SW Gas deal in dange
Southwest Gas Corp. completed installation of thousands of feet of gas line during the summer and fall, and plans to be back again next spring – but all future plans could hinge on a decision the California Public Utilities Commission was to make this afternoon.
Administrative Law Judge Orville Wright, who authored the original decision in 1998 that held Southwest Gas to its original agreement with the town, recently wrote another ruling holding Southwest to that deal. If upheld by the CPUC, Judge Wright’s ruling would toss out the hard-won settlement between the gas company and the town and attempt to hold Southwest to its original deal – a move that could put a halt to all gas line construction in Truckee and send the issue back to the courtroom.
CPUC Commissioner Josiah Neeper introduced an alternate ruling that upholds the town’s new settlement with Southwest Gas, and town officials and staff have been lobbying for its adoption. A group of town representatives, including Mayor Maia Schneider, Councilmember Ron Florian, Town Manager Steve Wright and counsel Bill Booth, traveled to San Francisco Tuesday to plead the town’s case along with representatives from Southwest Gas.
“We had a meeting today with one of the commissioners,” Schneider said Tuesday. She said the meeting went pretty well, but the town won’t know how the commissioner received its concerns until the CPUC vote Thursday.
Wright said the town delegation and Southwest Gas officials briefed Commissioner Carl Wood on the history of the town settlement with Southwest Gas, and on the alternate ruling by Neeper upholding that settlement.
“He (Wood) was noncommittal,” Wright said “He said that our presentation clarified some things for him, but did not say what they were.”
The Truckee-Donner Chamber of Commerce recently drafted a letter to all of its members, urging them to write to the CPUC and support adoption of Neeper’s alternate ruling.
“During the last nine months, the Town of Truckee and Southwest Gas reached a settlement agreement that called for Southwest Gas to begin work immediately; absorb more of the earlier overrun costs; serve all parts of Truckee as they originally agreed; and do all this at the original surcharge rate without an increase,” Chamber President Rachelle Pellissier wrote in her letter to members. She said Judge Wright ignored overwhelmingly positive testimony from businesses and residents about he settlement when he drafted his proposed decision.
“The judge has chosen to disregard local input and write a proposed decision that rejects the agreement and once again puts the Town of Truckee and Southwest Gas at odds with one another,” Pellissier wrote. “This proposed decision will put us back in court – risking the terms of the agreement, future gas installation and the current fast paced progress that the gas company has been making.”
The CPUC will consider both rulings during its meeting today in San Francisco.
The settlement package approved by the town and Southwest Gas in spring of 1999 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 in 1996-97, and agreed in the settlement to 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 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 they are not successful. If an agreement cannot be reached at that level, the case will go to binding arbitration by Judge Terrance M. Finney, who served as mediator in reaching the proposed settlement.
Southwest Gas ended the construction season this year ahead of schedule, with thousands of feet of natural gas line down in Tahoe Donner and along Donner Pass Road at Donner Lake.
Southwest Gas sought in early 1998 to revise its 1996 deal with the town through the CPUC’s Office of Ratepayer Advocates – increasing the 12.3-cent 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 Gas 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.
Legal wrangling continued until the town and Southwest Gas reached the settlement in March 1999.
Judge Wright conducted a hearing in Truckee on the proposed settlement on August 2, and surprised both town and Southwest Gas officials when he questioned the terms of the settlement.
In particular, 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.
People wishing to send comments to the CPUC should write to the following address. The CPUC officers are president Richard Bilas, and commissioners Henry M. Duque, Josiah Neeper, Joel Z. Hyatt and Carl W. Wood.
California Public Utilities Commission
505 Van Ness Ave., Room 5305
San Francisco, CA 94102
Fax number (415) 703-1758
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