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Judge questions gas pact

JOHN A. BAYLESS

Administrative Law Judge Orville Wright surprised both Town of Truckee officials and Southwest Gas Corp. representatives Monday night, when he questioned why the gas company reached a negotiated compromise with the town instead of following the direction of the California Public Utilities Commission to hold to the terms of its original agreement.

Wright questioned whether it was fair and equitable for people who buy houses later in Truckee to be bound by the decision of the current owner of a residence to purchase natural gas. If the current owner of a home does not connect to gas now, the cost will be much higher in the future, after Southwest Gas is done installing its mains.

He asked why Southwest had not followed the CPUC’s order to adhere to its agreement with the town.

Southwest and town officials say the compromise they reached was fair.

“I think he was basically trying to get a grasp on the fact that the company and the community had come together with this recommendation to go ahead with the project on a slightly different timetable, with a number of issues resolved,” Southwest spokesperson Roger Buehler said. “He said at the end he was wrestling with that.”

Buehler said he was happy by the level of community support shown at the hearing, as numerous people spoke in favor of the settlement and Southwest’s pending merger with ONEOK Inc.

“I was pleased by the comments from the community and councilmembers and the questions raised by customers,” Buehler said. “We were appreciative of the fact that people took the time to come out and participate in the hearing.”

Town Manager Steve Wright also said the meeting was a positive one, although the judge appeared to be grappling with whether to change his earlier decision, holding Southwest to its deal with the town.

“I’m pleased with community support presented at the hearing,” Wright said. “We were somewhat surprised by some of the judge’s questions. Although he did not say he had made a decision at this point, I think what he is attempting to do is rationalize in his own mind why he should change his previous decision.” He said the judge appeared to be trying to determine if the town was under duress when it agreed to the settlement.

Wright said the process could take up to three months, until the judge issues a draft decision.

“Things would move quickly after that,” Wright said. “After the decision is issued, then the CPUC might hear it in seven to 10 days.”

He said the town council is also considering what alternatives and options might be available before the CPUC issues its ruling, to provide further information to the judge or to commissioners.

“We were talking with Southwest about how to resolve this thing before the lawsuit was filed,” Wright said. He said the settlement was reached after the town and Southwest Gas entered discussions mediated by a judge.

Settlement background

The settlement package will bring natural gas to all regions in Truckee covered by Southwest’s original agreement with the town – at the cost of extending the 12.3 cent surcharge for an additional period of time.

Southwest Gas experienced $15 million in cost overruns constructing Phase I and II of its project, and will absorb $8 million of those losses as a direct write-off by shareholders. An additional $2 million will be expended by the company to underwrite Donner Lake mains and services. A general rate-freeze extension for three additional years accounts for another $7.3 million, while carrying costs on a deferred plant will save ratepayers $3.3 million. In total, Southwest Gas will contribute $20.6 million in in-kind services, according to the proposed settlement.

The settlement provides that Southwest Gas will provide cash-in-kind benefits to the ratepayers of $20.6 million to offset the $15 million in cost overruns. Remaining construction commenced in June 1999 and and will be completed on a specific schedule over the next three years under a guaranteed maximum price contract, with any cost overruns being the exclusive responsibility of the contractor.

The rates to be paid for the service will remain the same as those originally proposed, with an earlier removal of the surcharge if gas sales exceed current expectations. The surcharge will recover a maximum of $13.7 million in principal plus interest of 8.2 percent, and is expected to end in 2015.

Anyone interested in receiving natural gas, including the Donner Lake area, must request connection by 2003, before the project is complete. Residents seeking to connect after that date will be subject to the standard mains and services rules, which will allow Southwest to charge the cost of the installation and connection.

According to town consultants, the mains and services rules are standard in the industry. Costs are much higher to install new gas lines once a project has been completed and the company no longer has construction equipment at work throughout the area.

The settlement also lays down rules to ensure problems between the town and Southwest Gas can be resolved without litigation. If there is a question about performance of either party under the agreement, it will first be reviewed by the two chief engineers, then by the town manager and the vice president of Southwest Gas if negotiations are not successful. If an agreement cannot be reached at that level, the case would go to binding arbitration by Judge Terrance M. Finney, who served as mediator in reaching the proposed settlement.

Southwest Gas sought in early 1998 to revise its 1996 deal with the town through the California Public Utilities Commission’s Office of Ratepayer Advocates – increasing the surcharge to 18.6 cents, extending its timeframe and scaling back the project to exclude Donner Lake as well as parts of Tahoe Donner and Prosser. The increased rates would have added $17.6 million to Truckee ratepayers’ costs.

Parties to the proceeding, including the CPUC’s Office of Ratepayer Advocates, initially agreed upon a settlement to recover most cost overruns from ratepayers. As part of the proceeding, the CPUC conducted a public hearing in Truckee in February 1998, and the proposed settlement was discussed with potential customers.

Truckee residents rallied, and pointed out that they had modified their homes to receive the natural gas promised to them, but that 1,500 of them were now being excluded from the expansion. They objected to the increased facilities charge from 12 cents to 18 cents per therm that would occur if the settlement were approved. Residents and representatives of the town made their concerns known in letters and in presentations to the CPUC by town delegations.

Former mayor Kathleen Eagan and attorney Jim Simon led the campaign to hold Southwest to its original deal.

According to the commission, it is not known whether the cost overruns were reasonably incurred. Because of the proposed settlement, it was not determined whether they were the result of changes in government regulations, unforeseen changes in construction practices or excusable clerical errors in excess of the 10 percent contingency specified in Southwest’s contract.

Southwest Gas filed a motion in August 1998 to stay the CPUC decision which ordered it to proceed with its project here at the original price. The motion to stay the decision was filed in conjunction with a request for a rehearing of the commission’s decision on July 2 holding Southwest to the terms of its original agreement with the town.

The CPUC in September 1998 rejected the motion for a stay, and Southwest Gas filed a $15 million claim and later a federal complaint against the town, alleging that selective regulations enforced by Truckee caused the company to have a $15 million cost overrun while installing natural gas lines within the town limits.


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