STAFF REPORT TO THE CITY COUNCIL
DATE: Regular Meeting of August 9, 2022
TO: Mayor Bailey and Members of the City Council
VIA: Dante Hall, City Manager
SUBMITTED BY: Patrick Tang, City Attorney
SUBJECT: Resolution Approving Settlement of Claim Against PG&E regarding Water Pollution Control Plant Upgrade Project Delays RECOMMENDATION:
Staff recommends that the City Council adopt a resolution approving a settlement of the claim against PG&E regarding monetary damages caused by delays at the water pollution control plant upgrade project BACKGROUND:
The Pinole-Hercules Water Pollution Control Plant (the “Plant”) is owned equally by the cities of Pinole and Hercules. In 2019, Pinole and Hercules undertook a major project to upgrade the Plant (the “Project”). Pacific Gas and Electric (“PG&E”) was the utility responsible for providing critical gas and electric services for the Project during construction. PG&E failed to timely provide the necessary utility services, which caused significant delays in the completion of the Project. These delays are estimated to have increased the cost of the Project by $931,697. While the Project was ongoing, PG&E declared bankruptcy.
In 2019, the cities of Pinole and Hercules filed a claim for damages against PG&E as part of PG&E’s ongoing bankruptcy proceeding. Because PG&E was in bankruptcy, the bankruptcy court had the exclusive authority over the claim. The bankruptcy court had the ability to order the parties to mediation, and if mediation was not successful, to set the matter for trial.
DISCUSSION:
At the direction of the bankruptcy court, Hercules and Pinole engaged in mediation with PG&E in June 2022. Pinole was the lead counsel in the matter and kept the City of Hercules informed during the mediation process. During the mediation, PG&E provided a “last, best, and final” settlement offer of $110,000 to settle the cities’ claims against it. Pinole’s city council has already voted to accept the settlement offer. The proposed settlement must be approved by both the Hercules and Pinole City Councils.
Staff recommends that Hercules in turn formally accept PG&E’s settlement offer by adopting the attached resolution. While the proposed settlement is less than the estimated cost of the delays, there is no guarantee the cities would prevail during a trial, and the cost of pursuing the claim via litigation would be prohibitive. Among other reasons, PG&E claims that the delays were for reasons outside of its control. If a court agreed with PG&E, the cities would recover nothing.
The proposed settlement is for $110,000, of which Hercules’ share would be $55,000. If approved, the proceeds will be deposited into the Sewer Enterprise Fund, which was used to pay for the Project.
It should be noted that even with the additional costs caused by the delays, the Project was completed under budget.
ATTACHMENTS:
Resolution Approving Settlement of Claim Against PG&E Regarding Water Pollution Control Plant Upgrade Project Delays. Exhibit A: Settlement Agreement