20041116Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:P A TRI CIA HARMS
TERRI CARLOCK
DATE:NOVEMBER 16, 2004
RE:ATLANTA POWER COMPANY'S REQUEST TO ENTER INTO A
PROMISSORY NOTE FOR $57,000; CASE NO. ATL-04-
Atlanta Power Company requests authority to enter into a Promissory Note for $57 000
with an interest rate of 14%. The Note states that the principal and interest monthly paYments
will be as follows during its seven-year term:
Year One:
Year Two:
Year Three:
Years Four through Seven:
$765.
$737.
$723.
$1,459.
A draft of the Note is attached. All paYments made under the Note will first apply to fees
charges, (including late charges, attorneys fees and costs), then to interest and then to principal.
Atlanta Power has the right to make prepaYments only during the final four years of the Note.
The purpose of the Note is to improve the Company s cash flow. This is especially
important given the Company s recent transition in ownership and resulting 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
700 reimbursement to Israel Ray for grant writing expenses he paid
DECISION MEMORANDUM - 1 -NOVEMBER 16 , 2004
500 to Israel Ray for rent on line truck ($300 per month for five months)
300 to Israel Ray for labor to replace engine in a 1975 line truck
$500 to Israel Ray for backhoe rent (one month)
Israel Ray provided receipts associated with the above items to Staff. All receipts except
for items (d) and (e) were from Mr. Ray s other business, Ray Brothers Seed Farms.
LOCK BOX
As noted in the Application, this loan will include a Lock Box arrangement if needed
similar to the last Company loan approved by the Commission in Case No. ATL-02-1. The
utility and the payee (Eric Alberdi, the same individual that purchased the Atlanta Power Note
approved by the Commission in Case No. ATL-02-1) will execute a separate "Lock Box
Agreement"The Lock Box will become effective only upon a default in making the monthly
paYment of principal or interest when due (Promissory Note, Paragraph No.9). This Lock Box
Agreement will prescribe the order or priority of expense payments made from the utility
accounts receivable and will make those paYments if invoked. The Lock Box Agreement will
provide that customer paYments due Atlanta Power be paid into the Lock Box. Based upon the
draft Lock Box Agreement, Staff understands that the Lock Box will operate in the following
manner.
(1)
(2)
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);
Next, an additional $2 000 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 on page
The remaining balance of the Lock Box funds is available to Atlanta Power for
paYment of other operating expenses.
(4)
DECISION MEMORANDUM - 2-NOVEMBER 16, 2004
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 (Promissory Note, Paragraph No.
9).
RA TEMAKIN G
Staff emphasizes that approval of this loan should not and does not constitute a finding of
prudency and/or allowability for inclusion in rates of items (a) - (h) listed on pages 1 and 2.
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. Staffnotes 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.
ST AFF RECOMMENDATIONS
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.
DECISION MEMORANDUM - 3 -NOVEMBER 16, 2004
Staff also recommends 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.
Staff recommends that the 14% interest rate of the Note not be utilized to establish
customer rates. Atlanta Power s return on equity should be the maximum rate allowed for
ratemaking purposes.
Staff further recommends that items (a) - (h) listed on pages 1 and 2 not be utilized to
establish customer rates until a finding of prudency and a dollar amount for recovery is
established for each item in the Company s next general rate case.
COMMISSION DECISION
Does the Commission approve authority to enter into the $57 000 Promissory Note?
Does the Commission accept the proposed conditions?
Patricia Harms
DECISION MEMORANDUM - 4-NOVEMBER 16, 2004
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PROMISSORY NOTE
Maker:Atlanta Power Company, Inc., an Idaho corporation
Date of Making:Jan uary 1 , 2005
Place of ~.J1aking:Caldwell , Idaho
Principal Amount:$57,000.
Monthly Payment Amount:
(Year One):
(Year Two):
(Year Three):
(Year Four - Seven):
$765.
$737.
$723.
459.
Interest Rate:Fourteen Percent (14%) per annum
Maturity Date:December 31 , 2012
1. Terms. The undersigned (the "Maker ), for value received, jointly and severally
promise to PAY TO THE ORDER OF ERIC ALBEROI, an individual, (the "Payee or
Holder ), at P.O. Box 2778, Hailey, Idaho 83333, or such other place or places as may be
designated by Holder, the principal sum of FIFTY-SEVEN THOUSAND AND NO/100
DOLLARS ($57 000.00), in lawful currency of the United States of America together with
interest thereon as provided hereunder, which such principal and interest shall be payable
as follows:
Maker shall pay installments of principal and interest in the amount of:
Monthly Payment Amount:
(Year One):
(Year Two):
(Year Three):
(Year Four - Seven):
$765.
$737.
$723.
$1 ,459.
each month beginning on the first day of January 2005 and continuing on the same day
each month thereafter until the Maturity Date as provided below when the entire balance
of principal and accrued interest, if any, shall be due and payable in full. Each installment
payment must be received by the Holder no later than the fifth day of each month or the
Note shall be in default without notice or further demand;
PROMISSORY NOTE.
1 1 - 1 6-04; 8: 44AM; HAEMMERL I E LAW FIRM ; 208 578 0564 6/
1 .2. The remaining principal barance and all accrued but unpaid interest, if
any, shall be due and payable in full without demand on December 31 2012 (the "Maturity
Date "); and
3. The unpaid principal amount hereof from time to time outstanding shalf
bearing interest from and after the Date of Making at the rate of fourteen percent (140/0)
per annum. At Maturity, or if any payment hereunder is not paid within fifteen (15)
calendar days of the required payment date, then all sums evidenced hereby shall bear
interest at the lesser rate of (i) twenty percent (200/0) pSi annum or (ii) the highest rate
allowed by law, until paid or until the default is otherwise cured. All payments hereunder
shall be applied first to fees, charges, including late charges attorney s fees and costs, if
any, then to interest and then to principal.
2. ~pavment.Maker shall not have the right of prepayment during the first three
provided it pays Holder all interest due at the Note rate for the first three (3) years of the
Note. Thereafter, Maker shall have the right of prepayment, without penalty or interest
during the final four (4) years of the Note.
3. Immediately Available Funds. All payments made under this Note, whether on
account of the principal sum or interest, if any, shall be made in immediately available
funds without setoff or countercraim and free and clear of and without deduction for or on
account of all present and future fees, deductions, withholdings, restrictions or conditions
of whatsoever nature, if any, now or hereafter imposed, levied, calculated, withheld or
assessed. "Immediately available funds" shall mean funds tendered without conditions or
restrictions on release and in a medium which is subject to immediate deposit and/or
credit without confirmation, clearance period, waiting or other delay for or restriction on
immediate use. or negotiation. Acceptance of any payment made otherwise than in
immediately available funds shall not constitute a waiver of the right to require payment in
immediately available funds.
4. Default.If default is made in the payment of principal or interest when due,
then the whole sum of principal and accrued interest, shall at the option of the holder
hereof, become immediately due and payable , anything contained herein or in any
instrument now or hereafter relating to or securing the indebtedness evidenced hereby to
the contrary thereof notwithstanding, time being of the essence of this Note. Such option
shall continue until all such defaults have been cured. Failure to exercise such option, or
any other right the holder may have in such event or be entitled to, shall not constitute a
waiver of the right to exercise such option or any other rights in the event of any
subsequent default. In the event of default under this Note, Maker agrees to pay all
costs incurred in collecting the sums due hereunder, including, without limitation
attorney s fees, escrow charges, the costs of any notice of default, whether suit be brought
or not, and on appeal and/or in bankruptcy court.
5. Modifications . The undersigned and any party pledging collateral as security
for the payment hereof agree that the Holder hereof may extend the time of payment or
otherwise modify the terms of payment of any part or the whole of the indebtedness
PROMISSORY NOTE. 2
1 1 - 6-04; 8: 44AM ; HAEMMERL I E LAW FIRM ; 208 578 0564 7/
evidenced hereby or release and/or subordinate any security for this Note at any time at
the request of anyone now or hereafter liable, and such consent shall not alter nor
diminish the liability of any person or the enforceability of this Note or any security interest
pledged as coJiateral for the payment hereof. Each and every party now or hereafter
signing or endorsing this Note binds himself as a principal and not as a surety. All
of the terms, covenants, provisions and conditions herein contained are made on behalf
of, and shall apply to and bind the undersigned and their respective personal
representatives, successors and assigns, jointly and severally.
6. Transfer and Endorsement.This Note may be transferred or negotiated only
with the endorsement by,the Holder hereof, which transfer or negotiation shall be without
warranty by, or recourse against, the said endorser.
7. Attorneys' Fees . The undersigned agree that if any installment of principal
and/or interest or any other amount due under this Note or any agreement securing this
Note is not paid on the applicable payment or maturity date (including grace periods), then
the undersigned shaH pay to Holder alJ costs , including, without limitation , attorneys' fees
expenses, penalties and other damages incurred by Holder as a result of such late
payment or failure to pay as provided therein.
8. AQplicable Law. This Note shall be governed by Idaho law as an agreement
between residents' and domiciliaries of said State entered into in said State and to be
perlormed in said State.
9. Security. This Note is secured by a Lock Box and Security Agreement , to be
separately executed by the Maker and Payee. The segregated account and related
disbursement provisions of the Lock Box and Security Agreement shall not become
operational except under default as set forth in Paragraph No.4 above. If a default occurs,
the holder shall notify the Maker and the Idaho Public Utilities Commission in writing. The
Idaho Public Utilities Commission s notice shall be sent to PO Box 83720, Boise Idaho
83720-0074. This notice to the Maker and the Idaho Public Utilities Commission shall be
provided at least fourteen (14) days in advance of the establishment of the segregated
account referenced in the Lock Box and Security Agreement terms. At a minimum , the
terms of the Lock Box and Security Agreement shall contain the fENTER?Lprovisions
contained in Idaho Public Utilities Commissions Order No. .rENTER AT PAGE ?1.
10. Waiver. The Maker, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest, notice or protest and of non-payment of this Note, and
agree that on default in payment of this Note, or any part, whether principal or interest
when due, the whole amount remaining unpaid shall, without notice of non-payment or
demand of payment, immediately become due and payable.
PROMISSORY NOTE. 3
1 1 - 1 6-04; 8: 44AM; HAEMMERL I E LAW FIRM
EXECUTED effective as of the Date of Making set forth above.
MAKERII
ATLANTA POWER COMPANY, INC., an Idaho corporatjon
By: Maverick Ray, a.a. Israel Ray, President
ENDORSEMENT
; 208 578 0564 8/
Endorsement of the Note, in the stated princjpal amount of $57 000.00, executed
by ATLANTA POWER COMPANY, INC., an Jdaho corporation , payable to the order of
Eric Alberdi, an individual.
Pay to the order of Eric Alberdi without recourse or warranty.
ERIC ALBERDI
By: Eric Alberdi
PROMISSORY NOTE - 4