SW Gas threatens $10 million suit
Despite threats of a $10 million lawsuit by Southwest Gas, the Town of Truckee is pressing forward with its request for the California Public Utilities Commission to hold the company to its original deal.
Southwest Gas executives met with town staff and two council representatives last week, and proposed an amended version of the settlement devised by the California Public Utility Commission’s Office of Ratepayer Advocates.
However, from the town’s point of view, it wasn’t revised enough. Council voted 5-0 in a special meeting Monday to continue with its position that Southwest be held to its original deal.
“The council has now responded to the proposal,” Town Manager Steve Wright said. “We don’t believe that it was a substantive proposal. It continues to provide that not all of Truckee will be served and continues to propose a 50 percent increase in the surcharge for construction. On top of that, they said if we do not accept it, they will initiate an independent third party lawsuit against the town for $10 million plus.”
Wright said the council has chosen not to accept that, and maintains the CPUC should adopt a ruling by Judge Orville Wright, holding Southwest to its original contract for service to all of Truckee.
“The town refuses to be intimidated by that sort of negotiation tactic,” Wright said.
He said the town also received word that Southwest had asked the CPUC to again delay consideration of Wright’s decision, because of its proposal to the town.
“We are sending one letter to Southwest Gas refusing the offer,” Wright said. “We are sending another letter to the CPUC asking them not to delay action on this because of the proposal by Southwest Gas.” The CPUC has already delayed action of Wright’s ruling three times, after town representatives made the eight-hour round trip to San Francisco for the meetings.
According to Wright, Southwest proposed to provide service to some areas of Truckee not included in the Office of Ratepayer Advocates agreement. He said the company also offered to run a backbone gas line to the Donner Lake area, but that residents would have to pay additional fees to hook up to the service.
“Basically the deal was more but not all of Truckee, retain the rate increase, and we’ll sue you if you don’t accept,” Wright said. He said the town did not examine the minute details of the proposal, because council did not consider it to be a substantive offer.
“The offer was unacceptable and we are going to proceed with Judge Wright’s decision to uphold the original agreement,” Mayor Ron Florian said when reached for comment Tuesday.
Council member Maia Schneider, who attended the meeting with Southwest Gas officials last Tuesday, said she was disappointed that Southwest Gas did not come forward with a substantive offer, and that they implied the threat of a lawsuit in the proposal.
“I am actually beyond disappointed,” Schneider said. “I am very angry. We need the CPUC to hold Southwest to the original agreement. Their mistakes should be explained to shareholders, not taken out on Truckee ratepayers.”
Schneider said the threat of a lawsuit was included under a section of the proposal labeled as “benefits to the town.”
“One of the benefits was avoiding future litigation,” she said. Schneider said that Southwest contends it is being held to a different standard than other contractors in Truckee, and that it will sue on the basis of the alleged double standard.
However, she said Southwest’s position is quite different from that of other contractors, because the company agreed to a cost cap on its project in exchange for a loosening of regulatory oversight. She said the CPUC has been working to implement such contracts, because they allow businesses to be more self-regulating and encourage them to be responsible, while lessening government paperwork.
“Their offer was not substantive and it was not in good faith,” Schneider said. “The town cannot negotiate effectively under the threat of litigation.”
Wright said the town attorney believes Truckee is immune from a law suit like the one under consideration by Southwest Gas, because of governmental immunity.
Southwest Gas officials downplayed the possibility of a lawsuit, and said they were only advising the town of possible consequences during the June 23 meeting, not making a threat.
Dante Pistone, corporate communications manager for Southwest Gas, said the company is continuing to work to resolve the dispute in a way satisfactory for all.
“We feel the initial settlement negotiated with the Office of Ratepayer Advocates was in the public interest, and now we have come back with even more additional concessions,” Pistone said. “We feel we are operating in good faith.”
Pistone said the clause in the proposal which mentions litigation is intended only to inform the town of the benfits of the settlement.
“All we were noting is that a settlement avoids protracted hearings and protracted litigation,” he said. “We are going to continue to work this out in a manner which is constructive for all parties.”
The settlement proposal brought before the town and rejected June 23 reads as follows:
Revised settlement offer
— Southwest Gas shall write-off $8 million and defer recovery of an additional $5 million, interest-free, of the Phase I and II cost overruns.
— Phase Ill, as described in Attachment B of the Settlement Agreement between Southwest Gas and ORA, shall be completed in 1999 and 2000, subject to a cost cap of $11 million in total and $3800 per customer. In addition, Southwest Gas shall also extend service to 166
potential customers that have been identified in Prosser Lake Heights, Prosser Lake Acreage and Ski Slope Way in 1999 and 2000 at shareholder expense, up to $2 million in total. Natural gas service to accommodate future growth in these areas shall be offered pursuant to the main and service extension rules.
— Phase IV, which consists of a “backbone” main extension around Donner Lake, shall be completed in 2001, at shareholder expense, up to $3 million in total. Natural gas service shall be offered to all potential customers at Donner Lake pursuant to the main and service extension rules. Southwest Gas shall offer a residential amortization program to allow potential customers at Donner Lake to amortize that portion of an extension project’s costs in excess of Southwest Gas’s allowable investment.
— Rates, other than gas costs, shall be frozen through at least the year 2001.
— The facility surcharge, which is applicable to all customers in the Expansion Area, shall be increased to 18 cents per therm, effective November 1, 1999, which saves customers in the Expansion Area an estimated $25 million in interest costs over the recovery period.
Financial impact to Southwest Gas
In addition to the $8 million which Southwest Gas wrote-off in 1997, Southwest Gas will write-off up to $5 million in construction expenditures applicable to Phases Ill and IV of the Expansion Project, for a total write-off of up to $13 million. A $13 million write-off is equivalent to 32 percent of Southwest Gas’s 1997 total Company net income and 162 percent of Southwest Gas’s 1997 total California net income.
— Southwest Gas will absorb the carrying costs on the deferral of $5 million in Phase I and 11 cost overruns. Such cost is estimated at $3.5 to $4.0 million.
— As a result of extending the general rate case moratorium until at least 2002, Southwest Gas will forego general rate relief for the years 1999 – 2001. Such cost is estimated at $6.3 million.
Benefits of revised settlement offer
— Provides natural gas service for virtually all residential customers, except for residents at Donner Lake, by the end of the 2000 construction season.
— Provides a realistic opportunity for some residential customers at Donner Lake to receive natural gas service, without unduly penalizing other Truckee residents or Southwest Gas.
— Avoids protracted hearings and litigation which could delay completing the project for years, including potential litigation against the Town of Truckee.
The CPUC will again consider Judge Orville Wright’s ruling in a meeting set for 10 a.m. today in San Francisco.
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