Irrigation District’s Competition With PG&E Nixed

By Published On: April 25, 2008

A state appellate court ruled that the South San Joaquin Irrigation District’s ability to provide retail electricity service in direct competition with Pacific Gas & Electric could not proceed without county approval. The San Joaquin Local Area Formation Commission rejected the irrigation district’s application to sell power to homes and businesses in the area served by PG&E, and the irrigation district sued. On April 22, the Third District Court of Appeals sided with PG&E. The court held up LAFCO’s denial of the irrigation district’s application to allow it to expand into retail power service. “This decision preserves the checks and balances contained in state law,” stated Nancy McFadden, PG&E vice president. “We will renew our efforts to work with LAFCO,” said Jeff Shields, the district’s general manager. In addition, the district board of directors is set to hold a closed-door session April 29 to decide its legal options, including whether to pursue an appeal to the state Supreme Court. The irrigation district argued that the state water code allows it to enter the retail power business, and that LAFCO approval was not requisite. The appellate court disagreed, pointing to a recent amendment to state law governing local formation districts. “There would be no point in establishing a detailed, timely and costly procedure for LAFCO approval if a disappointed applicant could simply disregard the decision of LAFCO’s and proceed with its plan to provide a new or different service,” wrote Judge Fred Morrison. The appellate court also prohibited the irrigation district from deposing four of the five county commissioners, who rejected the staff recommendation to allow the service expansion. Overruling a lower court, the appellate body held that the information the commissioners relied on when casting their no votes in 2006 was protected by the “deliberative process privilege.” It also ruled that the district must pay for both PG&E’s and LAFCO’s legal costs of the appeal. PG&E, which is an intervenor in the suit, paid the local agency’s legal bill. “The court allowed us to provide resources because this obviously affects our business,” said Nicole Tam, PG&E spokesperson. She could not provide the dollar figures given to LAFCO to cover its general counsel’s retainer fee. It was also too early, she added, to estimate the investor-owned utility’s legal costs to date. In general, private utilities’ legal costs are considered a cost of doing business by regulators and are not reviewed. Both parties pointed to their adversary’s high legal tab. PG&E said the irrigation district spent $8 million since 2006 and will commit “$11.5 million more of public dollars to pursue an unsound business plan.” Shields countered that PG&E spent three times what his agency did to fight the effort to provide retail power service, including a $404,000 settlement for its consulting allegedly stealing confidential data from the district. The district’s spokesperson said that its legal costs, which she did not provide, have not come out of the pockets of its’ irrigation or water treatment customers. The money comes from its wholesale hydropower sales. The district holds a one-third interest in the Tri-Dam, which generates about $10 million in annual sales. Public power would allow the district to “keep an estimated $12 million a year here in the pockets of local businesses and residents,” Shields said.

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