Rulings bode ill for Modesto Irrigation District cash cow

Two recent appellate court rulings frowning on overcharging electricity customers could have important implications for the Modesto Irrigation District and the 113,000 families and businesses who buy its power.

“The message is that the days are numbered for overcharging rates and fees,” said Redding attorney Walter McNeill, who took on a powerful utility on behalf of electricity customers in that city. Of other agencies, he said, “the abuse is too big for it not to go uncorrected, and there will be people tracking them down to correct it.”

Fitch Ratings, noting “momentum ... building for decades” to stop utilities around California from overcharging for services, released a prediction that the Redding ruling “could lead to similar lawsuits in other locations.”

MID spokeswoman Melissa Williams said the district is aware of the recent decisions affecting Redding and Santa Barbara. “Cases like (these) may be factored into any future MID rate-making discussions and decisions,” she said.

More than two years ago, MID’s then-board chairman said the district anticipated being sued over its longstanding practice of overcharging electricity customers, but that hasn’t happened.

An attorney’s private warning that continuing to raise power prices without a vote of the people could violate state law was revealed in The Modesto Bee in fall 2012. The previous trend of annual rate increases came to a stop until November, when MID staff recommended a 3.5 percent raise, but the board called it off and there are no plans for a rate hike this year, Williams said.

Customers seeking to muzzle electricity cash cows in Redding and Santa Barbara both lost their class-action lawsuits in local courts, but both rulings were overturned in recent weeks by appellate justices. Both utilities share the same lawyer, who told The Bee he will ask the California Supreme Court to weigh in.

“These are important constitutional questions affecting the power industry in California,” attorney Michael Colantuono said. “It’s a very active time.”

The cases are based on interpretations of Propositions 218 and 26, respectively approved by California voters in 1996 and 2010, both treating charges for government and utility services.

In Redding, the city collects from $6 million to $8 million each year in what amounts to a hidden tax, the justices found, although they’re giving the city a chance to prove that revenue actually reflects the city’s cost of providing electricity. Several cities of all sizes, several utilities and the Modesto, Turlock and Merced irrigation districts supported Redding in the case, and a dissenting appellate justice predicted “widespread disruption” as agencies react.

Appellate justices down south told Santa Barbara to stop collecting an electricity surcharge from the city’s Southern California Edison customers, and to repay some of the money – from $600,000 to $700,000 a year.

Amounts of dollars in dispute in Redding and Santa Barbara pale next to the $44 million collected each year by MID from electricity customers, beyond what it spends to provide them that power. The excess helps MID pay down debt, boost savings and provide a controversial subsidy to its 3,100 farm accounts. This year, the subsidy will come to about $14 million, reflecting the difference between what farmers pay for water and MID’s true costs of delivering it.

MID growers pay $9.30 for an acre-foot of water, while buyers elsewhere in California are willing to pay several hundred dollars per acre-foot.

“They’re spending more money producing water than they’re getting in revenue. What insanity is this, that they have to think about if that’s right or wrong?” said Dave Thomas of the Stanislaus Taxpayers Association.

The MID board on March 24 will decide whether to raise water rates up to 40 percent. Some board members have hinted that’s too steep, and all but one last month flatly rejected the idea of tripling water prices over the next couple of years, even though doing so would result in farmers paying only 39 percent of the district’s water costs. The board also balked at separating its power and water accounting, which would make it easier to determine true costs for each.

McNeill said utilities generally resist change because they’ve come to depend on the extra cash, while ordinary folks often lack organization and money to mount legal challenges.

“These agencies that think they can get away with what they’re doing are making a bad bet and jeopardizing their future,” he said. “If they don’t wean themselves off this bad money, they’re going to be in a world of hurt when it goes away.”

This story was originally published March 14, 2015 at 6:07 PM with the headline "Rulings bode ill for Modesto Irrigation District cash cow."