Residents support town’s stance vs. Southwest Gas


The outpouring of comments concerning Southwest Gas Corp.’s proposal to change the terms of its agreement with Truckee ratepayers and the town had very tangible results last week, when the California Public Utilities Commission tabled action on it for two weeks pending further consideration.

Representatives from Truckee, including vice-mayor Don McCormack, former mayor Kathleen Eagan and attorney Jim Simon, spoke to the commissioners and urged them to hold Southwest Gas to the terms of the company’s original agreement.

Commissioners, who received many letters from Truckee residents, deferred action on the matter until June 4.

Eagan estimated more than 50 letters were sent to the CPUC supporting an opinion by Administrative Law Judge Orville Wright, which stated that Southwest should stick to the terms of its original agreement to provide gas to all of Truckee.

“It’s important because of delay that people keep communicating,” Eagan said Tuesday. “It’s the only voice we have at this stage in the proceedings, and it is very important to let the CPUC know how crucial this issue is to our community.”

She said Southwest Gas shareholders would pay a far smaller individual amount than the residents of Truckee, who would see their cost for the project 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).

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 any cost 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 now attempting to change the terms of the agreement, because of cost overruns which could raise the total expenditures on the project to more than $46.8 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.

“Southwest Gas showed its true colors when they made their comments in the town council meeting when they said they will do whatever is necessary to protect dividends to shareholders,” Eagan said. “Without question, they have 100 percent interest in their shareholders and very little interest in its promise to our community.”

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 could be passed through to customers during the next three years. 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.

In addition, service would not be provided to Donner Lake residents, as specified in the original agreement. However, the ORA settlement 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.

A special Truckee Town Council meeting has been called Monday, June 1 at 6 p.m. in the Town Council chambers to further discuss the Southwest Gas issue and possible CPUC action.

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