Modesto Irrigation District subsidy debate may not surface Tuesday

A full debate over forcing electricity customers to subsidize farmers more than $10 million a year can wait until after Modesto Irrigation District leaders discuss raising electric rates, MID General Manager Roger VanHoy said, but the discussion could begin as soon as Tuesday.

The district quietly dropped a controversial aspect of the inequity, VanHoy admitted – a hidden tax known as the “falling water” charge, referred to by one critic as “voodoo accounting” – but the subsidy itself persists.

In a Wednesday meeting with Modesto Bee editors, VanHoy acknowledged the longstanding inequity, although it is ignored in material produced by his staff to justify a 3.5 percent power hike. The five-person MID board could alter the subsidy at any time, he said, and MID board chairman Nick Blom said farmers should brace for higher irrigation prices.

“We have said, ‘Yes, in January we’re looking at this (raising water rates),’ ” Blom said. “I can say (water rates) will change. They’re going to have to.”

The meeting agenda, released Friday, shows VanHoy this Tuesday calling for “discussion and possible action regarding changes” to irrigation rates. District spokeswoman Melissa Williams said the board will be asked for a commitment to address water prices in January, just before launching into the electricity hike proposal.

VanHoy said he envisions the board weighing whether to alter a revenue formula, perhaps reversing a policy that has favored farmers for nine decades. A gradual slide “over time makes sense,” he said, but the decision will be up to the board – composed of three farmers and two city dwellers.

Past boards, also controlled by farmers, had set a “soft policy” goal of upping irrigation prices 10 percent each year, acknowledged VanHoy. If their will hadn’t faltered, MID’s 3,100 growers would be paying far more than the current rate of about $22 per acre-foot of water, he said; eliminating the subsidy would mean charging about $70 an acre-foot.

Meanwhile, the district must erase a $12 million deficit in the budget adopted Oct. 28, and staff proposes getting more money the usual way – raising rates for MID’s 115,000 electricity customers.

Although several hikes in recent years have brought MID power prices on a par with Pacific Gas and Electric Co., VanHoy said MID still holds the edge, charging homes an average 18.1 cents per kilowatt hour compared with PG&E’s 18.4 cents. If PG&E were to take over, the investor-owned utility would charge a total of about $80 million more per year, he said.

Several critics intend to protest at Tuesday’s meeting, saying MID’s recent rate hikes far outpace other public utilities throughout California. It’s not fair to gouge families more, they say, to keep farmers’ water prices low and to pay handsome salaries to district employees; more than one-third of its workforce earned more than $100,000 last year.

MID’s internal accounting structure quit relying on its “falling water” logic because “it was just confusing to people,” VanHoy told Bee editors.

The district in 1995 began quietly folding a surcharge into its rate formula without it showing up in customers’ power bills. This “falling water” charge, unveiled in Bee reports, provided a partial look into transfers from MID’s electric side to its water side, amounting to about $100 million, with an average of $6 million each year in the past decade. An attorney two years ago privately advised the board that the hidden tax might be illegal.

But even that did not bridge the gap between farmers’ low water prices and the cost to deliver it, so the district historically has transferred a few million additional dollars per year of electricity revenue to water operations. The shortfall came to more than $50 million over the past five years, topping $11 million in each of the past two.

Farm advocates say the subsidy debate should include unquantified benefits that agriculture brings, such as replenishing underground aquifers and canals carrying rainwater from Modesto streets.

The district says it must raise electricity prices to cover rising costs for transporting natural gas that is burned to turn turbines, producing electricity. Also, MID’s customer base has been growing at a slower rate than previously predicted, and the district must pay for a new customer information system, officials say. MID further is obligated to pay its share of a new federal hydropower license for Don Pedro Reservoir.

This story was originally published November 22, 2014 at 4:44 PM with the headline "Modesto Irrigation District subsidy debate may not surface Tuesday."