Electricity customers have saved money this year thanks to rate-hike rollbacks by the Modesto Irrigation District, but next year likely will be different.
The district board Tuesday started looking at its 2011 budget, which could require a rate increase to cover expenses.
No numbers have been suggested yet, but district officials warned that things likely will be tight when the budget is adopted in the fall.
That could mean an increase in bills that now average $139.55 a month for residential customers.
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One reason is the growing cost of meeting state and federal mandates for renewable energy and other efforts aimed at curbing climate change.
The MID also faces pressure from bond-rating agencies to have enough income and reserves to assure investors that it is financially sound. The higher the rating, the less the district pays in interest on the bonds that finance its capital projects.
District officials said the rating agencies were not pleased with votes by the board to reduce or cancel previously proposed customer rate hikes.
"MID has a history of not following through on adopted rate increases," said Lou Hampel, the district's assistant general manager for finance.
The district had three planned increases in 2009 — 7 percent in January, 6.5 percent in June and 5.4 percent in September. The board reduced the June increase to 2 percent and canceled the September increase.
At the time, board members cited the need to help customers through the recession and the reduced cost of natural gas, the main fuel for power plants.
In January 2010, the board approved a 7 percent increase rather than the 11 percent recommended by the district staff.
Two bond agencies, Fitch Ratings and Moody's Investors Service, have dropped the MID's ratings by a notch. Fitch, for example, went from A+, which is fifth-highest on a 20-step scale, to A.
The downgrade will add $3 million to $5 million in interest costs over 30 years for a recent $100 million bond sale, Hampel said. The bonds will pay for expansion of the MID's gas-fueled plant on Woodland Avenue in Modesto and its share in a gas plant in Lodi.
MID General Manager Allen Short said the district might postpone its next round of borrowing to 2013 and try to regain "credibility" with the rating agencies.
On the bright side, the district likely will save money on power purchases this year. Gas prices are down, although not as far as they were several months ago. Last winter's abundant rain and snow mean lots of cheap hydropower from Don Pedro Reservoir, which is no longer the main source of MID power but still helps to keep costs down.
The board got updates on legislation that would mandate increased use of wind, solar and other renewable power, which cost more than conventional sources.
The district is about to start putting inserts in monthly bills that explain how these and other mandates could affect rates.
"If enough utilities do this, there will be pressure put on these people in Sacramento and maybe they will back off," Director Paul Warda said.
Bee staff writer John Holland can be reached at 578-2385 or firstname.lastname@example.org.