20080918Report and Recommendations.pdf

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SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
RECEfVE-u
200BSfP 18 PH If: 40
IDAHO PUBLIC
UTILITIES COMMISSION
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 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
REPORT AND
RECOMMENDATIONS 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
Public Workshop, Notice of Scheduling, and Notice of Public Hearng issued on July 18,2008,
submits the following comments.
BACKGROUND
On May 1, 2008, Atlanta Power Company (Atlanta Power; Company) fied an
Application with the Idao Public Utilties Commission (Commission) requesting an emergency
surcharge and a general rate increase in the Company's basic tariff rates for electric service.
Atlanta Power operates pursuant to Certificate of Convenience and Necessity No. 300. The
Company is located in Elmore County and provides electric service to approximately 75
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 1 SEPTEMBER 18, 2008
residential and commercial customers in Atlanta. On May 20, 2008, the Commission issued a
Notice of the Company's Application.
Pursuant to separate notice and expedited scheduling, the Commission addressed the
Company's emergency surcharge request. On June 27, 2008, in Order No. 30578 the
Commission approved a temporary 33.6% surcharge for the Company with modifications and
conditions. The general rate case portion of the Company's initial Application was significantly
revised in a filing made with the Commission on August 8, 2008. The Company is now
requesting an average increase in general rates of 55%. The permanent amount of the emergency
surcharge and the amount of any general rate increase are to be established in this par of the
Company's Case.
History
Atlanta Power Company was formed in 1982. The primary stockholders were Israel Ray
and Lynn Stevenson. The Company was managed by Lynn Stevenson until his death in 2003.
Following that event Israel Ray purchased Mr. Stevenson's interest from his estate. Since that
time Israel Ray has managed the system. Some of the original equipment acquired by Atlanta
Power when it began business was approximately 100 years old. During his tenure Mr. Ray has
made a substantial amount of system improvements. Some have been planned upgrades and
some have been forced upon him by equipment failure or regulators such as the Federal Energy
Regulatory Commission (FERC) and the U.S. Forest Service. The 2007 failure of the turbine
caused the purchase of a backup generator, which the Company had not had for a number of
years, and the complete rebuild of the turbine. 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.
These improvements come at a cost. Capital investment and expenses have increased since the
Company's last general rate case in 1993. These are driving the Company's request for a
surcharge increase and general rate increase.
THE COMPANY'S APPLICATION
The Company's Emergency Surcharge Rate Request
Atlanta Power, as par of its original Application, requested that the Commission declare
an emergency and approve a surcharge on existing rates of 54.2% to recover extraordinary costs
associated with the failure of the Company's turbine. Later, in Reply Comments, the Company
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 2 SEPTEMBER 18, 2008
amended its surcharge request to 39.1 5%. In Order No. 30578, issued in this Case, the
Commission found that an emergency did exist and allowed the Company to implement a 33.6%
surcharge. The Commission pronounced the surcharge to be temporary and subject to refund
pending a thorough review and audit. That review and audit are part of the current case.
The Company's General Rate Request
The Company also requests a general rate increase to recover normal operating costs of
the Company. The Company's last general rate case fiing was in 1993, 15 years ago. The
Company initially requested an increase of 60.62%, but subsequently revised its request to 55%
in an Amended Application. The Amended Application shows a revenue requirement of
$113,228. The Company proposes the following taiff changes.
The Company's Proposed General Rate Structure
Schedule 1 - Residential Service (Permanent)
The existing rates for residential service under Schedule 1 are as follows: The Customer
Charge is $8L.00/month. There is no additional charge for the first 500 kWhmonth of usage.
All usage above 500 kWh/month is biled at 5 t/kWh.
The Company is proposing the following rates: A Customer Charge of$112.00/month;
no additional charge for the first 500 kWh of usage; all usage above 500 kWhmonth would be
biled at 8 t/kWh. This amounts to an average increase in general rates for Schedule 1 of
approximately 39%.
Schedule 3 - Residential Service (Seasonal)
The existing rates for residential service for Schedule 3 are as follows. The Customer
Charge is $35.00/month. All kWh are biled at 21 t/kWh.
The Company is proposing the following rates: A Customer Charge of$45.00/month; an
energy charge of 50 t/k Wh for all energy used. These rates constitute an average increase for
Schedule 3 customers of 60%.
Schedule 2 - Commercial Service (Permanent)
The existing rates for commercial service under Schedule 2 are as follows: The
Customer Charge is $ 144.00/month. There is no additional charge for the first 500 kWh of
usage. All usage above 500 kWhmonth is biled at 18 t/kWh.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 3 SEPTEMBER 18, 2008
The Company is proposing the following rates: A Customer Charge of $200.00/month,
no additional charge for up to 500 kWhmonth; all usage above 500 kWhmonth would be biled
at 32 t/kWh. This proposal constitutes an average increase of approximately 64%.
The Company's Proposed Rules and Regulations Modifications
The Company proposes to modify the language in its Rule 12b (Limitation of Use) to
clarify that the $10 per-month charge approved by the Commission is only for temporary
connections of recreational types of vehicles (campers, motor homes and trailers) connected to
the service of a regular customer's electrical connection. All such piggyback connections served
through another customer's meter for a period greater than 30 days anually under the
Company's proposal wil be treated as additional residential or commercial service. The effect
of this clarification and language is to increase the charge for such a connection from $10 to $82
(820%) per month if connected to a residential service and to $165 (1,650%) if connected to a
commercial service.
Atlanta Power proposes to change its Schedule 4 reconnection charges for residential
customers who voluntarily or involuntaily disconnect from the system for a period of more than
30 days from $200 to $335 (approximately 4 times the monthly base rate). Similarly, the
Company proposes to change the reconnection charge for commercial customers who voluntarily
or involuntarily disconnect from the system for a period of more than 30 days from $200 to $660
(approximately 4 times the monthly base rate). These changes, the Company contends, are
necessary to discourage customers from seasonally disconnecting from the system causing a loss
of revenue to the Company and resulting in upward pressure on rates to keep the Company
viable.
Atlanta also proposes to add new fees that are not curently approved by the Commission.
The Company requests that the Commission approve a new $20 fee to reprocess and collect for
checks returned by any bank for any reason. The Company also requests that the Commission
authorize it to collect late fees of 12% per anum (l % per month) on past-due accounts.
AUDIT
The Company has proposed and Staff has accepted a 2006 test year as the basis of its
general case. Because of the turbine failure in 2007, the Company and Staff agree that the most
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OF THE COMMISSION STAFF 4 SEPTEMBER 18, 2008
recent calendar year ended before its rate case filing is not typical of normal Company
operations.
Staff examined all documentation provided by the Company in support of its surcharge
and general rate case fiing. This documentation included invoices, retued checks, ban
statements and schedules prepared by the Company's consultant.
Recordkeeping
The Company has sought recovery in customer rates for some costs in 2006 for which no
invoices were provided. However, in some instances, the Company provided canceled checks
and/or bank statements (documenting debit transactions) as partial support of the costs it seeks to
recover in customer rates. Canceled checks and debit transactions provide documentation that a
payment occured but not necessarily that the payment was for the Atlanta Power Company
rather than a personal cost or a business cost related to other businesses owned by Atlanta
Power's owner. Additionally, such documentation is not sufficiently detailed to evaluate the
reasonableness of costs. The Company also provided some invoices that did not match up to any
costs requested for recovery in customer rates. In some cases it was clear that these invoices
were not related to the filed case.
Staff recommends that the Company establish a recordkeeping system to document its
costs. Such documentation should be obtained and/or prepared contemporaneously with the
underlying cost event. Furher, this documentation should be maintained in such a manner that it
is easily retrievable when necessary. When asked about work that was performed requiring
overnight stays in Atlanta, the Company responded that,
Israel Ray does not maintain time sheets or log books of work performed.
Israel Ray travels to Atlanta to perform his duties not only as president of
the Corporation but to perform a multitude of repair, rebuild, maintenance
and emergency tasks to maintain the electric system. It is not possible to
identify the specific purose of each of the visits to the service area two
years after the fact.
Annual Reports
On September 5, 2007 the Company submitted annual reports for 2004,2005 and 2006.
Staff recommends the Company fie anual reports by the statutory deadline of April 15. Once
records are maintained in an organized fashion, these reports should be less costly to prepare on
an anual basis.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 5 SEPTEMBER 18, 2008
The Company has delayed preparng its 2007 Anual Report due to the turbine rebuild
requirements and the filing of this rate case. Staff recommends the Company complete the 2007
Annual Report and fie it no later than December 31, 2008. The 2008 Annual Report should be
filed no later than the April 15, 2009 due date.
COLLECTION OF EXTRAORDINARY COSTS IN SURCHARGE
By way of background, Atlanta Power noted the following regarding its proposed
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 incurred in the year 2007 associated with the failure of Atlanta Power's
hydroelectric tubine. 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-E-08-1, the Idaho Public
Utilties Commission authorized the Company to incur debt in the amount of $11 0,000. The
Order recognized the need for the Company to acquire cash to pay the extraordinary costs
deferred pursuant to Order No. 30417.
Staff has reviewed the schedule of extraordinary costs the Company has stated was due to
the turbine failure in 2007. Staff determined that some costs were not necessary to operate the
system while the turbine was being repaired nor associated with the actual repair and installation
of the turbine. For example, approximately $3,800 in consulting fees was related to preparation
of the Company's anual reports for the years 2004, 2005 and 2006. There were also $2,800 in
costs associated with maintenance and repair of a backup generator that was subsequently
replaced by the Company. These maintenance costs did not result in a used and useful generator.
There were also some minor costs Staff considered normal operating costs such as $200 for
computer software and memory. Finally, there was approximately $400 for improving a
generator building but this building is not owned by the Company nor is the backup generator
curently in that building. The costs related to the turbine failure, as adjusted by Staff, total
$107,831.
According to its workpapers, the $110,000 loaned Atlanta Power was essentially to pay
the owner for wages the Company deferred and to pay another company of the owner for cash
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 6 SEPTEMBER 18, 2008
advances and costs paid by that company to or on behalf of Atlanta Power for costs associated
with the turbine failure. In its request for surcharge, the Company has requested interest on those
deferred wages and other payments. The Company calculated interest due the owner for
deferred wages and interest for another company of the owner based on the dates the wages were
deferred and the dates checks were written by the owner's other company. Staff has calculated
interest due the owner and owner's other company based upon the dates the extraordinary costs
were paid because Staff has removed certain costs as not associated with the turbine failure as
discussed above. Interest has been calculated through March 31, 2008, because the loans were
finalized in March and April 2008.
Staff has determined costs associated with the turbine failure, including interest, as
$114,164. Staff proposes a surcharge to recover these costs as follows:
Table No.1
Notes/Loans Company Staff
Promissory Note - $100,000 $1,874 per month $1,765 per month
Promissory Note - $10,000 $177 per month $177 per month
Owners' Funds (Interest)$322 per month $73 per month
Total Monthly Recovery $2,383 monthly $2,015 monthly
Total Annual Recovery Approx. $28,596 anually Approx. $24,180 anually
These costs wil not be included in general base rates of the customers. Instead it wil be a
separate line item charge on each customer's bil.
Staffs proposed recovery for the $100,000 loan uses a 12% interest rate. The
Company's proposed recovery uses the 14% stated interest rate on: the Note. In comments dated
June 5, 2008, Staff recommended that Atlanta Power's return 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 puroses. In this case it could be argued that the debt rate should be no greater than
the reduced retur on equity of 11 % discussed later in this report. However, Staff recommends
using the 12% recommended retur on equity before the reduction. The Atlanta Power loan is
similar in many ways, except term, to a recently executed Eagle Water loan. As a comparson, a
$110,000 loan was signed December 2007 at Index plus 2% or 9.5%. Even after taing into
account the term extension, this comparable loan demonstrates that a loan at 14% is excessive.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 7 SEPTEMBER 18, 2008
In December of 2007, the ban informed Staff that it was willng to explore similar options on a
longer term with Atlanta Power. Utilizing the return on equity as the maximum rate is a
reasonable compromise.
The Company seeks to recover $18,808 in owner's fuds at 12% interest or $322 per
month. These funds include three months of deferred wages in Januar through March 2008
($5,400). Staff has excluded these costs from its analysis. Management deferred wages in 2007
to provide fuding for the Company to meet its extraordinar costs. Staff has included interest
for that time period in its surcharge calculations. The wage deferrals in 2007 have been repaid
through the loans identified above. Staff treats the deferral of wages in 2008 as an owner's
contribution which can be repaid through Company operations when fuding is available. Staff
recommends a follow up review of the status of these loans be performed in April 2009
coincident with the Company's fiing of its Annual Report.
Staff provides for recovery of interest due the owner that was not provided through the
two loans authorized in Case No. ATL-E-08-1. This was calculated as follows:
Table No.2
Extraordinar Costs (As Adjusted by Staff)$107,831
Interest to Owner 6,333
Total Extraordinar Costs and Interest $114,164
Less: Amounts received through Notes $110,000
Interest Due the Owner $4,164
GENERAL RATE CASE REVENUE REQUIREMENT
Staff proposes a general rate case revenue requirement of $76,770 (Attachment D) or a
5.09% increase in revenues to be recovered from customers in base rates. This recovery is for
normal operating costs of the Company and does not include the extraordinary items recovered
through the surcharge rate. The general rate case revenue requirement is calculated using
$118,011 for rate base, 11.10% for an overall rate of retu and a net operating income of
$12,759 for the year 2006 as adjusted by Staff. This increase is based upon the documentation
provided by the Company as of September 16,2008. Staff understands that upon receipt of this
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 8 SEPTEMBER 18, 2008
report the Company may provide additional information to Staff. Staff will review that
information for possible inclusion in costs ultimately authorized by the Commission.
Rate Base
Staff proposes a rate base of$118,011 (Attchment A). Staffhas proposed adjustments
in the following areas.
Electric Plant in Service
Staff has reduced plant in service by approximately $11,000 to remove costs that should
not have been capitalized, were not supported by suffcient original cost documentation, and did
not improve buildings owned by the Company.
Staff has reduced plant in service to remove costs that were inadvertently included as
capital items. According to Company management, approximately $5,000 included in its case as
fencing costs was actually monthly labor for maintenance of the system. These costs were
already included by Staff, to the extent they were documented, within the case under Operating
Expenses. This was parially offset by an increase in plant in service for approximately $1,000
that was not included within the Company's original case.
Staff reduced plant in service by approximately $3,000 to remove costs that were for
maintenance and repair of a backup generator that was subsequently replaced by the Company.
The Company's purchase of a backup generator in 2007 is used and useful so is included as a pro
forma increase to rate base within Staffs case.
Staff has reduced plant in service by approximately $3,000 to remove costs not
sufficiently supported by original cost documentation. Staff attempted to match the bundle of
documents provided by the Company to costs included within its filing. While many costs were
supported by invoices and some by retured checks, others were supported by neither. Generally
labor costs were included in Staffs pro forma numbers if a retured check was available with the
memo line on the check describing the services provided. It is Staffs understanding that in those
circumstaces the Company does not receive an invoice for labor provided.
Staffhas reduced plant in service by approximately $500 for cement identified by the
Company as for the generator building. The generator is not curently in a building. It is
Company management's plan to move it inside a building on a lot not owned by the Company.
Instead, the lot is owned by another company of Atlanta Power's owner. The cement has
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 9 SEPTEMBER 18, 2008
improved the building on that lot. As discussed later in the expense section of this report, Staff
has included an amount to reflect usage of that lot and buildings.
Accumulated Depreciation and Contributions in Aid of Construction
Accumulated Depreciation and Contributions in Aid of Construction (CIAC) have been
revised to reflect Staffs revisions to plant in service. The CIAC has been recorded to reflect
expenditures covered by the loans (identified as contributions in the Company's case) and
reflected in the surcharge. This treatment assures that expenditures recovered by the surcharge
are not included in base rates. Staff has also 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
capitalized), then deferred expenses and finally interest. Staff utilzes this order since it could
also be argued that the deferred expenses and interest are equity infusions from the owner. As
such they would be repaid last. The CIAC is amortized over the life of the asset to ensure, on a
year-to-year basis, that no expense is included in operations for items financed by contributions
or the surcharge.
Staff has also increased Accumulated Depreciation to reflect $1,700 salvage value
received by the Company in 2006. According to the owner, this salvage was received as a result
of the upgrades to the system and was primarily the sale of copper.
Inventory
The Company has included in its fiing $7,000 for inventory of materials and supplies.
The Company has stated "current management of the Company has no records or knowledge of
the purchases recorded to this account." Further, the Company states that "as the inventory is
used up, replacement materials and supplies are either capitalized or expensed as they are
purchased. "
Due to the lack of information regarding the $7,000 inventory and because the Company
is expensing or capitalizing replacement items as they are purchased, Staff has reduced rate base
by $7,000. The Commission has previously accepted removal of the $7,000 inventory from the
Company's rate base due to lack of supporting documentation in Case No. ATL-E-93-1, Order
No. 24925.
Cash Working Capital
The Company has requested working capital in its filing. Working capital provides funds
to pay expenses until customer revenues are received. Traditionally the Commission allows a
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 10 SEPTEMBER 18, 2008
45-day working capital or 1/8th of anual operating expenses for small companies. Staff has
revised the working capital provision in rate base to reflect 1/8th of Staffs pro forma operating
expenses for the Company.
Return on Investment
Utilties are entitled to earn a retur on rate base investments. This retur is the weighted
balance of the debt held by the Company and the retur on equity authorized by the Commission.
The Company has proposed an overall 12.20% retur on investment (see Company Exhibit No.
3) including 12% as its retur on equity. Staffs proposed overall retur on investment for this
case is 11.10% (Attchment C).
The Commission has consistently allowed small water utilties to ear a rate of retur on
equity of 12%. Case No. DIA-W-07-1, Order No. 30455; Case No. MNV-W-06-1, Order No.
30420. Staff views Atlanta Power's risks similar to those of a small water utilty and as such
would normally recommend the 12% return on equity as proposed by the Company. A
reasonable return on equity range is 10% - 12%. Atlanta Power would typically be at the upper
end of this range. However, Staff proposes an 11 % return on equity to incentivize the Company
to make needed financial and organizational improvements (see Summar of Staff
Recommendations section of this report). Once the Company has made those improvements, it
can petition the Commission for an increase in its return on equity to 12%.
The Company has included debt of 14% in its return on investment calculation for a 2004
loan approved in Case No. ATL-E-04-1. In that case, Staff proposed that the 14% interest rate
should not be used to establish the Company's revenue requirement or customer rates. Instead,
Staff proposed that the Company's retur on equity in future rate cases should be the maximum
rate allowed as debt costs for ratemaking puroses. In that case, the Commission ordered that
the 14% debt rate for the loan under consideration not be used to establish the Company's
revenue requirement or customer rates. Order No. 29636. In this case it could be argued that the
debt rate should be no greater than the reduced retur on equity or 11 %. However, Staff
recommends using the 12% recommended return on equity before the reduction. This also
minimizes the difference between the debt rates, to use 12% for this debt in the weighted cost of
capitaL.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 11 SEPTEMBER 18, 2008
Gross-up Factor
Staff accepts the Company's gross-up factor that factors in the tax associated with a
revenue increase. Staff notes, however, that the Company does have approximately $90,000 of
net operating loss carforward (primarily from 1991 and 1992) that can be used to offset the
taxes resulting from this rate increase. This wil provide a cash flow benefit for the Company.
Because rates are forward-looking and not retroactive, the loss carrforward created before the
last general rate increase canot be incorporated into these rates.
Net Operating Income
Staff has proposed a Net Operating Income for the Company of$12,759 (Attachment B).
The Company fied a 2006 Pro Forma Operating Loss of$16,463 in its general rate case. Staff
has proposed adjustments to both revenues and expenses.
Revenue
Staffhas increased test year revenues by $4,662. This adjustment reflects the known and
measurable change of growth in the number of customers that occured between 2006 and 2007.
Expenses
Labor
Staff has reduced Power Generation Labor by $250. Staff was able to confirm $9,740
with invoices for monthly maintenance and extra duties. The amount for maintenance is $750
per month for an anual amount of $9,000. According to the Company, this represents
approximately 30 hours contract labor per month or $25/hour. Extraordinar repairs and
maintenance is biled to the Company at $25 per hour. When the Company's primary employee
is not available, his substitute is paid $10 per day according to the Company. While it can be
argued that the substitute pay could reduce the monthly amount paid to the primary maintenance
person, it is reasonable to ensure backup personnel when needed. This backup person is paid
through credits on his electric bil.
The Company has also included $350 per month for sending out customer invoices,
receiving customer payments, maintaining an office in Atlanta and providing a telephone for
customer contact. According to the Company, this represents approximately 20 hours per month
or $17.50 per hour. Because that hourly rate is greater than expected for maintaining customer
invoices and payments, Staff considers the office as par of that cost and expects a dedicated
telephone line can be provided by the Company for that same cost and the value of the electricity
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 12 SEPTEMBER 18, 2008
provided by the Company for the contract employees to maintain Atlanta Power's offce in their
home.
Staffhas reduced General Office Salares by $7,200. The Company, in its filing, requests
an increase in monthly pay for management from $1,800 to $2,400 per month (or 33%).
According to the Company, management spends approximately 300 to 700 hours per year
performing repair and maintenance to the system, line rebuilds, general clean-up of facilties,
purchasing and transporting materials and supplies, paying bils, responding to emergency calls
and customer complaints and concerns. In 2006, 2007 and 2008 normal duties were estimated at
500 hours per year (approximately 3 months using a 40-hour work week). However, no time
sheets or logs are maintained to document this estimate. The hourly rate at 500 hours per year
for management included in the Company's filing is approximately $58 per hour ($2,400 per
month or $28,800 anually).
Staff recommends that management salaries be no more than $1,800 per month. This rate
of pay, using management's estimation of 500 hours worked in a normal year, translates to
approximately $43 per hour. Because management's duties include some items that can be
performed by less skiled labor, it could be argued that management's monthly salary be $1,600
(approximately $38 per hour). While management has identified additional extraordinary work
performed in both 2006 and 2007, general customer rates should only include a normalized cost
for management's salaries.
Staff suggests that the Company maintain a log detailng management (and other labor)
trips to Atlanta and the work performed. This log would also serve as documentation for the
Internal Revenue Service.
Materials and Supplies, FueL, and Travel/Lodging Expenses
Staffhas reduced materials and supplies expense by $2,138. These are costs that were
unsupported by invoices. In two instances, debit receipts were provided but no purchase detail
was observed for the approximately $200 included within the case.
Staffhas also reduced fuel expenses by $1,485. These are costs that were unsupported by
invoices. In some instaces, invoices were provided but were unreadable.
Staff has reduced travel and lodging expenses by $1 ,319. These are costs that were
unsupported by invoices and/or were not supported by detailed invoices. Staff allowed 60% of
lodging costs when the Company documented a payment for lodging although there were no
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 13 SEPTEMBER 18, 2008
detail receipts that would identify the room rate, meals purchased and other underlying details of
the transaction. Without specific details of the transaction, Staff is unable to determine whether
all costs should be included in the case.
Even if detailed itemized receipts were provided, Staff would stil be concerned about the
magnitude of materials and supplies, fuel, and travel/ lodging expenses for the year. The
Company has included almost $10,000 in its case for these three expense categories. In addition,
management has identified extraordinar hours/tasks in 2006 that could overstate the amount of
these expenses necessary for a normal test year. Furter, the establishment related to the lodging
costs is no longer open to the public. As a result, management is staying in a recreational vehicle
on a lot owned by one of his other companies (see Rental Expenses) potentially reducing the
lodging costs furher on an ongoing basis.
Rental Expenses
The Company has included $4,150 for Atlanta Power to rent a lot to store equipment.
Another company of Atlanta Power's owner owns this lot. Because of this relationship, Staff
recommends that the rental costs for the lot usage included in the case be treated similarly to that
for property owned by the Company. That is, the owner should be provided an overall retur on
that property. In this case, Staff recommends an overall retur of 1 1.10% and has applied that
retur to the assessed value of the property estimated to be used (3/4 acre, buildings, and cement
for building) for Atlanta Power's equipment. Staffs adjustment reduces the Company's
expenses by $3,077 to $1,073.
Insurance
Staff has reduced insurance expenses by $775 to $1,503 per year to match the most recent
premiums documented by the Company. This insurance includes both liabilty and auto policies.
Property Taxes
Staff has reduced property taxes by $2,261 to $1,576 per year to reflect the most recent
assessments provided by the Company. It appears that the amount included within the
Company's case includes amounts for past due taxes.
Professional Fees
According to Company management, the amount included within the case ($4,319) was
mostly for costs incurred before 2006. As a result, Staff has removed that amount from the
Company's case. However, Staff does recognize that the Company should incur costs to prepare
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 14 SEPTEMBER 18, 2008
its annual reports and taxes. According to Staffs review of the Company's consultat expenses,
approximately $3,800 was incured to prepare accounting data and anual reports for 2004,
2005, and 2006. Staff doesn't recommend including simply one third of this cost (approx.
$1,300) because the Company's recordkeeping and stale data undoubtedly increased the time
required to prepare these reports. Staff has included $850 anually for preparation of anual
reports and taxes.
Depreciation Expense (net of Contrbutions in Aid of Construction Amortization)
Staff has revised depreciation expense and the amortization of Contributions in Aid of
Construction to reflect the changes in Plant in Service. For further information, see the
Accumulated Depreciation and Contributions in Aid of Construction section of this report.
Rate Case Expenses
Staffhas reviewed rate case invoices submitted by the Company for this case. Those
invoices included some costs for the loan application, taxes, and deferred accounting issues.
Based upon Staffs review, $12,854 (Attachment D) has been identified as surcharge and general
rate case expenses. 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. Interest on past due accounts has been
excluded from this amount (see late fees section of this report). In Staffs opinion, it is possible
that these rate case costs are higher than normal due to the substadard recordkeeping of the
Company. While Staff has recommended amortizing these costs over five years, a seven-year
amortization could also be justified given that the surcharge (7-year rate) is the largest increase
proposed in Staffs report. The Company has requested $13,500 for rate case expenses in its
amended fiing of August 8, 2008.
Late fees/interest on accounts
Consultant fees include interest on past due amounts. These essentially are late fees that
should be borne by management and not the ratepayer. Staffhas included an amount for
working capital within the Company's revenue requirement. Working capital provides the fuds
to pay expenses until revenues from customers are received. This should be suffcient to ensure
bils are paid in a timely maner.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 15 SEPTEMBER 18, 2008
REVENUE ALLOCATION AND RATE DESIGN
The Surcharge Request
In the par of this case that decided the temporar surcharge, the Staff recommended a
uniform percentage rate increase as the method of recovering the surcharge from customers.
Staff believes that a uniform percentage increase remains the appropriate rate methodology to
recover the surcharge amount. Schedule 5 of the Company's tariff was developed to implement
the surcharge. In this fiing the Staff proposes that the total amount to be recovered by surcharge
be changed from $172,242.52 to $168,285. This change in the surcharge amount and the
proposed change in base rates require that the surcharge percentage also be changed. Staff
recommends that the surcharge amount contained in Schedule 5 be adjusted to reflect an anual
total collection of $24,180 and that the surcharge percentage be updated accordingly to 31.5% of
the new base rates proposed by Staff. (Attachment E).
The General Rate Case
Electric utilty general rate cases traditionally allocate costs to customer classes using a
class cost of service study as a guide. However, coincident peak demand information is required
to do such a study and that information is not available. What is known is that there are no
transmission costs and that generation costs have a large fixed cost component and a relatively
small variable cost component because system generation is provided by hydropower. This
appears to be reflected in curent rates because much of the anual revenue requirement is
collected though customer charges. A uniform percentage increase maintains the rate
relationships among the customer classes and requires no customer class pay more than the
average increase. This is important when the increases are large and there is no cost of service
justification to do otherwise. Attachment F to this report shows three rate design alternatives for
general rates. Column (e) shows current rates and revenues. Column (f) shows the rates,
revenues and the increase associated with an across the board uniform percentage rate increase as
proposed by Staff. Column (g) shows rates, revenues and the percent increase based on a
uniform percentage increase to all Customer Charges and equal energy rates for Residential and
Commercial Customers. Column (h) shows rates, revenues and the percent increase similar to
column (g) except Permanent Commercial customers receive no energy rate increase. Permanent
Residential customer energy rates are increased to make up the difference. All three sets of rates,
columns (e), (f) and (g), are designed to recover the Staff proposed 5.09% general rate increase.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 16 SEPTEMBER 18, 2008
Combined General and Surcharge Rates
Under the Staffs proposal the combined Surcharge and General rate increase above
existing base rates is approximately 38%.
Reconnection Charge
The Staff supports the Company's recommendation that the Reconnection Charge for
customers disconnected from the system for periods of time longer than 30 days be
approximately four times the monthly customer charge. Staff proposes a residential
reconnection charge of $340.00 and a commercial customer reconnection charge of $600.00.
CUSTOMER RELATIONS
Customer Notice and Press Release
The Customer Notice was sent as an insert in the May 2008 biling. The Notice met the
requirements of Rule 102, Utilty Customer Information Rules, IDAPA 31.21.02.000 et seq. The
press release was identical to the Customer Notice and was sent to the Idaho Statesman, the
Idaho Business Review, the Mountain Home News and the Idaho World newspapers the same
day the Application was fied at the Commission, August 8, 2008.
Customer Comments
As of September 12, 2008, sixteen customers filed comments on the case. The
Commission also received a petition with 29 names; six of those who signed the petition also
fied comments. Almost all objected to the requested rate increase. Four of the commentors said
they either would consider disconnecting or would disconnect if the requested rates were
approved.
Service Outages
Twenty-two customers attended the workshop in Atlanta on August 23,2008. A primar
issue at the workshop was the difficulty in reaching the Company to get information about
outages. In paricular, they wanted to know the cause of the outage and how long it would last.
In addition to their concerns about unplaned outages, customers said there was little or no prior
notice for planed outages involving system maintenance and repair. Several customers
questioned whether the system was maintained adequately in light of the turbine failure in 2007.
There have been twenty-two complaints to the Commission since 2004 for Atlanta Power
Company, a significant number considering the small number of customers. The majority of the
complaints related to outages. However, since the repair of the turbine at the dam was
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 17 SEPTEMBER 18, 2008
completed, the number of complaints has dropped. As of September 17, 2008, there had been no
outage complaints fied with the Commission for this year.
A dedicated telephone line with an answering machine or voicemail with recorded
message capability would be very helpful during extended or planed outages. It would allow
Atlanta Power employees to avoid having to answer and respond to numerous calls while they
are working on restoring service. A recorded message could provide all the available
information about the outage and be updated when more information becomes available. Outage
messages would also allow customers or other interested persons to get information about
outages when they are not in Atlanta.
Biling Documentation and Customer Notices
The Utility Customer Relation Rules (UCRR), IDAPA 31.21.000 et sec., includes the
requirements for biling documentation. The Company bils customers on a monthly basis. The
bil sample submitted by the Company indicates the service period and biling date but does not
indicate a due date as required by Rule No. 202.01, UCRR. Staff recommends the Company
update its biling statements to include the specific due date so that it is clear to customers when
a bil payment is due. Staff is wiling to work with the Company to revise the billng statement
so it meets the rule requirements.
Rule 103 of the Utilty Customer Information Rules (UCIR), IDAPA 31.21.02.000 et
seq., requires the biling statement to include a comparison of the current month's usage with the
same period oftime the prior year. The biling statement sample does not include the required
information. Staff recommends the Company update its statement to include the comparison.
Alternatively the Company can ask for an exemption from this requirement if compliance poses
a hardship for the Company.
The Company rarely tus off customers for non-payment but when it is necessar, it
contacts the customer by telephone and a letter before service is disconnected. The Company did
not provide a sample of the letter it mails to customers. The Company agreed to work with Staff
to establish a protocol to be used before disconnecting a customer and the wording and format
for the Initial and Final Notices required by Rule Nos. 304 and 305 of the UCRR.
Rule 701 of the UCRR requires a lltilty to provide its customers on an anual basis a
copy of its rules summar. Staff is willng to provide a sample copy of the rules summar to the
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 18 SEPTEMBER 18, 2008
Company in electronic format. The Company must send a copy with its updated biling
statements and on an anual basis thereafter to comply with Commission rules.
Staff also discussed the Third-Pary Notification, the Medical Certificate and the Winter
Payment Plan "Moratorium" with the Company. Staff and the Company wil work together on
the protocol, and any necessary forms, consistent with Commission Rule Nos. 306, 307 and 308,
UCRR.
Company Tariff and Non-Recurring Charges
The Company requested approval of two non-recurring charges, a late payment fee and a
returned check charge, to be included on Schedule 4, Other Miscellaneous Charges. The
Company requested a late payment fee of 12 percent per anum or 1 % monthly on the unpaid
balance owing at the time of the next monthly biling. Staff recommends the late payment fee be
approved. The Company asked for a returned check charge of$20. Staff recommends the charge
be approved.
In its review of Atlanta Power's curent tariff, Staff found other charges included in the
Rules and Regulation portion of the tariff that should be included on Schedule 4 which lists the
Company's non-recurring charges:
. $10.00 monthly charge for additional temporar connections to a meter.
. $25 meter test fee
These charges were previously approved by the Commission, but Staff recommends they be
moved to Schedule 4. The Company has proposed adding language to its tariff to clarify the
conditions under which the temporary connection charge applies. As discussed earlier in this
report, Staff supports this clarification.
Since the majority of the tariffwas approved in 1989, there have been numerous changes
in the Commission's rules and regulations. Staff recommends that the Company and Staff work
together to revise and update its tariff to ensure compliance with the Commission's requirements.
SUMMARY OF STAFF RECOMMENDATIONS
Staff recommends:
. The emergency surcharge rate be made final; that the amount that is to be recovered
by the surcharge rate be $24,184 anually and that the surcharge percentage be 31.5% of the new
base rates proposed by Staff in this case.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 19 SEPTEMBER 18, 2008
. The Commission approve a general rate increase of 5.09% designed to recover a
revenue requirement of $76,770. Staff fuher recommends that the increase be a uniform
percentage increase applied to all Schedule 1, 2 and 3 rates.
. The total revenue requirement for the Company be established at $76,770.
. The Company's rate base be set at $118,011.
. The Company be authorized to ear 11 % as a reasonable rate of return on rate base.
Once the Company has made financial accounting and organizational improvements, it can
petition the Commission for an increase in its return on equity to 12%.
. The Company establish a recordkeeping system to document its costs. Such
documentation should be obtained and/or prepared contemporaneously with the underlying cost
event. Furher, this documentation should be maintained in such a maner that it is easily
retrievable when necessary.
. A follow up review of the status of the loans discussed in this report be performed in
April 2009 coincident with the Company's filing of its Annual Report.
. The Company provide a means to inform customers of outages, e.g., a dedicated
telephone line with an answering machine or voicemail with recorded message capabilty.
. The Company update all biling documentation to include the due date and usage
comparson to comply with Commission Rules.
. The Company work with Staff to develop a notification process as well as the
required notices regarding disconnection of service.
. The Company work with Staff on a Rules Summar to be provided to customers.
. The Company work with Staff to develop the protocol as well as necessary forms for
Third-Pary Notification, the Medical Certification and the Winter Payment Plan.
. The Commission approve the Return Check Charge of $20 and a late payment charge
of 12 percent per anum or 1 % monthly on the unpaid balance owing at the time of the next
monthly biling.
. The Company revise Rate Schedule NO.4 - Other Miscellaneous Charges, to include
its temporar connection charge and Meter Test Fee.
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 20 SEPTEMBER 18, 2008
Respectfully submitted this
Technical Staff: Keith Hessing
Patricia Hars
Nancy Hylton
7h
I g day of September 2008.
Sco Woodbury
Deputy Attorney General
i:/umisclcomments/atle08.2swkhphnh staff report and recommendations gen rate case
REPORT AND RECOMMENDATIONS
OF THE COMMISSION STAFF 21 SEPTEMBER 18, 2008
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Case No. ATL-E-08-2
Report and Recommendations
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Case No. A TL-E-08-2
Report and Recommendations
P. Harms, Staff
09/18/08 Page 1 of 2
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Atlanta Power Company
Weighted Cost of Capital Proposed by Staff
at 12/31/2006
(A)(8)(C)(D)(E)(F)
Per PUC
2006 Corrected Total wtd.
Report Loans at 12/31/06 Weight Rate Cost
1 Common Stock 144,171
2 Retained Earnings (91,704)
3 Additional Paid-In Capital 22,323
4 Net Owners Equity 74,790 (7,047)67,743 42.12%11%4.63%
Notes Payable - Others
5 Alberdi 2004 loan 57,000 (2,572)54,428 33.84%12%4.06%
6 Zimmerman loan 14,598 4,358 18,956 11.78%10%1.18%
7 Israel Ray loans 15,189 4,534 19,723 12.26%10%1.23%
8 Total Capital 160,850 100.00%11.10%
Attachment C
Case No. A TL-E-08-2
Report and Recommendations
P. Hars, Staff
09/18/08
Atlanta Power Company
Pro Forma Revenue Requirement
Proposed by Staff
1 Rate Base
2 Rate of Return
3 Net Operating Income Required
4 Net Operating Income Realized
5 Net Operating Income Deficiency
6 Deficiency not Subject to Tax Gross-up Factor
7 Deficiency Subject to Tax Gross-up Factor
8 Gross-up Factor
9 Grossed-up Deficiency
10 Total Revenue Deficiency
11 Rate Case Expense Amortization
12 Total Expense
13 5- Year Amortization
14 Tax Gross-up Factor
15 Gross Revenue Required
16 Total Gross Revenue Deficiency
17 Test Year Revenues as Adjusted by Staff
18 Total Gross Revenue Requirement
191 Percent Increase
Gross-up Factor Calculation20 Gross Income21 PUC Fees22 Bad Debts23 State Taxable
24 State Tax § 8%
25 Federal Taxable
26 Federal Tax § 15%Rate27 Net After Tax28 Net to Gross Multiplier
$118,011
11.10%
$13,097
12,759
$338
$ 338
1.278496
$
432
432
$ 12,854
2,571
1.278496
3,287
$3,719
73,051
76,770
5.09%1
100.00%
0.25%
0,00%
99.75%
7.98%
92.02%
13.80%
78.22%
1.278496
Attachment D
Case No. A TL-E-OS-2
Report and Recommendations
P. Harms, Staff
09l1S/OS
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Attachment E
Case No. ATL-E-08-2
Report and Recommendations
K. Hessing, Staff
09/18/08
AT
L
A
N
T
A

P
O
W
E
R

C
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(a
)
(b
)
(c
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(d
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($
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81
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1
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85
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85
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/
k
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0.
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1
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(k
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)
50
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($
)
20
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21
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7
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3
22
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9
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6
22
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5
5
8
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($
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35
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36
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30
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50
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($
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23
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($
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65
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en
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF SEPTEMBER 2008,
SERVED THE FOREGOING REPORT AND RECOMMENDATIONS OF THE
COMMISSION STAFF, 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
DE-MAIL: utiltygroup(iyahoo.com
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
DE-MAIL: joe(imcdevitt-miler.com
\~;: . ",Oc .¿
SEC TARY
CERTIFICATE OF SERVICE