Modesto Irrigation District sued over electricity charges

More than 100,000 families and businesses buying electricity from the Modesto Irrigation District eventually could be represented in a class-action lawsuit filed this week against the nonprofit utility.

The lawsuit says it’s illegal to overcharge electricity customers in order to subsidize farmers’ water rates. If a judge grants class status and plaintiffs prevail, electricity customers in Modesto and surrounding areas served by MID could receive unspecified refunds and pay lower power prices in the future.

“Each month, MID imposes ... an illegal tax which is embedded in its electric utility fee and charges,” reads the lawsuit, filed Monday in Stanislaus Superior Court.

The San Diego law firm Krause Kalfayan Benink & Slavens is bringing the lawsuit on behalf of Modesto resident Dave Thomas and “all similarly situated customers” except farmers buying irrigation water and MID employees. Thomas has been a member of the Stanislaus Taxpayers Association many years, and the law firm has won several judgments against government agencies in fee-related cases.

The lawsuit had not been served on MID as of Tuesday afternoon, district spokeswoman Melissa Williams said in an email. “As with any pending litigation, at this stage we unfortunately can’t provide any further details,” she said.

MID leaders for years have sought to right the imbalance, but critics say they’re moving at a snail’s pace.

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

Overcharging for electricity might not be illegal if MID were to ask voters to approve power rates, the lawsuit says, but MID leaders have not done so. Neither have they raised power prices since an attorney advised them nearly four years ago that doing so without a customer vote might be illegal.

In 2012, then-MID board member Tom Van Groningen said the district expected a lawsuit challenging the inequity. Upon leaving office the next year, he said he regretted not being able to correct the imbalance, and former board member Glen Wild, who also left in 2013, said it’s “clearly wrong” for customers in an area known for low income and high unemployment to subsidize wealthy farmers.

A string of critics joined the chorus, including previous insiders such as Lee Delano, a former MID assistant general manager who gives slideshow presentations on the subsidy, and Dale Bosowski, a retired MID senior resource manager. Steve Mohasci, who worked for an investor-owned utility in Iowa, has produced numerous charts and papers blasting the inequity. Ross Campbell, a retired Modesto public works director, and Paul Baxter, a retired Modesto deputy city manager, have roundly criticized MID’s refusal to produce transparent accounting.

The district says its water service deserves but gets no credit for replenishing groundwater aquifers and for canals that support power poles and that carry stormwater from Modesto streets. But MID has resisted calls to separate its water and power bookkeeping, the components of which have mingled since the utility began producing retail electricity in 1923.

MID has about 3,100 farm accounts; the actual number of growers is less because many farms have several accounts each.

The MID board, dominated by growers since its inception, last year rejected the idea of radically accelerating its goal of erasing the imbalance, opting for smaller steps. On Tuesday, board members will decide whether to raise water rates. If that happens, the district’s water revenue would bump up 20 percent to $3.82 million – only 18 percent of MID’s true cost, $21.2 million, for delivering water.

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

Balancing costs of service with revenue from what is charged to customers has been the standard since California voters embraced Proposition 218 in 1996, and Proposition 26 in 2010 closed a loophole used by some utilities. Modestans may recall a Prop. 218-based lawsuit brought against City Hall in 1998 by the Stanislaus Taxpayers Association, challenging the city’s practice of overcharging people $3.5 million yearly on water and sewer bills and transferring the windfall to Modesto’s general fund – an amount that pales next to MID’s electricity profit.

In addition to subsidizing farmers, the extra money repays MID’s debt and builds its reserves.

The class-action lawsuit asks Superior Court Judge John Freeland to declare that MID is charging an illegal tax, and to prevent the district from continuing to collect it “unless (MID) first obtains voter approval.”

If the judge grants class status, MID power customers since Feb. 19, 2015 – a year prior to Thomas submitting a pre-lawsuit complaint to MID – could be eligible to join the lawsuit. They would be notified by mail, email or published notice, the lawsuit says, and could receive refunds if Thomas’ lawyers win in court.

Krause Kalfayan, the law firm, has won more than $200 million for clients, its website says. Victories came in 2014 against Pasadena and in 2015 against Chino; both had been transferring excess water revenue to each city’s general fund in violation of Prop. 218.

The MID complaint is more similar to one the firm is pursuing against Los Angeles. Both claim violations of Prop. 26; the Los Angeles case involves an 8 percent transfer of water and power charges paid by 6.8 million customers, or about a quarter-billion dollars a year, to the city’s general fund. The firm is bringing at least seven additional class-action claims against various other agencies and conglomerates, its website says.

This story was originally published April 12, 2016 at 4:26 PM with the headline "Modesto Irrigation District sued over electricity charges."