The Joint Petition

On June 2, 1999, Southwest and Town filed a Joint Petition to Modify Decisions 94-12-022 and 95-04-075. The Joint Petition would modify D. 94-12-022 to:

1. Increase the allowable construction expenditures for the Northern California Expansion Project.

2. Modify the mechanism for recovery of such costs.

3. Extend the general rate case cycle for all of Southwest's California service territories and freeze basic rates at existing levels through at least December 31, 2001.

The Joint Petition also requests that D.95-04-075 be modified so as to alter the timing for construction of the project and to delineate its completion.

Southwest and Town submit that the Joint Petition accomplishes the following goals:

1. It requires Southwest to absorb its fair share of the cost overruns experienced in the initial stages of the project.

2. It requires Southwest to restart construction in 1999 under a guaranteed maximum price contract using bid procedures and results acceptable to the Town.

3. It provides for natural gas services to be offered to all areas of Truckee consistent with the original scope of the project.

4. It results in no increases in rates currently authorized by the Commission.

5. It establishes a prompt and fair method for resolving any future disputes, including appropriate security for performance.³

6. It avoids unproductive litigation, establishes an ongoing working relationship between the Town and Southwest, and obtains natural gas service for the citizens of Truckee at the earliest practicable date at prices competitive to propane.

The costs adopted in D.94-12-022 were to be recovered through rate base additions paid for by all Southwest ratepayers ($18 million) and a facilities surcharge paid for only by customers served in the Expansion area ($11 million). The Joint Petition seeks to increase the cost cap established in D.94-12-022 from $29.1 million to approximately $54 million (depending on how many customers elect service), an increase of $24.9 million. Of this amount, Southwest would write off approximately $10 million in construction costs compared to estimates of total costs, or about 40% of the total cost increases. In return, the facilities surcharge rate of $.12282 per therm will remain in effect roughly three years longer.

Increased project costs would be recovered through three ratemaking vehicles, rate base additions, a facilities surcharge, and a deferred account. Under the Joint Petition, the amount recoverable through rate base additions would increase to $21.6 million (an increase of $3.6 million). The amount recoverable through the facilities surcharge would increase by $2.8 million to $13.8 million. The deferred account is a non-interest bearing account where remaining capital costs would be booked for future recovery. At the time of its next general rate case, Southwest will transfer an amount from the deferred account to offset the amount of depreciation taken on plant in service.

The remainder of the work of the project would be divided into two parts. The first part (known as Phase III) is intended to be completed by November 1, 2001, and involves areas of downtown Truckee, Tahoe-Donner, Prosser Lakeview, and Prosser Heights. Work commenced on this Phase in June 1999. Phase IV -- which encompasses Ski Slope Way, Prosser Acreage and Donner Lake -- is intended to commence during the 2002 construction season, pending the timing of certain CalTrans repairs.

The Petitioners identify and explain various factors that contributed to the increases in construction costs through the completion of Phase II and the anticipated costs for the remainder of the project. Petitioners claim that these factors could not have been reasonably anticipated at the time the project was originally planned and approved by the Commission.

The Joint Petition has been accepted and stipulated to in writing by the Office of Ratepayer Advocates, Harper Lake Company and HLC IX (collectively referred to as "SEGS"), PG&E Gas Transmission, Northwest California (formerly Pacific Gas Transmission Company), Tuscarora Gas Transmission Company, and Sierra Pacific Power Company. These parties constitute all of the stipulating parties to D.94-12-042 and D.95-04-075. As discussed above, Southwest and Town have also entered into a corresponding written Settlement Agreement.