Modesto Irrigation District justifies power prices with new study

Exterior of the Modesto Irrigation District office in downtown Modesto, Calif.
Exterior of the Modesto Irrigation District office in downtown Modesto, Calif. jlee@modbee.com

Modesto Irrigation District board members on Tuesday embraced an important new report justifying prices for both electricity and farm water.

MID recently said electricity rates will not go up in 2019, a point restated in Tuesday’s action. Whether farm water rates will rise typically is decided before irrigation starts flowing in the spring.

The new cost of service study, a year in the making, clearly positions the utility to defend itself in a class-action lawsuit accusing MID of overcharging electricity customers in order to subsidize farm water prices.

That subsidy no longer exists, the report says, thanks to a new way of looking at MID’s books.

The cost of delivering water — $21.3 million per year, in the latest budget — has not changed, and neither has the amount farmers pay: $4.1 million. The $17.2 million gap now is filled, the study says, with “other revenue,” including a new category called discretionary revenue that largely comes from wholesaling surplus electricity on the open market, as opposed to retail sales to local homes and businesses.

“Our conclusion is there is no subsidization,” said William Monsen, a consultant helping produce the cost of service study. “Irrigation service is being fully covered by rate revenue and non-rate (or discretionary) revenue.”

The study also found that “electricity customers are paying slightly less than the cost of service,” Monsen said, “so your rates are reasonable.”

The board has not raised power rates since 2012, when an attorney advised that doing so without a vote of the people might violate state law. Before then, prices had jumped significantly almost every year for power customers, which today include 97,935 homes and 12,490 businesses.

Attorney Michael Colantuono, hired to shepherd the cost of service study — and to defend MID in the class-action lawsuit — said, “It looks like you’ll be able to (go) a few more” years before raising electric rates, if desired. The board can make that decision without a customer vote, he said.

Two attorneys representing unidentified customers, Stacy Henderson and Bob Fores, praised the study.

“When I read the report, I said, ‘This is exactly what the district needs: solid figures and solid facts to support solid decision making,’ ” Henderson said.

Electricity customer Kurt Danziger of Escalon, however, called the presentation a creative accounting “dog and pony show” raising plenty of questions for people who have heard about the subsidy for years. For at least two decades, board members have acknowledged the imbalance and have taken formal and informal steps to address it, including raising farm water prices.

Board member Paul Campbell said the study makes MID’s rates “justifiable and defendable, and the financial activity of this entity over time has been commendable.”

Colantuono said MID has improved its financial health by significantly paying back debt in recent years.

Stu Gilman, a board member who campaigned on a promise of bringing equity to power customers, said he would like to “look at some things we can do with discretionary revenue to make rates even more favorable to ratepayers.”

Technically, the board on Tuesday repealed all rates and immediately replaced them with identical ones, this time based on the cost of service study. The vote was unanimous.

In August, the California Supreme Court sided with Colantuono and a Redding utility facing accusations similar to those brought against MID in the class-action lawsuit. Considering wholesale revenue apart from other electricity income was central in the Redding case, and MID hopes it will become a key factor in the local case.

About 30 minutes before, no board member seconded Larry Byrd’s motion that Nick Blom continue as board chairman, and the board settled on Campbell for that job. Byrd and Blom then voted against John Mensinger replacing Byrd as vice chairman, but they were outvoted by Mensinger, Campbell and Gilman.