20080605Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
ATLANTA POWER COMPANY FORAN )
ORDER AUTHORIZING INCREASES IN THE )
COMPANY'S RATES AND CHARGES FOR )
ELECTRIC SERVICE IN THE STATE OF )IDAHO. )
)
CASE NO. ATL-E-08-2
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Scott Woodbur, Deputy Attorney General, and in response to the Notice of
Modified Procedure (Emergency Surcharge), Notice of Staff Report Deadline, Notice of Public
Comment and Company Reply Deadline, and Notice of Public Hearng issued on May 29, 2008,
submits the following comments.
BACKGROUND
On May 1, 2008, Atlanta Power Company (Atlanta Power; Company) fied an
Application with the Idaho Public Utilties 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 is requesting an increase in its electric rate schedules to
increase revenues by 60.62% and requesting a temporar emergency surcharge on existing rates
of 54.2% effective June 1, 2008. Atlanta Power operates pursuant to Certificate of Convenience
STAFF COMMENTS 1 JUE 5, 2008
and Necessity No. 300. Atlanta Power is located in Elmore County and provides electric service
to approximately 75 residential and commercial customers in Atlanta.
In Commission Order No. 30561 dated May 29, 2008, the Commission stated that it
would be unable to consider the Company's Application before the proposed effective date of
June 1, 2008, because of the time required for investigation of the reasonableness of the
Company's proposal and because of other demands on the Commission's time. As a result, it
suspended the proposed schedules of rates and charges for electric service and the proposed
surcharge in the Company's Application for a period of thirt (30) days plus five (5) months
from the proposed effective date of June 1, 2008, or until such earlier time as the Commission
enters an Order accepting, rejecting, or modifying the Application in this matter.
On May 29,2008, the Commission found that exigent circumstances exist to expedite
procedure in the matter of the Company's request for an emergency surcharge. The Commission
established a June 5, 2008 deadline for the filing by Commission Staff of its report on the
Company's request for an emergency surcharge. These Staff Comments contain Staffs report
on the Company's request for an emergency surcharge.
STAFF REVIEW
Staffhas reviewed the Company's Application regarding its request for a temporar
surcharge on curent rates of 54.2% the first year and 38.71 % for the remaining six years.
By way of background, Atlanta Power states the following regarding its proposed
emergency surcharge:
· By Order No. 30417 dated August 29, 2007, in Case No. ATL-E-07-1,
the Idaho Public Utilties Commission authorized the Company to defer
on its accounting records, the extraordinary costs incured in the year
2007 associated with the failure of Atlanta Power's hydroelectric
turbine. That Order recognized that the Company would be fiing
additional applications seeking recovery of the deferred extraordinary
costs.
· By Order No. 30511 dated March 3, 2008, in Case No. ATL-E-08-1, the
Idaho Public Utilties 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 $3,088.66 per month for the first 12
months and $2,206.01 per month for an additional 72 months. To fully
STAFF COMMENTS 2 JUE 5, 2008
recover these repayment obligations over the term of the two notes
comprising the $110,000 incured indebtedness and the loans from the
Company's owners, Atlanta Power contends that the Company requires
a surcharge on curent rates of 54.2% for the first year and 38.71 % for
the remaining six years.
At Staffs request, the Company provided copies of the two executed notes that total the
$l 10,000 referred to above. The larger note was executed on April 9, 2008, and the smaller note
was executed on March 18, 2008. These notes were received by Staff on May 13 and May 16,
2008, and fied with the Commission, although not within the time period required by the
Commission. Order No. 30511 dated March 3, 2008, in Case No. ATL-E-08-1, required the
Company to provide to the Commission within seven (7) days of execution copies of all
executed versions of the Promissory Notes.
Staffs review of the executed notes confirms that the $100,000 loan was for a term of
seven (7) years at an interest rate of 14% per anum with monthly payments in the amount of
$1,874. The $10,000 loan, made by a customer to Atlanta Power, was for a term of one (1) year
at a rate of 10.75% with loan repayment accomplished through monthly biling credits of
$882.65 for that customer. The first installment of interest and principal for the $100,000 note
was due May 1,2008. Although the $10,000 note is silent with regards to the date of the first
monthly bil credit, it is Staffs understanding through discussion with Atlanta Power's owner
that the $10,000 note is about half satisfied.
By Order No. 30511 dated March 3,2008, in Case No. ATL-E-08-1, the Commission
ordered that the $100,000 Promissory Note's interest rate of 14% not be used to establish the
Company's revenue requirement or customer rates. As a result, in its calculation of a temporar
emergency surcharge Staff has used an interest rate of 12% for this Note. This rate has been
approved as a return on the equity component of the capital structue for other small utilty
companies under the Commission's jursdiction. Atlanta Power's retur on equity rate allowed
in the general base rate portion of this case should be the maximum rate allowed as a debt cost
for ratemaking purposes. Staff recommends that durng the general rate case review that a debt
rate based on loan options be evaluated to determine the maximum loan rate to be reflected in
rates. At that time, the temporary emergency surcharge would be re-evaluated in concert with
the proposed general base rates. The monthly payment of principal and interest for a seven-year,
12% Note would be $1,765 and that is the amount proposed by Staff for inclusion in the
STAFF COMMENTS 3 JUE 5, 2008
temporar emergency surcharge. The Company proposed recovering from customers $1,874
monthly for this Note.
Staff also recommends the temporar emergency surcharge recover some monies for the
$10,000 Note authorized in Case No. ATL-E-08-L. Staff believes a one-year note that has been
over half repaid through bil credits should not be recovered from customers in a one-year
surcharge. Staff includes a monthly amount of $177 for this Note in its proposed temporar
surcharge. This amount was derived by calculating a payment amount for a seven year, 12%
Note of $1 0,000. This provides recovery for this Note and underlying costs from customers at a
different level than proposed by the Company. The higher interest rate of 12%, above the
10.75% face amount, recognizes a longer (seven-year) term. The Company proposed recovering
from customers $883 monthly for this Note.
Staff s proposed temporary emergency surcharge is calculated to recover from customers
$1,942 monthly to provide an immediate increase in cash flow to the Company until the
Commission issues a final Order in the Atlanta Power general rate case portion of Case No.
ATL-E-08-2. Staff recommends that this temporar emergency surcharge be subject to refund
(if necessar) when the permanent rates in this case are established by the Commission.
Staff has not included for recovery in this temporar emergency surcharge any payments
to the owners for fuds lent to the Company. In its Application, the Company has included in its
proposed emergency surcharge to recover owner loans in the amount of $18,808 over a seven-
year period at an interest rate of 12%. The Company proposes recovering from customers $332
monthly for these loans by the owner. The majority of the $18,808 included by the Company in
its Application has been characterized as deferred labor costs for the owner (including interest
for approximately $7,300) and interest (approximately $6,600) owed to the owner's other (non-
utilty) business. Other costs include those characterized as replacement of the Company's
turbine that exceeded the $110,000 loans received from third paries. Staf has not included
these additional amounts in its proposed temporar emergency surcharge to recognize two
things. One, some costs (such as deferred owner wages and the appropriate treatment of an
owner's loan for ratemaking puroses) have not been established by the Commission in this case
and would directly impact the amounts recoverable by the owner. Two, the Commission (Order
No. 30511 in Case No. ATL-E-08-1) ordered that the Atlanta Power Company owners be solely
responsible for repayment of any portion of these Notes that are disallowed in a future rate
proceeding. Excluding an owner's portion from the temporary emergency surcharge prevents
STAFF COMMENTS 4 JUE 5, 2008
the potential recovery of disallowed costs that may be found, during the general rate case review,
to be solely the responsibilty of the owners.
The following table summarizes the Company and Staffs positions for the amounts to
recover from the Company's customers.
Table No.1
Company Staff
Notes/Loans
Year 1 Years 2-7 (unless modified by final
rate case order)
Promissory Note - $100,000 $1,874 per mo.$1,874 per mo.$1,765 per month
Promissory Note - $10,000 $883 per month $0 per month $177 per month
Owner's Funds - $18,808 $332 per month $332 per month $0 per month
Total Monthly Recovery $3,089 monthly $2,206 monthly $1,942 per month
Total Annual Recovery Approx. $37,064 Approx. $26,472 Approx. $23,302
The Commission ordered (Order No. 30511 dated March 3, 2008) that the expenditues
fuded by the proceeds of the Promissory Notes authorized in Case No. ATL-E-08-1 not be used
to establish customer rates until the Commission determines the prudency and the amount for
recovery is established for each item in Atlanta Power's next rate case. Due to the exigent nature
of the Company's request regarding its proposed temporary surcharge and the usefulness of
correlating these expenditures with the Company's routine (base rate) expenditues, such a
prudency review has not been completed to date. As a result, Staff recommends that the
prudency of these extraordinar expenditues be determined contemporaneously with the review
of the Company's costs and records supporting its request for a general base rate increase. Staff
recommends that the issue of a surcharge, its amount and treatment be revisited at that time.
Staff s proposed temporary emergency surcharge is conservative for the reasons stated above and
the unaudited nature of the costs presented for recovery.
Staff recommends that the Company bil the emergency surcharge approved by the
Commission on a separate line on its customers' bils. To ensure that an adequate record is
maintained in case the emergency surcharge or a portion thereof is refuded, Staff recommends
the Company maintain a record of surcharge payments by each individual customer and record
those payments in a separate account on its books.
STAFF COMMENTS 5 JUE 5, 2008
RATE DESIGN
The Commission Staff has reviewed the Company's proposed rate design calculations.
F or the purose of rate design, the Company used calendar year 2007 customers and customer
usage.
Staff proposes two types of adjustments to the rate design data presented by the
Company. First, the Staff proposes the use of2007 numbers of bils applied to 2006 average use
per customer by rate schedule. Staff proposes this adjustment to adjust for anomalous usage
experienced by the Company during the sumer of 2007 when the Company's hydro power
system was not in service and power from the back-up diesel generator was only available par
time. This adjustment increases kWh by 30,048 which is a 14% increase over 2006 amounts.
Second, the Staff proposes the addition of two customers to the biling data. The two
customers are the Company owner and the person who operates and maintains the power system.
Neither person is biled but both are provided power as partial compensation for the service they
provide to the Company. Staff proposes that the owner be assigned to Schedule 3 and the other
individual, who lives in Atlanta full time, be assigned to Schedule 1. This adjustment fairly
spreads a portion of the Company's emergency surcharge revenue requirement to these
customers and reduces the revenue requirement responsibility of all other customers. This
adjustment increases the customer count by 2, approximately 3%, and kWh by 5,512 which is a
3% increase over 2006 amounts. The two adjustments together change the Company's revenue
under present rates from the Company proposed amount of $68,389 to $73,407.
For the emergency surcharge portion of this case, Staff proposes that the increased
revenue requirement be recovered by a uniform percentage increase applied to all taiffed rates
except the new customer connection charge and the meter testing charge. The percentage
increase that produces the $23,302 of surcharge revenue requirement proposed by the Staff is
31.74%. Attachment A shows that the proposed increase recovers the Staffs surcharge revenue
recommendation. Staff recommends that the Company continue to calculate customer bils
under curent base rates and then calculate and add the surcharge, which would be shown on a
separate line, to get the final bil. The Staff recommends that a new schedule be created that
specifies the surcharge percentage and states that it applies to all tariffed rates except the two
rates previously specified.
STAFF COMMENTS 6 JUE 5, 2008
STAFF RECOMMENDATIONS
Staff recommends approval of a 31.74% temporar emergency increase to all taiffed
rates except the new customer connection charge and the meter testing charge effective as soon
as possible following issuance of the temporar emergency surcharge Order, subject to refund (if
necessar) once the Commission issues a final Order in the Atlanta Power general rate case, Case
No. ATL-E-08-2.
Staff recommends that the prudency of the extraordinar expenditues necessitating the
loan payments be determined contemporaneously with the review of the Company's costs and
records supporting its request for a general base rate increase in this case and that the owners be
solely responsible for repayment of any portion of these Notes that are disallowed in the rate
proceeding. Staff recommends that the issue of a surcharge, its amount and treatment be
revisited at that time.
Staff recommends that the Company bil the emergency surcharge approved by the
Commission on a separate line on its customers' bils. To ensure that an adequate record is
maintained in case the emergency surcharge or a portion thereof is refuded, Staff recommends
the Company maintain a record of surcharge payments by each individual customer and record
those payments in a separate account on its books.
Staff recommends that a new schedule be created that specifies the surcharge percentage
and the rates to which it applies.
Respectfully submitted this ?f day of June 2008.
Scott Woodbury
Deputy Attorney General
Technical Staff: Keith Hessing
Patricia Hars
Nancy Hylton
i :/umisc/comments/atle08.2swkhphnh
STAFF COMMENTS 7 JUNE 5, 2008
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 5TH DAY OF JUE 2008, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION, IN CASE NO. ATL-E-08-2,
BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
ISRAEL RAY
PRESIDENT
ATLANTA POWER COMPANY
11140 CHICKEN DINER ROAD
CALDWELL ID 83607
ROBERT SMITH
UTILITY CONSULTANT
2209 N BRYSON RD
BOISE ID 83713
E-MAIL: utilitygroup(fyahoo.com
SECRETARY
CERTIFICATE OF SERVICE