Study Finds Irrigation District’s PG&E Wires Takeover Attempt Pricey

By Published On: June 4, 2010

The South San Joaquin Irrigation District’s proposed take over of Pacific Gas & Electric’s distribution system would cost $150 million more than the district estimates, according to a study released at the end of May. The assessment by PA Consulting submitted to the San Joaquin Local Area Formation Commission, which must approve a muni takeover, concluded the total cost of seizing PG&Es infrastructure in Escalon, Manteca, and Rippon would be around $235 million. The irrigation district estimated the cost at $65 million, plus another $22 million for capital upgrades. The facilities at issue encompass 800 miles of distribution lines and two substations. PA’s estimate is “a worst case scenario,” said Jeff Shields, the district’s general manager. Although he takes issue with the consultant’s cost estimate, he said it gives LAFCO a number to work with and “it’s one we’ll have to meet.” Previous district takeover cost projections were lower. Another consultant, R.W. Beck, estimated the cost of seizing the utility’s wires and poles at $61 million last year. The California Public Utilities Commission priced the utility infrastructure buyout at $42 million last December, using the assets’ book value (Current, Jan. 8, 2010). The PA report looks at different scenarios and concludes that the district could not offer prospective electric customers rates 15 percent below PG&E’s. “SSJID would need to adjust its discount in rates from 15 percent to approximately 9 below the assumed PG&E rates, in order to meet debt service coverage ratio requirements,” it states. The report looked at another financing option. If the irrigation district put up $186 million in cash toward the $235 million purchase, with the remainder financed, its rates would be above PG&E’s. “If SSJID proceeds with its plans, its customers could likely face an approximate 2 percent rate increase to pay for its miscalculations,” said Jon Tremayne, spokesperson for Common Sense San Joaquin Coalition. Tremayne is a former PG&E spokesperson. The San Joaquin coalition’s website says the online information is provided by The Coalition for Reliable and Affordable Electricity based in San Rafael. The San Rafael-based group is funded principally by PG&E. The utility recently fought Marin’s community choice aggregation program. In addition, the PG&E-backed coalition supports Proposition 16 on the June 8 ballot. The measure seeks to require municipalities and communities that want to pool residential and business demand to provide less expensive and more alternative energy resources to obtain two-thirds approval by local voters instead of a simple majority. The coalition for reliable energy is a five year-old nonprofit. The president is Dan Richard, PG&E’s former senior vice president, according to the coalition’s publicly available 2008 tax return. The two other directors are Nancy McFadden, PG&E senior vice president, and attorney Steven Lucas. Tremayne said the Common Sense Coalition pays his salary. The district paid PA about $280,000 for the PA study, according to Shields. This is the district’s second try at taking over PG&E’s infrastructure by eminent domain to provide local power. In 2006, the LAFCO rejected the district’s application for municipalization. Shields said the crux of the issue is the PA consultant report’s projections of future power costs--the forward price curves. Using the consultant’s number a takeover would still be a “huge economic benefit” for ratepayers, according to Shields. The district raised $450,000 to promote its municipalization effort, but little of that has been spent for that purpose, according to Shields.

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