MODESTO -- Forcing electrical customers to subsidize farmers could get the Modesto Irrigation District into hot water, according to a recent legal analysis.
The subsidy — about $27 a year for each of the district's 113,000 power customers — provides no real value to those who pay and could violate a state tax law approved by voters two years ago, the document reads.
MID leaders expect a lawsuit, board chairman Tom Van Groningen said Wednesday.
The idea of selling water to San Francisco was a partial answer to correct the inequity, Van Groningen said. The board abandoned the proposal under intense public pressure but intends to form a committee, perhaps next week, to suggest options to raise money to pay for necessary canal and water-related infrastructure improvements.
The subsidy issue could have implications for other utilities such as the Turlock Irrigation District, which has a similar practice.
"For years, any (agency) with an electrical utility was using it as cash cow, padding rates and transferring the excess to the general fund," said Tim Bittle, legal affairs director for the Howard Jarvis Taxpayers Association. "Lots of (agencies) are keeping a low profile, hoping nobody sues them."
His group pushed Proposition 26 in 2010, closing a loophole used by electric and gas utilities to avoid approaching voters when raising rates. Worry over Proposition 26 prompted discussion at a June MID board meeting, leading to the legal analysis obtained this week by The Bee.
Board members discussed the document behind closed doors because they fear being sued, but could not agree on airing the issue publicly, Van Groningen said. He expects it to surface on a future agenda.
The analysis was provided to the district's contract attorney, Tim O'Laughlin, by his partner, Bill Paris. How much he was paid could not be determined by presstime.
"MID will be hard pressed to formulate any argument" justifying the subsidy, Paris wrote, because no effort has been made to show why electrical customers should pay a "falling water charge." Nor has the district established a legitimate link from those fees to costs for providing irrigation water to farmers, Paris wrote.
The term refers to water falling through Don Pedro Dam turbines, creating power sold by the district. "All customers benefit from the clean, affordable energy from Don Pedro Dam," and would have to buy power elsewhere on the open market if the dam did not exist, district spokeswoman Melissa Williams said in an e-mail.
But that value may be figured arbitrarily, according to Paris' analysis, suggesting a hidden tax that could run afoul of Proposition 26.
The district did not respond to a request for dollar amounts since the subsidy began in 1995. Paris' analysis said the fluctuating fee, which is not itemized on bills, generated $10 million at its high point in 2011 and $2.3 million at its low in 2004.
The subsidy was expected to come to $7.6 million this year, the district said in June, while farmers would be charged $2.1 million for irrigation water.
A ballot measure asking for voter approval could cure the problem, the document says, but that seems a stretch for a district straining under many months of high-profile controversy.
Meanwhile, district staff in coming weeks will not recommend a 2013 electric rate increase, Williams said, partly because natural gas prices are stable and the MID expects no new green energy projects.
Some of the MID's 3,100 farmers figure they deserve consideration because their forebears created the district and power came later, Van Groningen said. Officials years ago recognized that the inequity should be adjusted in favor of power customers, but political will has faltered, he said.
"Anything that impacts our electrical rates has an impact on our ability to attract businesses," said Bill Bassitt of the Stanislaus Workforce Alliance. The MID's historically low power rates have become comparable to competitors' in recent years, he said.
Paris presented a second scenario in his analysis that could work in the MID's favor, saying utilities charging fees unrelated to service costs might be OK if the fees were established before Proposition 26 passed in 2010, while the MID's dates to 1995. Lawsuits elsewhere should shed light when resolved in coming months, Paris said.
Bee staff writer Garth Stapley can be reached at gstapley@modbee.com or (209) 578-2390.
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