20081003Reply Comments to Report.pdf

ATLANTA POWER COMPANY lNC.
11140 CHICKEN DINER ROAD
CALDWELL, IDAHO 83406
RECEIVED
Z.oo1 -3 PH 12= 32
IDAHO PUBt.lG
UTILITIES COMMISSION
October 3,2008
Idaho Public Utilties Commission
P.O. Box 82720
Boise, Idaho 83720-0074
ATL-E-08-02
ATTENTION COMMISSION SECRETARY AND HEAD LEGAL SECRETARY
Enclosed are an original and seven -copies of Atlanta Power Company's reply to the
Report and Recommendations of the Commission Staff in ths case together with a
Certificate of Service.
Sincerely,~¥
Israel Ray
President
Israel Ray
Atlanta Power Company, Inc.
11140 Chicken Dinner Rd.
Caldwell, 10 83406
TeL. [phone]
Fax [phone]
Representative for Atlanta Power Company, Inc.
RECEIVED
Z006 OCT -3 PH 12= 32
iDAHO PUBLIC
UTILITIES COMMISSION
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-08-2
REPLY TO
PUC STAFF REPORT
AND RECOMMENDATIONS
COMES NOW Atlanta Power Company Inc., ("Atlanta Power", "Applicant" or "Cor:pany")
and hereby files the following reply to the Idaho Public Utilties Commission Staff report and
recommendations.
GENERAL COMMENTS
On page 2 of its comments, Staff states "During his tenure Mr. Ray has made a substantial
amount of system improvements. Some have been planned upgrades and some have been force upon
him by equipment failure or regulatOrs such as the Federal Energy Regulatory Commission (FERC) and
the U.S. Forest Service." Staff goes on to state "It is Staffs opinion that the electric system in Atlanta is in
the best condition that it has been in Since Atlanta Power Company was formed."
Dèspite these statements praising the current Atlanta Power Company management, Staffs
comments on the whole are extremely critical and even punitive. Staff has on one hand congratulated the
Company on improvement to the system and on the other hand slapped it down for poor record keeping.
As wil be addressed in the specific comments that follow, Staff has disallowed numerous items for lack of
original invoices/receipts despite the existence af cancelled checks and debit card transaction records
while at the same time recommending a lower return on equity as a penalty for not retaining better
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AND RECOMMENDATIONS
OF COMMISSION STAFF 1 OCTOBER 3, 2008
records. Staff has made little attempt to test the reasonableness of the overall expense items or offer
alternative approaches to substitute a reasonable expense leveL.
Staff on pages 8 and 9 state that they understand that upon receipt of Staffs report the Company
may provide additional information to Staff and that Staff wil review that information for possible inclusion
in costs ultimately authorized by the Commission. Unfortunately, time is short for the Applicant to file its
reply to Staff. The Company would have preferred to meet with Staff to discuss its "preliminary"
recommendations before they were flled. However, Staff did not begin its review of this case in a timely
enough manner for this to be possible. The Company stands ready and would welcome an opportunity to
discuss with Staff its recommendations in this case.
Applicant is not submitting additional exhibits with these comments due to the short time frame to
review Staffs comments and electronic work papers for preparation this response. Given the discussion
that follows, Applicant believes it has shown that the Staff recommendations are punitive and unrealistic.
Applicant stands with its Amended Application, updated for additional rate case costs, as a realistic
though conservative reflection of the Company's financial position. Applicant wil trust in the Commission
to take due notice of these camments and exercise its expertise in these matters to reach a fair, realistic
and equitable resolution to this case.
SPECIFIC REPLY COMMENTS
1. On page 6 of its comments, Staff has eliminated $2,800.00 from its calculation of extraordinary
surcharge costs that the company incurred for repair cost to a back-up generator that subsequently
had to be replaced. Management made the decision at the time to incur these costs to maintain and
repair the generator in an effort to minimize the Company's costs. Despite the Company's efforts to
rehabilitate the generator, it did have to be replaced. Staff is penalizing the Company for its attempt
at frugality. This issue is addressed again below in number 3. To Staffs credit, it has included
additional interest costs up to the date of funding the extraordinary costs through the notes approved
by the Commission.
2. On pages 7 and 8 of its comments, Staff states "The Atlanta Power Joan is similar in many ways,
except term, to a recently executed Eagle Water loan. As a comparison, a $110,000 loan was signed
in December 2007 at Index plus 2% or 9.5%. Even after taking into account the term extension, this
comparable loan demonstrates that a loan at 14% is excessive. In December of 2007, the bank
informed Staff that it was wiling to explore similar options on a longer tèrm with Atlanta Power." Staff
indicates the bank was wiling to "explore" such a loan not necessarily commit to same. The Company
contacted this bank and was informed that unless the owner's credit score exceed 700, a loan was
not possible. The owner and the Company did would not qualify. Atlanta Power also attempted to
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AND RECOMMENDATIONS
OF COMMISSION STAFF 2 OCTOBER 3, 2008
negotiate a loan with its regular bank, U.S. Bank, but was refused due to the same poor financial
statements and credit ratings. The only source Atlanta Power could find for a loan was the private
loan available from Mr. Alberdie. Given the current turmoil in the financial markets it may prove
advantages to have a fixed rate loan rather than one tied to an index.
~. On page 9 of its comments, the Staff again addressed the elimination from rate base of $3,000.00
of repairs to a back-up generator that was subsequently replaced. (See Number 1. Above) The
Company attempted to economically maintain service to the Atlanta community by making these
repairs but to no avail, the generator had to be replaced. This adjustment penalizes the Company for
trying to maintain service at the lowest possible cost. This cost should be included in the cost of the
new generator and dep~eciated over its life. Note there is a partial offet to these costs in the
determination of the amount of Contributions in Aid of Construction being collected through the
surcharge.
4. On page 9 Staff excludes $3,000.00 from rate base as "...costs not sufficiently supported by
original cost documentation." Documentation in the form of cancelled checks and bank debit card
records do exist even though the original receipt cannot be located. Many of the exclusion are for
payments to Mr. Larry Rexroad who is the mail carrier to Atlanta and also purchases and dßlivers
materials and supplies to Atlanta businesses and residents upon request. Absent this service from
Mr. Rexroad, additional round trips would be required between Atlanta and Boise to purchase needed
supplies. It is obvious that even though Mr. Rexroad may not provide a receipt or one has been
misplaced, the purchases can be for no other purpose than to provide a serviC to Atlanta Power Co.
Other expenditures were payable to vendors such as Platt Electric and Graybar Electric. Such
vendors provide materials and supplies to the electric service industries. The Staff should give the
benefit of the doubt to the company that these documented purchases were indeed for the electric
system.
5. Staff on page 9 eliminates $500.00 from plant in service for cement purchased to pour a concrete
floor in one of the buildings owned by Middle Fork LLC from whom Atlanta Power Company rents its
storage 10Vgenerator site. This purchase should be treated as a leasehold improvement to the
property to accommodate the Atlanta Power Company's diesel generator. It should be noted that this
expenditure was only for the purchase of the raw material (concrete) and does not include the cost of
transport from Boise to Atlanta (two trips) nor the labor to mix and install approximately 360 square
feet 6" thick (6.6 cubic yards) of concrete. These labor costs of $845.00 were paid personally by the
owner, Mr. Ray, and should rightfully be included in plant in service as well as owners equity. Mr.
Ray is accumulating the cost information to provide to Staff. More on this issue later in response to
Staffs comments regarding rent expense.
6. On page 10 of its comments Staff discusses accumulated depreciation and contributions in aid of
construction. Staff indicates in that discussion that it"... revised the CIAC calculation to reflect that
the loan proceedS, the subject of Case No. ATL-E-08-1, would first be applied to assets (items
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AND RECOMMENDATIONS
OF COMMISSION STAFF 3 OCTOBER 3, 2008
capitalized), then deferred expenses and finally interest. Staff uses this order since it could be
argued that the deferred expenses and interest are equity infusions from the owner. As such they
would be repaid last." Applicant strongly objects to the Staffs recommendation. The argument could
be made but it has no merit. First claim on available cash from the long term loans should go first to
wage and salaries payable, (deferred wages payable) material suppliers and short term creditors.
This is the proper order of claim. The Company wishes to inform the Commission that since its
original filing in Case No. ATl.E.08-1, additional extraordinary expenditures have been identified
including rental expense of $4,611.00 for a temporary generator in August of 2007 and loan
repayments in the amount of $1 ,874.00 per month that were made personally by the Company's
owner for the Months of April through July before the Cpmmission approved surcharge became
effctive in August of 2008. ($1,874.00 X 4 = $7,496.00)
7. On page 11 Staff discusses the Company's return on investment. Staff indicates that Atlanta
Power would typically be at the upper end of a range of 10% to 12% return on equity. However, Staff
recommends a return on equity of 11 % "... to incentivize the Cpmpany to make needed financial and
organizationat improvements." As stated in the beginning of this reply, Staffs recommendation
regarding this issuè together with Staffs numerous disallowances of expense items is punitive.
8. On pages 12 and 13 of its comments, staff discusses customer accounting costs. In response to
Staffs second production request, question #14, Applicant provided Staff with data supporting
expenses that have been incurred subsequent to the test year. These costs for an additional part-
time contract employee are for general office costs above those being provided by the contract
employee who perfrms customer accounting functions. The duties of this new employee replace the
services of an independent accountant to maintain the Company's accounting records in addition to a
multitude of other tasks including correspondence and negotiating agreèments with governmental
agencies. In 2007 and to date in 2008 this contract employee has received total compensation of
$4,787.00. Over a 24 month periGd this equals an expense to the Company of $200.00 per month.
Staff has not recognlzed this known and measurable change in its recommendations.
9. Staff at page 13 takes exception to the proposed monthly salary of $2,400.00 far the COmpany's
President and general manager. Staff seems to think this level of compensation is unreasonable.
The Oompany points out that this salary is paid as "contract labor i.e. the Company does not treat
this as payment to an "employee". Therefore, the Company does not incur any expense for FICA
taxes, unemployment insurance, workman's compensation insurance, vacation pay, sick pay etc.
The Company President and general manager provides additional benefits to Atlanta Power
Company through the use of a 7,500 square foot shop, shop tools and equipment owned by an
affiliated Co. (Ray Brothers Seed Co.) located south of Caldwell Idaho. These facilities are used at
nö additional cost to the power company to fabricate equipment (See Company response to Staffs 3rd
Production Request, page 3, question Nò. 25) and perform repairs to Atlanta Power Co. equipment.
Were these facilties not provided by the president, Atlanta Power would have to utilze the service of
REPLY TO REPORT
AND RECOMMENDATIONS
OF COMMISSION STAFF 4 OCTOBER 3, 2008
an independent contractor for fabrication and repair services at a much higher cost to Atlanta Power
Company.
Staff has utilized an average of 500 hours per year to calculate the effective hourly rate of $58
that Staff believes is unreasonable. The 500 hour estimate was provided by Applicant in response to
question number 25 of Staffs 3rd Production request. These hours are for "normal" duties of the
Prèsident. In that same response, Applicant noted an additional 300 hours spent in 2006 working
with the Environmental Protection Agency and 150 hours fabricating gates in the Caldwell shop
building mentioned above. If these hours were priced at the $58.00 per hour Staff calculated, the
total compensation to the president/general manager of Atlanta Power would include an additional
$26,100.00 for a total of $54,900.00. These additional hours were at no additional cost Atlanta Power
Company. The Company is currently working to draft a "Fish Ladder Agreement" accptable to the
U.S. Fish and Wildlife Service and U.S. Forest Service. The President has spent enumerable hours
working on this rate case. All these hours are in addition to "normal general duties" to manage and
maintain the Atlanta Power Company system and are not abnormal but do fluctuate from year to year.
The Company received a certified letter from the U.S. Forest service dated September 2,2008
infoming the Company it wil be required to file an updated "Emergency Action Plan for Kirby Dam"
by December 31,2008. That letter also informed the Company that it is required to retain the services
of a qualified engineer to assess the hazard potential of the dam and submit a report no later than
December 9, 2008. A copy of that letter was given to Staff the week of September 22, 2008. The is
just another of the additional duties above and beyond "normal" duties of the preside'1t/general
manager. The $2,400.00 per month level of compensation for the responsibilties of managing this
company is not unreasonable and in fact is a bargain for Atlanta Power Company.
10. Staff recommends, on page 13, exclusion of $2,138.00 from the Company's reported materials
and supplies expenses based primarily upon the absence of invoices. All purchases are documented
by either checks or debit card records. Indeed, the Company has gotten the message it must retain
aM file its receipts in a businesslike manner. Staffs adjustments are nearly % of the Company's total
reported expenses of $4,462.10. Given the Staffs praise regarding the shape and condition of the
electric system at this time, the Staff and the Commission must realize that materials and supplies
expenses must be incurred to keep the system in its present or better condition. If the Company does
not have the revenues to provide cash flow, maintenance wil suffer and the system wil deteriorate.
11. On page 13, Staff also recommends a reduction in the Company's fuel expenses of $1,485.00 for
the same reasons stated above in NO.9. This is nearly % of the expenses recorded by the Company.
Applicant reiterates that it has gotten the message to clean-up its record keeping and wil endeavor to
do so in the future. Applicant however cannot operate without adequate revenues to pay its
obligations and maintain the system. The Commission should noe that Atlanta Power Company
does not own any vehicles suitable for normal highway travel. It owns working utilty line trucks.
Travel between Atlanta and the Treasure Valley is made in private vehicles owned by the Company
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AND RECOMMENDATIONS
OF COMMISSION STAFF 5 OCTOBER 3, 2008
President. Applicant conservatively estimates that on the averagé the President and general
manager makes at least 20 trips to and from Atlanta per year. A round trip of 230 miles 20 times per
year at the current Internal Revenue Service authorized rate of $0.505 per mile produces an
allowance of $2,323.00. A second vehicle makes the trip 2 to 4 times per year for an additional
allowance of from $232.30 to $464.60. This mileage doesn't include local travel to pick up materials,
attend meetings with various governmental agencies and meet with legal and financial professionals.
Three such trips per month at 40 miles per trip results in an additional 1,440 miles per year for an
additional allowance of $727.20. In addition, fuel must be purchased and hauled to Atlanta for use in
two line trucks, the backhoe and generators. This extra fuel for three vehicles plus generators wil
exceed 300 gallons per year (3 vehicles X 35 gallons per tank X 3 tanks per year = 315 gallons plus
extra fuel for generator). At today's fuel prices at around $4.00/ gallon the fuel hauled to Atlanta
costs an estimated $1,260.00. Altogether a reasonable allowance for inclusion in this case exceeds
$3,800.pO or $2,300.00 more than the adjusted fuel expense proposed by Staff and even $700.00
more than claimed by the Company in this Application.
12. At pages 13 and 14, Staff eliminates $1,319.00 of travel and lodging expense. Staffs reasoning
is the same as discussed above regarding lack of invoices/receipts despite the documentation
available through checks and debit card records. Staff indicated it was unable to determinè whether
the costs should be included in the case. Staff has not shown that these expenditures should not be
included. Staff also states on page 14 "... management has identified extraordinary hours/tasks in
2006 that could overstate the amount of these expenses necessary for a normal test year." Staff has
not identified those "extraordinary hours/tasks". The Company's response to question numbers 25
and 36 of Staffs Third Production Request identified an additional 450 hours of labor in 2006. As
stated above in No. 8 above, even though the Company identified extraordinary hours of labor in
excess of "normal" duties of the president, these hours are not extraordinary given the regulatory
oversight by numerous governmental agenci~s. These extraordinary duties, above and beyond
"normal" operation and maintenaRce duties fluctuate from year to year. In this regard, the extra hours
identified in the test year are not unusuaL. For instance, the Company has for several months been
working on a fish ladder agrèement accptable to several governmental agencies.
Staff recognizes that the there is no lodging available in Atlanta and states "... management is
staying in a recreational vehicle on a lot owned by one of his other companies". Should the owner of
this copany be required to furnish accommodations without compensation? The President
transported his personal motor home to Atlanta so that overnight facilities would be available after the
Beaver Lodge closed. Homes in the Atlanta area rent for $1,000 per month or over $30 per day.
Trips to Atlanta typically aré for a period of 3 to 5 days each requiring overnight stays. At $30 per
night, 20 trips per year, and 3 overnight stays this would translate to lodging costs of $1,800 per year
(30X20X3=$1,800). The State of Idaho provides a per diem allowance of $30.00 per day for in-state
travel. If the Company were to use this travel allowance, albeit somewhat frugal, the meal allowance
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AND RECOMMENDATIONS
OF COMMISSION STAFF 6 OCTOBER 3, 2008
for 20 trips of 3 to 5 days per year would produce an annual expense of approximately $2,400.00
(30X20X4=2,400). Together these meal and lodging costs would be $4,200.00 per year, far in
excess of the $2,158.08 claimed by the Company in this case. The Company has requested from the
owners of the closed Beaver Lodge in Atlanta, the detail of charges biled to the Company during the
test year. These details should be available soon. The nightly rate at Beaver Lodge during the test
year 2006 was $75.00 per night.
13. At page 14, Staff takes exception to the rental cost of the facilities Atlanta Power Company pays
to Middle Fórk LLC. Middle Fork LLC is an affliated company owned by the president of Atlanta
Power Co. The propert owned by Middle Fork LLC is a 3.81 acre parcel of ground that was the mil
site for the Moharch Mining Company. At the time of purchase (November 2005), the president of
Atlanta POwer Company was concerned about liability issues regarding hazardous materials on the
site. Therefore, the propert was purchased through the LLC to avoid the potential liability for Atlanta
Power Co. The property could only be purchased as a single parceL. Much of the propert is
unusable and unbuildable due to steep slopes and heavy winter snowfalls. The usable part of the
property is the valuable part of the propert. It is an ideal site for Atlanta Powers back-up diesel
generator and equipment lot. It is located far enough from the center of the community to avoid noise
Complaints. Staff has arbitrarily determined that only % acre of this propert is usable to Atlanta
Power Company and has reduced the claimed rental expense of $350.00 per month to $89.94 per
month for two buildings and a lot for storage of equipment, a site for the back-up diesel generator and
space for the owners motor home discussed in No. 11 above. Staff shows in its work papers that the
propert has an assessed valuation for tax purposes (Not necessarily fair markét value) of
$45,339.00. Using Staffs own approach, the property (before Staffs arbitrary reduction to % acre)
would have a rental value of $419.39 before applying a gross-up for taxes. Using Staffs own gross-
up factor 1.278496 the fair monthly rental value would be $536.18, or $186.18 more than the
Applicants claimed expense of $350.00 per month.
14. Staff on page 14 of its comments reduces the Company's insurances expenses by $775.00 to
$1,503.00 per year"... to match the most recent premiums documented by the Company." Applicant
has and can provide additional documentation to show that annual auto insurance premiums are
$$1,287.72 and liabiliy premiums are $1,082.00 for a total of $$2,369.72.
15. Staff, on pages 14 and 15, has reduced the Company's Professional fees in the test year by
$3,469.00. Staff believes these cost are excessive due to (1) costs incurred before the test year but
paid during the year and (2) excessive costs to prepare 3 years annual report to the Idaho Public
Utilties Commission due to stale data. Staff arbitrarily assumes an $850.00 allowance is adequate
for preparation of Atlanta Power Company's Tax Returns and Annual Reports to the Commission.
Staff does not include any allowance for legal fees that have exceeded tens of thousands of dollars in
the past. Many of these costs have been absorbed personally by the owner of the Company and do
not appear on the books and records of Atlanta Power Company. Subsequent to filing this case, the
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AND RECOMMENDATIONS
OF COMMISSION STAFF 7 OCTOBER 3, 2008
Company has incurred a cost of $600.00 for preparation of its 2005 tax returns, $650.00 for its 2006
tax returns and $750.00 for its 2007 tax returns. The Tax returns and Idaho Public Utilties
Commission Annual reports are prepared independently to comply with tax laws and the accounting
regulations of the Idaho Public Utilties Commission. Two times the 2007 tax preparation fees or
$1,500.00 per year is a more realistic allowance for financial reporting purposes. Although the
Company tries to avoid incurring legal expenses and incurred none in the tes~ year, given the
regulatory exposure the Company has, it is not unreasonable to assume that the Company wil incur
such costs in the future. The Company did incur $928.50 in legal fees in 2004 and $3,112.75 in
2005. The Company has also incurred several thousand dollars of legal expense in 2007 and 2008.
The $850.00 allowance proposed by Staff for all professional services is unreasonable. An additional
allowance of $2,000.00 per year for legal services, added to the $1,500.00 for financial reporting,
would produce a more realistic allowance of $3,500.00 per year.
16. At page 15, Staff adjusts the Company's fate case expenses. Applicant in its amended
application estimated rate case cost for this case to be $13,500. Staff has eliminated $2,323.40 it has
determined was for purposes other than preparation of cases before the Commission. Applicant wil
not object to this portion of Staffs adjustments. Staff has also appropriately recgnized additional
rate case cost incurred by the Company through September 5, 2008. Since that time, primarily to
analyze and respond to the Staff recommendations, the Company has incurred an additional
$2,507.50 of cost. Additional costs wil be incurred but the amount is uncertain. Much depends upon
the need to attend hearings, enter into negotiated settlement discussions with other parties, the need
to request reconsideration of any Commission orders, preparation of new tariffs etc. The Company's
current estimate is a total rate case cost of $17,500.00.
Staff has determined that a 5 year amortization of the Company's costs is appropriate. To justify
this amortization period Staff states on page 15 "Because these costs are associated with two cases,
the surcharge and the general rate case, Staff has amortized these costs over five years. The
surcharge is proposed for seven years and a typical rate case amortization is three years. A five-year
amortization is a reasonable compromise between these two positions." Applicant objects to Staffs
position. The Commission reviewed and granted a temporary surcharge of 33.6% by its Order No.
30578 in this case (Case No. ATL-E-08-02). The prior case the Staff relies upon (Case No. ATL-E-
08-01) requested approval to issue promissory notes. The Commission by its Order No. 30511
authorized the issuance of those notes but deferred consideration of a cost recovery mechanism by
stating"... the underlying costs of these loans not be utilzed to establish customer fates until we
determine the prudency and costs in the Company's next general rate case." (Order 30511 at pages
3 and 4). The Commission specifically deferred consideration of cost recovery until all costs of the
Company could be considered for determining customer rates. In the instant case the recovery
(surcharge), albeit a significant amount, is insignificant in the required iamount of financial review in
this case. The bottom line at issuè is the revenue the Company must collect to be viable and how
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AND RECOMMENDATIONS
OF COMMISSION STAFF 8 OCTOBER 3, 2008
those revenues should be collected. The three year amortization proposed by Applicant is a more
realistic time period. Should the Commission accept the recommendations of the Staff, Applicant wi11
find it necessary to immediately begin preparing a new general rate case application. The owners
simply are not willng and cànnot afford to continue operating this company as a very expensive
hobby.
Respectully Submitted
=~t:
Atlanta Power Company
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AND RECOMMENDATIONS
OF COMMISSION STAFF 9 OCTOBER 3, 2008
CERTIFICATE OF SERVICE
.2rd.I HEREBY CERTIFY THAT I HAVE THIS ¿ DAY OF OCTOBER, 2008,
SERVED THE FOREGOING REPLY TO THE REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF, IN CASE NO. ATL-E-08-2, BY HAND DELIVERY
THEREOF TO THE FOLLOWING:
SCOTT WOODBURY
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720-0074
BOISE, IDAHO 83720
DEAN J. MILLER
MCDEVITT & MlLLER LLP
PO BOX 2564
BOISE, IDAHO 83701