SoCal Fights to Bar Disclosure on Landfill Gas

Southern California Gas Co. has asked the state Supreme Court to overturn a Public Utilities Commission decision that would force the company to disclose the legal advice that led it to pay $7.4 million to cancel a contract to buy gas from a Monterey Park dump.

Gas company attorneys say the disclosure sought by the PUC violates attorney-client confidentiality.

But the PUC says the only reason SoCal Gas has given for paying GSF Energy Inc., formerly Getty Synthetic Fuels, to cancel a contract for landfill gas is the advice of its lawyers. And unless the gas company submits the legal memos explaining that advice, the PUC says, it cannot determine whether the buyout cost was “prudently and reasonably incurred” and should be passed on to customers.

The PUC has ordered the gas company to either withdraw its request to charge the buyout to customers or turn over legal memos to an administrative law judge, who would screen them before making them public.

Contaminated Gas

The PUC staff contends that the gas company could have refused to take landfill gas without paying a fee to cancel the contract because the gas was contaminated with vinyl chloride, arsenic and other impurities.

The gas, created from decomposed waste, came from the Operating Industries Inc. landfill in Monterey Park and was processed by GSF Energy.

The gas company signed a contract in 1978 to buy gas from the dump indefinitely at escalating rates. When landfill gas became more expensive than natural gas from other sources, SoCal Gas negotiated to alter or cancel the agreement. In 1986, GSF Energy accepted $7.4 million to terminate the contract.

Before negotiating the termination agreement, SoCal officials informed the PUC that its attorneys had concluded that it could not arbitrarily stop taking landfill gas without risking a breach-of-contract suit.

Escape Clause

But the PUC staff said the contract offered a method of escape. One clause said SoCal Gas could, “without penalty of any kind, refuse to accept any gas delivered by seller hereunder whenever gas tendered for delivery does not meet pipeline quality standards.”

In papers filed with the state Supreme Court, PUC attorneys wrote that the landfill gas rarely attained the heating value standard prescribed in the contract, and “an even more serious defect was the constant contamination of the gas.”

“As early as 1981,” the PUC lawyers said, “SoCal learned that the gas from the landfill might contain certain chlorinated hydrocarbons. . . . In 1983 the presence of vinyl chloride in the gas was confirmed as well as the presence of chlorinated hydrocarbons in combusted gas samples. Arsenic was also found in the gas.”

SoCal Gas officials said they occasionally found minute quantities of vinyl chloride in gas received from the landfill, but it was diluted before delivery to customers, and neither the vinyl chloride nor any other contaminant ever presented a health risk.

Can Cause Cancer

Vinyl chloride, an industrial chemical used in making plastic products, has been identified as a human carcinogen.

The disclosure early this year that SoCal Gas bought contaminated gas from the Monterey Park dump prompted Campaign California, an organization headed by Assemblyman Tom Hayden (D-Santa Monica), to call for legislation to protect the public from contaminants in landfill gas.

Hayden introduced a bill that would require gas obtained from a landfill to be tested for vinyl chloride and that would prohibit delivery of gas that would expose the public to a significant amount of vinyl chloride.

Paul Van Dyke, legislative counsel for Campaign California, said the bill has passed the Assembly and is awaiting action in the Senate, where it is being carried by Sen. Joseph Montoya (D-Whittier).

Van Dyke said the bill is important as the first attempt to control toxics in gas from landfills. But, he said, it comes at a time when natural gas is plentiful and there is little financial incentive to use landfill gas. As a result, he said, he knows of no utility in California that is piping gas from landfills to homes, and, in a sense, the bill “is a solution waiting for a problem.”

Dropped Opposition

SoCal Gas and other utilities support Hayden’s bill. GSF Energy dropped its opposition after technical amendments were added.

GSF Energy closed its gas-processing plant at the Monterey Park dump in 1987. The U.S. Environmental Protection Agency, which is overseeing cleanup of the dump, recently completed a study concluding that it is cheaper to burn the landfill gas than to use it.

Richard Puz, a gas company spokesman, said SoGal Gas got only a small fraction of its total gas supply from the dump. The company, which buys about 2.5 billion cubic feet of gas a day, acquired an average of 1 million cubic feet a day from the dump when the contract was in effect, from 1978 to 1986.

Puz said the company bought gas from the dump not because it needed the supply but because it could participate in what seemed like a good solution to an environmental problem. Gas buildup in a landfill can produce odors and explosions.

“We were providing a means to get rid of the stuff,” Puz said.

Gay Phillips, state regulatory coordination supervisor for the gas company, said the PUC has overstated the problem with the quality of the gas. She said vinyl chloride, arsenic and other impurities were never detected in gas piped to homes. The problem with buying landfill gas, she said, is that it is “much more expensive than any other gas we can get.”

Legal Analysis

Phillips said the gas company believes the PUC can decide the rate issue without seeing the company’s legal memos. She said the PUC can look at the contract with GSF Energy, make its own legal analysis and determine whether SoCal Gas acted prudently in paying the $7.4 million to cancel the agreement.

There is no need, she said, to violate attorney-client confidentiality by seeing the legal memos. The Los Angeles County Bar Assn. has filed a brief supporting the gas company’s position and defending the attorney-client privilege.

In proceedings before the PUC, SoCal Gas officials had earlier argued that disclosing legal memos in this case would set a bad precedent and might cause its attorneys to be less frank or offer advice orally instead of in more precise written form. But the PUC said that if the company’s lawyers fear that their memos will be reviewed by the PUC, this “should act as an incentive for even greater thoroughness in the legal analyses, which we would regard as a benefit to, not a damaging restriction on, SoCal’s decision-making process.”

“Nevertheless,” the PUC said, “we are very sensitive to the strength of the lawyer-client privilege and the delicate issues that may be discussed in a utility’s legal memos.”

As a result, the PUC said it would assign an administrative law judge to review the memos and disclose only those relevant to the issue raised by the company’s application to recover the contract termination cost in its rates.

PUC and gas company officials said it will be several weeks before the Supreme Court decides whether to hear the dispute.