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Truckee asks state to make SW Gas stick to original deal

John A. Bayless

In an emergency meeting Tuesday night, Truckee Town Council issued a strong message to the California Public Utilities Commission – asking the agency in its meeting today to force Southwest Gas Corp. to adhere to the terms of its original agreement with the town, and not pass on its cost overruns to Truckee ratepayers.

Council member Josh Susman made the motion to draft a letter to the CPUC, to deny Southwest Gas’ request for a negotiated settlement and to uphold a proposed decision by Administrative Law Judge Orville Wright, ordering the company to proceed with construction as agreed, with all deliberate speed.

“I run a grocery store and every six months I do an inventory,” Mayor Ron Florian said. “If I come up $100,000 short, I don’t just raise the price of milk by five cents and know that I will recoup it in a year. I look into it and find out what happened, address it, and move on.”

Cost of overruns

Sentiment was strong among the assembled residents and council members that local ratepayers should not bear any portion of the cost overruns which Southwest Gas would incur in fulfilling its promised obligations to the community.

“The deal was for Southwest Gas to be liable for any costs above the cost cap of its project,” said attorney Jim Simon, who spoke for a group of concerned citizens.

“I can attest that ‘any’ is not a word to be taken lightly in a legal context.”

Simon said the attorneys of Southwest Gas assuredly went over the agreement with a fine-toothed comb, and knew exactly how binding it was for the company. He asked the council to hold Southwest Gas to its word.

“You want Truckee to mean what it says, and for businesses to keep their word when dealing with you,” Simon said.

Former mayor Kathleen Eagan, who led the drive to make the community aware of the CPUC deliberations, said the time comes when the council has to put its foot down.

“At some point, you need to look at how the issue has progressed, and say ‘no, no, here we stop,'” Eagan said in her final

statements at the meeting.

Southwest Gas representatives at the meeting said the company first identified Truckee as a market in 1991, before the town was incorporated and a project was planned out in the early ’90s, and approved by the corporation, before an application was filed in 1992-93 for authorization to go into North Tahoe-Truckee area.

Robert M. Johnson, Assistant General Counsel for Southwest Gas, said the company completed Phase I of its project on the North Shore of Lake Tahoe on budget, at a cost of $7 million. However, the situation changed when work commenced in the Truckee area.

Phase II was completed in 1996, at a cost of about $28 million – or $17 million over budget.

“In October 1996 we began receiving cost overruns from our contractors,” Johnson said. He acknowledged there were no cost controls on a daily basis, and that the company bore some responsibility for not anticipating increased costs.

He said a study following Phase II showed it would take $20 million to complete Phase III of the project as originally planned – about $9 million more than budgeted. The company then applied to the CPUC in 1997 to renegotiate the deal.

The CPUC’s Office of Ratepayer Advocates protested the application, and the ORA approved a negotiated settlement in early 1998.

That settlement removes Prosser Heights, Prosser Lake Acreage, Donner Lake and Skislope Drive from the service agreement and increases the original 12 cent surcharge to 18 cents, for 28 years instead of the original 10-year span.

Under the ORA agreement, Southwest Gas would absorb $8 million of the cost of remaining construction, defer interest on $5 million and recover the rest of the construction cost from the extended and increased surcharge.

Also, the company agrees in the ORA settlement to study the possibility of providing service to the Donner Lake area, if certain conditions are met.

Parts of Glenshire, Tahoe Donner and downtown are currently served by Southwest Gas.

Council member Don McCormack pointed out that according to Wright’s ruling, Southwest Gas received a number of concessions from the CPUC statewide in return for a lack of CPUC oversight on its Truckee project – especially in regard to close CPUC oversight, from which the company was exempted in return for bearing the cost of any overruns exceeding the cost cap.

Johnson contended that Southwest gained nothing from its concessions to the CPUC in regard to the cost cap.

“The presumption that we traded that for something in the general rate case is incorrect,” Johnson said. “The cost-cap had no benefit to the company. No benefit for the company, and no benefit for ratepayers outside of northern California. There is no basis for that.”

Johnson said Southwest went into the agreement anticipating costs between $26 and $32 million, and that the company could not be expected to pay for overruns which would boost the final cost of the project to a total of over $56 million.

He said the project to bring natural gas to Truckee is now a “different project,” and not the same one which the company committed to originally.

“Conditions changed and we feel we should have the right to renegotiate,” Johnson said. When questioned by Florian, he refused to be specific about the nature of the conditions which had changed, stating that he was not at the meeting to “rehash all that.” In response to a question from council he again said Wright’s ruling was incorrect.

“Is the part in the ruling about Southwest Gas agreeing its shareholders would bear the cost of any overruns over $29 million correct?” McCormack asked.

“Yes,” Johnson said.

“Bad move,” replied McCormack.

Johnson contended that the project to bring natural gas Johnson said if the ORA settlement is approved by the CPUC, the company could resume construction of gas lines in Truckee within a couple of weeks and hook up 1,200 customers in Phase III in Tahoe Donner by the end of the summer.

However, if Judge Wright’s ruling upholding the original agreement is upheld, Johnson said the company would immediately seek “all legal remedies available to it.” – meaning that the matter would be tied up in court, and construction would be delayed.

“This situation should not be viewed as a threat by the company,” Johnson said. “To say ‘You have to eat that $25 million’ will cause a delay. It’s what will happen. When we are faced with a situation that can jeopardize our ability to pay dividends to shareholders, we will exercise whatever legal remedies are available.”

Johnson pointed out that the initial Southwest Gas work around North Lake Tahoe came in at the budgeted cost.

“We had experience around the lake,” he said. “We budgeted $7 million for that phase and it came in at $7 million. We did something wrong in the next phase. Is it appropriate for you to blame the entire cost on Southwest Gas? I don’t think so.”

One of several residents who addressed the council was former Mayor Breeze Cross, who reflected on the council’s first dealing with Southwest Gas.

“One of the things before us in 1992-93 was Southwest Gas asking us to support their application to provide service to our area,” Cross said. “I recall it was a big issue. We dug into it as much as we could. We were provided with assurance Southwest Gas would stand behind its numbers because cost overruns would be paid by shareholders.”

Cross urged the council to hold Southwest Gas to its guarantee, because of the potential loss of $19 million from the community over the term of the ORA agreement.

“For this council to not say ‘stop, we made a deal,’ will be putting back satisfaction of its own responsibilities and will make them more difficult to realize,” Cross said – pointing out that the average added cost of $75 per household yearly could be much better spent on local projects such as roads.

No residents spoke at the council in favor of Southwest Gas, although an unsigned form letter obtained by the town was apparently being distributed in support of the Office of Ratepayer Advocates agreement.

“If this constituency is not going to come forward and make its convictions known, be aware that we have considered them,” Susman said near the end of the meeting.

Town Attorney J. Dennis Crabbe advised council to consider its decision based on its cost to the community for the next 20 years, not on the possibility of a one or two year delay.

Council members Florian, Susman and McCormack all voted to ask the CPUC to uphold Wright’s ruling, and to deny the ORA-negotiated settlement. Council members Maia Schneider and Bob Drake were unable to attend the emergency meeting. A town representative will attend the CPUC meeting.

The next move will be up to the CPUC, which will rule today on Orville Wright’s decision to make Southwest adhere to its original agreement, or to accept an alternative ruling by Commissioner Josia Neeper.

According to the CPUC website, that alternative ruling would be to accept the settlement negotiated by the Office of Ratepayer Advocates.

On Wednesday, Simon said he and Eagan, along with other concerned citizens, will be traveling to the CPUC meeting to let commissioners know how they feel.

“I think Southwest Gas got the message that the Town of Truckee expects them to honor their commitment,” Simon said. “We will appear at the CPUC meeting to make sure.”

Sierra Sun E-mail: sun@tahoe.com

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