MID critics welcome class-action lawsuit over electricity subsidy

MID officials have said the district’s 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.
MID officials have said the district’s 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. Modesto Bee file

News of a class-action lawsuit against the Modesto Irrigation District brought similar reactions from its most frequent critics, all of whom said it’s about time.

“It finally happened,” said Steve Mohasci, a retired utility worker who repeatedly has asked the MID board to stop overcharging electricity customers to subsidize farmers’ water prices.

The long-held policy is “absurd” and “unfair,” said Lee Delano, a retired MID administrator making similar appeals to the board. Both men have invested much time independently crunching data and building cases for ending the historical subsidy.

So has Ross Campbell, a former Modesto city executive whose many pleas for fairness to MID board members went unheeded.

“What they say is the law, until somebody challenges them,” Campbell said of the lawsuit, filed Monday on behalf of some 100,000 families and businesses buying power from MID. “It will answer questions as to whether what MID is doing is proper. If they’re acting inappropriately according to state law, they should change.”

The lawsuit asks a judge to declare that MID imposes an illegal tax and seeks unspecified refunds and lower power prices in the future, unless the nonprofit district obtains rate approval from customers. The MID board has neither sought such voter validation nor raised electricity rates since 2011.

MID spokeswoman Melissa Williams said Friday, “Our legal team is reviewing the complaint.”

Until a judge grants class status, the lawsuit’s lone plaintiff is Modesto’s Dave Thomas. He is president of the Stanislaus Taxpayers Association but is suing as an individual because that group is not an MID customer and lacks legal standing.

Thomas said the decision to sue was prompted by “irritation.”

“Their leadership has simply said, ‘We know we’ve got a problem, we’ve been doing it wrong, and we’re going to fix it – but not now.’ Well, now is the time,” Thomas said.

Forced subsidy is longtime policy

The farm-water subsidy is not a secret. “The Greening of Paradise Valley,” a 1987 history book commissioned by MID leaders to celebrate the district’s 100th birthday, makes reference to the electricity “cash cow” created when MID teamed with the Turlock Irrigation District to build a power plant on the Tuolumne River in 1923. And MID leaders have openly discussed moving toward cost of service, charging irrigators enough to cover what it costs the district to deliver water to growers, for more than two decades.

“Frankly, no one I’ve talked to can even think of what defense the MID has,” Thomas said. “They can’t say they’re not overcharging; they’ve admitted the subsidy. The only question is how badly are they overcharging.”

It’s a question the district won’t answer.

It’s too hard, officials say, to separate power and water bookkeeping because both services get help from several MID departments, such as administration, personnel and legal counsel. Board Chairman Larry Byrd, in particular, describes MID as a big family and bristles when power-customer advocates ask for equity.

“Assets across our lines of service – electricity, irrigation and domestic water – are jointly owned and reflected in MID finances accordingly,” Williams said.

Pinpointing power profit in MID’s audited financial statements is impossible without MID’s help, but a general idea could be had in years past by looking at something the district called falling water charges.

For nearly two decades, MID books reflected a falling water fee on each electricity customer’s account. It did not appear on monthly bills but served an internal purpose: justifying how much the district might ethically overcharge.

Hidden ‘falling water’ charge

Computations relied on the theory that MID’s electricity side owed its irrigation side for water falling in generation turbines at Don Pedro Reservoir. MID accountants calculated amounts by figuring how much electricity might cost if bought on the open market, if Don Pedro had never been built.

MID collected $89 million under the falling water banner from 1996 to 2012, when questions arose about the legality of overcharging. An attorney quietly advised the board that raising power prices without a vote of the people might violate a then-new state law, Proposition 26.

But The Modesto Bee obtained a copy and reported the issue. MID has not raised power prices since, although the board in November restructured rates by increasing the fixed component while reducing how much people pay based on volume used, and district revenue is supposed to be a wash.

Meanwhile, falling water revenue had not been keeping pace with MID’s ever-growing expenses, requiring more transfers from electricity profit to balance the books. Eventually the district dropped the falling water theory, and it continues to collect the same amount as before.

Perhaps a better estimation for what customers have overpaid over the years came a few months ago as MID put its best foot forward while offering bonds to potential investors.

Buried deep in bonding documents were figures citing an average yearly power profit, defined as net revenue minus expenses, of $93 million in the first half of this decade, for a five-year total of $466 million. MID has used that money to build reserves – currently $196 million – and to repay debt, in addition to subsidizing 3,100 farm accounts.

Pinpointing subsidy

This year – if the MID board raises water prices on Tuesday – MID would collect $3.82 million from farmers and from selling treated river water to Modesto. That’s 18 percent of MID’s true cost, $21.2 million, for delivering water, making the farm subsidy more than $17 million.

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

Figures produced in 2013 by the MID Water Advisory Committee, a panel of volunteer experts combing through MID finance records, suggest that power profits subsidized farm water an average of $10.6 million each year from 2000 to 2012.

Although the MID board has raised water rates several times in recent years, progress toward the goal of charging growers the true cost of water has been excruciatingly slow because costs keep going up. The current revenue-to-cost ratio of 18 percent represents minimal improvement from the 2001 ratio of 12.2 percent, despite board members’ best intent.

At the rate MID has moved in the past 15 years, it would take 212 years to achieve true cost of service.

Last year, board members rejected the notion of tripling water prices in the next couple of years, saying that’s too much, too fast, although doing so would have bumped the revenue-cost ratio to only 39 percent.

Critics note that a majority of the five-member board are themselves farmers.

Farm advocates note that growers pay electric bills, like everyone else.

“People would be remiss to forget that,” said Tom Orvis, governmental affairs director for the Stanislaus County Farm Bureau. His board, which recently celebrated its 102nd anniversary, has not weighed in on the class action.

Agribusiness: Valley’s economic backbone

“It’s important to remember that agribusiness is the backbone of our local economy,” said Stacy Henderson, a Ripon attorney representing some irrigators. “Fundamentally, the notion of creating a division between urban and agricultural customers does not make sense. Unfortunately, the lawsuit ignores this very important fact.”

Henderson and others have suggested that MID’s 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.

That’s nonsense, say Delano, Campbell, Mohasci and others – because MID has used electricity profit since the 1920s to pay for canals, pipelines and other improvements. Board member John Mensinger, who represents an urban district, noted last year that city residents in 1887 overcame strident opposition from farmers to officially create MID; agriculture in those days was dominated by dry-land wheat farmers who relied on rain and preferred the status quo.

“MID keeps saying electric customers aren’t paying for all these services. Why should they? They own the damn system,” Mohasci said.

Paul Baxter, a retired Modesto deputy city manager, said, “I would hope they don’t waste ratepayers’ money defending the indefensible.”

Garth Stapley: 209-578-2390