Background
The procedural history leading up to the Joint Petition to Modify D.94-12-022 and D.95-04-075 is lengthy. We incorporate by reference the Statement of Facts submitted to the California Supreme Court in our Answer to Southwest's Petition for Writ of Review of D.98-07-031.1 D.98-07-031 denied rehearing on our dismissal of Southwest's Application to Modify D.95-04-075. As the underlying facts of the Joint Petition and the Application to Modify are substantially the same, we quote from our Statement of Facts:
"This case stems from Southwest's attempt to renege on a pair of settlement agreements approved by the Commission in connection with Southwest's plans to expand its service territory in Northern California. In 1993, Southwest filed a Certificate Application to extend its certificated service territory in Northern California in the Lake Tahoe area, to include, among other things, the Town of Truckee. In response to a joint motion by Southwest and the Commission's Office of Ratepayer Advocates (ORA), the issues of rate recovery associated with the proposed expansion area were transferred to Southwest's 1995 General Rate Case (GRC). As part of a settlement agreement in the GRC proceeding, Southwest agreed to a construction cost cap of approximately $29 million, which included a 10% contingency estimate. (This settlement is referred to as the `Original Settlement,' and was approved by the Commission in Decision (D.) 94-12-022.) Southwest further agreed that its shareholders would be responsible for any cost in excess of the cost cap. (See D.94-12-022.) As part of the settlement agreement, Southwest was excused from the burden of Commission oversight and reasonableness review of the project. Under the terms of the Original Settlement, approximately $18 million of the estimated cost would be added to the ratebase with the remaining $11 million recovered directly from the customers in the expansion area through a facilities surcharge which would be in place for up to 10 years. In a related settlement agreement, the Commission granted Southwest a certificate of public convenience and necessity (CPCN) for the expansion project. (This settlement is referred to as the `CPCN Settlement' and was approved by the Commission in D.95-04-075.) That settlement incorporated the rate issues resolved in D.94-12-022, including the construction cost cap and facilities surcharge.
"After Southwest completed two of the three construction phases, and after it had already incurred significant cost overruns on the project, Southwest filed an application on July 1, 1997, requesting modification of the terms and conditions of the CPCN authorized in D.95-04-075. Southwest's application was based upon the very cost overruns for which Southwest agreed to be at risk. Southwest sought to: (1) increase the previously approved construction cost cap by more than 60%, from $29,100,000 to $46,762,533; (2) increase the amount of construction expenditures to be recovered from customers through a facilities surcharge from $11 million to $28,720,832; and (3) modify the expansion area so that approximately 1,500 potential natural gas customers will be required to apply for service under Southwest's Main and Service Rules rather than the offered service as set forth in D.95-04-075. Southwest's application made no mention of the settlement agreements the utility entered into providing that its shareholders would absorb any cost overruns associated with the expansion project.
"On August 18, 1997, ORA filed a protest to the application requesting that the Commission dismiss the application and direct Southwest to complete the certificated project. After a prehearing conference which established a briefing schedule and date the proceeding would be submitted for decision, the parties requested that the submittal date and briefing schedule be suspended, and on January 15, 1998, a Joint Motion for adoption of Stipulation and Settlement Agreement was filed by Southwest and ORA (ORA-Southwest Settlement). The proposed settlement included a scaled back version of Phase III of the project and continued to propose shifting the major portion of any cost overruns from Southwest's shareholders to its ratepayers.
"On July 2, 1998, the Commission issued D.98-07-031 which dismissed Southwest's application and ordered Southwest to proceed with all deliberate speed to fulfill its obligations as set forth in D.95-04-075 and D.94-12-022. The Commission rejected the ORA-Southwest Settlement and dismissed Southwest's application as it did not find extraordinary circumstances warranting reopening final Commission decisions that had approved Southwest's prior settlement agreements. The commission also found that Southwest had waived any right to file its application seeking such modifications without the written agreement of all the parties to the previous settlements.
"Southwest subsequently filed an application for rehearing and request for a stay of D.98-07-031. The Commission denied Southwest's stay request in D.98-09-074. On January 21, 1999, the Commission issued D.99-01-033, which denied Southwest's application for rehearing. As a result, Southwest filed the instant petition for writ of review."
In denying the stay request in D.98-09-074,2 the Commission reiterated the need for timely completion of the Project in compliance with its prior decisions. The Commission stated, in part:
D.98-09-074 denying the stay request was not appealed to the California Supreme Court and became final on September 17, 1998. As of this date, Southwest was now subject to three separate Commission orders to proceed with the Project. Southwest had discontinued work in early 1997 and, irrespective of D.98-07-031 and D.98-09-074, did not resume work until June 1999, some 250 days after the denial of its stay request. In the meantime, Southwest filed a federal lawsuit against Town alleging breach of contract, interference with prospective economic advantage, violations of 42 U.S.C. § 1983, declaratory and injunctive relief. Town vigorously denied liability but ultimately entered into a Settlement Agreement with Southwest to avoid the defense costs of protracted litigation. The Settlement Agreement provides for the dismissal of the federal lawsuit by Southwest if Town actively supports the Joint Petition and the Commission grants the Joint Petition. Lastly, it appears that Southwest may have been charging unauthorized rates in California since January 1, 1999. D.94-12-022 authorized an extension of Southwest's rate case cycle from three to four years (1995 - 1998). Southwest's request for a further extension of the rate case cycle to include 1999 was denied in D.98-07-031. However, no general rate case (GRC) has been filed to establish rates for 1999 forward."Southwest further argues that staying D.98-07-031 will not unduly delay the completion of the Expansion Project, as Southwest claims no meaningful construction on Phase III will occur this year due to the Town of Truckee's road repaving schedule and the limited construction season in Truckee. However, we considered these very factors in D.98-07-031 when we ordered Southwest to proceed with the project with all deliberate speed, and continue to so order here." (Italics added.)
1 The Petition for Writ of Review was denied by the California Supreme Court on June 23, 1999.
2 D.98-09-074 was not appealed to the California Supreme Court and became final on September 17, 1998.
