State

MID votes to cut rate hike

An electricity rate hike set for next month will be less than expected, thanks to a vote Friday by the Mo- desto Irrigation District board.

It voted 3-2 to increase rates 2 percent on average, rather than the 7 percent approved earlier, for residential, commercial and industrial users.

The move will save an average home in the district about $6 a month.

Director Cecil Hensley, who had asked for the rate review, said customers need a break amid the recession.

"They're hurting out there," he said. "People are living on less than $1,000 a month."

Dissenters said the reduction would cut into the reserves that the MID must maintain to keep its strong credit rating. The rating in turn means low interest on the bonds that finance capital projects.

"I want to do what's in the long-term interest of the district, and if we do that, we serve our ratepayers," Director Paul Warda said.

He and Director Tom Van Groningen voted to keep the planned increase intact. Mike Serpa, John Kidd and Hensley voted to reduce it.

The board had voted in November to raise rates in three phases in 2009. For residential users, that meant 7 percent in January, 6.5 percent in June and 5.4 percent in September.

The typical home's bill reached about $127 a month with the first phase. It will go to about $130 with the scaled-back increase in June, rather than the planned $136.

Because summer brings above-average power use for air conditioning, the savings will be especially big to start out.

The 2 percent overall increase, effective Monday, is the average for residential, commercial and industrial rate classes.

Serpa moved to cancel the entire June increase but did not get a second. He said the district should delay projects and find other ways to cut costs rather than raise rates.

"I think that what our area is suffering is some economic insecurities and specifically income insecurities," Serpa said.

Van Groningen said he, too, is concerned about poor people but trimming the increase would be "short-sighted."

The forgone income to the MID will total about $8.45 million this year, according to a staff report. This could complicate the district's efforts to build its reserves, now about $130 million, to about $200 million.

Bond interest could rise

Jerry Gold, a financial consultant to the district, said the full set of rate increases had drawn praise from bond rating agencies. They look for evidence of sound finances when they assign the ratings that in turn affect the interest rates on bond issues.

Gold, a senior vice president at First Southwest Co. in Santa Monica, said a reduced rating could cost the district an extra $5.5 million in interest on a $100 million bond issue over 30 years.

"To rescind an enacted rate increase is extremely dangerous in the eyes of the rating agencies," he said.

The increases were based in part on rising prices for natural gas, the main fuel for power plants. The prices since have dropped, said Roger VanHoy, assistant general manager for elec- trical resources.

"It's good news," he said, "but the question is, will it hold up and for how long?"

VanHoy said gas prices could go back up if suppliers, hurt by the loss of income, shut down their operations and the supply gets tight.

The MID gets especially cheap hydropower from its turbines at Don Pedro Reservoir on the Tuolumne River. Kidd said the improvement in the Sierra Nevada snowpack since January is another reason for easing the rate increase.

"I'd say with the level of water in Don Pedro, we've come a long way," he said.

Bee staff writer John Holland can be reached at jholland@modbee.com or 578-2385.

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