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Town, SW Gas near agreement

JOHN A. BAYLESS

After months of litigation and a year of construction delays, it appears Truckee and Southwest Gas have patched up their differences, in a deal which should bring natural gas to all parts of Truckee by 2003.

Town attorney J. Dennis Crabb and town consultants presented a proposed settlement to a crowd of Truckee residents in a special meeting Monday night. Council will consider formal approval of the settlement in its meeting tonight at town hall.

“We have successfully resolved the issues and have a package to recommend to council,” Crabb said. He also revealed a surprise concession reached late in negotiations with Southwest Gas – the company agreed to remove a numerical “trigger,” which would have required 565 residents in the Donner Lake area to sign up for gas before construction would commence there.

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.

“During the mediation, the goals of the town were to ensure that Truckee citizens did not pay for management errors made by Southwest Gas, have construction on the project recommence this summer, keep the same rates as were originally approved by the Public Utilities Commission, ensure that service was available on reasonable terms throughout the town, ensure that future cost overruns would be avoided and provide dispute resolutions faster and more cost-effective than litigation,” Crabb said.

Crabb said the draft agreement addresses all of those issues.

“It 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,” Crabb said. “It provides that all remaining construction will be commenced in June 1999 and 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. Any resident 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.

“If you have a house that’s far away from the main now, sign up today,” Southwest Gas attorney Gregory Dyer said. “A house 300 yards from the main might cost as much as $20,000 to $30,000 to hook up after the project is complete.”

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. 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.

Town councilmember Don McCormack said there were two tough issues council had to deal with in reaching the settlement.

“Donner Lake will be more expensive,” McCormack said. “But we felt strongly that all of Truckee should be served. At the last minute, Southwest Gas said to take out the signup limits.” He said the rest of the community will be paying a portion of the cost for the Donner Lake construction, in the form of a longer surcharge.

“Also, how do we get over ‘A deal is a deal,'” McCormack asked. He said the council had to consider that issue in depth.

“If you stop and analyze, the original cost was too low,” McCormack said. “We should have realized that. We were late to get smart and Southwest Gas was late to get real.”

However, McCormack said he was pleased by the terms of the proposed settlement.

Vice mayor Maia Schneider, who served on the negotiating team for the Southwest Gas issue with councilmember and former mayor Ron Florian, said she looked forward to Truckee having better relations with Southwest Gas.

“I’m looking forward to a fading of the mutual distrust and looking forward to a positive working relationship,” Schneider said. “My hat’s off to Southwest Gas as well as to my peers on council for their hard work.”

Florian expressed thanks to both sides for good faith negotiations and to Judge Finney for his efforts in mediating the issue.

“We had a list of goals and we kept it as close to the original deal as we could get,” Susman said. He thanked all involved, especially Truckee residents Jim Simon and Kathleen Eagan, who he said “picked up the ball on behalf of the entire community” representing Truckee in front of the California Public Utilities Commission.

Roger Buehrer, administrator of corporate communications for Southwest Gas, said what’s important now is that the project is back on track.

“This resolves the issue of serving people with natural gas and resolves the issue of the lawsuit,” Buehrer said. “All concerns are put aside. We’re excited about that.”

Background

Southwest Gas sought in early 1998 to revise its 1996 deal with the town through the California Public Utility 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 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.

If the current settlement is approved, Southwest Gas would drop its lawsuit and the complaint against the town, Crabb said.

Construction timeline:

Phase III – Downtown, Tahoe Donner (exc. Ski Slope Way), Prosser Lakeview and Prosser Heights – Work will begin in June 1999 and should be completed Nov. 1, 2001, weather permitting.

Phase IV – Ski Slope Way, Prosser Acreage and Donner Lake – will commence after Phase III and after Caltrans replaces the Donner Pass Road overpass leading to Donner Lake, currently planned for 2002. If the overpass is not replaced by 2002, Southwest Gas will determine the lowest cost alternative to construct an approach main to Donner Lake. Completion of the mains and Donner Lake lines is anticipated in 2003.

New District Office – Southwest will be locating a district office in Truckee by May 1, 2001.


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