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SSJID’s advantage: Cash

Prudent management makes move possible

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POSTED August 15, 2009 2:34 a.m.
There are 61 million reasons why the South San Joaquin Irrigation District leaders are confident they’re on firm ground when it comes to being able to purchase and separate the PG&E system in Manteca, Ripon, and Escalon while upgrading service and cutting rates 15 percent across the board.

Those 61million reasons are in the form of dollars the SSJID has been accumulating in an undistributed reserve from the board’s stewardship of the district’s share of hydroelectric revenue from the Tri-Dam Project SSJID operates in conjunction with Oakdale Irrigation District.

At a time when virtually every California public agency is pondering rate increases, furloughing workers, slashing budgets and cutting back servcie the SSJID is forging ahead with major initiatives from a massive water conservation and quality program by converting irrigation canals southwest of Manteca into a closed pipe system to solar power initiatives. The SSJID also has kept rates unchanged for irrigation customers for more than two decades while managing the system well enough to have water when other areas don’t.

They went as far as even suspending basic water charges last year. It would be the same as the State of California operating for a year without collecting a large chunk of revenue while maintaining services and actually socking away another $10 million annually.

Upgrades to the irrigation system that has been in place for 100 years and aiming to provide less expensive retail power is part of what the board likes to refer to as “sharing the benefits of the Tri-Dam Project.”

At one point during a previous battle over SSJID trying to enter the retail power business, a PG&E representatives argued that the money – the $10 million plus generated by revenue from Tri-Dam – could simply go into reducing irrigation costs and upgrading the system.

The board didn’t see it that way. They wanted to use the revenue to reduce the costs to residents, businesses and government agencies alike when buying the very thing the SSJID generate on a wholesale basis - electricity. It was a way of “repaying” the debt incurred by all property owners – and not just farmers – in founding and securing the initial SSJID facilities’ a century ago. Other ways of sharing the benefit by electrical rebates to PG&E customers was considered minimal compared to what putting in place a lower cost and upgraded retail power system could do.

As things stand today based on an appraisal of the PG&E assets conducted by a specialized consultant hired by SSJID, the district has enough money in its undistributed cash reserves to pay for the system outright.

That, however, would not be the most prudent way of proceeding.

SSJID’s unrestricted cash reserves will keep growing
The district instead plans to launch the retail system with $10 million from its undistributed reserves. The fact they will still have almost $45 million in undistributed reserves the year after starting the system will allow the district to secure high investment grade ratings for taxable and non-taxable bonds to acquire and upgrade the system.

In the initial four years that would be an $8.7 million annual debt servcie. Even if Tri-Dam didn’t generate another penny – which is highly unlikely as it has been bringing in a minimum of $10 million a year from power sales – and the district didn’t collect a dime from its systems, the SSJID could still pay debt servcie and have money left in its bank accounts.

That undistributed cash reserves are expected to reach $75 million by 2014 after retail start-up expenses are incurred. The undistributed cash reserve is designed as a safety value should the district ever need help making its debt servcie on retail power. It is what will allow the district to retain the highest possible bond rating.  The annual debt level peaks out at $10.8 million annually after five years and stays that way until bonds are paid off in 2040.

The business plan also provides for capital improvements to be made to the system after the initial start-up and upgrades five years into the SSJID selling retail power. It starts at $3.3 million a year and escalates up to $7.1 million annually by 2040.

Based on bond counsel research, the SSJID’s business plan for retail would continually build an ending cash balance each year start at $15.7 million the first year, reaching $45.8 million after five years, $90.8 million in 10 years, $319.9 million in 20 years, and $764.6 million in 30 years.

The Tri-Dam Project was financed by selling wholesale power to PG&E over 50 years. Tri-Dam is a series of three dams with hydroelectric plants on the Stanislaus River. After the bonds were paid off, instead of money going to debt service it went to unrestricted cash reserves.

The district intends to keep using those unrestricted cash reserves as they go to upgrade and reduce costs for its water side – just like PG&E suggested – as well a guarantee rates will be at least 15 percent lower than what PG&E charges at any given time.
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