New Modesto Irrigation District leaders told of legal issues involving rates

12/02/2013 6:08 PM

12/02/2013 6:09 PM

A different legal interpretation could make it easier for the Modesto Irrigation District to raise electricity prices, the utility’s lawyer told leaders Monday in their first gathering since three men were elected to the five-member board.

Board members seemed to pay close attention at Monday’s orientation workshop but showed no sign of which way they might lean on the touchy subject.

MID leaders last year declined to raise power rates, a departure from sharp increases every year since 2000, noting that prices had stabilized for natural gas used to produce energy. The change coincided with MID learning privately from a contract attorney that a partial rate bump could violate a new state law.

Joy Warren, hired as general counsel in March, told leaders Monday that a rate increase, if structured properly, “isn’t necessary problematical under Proposition 26.” She referred to state law requiring that utilities charge an amount equal to the cost of providing a service.

Last year, a contract attorney told the board it might have to stage a vote of the people before adopting a rate hike because part of MID’s pricing structure may be figured arbitrarily. In question is MID’s “falling water” charge, which relies on the theory that electricity customers benefit from water falling in Don Pedro Reservoir turbines, creating about 10 percent of the power generated by the district.

That reasoning has allowed MID to transfer about $90 million from its power operations to the water side since the district began folding the surcharge into customers’ bills in 1996.

The Turlock Irrigation District similarly transfers electric revenue to the water side, but never tried to fix a hydroelectric value and need not worry about Proposition 26, its attorney has said.

Farming advocates say agriculture should get credit for replenishing groundwater. Also, canals drain stormwater and provide land for power poles, but that value has not been addressed, they say.

Weeks ago, MID’s board decided to wait until after the Nov. 5 election to weigh raising electric rates. The unprecedented turnover will result in Friday’s installation of directors-elect Paul Campbell, John Mensinger and Jake Wenger, all of whom attended Monday’s orientation. The two other board members – Chairman Nick Blom and Vice Chairman Larry Byrd – also came.

Presentations ranged from the board’s policy-setting role to warnings against financial conflicts, private deal-making and taking gifts without disclosing them. Warren brought up Proposition 26 at the end, saying, “Yeah, I’m going there,” when the board perked up at the mention of perceived unequal treatment of water and power customers.

Warren said MID might not run afoul of the 2010 law if the methodology used to figure the “falling water” surcharge remains constant in a potential rate hike.

The district continues to watch court cases in Redding and Ventura for clues on judges’ legal interpretations of Proposition 26. A ruling could come at any time in the first, and the latter is in appeals court, an attorney involved in both cases said Monday.

“It’s fair to say it’s a little bit gray,” Mensinger concluded.

MID is running short on bond money keeping the district running and another loan typically would trigger higher rates to raise extra money needed to cover new loan payments. The board is expected to review options early next year.

A recent Bee review of two decades of electricity rates found that an average MID customer’s bills shot up 160 percent compared with 62 percent for TID. By another measure – utility income – MID’s home power revenue went up 130 percent in the past 12 years, compared with 86 percent for TID and a statewide average of 36 percent for public utilities; MID’s income per home customer was second highest in California in 2012.

Mensinger noted that a letter to the editor in Monday’s Bee mused about a board recall over steep increases. “We haven’t even been sworn in yet,” he said, drawing laughter.

The three newcomers will be installed at noon Friday in a ceremony in the board chamber, 1231 11th St., Modesto, and their first official board meeting will take place there at 9 a.m. Dec. 17. Additional orientation meetings, open to the public, are scheduled Dec. 18 and Jan. 17, 22 and 24, with tours of various MID facilities set for Jan. 8, 9 and 15.

Campbell, Mensinger and Wenger replace, respectively, outgoing board members Tom Van Groningen, Glen Wild and Paul Warda.

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