State

MID electric rates capped for this year

Electricity rates in the Modesto Irrigation District do not need to rise again this year, the board members decided Tuesday.

Directors postponed a proposal to add surcharges to the 7 percent general rate increase that took effect Feb. 1.

The surcharges would have reflected certain costs, such as the volatile price of natural gas for power plants or the premium paid for renewable energy.

The surcharges could return for discussion in the fall, when the board might consider rate increases for 2011.

The average home's bill reached $139.55 a month with the Feb. 1 increase. The hypothetical surcharges discussed Tuesday would have added $8.34 to the average bill.

The board took another step that eases pressure for future rate increases. It reduced its target for reserves from the $200 million goal adopted in 2006.

The goal now is to have reserves that equal at least 120 days of operating and maintenance expenses. The current reserves of about $120 million meet that test, but that could change if costs rise.

With the economy still weak, Director Cecil Hensley said, the district "shouldn't hold any more of the ratepayers' money than necessary."

Hensley, however, dissented on the vote because he said it did not go far enough in reducing another financial goal — the ratio of electricity income to payments on accumulated debt.

Director John Kidd also dissented. Directors Paul Warda, Glen Wild and Tom Van Groningen voted for the new policy.

The higher reserve goals were set to impress bond-rating agencies, which help determine the interest rate on bond issues for capital projects. The higher the reserves, the lower the cost of borrowing.

Jerry Gold, a financial adviser to the district, said it should be "realistic" with the rating agencies about its inability to meet the 2006 goals.

One agency, Fitch Ratings, already has reduced the district's rating one notch — from A+ to A — because electricity rate increases last year were scaled back. The new rating is the sixth-highest on a scale with 20 possible grades.

Other rating agencies could follow suit, Gold said. The result could be an extra $6 million in interest over 30 years for a $100 million bond issue, he said.

Gold noted that bond interest rates in general are at "historically low" levels and that the MID will benefit from this as it finances upcoming projects.

Kidd said the rating agencies seeking high reserves should take a look at the Modesto area's economy.

"Our public is having a tough year, so I hope the rating agencies realize that," he said.

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

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