South San Joaquin Eyes PG&E Distribution System

After 50 years of selling the output from its Sierra Nevada hydroelectric projects to Pacific Gas & Electric, the South San Joaquin Irrigation District wants to acquire PG&E?s distribution system. PG&E insists that its distribution system is not for sale and says the irrigation district will have to take the utility to court if it condemns its power lines. ?We?re now doing due diligence about acquiring it under eminent domain,? said Jeff Shields, the irrigation district?s general manager. The district has been assessing the feasibility of acquiring PG&E?s distribution facilities for the past four years to serve its customers in the fast-growing Central Valley, he said. ?We want to be in the distribution business. We can serve our customers with better service and lower rates.? South San Joaquin owns a combined 130 MW of hydroelectric capacity, most of which is generated by the Tri-Dam Project on the Stanislaus River, which it owns in partnership with the Oakdale Irrigation District. When the dams and hydroelectric generating plants were built in the early 1950s, the two water agencies entered into a 50-year contract to sell 100 MW a year of hydropower to PG&E. Though controversial even at the time, the long-term power-purchase contract enabled the districts to finance construction of the dams and irrigation systems that were crucial to supply irrigation water to valley farmers, Shields said. When PG&E?s low-cost contract expired December 31, 2004, the irrigation districts sought to earn market value for their hydropower. The districts entered into a five-year contract with PG&E, the highest bidder in their solicitation. PG&E agreed to pay above-market prices to ensure a reliable power supply. The water agencies, however, retained the authority to terminate PG&E?s contract at their discretion. While South San Joaquin received $2 million a year in net income from PG&E under the 50-year contract, the district projects that it will earn $12 million in 2005 alone in revenues from selling the same amount of power?100 MW?to PG&E. ?That gives you an idea how valuable that resource is,? Shields said. South San Joaquin has been assessing the best way to pass on its surplus revenues to its customers. ?The ideal would be to take the generation that we own and is paid for and is renewable and distribute it to our customers,? Shields said. ?The question is should we continue renting it from PG&E and never build equity, or should we make the investment now?? PG&E doesn?t quite see it that way. The utility adamantly insists that its distribution system is not for sale?to South San Joaquin or any other publicly owned utility. ?We don?t think there?s any reason for them to pursue eminent domain,? David Rubin, PG&E?s director of service analysis, said. ?We believe that when areas of our service area are taken over?particularly in a fast-growing area like this?that it would adversely impact our customers elsewhere.? PG&E has offered to work with the irrigation district to pass on the higher revenues from the new power supply contract with PG&E to its customers, Rubin said. PG&E suggested that the district give its customers rebates and has offered to use its billing system to facilitate them. PG&E also offered to help the irrigation district become a community-choice aggregator and thus avoid the complications and costs of acquiring PG&E?s distribution system through eminent domain, Rubin said. Shields countered that community aggregation simply amounts to letting the irrigation district buy power from PG&E and take all the risk. PG&E contends that it will cost South San Joaquin significantly more money to take over and operate its distribution system than to purchase power for its customers from PG&E through aggregation. PG&E estimates that its electric distribution facilities in the irrigation district?s service area are worth $150 million, three times the irrigation district?s $50 million estimated value. The two sides also dispute the condition of the utility?s 30-year-old distribution system. Shields contends it?s reached its life span and is overdue for a major overhaul to improve reliability and customer service, which the irrigation district can do if it acquires PG&E?s system. ?If they really think it?s old, why would they want to take it over?? Rubin shot back. Shields is a staunch public power proponent, having successfully shepherded a half-dozen municipal utilities, including Trinity County, Hayfork County, Lassen Municipal Utility, and Emerald Public Utility in Eugene, Oregon. He plans to submit an acquisition proposal to the irrigation district?s board of directors within the next 60 days after completing an appraisal and severance plan for PG&E?s distribution system. The irrigation district has supplied Sierra water to valley farmers and residents since its formation in 1909. Today it serves 3,500 irrigation customers and 34,000 residential water customers in Manteca, Ripon, and Escalon. PG&E supplies power to those same 34,000 electric customers.

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South San Joaquin Eyes PG&E Distribution System

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