Modesto Irrigation District no longer a bargain for residential electric rates, Bee analysis finds

11/23/2013 5:27 PM

11/25/2013 3:28 PM

Remember when Modesto Irrigation District’s electricity rates were a bargain compared to PG&E’s?

Large industrial customers still enjoy preferential treatment when it comes to power bills. But those days are long gone for residential ratepayers.

Compared with other utilities throughout California, including privately owned Pacific Gas and Electric Co., MID’s power prices for average homes have swung from lowest to highest in a matter of a few years.

However, MID continues to take care of its large industrial customers more than other utilities, according to an extensive Modesto Bee review of data seeking apples-to-apples comparisons.

The MID board is expected to consider raising electricity rates in coming weeks.

MID’s staff expert on electric rates, Jimi Netniss, said prices reflect what it costs the district to deliver power. But its longest-serving board member, and others with the Turlock and Merced irrigation districts, said directors have made conscious efforts over the years to cater to big companies whose jobs are essential to a healthy economy.

“We’ve tried to do the right thing for both (residential) ratepayers as well as industry,” said outgoing MID board member Tom Van Groningen.

Turlock Irrigation District’s Charles Fernandes said, “We didn’t want big companies to be subsidized by individual ratepayers, so it’s always a balancing act.”

Leading the charge

Utilities throughout California offer more attractive rates to industries than to homeowners. Modesto stands out not for coddling big business, but for sticking residential customers with higher bills much more aggressively than other power companies.

Consider that:

• Bills for average use by a home in the Valley more than doubled in the past 21 years for MID customers, shooting up 160 percent, compared with 62 percent for Turlock homes.
• The sharpest increases have occurred in the past 10 years. In 2003, MID offered the lowest rates for an average family in these parts, but now charges $261 more per year than a Turlock family using 800 kilowatt hours each month, and nearly $300 more than a Merced family buying power from its irrigation district.
• A family using a bit less – 750 kilowatt hours per month – has paid about the same for MID power as those buying from investor-owned PG&E for at least the past two years, according to Sacramento Municipal Utility District.

“The MID is more like a private utility with irrigation customers as the stockholders,” said Ross Campbell, a former Modesto public works director, in a letter to The Bee, MID and the Modesto City Council.

SMUD said the typical Modesto family pays $43 more each month than the typical Sacramento family, and $27.50 more than one in Los Angeles.

By another measure – utility income – The Bee found that home rates for the three public utilities in this area have increased much more aggressively than others throughout California. The average statewide increase for public utilities for the past 12 years was 36 percent, compared to 130 percent in Modesto, 86 percent in Merced and 72 percent in Turlock. All three had posted revenue lower than the statewide average as late as 2000.

And California rates are among the highest in the United States. The statewide average income from home power sales in August, the latest period for which figures are available, was 16.5 cents per kilowatt hour, compared with the national average of 12.5 cents, the U.S. Energy Information Administration reported. MID’s average income from homes in 2012 was 17.7 cents per kilowatt hour – more than any other public utility in California except for Hercules Municipal Utility (18.3 cents).

Income comparisons are common in the industry, said Paul Zummo, policy research and analysis manager for the American Public Power Association.

Using that measuring stick, The Bee found that the three districts in this area have raised industrial rates more rapidly in the past 16 years than other public utilities throughout California.

Good business, or unfair subsidy?

However, Modesto’s income from industrial companies consistently has lagged behind almost all other California utilities, public or private, The Bee also found. Last year, MID captured nearly 10 percent less than the average for other public utilities.

“It’s startling to me how this community has somehow gotten the idea that residential users should subsidize business,” said Dave Thomas, president of the Stanislaus Taxpayers Association.

MID officials figure they have political cover as long as rates appear favorable next to PG&E’s, Thomas said.

“They consciously drove residential rates through the roof with this phony baloney contrast,” he said.

While private utilities such as PG&E seek approval from state power officials for rate increases, the irrigation districts decide for themselves.

“They’re controlled by the electorate,” said Mark Toney, executive director of the Utility Reform Network, the state’s leading consumer group focused on electricity issues. “The incentive is to keep rates as low as they possibly can because if people get too upset, they can get voted out.”

Public and private utilities commonly offer volume discounts to industrial customers. Many are further rewarded for ramping up electricity use during nonpeak hours such as morning and nighttime in the summer, avoiding hot afternoons when demand for air conditioning is high.

“If we’re not competitive, we’re not delivering power; it’s that simple,” said Tim Pellissier, Merced’s board chairman.

Van Groningen echoed that stratagem. “Those are the job creators,” said Van Groningen, who also is a board member for the Stanislaus Economic and Workforce Alliance. Part of its mission is luring companies.

Steven Ames, the alliance’s senior vice president and director of economic development, agreed that companies shop for competitive rates when deciding where to locate. “But that wouldn’t be the sole factor,” he said; depending on the business, potential employees’ skill level and wage demands are considered more important, as well as proximity to goods such as nuts or tomatoes.

‘We had to catch up’

Utility directors listed several other considerations when raising rates, whether residential, commercial or industrial. For example, state mandates that they generate more power from renewable sources such as wind and solar and less from pollution emitters such as burning coal or natural gas have cost districts many millions of dollars.

Other factors include equipment upgrades, meeting debt payments and building reserve accounts in case of emergency. MID, for example, likes to keep on hand abound $200 million, or enough to keep the district going for four or five months with no other income.

MID went five years, from 1996 to 2000, without raising electric rates, forcing several years of steep increases that rankled many customers. “We had to catch up,” said Van Groningen of yearly boosts of up to 10 percent from 2001 to 2012; the average was 7 percent.

Steady increases ground to a halt this year as prices stabilized for natural gas, an important source of power generation. The change also coincided with MID learning privately from an attorney that a partial rate bump without a vote of the people could violate state law linking rates to actual costs of providing services; the bump in question would affect portions of power bills helping to close a gap in irrigation revenue because farmers’ water rates are artificially low.

Rates debate looming

But MID is running short on bond money used to keep the district running. Getting another loan typically would require MID to raise rates for the extra money needed to cover new loan payments. District spokeswoman Melissa Williams said Netniss is expected to approach the board with options in early 2014.

Last week’s board meeting was the last for outgoing members Paul Warda, Glen Wild and Van Groningen. Newly elected directors Jake Wenger, John Mensinger and Paul Campbell will be installed Dec. 6 and their first official meeting will be Dec. 17.

All are aware of sensitivity on high electric rates and low water rates. Despite general agreement among many growers for a 10 percent increase on water, the proposal fell victim in April to political bickering, preventing a modest narrowing of the gap that has yet to be quantified and whose value remains very much in question. By one measure, MID and TID have transferred more than $80 million of electricity revenue to water operations since 2002.

Van Groningen noted that MID serves about 3,100 farmers and 113,000 power customers. Closing the fairness gap represents, for him, “a major area of unfinished business, and it indirectly affects electric rates,” he said. “I hope the new board is able to address that issue in a businesslike manner.”

 

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