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Second class-action lawsuit challenges MID subsidy

Modesto Irrigation District’s Standiford Station
Modesto Irrigation District’s Standiford Station jlee@modbee.com

The Modesto Irrigation District faces two separate class-action lawsuits, both accusing the utility of overcharging electricity customers to subsidize farmers’ water prices.

Both ask that a judge grant class status enabling tens of thousands of electricity customers to join the lawsuit and ask for refunds.

Although filed for similar reasons within two weeks of each other, the lawsuits were prepared independently.

“We feel it’s important to get this case out there so people can get a little more transparency with what the elected folks are doing,” said Beverly Hills attorney Jeffrey Koncius.

MID spokeswoman Melissa Williams said, “Our legal team is confident that MID’s rates practices are appropriate and comply with the law.”

There are currently no other such claims or lawsuits on this subject.

Melissa Williams, MID spokeswoman

Koncius’ firm, Kiesel Law, represents Modesto resident Andrew Hobbs, whose class-action lawsuit against MID was filed March 15. Previous Modesto Bee reporting has focused on the other lawsuit, brought two weeks later by Dave Thomas of Modesto.

“As best I can tell, they didn’t know about our case when they filed theirs, and we didn’t know about theirs when we filed ours,” Koncius said.

Both say overcharging power customers amounts to an illegal tax prohibited by state law unless MID asks for voter approval, which it has not. The Hobbs complaint goes a step further, accusing MID of overcharging homes to subsidize businesses that pay lower rates for power, in addition to farmers getting sweet deals on water.

The nonprofit utility serves nearly 118,000 power accounts: 96,583 residential, 12,596 commercial and 156 industrial, plus another 8,524 spread among farm pumps, government buildings and railroads.

MID has been illegally providing subsidies to its water rate base through profits it obtains from its residential electric customers.

Andrew Hobbs’ lawsuit

MID “has illegally inflated the electricity bills of its residential customers through unapproved taxes,” the Hobbs complaint says. Compared to families, MID’s industrial customers pay 75 percent less, and its commercial customers pay 22 percent less, the lawsuit says.

Bee analyses have shown that MID reaped an average yearly electricity profit of $93 million from 2010 to 2014, for a five-year total of $466 million. MID has used that money to repay debt and build reserves, currently $196 million.

$93 million Average annual MID electricity profit, 2010-2014

“MID’s profits are excessive,” says the Hobbs complaint, citing a similar reserve figure of about $200 million. “The excess profit constitutes an illegal tax under the state Constitution.”

$17 million 2016 MID farm water subsidy

Electricity profits also subsidize irrigation prices, both lawsuits note. This year, the subsidy comes to more than $17 million: it costs MID $21.2 million to deliver water, while customers pay only $3.82 million – even after the MID board last week raised water rates 20 percent. The utility serves about 600 farms, critics estimate.

The district has refused to separate its water and power bookkeeping. The board has raised water rates several times in recent years while leaving power rates alone since 2011, about the time an attorney privately advised that an increase without a vote of the people might violate state law.

We think it’s an important issue to get out there for the public to learn more about what’s going on and how these rates are being developed. We’re looking forward to the court stepping in and adding some clarity to this practice.

Jeffrey Koncius, attorney

MID’s water side deserves but gets no credit for services benefiting its power side, farm advocates say, such as canals supporting power poles and carrying stormwater from Modesto streets, and irrigation replenishing groundwater aquifers.

Thomas’ complaint, brought by Krause, Kalfayan, Benink & Slavens of San Diego, seeks refunds since February 2015, while Hobbs’ asks for refunds since March 2013.

Attorneys representing both have experience in litigation alleging that utilities have overcharged customers.

“We tend to take on big cases with big causes, ones we feel strongly about,” Koncius said.

Garth Stapley: 209-578-2390

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