A lawsuit filed by Provo City against Utah Power & Light for overbilling has caught the power company by surprise, a UP&L official says.
According to Orrin Colby, accounting vice president, UP&L has worked with Provo since early 1980 to resolve the billing issue, but a settlement has never been reached."We were surprised they filed suit. We thought we had developed a good relationship with Provo and were still on track in developing a proposal," Colby said. "Apparently they took legal action in addition to the discussions."
Provo City and the Utah Municipal Power Agency, a member-owned agency with 80 percent belonging to Provo and 20 percent to Spanish Fork, Salem, Nephi, Manti and Levan, filed the suit in 4th District Court Monday.
Mayor Joe Jenkins agreed the city and UP&L have a good relationship, but this is "one of those situations where we can't agree on the amount of dollars (that should be refunded) and we apparently have to go to arbitration to settle on the amount we feel good about."
In 1980, Provo bought 6.25 percent interest in UP&L's Hunter facility, a coal-fired steam plant in Emery County, to provide for the city's power needs. Since then, Provo says it has been overcharged through billing by UP&L as a wholesale customer instead of an owner, and the city says it's time to realign costs and retrieve the difference in funds.
"Over the years there has been a feeling that perhaps there is a double billing for administrative and general expenses," said Ron Rydman, Energy Department acting director, during an earlier meeting with the city's energy board.
As an owner, Provo should not be required to pay for the administrative and general expenses as well as contribute to capital funds, Jenkins said.
He said a utility accountant, an engineering firm and a Washington, D.C., law firm hired by the city have reviewed the records and estimate that UP&L owes Provo approximately $2 million.
Colby said UP&L has agreed to refund $197,393 for some administrative costs, but the rest of the charges are legitimate. "They would like to pay direct identifiable costs, not overhead. But they are charged in the same fashion as other parties."
Colby said administrative costs go toward such items as insurance and record keeping at the Hunter plant. Provo is billed for all of the direct costs incurred by them as well as a portion of corporation costs.
According to the lawsuit, UP&L has charged Provo for certain payroll overhead costs, administrative and general expenses and carrying charges as part of UP&L's billing for Provo's share of Hunter.
The operation and maintenance agreement between the two entities does not authorize UP&L to bill Provo for those charges, the suit said. Operation and maintenance costs are only those costs and expenses associated with the operation and maintenance of Hunter.
The amount overbilled by UP&L from December 1980 to November 1988 is approximately $2 million, plus interest, the suit said.
"UP&L has overbilled Provo for administrative and general expenses by calculating Provo's billing as a percentage of companywide administrative and general expenses rather than as a percentage of the administrative and general expenses specifically allocable to Hunter," the suit said.
The suit also says that Provo has been double-billed for a portion of operation and maintenance costs and for certain liability insurance costs and employee pension and benefit costs "by billing such costs both as part of the labor overhead charge and again as part of the administrative and general expense charge."
Jenkins said the $197,000 is "not even close to what's due us. We are still willing to negotiate until the end, but it has to be something seriously close to the amount we think they owe us. We don't think they should charge us attorney fees and a lot of overhead fees that have nothing to do with our ownership of Hunter."
City officials said UP&L had previously agreed to pay Provo $30,000, but Colby said that figure was part of negotiations between the company and Provo to calculate an alternative method of billing administrative costs.
"Never in any way did we offer to settle at $30,000. Our offer is $197,000," he said. "Our intent is to continue to settle in a businessman's way instead of a legal way. It's too bad this has become a political thing."
The dispute over charges comes from several paragraphs in the contract between Provo and UP&L. The contract is vague as to how to calculate costs, Colby said. "That was a mistake we made when we negotiated it. A sample was given to Provo and that is the process we have used ever since."
Jenkins agreed. "The contract is open to some interpretation. The two paragraphs really lead us back to FERC (Federal Energy Regulatory Commission) accounting principles and it appears we have been overcharged by a significant amount of money."
Colby said, "We have had numerous meetings with Provo folks and they were never unpleasant. There was never a sense of the inability to raise an agreement. Frankly, we were close to a resolution before it became a public issue."