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PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
Direct Testimony and Schedules Robert L. Miller
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 __(RLM-1)
Insurance
November 2, 2015
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
TABLE OF CONTENTS
I. Introduction 1
II. Executive Summary 2
III. Overview of Insurance Program 4
A. Program and Benefits 4
B. Selection, Procurement and Availability 8
C Premiums 15
IV. Major Insurance Programs 20
A. Master Property Insurance 20
B. Excess Liability Insurance 23
C. Directors’ and Officers’ Liability Insurance 27
D. Fiduciary Liability Insurance 31
E. Nuclear Insurance Program 34
F. Primary Casualty Insurance Program 39
V. Other Insurance Programs 44
VI. Conclusion 44
SCHEDULES
Statement of Qualifications Schedule 1
Policy and Premium Overview Schedule 2
2012- 2016 Insurance Premiums Schedule 3
Master Property Insurance Program Schedule 4
Master Property Insurance Sublimits Schedule 5
Master Property Insurance Industry Comparison Schedule 6
Excess Liability Insurance Program Schedule 7
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Directors’ and Officers’ Liability Insurance Program Schedule 8
Fiduciary Liability Insurance Program Schedule 9
Nuclear Property Insurance Program Schedule 10
Nuclear Accidental Outage Insurance Program Schedule 11
Nuclear Secondary Financial Protection Insurance Program Schedule 12
Primary Casualty Insurance Program Schedule 13
Other Insurance Programs Schedule 14
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I. INTRODUCTION 1
2
Q. PLEASE STATE YOUR NAME, TITLE AND BUSINESS ADDRESS. 3
A. My name is Robert L. Miller. I am the Director of Hazard Insurance for Xcel 4
Energy Services Inc. My business address is: 414 Nicollet Mall, Minneapolis, 5
Minnesota 55401. 6
7
Q. PLEASE SUMMARIZE YOUR QUALIFICATIONS AND EXPERIENCE. 8
A. I have been practicing risk management since 1985. I have served in a risk 9
management role with Xcel Energy Inc. since 2004. Since 2015 I have served 10
as Director of Hazard Insurance for Xcel Energy Inc. I oversee the 11
Company’s property and casualty insurance operations as well as our loss 12
control services. 13
14
While at Xcel Energy Inc., I have been actively involved with various utility 15
associations, industry mutual insurers and the Risk and Insurance 16
Management Society (RIMS). My resume is included as Exhibit__ (RLM-1), 17
Schedule 1. 18
19
Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY IN THIS PROCEEDING? 20
A. I support the request of Northern States Power Company – Minnesota to 21
recover in electric rates the 2016 test-year costs associated with its Insurance 22
Program. Consistent with past Commission Orders, my testimony presents 23
the Commission with detailed information about the Company’s Risk 24
Management and Insurance Programs, including a description of the 25
Company’s coverage, the benefits provided by the coverage, an explanation of 26
Docket No. E002/GR-15-826 Miller Direct
1
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insurance costs, and the Company’s cost mitigation efforts. It also provides 1
updated information concerning aspects of these Programs since the 2014 test 2
year rate case. 3
4
II. EXECUTIVE SUMMARY 5
6
Q. PLEASE PROVIDE AN EXECUTIVE SUMMARY OF YOUR TESTIMONY. 7
A. Our Risk Management and Insurance Programs are methodical, appropriate 8
and prudent. We have a best-in-class Loss Control Program that seeks to 9
proactively identify and reduce risk at our generation plants, which helps us 10
mitigate premiums for our property insurance. However, since avoiding all 11
risk is impossible, we have a robust Insurance Program to address those 12
potential liabilities the Company has determined are appropriate to cover 13
when balancing cost and potential liabilities. 14
15
We have several different types of insurance, as one would expect with a large 16
utility company with electric and gas operations that serve millions of 17
customers and extend over a large geographic area. The majority of these 18
policies include coverage for catastrophic losses. However, we also maintain a 19
program that covers our smaller yet still unpredictable losses, such as workers 20
compensation claims, to help stabilize our costs. 21
22
Though we do have a unique risk profile as a utility, we have various risk 23
mitigation mechanisms in place to reduce our risk. These tools include 24
membership in industry mutual insurance pools, centralizing our insurance 25
risk management at Xcel Energy Inc., and layering our coverage. 26
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The Company also has a variety of processes in place to ensure that we not 1
only have the appropriate levels and types of insurance, but that we are also 2
paying reasonable rates. These procurement steps include extensive 3
negotiation and policy renewal processes that can start six months before 4
renewal is due, engagement of expert insurance brokers with industry wide 5
experience, and maintaining ongoing relationships with our underwriters 6
throughout the year to keep them informed of updates at the Company, allow 7
them to understand our current risk profile, and offer them comfort in 8
insuring our risk. In addition, we also have several programs and review 9
processes in place internally to mitigate our costs and reduce our claims. These 10
vary with each policy but some initiatives include monitoring industry losses 11
and ensuring we have measures in place to prevent similar events at Xcel 12
Energy; implementing a particular focus on safety performance and training 13
programs; and executing corporate procedures and policies that help reduce 14
the potential for claims. 15
16
It is for all these reasons that our Insurance Program is not only prudent and 17
beneficial but a necessary cost of doing business. Therefore, I recommend the 18
Commission approve the Company’s request to recover the 2016 test year 19
costs of the Insurance Program in its electric rates. I also provide information 20
related to our 2017 and 2018 budgets for insurance costs in support of our 21
overall rate request in this case. 22
23
24
25
26
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III. OVERVIEW OF INSURANCE PROGRAM 1
2
A. Program and Benefits 3
Q. WHAT IS THE PURPOSE OF THE COMPANY’S RISK MANAGEMENT PROGRAM? 4
A. The primary purpose of our risk management program is to identify, assess, 5
prioritize, and reduce risk to protect the Company. We do this through our 6
Loss Control Program and cost-effective financing of risk. We also mitigate 7
and transfer risk through commercial insurance products, industry mutual 8
insurance companies, or other financial instruments. 9
10
Q. PLEASE DESCRIBE THE COMPANY’S LOSS CONTROL PROGRAM. 11
A. Our Loss Control Program is a structured process to identify, assess and 12
minimize risks at our power plants. We have five engineers in our Risk 13
Management department whose full-time job is to look for opportunities to 14
decrease risks at our power plants. Our engineers make site visits to the plants 15
to identify potential risks; they then prepare reports to share with our plant 16
directors and underwriters who evaluate our risk accordingly. Our insurers 17
trust our internal engineers and their reports, and rely on them. In fact, our 18
insurers periodically audit our internal processes and confirm our methods 19
and reports continue to meet their standards. 20
21
Q. IS THE COMPANY’S LOSS CONTROL PROGRAM A UNIQUE APPROACH TO 22
IDENTIFYING RISK? 23
A. Yes. It is my understanding that most companies in our industry rely on the 24
insurance companies or other external third parties to evaluate their risk. Our 25
practice is a best-in-class approach and our prices reflect this as we have the 26
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lowest rates for comparable utilities for our Master Property Insurance, as 1
discussed below. 2
3
Q. HOW DOES THE COMPANY’S LOSS CONTROL PROGRAM COMPLEMENT THE 4
COMPANY’S INSURANCE PROGRAM? 5
A. Though our first priority is to avoid as much risk as possible, there will always 6
remain some level of risk in a company such as ours. Once the known risks 7
have been identified, the next step is to ask whether we want to accept that 8
risk or we want to insure against that risk. The Loss Control Program helps to 9
identify and prioritize the known risk. 10
11
Q. WHAT WOULD CAUSE THE COMPANY TO ACCEPT A RISK AND NOT INSURE 12
AGAINST IT? 13
A. First, not all risks are foreseeable such that we may insure against them. Also, 14
some risks are sufficiently remote that we must utilize prudent business 15
judgment to determine if the long-term costs of insuring against such a risk 16
make sense for the Company and our customers. Last, some forms of 17
insurance are so expensive as to lead us to the decision to carry the risk 18
instead of insuring against it. 19
20
For example, we do not have insurance covering our wires, lines, pipes and 21
poles. This decision is based mostly on the volatility and cost of the insurance 22
and the relatively low risk that a large percentage of the assets will meet with a 23
catastrophic event at any one time. It is more cost effective for the Company 24
to repair and replace these assets as necessary than it is to buy insurance. Our 25
reasons for doing so are primarily related to the difficulty of procuring such 26
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insurance at remotely reasonable costs, as well as the imposition of risk 1
profiles of utilities more prone to natural disasters such as hurricanes on our 2
risk coverage. 3
4
Q. WHY DOES THE COMPANY NEED INSURANCE? 5
A. The Company could not provide safe, reliable and cost-effective electric 6
service to ratepayers without insuring the risks associated with delivering that 7
service. The Company takes steps on a continuing basis to ensure that our 8
Insurance Program provides us with proper risk protection necessary to 9
deliver safe, reliable and cost-effective service. By insuring potential liabilities 10
rather than the Company itself taking on the risk of liabilities, the associated 11
costs are level, largely predictable and capped. In the long term, this results in 12
lower and more consistent rates. 13
14
Q. WHAT IS THE GOAL OF THE COMPANY’S INSURANCE PROGRAM? 15
A. Our Insurance Program is intended to insure against reasonable risks at cost-16
effective prices over the long term. Our business is capital intensive and many 17
of the investments we make to serve our customers are expected to be in-18
service for many years. Consequently, we must make insurance decisions 19
utilizing a long-term cost and benefit analysis and not simply pursue the 20
cheapest cost option in any given year. By doing so, we ultimately seek to 21
minimize the cost of our risk over time. 22
23
Q. HOW ARE THE COMPANY’S INSURANCE PROGRAMS STRUCTURED? 24
A. The holding company, Xcel Energy, Inc., is the holder of all of the non-25
nuclear insurance policies. The operating companies, including NSPM, are all 26
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named insureds, so that there is coverage for each entity as needed as claims 1
arise. The policies do not designate a “beneficiary”—that term is unique to 2
life and health insurance and is not utilized for property and casualty insurance 3
coverage. 4
5
Q. WHAT TYPES OF INSURANCE DOES THE COMPANY CARRY? 6
A. The Company has six main categories of insurance policies: 7
1) Master property insurance (non-nuclear assets); 8
2) Excess liability insurance; 9
3) Directors’ and officers’ (D&O) liability insurance; 10
4) Fiduciary liability insurance; 11
5) Nuclear insurance; and 12
6) Primary casualty (general, auto, and workers’ compensation). 13
In addition to these main policies, the Company also carries other necessary 14
insurance policies, including: professional liability (for our engineers and 15
attorneys); fidelity insurance; cyber risk insurance; terrorism insurance; 16
aviation insurance; foreign liability insurance; builders risk insurance; and 17
railroad protective insurance (covers certain requirements imposed by 18
railroads impacted by operations). 19
20
Exhibit__ (RLM-1), Schedule 2 identifies the different types of policies we 21
carry, the premiums we pay for these policies, and the policy holder. 22
23
Q. DO THESE POLICIES GENERALLY COVER DIFFERENT LEVELS OF RISK? 24
A. Yes. The first five categories of insurance policies listed above (Master 25
Property, Excess, D&O, Fiduciary, and Nuclear) are where our greatest risks 26
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lie, and therefore the potential for the highest claims. Claims in these 1
categories could easily get into the hundreds of millions of dollars. 2
3
The last category, the Primary Casualty, is where our claims are generally 4
smaller in nature. Though we do have more claims under this policy, they are 5
unpredictable and vary from year to year. 6
7
Q. IN GENERAL, HOW DOES THE COMPANY DETERMINE WHICH RISKS IT INSURES? 8
A. The composition of the Company’s Insurance Program is informed by several 9
considerations: 10
• Statutory requirements such as workers compensation requirements or 11
professional liability requirements; 12
• Obligations to protect assets that are financed by third parties under our 13
mortgage indenture and other covenants; 14
• Benchmarking coverage against our utility industry peers; and 15
• Balancing long-term costs of the program against the risks we are 16
insuring, to assure our insurance costs and insured risks are reasonably 17
level over the long term. 18
19
B. Selection, Procurement and Availability 20
Q. PLEASE EXPLAIN THE OVERALL PROCESS FOR SELECTING INSURANCE 21
PRODUCTS AND ADMINISTERING THE INSURANCE PROGRAM. 22
A. Protecting the wide array of Xcel Energy Inc. operations and assets requires 23
input from and coordination with many business units and departments as 24
well as outside experts. We have generally had the same insurance framework 25
in place for the past twelve years. However, our insurance policies are on 26
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one-year terms and thus need to be renegotiated on an annual basis. Prior to 1
each renewal, we perform a fresh evaluation of risks and alternatives to ensure 2
that our insurance program continues to appropriately balance costs and 3
benefits. We determine our insurance needs by: 4
• Reviewing current insurance programs to determine if they still match 5
our risk profile and are cost effective, or if any additional coverage or 6
levels might be appropriate to obtain given current market conditions; 7
• Conferring with experts to identify trends or potential issues and 8
benchmark our costs to industry norms; and 9
• Working with experienced insurance brokers who handle similar clients 10
and bring additional risk management experience to the decision. 11
12
Our insurance needs are divided into various lines of business. Working with 13
the Company’s chief financial officer, treasurer, and other operating units and 14
subsidiaries, we measure property replacement values, potential risks and 15
prudence of retaining risk. We then analyze whether to treat the risk through 16
loss control, through risk financing, or through risk transfer with contracts or 17
agreements. For some of our operations, such as our nuclear insurance, we 18
have very limited options or no options at all in what we can do, or where we 19
can go for coverage. For other operations, we have determined that the cost 20
of carrying certain forms of insurance outweigh the benefits in the long-term. 21
22
Q. ONCE YOU HAVE IDENTIFIED THE NEED FOR AN INSURANCE PRODUCT, HOW 23
DO YOU GO ABOUT PROCURING IT? 24
A. We have several different types of insurance and we procure each type in a 25
slightly different way. However, overall, we have an extensive and rigorous 26
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procurement process in place that helps ensure we are paying reasonable 1
insurance premiums. Below are some of the procurement and review efforts 2
we engage in: 3
• We use specialized and expert insurance brokers to assist us with 4
matching willing insurers with our needs and to help inform us as to if 5
we are obtaining reasonable pricing. We often start this process six 6
months before the renewal date. Our brokers have extensive experience 7
working with similar companies and have deep industry knowledge 8
about available products and reasonable premiums. 9
• We actively participate in various insurance markets around the world, 10
including the US commercial market, European markets (including 11
Lloyd’s of London), Bermuda markets, and through our industry 12
mutual insurance companies. 13
• To ensure we are receiving appropriate coverage and are paying 14
appropriate premiums, we meet with each underwriter in each 15
insurance market to explain the Company’s risk profile, the types of 16
claims that have been made historically and what we are forecasting 17
from a risk perspective. 18
• We ensure that our potential underwriters are creditworthy and work 19
with them to develop the policy terms. Our general policy and 20
premium negotiations are extensive and involve many meetings with 21
our underwriters individually. In fact, we had at least twenty meetings 22
for our property insurance negotiations alone. Our senior management, 23
as well as our relevant business unit representatives, is actively involved 24
in these negotiations to ensure that our underwriters have a full and 25
complete understanding of our unique risk and operational excellence. 26
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Through these meetings and negotiations, we are able to differentiate 1
ourselves from our utility peers. This, combined with our unique risk 2
mitigation efforts, ultimately results in premiums lower than those of 3
our peers. 4
• We work to develop long term relationships with our key insurers to 5
develop confidence and trust. To that end, we meet several times each 6
year with our underwriters to discuss current issues in an effort to allow 7
our underwriters to understand our risk profile better and feel more 8
comfortable insuring our risk. For example, we meet at least two times 9
annually with our property insurance panel to keep them abreast of 10
developments within the Company and for them to provide feedback 11
and information with respect to industry trends. I understand this to be 12
a unique relationship strengthening effort, which is not generally done 13
by any of our peer utilities. 14
15
Q. WHY IS YOUR PROCUREMENT PROCESS NOTABLE? 16
A. Because our unique and thorough insurance procurement process strengthens 17
our partnerships with our underwriters, enlists the help of expert brokers, and 18
involves extensive negotiations, it helps us mitigate costs and ensure we are 19
paying reasonable insurance premiums. 20
21
Q. WHAT ARE SOME FACTORS THAT IMPACT THE AVAILABILITY OF INSURANCE 22
PRODUCTS TO THE COMPANY? 23
A. The main factors that limit our insurance options are availability and cost. A 24
large utility such as Xcel Energy Inc. has a different risk profile than other 25
types of businesses. Consequently, for many of our operations we require 26
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more specialized types of insurance products that more closely match our risk 1
profile than are generally available in established insurance markets. Insuring 2
our nuclear operations is a good example of this. Another example is the 3
significant exposure to large liability claims that are prevalent in our industry. 4
Given the unique risk profile of a utility, oftentimes certain insurance products 5
may be cost prohibitive or unavailable. In addition, certain macro-economic 6
factors can have significant effects on the cost and availability of insurance. 7
These include large, wide-spread property losses, such as hurricanes, as well as 8
declining investment markets. 9
10
Q. WHY DO UTILITIES HAVE A UNIQUE RISK PROFILE? 11
A. Unlike most business, even heavy industries, a utility, by its very nature, has 12
operations spread over a large geographic area and, because those operations 13
generate and transport electricity and gas, they are inherently more dangerous, 14
and therefore riskier, than other types of infrastructure. 15
16
Q. WHAT CAN THE COMPANY DO TO MITIGATE THIS? 17
A. The Company utilizes various insurance mechanisms to mitigate the unique 18
risk profile we carry. For instance, we layer our coverage, we belong to mutual 19
insurance pools and we leverage our company size to help mitigate insurance 20
availability and cost. 21
22
Q. WHAT DO YOU MEAN WHEN YOU SAY YOU LAYER YOUR COVERAGE? 23
A. We layer our insurance coverage both across the entire Insurance Program 24
and also within some of the individual components as well. This is part of our 25
effort to spread risk across various markets to ensure the stability of our 26
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Insurance Program. This is particularly important to mitigate counterparty 1
credit risk, and it also utilizes competition to help mitigate premium costs. 2
3
The layered structure is an industry convention for the placement of our 4
insurance, whereby different underwriters undertake a certain portion of our 5
total insured risk for any particular program. This structure has many 6
advantages: it provides credit exposure protections to the Company; it 7
provides additional risk protection to our underwriters, which decreases the 8
level of risk they are insuring thereby driving down our premiums; and it 9
mitigates each underwriter’s overall financial exposure to us. 10
11
Q. PLEASE EXPLAIN THE COMPANY’S UTILIZATION OF INDUSTRY MUTUAL 12
INSURANCE POOLS FURTHER. 13
A. Although a utility presents a different risk profile than other businesses, the 14
utility industry is large and has many different entities participating in it. As a 15
result, many utilities, including us, belong to mutual insurance pools to 16
provide their insurance. Examples of these pools are Associated Electric & 17
Gas Insurance Services (AEGIS) and Energy Insurance Mutual (EIM), which 18
insure utility liability risk, and Nuclear Electric Insurance Limited (NEIL). 19
20
For many of our risks, AEGIS, EIM and/or NEIL are really the only insurers 21
available to cost-effectively insure these types of utility risk because, given the 22
nature of our business, there is a relatively high likelihood that we will make 23
certain types of claims. Although commercial insurance may be available, we 24
have found it to be provided on narrow, unfavorable terms at significantly 25
higher pricing. 26
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In years prior to the establishment of AEGIS, EIM and NEIL, we had 1
extensive experience with the commercial insurance market. During this time, 2
the cost fluctuations for the insurance coverage now provided through pools 3
were extreme, and coverage terms were not reliable. Also, we have found that 4
a majority of the companies that provided this insurance coverage in the past 5
are now insolvent. Industry mutual insurance pools were formed to meet our 6
insurance needs instead of requiring utilities to rely on the volatile market. 7
8
A good example of the type of risk that we place with industry mutual pools 9
would be environmental claims should an ash pond at one of our plants fail. 10
While we make great efforts to operate and maintain our ash ponds in a 11
responsible manner, there is always a risk of failure. Such a failure could have 12
claims in the many millions. For AEGIS and EIM, it is a familiar and 13
foreseeable risk they are insuring. Other insurers are unwilling to take this risk 14
at reasonable prices because of the nature of the ash ponds. This is the type 15
of risk that the mutual insurance pools were developed to address because 16
many utilities share this risk. Nuclear liability is even more unique. 17
18
Q. HOW DOES THE COMPANY USE ITS SIZE TO MITIGATE COSTS? 19
A. Xcel Energy Inc. uses a sophisticated approach to handling risks. With 20
operations in eight states and over 12,000 employees, Xcel Energy Inc. 21
centralizes the insurance risk management function. This allows for greater 22
economies of scale, the smoothing of risk over time, and a concentration of 23
effort in managing risk. Our size makes us a significant participant in utility 24
insurance markets, which makes us a more attractive client to our underwriters 25
and therefore helps us to drive premium discounts. 26
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However, we also work to ensure that the costs of insurance are appropriately 1
allocated to the individual operating companies with proper recognition of the 2
respective differences in risk characteristics due to the differing sizes, 3
activities, and characteristics of each operating company. 4
5
Q. ARE THERE ANY OTHER WAYS THE COMPANY MITIGATES RISK? 6
A. Yes. Due to our size, we are also able to use an insurance structure known as 7
captive insurance. This allows us to get a better pricing on our primary layer 8
of property and casualty insurance by isolating and pricing our specific risk 9
profile. In addition to saving us money on these insurance layers, this allows 10
us to be better analyze and forecast our risk, implement loss control programs 11
to mitigate insurance costs, and better manage our claims. Last, utilizing this 12
structure provides us with an enhanced negotiating position when insuring the 13
higher layers of risk above our captive amounts. 14
15
C. Premiums 16
Q. ARE THE COMPANY’S PREMIUMS REASONABLE? 17
A. Yes. As discussed above, we take extensive cost-mitigating efforts during 18
our annual policy renewal process and negotiations. Although each 19
component of our Insurance Program has different cost drivers, insurance 20
costs are generally driven by the Company’s risk profile and claims history, 21
as well as industry-wide trends that affect particular risks. Given this, we 22
believe we utilize appropriate mechanisms to ensure reasonable insurance 23
costs. 24
25
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First, by utilizing the captive structure for our primary layer of our Primary 1
Casualty and Master Property Insurance Programs, we can price this 2
coverage in accordance with our unique risk and claims history, and insulate 3
ourselves from general industry trends for these often used insurance types. 4
To determine this specific risk, we take into account our claims history and 5
we retain independent actuarial firms to perform an actuarial analysis of our 6
risk profile. Based on this information, we set an appropriate premium for 7
our captive layers to reflect the expected claims as well as certain fixed costs 8
that we also expect to incur. 9
10
Second, by utilizing AEGIS, EIM and NEIL, we are able to obtain insurance 11
for difficult to place risks. These industry mutual pools are, in many ways, 12
the only reasonably available insurers for these types of risks. As industry 13
mutual pools, these entities seek to set their pricing based on concepts of 14
mutuality and fairness. Consequently, we believe that the premiums we pay 15
to these industry mutual insurance pools are reasonable. 16
17
Third, by utilizing specialized insurance brokers to place our risk and provide 18
industry wide intelligence, we can be reasonably confident that we have 19
obtained an appropriate amount of coverage at a reasonable price. Our 20
insurance brokers are an invaluable resource for our procurement efforts. 21
The prime function of our insurance brokers is to have knowledge of the 22
market and the insurance underwriters that are willing to take on our risk; in 23
fact in some insurance markets, such as London and Bermuda, we are 24
required to utilize brokers. In addition, as key market players, our brokers 25
help provide us with key counterparty information to ensure that our 26
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underwriters are and will continue to be creditworthy. They also have 1
extensive experience working with similar companies and can therefore 2
provide us with industry and market intelligence that would be impossible to 3
obtain otherwise. Consequently, engaging and utilizing high quality brokers 4
allows us to develop a cost-effective and reliable Insurance Program. 5
6
In addition to our procurement efforts, we undertake extensive risk and 7
safety programs to help proactively lower our inherent risk profile. These 8
activities include employee safety programs to help reduce workers 9
compensation claims; driver safety programs to help reduce automobile 10
liability claims; public safety programs to help reduce third-party liability 11
claims; and the Loss Control Program I mentioned earlier, which helps 12
reduce property claims. We also work closely with contractors and other 13
members of the public to instill better practices when they operate in the 14
vicinity of our pipes, lines and poles. 15
16
Q. WHAT IS THE TOTAL 2016 TEST YEAR BUDGET FOR INSURANCE PROGRAM 17
COSTS, THE NSPM PORTION OF THESE COSTS, AND THE AMOUNT 18
ALLOCATED TO THE STATE OF MINNESOTA ELECTRIC JURISDICTION? 19
A. The total 2016 test year insurance premium costs for Xcel Energy are $54.1 20
million. The portion assigned to the NSPM Operating Company is $21.8 21
million. The State of Minnesota Electric jurisdiction allocation is $19.0 22
million. I note that this amount does not include the costs associated with 23
our workers compensation coverage, which is addressed by Company 24
witness Mr. Richard R. Schrubbe in his Direct Testimony. Exhibit __ 25
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(RLM-1), Schedule 3 contains additional details supporting these 1
calculations. 2
3
Q. PLEASE DISCUSS THE COMPANY’S ACCOUNTING PROCESS TO TRACK THE 4
COSTS AND INSURANCE PROCEEDS ASSOCIATED WITH AN INSURANCE CLAIM? 5
A. The costs are initially charged to O&M or capital accounts. At the end of 6
each month, these amounts are transferred to an “insurance holding 7
account.” As the Company receives insurance proceeds, they are applied to 8
the insurance holding account. If costs are later determined to be non- 9
reimbursable by insurance, they are transferred from the insurance holding 10
account to a separate capital work order where all non-reimbursable costs 11
are accumulated. If the costs are known to be upgrades clearly not eligible 12
for insurance recovery, they are placed against the capital account upon 13
initial entry. 14
15
Q. HOW DOES THE COMPANY ENSURE THAT PROJECT COSTS THAT WILL BE 16
REIMBURSED BY INSURANCE ARE NOT ALSO RECOVERED FROM CUSTOMERS? 17
A. The accounting process described above ensures that all project costs that 18
are expected to be reimbursed by insurance are appropriately removed from 19
the capital and O&M expenses of the Company, and are recorded to an 20
insurance holding account to be offset by insurance proceeds as received. 21
Any balance in this insurance holding account is due to differences in the 22
timing of costs incurred and insurance proceeds received and is therefore 23
appropriately excluded from recovery in a rate case. 24
25
Q. WHAT ARE THE TRENDS FOR THE COMPANY’S INSURANCE PREMIUMS? 26
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A. Like many of our costs of service, our insurance premiums are generally 1
trending up, due to a variety of factors. Schedule 3 provides our actual and 2
forecasted premiums for the years 2012 – 2016. 3
4
The main drivers for our insurance costs are our claims history and industry 5
trends. We try to insulate ourselves from industry trends, where possible. 6
Further, as described elsewhere in this testimony, we undertake mitigation 7
measures to attempt to reduce the amount of claims we make on our 8
policies. 9
10
Q. IN LIGHT OF THESE TRENDS, WHAT IS THE COMPANY’S 2017 AND 2018 11
BUDGET FOR INSURANCE PREMIUMS? 12
A: In general, the Company’s insurance coverage is issued in policies that cover 13
a twelve-month period; the twelve-month period generally does not 14
correspond to the calendar year. Thus, for example, the 2016 test year 15
premium costs identified above are partly for policies issued in 2015 and 16
partly for policies issued in 2016. With this concept in mind, we have 17
estimated a 2017 budget for premium costs of $56.3 million and a 2018 18
budget for premium costs of $59.1 million. 19
20
21
22
23
24
25
26
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IV. MAJOR INSURANCE PROGRAMS 1
2
A. Master Property Insurance 3
Q. WHAT RISKS DO THE COMPANY’S MASTER PROPERTY INSURANCE PROGRAM 4
COVER? 5
A. Our Master Property Insurance program is intended to insure the Company, 6
and its affiliates, against all risk of direct physical loss of or damage to its non-7
nuclear generating fleet and other property except for transmission and 8
distribution lines beyond 1,000 feet of insured locations. We carry up to 9
[TRADE SECRET BEGINS TRADE SECRET ENDS] in 10
coverage per occurrence. 11
12
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 13
A. The Company operates a non-nuclear fleet valued at over $26 billion. Further, 14
we operate over $13 billion of non-generation assets that we believe would be 15
prudent to insure and which are paid for by our customers. Further, our debt 16
covenants require us to maintain minimum levels of insurance to protect our 17
collateral. Our Master Property Insurance Program acts much like 18
homeowners insurance, which any prudent homeowner would carry to protect 19
their house and comply with their mortgage. 20
21
Q. HOW IS THE MASTER PROPERTY INSURANCE PROGRAM STRUCTURED AND 22
WHAT AMOUNT OF COVERAGE DOES THE COMPANY CARRY? 23
A. Our Master Property Insurance Program utilizes a layered structure. 24
Exhibit__ (RLM-1), Schedule 4 identifies the structure of this insurance 25
program. 26
20 Docket No. E002/GR-15-826 Miller Direct
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Q. HOW DID THE COMPANY DETERMINE THAT [TRADE SECRET BEGINS 1
TRADE SECRET ENDS] PER OCCURRENCE WAS AN APPROPRIATE 2
AMOUNT OF COVERAGE FOR ITS MASTER PROPERTY INSURANCE PROGRAM? 3
A. Xcel Energy Inc. is responsible for providing insurance to protect property 4
with total replacement cost valuation of about [TRADE SECRET BEGINS 5
TRADE SECRET ENDS]. Although a number of sites have 6
estimated replacement costs exceeding [TRADE SECRET BEGINS 7
TRADE SECRET ENDS], we have chosen insurance with a per 8
occurrence limit of [TRADE SECRET BEGINS TRADE 9
SECRET ENDS] based on a number of factors, including: 10
• The largest loss in our industry, world-wide, of about [TRADE 11
SECRET BEGINS TRADE SECRET ENDS]; 12
• Engineering evaluation of maximum foreseeable loss, at our largest site, 13
less than [TRADE SECRET BEGINS TRADE SECRET 14
ENDS]; and 15
• Review of peer group practices by our broker of other utilities. 16
17
Q. PLEASE DESCRIBE THE SUBLIMITS OF THE MASTER PROPERTY INSURANCE 18
PROGRAM AND WHY THEY EXIST. 19
A. There are several sublimits on the Master Property Insurance Program. 20
Exhibit__ (RLM-1), Schedule 5 identifies these sub-limits and amounts. 21
22
Q. WHY ARE THESE SUBLIMITS APPROPRIATE? 23
A. We compare these sublimits to estimated exposures in these areas and explore 24
increased limits where considered necessary. In many cases there is not 25
additional coverage available on the conventional market and, if available, 26
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additional increases in sublimits would come at a substantial cost increase. 1
This increased cost is not justified to protect against the remote chance of 2
catastrophic failures that could jeopardize the coverage cap. 3
4
Q. ARE THE PREMIUMS FOR THE MASTER PROPERTY INSURANCE PROGRAM 5
REASONABLE? 6
A. Yes. Through our annual review process, we probe the market to ensure we 7
are paying reasonable premiums where possible. We also rely on our broker 8
to advise us with respect to premiums and procurement. Last, we benchmark 9
our pricing against our utility peers. Exhibit__ (RLM-1), Schedule 6 indicates 10
our coverage amounts are within industry norms and our rates are the lowest 11
among this group of large utilities. 12
13
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S MASTER 14
PROPERTY INSURANCE PROGRAM? 15
A. The main cost drivers are the Company’s risk profile and its claims history. 16
17
Q. WHAT IS THE COMPANY DOING TO MITIGATE THE AMOUNT OF CLAIMS? 18
A. Our internal loss control group is continuously evaluating our risk profile and 19
making recommendations for risk improvements where necessary. We quickly 20
learn from industry losses and ensure measures are in place to prevent similar 21
events at our facilities. 22
23
Q. WHAT TRENDS IS THE COMPANY SEEING IN ITS MASTER PROPERTY 24
INSURANCE PROGRAM PREMIUMS? 25
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A. The cost of this insurance decreased by about three percent at the June 30, 1
2014 renewal. At the subsequent renewal, June 30, 2015, the cost decreased 2
by about fourteen percent. 3
4
Q. PLEASE EXPLAIN COST MITIGATION EFFORTS WITH RESPECT TO THE MASTER 5
PROPERTY INSURANCE PROGRAM. 6
A. The Company has undertaken several initiatives to minimize the potential for 7
increases in insurance costs. We met with several new Insurers to increase our 8
options for program structure changes if necessary. We have increased our 9
deductible by [TRADE SECRET BEGINS TRADE SECRET 10
ENDS] to help reduce the cost of insurance. We also started our renewal 11
planning process six months in advance of the renewal date to allow for 12
program structure changes if necessary. 13
14
Importantly, we include our senior Energy Supply managers in meetings with 15
underwriters. We believe that their participation helps our underwriters better 16
understand our operations and how we manage our plants to help mitigate 17
risk. Our broker informs us that this goes beyond what many utilities do to 18
provide information to their underwriters. 19
20
B. Excess Liability Insurance 21
Q. WHAT RISKS DO THE COMPANY’S EXCESS LIABILITY INSURANCE PROGRAM 22
COVER? 23
A. Our Excess Liability Insurance Program is intended to insure the Company 24
against liability to third parties for coverage limits over and above those 25
provided by our Primary Casualty Insurance Program, discussed later in my 26
23 Docket No. E002/GR-15-826 Miller Direct
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Testimony. We carry Excess Liability coverage up to [TRADE SECRET 1
BEGINS TRADE SECRET ENDS]. Exhibit__ (RLM-1), 2
Schedule 7 illustrates the structure of our Excess Liability Insurance Program. 3
4
Q. CAN YOU PROVIDE SOME EXAMPLES OF THE TYPES OF RISKS COVERED BY 5
EXCESS LIABILITY INSURANCE? 6
A. The claims that we have made under this program have been the few claims 7
that have been large enough to exceed the limits of our Primary Casualty 8
Insurance Program. Thus, the risks covered by the Excess Liability Insurance 9
Program are large liability claims exceeding [TRADE SECRET BEGINS 10
TRADE SECRET ENDS] Examples include serious injuries or 11
death to members of the public caused by the Company’s employees or the 12
Company’s equipment or facilities, for example power line contact or a gas 13
explosion, as well as claims alleging damage to the environment. 14
15
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 16
A. The Company must have a sound financial response to claims in excess of the 17
Primary Casualty Insurance Program limits. The excess liability risk is an ideal 18
example of a risk that should be transferred to an insurance company instead 19
of being borne by our customers as an outcome of the risks we incur in 20
providing service. 21
22
Q. HOW DID THE COMPANY DETERMINE THAT THE TOTAL AMOUNT OF 23
AGGREGATE EXCESS LIABILITY COVERAGE IS APPROPRIATE? 24
A. While our Primary Casualty Insurance Program covers more common types of 25
claims, our Excess Liability insurance is intended to cover larger but less 26
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PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
frequent claims as well as protect the Company from catastrophic damage. To 1
arrive at the [TRADE SECRET BEGINS TRADE SECRET 2
ENDS] in Excess Liability coverage, we identified the major catastrophic 3
risks that could occur, and also conferred with our broker and examined 4
industry surveys to determine the appropriate amount of total coverage. 5
6
Q. PLEASE EXPLAIN HOW THE LAYERED COVERAGE IN THE EXCESS LIABILITY 7
INSURANCE PROGRAM OPERATES. 8
A. As indicated in Exhibit__ (RLM-1), Schedules 2 and 7, we utilize different 9
underwriters to obtain our total coverage of [TRADE SECRET BEGINS 10
TRADE SECRET ENDS]. Each underwriter provides 11
coverage of a specific layer of our risk. For example, AIG provides us with 12
coverage of [TRADE SECRET BEGINS TRADE SECRET 13
ENDS]; however, we can only make a claim on our policy with AIG if our 14
overall claim is more than [TRADE SECRET BEGINS 15
TRADE SECRET ENDS]. The same is true for our coverage with Ace, 16
who provides us with [TRADE SECRET BEGINS TRADE 17
SECRET ENDS] in coverage after our overall claim is more than [TRADE 18
SECRET BEGINS TRADE SECRET ENDS]. Please also 19
note that for those layers with multiple underwriters, each underwriter has 20
taken on a share of that tranche of risk. Our premiums and policy terms for 21
each layer reflect this. 22
23
Q. ARE THE EXCESS LIABILITY INSURANCE PROGRAM PREMIUMS REASONABLE? 24
A. Yes. The first two layers of our Excess Liability Insurance Program are 25
provided by our industry mutual insurers, AEGIS and EIM. Though we do 26
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negotiate with them, the market price is essentially set. Utilization of AEGIS 1
and EIM for this layer of insurance is industry standard and our broker 2
informs us that we are obtaining a reasonable price for this coverage. For the 3
remaining layers of our Excess Liability Insurance Program, we utilize our 4
broker to place this insurance at reasonable prices with creditworthy 5
underwriters. Our broker informs us we are paying premiums for these layers 6
consistent with industry practice adjusted for our unique risk profile. 7
8
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S EXCESS 9
LIABILITY INSURANCE PROGRAM? 10
A. The main cost drivers of the Excess Liability Insurance Program are the 11
Company’s inherent risk profile, its claims history, industry wide loss 12
experience, as well as macro-economic factors which affect the investment 13
markets. 14
15
Q. WHAT IS THE COMPANY DOING TO MITIGATE THE AMOUNT OF THESE CLAIMS? 16
A. The risk mitigation efforts described elsewhere in this testimony are directly 17
applicable to our Excess Liability Insurance Program. 18
19
Q. WHAT TRENDS IS THE COMPANY SEEING IN ITS EXCESS LIABILITY INSURANCE 20
PROGRAM PREMIUMS? 21
A. The cost of this insurance has experienced increases of about 10 percent per 22
year over the past several years with a slightly reduced increase this past year. 23
These increases are driven by adverse industry-wide loss experiences. In 24
addition to our claims mitigation efforts, we continue to review higher 25
attachment points to determine if premium credits would be helpful in 26
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reducing overall costs. In fact, beginning with our 2014 policy we increased 1
our attachment point to [TRADE SECRET BEGINS TRADE 2
SECRET ENDS]. 3
4
C. Directors’ and Officers’ Liability Insurance 5
Q. WHAT RISKS DO THE COMPANY’S DIRECTORS’ & OFFICERS’ LIABILITY 6
INSURANCE PROGRAM COVER? 7
A. Like any corporation, the Company’s bylaws indemnify directors and officers 8
in the event they are personally sued -- often in addition to the company being 9
sued -- by investors, employees, vendors, competitors, and customers, among 10
other parties. The Directors’ & Officers’ (D&O) Liability Insurance Program 11
insures this liability. 12
13
Q. CAN YOU PROVIDE SOME EXAMPLES OF THESE TYPES OF RISKS? 14
A. Directors and officers are responsible for, among other things (1) adopting a 15
business strategy for the Company, (2) approving major policies and 16
procedures for the Company, and (3) ensuring compliance with federal and 17
state laws. Given these important responsibilities, courts have long held that 18
directors and officers have a fiduciary relationship to their corporations, and 19
owe them duties of care, loyalty and obedience. 20
21
Shareholders of corporations in all business segments file suits against 22
directors and officers. These types of suits, called derivative actions, are filed 23
against directors and officers for transactions involving undisclosed conflicts 24
of interest, insider trading, authorization of loans of corporate funds on 25
preferential terms, imprudent investment choices, mismanagement of the 26
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corporation, or decisions that might make that cause a diminution in the 1
profits or value of a corporation. These types of cases are often without merit 2
and are particularly common in difficult economic times. 3
4
I note that no D&O claim will be paid if a director or officer is found guilty of 5
any wrongdoing, so the coverage does not incent them toward, or protect 6
them from, reckless or ill informed decisions. 7
8
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 9
A. The Company has a legal obligation to indemnify its directors and officers 10
under Minnesota law.1 Purchasing insurance to cover this obligation is both 11
reasonable and prudent. Furthermore, attracting qualified directors and 12
officers requires indemnification, which creates a liability for the Company 13
that it is prudent to insure. Individuals will not risk their personal assets to 14
serve as a corporate director or officer without mitigating the risks associated 15
with these positions, especially when all comparable positions at other 16
companies will provide the necessary protection. 17
18
Q. HOW IS THE D&O LIABILITY INSURANCE PROGRAM STRUCTURED AND WHAT 19
AMOUNT OF COVERAGE DOES THE COMPANY CARRY? 20
A. Our D&O Insurance Program is comprised of layers of policies from a panel 21
of various underwriters, and is also divided into Side A and Side B/C coverage 22
consistent with general industry practice. Side A is “executive 23
indemnification,” which insures our directors, officers, and employees for 24
their defense costs, settlement fees, or judgments in the event that they are 25
1 Minn. Stat. § 302A.521.
28 Docket No. E002/GR-15-826 Miller Direct
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outside of the bylaw’s indemnification provision or if the Company cannot 1
cover them, such as if the Company has declared bankruptcy. Side B/C is 2
“corporate reimbursement,” which covers the Company for directors', 3
officers', and employees' losses when it does indemnify them and also 4
provides corporate coverage whenever the Company is sued along with the Ds 5
and Os. Most claims are made under Side B/C coverage. The Company 6
maintains total D&O insurance limits of [TRADE SECRET BEGINS 7
TRADE SECRET ENDS] for Side A & B/C coverage, plus 8
[TRADE SECRET BEGINS TRADE SECRET ENDS] Side 9
A only coverage. Exhibit__ (RLM-1), Schedule 8 illustrates the structure for 10
our D&O Liability Insurance Program. 11
12
Q. HOW DID THE COMPANY DETERMINE THAT [TRADE SECRET BEGINS 13
TRADE SECRET ENDS] SIDE A & B/C COVERAGE AND 14
[TRADE SECRET BEGINS TRADE SECRET ENDS] 15
SIDE A ONLY COVERAGE WAS AN APPROPRIATE AMOUNT OF D&O LIABILITY 16
INSURANCE? 17
A. Our experience with this program has informed our decision to maintain our 18
coverage at [TRADE SECRET BEGINS TRADE SECRET 19
ENDS] and [TRADE SECRET BEGINS TRADE SECRET 20
ENDS]. Further, our liability insurance broker and industry benchmarking 21
also show that for a Company of our size these are appropriate amounts. 22
23
Q. PLEASE EXPLAIN WHY YOU BELIEVE THE D&O INSURANCE PREMIUMS ARE 24
REASONABLE. 25
29 Docket No. E002/GR-15-826 Miller Direct
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A. The first two layers of our D&O Liability Insurance Program are provided by 1
our industry mutual insurers, AEGIS and EIM. Though we do negotiate with 2
them, the market price is essentially set. Utilization of AEGIS and EIM for 3
this layer of insurance is industry standard and our broker informs us that we 4
are obtaining a reasonable price for this coverage. We are unaware of other 5
qualified providers that will insure this risk let alone at better pricing. For the 6
remaining layers of our D&O Liability Insurance Program, we utilize our 7
broker to place this insurance at reasonable prices with creditworthy 8
underwriters. Our broker informs us we are paying premiums for these layers 9
consistent with industry practice adjusted for our unique risk profile. 10
11
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S D&O 12
LIABILITY INSURANCE PROGRAM? 13
A. Like any insurance coverage, the main cost drivers are the Company’s inherent 14
risk profile as well as its claims history. The most significant factor of the 15
Company’s risk profile is the stability of its financial results. 16
17
Further, D&O premiums are also affected by utility industry trends affecting 18
D&O suits. In the past decade there have been a number of shareholder suits 19
against utilities in excess of $100 million. Such suits can affect our 20
underwriters’ view of our inherent D&O risk, even though those suits have 21
nothing to do with our actions. 22
23
Q. WHAT IS THE COMPANY DOING TO MITIGATE THE AMOUNT OF THESE CLAIMS? 24
A. We have not had any claims under this program in the past ten years. And our 25
directors and officers are encouraged to adhere to corporate procedures, 26
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thoroughly evaluate all disclosure decisions, articulate business rationales for 1
their decisions, and avoid even the appearance of self-interest or self-dealing. 2
3
Q. WHAT TRENDS IS THE COMPANY SEEING IN ITS D&O LIABILITY INSURANCE 4
PROGRAM PREMIUMS? 5
A. Premium costs have been fairly flat for the last six years. 6
7
Q. PLEASE EXPLAIN COST MITIGATION EFFORTS WITH RESPECT TO THE DIRECTOR 8
D&O LIABILITY INSURANCE PROGRAM. 9
A. We utilize the same efforts to control cost under this program as those we use 10
under our Excess Liability Insurance Program. Namely we start planning very 11
early, usually six months in advance of the renewal date; we prepare detailed 12
submissions to underwriters; and we meet personally with the insurance 13
company underwriters to explain the latest activities at the Company. 14
15
D. Fiduciary Liability Insurance 16
Q. WHAT RISKS DO THE COMPANY’S FIDUCIARY LIABILITY INSURANCE PROGRAM 17
COVER? 18
A. Our Fiduciary Liability Insurance Program protects those serving as 19
“fiduciaries” as defined by the Employee Retirement Income Security Act 20
(ERISA). Specifically, this coverage protects the Company’s employees who 21
design and administer employee pension and benefit plans, including the 22
management of the assets and liabilities of the plans, and who are therefore 23
liable for any breach of the fiduciary duties owed in doing such work. 24
25
Q. CAN YOU PROVIDE SOME EXAMPLES OF THESE TYPES OF RISKS? 26
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A. ERISA activities that give rise to fiduciary duties, and therefore also carry the 1
risk of claims for breach of those duties, include: selecting and monitoring 2
plan investment vehicles; selecting and monitoring third party service 3
providers; interpreting plan provisions; and exercising discretion in denying or 4
approving benefit claims. Oftentimes, the insured fiduciary liability is 5
implicated in a shareholder suit making claims upon our D&O insurance. 6
7
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 8
A. Employee benefit and pension plans are a cost of providing electric service. 9
These plans must be managed responsibly for all stakeholders. In order to 10
attract quality and experienced plan administrators, the Company must 11
minimize the personal risk associated with the positions. 12
13
Q. HOW IS THE FIDUCIARY LIABILITY INSURANCE PROGRAM STRUCTURED AND 14
WHAT AMOUNT OF COVERAGE DOES THE COMPANY CARRY? 15
A. The Company maintains limits of [TRADE SECRET BEGINS 16
TRADE SECRET ENDS] for this insurance. There is a [TRADE 17
SECRET BEGINS TRADE SECRET ENDS] deductible per 18
occurrence. Exhibit__ (RLM-1), Schedule 9 illustrates the structure for our 19
Fiduciary Liability Insurance Program. 20
21
Q. HOW DID THE COMPANY DETERMINE THAT [TRADE SECRET BEGINS 22
TRADE SECRET ENDS] WAS AN APPROPRIATE AMOUNT OF 23
FIDUCIARY LIABILITY INSURANCE? 24
A. Our Fiduciary coverage is intended to cover the types of claims that a 25
company of our size and in the utility industry is likely to have made against its 26
32 Docket No. E002/GR-15-826 Miller Direct
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fiduciaries. Our experience with these claims has informed our decision to 1
maintain our coverage at [TRADE SECRET BEGINS TRADE 2
SECRET ENDS]. Further, our insurance broker and industry 3
benchmarking also show that for a company of our size this is an appropriate 4
amount. 5
6
Q. PLEASE EXPLAIN WHY THE COMPANY’S FIDUCIARY LIABILITY INSURANCE 7
PROGRAM PREMIUMS ARE REASONABLE. 8
A. Much the same as for D&O insurance, AEGIS underwrites this coverage and 9
sets the terms and premiums for the first layer. We meet with our broker 10
approximately six months prior to policy expiration for a renewal strategy 11
meeting. At this time we discuss ways to enhance the expiring program, 12
current insurance market conditions, and analyze which insurer is best suited 13
to be the lead on this program. 14
15
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S FIDUCIARY 16
LIABILITY INSURANCE PROGRAM? 17
A. Like any insurance coverage, the main cost drivers are the Company’s inherent 18
risk profile as well as its claims history. The Company’s financial performance 19
and the make-up of the Company’s pension plans are important parts of the 20
Company’s risk profile for this type of insurance. 21
22
Q. WHAT IS THE TREND IN THE NUMBER OF THESE CLAIMS OVER THE LAST 23
SEVERAL YEARS? 24
A. We have had no claims in the past six years. 25
26
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Q. WHAT IS THE COMPANY DOING TO MITIGATE THE AMOUNT OF THESE CLAIMS? 1
A. The Company always seeks opportunities to minimize potential plan benefit 2
fiduciary claims. For example, by focusing on good plan governance, we 3
minimize the possibility for claims of inconsistency between plan terms and 4
the administration of the terms. The Company also undertakes fiduciary 5
audits to review fiduciary action. 6
7
Q. WHAT TRENDS IS THE COMPANY SEEING IN ITS FIDUCIARY LIABILITY 8
INSURANCE PROGRAM PREMIUMS? 9
A. The cost of this insurance has been stable for some time. 10
11
Q. PLEASE EXPLAIN COST MITIGATION EFFORTS WITH RESPECT TO THE 12
FIDUCIARY LIABILITY INSURANCE PROGRAM. 13
A. We have undertaken several actions to minimize the potential for cost 14
increases for our Fiduciary Liability Insurance Program. We have increased 15
the number of underwriters potentially offering this coverage to increase the 16
size of the potential market. 17
18
E. Nuclear Insurance Program 19
Q. WHAT RISKS DO THE COMPANY’S NUCLEAR INSURANCE PROGRAM COVER? 20
A. Our Nuclear Insurance Program is intended to insure the Company against 21
property damage, environmental remediation, business interruption and third-22
party liability that can arise from our nuclear generating facilities. 23
24
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 25
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A. We own and operates two nuclear power generation sites. Monticello is a one-1
unit site and Prairie Island is a two-unit site. We require insurance to cover the 2
risks of ownership of these facilities and to comply with applicable law. 3
4
Q. HOW IS THE NUCLEAR INSURANCE PROGRAM STRUCTURED AND WHAT 5
AMOUNT OF COVERAGE DOES THE COMPANY CARRY? 6
A. Our Nuclear Insurance Program consists of three components: (1) nuclear 7
property damage; (2) nuclear accidental outage; and (3) nuclear liability 8
insurance. Our Nuclear property damage insurance is provided by Nuclear 9
Electric Insurance Limited (NEIL), an industry owned mutual insurer. For 10
each nuclear plant we maintain limits of [TRADE SECRET BEGINS 11
TRADE SECRET ENDS] per loss for accidental property damage 12
and any resulting costs to stabilize and decontaminate the site. The insurance 13
is layered with each of our Monticello and Prairie Island plants having 14
[TRADE SECRET BEGINS TRADE SECRET ENDS] in 15
primary coverage. Our total nuclear operations also carry a [TRADE 16
SECRET BEGINS TRADE SECRET ENDS] blanket excess 17
policy. These policies include a deductible of [TRADE SECRET BEGINS 18
TRADE SECRET ENDS] per loss. Exhibit__ (RLM-1), Schedule 19
10 illustrates the structure of this component of our Nuclear Property 20
Insurance Program. 21
22
Our nuclear business interruption insurance, otherwise called accidental 23
outage insurance, is also provided by NEIL. The maximum limits that could 24
be paid under these policies are [TRADE SECRET BEGINS 25
TRADE SECRET ENDS] per reactor. This coverage is provided on the 26
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basis of [TRADE SECRET BEGINS TRADE SECRET 1
ENDS] per week for [TRADE SECRET BEGINS TRADE 2
SECRET ENDS], subject to the above total limit and a waiting period 3
(deductible) of [TRADE SECRET BEGINS TRADE SECRET 4
ENDS]. Exhibit__ (RLM-1), Schedule 11 illustrates the structure of this 5
component of our Nuclear Property Insurance Program. 6
7
Our nuclear liability insurance is provided by American Nuclear Insurers 8
(ANI), a joint underwriting association. These ANI “facility form” policies 9
each provide limits of [TRADE SECRET BEGINS TRADE 10
SECRET ENDS] per loss with no deductible provision. Since there is no 11
deductible, ANI and its team of claims specialists are able to defend claims 12
very soon after such claim is made. 13
14
In addition to the ANI facility form policies, the Company participates in the 15
Secondary Financial Protection (SFP) program. The SFP is a Nuclear 16
Regulatory Commission (NRC) administered program that provides for an 17
additional [TRADE SECRET BEGINS TRADE SECRET 18
ENDS] of financial protection under the Price-Anderson Act. Exhibit__ 19
(RLM-1), Schedule 12 illustrates the structure of this component of our 20
Nuclear Property Insurance Program. Unlike insurance, which requires a 21
premium payment in advance, the SFP is administered as a “post-loss” 22
funding vehicle. This means that following a very large nuclear event, 23
participating companies would be assessed a fee to fund the coverage for that 24
loss, subject to a cap of [TRADE SECRET BEGINS TRADE 25
SECRET ENDS] per reactor per year. 26
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Q. ARE THESE THE APPROPRIATE COVERAGES? 1
A. The coverage limits for nuclear liability insurance are industry standard 2
amounts and are the maximum reasonably available in the specialized context 3
of nuclear generation. 4
5
Q. YOUR NUCLEAR INSURANCE PROGRAM APPEARS TO BE STRUCTURED 6
SIGNIFICANTLY DIFFERENTLY FROM YOUR OTHER INSURANCE PROGRAMS. 7
WHY? 8
A. The commercial markets generally exclude anything to do with the nuclear 9
energy hazard. Nuclear plant operators therefore needed to create their own 10
market. The nuclear liability program has evolved over time and is currently 11
the only option for nuclear power generation owners is to place coverage with 12
ANI and excess coverage with the SFP. 13
14
Q. PLEASE EXPLAIN WHY YOU BELIEVE THE NUCLEAR INSURANCE PREMIUMS ARE 15
REASONABLE. 16
A. Fundamentally, given the very thin market for the products that comprise our 17
Nuclear Insurance Program, the market price is set. As stated above the 18
premiums are all driven by established formulas. 19
20
We rely on our broker to confirm that the premiums we pay to ANI are 21
reasonable. We rely on NEIL to exercise good faith and fairness as an industry 22
mutual insurer. One of their primary missions is to be equitable regarding 23
premium determination. 24
25
37 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S NUCLEAR 1
INSURANCE PROGRAM? 2
A. The Company’s risk profile, as represented by its INPO rating, its operating 3
statistics, and its claims history all significantly impact our costs. Further, 4
because of the nature of our nuclear industry mutual, NEIL, industry claims 5
also contribute to increasing premiums. 6
7
Q. WHY DO CLAIMS OF OTHER COMPANIES INCREASE THE COMPANY’S PREMIUMS? 8
A. Since NEIL is our only option for this insurance and since we are, in effect, a 9
part owner of NEIL, it is in our best interest that NEIL be solvent and 10
available for us in the future to pay claims as needed. Another factor causing 11
NEIL to increase premiums is that the nation’s nuclear fleet poses an 12
increasing risk of claims. 13
14
Q. HAVE THERE BEEN ANY UNUSUALLY LARGE CLAIMS IN THE LAST SEVERAL 15
YEARS? 16
A. Yes. Over the past several years there have been two very large claims that 17
have had a significant adverse effect on NEIL’s financial position. Duke 18
Power’s Crystal River claim from 2009 cost $835 million and AEP’s D. C. 19
Cook claim from 2008 cost another $468 million. NEIL has generally 20
experienced a growing trend of large claims over the past ten years. 21
22
Q. WHAT TRENDS IS THE COMPANY SEEING IN ITS NUCLEAR INSURANCE 23
PROGRAM PREMIUMS? 24
A. As I mentioned, the nuclear industry has experienced several very significant 25
losses in the past several years and as a result, the costs for nuclear property 26
38 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
insurance were increasing by about 15 percent per year until recently 1
stabilizing. The most recent renewal saw a decrease of about 19 percent. The 2
cost for nuclear business interruption insurance has remained stable. The cost 3
for nuclear liability insurance has experienced gradual increases over the past 4
five years. The Company has made no recent claims. 5
6
Q. PLEASE EXPLAIN COST MITIGATION EFFORTS WITH RESPECT TO THE NUCLEAR 7
INSURANCE PROGRAM. 8
A. There are two main factors that we can undertake to mitigate the costs of our 9
Nuclear Insurance Program. The first is to improve our INPO rating. 10
Company witness Timothy J. O’Connor discusses our efforts to do so in his 11
Direct Testimony. The second is to seek opportunities outside the domestic 12
nuclear insurance market. We continue to weigh foreign nuclear insurance 13
options and have been in discussion with the European Nuclear Mutual 14
Insurance Association (EMANI) to understand their program and coverages. 15
While we are still exploring other options, at this time, we believe that the 16
domestic insurance pools are the most appropriate available coverages for the 17
Company. 18
19
F. Primary Casualty Insurance Program 20
Q. WHAT RISKS DO THE COMPANY’S PRIMARY CASUALTY INSURANCE PROGRAM 21
COVER? 22
A. Our Primary Casualty Insurance Program is intended to insure the Company 23
against liability to third parties and employees. Our Primary Casualty 24
Insurance Program includes general liability coverage, automobile liability 25
39 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
coverage, environmental liability coverage, and workers compensation 1
coverage. 2
3
Risks covered under this program include claims that Xcel Energy Inc. 4
equipment or personnel damaged property or injured someone, claims that 5
Xcel Energy Inc.’s operations have harmed the environment, and claims for 6
worker compensation where an employee has been injured on the job. 7
8
Q. WHY DOES THE COMPANY NEED THIS TYPE OF INSURANCE? 9
A. Xcel Energy Inc. serves 3.5 million electric customers and 2 million gas 10
customers; we employ over 12,000 employees and we own and operate, 11
among other things, 30 hydro-electric facilities, thousands of miles of gas 12
transmission and distribution piping, and a fleet of nearly 3,800 licensed 13
vehicles – all of which are exposed to injury and damage claims from the 14
public. Additionally, the Company is obligated to meet various legal and 15
regulatory requirements with respect to automobile liability and workers’ 16
compensation insurance. Without this insurance, the Company would be 17
forced to bear the costs of these claims which derive from our provision of 18
service. 19
20
Q. HOW IS THE PRIMARY CASUALTY INSURANCE PROGRAM STRUCTURED AND 21
WHAT AMOUNT OF COVERAGE DOES THE COMPANY CARRY? 22
A. Our Primary Casualty Insurance Program is comprised of three main 23
components: (1) general liability insurance; (2) auto liability insurance; and (3) 24
workers’ compensation insurance. Each of these components is structured 25
differently. 26
40 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
For our general liability insurance, which comprises the first layer of our 1
Primary Casualty Insurance Program, the Company is protected with a total 2
limit of [TRADE SECRET BEGINS TRADE SECRET 3
ENDS] per loss under policies issued by Old Republic Insurance Company 4
and our captive insurance structure. This general liability insurance 5
component is structured in a manner that is intended to minimize costs to 6
Xcel Energy Inc. and provide for the first dollar coverage of each loss. Under 7
this structure, we manage these third-party claims in-house. By insuring the 8
first dollar of each loss, we ensure that each and every third-party claim is 9
professionally managed so that we may identify trends and implement 10
mitigations measure for common risks, as well as shift the overall cost burden 11
to our Insurance Program thereby helping to stabilize the effects of extreme 12
fluctuations in insurance costs and rates. 13
14
Similarly, the auto liability component consists of a policy with [TRADE 15
SECRET BEGINS TRADE SECRET ENDS] coverage issued 16
by Old Republic and a companion policy issued by our captive structure. 17
18
Our workers’ compensation insurance is structured in a slightly different 19
manner in order to meet certain legal requirements. Minnesota law requires 20
that all excess insurance and all reinsurance for the workers’ compensation 21
risk be insured by the Workers’ Compensation Reinsurance Association 22
(WCRA). Our workers’ compensation insurance is therefore divided between 23
coverage for employees in Minnesota and coverage for employees in all other 24
states. For the Minnesota portion, the Company maintains a deductible of 25
[TRADE SECRET BEGINS TRADE SECRET ENDS] 26
41 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
which is then insured by Old Republic through a deductible reimbursement 1
policy. The WCRA provides coverage for all losses in excess of this 2
[TRADE SECRET BEGINS TRADE SECRET 3
ENDS]. Exhibit__ (RLM-1), Schedule 13 illustrates the structure for our 4
Primary Casualty Insurance Program. 5
6
Q. HOW DID THE COMPANY DETERMINE THAT THE TOTAL AMOUNT OF PRIMARY 7
CASUALTY COVERAGE IS APPROPRIATE? 8
A. Because the Primary Casualty coverage is a layer of coverage that sits below 9
the Excess Liability coverage, the goal in determining the appropriate amount 10
of Primary Casualty coverage is to strike the right balance between the two 11
types of coverage so as to minimize premium costs and maximize flexibility. 12
In 2014, we increased the coverage to [TRADE SECRET BEGINS 13
TRADE SECRET ENDS] to reduce the amount of 14
premiums we pay under our Excess Liability Insurance Program and bring 15
that risk into coverage under our Primary Casualty Insurance Program. Our 16
actuarial analysis shows this change to be budget neutral while providing us 17
with increased flexibility with claims management. 18
19
Q. ARE THE PRIMARY CASUALTY INSURANCE PROGRAM PREMIUMS REASONABLE? 20
A. Yes. About 95 percent of the annual premiums under our Primary Casualty 21
Insurance Program are based on claims and losses. Our Primary Casualty 22
Insurance Program is difficult to benchmark because even though utilities, 23
generally, carry many of the same risks, each utility has a different risk profile 24
and general liability insurance premiums are developed based on this unique 25
risk profile. However, we do probe the market to ensure we are paying 26
42 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
reasonable premiums where possible through our annual review process. 1
Through this, we continue to find alternative insurance structures and 2
providers to be more expensive than our current structure. 3
4
Q. WHAT ARE THE MAIN DRIVERS OF THE COSTS OF THE COMPANY’S PRIMARY 5
CASUALTY INSURANCE PROGRAM? 6
A. The main driver is loss experience. In other words, much like any insurance, 7
our premiums are a function of the amount and type of claims made on this 8
policy. 9
10
Q. WHAT IS THE COMPANY DOING TO MITIGATE THE AMOUNT OF CLAIMS? 11
A. The Company has taken the following actions to mitigate the amount of 12
general liability claims: 13
• Continued aggressive public safety programs; 14
• Coordinated with our insurers’ loss control consultants; 15
• Investigated all claims thoroughly; and 16
• Defended claims rigorously. 17
18
Q. GIVEN THIS, WHAT TRENDS IS THE COMPANY SEEING IN ITS PRIMARY 19
CASUALTY INSURANCE PROGRAM PREMIUMS? 20
A. The cost of this insurance has increased about 10 percent per year over the 21
past several years. The cost increase is directly related to the forecasted cost of 22
future claims as developed by our independent actuaries. 23
24
Q. PLEASE EXPLAIN COST MITIGATION EFFORTS WITH RESPECT TO THE PRIMARY 25
CASUALTY INSURANCE PROGRAM. 26
43 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
A. We meet with our broker approximately six months prior to policy expiration 1
for a renewal strategy meeting. At this time we discuss ways to enhance the 2
expiring program, current insurance market conditions, and analyze which 3
insurer is best suited to be the lead on this program. We also meet several 4
times each year with our underwriter to explain issues unique to Xcel Energy 5
Inc. to help them understand our risk profile and feel comfortable insuring 6
our risk. 7
8
V. OTHER INSURANCE PROGRAMS 9
10
Q. DOES THE COMPANY HAVE OTHER TYPES OF INSURANCE PROGRAMS? 11
A. Yes. As I mentioned above, we carry other coverages for unusual types of 12
events or as may be required by our lenders and other stakeholders such as 13
railroads and contractors. Exhibit__ (RLM-1), Schedule 14 identifies these 14
additional coverages and other pertinent information. 15
16
VI. CONCLUSION 17
18
Q. PLEASE SUMMARIZE YOUR TESTIMONY AND RECOMMENDATIONS. 19
A. We have a best-in-class proactive Loss Control program that seeks to reduce 20
risk at our generation plants. In addition, we have an Insurance Program that 21
is intended to insure against reasonable risks at cost-effective prices over the 22
long term. 23
24
Though we have a unique risk profile as a utility, we have various risk 25
mitigation mechanisms in place to reduce our risk. In addition, we have a 26
44 Docket No. E002/GR-15-826 Miller Direct
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
variety of procurement and mitigation processes to ensure that we not only 1
have the appropriate levels and types of insurance, but that we are also paying 2
reasonable rates. 3
4
The Company provides an Insurance Program that is reasonable, appropriate 5
and comparable to that of our industry peers. The costs of our Insurance 6
Program are reasonable, prudent and necessary to continue to insure the risks 7
inherent in providing service to ratepayers. Therefore, I recommend the 8
Commission approve the Company’s request to recover the 2016 test year 9
level costs of the Insurance Program in electric rates. 10
11
Q. DOES THIS CONCLUDE YOUR TESTIMONY? 12
A. Yes, it does. 13
45 Docket No. E002/GR-15-826 Miller Direct
Northern States Power Company Docket No. E002/GR-15-826 Exhibit____(RHM-1), Trade Secret Justification Page 1 of 1
PUBLIC DOCUMENT: TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
Trade Secret Justification
Xcel Energy has included information as part of the Direct Testimony and Schedules of Company Witness Robert L. Miller which derives independent economic value from not being generally known to the public and which the Company has taken reasonable precautions to maintain confidential and is therefore trade secret pursuant to Minn. Stat. 13.37. Such information includes our insurers, the risk they insure, the premiums we pay, and how we structure our insurance coverage. Xcel Energy procures insurance in competitive insurance markets around the globe. To maintain our competitiveness in these markets, we must maintain the confidentiality of certain information. Information with respect to our insurance premium amounts and what we pay for each unique layer of risk we insure is proprietary to both the Company and our insurers and if it was made publicly available would provide a competitive advantage to other participants in the markets by creating a known benchmark in the market. When such information is made available by insurance brokers or other market participants, it is made anonymous so that particular risk profiles of particular companies cannot be benchmarked against premium tables. Further, while the components of an overall insurance program (i.e. who our participating underwriters are) need not be confidential, who a particular underwriter is for a particular layer of risk can provide competitive advantages to third parties since identifying the risks particular underwriters are willing to take would take is generally kept confidential in the various insurance markets where we procure insurance. Similarly, our insurance structure and the amount of coverage in each layer can also provide competitive advantage to other participants in various insurance markets. Consequently, we have marked this information in several of the following Schedules as Trade Secret.
Northern States Power Company Docket No. E002/GR-15-826 Exhibit___(RLM-1), Schedule 1 Page 1 of 2
Robert L. Miller , P.E.
Experience Director, Hazard Insurance Jan 2015 - Present Xcel Energy Inc., Minneapolis, MN
• Established “best in class” property loss control program • Directed $50 million property & casualty insurance
program • Led insurance procurement and loss control services on
multiple large construction projects • Led multi-line captive insurance program • Led negotiations on variety of multi-million dollar claims
Manager, Hazard Insurance Nov 2006 – Jan 2015 Xcel Energy Inc., Minneapolis, MN • Managed staff of 5 insurance and loss control
professionals Loss Control Consultant Jul 2004 – Nov 2006 Xcel Energy Inc., Minneapolis, MN • Advised corporation on Property and Mechanical
exposures Loss Control Manager May 2001 – Jul 2004
NRG Energy, Inc., Minneapolis, MN • Advised corporation on Property and Mechanical
exposures
Environment, Health & Safety Eng Apr 1997 – May 2001 Cargill, Inc., Minnetonka, MN
• Technical resource for property loss control and personnel safety
Loss Control Engineer Jun 1985 – Apr 1997
FM Global, Minneapolis, MN • Provided loss control services for insureds
Education Master of Business Administration May 2012
Emphasis – Finance University of St. Thomas, St. Paul Bachelor of Science May 1985 Major – Chemical Engineering SDSM&T, Rapid City
Northern States Power Company Docket No. E002/GR-15-826 Exhibit___(RLM-1), Schedule 1 Page 2 of 2 Professional Associate in Risk Management
Licensed Professional Engineer, State of Minnesota
Associations Edison Electric Institute 2006 - Present Risk Management Committee
Nuclear Electric Insurance Limited 2006 - Present Insurance Advisory Committee
Risk & Insurance Management Society 2004 - Present Minnesota Chapter
Presentations Have given numerous presentations to industry conferences
on topics including risk management, claims and insurance coverage
Northern States Power Company PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 2
Page 1 of 5
SUMMARYPolicy Limits Deductible Premium Fees Total
[TRADE SECRET BEGINSMaster PropertyExcess LiabilityTerrorismDirectors & Officers LiabilityProfessional LiabilityFiduciary LiabilityPrimary CasualtyOther*Sub Total
Nuclear PropertyNuclear Business InterruptionNuclear LiabilityNuclear Subtotal
Agregate XS of Loss
Grand TotalTRADE SECRET ENDS
* Fidelity insirance , Special coverage, aviation insurance, foreign liability, cyber liability
Northern States Power Company PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 2
Page 2 of 5
COVERAGE DESCRIPTION INSURANCE POLICY BROKER POLICY LIMITS Attachment UNDERLYING COVERAGE TERM FINANCE PLAN PREMIUM POLICY HOLDERCOMPANY NUMBER Deductible FROM TO
[TRADE SECRET BEGINS [TRADE SECRET BEGINSMASTER PROPERTYMaster Property Program PRIMARY EIS (1) 6/30/2016 Xcel Energy Inc. and all subsidiaries FIRST EXCESS LAYER Various (see below) 6/30/2016 Xcel Energy Inc. and all subsidiaries SECOND EXCESS LAYER Various (see below) 6/30/2016 Xcel Energy Inc. and all subsidiariesTotal Raw PreimuimTotal Fees Total Master Property
EXCESS LIABILITY LAYER 1 AEGIS - Excld- TRIA 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 2 EIM 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 3 Lloyds/Price Forbes (London) Various 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 3 Price Forbes (London) - Starr Surplus 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 4 Axis/JLT Park 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 4 OIL Casulaty/JLT Park 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 4 Argo Re/JLT Park 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 4 XL Ins/JLT Park 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 5 ACE-Bermuda 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 6 ARCH Re/ARCH RE 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 6 XL Ins/JLT Park 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 7 Iron-Starr/JLT Park 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 7 Argo Re/JLT Park (new) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 8 American Int Re/JLT PARK 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiariesTotal Raw PremiumTotal FeesTotal Excess Liability
TERRORISM Property EIS (1) 1/1/2015 1/1/2016 Xcel Energy Inc. and all subsidiaries Excess Liability Lloyd's (Miller) 1/1/2015 1/1/2016 Xcel Energy Inc. and all subsidiariesTotal Raw PremiumTotal Fees Total Terrorism
DIRECTORS & OFFICERS LIABILITY LAYER 1 AEGIS (Primary) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 2 EIM (1st XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 3 U S Specialty/ HCC (2nd XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 4 RLI (3rd XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 5 Chubb/Federal (4th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 6 AIG/ National Union Fire (5th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 7 Allied World Assur (6th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 7 Endurance/JLT (7th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 8 Side "A" Only Allied World Assurance 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 9 Side "A" Only ACE-Bermuda/JLT (8th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 10 Side "A" Only Argo Re/JLT Park (9th XS) 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiaries LAYER 11 Side "A" Only ARCH/Arch Re- JLT Park 8/18/2015 8/18/2016 Xcel Energy Inc. and all subsidiariesTotal Raw premiumTotal fees Total D&O Liability
PROFESSIONAL LIABILITY Engineers & Lawyers AEGIS (2) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiariesTotal Raw premiumTotal Fees Total Professional Liability
TRADE SECRET ENDS] TRADE SECRET ENDS]
SCHEDULE OF INSURANCE
Northern States Power Company PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 2
Page 3 of 5 [TRADE SECRET BEGINS [TRADE SECRET BEGINS
FIDUCIARY LIABILITY LAYER 1 AEGIS (Primary) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiaries LAYER 2 U S Specialty/ HCC (1st) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiaries LAYER 3 Federal Ins/Chubb (2nd) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiaries LAYER 4 EIM (3rd) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiaries LAYER 5 National Union Fire/AIG (4th) 8/18/2014 8/18/2015 Xcel Energy Inc. and all subsidiariesTotal Raw PremiumTotal FeesTOTAL LIABILITY
PRIMARY CASUALTY GENERAL LIABILITY Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries GENERAL LIABILITY EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries GENERAL LIABILITY EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
AUTO LIABILITY Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries AUTO LIABILITY & APD EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
WORKERS' COMP. - All States Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries WORKERS' COMP. LARGE Deductible EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - SPS 3 Crossings Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - SPS 3 Crossings EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - WI Central Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - WI Central EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - UP - Hayden Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - UP - Hayden EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - UP - Black Dog Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - UP - Black Dog EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - SPS Artesia Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - SPS Artesia EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries
RAILROAD PROTECTIVE - Red River Valley Old Republic Ins. Co. 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries RAILROAD PROTECTIVE - Red River Valley EIS (1) 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiariesTotal Raw Premium
Brokerage Fees
Total Primary Casualty
OTHER POLICIES FIDELITY INSURANCE Great American Ins. Co. 3/1/2015 3/1/2016 Xcel Energy Inc. and all subsidiaries SPECIAL COVERAGE Hiscox 6/1/2013 6/1/2016 Xcel Energy Inc. and all subsidiaries AVIATION INSURANCE USAIG (5) 8/3/2015 8/3/2016 Xcel Energy Inc. and all subsidiaries FOREIGN LIABILITY ACE Insurance Companies 11/1/2014 11/1/2015 Xcel Energy Inc. and all subsidiaries CYBER LIABILITY Aegis/Lloyds of London 4/1/2015 4/1/2016 Xcel Energy Inc. and all subsidiariesTotal Raw PremiumTotal Fees Total Other Insurance
TRADE SECRET ENDS] TRADE SECRET ENDS]
Northern States Power Company PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 2
Page 4 of 5 [TRADE SECRET BEGINS [TRADE SECRET BEGINS
NUCLEAR PROPERTY MONTICELLO NEIL (6) 4/1/2015 4/1/2016 NSP
NEIL (6) 4/1/2015 4/1/2016 NSPBrokerage Fee & Tax NSP
MONTICELLO TOTALS
PRAIRIE ISLAND NEIL (6) 4/1/2015 4/1/2016 NSPNEIL (6) 4/1/2015 4/1/2016 NSPBrokerage Fee & Tax NSP
PRAIRIE ISLAND TOTALS Total Nuclear Property
NUCLEAR BUSINESS INTERRUPTION MONTICELLO NEIL (6) 4/1/2015 4/1/2016 NSP
Brokerage Fee & Tax MONTICELLO TOTALS
PRAIRIE ISLAND NEIL (6) 4/1/2015 4/1/2016 NSPBrokerage Fee & Tax
PRAIRIE ISLAND TOTALS
Total Nuclear BI
NUCLEAR LIABILITY
FACILITY FORM POLICIES MONTICELLO ANI (7) 1/1/2015 1/1/2016 NSP
Brokerage Fee MONTICELLO TOTALS
PRAIRIE ISLAND ANI (7) 1/1/2015 1/1/2016 NSPBrokerage Fee
PRAIRIE ISLAND TOTALS
PATHFINDER ANI (7) 1/1/2015 1/1/2016 NSP Total Facility Form
WORKERS POLICIES MONTICELLO ANI (7) 1/1/2015 1/1/2016 NSP PRAIRIE ISLAND ANI (7) 1/1/2015 1/1/2016 NSP PATHFINDER ANI (7) 1/1/2015 1/1/2016 NSP Total Workers Policies
SECONDARY FINANCIAL PROTECTION MONTICELLO ANI (7) 1/1/2015 1/1/2016 NSP PRAIRIE ISLAND ANI (7) 1/1/2015 1/1/2016 NSP SFP Total
SUPPLIERS & TRANSPORTERS ANI (7) 1/1/2015 1/1/2016 NSP TOTALS NUCLEAR LIABILITY
GRAND TOTALTRADE SECRET ENDS]
Northern States Power Company PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 2
Page 5 of 5 [TRADE SECRET BEGINS [TRADE SECRET BEGINS
Master Property InsuranceMaster Property First Excess AEGIS
AllianzChartisEIMLibertyAspenLondon (Travelers)1London (AEGIS)1London (Argenta)1London (Hiscox)1London (Amlin)1London (Arch)1Munich Re (AAIC)Scor
Master Property Second Excess AEGISAllianzChartisEIMLibertyLondon (Travelers)1Munich Re (AAIC)London (Munich Re)Swiss Re
Agregate XS of LossZurich (Steadfast Re) 7/1/2015 7/1/2016 Xcel Energy Inc. and all subsidiariesAllianz 7/1/2015 7/1/2016 Xcel Energy Inc. and all subsidiariesScor 7/1/2015 7/1/2016 Xcel Energy Inc. and all subsidiaries
Total Raw Premium TRADE SECRET ENDS]Total Fees Total Reinsurance
TRADE SECRET ENDS]
Notes:(1) Energy Insurance Services(2) Associated Electric & Gas Insurance Services(3) Energy Insurance Mutual(5) United States Aviation Underwriters(6) Nuclear Electric Insurance Limited(7) American Nuclear Insurers
Northern States Power Company Electric Utility - State of Minnesota
PUBLIC DOCUMENT:TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit___(RLM-1), Schedule 3
Page 1 of 1
Total Xcel NSPM Electric MN Juris Electric Total Xcel NSPM Electric MN Juris Electric Total Xcel NSPM Electric MN Juris Electric Total Xcel NSPM Electric MN Juris Electric Total Xcel NSPM Electric MN Juris Electric[TRADE SECRET BEGINS
Property InsuranceGeneral Liability InsuranceExcess Liability InsuranceAuto Liab/Physical DamageDirectors and Officers InsuraneFiduciary InsuranceOther InsuranceCyber Insurance *Nuclear Property InsuranceNuclear Interupt InsuranceNuclear Liability InsuranceNuclear Liability ICRP **NEIL Surplus Insurance ***
TRADE SECRET ENDS]49,636,386$ 22,714,923$ 19,986,960$ 50,445,224$ 20,899,463$ 18,324,079$ 53,215,541$ 22,213,655$ 19,440,104$ 52,680,201$ 20,232,905$ 17,672,929$ 54,070,416$ 21,792,408$ 19,035,103$
* Previously a part of "Other Insurance"** This policy has an "Industry Credit Return Premium" program where each year we receive a portion of nuclear liability premiums back, ten years after they were paid.*** Surplus distributions
Xcel Energy Inc.Insurance Premiums: 2012 to 2016
2015 MN Elec Rate Case July Forecast 2016 Budget2012 Actuals 2013 Actuals 2014 Actuals
Xcel Energy Inc. Master Property Insurance
June 30, 2015 – June 30, 2016 [TRADE SECRET BEGINS:
TRADE SECRET ENDS]
Northern States Power Company
NON-PUBLIC DOCUMENT: CONTAINS TRADE SECRET INFORMATION - NON-PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 4
Page 1 of 1
Northern States Power Company Docket No. E002/GR-15-826 Exhibit___(RLM-1), Schedule 5
Page 1 of 1
PUBLIC DOCUMENT – TRADE SECRET INFORMATION EXCISED – PUBLIC DATA
Master Property Insurance Sub-Limits Schedule
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ELECTRIC GASMW's
Generated
Total Insurable Values (TIV)
(Millions)Total
Premium Rate% Rate Change
Property Damage
GeneratingUnit Policy Limit
Flood (Zone A & V)
5 year loss ratio
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Major Limits if applicableType of Utility Major Deductibles if applicable
Utility Property Insurance Benchmarkings (Xcel Energy is Shaded Gray)
PUBLIC DOCUMENT - TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Property Insurance Benchmarking
Northern States Power Company
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 6
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Major Limits if applicableType of Utility Major Deductibles if applicable
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Northern States Power Company
Docket No. E002/GR-15-826 Exhibit____(RLM-1), Schedule 6
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Xcel Energy Inc.
Excess Liability Insurance August 18, 2015 - August 18, 2016
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Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 7
Page 1 of 1
Xcel Energy Inc. Directors’ & Officers’ Liability Insurance
August 18, 2015 – August 18, 2016
Side "A" Coverage(Executive Indemnification)
Side "B/C" Coverage(Corporate Reimbursement)
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Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 8
Page 1 of 1
Xcel Energy Inc.Fiduciary Liability Insurance
August 18, 2015 - August 18, 2016
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Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 9
Page 1 of 1
Monticello Prairie Island
NSPMNuclear Property Insurance
4/1/15 – 4/1/16[TRADE SECRET BEGINS:
TRADE SECRET ENDS]
Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 10
Page 1 of 1
NSPM
Nuclear Accidental Outage Insurance4/1/15 – 4/1/16
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Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 11
Page 1 of 1
Xcel Energy Inc.Nuclear Liability Insurance
1/1/15 – 12/31/15[TRADE SECRET BEGINS:
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Northern States Power Company
PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826Exhibit____(RLM-1), Schedule 12
Page 1 of 1
Xcel Energy Inc.Primary Casualty Insurance
November 1, 2014 - November 1, 2015
Northern States Power Company Docket No. E002/GR-15-826 Exhibit __(RLM-1), Schedule 13 Page 1 of 1
Document marked Trade Secret in its enirety.
PUBLIC DOCUMENT - TRADE SECRET DATA EXCISED - PUBLIC DATA
Northern States Power Company PUBLIC DOCUMENT -TRADE SECRET INFORMATION EXCISED - PUBLIC DATA
Docket No. E002/GR-15-826 Exhibit___(RLM-1), Schedule 14
Page 1 of 1Other Insurance Coverages
CurrentCoverage Type Insurer Limits Deductible Premium Description of Benefits of Coverage Policy Holder
Terrorism Insurance Energy Insurance Services Xcel Energy Inc. and all subsidiary companies
Professional Liability AEGIS Xcel Energy Inc. and all subsidiary companies
Fidelity (Crime) Insurance Great American Ins. Co. Xcel Energy Inc. and all subsidiary companies
Special Coverage Lloyd's of London Xcel Energy Inc. and all subsidiary companies
Aviation Insurance USAIG Xcel Energy Inc. and all subsidiary companies
Foreign Liability Insurance ACE Insurance Xcel Energy Inc. and all subsidiary companies
Cyber Risk AEGIS Xcel Energy Inc. and all subsidiary companies
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