Electric rates: Tiers or time?

Depending upon your perspective, the concept of expanding electric rate tiers either makes perfect sense or no sense at all.

Two weeks ago, Modesto Irrigation District directors delayed action on a staff recommendation to raise residential electric rates by as much as 9.5 percent beginning Jan. 1.

Directors said they wanted more information on alternatives, including imposing the rate increase in two installments -- one Jan. 1 and the other in July -- and expanding the district's two-tiered rate system.

MID board members meet again Tuesday, when they are expected to revisit the rate rise recommendation.

Under the district's current rate system, all residential electric users pay a fixed monthly charge of $12.50.

Under the current two-tiered system, those who use less than 500 kilowatt hours a month pay a lower rate than those using more than 500 kwh a month. Director Mike Serpa suggests additional tiers with a sliding scale of rates.

Also, electric rates are seasonal. The MID charges more during the summer months, when demand is higher. Winter rates are slightly lower.

Serpa favors expanding the utility's two-tiered rate system.

"Last year," Serpa said, "I advocated we look at a four-tier system. It encour-ages conservation and protects our (low-income) customers."

Jimi Netniss, budget and rates ad- ministrator, said MID staff is developing several scenarios, including three-, four- and, possibly, five-tiered rate proposals.

"It does encourage conservation," Netniss said Friday, "but from a pricing perspective, 'time of use' is more equitable."

At the Nov. 13 rate hearing, General Manager Allen Short said some utility companies are moving away from the multitiered rate approach in favor of a "time of use" rate strategy that targets peak-time power demand.

During peak hours -- at the MID, that's from 4 to 8 p.m. -- energy costs are at a premium.

A time-of-use rate system would charge a higher rate for electricity during peak hours. Electric rates would be cheaper during off-peak hours, when a utility's cost of supplying power also drops.

That said, the MID doesn't have the ability today to move residential customers to a time-of-use rate system.

For one thing, Netniss said, the district would have to install special meters, a step it's not ready to take.

Short has promised to bring a time-of-use rate proposal to the board next year.

In the meantime, an overhaul of the utility's two-tiered rate structure remains in play.

Netniss will provide more information to MID directors on a proposal to split the amount of any rate increase between January and July.

Board members also have asked for more information about a proposed fuel surcharge. The surcharge would go up as the MID's fuel costs go up.

Lou Hampel, assistant general manager of finances, said levying a fuel surcharge would make more sense after the district's electricity rates reflect its actual costs. He said that's not likely to happen until 2009.

Without a rate increase for 2008, Hampel said, the district would draw down its cash reserves by more than $23 million.

Under the staff recommendation, rates would be raised by differing amounts for various customer categories. The range of proposed increases runs from 5 percent to 15 percent for commercial and industrial customers.

Ultimately, Hampel said, should directors decide to con- tinue to draw down reserves rather than increase rates, the district's bond rating would be lowered. That would result in higher interest payments on projects financed by the utility.

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Bee staff writer Michael G. Mooney can be reached at mmooney@modbee.com or 578-2384.

This story was originally published November 25, 2007 at 12:00 AM with the headline "Electric rates: Tiers or time?."