20041119Final Order No 29636.pdf

Office of the Secretary
Service Date
November 19, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE REQUEST OF
ATLANTA POWER COMPANY TO ISSUE A
PROMISSORY NOTE IN THE AMOUNT OF
$57,000 ORDER NO. 29636
CASE NO. ATL-04-
On November 2, 2004, Atlanta Power Company ("Company ) requested authority to
execute a Promissory Note ("Note ) in the amount of $57 000 payable to Mr. Eric Alberdi. The
purpose of the note is to improve the Company s cash flow in light of its recent ownership
transition and system improvements. According to the Company s Application, this Note will be
established to pay the following items (in descending order of magnitude):
a) $18 000 to Israel Ray for wages ($1 800 per month for ten months)
b) $15 937 to Israel Ray for long-term debt owed
c) $13 300 to Israel Ray for a 1981 line truck
d) $3 864.94 reimbursement to Israel Ray for parts he purchased related to
installing a new engine in a 1975 line truck
e) $2 700 reimbursement to Israel Ray for grant writing expenses he paid
f) $1 500 to Israel Ray for rent on line truck ($300 per month for five
months)
g) $1 300 to Israel Ray for labor to replace engine in a 1975 line truck
h) $500 to Israel Ray for backhoe rent (one month)
After reviewing the draft Promissory Note and the Staff s comments, we approve the Note as
conditioned below.
THE PROMISSORY NOTE
As noted in the Company s Application, the loan will be through a lock box
arrangement similar to the loan approved by Commission Order No. 29059 in Case No. ATL-
02-1. Under the terms of the draft Promissory Note, Atlanta Power shall pay approximate
monthly installments of principal and interest until the Note s maturity date of December 31
2012 as follows: $765.00 in Year One, $737.00 in Year Two, $723.00 in Year Three, and
459.23 in Years Four through Seven. See Note ~ 1. However, the maturity date should be
January 1 , 2012 as discussed with the Applicant. The interest rate on the $57 000 Note will be
ORDER NO. 29636
14%. Id. at ~ 1.3. The Note also provides that Atlanta Power has the right to make prepayments
at any time without penalty during the final four years of the Note. Id. at ~ 2. All payments
made under the Note will first apply to fees and charges (including late charges, attorneys fees
and costs), then to interest, and then to principal. Id. at ~ 1.3.
The Promissory Note is to be secured by a separate "Lock Box Agreement" to be
executed by the utility and the payee. Id. at ~ 9. A Lock Box Agreement is an agreement that
generally prescribes the order or priority of expense payments made from the utility s accounts
receivable and makes those payments. The Lock Box would become effective only upon a
default in making the monthly payment of principal or interest when due. Id. The Lock Box
Agreement would provide that customer payments due Atlanta Power be paid into the Lock Box.
All disbursements from the Lock Box would be made pursuant to preset provisions of the Lock
Box Agreement. According to the draft Lock Box Agreement, the Lock Box (if necessary)
would operate in the following manner.
(1) First, a $2 000 reserve will be maintained in each and every month for the
purpose of renting and operating a back-up generator (if needed by the
utility);
(2) Next, an additional $2000 reserve will be maintained in each and every
month for the purpose of making the payments due (by the due date) for
applicable insurance, property taxes, Forest Service special use permits
IPUC fees, and the monthly minimum income tax payable by Atlanta
Power;
(3) Next, pay the monthly installment on the Promissory Note by the due
date established. The amount will vary as described in Note ~ 1.1; and
(4) The remaining balance of the Lock Box funds are to be available to
Atlanta Power for payment of other operating expenses.
The draft Note provides that if a default occurs, the holder of the Note (Eric Alberdi)
shall notify the Maker (Israel Ray) and the IPUC in writing. This notice shall be provided at
least fourteen (14) days in advance of the establishment of the Lock Box terms. The draft Note
also provides that the terms of the Lock Box and Security Agreement shall contain at a minimum
the provisions contained in the IPUC Order approving the loan. Id.
ORDER NO. 29636
ST AFF COMMENTS
After reviewing the Promissory Note and the suggested terms for the Lock Box, Staff
asserted that the estimated monthly payments are reasonable if Atlanta Power appropriately
focuses on monthly cash management. Based upon Atlanta Power s revenues reported in its
2003 Annual Report, the average monthly revenue is over $5 000. Consequently, Staff believes
that there is sufficient monthly cash flow to meet the estimated monthly payment contemplated
in the Promissory Note. As a result, Staff recommends that the Note be approved.
Staff emphasizes that approval of this loan should not and does not constitute a
finding of prudency and/or allow ability for inclusion in rates of planned expenditures to be
funded by loan proceeds. Instead, the determination of whether each item should be included in
rates and if so, in what dollar amount, will be made whenever the Company files its next general
rate case. Because some of the items listed are operating expenses, recovery in rates will be
based on the level of these expenses incurred during the test year. Additionally, as with all rate
cases, the reasonableness of the amounts expended will be analyzed for appropriateness and may
result in disallowance of a portion or all of an amount for which recovery is sought.
Staff believes the interest rate of 14% is high due to the structure and purpose of the
loan along with the lack of collateral. Staff notes that the 14% interest rate of the Note will not
be utilized to establish customer rates as agreed with the prior loan. Atlanta Power s return on
equity rate allowed in future rate cases should be the maximum rate allowed as a debt cost for
ratemaking purposes.
Finally, Staff recommended that copies of all executed versions of the Promissory
Note and any and all renegotiated or resale contracts for the Note be provided to the Commission
within seven (7) days of execution.
DISCUSSION AND FINDINGS OF FACT
The Commission finds that Atlanta Power is an electric corporation within the
definition of Idaho Code ~ 61-119 and a public utility within the definition of Idaho Code ~ 61-
129. Therefore, the Commission has jurisdiction over this Application pursuant to the provisions
of Idaho Code ~~ 61-901 et seq. The Commission further finds that the Application reasonably
conforms to Rules 141 through 150 of the Commission s Rules of Procedure (IDAPA
31.01.01.141-150).
ORDER NO. 29636
After examining the Application and Staff s evaluation of it, the Commission finds
that an evidentiary hearing in this matter is not required. The Commission further finds that the
proposed transaction is consistent with the public interest and Atlanta Power s proper
performance of its duties as a public utility.
The Commission finds that the general purposes to which the loan funds will be
utilized are lawful purposes under the public utilities laws and are compatible with the public
interest. However, this is only a general approval and is not a finding of fact or a conclusion of
law that the particular use to which these funds are to be put is approved by this Order. The
issuance of an Order authorizing the proposed Promissory Note does not constitute agency
determination/approval of the type of financing or the related costs for ratemaking purposes.
The Commission does not have before it for determination in this case and, therefore, does not
determine the effect of issuance on rates to be charged by Atlanta Power to consumers in the
State of Idaho.
Having reviewed the draft Promissory Note and the comments of the Commission
Staff, the Commission finds that Atlanta Power presently has sufficient monthly cash flow to
meet the variable Note payments due over the course of the seven-year loan. We also find that
the Company has paid the filing fee required by Idaho Code ~ 61-905. Thus, we approve Atlanta
Power s issuance of a Promissory Note in the amount of $57 000 with a January 1 , 2012 maturity
date conditioned upon Atlanta Power providing the Commission with copies of all executed
versions of the Promissory Note and any and all renegotiated or resale contracts for the Note
within seven (7) days of execution.
ORDER
IT IS HEREBY ORDERED that Atlanta Power Company s request to execute a
Promissory Note in the amount $57 000 is approved as conditioned in the body of this Order.
IT IS FURTHER ORDERED that the Promissory Note s interest rate of 14% will not
be used to establish the Company s revenue requirement or customer rates.
IT IS FURTHER ORDERED that the planned expenditures funded by the proceeds
of the Promissory Note shall not be used to establish customer rates until a finding of prudency
and a dollar amount for recovery is established for each item in Atlanta Power Company s next
rate case.
ORDER NO. 29636
IT IS FURTHER ORDERED that the Commission s review and approval of this
matter shall not be construed to obligate the State of Idaho to payor guarantee in any manner
whatsoever any security authorized, issued, assumed or guaranteed under the provisions of Idaho
Code, Title 61 , Chapter 9 (Idaho Code ~~ 61-901 et seq.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. ATL-04-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
this Case No. ATL-04-1. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this / '1 f4.
day of November 2004.
Ii
ULKJELL ( ER, PRESIDENT
QkA
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ARSHA H. SMITH, COMMISSIO
, COMMISSIONER
ATTEST:
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CUnnission Secretary
O:A TLE040 1 In
ORDER NO. 29636