20080611Reply Comments.pdf

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ATLANTA POWER COMPANY INC.
11140 CHICKEN DINER ROAD zm.m JUN I I Pl'112=41
CALDWELL, IDAHO 83406
June 1 i, 2008
Idaho Public Utilities Commission
P.O. Box 82720
Boise, Idaho 83720-0074
ATL-E-QS-02
ATTNTION COMMISSION SECRETARY AND HEAD LEGAL SECRETARY
Enclosed is an original and seven (7) copies of Applicant's reply to the comments of the
Idao Public Utilties Commission Staffied in this case on June 5, 2008
Sincerely,~
Israel Ray
President
D
Israel Ray
Atlanta Power Company, Inc.
11140 Chicken Dinner Rd.
Caldwell, 1083406
TeL. [phone]
Fax [phone]
Representative for Atlanta Power Company, Inc.
ZDDB i l PMf2=41
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )ATLANTA POWER COMPANY )
FOR AN ORDER AUTHORIZING INCREASES IN)
THE COMPANY'S RATES AND CHARGES FOR)
ELECTRIC SERVICE IN THE STATE OF IDAHO)
CASE NO. ATL..E..S..2
REPLY TO
STAFF COMMENTS
COMES NOW Atlanta Power Company Inc., ("Atlanta Power", "Applicant"
or "Company") and hereby files the following reply to the Comments of the Idaho
Public Utilties Commission Staff (Staff.
1. Staff at page 3 of its comments recommends that the Commission
not recognize the actual interest rate of fourteen percent (14%) the
Company is paying on a seven (7) year $100,000 note. Staff instead
recommends an interest rate of twelve percent (12%) arguing that this is a
more reasonable rate and is equivalent to the return on equity rate the
Commission has allowed other small utilit companies. Applicant does not
agree that the owners should subsidize the carrying costs of this note.
The circumstances that gave rise to the need to borrow these funds were
extraordinary and unexpected. Applicant was unable to acquire loan
funds at a more reasonable rate. This note adversely affects the
Company's already poor cash flow requirements. The Company proposes
that the Commission accept the real carrying costs of this note for the
Applicant Reply Comments
ATL-E-08-02
i
purpose of establishing a temporary emergency surcharge so the
Company can meet its loan repayment obligations without additional
capital infusion by owners. Should the Commission determine through its
investigation of the remainder of this case that this note was imprudent;
any temporary over-collection determined by the Commission can be
refunded by adjustment to rates determined by the Commission in its final
order in this case.
2. Staff at page 4 of its comments takes exception to the recovery of a
one year $10,000 note through a one year surcharge to customers. Staff
instead recommends the recvery of this note over a longer seven (7)
year surcharge period. Applicant is willng to accept the Staff proposal on
this issue as a compromise. Owners of the Company have already
subsidized the carrying costs of this loan for a period of approximately 6
months at $833.00 per month or approximately $5,000.00.
3. Staff at page 4 recommends the exclusion of $18,808, owed by the
Company to its owner, from its recommended surcharge calculations.
Staff argues that deferred owner wages and the appropriate treatment of
an owner's loan for ratemaking purposes have not been established in this
case. The Staff does not dispute the existence of these loaned amounts.
Staff relies on the Commission's Order No. 30511 (Case No. ATL-E-08-1)
that ordered that the Company's owners be solely responsible for payment
of any portion of these notes that are disallowed in a future rate
proceeding. Staff further argues that excluding the owner loans from the
temporary emergency surcharge prevents the potential recovery of
disallowed costs during the general rate case review. Later on page 5 of
its comments, Staf states tf.. . Staff recommends that the prvdency of
these extraordinary expenditures be determined contemporaneously with
the review of the Company's costs and records supporting its request for a
Applicant Reply Comments
ATL-E-08-02
2
general base rate increase. Staff recommends that the issue of a
surcharge, its amount and treatment be revisited at that time. "
Staff recognizes, as does the Applicant, that any surcharge granted
in this case is subject to adjustment by the Commission during the course
of the Commission's investigation. Disallowing recognition of funds
loaned to the Company by its owner unfairly deprives the owner of the
recovery of his costs and adversely affects the Company's already poor
cash flow. Any over recovery the Commission may ultimately determine
exists can be refunded through the review and adjustment of the
surcharge amounts Staff has itself recommended. Applicant opposes the
Staff recommendation to exclude the ownr loans from the surcharge
calculations.
4. Staff at page 6 recommends that the surcharge recovery
calculation be base upon the number of customer connections during the
year 2007 applied to customer average use data from the year 2006.
Applicant does not object to this approach. Exhibit No. 10 attched
presents the results of our calculations using the Staff methodology.
adjusted for the other adjustments to the Staff recommendations
discussed in this reply. Exhibit No. 10 is discussed later in these
comments under "Summary Recommendations".
5. Staff at page 6 furter recommends that two customers be added to
the customer base and impute revenues attributable to them in calculating
the required surcharge. One is the home of employees of the Company
who are full time residents of Atlanta. As part of their compensation
package, their home is provided with electric power at no cost. Their
home provides office space to the Company at no additional cost to the
Company and provides a local phone number for customer contact. Were
these employees required to pay an electric bil, their effective
compensation would be reduced. A wage increase would be required to
Applicant Reply Comments
ATL-E-08-02
3
restore their compensation resulting in increased costs on the other side
of the Company's income statement.
The second customer is propert used by the Company's owner for
temporary housing when he is in Atlanta for Company business. The
propert also is the site of the standby diesel generator, has two buildings
used for storage of electrical equipment, provides for parking and storage
of the Company's equipment. It just doesn't make sense for the Company
to charge itself electric energy rates that would simply become operating
costs on the other side of the income statement.
The issue of this Company providing free electrical service to
certain business related customers was extensively discussed in Idaho
Public Utilties Commission Order No. 24925 in Case No. ATL-E-93-1.
Four (4) page Exhibit No. 11 attched is pages 5 through 8 of that order.
The Applicant opposes this Staf recommendation.
SUMMARY RECOMMENDATION
Applicant proposes a surcharge revenue requirement as shown in
the following table similar to the table included in the Staff Comments at
page 5:
Staff Revenue Co. Revenue
NoteslLoans Per Month Per Month
Promissory Note $100,000 $1,765 $1,874
Promissory Note $10,000 $177 $177
Owners Funds $18,808 -0-$322
Total Monthly Recovery $1,942 $2,383
Total Annual Recovery $23,302 $28,596
Exhibit No. 10 attached is a one page exhibit that summarizes
Applicants proposal to the Commission based upon the above discussion.
Lines 1 through 4 were prepared to replicate Staffs calculations without
including the "Free Electricity" to employees. This calculation produces an
overall surcharge rate as shown on line 4 of 31.9%.
Applicant Reply Comments
ATL-E-08-02
4
Lines 5 through 8 represent an attempt to replicate exactly the
Staffs proposal shown on Attachment "A" to their comments. This
calculation produces an overall surcharge rate of 31.26% as shown on
line 8 as opposed to the rate of 31.74% propoed by Staff. The
Company's discussions with Staff regarding these calculations indicate
that Staff has discovered a small error in its calculations. A recalculation
by Staff appears to nearly equal the results presented here.
Finally, lines 9 through 12 present the Applicants alternative
surcharge recommendation incorporating the Staff recommendations
accepted by Applicant as discussed above. This calculation produce a
surcharge requirement of 39.15% as compared to the Company's original
request of 54.2% and Staffs recommended 31.74%.
Respectfully submitted this 11th day of June 2008.
Israel Ray, President
Atlanta Power Co.
Applicant Reply Comments
ATL-E-08-02
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06/06/2008 11: 37 FAX 1t001/004
required to obtai authozation "by Order of the Commission lAd no otrwse"
(emphasis added). I.C. 61..901. Neverthelesø, based on ou review of the record
in thi case, the Coaision tidø the securty Í8uaice by.Atlnta Power
Company to be reasonable. Ou coderation of the matte in thi cas wiD
sufce as the requid tevew. Atlata Power, howevr, is advied to be midf
or the requid Chapte 9 compliance for futur secty isuances.
'lFree" Eleccity
Staffs revenue !'quent adjustment relatig to the provision of
"fr" electricity to Harold LanDing was the only adjustment' vigorouly
challenged by the Con;pany. 'i. pp. 10. 11. The widerlyig agreemet bewee
Greylock Mouta Power Company (Greylock) and Harld Lanning for purchase
of the utility stte that Mr. LallDing is to be provded with" ufree eleccity" to
hi resdence for 15 year and to his shop for eight year. The, obligation ni
frm the date of the agreement, May 11, 1984. Atlanta Power Company assued
Greylock's obligation in July 1985. The Company beam reguted and was
issued a Ceficate of Public Convenieic~ and Necssity by th COm.joD on
Januar 22, 1986.
. The Company's obligation if any, to provide fr elecricity to the shp
expired May 1992. The Comany indicates that there is no separate meteg for
th shop and that ther ar .no pl~1J to meter it. The Company estites that
the shop may us 2000 kilowatt hours pe year. ~e Company state that the
shop will be diniect uness Mr. Lanning wants to keep the power there and
pay for it. Tr. pp. 44,45.
Staff coteds that provi,dig poer without bi1g violates ldao Code
Title 61 § 816, Staff als cites.'Davenport v. Idaho Metals Company, PUCI Case
F.473, Order 850, PUR 1922D 506: "cotract to fuh fr telephone sece as
part of the coD$deration Or purase price of the teephone systm is
discrmiato." Staff fide no distinction merting different treatmet for an
electc utilty. 1'. pp. 128, 129.
The Company's respons is that had there not been an arrang~ment to
provide free eleccity, the puchase price of the facility would have been
greate. This theoetically would have increase th~ Company's rate base and
authorized return. Tr. pp. 10, '11. Provdig l'fee" eleccity was the smart
thg to do, th Company argUes, because there has always exist signcant
ORDER NO. 24925 .5.Exhibit No. 11
Pg 1 of 4
Case No. ATL-E-08-2~rr:nt j
08/08/2008 11: 34 FAX 1l001/003
exeee capacity iu the hydr genration syst. The Company provdes simiar
justifcation fo providi &ee power to its two site employes. Tr. p.. 11.. .
Counsel for the Company argues. that for an action to be dito
it must constitute an wia&onable disation agait other cutomers; it
must impose' additional costs on thm. Such are not the facts in th case,
howevei! the Company argues. In this case the alternative to providig free
electricity, the Company contends, woud be to impos additinal costs on the
other customers. Therfor, the cOmpany concludes, ''it' is not uneasonable
discation. It is not uneasonable to use that surplus capacity to cor co~
that woud otherwse requi tig or act cash exenditurs:' Tr. p. iao.
. The poer consption of Mr. Lanning is not ÎDsigifcant. For the
12-month perod endig May SO, 1992, Mr. Lanning's metd constion was
40,190 kiowatt hours. Tr. p.44.. The' Company's tota adjuste anual'sytem
sales are, by way of comparson, omy 165,000 kilowatt hours per year. Tr.
pp. 23, 130. With adequate river flow, it is evident, howeve, that the Company
can generate and distrbute twce the exstig eleCca dend. Tr. p. 145.
Regardig the providig of free poer to Mr. Lanning, Sta proposed a
revenue reqment adjustment of ($2,398), the cot of which it conteds shoud
be bome by Company stokholders. Tr. p. 129. Stat proded no estimate for .the
actual inemtal cost of generation and distbution. Tr. p. 138. Staff
indicate on crss that its termology was inaccuate and that rather than
"cost", what it actualy meant and what the fie reflcts is "revenue lost." Tr.
p.139.
Regardig the prvidig 'of free poer to. Company employee, Staf .
recommends that rather than nettg wages payable .againt revenue due, the
Company should record grss wages and al revenue. Tr. p. 129. In respnse, the
Company contends that' if it is requ to pay its employees a wage, it should be
able to earn a retur on it. Tr. p. 11.
Baeed on our analysis of the r~ord, ~he Commsion fids tht thé
parties have mischaracteried the isue as beig one of .'free" electricity. In each
instance, power is provided as compeation for somethi received. In. the
ORDER NO. 24925 .. 6-
Exhibit No. 11
Pg 20f4
Case No. ATL-E-08-2
Applicant
6111/08
06/06/2008 11: 34 FAX 1ã002/003
instanee of Mr. Lanng, the obligation £\se as paiia consideration for the
underlyig purchase of the hydr generation facilty and ditrbutin equipment.
In the inance of the site . employe, the obligation is consideration' for an
exchange of servces.
The applicable code setion reads as follows: ldoho Code § 61-315
Dicration and Prefer Prohibite:
No public utility shal, 88 to rate, ehares, sece, faciities .or in any other respect, ma or "grant any prference or
advantafe to any coration or pen or subjec anyco~ation or person to any prejudice or disadvantage. No
pu6lic utity shal establish or matain any uneanabledüerece 8. to rates, .chaes, sevi, facities or in any
other respec, either as between localties or as between
classes of sece. The Commjseon shal. have the power to
determe any queston of fact arising wider this section.
The Commssion fids that the .facts in ths cue are wiqu and Dit
specal consderation and treatment. In assesi the reasonableness of the
Company's actions in this matter, we place grat weight on the combine
exstence of signficant excess capacity in its hydro genertion systm and an
incredibly smal and diverse cutome bas. Th levl of investmnt and size of
the cutome base aleady cobie to produce the highest elecc rates in the
State. Company effoit to keep rate affordable and yet cover exenses and earn
a reasonable. retur on invesment constitute a .balancig task of Hercean
proporons. The Coupaay is attempti to satisf its obligations in a maDDer
that has the least adver .economic consequence to its cutome. Thus, the
cutomers ar neither Prejudiced no disadvantaged. The other alternatives
would all resut in hiher rates. Staff suggestion of imputiii revenue is only one
side of "the equation. The related exe and/or rate base raicatioiis must
also be consdered. Base on the spec facts of this case and aseumig that the
power requiments of Mr. Lann and the site employee ~ contiue to be met
with surplus hydr capacity we fid such an exerse in valuation unnecary.
We therefoe do not adop Stas propos revenue adjustment. In reachig ou
decsion, we reco~e that. the Company has alst no energy-related costs
assoiated with hydro generation. Accordingly, the approve~ Company revenue
requiement calcuated frm Staf Exhbit 101 is $54,354, not $51,956. The
ORDER NO. 24925 -7 _Exhibit No. 11
Pg 30f4
Case No. ATl-E-08-2
Applicant
6/11/08
06/06/200811:35 FAX I1 003/003
resutat reveue deficiency is $13,178. We approve the tet year and al other
Staf adjtmts. Sta Eitbit 101. Should the iDenta costs of prvidig
future power aid distbution to Mr. Lang and the site employees impos
identifable costs to the Company's other customers, we wi reviit this issue.
We fid the curent sitution acceptable becus there ar nó assoiated costs
aesigied to th Company's other custos.
Ra:o
Atlanta Power agree with Sta£rs remmended equal peentage
aloction rate design in th case and views it as be more equitale than the .
Company's exig rate stnicture. Exòit 103, Eqal Percentage Aloction
Method. Tr. pp.29-31, 89. The propoee method iicreases by an equal
percentage the adjusted 1992 revenue from each cuer clas. "Tr. p. 148. AJ
Staff aplai, the new rates do not mean that each cutoer wi exerence an
equa percentage increase in each monthly bill. Some cuomerrs wi eaeence
a lower percentag incrse and oters wi experience a hiher percentage
increase dependi on their actual kiowatt hou usage. Tr. p.148.
In calcutig the recominded rate ~d charges ror Atlanta Power
Company 8tafutilied an adjusted annual kWh sales figu 0'167,000 kWh. Tr.
p. 146. In its analysis, Sta vied th Company a& eesentia1y a fied cost
operation; there ar alost no energy relate cost usciated with the operation
or the utilty. Beaus of th, Staf deted that the eos allocated to eaeh
cutomer class shoud be in proporion to the amt of demd eac ciåS8 pia~e
on the electrcal system. Afr lookig at seal alteate rate design, Staff '
concluded that the method most appropriate for Atlanta Power Company was
simply a uniform penÌåge aloction or equal pertage increase for each
customer class. Tr. pp. 147-152. '
Schedule 5, Temporar kWh Surcharge (4.54tIkWh)
Sta recommende that the Schedule 5 tepoar 4.5ci/kWh surcharge
be ineluded ÍJ base rates. Staff reans that tlus exense. is similar to other
exeDse and should not be treated diferently. The surcharge rela.tes to a loan to
Atlanta Power from the Idaho Department of Water Resources (IDWR) and the
Water Reso Board in the amount of $57,000 for intallation of a hydraulc
ORDER NO." 24925 .8.
Exhibit No. 11
Pg4of4
Case No. ATL-E-08-2
Applicant
6/11/08