MID taking another run at changing electricity prices

A radical change in the way electricity prices are structured will go to a vote of the Modesto Irrigation District board on Tuesday.

Although some customers would see monthly power bills go up under the proposal, most would have a slight decrease, and MID’s income would not change, the district says.

Some consumer advocates are protesting, however, saying the proposal discourages efficient energy use and would unfairly penalize some customers, including those who conserve the most and those with solar panels.

Meanwhile, the proposal seems unlikely to change the tenor of a debate over MID’s long-standing practice of overcharging electricity customers while undercharging farmers on water prices.

The proposal’s main feature is raising the fixed portion of electricity prices for home customers, while lowering the variable portion, or the part of a monthly bill based on how much energy a family uses.

“It wouldn’t be a wash for every person, but systemwide it would,” said board member John Mensinger. “It’s a different way of slicing the pie.”

The bills of about 75 percent of MID’s 95,197 residential customers would go down about $2 a month, the district says, representing those using 500 to 2,000 kilowatt-hours per month. Those using less would see increases of up to $6 a month.

Protests focus on the fixed portion, which would shoot from $12.50 to $20 a month – higher than other publicly owned utilities studied in an MID comparison – and customers would pay it no matter how little energy they use.

“We prefer rates that reward conservation,” said Mindy Spatt of The Utility Reform Network, California’s premier watchdog of electricity rates. “Ideally, a rate structure would encourage conservation, not actually punish customers for using less.”

Blanca Castro, advocacy director for AARP, said the organization is concerned for its 33,000 members in Modesto. Many have limited income and should not be punished for scrimping on heating small homes, she said.

“Some have to choose, ‘Should I pay my energy bill or go buy food or medication?’ ” Castro said.

MID says the average low-income customer would pay $88 a month under the change, instead of $92.

Consumer confusion over changes in rate structure, even when such changes don’t add to the overall charge, has been enough to keep the California Public Utilities Commission from approving rate adjustments requested by investor-owned utilities such as Pacific Gas and Electric Co. The commission a few months ago rejected a fixed-rate adjustment similar to MID’s proposal, citing customer hostility toward higher fixed charges.

Consumers love to hate fixed charges

A 2013 survey of residential customers in Southern California found fixed charges to be the most unpopular of all rate elements.

“Customers hate fixed charges because it feels like a money grab,” said Brad Heavner, policy director for the California Solar Energy Industries Association.

However, the utilities commission agreed to revisit the issue in coming years, signaling that fixed charges of $10 a month – half the amount sought by MID – could be palatable by 2019.

As a public utility, the MID board sets its own rates and doesn’t answer to the commission. However, MID is subject to state law with procedural requirements for changing rates; the district is following that process, culminating in Tuesday’s public hearing and board vote.

MID leaders openly recognize that rates are a political hot potato.

At an Oct. 13 rates workshop, board member Paul Campbell mused that offering incentives to save energy “makes the district look like heroes to the consumer, our customer, while still meeting all our needs with respect to revenue.”

A year ago, district staff came up with a similar proposal and said average customers would pay about 3.5 percent more. Critics, including retired MID and city of Modesto administrators, raised questions of fairness mostly tied to the irrigation subsidy. With $195 million in a savings account, the board said it had enough money to make ends meet and rejected the proposal.

MID’s reserves now stand at $189 million. The district expects to spend $18 million less this year producing electricity, thanks mostly to record low prices of natural gas burned to generate power. That drop is a major reason for MID’s 2016 budget, approved Oct. 27, dipping from $471 million to $461 million.

‘We don’t need additional revenue’

“We don’t need additional revenue,” Jimi Netniss, the district’s pricing manager, said at the Oct. 13 meeting.

Natural gas prices have declined about 34 percent since July 2014, according to the U.S. Energy Information Administration.

“All the more reason that this (MID proposal) makes absolutely no sense,” said AARP’s Castro.

Rather, MID staff proposes the rate structure change – raising fixed charges while lowering variable charges – to more closely align with MID’s total costs for providing services, about 60 percent of which are fixed.

The proposal would not affect industrial or commercial electricity rates, as the fixed-fee portions of those classes are higher than residential, Netniss said.

If the district is spending less, why not leave things as they are, or even lower electricity prices?

“We don’t want rates to go up and down like a yo-yo,” Mensinger said. “We think we’re better off having stable rates.”

Part of the rationale for adjusting rates comes from a recent increase in customers with solar panels. Some generate enough energy to avoid paying fees to MID, whose fixed costs don’t change, so when that happens the district loses money. Raising fixed charges guarantees MID at least some income from its 2,100 solar customers, including Mensinger himself.

Heavner said that’s unfair to solar customers who factored $12.50 monthly fixed charges into decisions to invest in costly systems. “It’s sort of going back on the deal,” he said.

In a letter to the editor of The Modesto Bee, Modesto solar customer Ashley August said she’s “furious” at the proposal because she will be forced to pay $20 regardless of how much energy her system produces or how much she conserves. In a separate interview, she said she’s a “big believer in solar,” which reduced her MID payments last year, for a family of four, to about $600.

Meanwhile, the proposal ignores what some critics consider MID’s core problem: subsidizing farmers.

MID’s 2014 electricity profit: $106 million

A Bee analysis of bond documents in June showed that MID enjoyed a $106 million profit selling electricity in 2014, while farmers pay less than 17 percent of what it costs MID to deliver water, even after a series of irrigation rate bumps in recent years.

Other observers say a separate inequity favors large commercial and industrial power users at the expense of home customers.

The latest criticism came last month in a letter to the district from Ross Campbell, a retired Modesto public works director not related to the board member. He is joined by Paul Baxter, a retired Modesto deputy city manager.

“The overall management scheme of the MID appears to be, ‘When in need of money, raise electrical rates,’ ” Campbell wrote. “Why are the farmers within the MID entitled to a subsidy from the electric customers?”

In a reply, newly appointed General Manager Greg Salyer wrote that leaders have raised irrigation prices about 70 percent in four years, while resisting increases in power rates since 2011. He also said, “Electric customers do benefit from the irrigation line of business,” noting that canals carry away storm water for free; canal banks support “miles and miles of power poles and transmission lines”; and irrigation water leaving Don Pedro Reservoir provides some of the electricity MID sells.

The extent of the irrigation subsidy is tough to estimate because MID combines some portions of bookkeeping for its three core services: irrigation, power and domestic water sold to Modesto City Hall. MID says the $106 million profit figure is misleading, but refuses to provide another number.

Transparency urged

“I think the problem from my viewpoint is transparency and accountability,” Baxter said. “The solution would be for MID to become a little more forthright, and the accounting should be made on an enterprise (separate) basis for their three operations.”

Also facing the board Tuesday is a proposal for increasing fees charged to developers building subdivisions.

While Roseville requires that builders pay all costs to wire new neighborhoods with power, MID does the opposite, sticking customers with 100 percent of costs estimated at $4,200 per lot. Rather than continue giving away the store, MID’s staff proposes charging developers half the cost, or $2,100 per lot, which is close to what the Turlock and Merced irrigation districts charge.

“From a strictly political view, it makes sense,” Mensinger said at an Oct. 27 workshop.

The staff additionally recommends raising the connection fee for solar customers from $100 to $300.

Tuesday’s board meeting will begin at 9 a.m. in the chamber at 1231 11th St., Modesto.

This story was originally published November 14, 2015 at 6:45 PM with the headline "MID taking another run at changing electricity prices."