MID says selling power lines will help it avoid power-rate spike

Selling power lines that bring electricity here from a coal-burning plant in New Mexico ought to keep Modesto Irrigation District’s electricity prices from spiking in a few years, MID officials say.

MID is nearing the end of a multiyear process of divesting its interest in the San Juan Generating Station, which the district spent more than $84 million helping to build two decades ago. Transmission lines bring electricity to Modesto and several outlying communities, as well as to Santa Clara and Redding, MID’s partners in the project.

But burning coal is a dirty business, and federal regulators have demanded expensive air-scrubbing equipment. Rather than invest the money, MID and its partners three years ago opted to shut down by December 2017 and find other power sources.

The partners were thrilled, MID’s James McFall said, when a Los Angeles utility offered $60 million for the transmission lines, half of which is MID’s share.

“That was like a big Christmas present,” McFall said. “We didn’t expect (bidding) to go that well.”

The partners plan to put $8 million of the proceeds toward plant decommission costs, and use the remaining $52 million paying down debt still owed on the project.

An old loan years ago was structured with a balloon payment toward the end that would have caused MID’s yearly payment to jump $8 million in 2021 and 2022, said Scott Van Vuren, an MID assistant general manager. That likely would have required MID to raise prices paid by its 118,000 power customers, he said.

Using $44 million of proceeds from selling power lines will help to flatten that balloon and avoid a rate increase, Van Vuren said. MID leaders are grateful, some said at Tuesday’s board meeting.

Although the board has not raised electricity rates in five years, MID faces two class-action lawsuits. Suing lawyers say customers, without voting to give consent, are overcharged tens of millions of dollars each year to keep water rates low for farmers.

Modesto 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.

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 month raised water rates 20 percent. The utility serves about 600 farms, critics estimate.

This story was originally published May 11, 2016 at 5:50 PM with the headline "MID says selling power lines will help it avoid power-rate spike."