20081003Comments.pdf

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Jean Jewell, Secretary
Idaho Public Utilities Commission
'Í72 W. Washington St.
Boise, Idaho 83720
Re: Greene Tree, Inc.
Case No. ATL-E-08-2
Dear Ms. Jewell:
McDevitt & Miller LLP .. . ENEOLawyers RtC. ' "
f\' i: S5420 West Bannock Street 1\i~ (lei -3
P.O. Box 2564-83701 . .. üB\jC . . Chas. F. McDevitt
Boise, Idaho 83702 \0;.\10 iOMM\SS\ON Dean J. (Joe) Miler
Ui\\.rnE-S
October 3, 2008
Enclosed for filing in the above matter, please find the original and seven (7) copies of the Comments
of Greene Tree Incorporated.
Kindly return a file stamped copy to me.
DJM/hh
Enclosures
Very Truly Yours,
Devitt & Miler LLP
ttH_
ean J. Miler
ORlG\NAL
Dean J. Miler (ISB No. 1968)
McDEVIT & MILLER LLP
420 West Banock Street
P.O. Box 2564-83701
Boise, ID 83702
Tel: [phone]
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joecqmcdevitt -miler. com
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Attorneys for Greene Tree Inc.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICATION
OF ATLANTA POWER COMPANY FORAN
ORDER AUTHORIING INCREASE IN THE
COMPANY'S RATES AN CHAGES FOR
ELECTRC SERVICE IN THE STATE OF
IDAHO.
Case No. ATL-E-08-2
COMMENTS OF GREENE TREE
INCORPORATED
COMES NOW Greene Tree Incorporated ("Greene Tree") and submits the
following Comments in response to the Staff Report and Recommendation filed herein on
September 18, 2008.
Greene Tree Incorporated
Greene Tree is a Nevada Corporation authorized to do business in the state of
Idaho, and is a customer of the Applicant, Atlanta Power Company ("Atlanta Power," or
"Company"). Greene Tree is classified as a commercial customer under the Company's
Rate Schedule 2, "Permanent Commercial". Greene Tree operates a Famly Resort and
Retreat property within Atlanta Power's service area. Greene Tree believes it may be the
largest commercial customer on the Company's system. In the years 2005, 2006 and
2007, Greene Tree made payments to Atlanta Power for electrcal serce of$8,302,
$8,130 and $11,617, respectively.
COMMENTS OF GREENE TREE INCORPORATED- 1
The Staff Report
A. Revenue Requirement
Greene Tree has not studied in detail the Staff adjustments leading to its
recommended revenue requirement of $76,770 or a 5.09% increase in revenues, and
accrdingly, Greene Tree accepts the Staff adjustments.
B. Revenue Allocation and Rate Design
Greene Tree's primar interest in this case focuses on the energy charge contained
in the Company's tarffs. Under curent rates, the energy charge for residential is
$.050/kWh and $. 180/kWh for commercial.
As discussed in more detail below, the vast discrepancy-almost four to on~
between the energy charge for commercial customers and residential customers is unjust
and discrminatory, and accordingly, the Commission should equalize the charges
between the two classes.
The Staff Report recommends a uniform percent increase to all rate elements,
although it identifies two other possibilties-eualizing the energy charge between
classes or not increasing the curent commercial class energy charge, and by implication
thereby indicates these would be reasonable rate design approaches. (See Staff Report,
pg. 16 and Attachment F). For the reasons discussed below, a uniform percentage
increase is not the best rate design choice in ths case and, instead, the Commission
should equalize the energy charge for the two customer classes.
COMMENTS OF GREENE TREE INCORPORATED- 2
Argument
For the purpose of considerng Greene Tree's arguents that follow, there are two
overarching featues of Atlanta Power's electrc system that should be borne in mind.
First, almost all of the Company's costs of supplying energy are fixed, not
varable. In the course of discovery in this case Greene Tree asked the following
discover question and Atlanta Power made the following response:
"Request No.2. With respect to Exhibit 2 accompanying your Application,
please identify the listed categories of expense you consider to reflect variable
costs, i.e. those costs which fluctuate depending on the amount of electrcal
generation produced.
Reply. Fuel expenses var depending upon the need to use the Company's back-
up diesel generator. The Company's commercial general liabilty Insurance policy
premum is based upon the amount of energy produced by the Company. See also
our reply to Request NO.1 above. Response prepared by Rober Smith. Wines.
Israel Ray, President."
Exhbit 2 to the Company's Application listed total pro formal 2006 operating
costs of $84,852, and identified fuel expense of$3,111 and insurance cost of $2,278.
Thus 93% ofthe Company's operating costs are fixed costs ($3,111 + $2278 / 84852 =
6.59%).
The second featue of the Atlanta Power system is there is no difference in the
cost of supplying a kWh of energy to a residential customer and the cost of supplying a
kWh of energy to a commercial customer. As Staff notes in its Report:
"Electrc utilty general rate cases traditionally allocate costs to customer classes
using a class cost of servce study as a guide. However, coincident peak demand
information is required to do such a study and that information is not available.
What is known is that there are no transmission costs and that generation costs
have a large fixed cost component and a relatively small varable cost component
because system generation is provided by hydropower
COMMENTS OF GREENE TREE INCORPORATED- 3
There are several problems with recoverig costs that are fixed through varable
charges, not the least of which is that high volume customers provide a subsidy to low
volume users, who avoid paying their fair share of fixed costs. The problem is
paricularly compounded when, as here, high volume users pay a significantly higher rate
than low volume users.
While electrc utilty rate making is not an exact science and there is always the
possibility of some minimal or unntended cross-subsidy between customers, at some
point the disparty becomes so glarng as to constitute discriination. Idaho Code 61-
. 315, provides in par:
"Discrimation and preference prohibited.- No public utilty shall
establish or maintain any uneasonable difference as to rates, charges, servce,
facilties or in any other respect, either as between localities or as between
classes of service."
The curent rate strctue is also discrminatory because it charges commercial
customers an energy charge that is almost four times that charged to residential
customers, when there is not any difference in the cost of providing a kWh of energy to
customers of either class. In Grindstone Butte Mut. Canal Co. v. Idaho Pub. Uti!.
Comm 'n, 102 Idaho 175,627 P.2d 804 (1981) the Cour defined, in addition to cost of
serce, relevant considerations that might justify a difference in rate treatment as:
''the quantity ofthe utilty used, the natue of the use, the time of use, the
pattern of use, the differences in the conditions of serice, the costs of service,
the reasonable efficiency and economy of operation and the actual differences
in the situation of the consumers for the furnshing of the serice." 102 Idaho at
180.
None of these considerations are present in this case to justify the disparty in
treatment between the classes.
COMMENTS OF GREENE TREE INCORPORATED- 4
The curent disparty between residential and commercial rates for Atlanta
Power Company is also far outside the norms for the electrc utilty industr. For
example, following are the residential and commercial sumer energy charges contained
in Idaho Power Company's tarffs as approved by the Commission:
Residential
First 300 kWh:
All Additional kWh:
5.7783
6.5148
Commercial
First 300 kWh:
All Additional kWh:
7.0269
7.9133
Greene Tree understands the logic ofStafls recommendation for a uniform
percentage increas~in the absence of a cost of serice study it is difficult to know what
changes should be made. When, however, as here, it does not require a cost of service
study to conclude the curent strcture is obviously discriminatory, a uniform percentage
increase only peretuates the evident unfairness.
Accordingly, the better choice is the rate design that equalizes the energy charge
between residential and commercial customers at $0.1 75/ kWh as shown on colum (g)
of Staff Attachment F. And, because Staff is recommending only a 5.09% overall
increase, the equalization of energy charges can be accomplished without rate shock to
the residential class. As shown on colum (g) of Staff Attachment F, equalization of the
charges would result only in a 10.84% increase to the revenue requirement to be
recovered from residential class, as compared to the 60% increase proposed by the
Company.
COMMENTS OF GREENE TREE INCORPORATED- 5
Greene Tree also understands the underlying dilemma that faces the
Commission in this case. On the one hand there is the imperative to maintain a viable
utilty by approving an adequate revenue requirement; on the other hand, there is the
imperative to avoid setting customer rates that would, cause customers to drop off the
system. In this regard, the Greene Tree resort facilty owns diesel electrc generators with
adequate capacity to meet the needs of the facility, and, to date, these have been relied
upon durng the frequent perods of Atlanta Power Company source outages. Greene
Tree's first preference is to remain a customer of Atlanta Power Company, recognzing
that the availabilty of centrally supplied electrc serice contrbutes to the overall well-
being and viabilty of the community of Atlanta. At some point, however, the economics
of self-generation may outweigh the benefits of centrally supplied electrc power.
As a final note, while "abilty to pay" is not formally an acceptable criteron for
ratemaking, it is sometimes thought that higher charges for commercial customers are
acceptable because commercial customers may have the abilty to recover some of their
increased energy cost through sales of their goods and serce. With respect to Greene
Tree, however, this does not hold tre. In the years Greene Tree has operated its
resortretreat in Atlanta, it has never done so at a profit. An increase to the Company's
energy charge wil only deepen its losses.
Conclusion
For the reasons cited herein, Greene Tree respectfully recommends that the
Commission adopt a rate design than equaizes the energy charge for residential and
commercial customers.
COMMENTS OF GREENE TREE INCORPORATED- 6
Dated this_day of October, 2008
COMMENTS OF GREENE TREE INCORPORATED- 7
Respectfully submitted,
e iler
McDevitt & Miler LLP
Counselfor Greene Tree, Inc.
CERTIFICATE OF SERVICE
I hereby certify that on the ~day of October, 2008, I caused to be sered, via
the method(s) indicated below, tre and correct copies of the foregoing document, upon:
Jean Jewell, Secretar
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise,ID 83720-0074
j j ewel1(q2puc. state.id. us
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Robert E. Smith
2209 N. Bryson Rd.
Boise, ID 83713
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Israel Ray
Atlanta Power Co.
11140 Chicken Dinner Rd.
Caldwell, ID 83406
~t.
COMMENTS OF GREENE TREE INCORPORATED- 8