San Joaquin County Superior Court Judge Carter Holly has rejected PG&E claims that South San Joaquin Irrigation District lacks sufficient revenues to provide electrical retail service to the cities of Manteca, Ripon, and Escalon and surrounding farms.
The decision issued last week also indicated that the San Joaquin Local Agency Formation Commission was not required to find that SSJID could provide service at a 15 percent discount.
SSJID General Manager Peter Rietkerk noted that while the court ruled LAFCO was not required to consider whether SSJID could provide service at rates 15 percent below PG&E, the district still intends to do so. Rietkerk pointed out a condition of the LAFCO approval requires the SSJID board to determine that SSJID can provide service at a 15 percent discount before it completes the purchase of the PG&E distribution system.
The LAFCO condition reaffirms the board’s repeated position that it will not proceed if they cannot obtain the 15 percent savings. Three studies in the past several years have indicated the district could easily accomplish such savings for consumers. The board has always stressed given the time involved in the process that they wanted to have the financial analysis done again when the final purchase neared to make sure it was still financially feasible to produce the 15 percent savings.
Rates that are 15 percent below PG&E’s would put $12 million a year back into the pockets of residents, farmers, businesses, schools, government agencies in Manteca, Ripon, and Escalon.
Reitkerk said SSJID expects to make an offer to PG&E in the near future to purchase its distribution assets that serve the three South County communities.
If negotiations fail to allow SSJID to purchase the PG&E distribution system, a public hearing would be scheduled before the SSJID board to determine whether to authorize the filing of an eminent domain complaint to acquire PG&E’s assets.
The complaint would then be heard by a judge who would determine its validity and also set the purchase price.
Judge Holly in his 26-page order stated, “As the Court reads the Application, the 15% reduction is an objective and benefit of the proposal. To comply with Government Code [section] 56824.14(a), SJLAFCO was required to determine whether SSJID has sufficient revenues to provide retail electric services to customers in its territory. Substantial evidence was submitted to support SJLAFCO’s determination that SSJID has the financial capability to provide retail electric service.”
In a separate and longer order, Judge Holly also rejected PG&E’s constitutional challenges to Condition No. 2 that’s part of LAFCO’s approval of SSJID’s application, which obligates SSJID to make payments in lieu of taxes and fees to San Joaquin County and the Cities of Manteca, Escalon and Ripon. SSJID proposed in its application that it would pay those agencies for what they would otherwise lose if SSJID acquires PG&E’s electric assets in order to provide retail electric service.
In his ruling against PG&E’s constitutional challenge to Condition No. 2, Judge Holly found that, “PG&E has not established that the Condition No. 2 is unconstitutional on its face.” He also found that PG&E’s has applied constitutional challenges could not be adjudicated now because “SSJID has not decided, committed to, or otherwise implemented any of the several options available to it, and other aspects of the payments require negotiations which have not yet occurred.” Judge Holly found that until the actual facts surrounding the Condition No. 2 payments are known, PG&E was improperly asking the Court to speculate about their constitutionality.
The condition that SSJID advocated to LAFCO was made to assure municipal governments in Manteca Escalon, and Ripon would not suffer general fund losses critical to day-to-day services such as police and fire protection. State law doesn’t obligate government run power systems to pay utility franchise fees but it does require privately owned energy firms like PG&E to do so.
Manteca receives about $550,000 a year from PG&E in electrical system franchise fees.
LAFCO gave SSJID regulatory clearance to enter the retail power business in December 2014. PG&E filed a lawsuit in February 2015 challenging that approval.
What the last
Three studies — with the last being in 2014 by Mintier Harnish/MBMC— indicates SSJID would still be able to exceed minimum days-cash-on-hand as well as easily meet the minimum debt service coverage ratio needed to purchase, sever the system, upgrade facilities, and reduce rates. 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 had reserves of $53 million at the time of the study.
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 Municipal Service Review conducted for LAFCO 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. At the same time SSJID will be able to cover the cost of 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.
To contact Dennis Wyatt, email email@example.com