South San Joaquin Irrigation District contends it can still deliver retail power for 15 percent less than PG&E even with a much higher price to acquire the San Francisco-based firm’s distribution system in Manteca, Ripon, and Escalon.
The SSJID board this week forwarded to the San Joaquin Local Agency Formation Commission (LAFCO) a supplement to their original application seeking that agency’s blessing to enter the retail power business. An independent consulting firm disputed some of SSJID’s financial assumptions including the book value of the PG&E system as well as future projected power costs being too low.
Common Sense San Joaquin – an organization founded with the help of PG&E to counter the SSJID effort – has used the independent report to argue that SSJID’s plan to take over PG&E through eminent domain is “financially infeasible without raising assumed rates or infusing more equity.” The report also found that SSJID would need about $200 million in upfront cash to deliver on their promises – more than three times their current reserves. That assumption was based on SSJID paying cash and not financing the purchase of the system through bonds.
PG&E officials, who have yet to see the supplement to SSJID’s original application, have consistently contended SSJID will end up having to raise rates 15 percent instead of lowering them by 15 percent.
There are three critical parts of the independent study by PA Consulting that the supplement addresses.
The first was the fact that neither the consultant’s model nor the district’s model showed any of the operating revenue generated by retail electric service as part of the business plan.
By taking that operating revenue – or “profit” – and putting it back into retail operations SSJID rates can be set 4.3 percent below PG&E’s rates.
The second was PA Consulting’s assumption that wholesale power costs would accelerate faster than SSJID projected after four years. The study done by PA Consulting, though, only applied the increased power costs to SSJID rates and not PG&E rates. Once that is done, SSJID rates would be 11 percent lower than PG&E’s according to the supplement study put together by the district’s team of economists and engineers.
The third point made by the PA Consulting report was that PG&E’s system is probably worth $185 million - or more than three times what SSJID has assumed it would pay.
SSJID originally envisioned only using $10 million of the nearly $70 million so far it has accumulated in undistributed reserves from its share of Tri-Dam project wholesale power generation proceeds that have started piling up since the 50-year bond was paid off four years ago.
SSJID has always intended to take advantage of its AA bond rating to acquire the system and make necessary upgrades as well as severing from the PG&E grid system to borrow the money needed. Rates paid by customers would retire the bonds, cover the operating costs, and pay for the wholesale power. The $10 million is designated as a reserve to meet the requirements of investors to maintain the high quality of SSJID’s credit and underscore its ability to pay back the bonds.
The supplement takes all of the PA Consulting assumptions and adds $39 million from the district’s undistributed reserves upfront as well as an additional $1.6 million annually from its net from wholesale power sales from Tri-Dam.
That combination of buying down the amount they have to borrow by $39 million and committing $1.6 million a year for the life of the bond from Tri-Dam receipts would allow SSJID to provide rates 15 percent below PG&E.
They will still be accumulating $10 million a year that they can use if needed on the retail power system.
But, as SSJID General Manager Jeff Shields pointed out, if PA Consulting projections for future power costs are correct then Tri-Dam will start generating even more revenue for the SSJID since they sell power for peak demand.
Shields said SSJID would still have to look for ways to use the money for public benefit since as a government agency they would not want to accumulate a nine-figure surplus.
“The board has made it clear they want the entire district to share in the benefits from tri-Dam and lower retail electrical rates is one way of doing that,” Shields said.
The crucial vote as to whether SSJID can proceed is expected to take place in January.
Common Sense San Joaquin is mounting a campaign to build public opinion against SSJID and in favor of PG&E. They have opened a store front in the 100 block of Yosemite Avenue in the former office of the Lathrop-Manteca Sun Post newspaper.
They have based their opposition on issues such as eminent domain, concerns about whether SSJID can actually lower rates, and reliability.
The PA Consulting report did conclude that SSJID has the knowledge and the ability to run a retail power system.
Major funding for Common Sense San Joaquin comes from PG&E. State law bars public agencies such as SSJID from forming similar organizations to promote their position.
Common Sense San Joaquin essentially replaces Stop the Power Grab that PG&E also funded in a bid to generate public opinion against SSJID’s retail power plan.
The SSJID board this week forwarded to the San Joaquin Local Agency Formation Commission (LAFCO) a supplement to their original application seeking that agency’s blessing to enter the retail power business. An independent consulting firm disputed some of SSJID’s financial assumptions including the book value of the PG&E system as well as future projected power costs being too low.
Common Sense San Joaquin – an organization founded with the help of PG&E to counter the SSJID effort – has used the independent report to argue that SSJID’s plan to take over PG&E through eminent domain is “financially infeasible without raising assumed rates or infusing more equity.” The report also found that SSJID would need about $200 million in upfront cash to deliver on their promises – more than three times their current reserves. That assumption was based on SSJID paying cash and not financing the purchase of the system through bonds.
PG&E officials, who have yet to see the supplement to SSJID’s original application, have consistently contended SSJID will end up having to raise rates 15 percent instead of lowering them by 15 percent.
There are three critical parts of the independent study by PA Consulting that the supplement addresses.
The first was the fact that neither the consultant’s model nor the district’s model showed any of the operating revenue generated by retail electric service as part of the business plan.
By taking that operating revenue – or “profit” – and putting it back into retail operations SSJID rates can be set 4.3 percent below PG&E’s rates.
The second was PA Consulting’s assumption that wholesale power costs would accelerate faster than SSJID projected after four years. The study done by PA Consulting, though, only applied the increased power costs to SSJID rates and not PG&E rates. Once that is done, SSJID rates would be 11 percent lower than PG&E’s according to the supplement study put together by the district’s team of economists and engineers.
The third point made by the PA Consulting report was that PG&E’s system is probably worth $185 million - or more than three times what SSJID has assumed it would pay.
SSJID originally envisioned only using $10 million of the nearly $70 million so far it has accumulated in undistributed reserves from its share of Tri-Dam project wholesale power generation proceeds that have started piling up since the 50-year bond was paid off four years ago.
SSJID has always intended to take advantage of its AA bond rating to acquire the system and make necessary upgrades as well as severing from the PG&E grid system to borrow the money needed. Rates paid by customers would retire the bonds, cover the operating costs, and pay for the wholesale power. The $10 million is designated as a reserve to meet the requirements of investors to maintain the high quality of SSJID’s credit and underscore its ability to pay back the bonds.
The supplement takes all of the PA Consulting assumptions and adds $39 million from the district’s undistributed reserves upfront as well as an additional $1.6 million annually from its net from wholesale power sales from Tri-Dam.
That combination of buying down the amount they have to borrow by $39 million and committing $1.6 million a year for the life of the bond from Tri-Dam receipts would allow SSJID to provide rates 15 percent below PG&E.
Tri-Dam generates up to $16 million in surplus funds yearly
Even with $1.6 million going to pay off bonds from Tri-Dam receipts, the district will still be accumulating a substantial surplus from it hydroelectric sales. Currently that figure comes to $12 million to $16 million annually. The district has been using Tri-Dam receipts to do substantial capital improvements to the irrigation system as well as to help keep irrigation rates unchanged. It has been more than 20 years since either water rates or taxes in SSJID were raised. At least twice since 1990 the district has actually suspended water rates due to their strong balance sheet.They will still be accumulating $10 million a year that they can use if needed on the retail power system.
But, as SSJID General Manager Jeff Shields pointed out, if PA Consulting projections for future power costs are correct then Tri-Dam will start generating even more revenue for the SSJID since they sell power for peak demand.
Shields said SSJID would still have to look for ways to use the money for public benefit since as a government agency they would not want to accumulate a nine-figure surplus.
“The board has made it clear they want the entire district to share in the benefits from tri-Dam and lower retail electrical rates is one way of doing that,” Shields said.
The crucial vote as to whether SSJID can proceed is expected to take place in January.
Common Sense San Joaquin is mounting a campaign to build public opinion against SSJID and in favor of PG&E. They have opened a store front in the 100 block of Yosemite Avenue in the former office of the Lathrop-Manteca Sun Post newspaper.
They have based their opposition on issues such as eminent domain, concerns about whether SSJID can actually lower rates, and reliability.
The PA Consulting report did conclude that SSJID has the knowledge and the ability to run a retail power system.
Major funding for Common Sense San Joaquin comes from PG&E. State law bars public agencies such as SSJID from forming similar organizations to promote their position.
Common Sense San Joaquin essentially replaces Stop the Power Grab that PG&E also funded in a bid to generate public opinion against SSJID’s retail power plan.
