Pacific Gas & Electric Company underpaid the City of Santa Rosa nearly $68,000 last year by failing to collect taxes from some customers' accounts and improperly collecting them from others.

The glitch, discovered after the utility rolled out a billing system upgrade, has taken more than a year and a half to sort out, with a settlement deal heading to the City Council Tuesday.

How long the problem has persisted is a mystery, but PG&E now thinks it's got everything straightened out.

"We believe at this point that our records are 100 percent accurate," said Brittany McKannay, spokeswoman for PG&E.

The huge utility company has about 73,000 customers in the city. Last year Santa Rosa collected $8.9 million from the tax, which has been in place since 1970 and is also paid by cable and non-cellular telephone customers.

The issue arose in January of 2011 when PG&E advised Santa Rosa finance officials that it had switched to a new high-tech system for identifying customers by their taxing district.

PG&E customers who live inside Santa Rosa city limits are supposed to pay a utility-users tax equal to 5 percent of their monthly bill. The company collects the money and turns it over to the city once a month.

Those who live outside the city, including in the dozens of county islands within city boundaries, are not supposed to pay anything.

But the utility says its new geographic information system identified hundreds of accounts — residential and commercial — that weren't being charged the tax but should have been, and hundreds more that were being charged but shouldn't have been.

The properties are spread throughout the city, including along the borders, in areas where property was annexed into the city, and near county islands, said Manny Silverio, supervisor of city revenue operations.

"They are literally all over the place," Silverio said, from Highway 12 near Oakmont to Sebastopol Road. They even include properties along Llano Road, which is significantly outside the city limits to the southwest, he said.

Silverio said he could not disclose addresses affected by the issue until city attorneys decide whether they think disclosure would violate customer confidentiality.

McKannay said she did not have access to the addresses. The company also can't say how long the over and under charging had been going on. "That's the best information that we can get from them," said Lawrence Chiu, the city's chief financial officer.

After meeting numerous times with city staff to fully understand the discrepancies, the company has pared a longer list of questionable properties to those it is confident were miscoded.

It now believes it has improperly been collecting the tax from 491 accounts that weren't actually in the city, and failing to collect it from 570 accounts that were.

In some cases, the mistakes appear to have been made when properties that were annexed into the city never made it into the utility's database, McKannay said.

"There are instances where there was an error on our part," she said. In other cases, customers who were calling to start service may have told PG&E representatives that they lived in Santa Rosa even when they did not, she said.

The company in December of 2011 refunded the 491 accounts an average of $115.34 each, or $9.63 per month. The customers were refunded for just one year even though it's not clear how long they had been overpaying. The city has an ordinance that limits refunds of the tax to one year, Silverio said.

The 570 accounts from which the utility should have been collecting started being charged in November. They won't be billed for the taxes they never paid.

Instead, the company will pay the city a one-time settlement of $145,480. The figure comes from an estimate the city considers "generous" because it didn't account for various factors, such as the tax's $1,000 cap and properties that are exempt from the tax, such as governmental operations.

It also avoids the prospect of back-billing of customers, which Silverio acknowledged would be unpopular. Back-billing is limited by law to three years. PG&E estimated the city would receive less through back-billing for three years than it would from the $145,480 settlement offer, Silverio said.

Since the tax has been around since 1970, it is possible some of those 491 customers who have been paying the tax when they didn't need to have been paying for a long time, Silverio acknowledged.

"I think it's an unfortunate part of this situation," he said. If customers believe that to be the case, the utility will investigate further, McKannay said. "We're willing to work with customers to see what we can provide them."

The utility has been rolling its new system out for a few years and has found about a 1 percent error rate, she said.

That seems consistent with the current scenario. The company estimated the changes will allow the city to reap $67,848 more per year. That's about a 1 percent increase over the $6.1 million the utility estimated it pays the city annually.

(You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. OnTwitter @citybeater.)