Council shows solidarity in request to hold SW Gas to pact
Truckee Town Council members unanimously voiced support Monday for the council’s earlier action asking the California Public Utilities Commission to hold Southwest Gas to its original agreement with the town.
With three members present, the council voted May 19 to draft a letter to the CPUC, asking it to require the company to keep the original agreement with the town. The meeting this Monday was called so that the full council could voice its support for the earlier decision. Council members Bob Drake and Maia Schneider were unable to attend the meeting May 19.
“I fully support the decision made by the three council members,” Schneider said. “The town owes Kathleen [Eagan] a huge debt of gratitude for spearheading this. We should use whatever means necessary to make the PUC hold Southwest Gas to its original agreement.”
Schneider said much of the drive for the effort has come from Truckee residents.
“The community should be commended for their letters,” Schneider said. “I’m not surprised, because I have seen this happen before in our community, but I am happy to see the response.”
“With the information to date, I would have voted with council,” Drake said, referring to the May 19 meeting. “We were trusting and believed things were going to work out. It went south on us. I support the direction we are going, and would support a proposal for the mayor and others to attend the CPUC meeting June 4.”
Council member Don McCormack said one issue which may be raised is a letter written to the CPUC by the town in July 1997, which could be considered to be supportive of Southwest Gas. He said an aide to one of the CPUC commissioners had
called and asked him to explain why the town wrote the earlier letter.
“I explained how we got where we were, due to lack of knowledge at that time,” McCormack said. “The situation in July Southwest Gas had submitted its application [to revise the agreement] and was seeking support for a ruling from the CPUC.”
McCormack pointed out that the letter was ambiguous, although it could be construed by Southwest Gas to be supportive.
“Southwest Gas was threatening us with delays and we had limited to no knowledge of the conditions of the original agreement,” McCormack said. “There was no consideration at that time that the CPUC might hold Southwest to its original deal.”
He said the ruling by Administrative Law Judge Orville Wright outlined the conditions of Southwest Gas’ certificate of convenience and necessity, making it clear that the company had foregone close oversight by the CPUC in exchange for its shareholders bearing the burden of cost overruns.
Councilman Josh Susman said Wright’s ruling opened the eyes of the community and the council.
“We did not understand what our options were,” he said. “We thought the Office of Ratepayer Advocates agreement was our only option.” He said at that time the council did not know of a number of issues, including rate discrepancies between Truckee and the lake or that a wholly-owned subsidiary of Southwest Gas was used in the construction.
Council voted 5-0 to support the decision of the council in its May 19 meeting, and to draft a letter explaining the town’s reasons for the ambiguous tone of its letter to the CPUC in July 1997.
A 1995 CPUC decision granted Southwest a certificate of public convenience and necessity to expand its service into Northern California in the Lake Tahoe area and the Town of Truckee. The expansion project was divided into three phases, with an estimated ratepayer-funded cost of approximately $29 million.
Cost recovery for the project was regulated under a settlement agreement approved by the CPUC as part of Southwest’s 1995 general rate case. Under the settlement, approximately $18 million of the project cost would be recovered from ratepayers, while another $11 million would be recovered from a 10-year facilities surcharge to customers in the expansion area.
The settlement agreement in 1995 also stipulated that Southwest Gas shareholders would be responsible for costs in excess of the cost cap. Because of this protective clause, the company was granted freedom from oversight and reasonableness review by the CPUC for its construction work.
However, Southwest is attempting to change the terms of the agreement, because of cost overruns which could raise the total project expenditures to more than $56 million, even with the removal of Prosser Heights, Donner Lake and upper Skislope in Tahoe Donner from the project.
At a recent town council meeting, Southwest Gas representatives defended their request to change the agreement, by arguing that the cost overruns were caused by factors beyond the company’s control.
They said if the opinion by Wright is upheld, the company will promptly appeal to protect its shareholders and a delay in natural gas construction in Truckee would ensue.
The company and the CPUC’s Office of Ratepayer Advocates proposed a stipulation and settlement agreement in February which addressed the cost overrun, and shifted most of the burden of the cost overruns on to Truckee ratepayers, rather than Southwest Gas shareholders.
Under the proposed ORA settlement, natural gas service would be extended to Tahoe Donner South in 1998, and then, if weather permits, to Tahoe Donner North. Prosser and the remainder of Tahoe Donner North would receive service in 1999, essentially completing the third and final phase of the company’s Northern California expansion project.
Southwest agreed to absorb $8 million in cost overruns it experienced in the first and second phases of the project and to defer recovery of an additional $5 million in construction costs interest-free. The company also agreed to an $11 million cost cap in the third phase of the project.
The company also agreed not to file its next general rate case until the third phase of the expansion project is completed. Under the terms of the ORA settlement, Southwest would maintain its current rates for at least an additional two years to 2001. The company’s last general rate increase was in January 1995, and six years will have elapsed between rate cases.
Only changes in the company’s natural gas supply and transportation costs would be passed through to customers during the next three years under the proposed ORA settlement. Under CPUC-approved tariffs, those costs are passed through to customers dollar-for-dollar with no profit to the company.
When the third phase of the expansion project is completed, the company would be allowed to increase the Truckee facilities surcharge from 12 cents per therm to 18 cents per therm, and extend the surcharge for a longer period.
Former Mayor Kathleen Eagan, who has led the drive to raise public awareness of the Southwest Gas issue, said the decision will have a great impact on Truckee residents.
She said Southwest Gas shareholders would pay a far smaller individual amount than the residents of Truckee, who would see their cost for gas line installation and facilities soar from around $1,490 during the term of the project to more than $3,970 if the revised agreement is approved (with an average usage of 100 therms per month).
In addition, service would not be provided to Donner Lake residents, as specified in the original agreement. However, the ORA settlement agreement would compel Southwest Gas to do a second study on providing natural gas to the Donner Lake area, and to present the estimated cost to the CPUC.
If Wright’s opinion is approved by the CPUC, Southwest will be held to its agreement to provide gas to all of Truckee, recovering only the $29 million specified in its initial contract.
Wright’s proposed decision is on the agenda for action by the CPUC in its meeting at 10 a.m. today in San Francisco.
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