsibilities are to: ensure that the Xcel Energy Operating Companies energy efficiency ( EE ) and demand response programs adhere to regulatory requirements and policies; develop long-range EE goals for the purpose of resource planning; track and report on EE achievements and financial operations; prepare DSM regulatory reports and filings; and analyze the cost-effectiveness of EE and load management ( LM ) programs and portfolios in each of Xcel Energy s state jurisdictions with active EE programs. I am also responsible for setting measurement and verification ( M&V ) policies and ensuring that proper M&V is being conducted for all programs. Q. Please describe your educational background. A. I graduated from Hawaii Pacific University with a Bachelor of Science degree in Marketing in 1998 and from the University of Minnesota s Carlson School of Business with a Master s degree in Strategic Management in 00. I am also a graduate of the United States Navy s Nuclear Power Program. Q. Please describe your professional experience. A. I began my career as an Engineering Laboratory Technician. I have nine years of experience with the United States Navy in the operation and maintenance of nuclear power plants. In 001, I joined Xcel Energy as an Associate Product Manager. In 008, I became the Manager of Consumer and Commercial Energy Efficiency, and in 01, the Manager of DSM Regulatory Strategy & Planning. White Direct Revenue Requirement Page 6 RR8 - Page 8 of 9 099

7 Q. Have you attended or taken any special courses or seminars relating to public utilities? A. Yes. I have completed the New Mexico State University s Practical Regulatory Training through their Center for Public Utilities. Q. Have you testified or filed testimony before any regulatory authorities? A. Yes. I filed testimony before the Public Utility Commission of Texas ( Commission ) regarding the Marketing affiliate class of services in Docket Nos. 00 and 69, SPS s two most recent base rate cases. I also filed testimony at the Commission on behalf of SPS in Docket No., SPS s Energy Efficiency Cost Recovery Factor ( EECRF ) case. Furthermore, I testified before the New Mexico Public Regulation Commission ( NMPRC ) with regard to complying with the New Mexico Efficient Use of Energy Act (NMSA 1978, through , EUEA ) in SPS s 01 Energy Efficiency Plan proceeding (Case No UT). In addition, I filed testimony with the NMPRC in support of SPS s 01 Energy Efficiency Plan (Case No UT). White Direct Revenue Requirement Page 7 RR8 - Page 8 of 9 099

8 1 II. ASSIGNMENT AND SUMMARY OF TESTIMONY AND RECOMMENDATIONS 6 7 Q. What is your assignment in this proceeding? A. I support the Test Year (October 1, 01 through September 0, 01, Test Year ) operation and maintenance ( O&M ) expenses and the administrative and general expenses (collectively, Costs or costs ) for the Marketing class of affiliate services. In regard to this affiliate class, my testimony will: describe the services included in the class; explain that those services are reasonable and necessary for SPS s operation; explain that the costs for those services are reasonable and necessary; explain that these services do not duplicate services that SPS provides to itself through its own employees or that are provided from any other source; and explain that charges from XES to SPS for those services are no higher than the charges to SPS affiliates for the same or similar services In addition, in compliance with the Commission s decision in Docket No. 69 and in connection with the compound annual growth rate ( CAGR ) analysis prepared by SPS witness Richard D. Starkweather, I address and support SPS s DSM costs, which consist of EE and LM costs recorded in FERC Account 908. I detail how SPS recovers these types of costs, which are described in more detail in Section IV of my testimony, and explain that a portion SPS s EE and LM costs originate in SPS (also referred to as native SPS costs). In regard to SPS s native EE and LM costs recovered through base rates, my testimony will: Application of Southwestern Public Service Company for Authority to Change Rates, Docket No. 69 (Dec. 18, 01). White Direct Revenue Requirement Page 8 RR8 - Page 8 of

9 1 describe the types of services provided and nature of the costs incurred; explain how the services are reasonable and necessary for SPS s operations; and support the costs as reasonable and necessary for rate recovery purposes Q. Will your testimony be updated for costs incurred in the three months following the Test Year? A. Yes. A portion of my testimony will be updated. As discussed by SPS witness Evan D. Evans, SPS will file an update days after filing this application. The update will include actual costs incurred to replace the estimates provided in the application for the time period October 1, 01 through December 1, 01, referred to as the Update Period. Attachment SMW-RR- will be updated in SPS s case update filing to replace estimates in the Update Period of SPS s native EE and LM costs recovered through base rates with actual costs incurred during that period. The Update Period costs that include certain affiliate O&M labor overhead costs will be addressed in the case update filings made by SPS witnesses Adam R. Dietenberger, Jill H. Reed, Arthur P. Freitas, and Richard R. Schrubbe. Further, Mr. Dietenberger will explain why affiliate O&M costs are not being updated. Q. Please summarize your testimony and recommendations. A. The Test Year costs that SPS seeks to recover for the services of the Marketing affiliate class of $1,176,6 (total SPS before jurisdictional allocations, total company or Total Company ) are reflected on my Attachments SMW-RR-A and SMW-RR-B. These costs are reasonable and necessary because they support SPS s ability to provide electric service to its Texas retail customers. White Direct Revenue Requirement Page 9 RR8 - Page 8 of

10 The costs are for developing customer choice options such as LM programs for SPS; performing regulatory compliance, and performing assessments for SPS s customer programs; developing new methods of customer engagement and improving customer satisfaction with interactions with SPS; The costs are reasonable because they are shared with other affiliates, consist primarily of reasonable personnel costs, and are subjected to rigorous budgeting and cost control processes; SPS does not provide these services for itself, and the services do not duplicate services provided by others; and Each charge from SPS s affiliates for these services is no higher than the charge by those affiliates to any other entity for the same or similar service, and the costs reasonably approximate the affiliate s cost to provide the service In addition, SPS s overall EE and LM costs recorded in FERC Account 908 for the years 01 through 01 are reasonable. Most of those costs have been approved by the Commission or the NMPRC as part of annual reviews of EE and LM costs, or through stipulations approved by the Commission. The remainder of the costs support SPS s EE and LM programs that reduce peak demand and help SPS avoid increased investment in generation, transmission, and distribution. Further, SPS s 01 EE and LM native costs, as reflected on my Attachment SMW-RR-, are reasonable and necessary and support SPS s EE and LM programs that reduce peak demand and help SPS avoid increased investment in generation, transmission, and distribution. The vast majority of these costs have been incurred under EE and LM programs approved by the Commission or the NMPRC, and are subject to review in SPS s annual Commission EECRF proceeding and the equivalent annual NMPRC proceeding. White Direct Revenue Requirement Page 10 RR8 - Page 86 of

11 Q. Were Attachments SMW-RR-1, SMW-RR-, and SMW-RR-A through SMW-RR-D prepared by you or under your direct supervision and control? A. Yes, as to Attachment SMW-RR-1. Attachment SMW-RR- was prepared by Mr. Freitas and his staff and is based on the cost of service study. My staff and I have reviewed this attachment, and believe it to be accurate. Attachments SMW-RR-A through SMW-RR-D were prepared by Mr. Dietenberger and his staff. My staff and I have reviewed these attachments and believe them to be accurate. Although the information I have described also is present in these other witnesses attachments, I have presented this information in the attachments to my testimony for the convenience of those reviewing my testimony. White Direct Revenue Requirement Page 11 RR8 - Page 87 of

12 1 III. AFFILIATE EXPENSES FOR THE MARKETING CLASS OF SERVICES Q. Earlier in your testimony, you referred to an affiliate class. What do you mean by the terms affiliate class or affiliate class of services? A. A portion of SPS s costs reflect charges for services provided by a supplying affiliate, specifically XES or one of the Operating Companies. These charges have been grouped into various affiliate classes, or aggregations of charges, based upon the business area, organization, or department that provided the service or, in a few instances, the accounts that captured certain costs. In his direct testimony, Mr. Dietenberger provides a detailed explanation of how the affiliate classes were developed and are organized for this case. Q. Which affiliate class do you sponsor? A. I sponsor the Marketing class of affiliate services. A. Summary of Affiliate Expenses for the Marketing Class of Services Q. Where does the Marketing affiliate class fit into the overall affiliate structure? A. Attachment ARD-RR-6 to Mr. Dietenberger s direct testimony provides a list and a pictorial display of all affiliate classes, dollar amounts for those classes, and sponsoring witness for each class. As seen on that attachment, the Marketing affiliate class was part of the Utilities & Corporate Services business area during the Test Year. Attachment SMW-RR-1 to my testimony is an organization chart showing the Marketing organization. White Direct Revenue Requirement Page 1 RR8 - Page 88 of

13 Q. What services are grouped into the Marketing affiliate class? A. The services that are grouped into the Marketing affiliate class are: developing and managing customer choice programs such as LM for SPS; assessing customer satisfaction with SPS s services and customer interest in new programs and services that could be provided to SPS s customers; performing regulatory compliance and reporting for SPS s customer programs; and developing new and maintaining existing customer engagement tools to improve customer satisfaction. Q. What is the dollar amount of the Test Year XES charges that SPS requests, on a total company basis, for the Marketing affiliate class? A. The following table summarizes the dollar amount of the Test Year XES charges for the Marketing affiliate class. The table headings are explained following the table. Table SMW-RR-1 Requested Amount of XES Class Expenses Billed to SPS (Total Company) Class of Services Total XES Class Expenses Requested Amount % Direct Billed % Allocated Marketing $8,90,177 $1,176,6 1.% 87.8% Total XES Class Expenses Dollar amount of total Test Year expenses that XES charged to all Xcel Energy companies for the services provided by this affiliate class. This is the amount from Column F in Attachment SMW-RR-A, which I will discuss in the next question. White Direct Revenue Requirement Page 1 RR8 - Page 89 of

14 Requested Amount of XES Class Expenses Billed to SPS (Total Company) Requested dollar amount of XES expenses to SPS (total company) for this affiliate class after exclusions and pro forma adjustments. This is the amount from Column L in Attachment SMW-RR-A. % Direct Billed The percentage of SPS s requested XES expenses (total company) for this class that were billed 100% to SPS. % Allocated The percentage of SPS s requested XES expenses (total company) for this class that were allocated to SPS Q. Please describe the attachments that support the information provided on Table SMW-RR-1. A. There are four attachments to my testimony that present information about the requested SPS affiliate expenses for the Marketing affiliate class. Attachment SMW-RR-A: Provides a summary of the affiliate expenses for this class. The summary starts with the total of the XES expenses to all Xcel Energy affiliates for the services provided by this affiliate class and ends with the requested dollar amount of XES expenses to SPS (total company) for this affiliate class after exclusions and pro forma adjustments. The columns on this attachment provide the following information. Column A Line number Lists the Attachment line numbers. Column B Business Area Provides the business area associated with the affiliate class. Column C Affiliate Class Lists the affiliate class. White Direct Revenue Requirement Page 1 RR8 - Page 90 of 9 000

15 Column D Billing Method (Work Order) Shows the billing method code that XES uses to charge the expenses to the affiliates, and the billing method short title. In his direct testimony, Mr. Dietenberger explains the billing methods and defines the codes. Column E Allocation Method Shows the allocation method applicable to the billing method (work order). Column F Total XES Billings for Class to all Legal Entities (FERC Acct. 00-9) Shows the total XES billings to all affiliates (i.e., Xcel Energy legal entities), including SPS, for FERC Accounts 00 through 9 for the affiliate class. Column G Class to All Legal Entities Except for SPS (FERC Acct. 00-9) Shows XES billings to all affiliates, other than to SPS, for FERC Accounts 00 through 9 for the affiliate class. Column H Class to SPS (total company) (FERC Acct. 00-9) Shows XES billings to SPS (total company) for the affiliate class. The sum of the dollar amounts in Columns G and H equal the dollar amount in Column F. Column I Exclusions Shows the total dollars to be excluded from Column H. Exclusions reflect expenses not requested, such as expenses not allowed or other below-the-line items. Column J Per Book Shows XES billings to SPS (total company), for the affiliate class, after the exclusions shown in Column I. The dollar amount in Column J is Column H plus Column I. White Direct Revenue Requirement Page 1 RR8 - Page 91 of 9 000

16 Column K Pro Formas Shows the total dollar amount of pro forma adjustments to the dollar amount in Column J. Pro forma adjustments reflect revisions for known and measurable changes to Test Year expenses. Column L Requested Amount (total company) Shows the requested amount (total company) for the affiliate class. The dollar amount in Column L is Column J plus Column K. Column M Percentage of class charges Shows the percentage of affiliate class charges billed using the work order In his direct testimony, Mr. Dietenberger describes in detail the calculations that take the dollars of Total XES Billings in Column F to the Requested Amount in Column L. Attachment SMW-RR-B: Provides the detail of the XES expenses for the Marketing affiliate class that are summarized on Attachment SMW-RR-A. The detail shows the XES expenses for the Marketing affiliate class, itemized by the amount going to each legal entity receiving the expense (Xcel Energy or one of its subsidiaries), with each expense listed by individual work order, activity, and billing method. When summed, these amounts tie to the amounts shown on Attachment SMW-RR-A and the detail regarding the expenses is organized to support that attachment. Specifically, the columns on this attachment provide the following information. White Direct Revenue Requirement Page 16 RR8 - Page 9 of 9 000

17 Column A Line Number Lists the Attachment line numbers. Column B Legal Entity Receiving XES Expenses Shows the legal entity (Xcel Energy or one of its subsidiaries) that received the XES expense. Column C Affiliate Class Lists the affiliate class. Column D Activity The short title for the activity. Column E Billing Method (Work Order) The billing method code and short title. In his direct testimony, Mr. Dietenberger explains the billing methods and defines the codes. Column F FERC Account Shows the FERC Account in which the expense was recorded. Column G Total XES Billings for Class to all Legal Entities (FERC Acct. 00-9) Shows the itemized amount of the listed XES expense that was billed to the listed legal entity. The itemized amounts are then summed to show the total XES billings to all affiliates (i.e., Xcel Energy legal entities) for the affiliate class. The total dollar amount for the affiliate class in Column G ties to the total dollar amount for the affiliate class in Column F of Attachment SMW-RR-A. Column H Class to All Legal Entities Except for SPS (FERC Acct. 00-9) Shows the same information as provided in Column G, except that billings to SPS are excluded from this column. Therefore, the sum of this column provides total billings to all legal entities other than SPS and ties to the total dollar amount for the affiliate class in Column G of Attachment SMW-RR-A. White Direct Revenue Requirement Page 17 RR8 - Page 9 of 9 000

18 Column I Class to SPS (total company) (FERC Acct. 00-9) Shows the same information as provided in Column G, except that only billings to SPS are included. (The dollar amounts in Columns H and I equal the dollar amount in Column G.) Therefore, the sum of this column provides total billings to SPS and ties to the total dollar amount for the affiliate class in Column H of Attachment SMW-RR-A. Column J Exclusions Shows the total dollars excluded from Column I. The total dollar amount for the affiliate class in Column J ties to the total dollar amount for the affiliate class in Column I of Attachment SMW-RR-A. Column K Per Book Shows XES billings to SPS (total company) for the affiliate class after the exclusions shown in Column J. The dollar amount in Column K is Column I plus Column J. The total dollar amount for the affiliate class in Column K ties to the total dollar amount for the affiliate class in Column J of Attachment SMW-RR-A. Column L Pro Formas Shows the dollar amount of pro forma adjustments to the dollar amount in Column K. The total dollar amount for the affiliate class in Column L ties to the total dollar amount for the affiliate class in Column K of Attachment SMW-RR-A. White Direct Revenue Requirement Page 18 RR8 - Page 9 of

19 Column M Requested Amount (total company) Shows the requested amount (total company) for the affiliate class. The dollar amount in Column M is Column K plus Column L. The total dollar amount for the affiliate class in Column M ties to the total dollar amount for the affiliate class in Column L of Attachment SMW-RR-A. 1 Attachment SMW-RR-C: Both Attachments SMW-RR-A and 6 SMW-RR-B show exclusions to the XES expenses billed to SPS for the Marketing affiliate class (Attachment SMW-RR-A, Column I; Attachment SMW-RR-B, Column J). Attachment SMW-RR-C provides detail about those exclusions listed on Attachments SMW-RR-A and SMW-RR-B. The columns on Attachment SMW-RR-C provide the following information. Column A Line Number Lists the Attachment line numbers. Column B Affiliate Class Lists the affiliate class. Column C FERC Account The FERC Account for the expense that has been excluded. Column D Explanations for Exclusions Brief rationale for the exclusion. Column E Exclusions (total company) Dollar amount of the exclusion. 7 8 In his direct testimony, Mr. Dietenberger describes the calculations underlying the exclusions. 9 Attachment SMW-RR-D: Both Attachments SMW-RR-A and 10 SMW-RR-B show pro forma adjustments to SPS s per book expenses for the White Direct Revenue Requirement Page 19 RR8 - Page 9 of

20 1 Marketing affiliate class (Attachment SMW-RR-A, Column K; Attachment SMW-RR-B, Column L). Attachment SMW-RR-D provides information about those pro forma adjustments shown on Attachments SMW-RR-A and SMW-RR-B. The columns on this attachment provide the following information. Column A Line Number Lists the Attachment line numbers. Column B Affiliate Class Lists the affiliate class. Column C FERC Account The FERC Account affected by the pro forma adjustment. Column D Explanations for Pro Formas Brief rationale for the pro forma adjustment. Column E Sponsor The witness or witnesses who sponsor the pro forma adjustment. Column F Pro Formas (total company) Dollar amount of the pro forma adjustment Q. Does XES bill all of its expenses for the Marketing affiliate class to SPS? A. No. XES bills the majority of its expenses for the Marketing affiliate class to affiliates other than SPS. SPS receives 1% of total XES billings for the Marketing affiliate class, as shown on Attachment SMW-RR-A (Columns F, G, and H) and Attachment SMW-RR-B (Columns G, H, and I). Q. Are there any exclusions to the XES billings to SPS for the Marketing affiliate class? A. Yes. As I mentioned earlier, exclusions reflect expenses not requested, such as expenses not allowed or other below-the-line items. Exclusions are shown on White Direct Revenue Requirement Page 0 RR8 - Page 96 of

21 Attachment SMW-RR-A, Column I, and on Attachment SMW-RR-B, Column J. The details for the exclusions are provided in Attachment SMW-RR-C. As I also mentioned earlier, Mr. Dietenberger describes how the exclusions were calculated. Q. Are the EE costs that are eligible for recovery through SPS s EECRF excluded? A. Yes. The Test Year XES administrative and program costs related to SPS s EE programs that are recovered through SPS s EECRF pursuant to the Commission s Energy Efficiency Goal rule, 16 Tex. Admin. Code.181 ( EE Rule ) are excluded. Q. Are there any pro forma adjustments to SPS s per book expenses for the Marketing affiliate class? A. Yes. As I mentioned earlier, pro forma adjustments are revisions to Test Year expenses for known and measurable changes. Pro forma adjustments are shown on Attachment SMW-RR-A, Column K, and on Attachment SMW-RR-B, Column L. The details for the pro forma adjustments, including the witness or witnesses who sponsor each pro forma adjustment, are provided in Attachment SMW-RR-D. See Application of Southwestern Public Service Company for Approval of an Energy Efficiency Cost Recovery Factor, Docket No. 96 (Sep., 011); Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. 09 (Jun. 8, 01); Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. 16 (Nov., 01); Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. (Nov., 01); and Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. 698 (Jan. 6, 016). White Direct Revenue Requirement Page 1 RR8 - Page 97 of

22 Q. Attachment SMW-RR-D shows that you are a sponsor for pro forma adjustments that result in a net decrease for the Marketing affiliate class of $17,. Please explain the adjustments. A. The adjustments that I sponsor: remove costs not benefiting SPS (a decrease of $8,06); make adjustments related to prior period costs (an decrease of $8,8); and remove other small amounts. B. The Marketing Affiliate Class of Services are Necessary Services Q. Are the services that are grouped in the Marketing affiliate class necessary for SPS s operations? A. Yes. For example, the services grouped in the Marketing affiliate class are necessary in order to develop and implement SPS s customer choice and LM programs, manage the customer experience through portals such as MyAccount or the Xcel Energy website, and evaluate customer perceptions of the effectiveness of SPS s choice programs and customer services. These are functions that are routinely provided by utilities. Q. What are the specific services that are provided to SPS by the Marketing affiliate class? A. The specific services that are provided to SPS by the Marketing affiliate class are: operating, and providing oversight and management of SPS s Saver s Switch program, which is SPS s direct load control program for residential and small commercial customers; managing SPS s Interruptible Credit Option ( ICO ), Summer-Only ICO, and Peak Day Partners programs, which are SPS s voluntary demand response programs for large commercial and industrial customers; White Direct Revenue Requirement Page RR8 - Page 98 of

23 working with SPS and other departments within XES, such as External Affairs, Revenue Requirements, Energy & Demand Forecasting, and Resource Planning, to integrate SPS s EE, LM, and renewable energy strategies into the larger Xcel Energy strategy; performing assessments of the satisfaction of SPS s residential, commercial, and industrial customers, with regard to the strategies and practices for starting service, bill payment, outage notification, and energy management; performing home use studies to identify how SPS s customers use energy in order to assist in the development of new products and services; providing oversight of the billing and payment programs and products and services that are available to SPS s customers and developing improvements such as expanded payment capabilities and bill notifications; identifying and developing new customer programs to offer more choice and services to SPS s customers; and developing digital tools such as online enrollment forms for use by SPS s customers Q. Are any of the Marketing affiliate class of services that are provided to SPS duplicated elsewhere in XES or in any other Xcel Energy subsidiary such as SPS itself? A. No. Within XES, none of the services grouped in the Marketing affiliate class are duplicated elsewhere. No other Xcel Energy subsidiary performs these services for the Operating Companies. In addition, SPS does not perform these services for itself. Q. Do SPS s Texas retail customers benefit from the services that are part of the Marketing affiliate class of services? A. Yes. The services of the Marketing affiliate class benefit SPS s customers in many ways. For example, through the services provided by the Marketing class, White Direct Revenue Requirement Page RR8 - Page 99 of

24 SPS s customers are provided digital tools for managing their electric service, they are offered a range of billing and payment options, and they receive accurate and timely information about outages and rate changes. SPS s customers also benefit from the LM programs that are managed by the Marketing class. C. The Marketing Affiliate Class of Services are Provided at a Reasonable Cost Q. Are the costs of the Marketing affiliate class of services reasonable? A. Yes. The costs of the Marketing affiliate class of services are reasonable. The Marketing affiliate class of services is provided on a consolidated basis for multiple Xcel Energy legal entities. As a result, SPS benefits from sophisticated services, the consolidated costs of which are shared. For example, upgrades to customer billing options, including additional choices in how to make payments, can be used by more than one legal entity at a time, avoiding what would otherwise be duplication of effort, and thus reducing costs. The economies of scale inherent in this system result in reasonable costs for SPS for these services. 1. Objective Evidence (Benchmarking) Q. Is there any objective evidence that supports your opinion that the costs of the Marketing affiliate class are reasonable? A. Yes. Of the requested costs for the Marketing affiliate class, 7.1% are compensation and benefits costs for XES personnel. Ms. Reed establishes that the level of Xcel Energy s compensation and benefits is reasonable and necessary. White Direct Revenue Requirement Page RR8 - Page 00 of 9 001

25 Budget Planning Q. Is a budget planning process applicable to the Marketing class of affiliate costs? A. Yes. Annual O&M budgets are created for the Marketing organization, which includes the Marketing class of affiliate costs, using guidelines developed at the corporate level. Each manager within the Marketing organization carefully reviews historical spend information, identifies changes that will be coming in the future, and analyzes the costs associated with those changes prior to submitting a proposed budget. The budgeting process is discussed in more detail by SPS witness Kimberly S. Locker. Q. During the fiscal year, does the Marketing organization monitor its actual expenditures versus its budget? A. Yes. Actual versus expected expenditures are monitored on a monthly basis by management in the Marketing organization of the Utilities & Corporate Services business area. Deviations are evaluated each month to ensure that costs are appropriate. In addition, action plans are developed to mitigate variations in actual to budgeted expenditures. These mitigation plans may either reduce or delay other expenditures so that overall spending complies with the authorized budget. Q. Are employees within the Marketing organization held accountable for deviations from the budget? A. Yes. All management employees in the Marketing organization have specific budgetary goals that are incorporated into their performance evaluations. White Direct Revenue Requirement Page RR8 - Page 01 of 9 001

26 Performance is measured on a monthly basis to ensure adherence to the goals and provide for action plan development to address variances. Marketing employees are required to manage their expenses to support the budgetary goals established by their manager.. Cost Trends Q. Please state the dollar amounts of the actual charges (per book) from XES to SPS for the Marketing affiliate class of services for the three fiscal years preceding the end of the Test Year and the Test Year. A. The following table shows, for the fiscal years 01, 01, and 01 (calendar years) and for the Test Year, the actual per book affiliate charges (Column J on Attachment SMW-RR-A) from XES to SPS for the services grouped in the Marketing affiliate class: Table SMW-RR- Class of Services Test Year Marketing $1,067,7 $1,168,88 $1,110,0 $1,19, Q. What are the reasons for this trend? A. This small increase from the 01 through the Test Year has been driven in part by increased costs related to evaluating customer engagement and customer satisfaction with the products and services used for issues such as billing and payment. Efforts have increased in recent years to improve customer satisfaction with the typical, recurring interactions with SPS. In order to achieve these ends, two new studies were conducted: the Customer Engagement Study and the Panel Research Study. The Customer Engagement study has a specific focus on White Direct Revenue Requirement Page 6 RR8 - Page 0 of 9 001

27 determining customer attitudes and views on issues such as safety, reliability, customer care, and the environment. The Panel Research Studies collect information about specific customer interactions with SPS. For example, a recent study looked at customers preferred ways to make payments, new concepts in how customers can be billed, and what the preferred nomenclature is when making a payment or receiving a bill. These studies are designed to help SPS increase customer satisfaction.. Staffing Trends Q. Please provide the staffing levels for the Marketing affiliate class of services for the three fiscal years preceding the end of the Test Year and the Test Year. A. The following table shows, for the fiscal years 01, 01, and 01 (calendar years) and for the Test Year, the average of the end of month staffing levels for the Marketing affiliate class of services. Table SMW-RR- Average End of Month # of Staff Class of Services Test Year Marketing Q. What are the reasons for this trend? A. The overall staffing within the Marketing organization has remained relatively flat. There is a slight increase in personnel between 01 and the Test Year due to increased staffing to support the Customer Strategy and Solutions department within the Marketing organization. White Direct Revenue Requirement Page 7 RR8 - Page 0 of 9 001

28 Cost Control and Process Improvement Initiatives Q. In addition to the budget planning process, does the Marketing affiliate class take any steps to control its costs or to improve its services? A. Yes. The Marketing organization continually reviews its plans, initiatives, and staffing to ensure they are appropriate and to identify and implement improvements. For example, staffing levels are increased only when it becomes apparent that there will be a long-term need for a specific type of expertise that is not currently on staff, when work levels appear to have increased on a permanent basis, or when systematic employee transfers result in the need to replace staff. Conversely, staff is decreased when the opposite trends become apparent. D. The Costs for the Marketing Affiliate Class of Services are Priced in a Fair Manner Q. For those costs that XES charges (either directly or through use of an allocation) to SPS for the Marketing affiliate class of services, does SPS pay any more for the same or similar service than does any other Xcel Energy affiliate? A. No. Q. Why do you answer no? A. The XES charges to SPS for any particular service are no higher than the XES charges to any other Xcel Energy affiliate. The costs charged for particular services are the actual costs that XES incurred in providing those services to SPS. A single, specific billing method, rationally related to the costs drivers associated with the service being provided, is used with each work order. In his direct White Direct Revenue Requirement Page 8 RR8 - Page 0 of

29 testimony, Mr. Dietenberger discusses the selection of billing methods and XES s method of charging for services in more detail. Q. How are the costs of the Marketing affiliate class billed to SPS? A. My Attachment SMW-RR-B shows all of the costs in this class broken out by activity and, in conjunction with Column E in my Attachment SMW-RR-A, shows the billing method and allocation method associated with each activity. Q. What are the billing allocation methods used for the costs that SPS seeks to recover for the Marketing affiliate class of services? A. Almost all of the requested XES charges to SPS for this class were charged using one of the following two billing allocation methods: 11 Revenue 87.9% of XES charges to SPS $1,0,96; and Direct Billing 1.% of XES charges to SPS $16,118. Q. Why is it appropriate to allocate costs based upon the Revenue method for the costs captured in the work orders that uses that billing method? A. Work Order 1 which uses the Revenue method as the allocator, captures the costs of the marketing and sales activities that are undertaken in support of the revenue producing operations of the Operating Companies. For example, the costs associated with developing messages and communicating with customers regarding billing and payment options are collected in Work Order 1 and allocated using this billing method. These costs are driven by the activities required to support revenue generation and each Operating Company derives benefits from the services captured in this work order in proportion to the Operating Company s relative level of revenues. Thus, the costs in this work order are allocated based on each individual Operating Company s proportionate White Direct Revenue Requirement Page 9 RR8 - Page 0 of

30 share of annual revenue (i.e., the annual revenue of a particular Operating Company as a percentage of the total annual revenue of all of the Operating Companies). This allocation reflects cost causation and the distribution of the benefits of the services received. For the work orders that assign costs based upon this billing method, the per unit amounts charged by XES to SPS as a result of the application of this billing method are no higher than the unit amounts billed by XES to other affiliates for the same or similar services and represent the actual costs of the services. Q. Why is the Direct Billing method appropriate for assigning the costs captured in the work orders that use that billing method? A. For the work orders that are assigned using the Direct Billing method, the costs normally reflect work that was performed specifically for SPS only. In some cases, however, the direct billing occurred after the application of an off-line allocator that tracks the relevant cost drivers. In either situation, the work orders charged using the Direct Billing method are appropriate because the assignment of costs is in accordance with the distribution of benefits for the services received. For example, the costs associated with support of the Texas Saver s Switch program for residential customers, which are collected in Work Order , were assigned using the Direct Billing method. The cost of these services benefitted SPS, the work was performed specifically for SPS alone, and the cost driver is an SPS tariff. Thus, the Direct Billing method is appropriate because it assigns costs in accordance with cost causation and benefits received. For the work orders that assign costs using Direct Billing, the per unit amounts charged by XES to SPS are no higher than the unit amounts billed by XES to other White Direct Revenue Requirement Page 0 RR8 - Page 06 of

31 affiliates for the same or similar services and represent the actual costs of the services. Q. You have covered almost all of the billing methods used to bill the costs associated with this affiliate class. Are there other billing methods you have not covered? A. Yes. I have described the predominant billing methods associated with this affiliate class. The remaining costs are billed using three different allocators, no one of which is used to bill more than 0.0% of the costs, and one of which represents (0.8%) of costs because it removes charges. In light of the number of remaining allocators, work orders, and relative dollar amounts, I have not gone into a detailed discussion of these other billing methods in order to keep the discussion to a manageable level. The work orders and billing methods used to charge the remaining (0.%) of the costs in this class, however, are presented in my Attachment SMW-RR-B, discussed earlier. A reader may reference that attachment and then refer to the specific work order summary provided in Mr. Dietenberger s Attachment ARD-RR-1 for an explanation of the particular allocators used and the cost drivers for the activities reflected in that particular work order. Q. Have you determined that the costs reflected in the remaining (0.%) of costs associated with this class of services have been billed using an appropriate billing method? A. Yes. I have reviewed each of the work orders and the associated allocators used to bill the remaining (0.%) of the costs of this class. The cost drivers reflected in the billing method used to bill the costs of each work order are consistent with White Direct Revenue Requirement Page 1 RR8 - Page 07 of

32 1 and reflect the cost drivers of the services captured in each particular work order. Therefore, the billing methods are appropriate because the allocation of costs is in accordance with the distribution of the benefits received by SPS and are no higher than the per unit costs charged to other affiliates for the same or similar types of services. White Direct Revenue Requirement Page RR8 - Page 08 of 9 000

33 1 IV. CUSTOMER OPERATIONS O&M BENCHMARKING AND NATIVE COSTS Q. What topic do you discuss in this section of your testimony? A. In this section of my testimony, I discuss the benchmarking CAGR analysis performed by Mr. Starkweather as it relates to the Customer Operations O&M and the contributing factors of the results of that analysis. I demonstrate that SPS s EE and LM costs recorded in FERC Account 908 are reasonable, and detail the EE costs recorded in FERC Account 908 that are recovered through SPS s EECRF and the LM costs that are recovered in base rates. Q. Based on Mr. Starkweather s benchmarking analysis, Customer Operations O&M costs are at or near the top quartile of the Texas peer group on the basis of costs per retail MWh sales, but are in the fourth quartile on the basis of costs per customer. Mr. Starkweather notes that a major component of Customer Operations O&M costs relate to FERC Account 908. Are EE and LM costs recorded to FERC Account 908? A. Yes. SPS records EE and LM costs to FERC Account 908 and maintains separate subaccounts within FERC Account 908 to further segregate these costs. Q. What amount of EE and LM costs has SPS recorded to FERC Account 908 for ? A. SPS recorded the amounts reflected in the following table: Table SMW-RR- FERC EE and LM Expenses $11,611,0 $1,78,76 $1,68,01 $1,16,17 $1,7,80 White Direct Revenue Requirement Page RR8 - Page 09 of 9 001

34 Q. Why does SPS incur EE and LM costs? A. SPS incurs these costs to comply with EE and LM standards in both Texas and New Mexico, and for system management purposes. Q. Please provide a brief summary of the EE and LM requirements in Texas. A. Public Utility Regulatory Act 9.90 requires electric utilities in Texas to offer and administer EE incentive programs in a market-neutral, non-discriminatory manner. To that end, each utility must provide, through market-based Standard Offer Programs, targeted Market-Transformation Programs, or self-delivered programs, incentives sufficient for: retail electric providers and competitive energy service providers to acquire additional cost-effective energy efficiency, subject to cost ceilings established by the commission, for the utility s residential and commercial customers, equivalent to: 1 (A) not less than: (i) (ii) 0 percent of the electric utility s annual growth in demand of residential and commercial customers by December 1 of each year beginning with the 01 calendar year; and the amount of energy efficiency to be acquired for the utility s residential and commercial customers for the most recent preceding year[.] 6 Q. Is there a Commission rule that applies to utilities EE and LM programs? A. Yes. The Commission s EE Rule sets forth the framework for utilities EE and LM programs, including not only the methods to calculate energy and demand Tex. Util. Code 9.90(a)() (Vernon 007 and Supp. 01). White Direct Revenue Requirement Page RR8 - Page 10 of 9 00

35 reductions, but also the EECRF mechanism by which utilities can apply to recover costs incurred for EE programs. Q. What process exists for reviewing SPS s EE and LM programs costs under the EE Rule? A. Under the EE Rule, SPS annually files an application with the Commission to adjust its EECRF, with supporting testimony and schedules. The annual proceeding includes a review of both prior year and program years costs. For example, in SPS s most-recently completed EECRF proceeding (Docket No. 698), the program year was 016; however, both the estimated costs for program year 016 and the actual costs incurred by SPS for the 01 program year s costs were reviewed. Q. Is there a thorough review of SPS s EE and LM programs costs in the EECRF proceedings? A. Yes. In addition to the Commission Staff, other parties typically intervene such as the Office of Public Utility Counsel and the Texas Industrial Energy Consumers. The review involves formal discovery, as well as technical conferences or meetings to exchange information. SPS s past two EECRF proceedings have been resolved through litigated proceedings in which the parties Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. (Nov., 01); and Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. 698, Final Order at (Jan. 6, 016). White Direct Revenue Requirement Page RR8 - Page 11 of 9 00

36 submitted testimony and briefs before an Administrative Law Judge. Ultimately, the Commission issued orders that upheld SPS s positions. 6 Q. When did SPS begin recovering EE and LM costs through the EECRF? A. As a result of a black box settlement in Docket No. 817, all EE and LM costs were removed from SPS s base rates in effect in 01 except for EE labor costs. 7 In SPS s next rate case, Docket No. 08, SPS proposed to remove the EE labor costs from base rates and recover them through the EECRF. In a black box settlement in that proceeding, EE labor costs were removed from the proposed test year revenue requirement and allowed to be recovered through the EECRF. 8 The new rates resulting from the black box settlement in Docket No. 08 were effective May 1, 01. Thus, effective January 1, 01, SPS began recovery of EE and LM costs (but not EE labor costs) through the EECRF, and EE labor costs were included in the EECRF effective May 1, 01. Q. Are all of SPS s EE and LM costs recovered in Texas through the EECRF? A. No. For EE expenses incurred from January 1, 010 through February 1, 011, SPS created a tracker and recorded costs in a regulatory asset, as authorized by 17 the stipulation and final order in Docket No In Docket No. 00, the 18 parties agreed that SPS would be allowed to amortize those costs over 6 months, 6 Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. (Nov., 01); and Application of Southwestern Public Service Company to Adjust its Energy Efficiency Cost Recovery Factor, Docket No. 698 (Jan. 6, 016). 7 Application of Southwestern Public Service Company For Authority to Change Rates And Reconcile Fuel and Purchased Power Costs For 008 and 009, Docket No. 817, Finding of Fact No. 1 (Mar., 011). 8 Application of Southwestern Public Service Company fo Authority to Change Rates and to Reconcile Fuel and Purchased Power Costs for the Period January 1, 010 through June 0, 01, Docket No. 08, Finding of Fact No. 1 (Jun. 19, 01). 9 Docket No. 817, Finding of Fact No.. White Direct Revenue Requirement Page 6 RR8 - Page 1 of 9 00