20080627order_no_30578.pdf

Office of the Secretary
Service Date
June 27, 2008
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
ORDER NO. 30578
CASE NO. ATL-08-
On May 1 , 2008 , Atlanta Power Company (Atlanta Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting a general rate
increase in the Company s basic tariff rates for electric service together with a request for an
emergency surcharge.Atlanta Power operates pursuant to Certificate of Convenience and
Necessity No. 300. Atlanta Power is located in Elmore County and provides electric service to
approximately 75 residential and commercial customers in Atlanta. On May 20, 2008 , the
Commission issued a Notice of the Company s Application. In this Order, the Commission
addresses the Company s emergency surcharge request and approves a temporary surcharge with
modifications and conditions.
Emergency Surcharge
Atlanta Power, as part of its original Application, requested that the Commission
declare an emergency and approve a surcharge on existing rates of 54.2% for an effective date of
June 1 2008. In reply comments, the Company amended its surcharge request to 39.15%. By
way of background, Atlanta Power states the following:
By Order No. 30417 dated August 29 2007 in Case No. ATL-07-, the
Commission authorized the Company to defer on its accounting records
the extraordinary costs incurred in the year 2007 associated with the
failure of Atlanta Power s hydroelectric turbine. That Order recognized
that the Company would be filing additional applications seeking recovery
of the deferred extraordinary costs.
By Order No. 30511 dated March 3, 2008 in Case No. ATL-08-, the
Commission authorized the Company to incur debt in the amount of
$110 000. The Order recognized the need for the Company to acquire
cash to pay the extraordinary costs deferred pursuant to Order No. 30417.
Atlanta Power has determined that its loan repayment obligations
including loans from the Company s owners, require monthly payments of
ORDER NO. 30578
088.66 per month for the first 12 months and $2 206.01 per month for
an additional 72 months.
On May 29, 2008, the Commission established an expedited schedule to process the
Company s request for an emergency surcharge. The Commission made a preliminary finding
that the Company s request for emergency surcharge could be processed under Modified
Procedure. IDAPA 31.01.01.201-204. A June 5, 2008 deadline was established for Commission
Staff to file a report and recommendation, a June 11 , 2008 deadline was established for customer
comments and Company reply, and a June 12 2008 Boise hearing date was set for the purpose of
taking public comment and testimony.
In addition to the comments and recommendations of Staff regarding the emergency
surcharge, the Commission received written comments from some of the Company s customers
and the Company s reply to Staffs filing. Oral testimony of customers was received at the
Commission s June 12 hearing.
Commission Discussion and Findings
The Commission reviewed and considered the Company s request for an emergency
surcharge, the comments and recommendations of Commission Staff, the written comments and
testimony of customers, and the Company s reply comments. Based on our review ofthe record
we continue to find it reasonable to process the Company s emergency surcharge request under
Modified Procedure. IDAP A 31.01.01.204.
Atlanta Power requests an emergency surcharge (a percentage of existing rates) to
generate revenue to meet repayment obligations on authorized debt associated with the 2007
failure of the Company s hydroelectric turbine and to meet other costs and obligations. The
requested surcharge is comprised of three elements: (1) a $100 000 loan - Eric Alberdi; (2) a
$10 000 loan - Greene Tree, Inc.; and (3) an $18 808 owner loan.
In Order No. 30511 , we determined that the planned expenditures funded by the
proceeds of the promissory notes authorized in Case No. ATL-08-01 ($100 000 and $10 000)
were not to be used to establish customer rates until the Commission determined the prudency
and authorized recovery amount for each item in the Company s next general rate case. Order
No. 30511, p. 4. This prudency review has not occurred. The Company in this filing contends
and we agree, that exigent circumstances exist to grant an emergency temporary surcharge; a
surcharge that we find is subject to our prudency review and adjustment (including refund) in the
ORDER NO. 30578
Company s general rate case. To ensure that an adequate record is maintained should a refund
be required, the Commission finds it reasonable to require that individual customer surcharge
payments be recorded in a separate account on the Company s books.
In its Application, Atlanta Power requested a temporary surcharge on current rates of
54.2% for the first year and 38.71 % for an additional six years. Staffrecommends approval of a
31.2% temporary emergency increase to all tariff rates (except the Schedule 4 "new customer
connection charge ) and meter testing charges (General Rules - Regulations and Rates ~ 15 -
Service and Limitations). Revenue collected by the increased tariff rates is subject to possible
partial refund with the Commission s final Order in the Company s general rate case. In reply
comments , the Company amended its surcharge request to 39.15%. As discussed and detailed
below, we find it reasonable to approve an emergency temporary surcharge of33.6%.
$100,000 Loan Eric Alherdi
The Commission s review of the executed note confirms that the $100 000 loan made
by Eric Alberdi is for a term of seven years at an interest rate of 14% per annum with monthly
payments in the amount of$1 874 (first installment due May 1 2008). The loan documentation
is comprised of a Promissory Note dated April 1 , 2008 and a Lock Box and Security Agreement
dated April 9, 2008. Citing Order language in Case No. ATL-08-, wherein the Commission
determined that the $100 000 promissory note interest rate of 14% was not to be used to establish
the Company s revenue requirement or customer rates (Order No. 30511
, p.
4), Staff
recommends the use of a 12% interest rate, a return on the equity component of capital structure
approved by the Commission to calculate the emergency surcharge for other small companies.
The monthly payment of principal and interest for a seven year 12% note is $1 765.
In reply comments, the Company recommends that the actual carrying costs of the
Alberdi note be used for the temporary surcharge. It contends that any interest adjustment
should be addressed in the Company s general rate case and that the Company was not able to
acquire loan funds at a more reasonable rate. The Company further argues that its owners should
not be made to subsidize the carrying costs of this note. The Commission agrees with the
Company on this point and finds it reasonable for purposes of emergency surcharge calculation
to include the actual carrying costs of the $100 000 note. We recognize that the monthly
payment on the loan is $1 874. We also acknowledge that in Order No. 30511 we authorized the
Company to enter into a $100 000 loan obligation. We find that the Company s repayment
ORDER NO. 30578
obligation has already begun and that for this reason, exigent circumstances exist to authorize
implementation of an immediate surcharge. We reserve the right to assess the reasonableness of
the 14% interest rate and consider arguments regarding the recovery of same from customers in
the general rate case and to make adjustments at that time.
$10,000 Loan Greene Tree, Inc.
The $10 000 loan, made by Greene Tree, Inc., a customer of Atlanta Power, is for a
term of one year at a rate of 10.75% with loan repayment accomplished through monthly billing
credits of $882.65 for that customer. The loan documentation consists of an Agreement dated
March 18, 2008. The Company in its Application proposed to recover this loan from customers
over a one-year period. Repayment has already begun and the loan is nearly half paid. Staff
recommends a seven-year surcharge recovery period for this loan at a higher 12% interest rate.
The monthly surcharge amount recommended by Staff for this note is $176.53. This amount
derived by calculating a payment amount for a seven-year 12% note of $10 000. The higher
interest rate of 12%, Staff contends, recognizes a longer (seven year) term. In reply comments
the Company states it will accept Staff s adjustment. The Commission acknowledges that in
Order No. 30511 we authorized the Company to enter into a $10 000 loan obligation. We find
that the Company s repayment obligation has already begun and that for this reason, exigent
circumstances exist to authorize implementation of an immediate surcharge. We find the
surcharge amount proposed by Staff and agreed to by the Company to be reasonable.
$18,808 Owner Loan
In its Application, Atlanta Power also included a proposed emergency surcharge of
$332 per month to recover owner loans in the amount of $18 808 over seven years at 12%
interest. The owner loans include deferred wages. Other costs include those characterized as
replacement of the Company s turbine that exceeded the $11 0 000 in loans received from third
parties. Staff notes that the Commission in Case No. ATL-08-01 (Order No. 30511) found
that the Company s owners were to be solely responsible for repayment of any portion of the
notes ($100 000 and $10 000) that might be disallowed in a future rate proceeding. Order No.
30511 , p. 4. Staff argues in favor of excluding any "owner s portion" from the temporary
emergency surcharge, recommending that the issue be deferred until the general rate case. In
reply comments, Atlanta Power contends that the "owner s portion" should be included in the
emergency surcharge subject to later refund or adjustment in the general rate case stating that
ORDER NO. 30578
disallowing recognition of funds loaned to the Company by its owner deprives the owner of the
recovery of his costs and adversely affects the Company s already poor cash flow.
The Commission finds Staffs argument persuasive and finds it reasonable to exclude
the recovery of amounts owing to the owner from the emergency surcharge. We defer recovery
consideration of this $18 808 until the general rate case.
Surcharge Recovery Calculation
Staff, in its surcharge recovery calculation, proposes two adjustments to the
Company s rate design data: (1) Staff proposes use of calendar year 2007 numbers of bills
applied to 2006 average use per customer by rate schedule. This adjusts for anomalous usage
during the time in 2007 when the hydroelectric system was unavailable and stand-by diesel
generation was available only on a limited basis. The Company does not object to this approach
and we find the adjustment reasonable.
(2) Staff also recommends in the surcharge recovery calculation to add two additional
electric customers to the billing data and to impute revenue attributable to them in calculation of
the required surcharge - i., adding the Company s owner to Schedule 3 (Seasonal Residential)
and adding the home of the Company s two onsite employees to Schedule 1 (Permanent
Residential). The Company opposes this adjustment citing Commission language in Atlanta
Power Case No. ATL-93-, Order No. 34925, addressing the provision of power from surplus
hydro capacity as compensation for something received.
As part of the compensation package for its two employees, the Company states that
their home is provided with electric power at no cost. The home provides office space to the
Company and a local phone number for customer contact. Were these employees required to pay
an electric bill, the Company states that their effective compensation would be reduced and a
wage increase would be required.
The second customer that Staff adds is the Company s owner, Israel Ray, who owns
property used for temporary housing when he is in Atlanta on Company business. The property
is also the site of the stand-by diesel generator, has two buildings used for storage of electric
equipment, and provides space for parking and storage of the Company s equipment. It does not
make sense, the Company states, to charge itself electric energy rates that would simply become
operating costs on the other side of the income statement.
ORDER NO. 30578
We find it reasonable to defer consideration of Staff s argument to add two customers
in revenue and rate design calculations until the general rate case. We will not make this
adjustment in surcharge calculations.
Based on the foregoing, the Commission finds it reasonable to calculate a temporary
emergency surcharge to recover the following monthly cash flow requirements:
Year 1 Note 1
Note 2
$100 000 (7 yrs ~ 14%)
$10 000 (7 yrs ~ 12%)
874.00/month
$ 176.53/month
$ 2 050.53/month
The monthly surcharge that we find reasonable is 33.6% computed as set forth in the attached
schedule. We make no adjustment in classification of customers at this stage of proceedings and
defer Mr. Alva Greene s argument that his lodge should pay no greater rate for electricity than
residential customers to the general rate case.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Atlanta Power Company
and its Application in Case No. ATL-08-02 pursuant to Idaho Code, Title 61 , and the
Commission s Rilles of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission hereby approves an emergency
temporary surcharge of 33.6% applied to all tariff rates (except the Schedule 4 "new customer
connection charge ) and meter testing charges (General Rules - Regulations and Rates ~ 15 -
Service and Limitations). Atlanta Power Company is directed to file a surcharge tariff prior to
implementation.
IT IS FURTHER ORDERED and Atlanta Power Company is directed to bill the
emergency surcharge as a separate line item on customers' bills and to maintain in a separate
account on its books a record of surcharge payments by each individual customer.
ORDER NO. 30578
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;;2 ~rh
day of June 2008.
MACK A. REDFO , P DENT
Out of the Office on this Date
MARSHA H. SMITH, COMMISSIONER
~/~
. KEMPTON COM ISSIONER
ATTEST:
je . Jewell
Co mission Secretary
bls/O:ATL-08-sw2
ORDER NO. 30578
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