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Study: SSJID can lower rates 15%

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POSTED September 30, 2014 1:22 a.m.

It’s now the $310 million question.

On Dec. 10, the San Joaquin County Local Agency Formation Commission will decide whether to bless a South San Joaquin Irrigation District proposal to enter the retail power service in a bid to reduce power rates 15 percent across the board in Manteca, Ripon, and Escalon as well as the surrounding countryside.

One condition that is being recommended by a firm that conducted a municipal services review — the precursor to taking action on the district’s 61-month-old application to enter the retail power service —  is that the SSJID not be allowed to spend more than $310 million to acquire distribution facilities, separate from the PG&E system and construct system improvements. Both a financial analysis by PA Consulting Group and a systems investment report by Black & Veatch on behalf of PG&E put the actual cost at $270.7 million.

A third analysis by Mintier Harnish/MBMC puts that figure at $310 million. Even so, the third study indicates SSJID would still be able to exceed minimum days-cash-on-hand as well as easily meet the minimum debt service coverage ratio. Both conditions are considered essential for the SSJID to maintain its stellar bond rating and stay on solid financial ground.

That is based solely on the SSJID bonding to buy the system and make improvements and not tapping into Tri-Dam Project wholesale electricity sale receipts.

Despite investing well over $37 million in system wide irrigation improvements in recent years by drawing on the district’s Tri-Dam income, the SSJID still has reserves of $53 million.

That is expected to grow as the district since 2006 has averaged $13.5 million a year in revenue from the wholesale sale of electricity and the sale of surplus power.

The SSJID currently uses Tri-Dam receipts to subsidize irrigation operations and the solar farm at the South County Surface Water Treatment Plant. The subsidies have averaged $5.95 million a year since 2008.

After 2019 bonds secured to put in place a state-of-the-art drip irrigation delivery system in Division 9 south of Manteca and west of Ripon that has resulted in the savings so far in excess of 30,000 acre feet of water will be paid off. The district opted to incur its first debt in a number of decades since borrowing money put the district ahead financially in the long run as opposed to drawing down the reserves by paying in cash as they have for other capital improvement projects.

Starting in 2020, the subsidy will drop to $3.3 million a year.

Taking that into account, the MSR indicated SSJID is in a position to continue those subsidies from Tri-Dam revenue plus cover new electrical service commitments to pay in-lieu franchise fees and taxes to Manteca, Ripon, and Escalon plus cover public benefit expenses such as subsidized power rates for low-income households and energy conservation programs 

The bottom line of the MSR finding is that the SSJID plan would not cause an increase in retail electrical customer rates within the SSJID service areas. As proposed, SSJID’s plan would reduce customer rates 15 percent compared to PG&E rates. It also noted projected growth in district reserves should allow SSJID to further lower rates and/or fees for service. If for some reason future conditions do not allow the district to maintain rates 15 percent below PG&E, the MSR concludes the “SSJID could raise rates to offer a lower discount or to match PG&E rates without adversely affecting rates that otherwise would have been paid to PG&E. However, based on financial analysis prepared by Mintner Harnish and MBMC, SSJID’s plan” will be able to deliver the 15 percent discount.

 

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