The Valley Citizen has obtained an internal Modesto Irrigation District (MID) memorandum. Almost ten pages long, the memorandum provides legal analysis of possible consequences for the MID of Proposition 26.
Proposition 26 was approved by California voters in 2010. Its purpose was to prohibit unjustified fees and costs imposed by entities that provide public services.
In 1995, the MID added a “Falling Water Charge” to its bill for electrical ratepayers. The Charge was folded into the bill without explanation.
The MID internal memo offers both a “best case” and “worst case” scenario for the MID. In the best case, the Falling Water Charge will not be called an illegal tax under the definition established by Proposition 26. Unfortunately for the MID, the worst case scenario seems far more likely. In the worst case scenario, the Falling Water Charge is ruled an illegal and unjustified tax.
Early into the analysis, the memorandum’s author writes,
“The Falling Water Charge is not based upon costs incurred by the Irrigation Division relative to the generation of hydroelectric power for the Electrical Division. Instead, the Falling Water Charge is an effort to enable the Irrigation Division to recover from the Electrical Division the value of the use of Don Pedro Dam.”
The analyst then explains how the “value of the use of Don Pedro Dam” is calculated. It’s done by using a, “production cost model to determine the gross market value of the average hydro year Don Pedro generation to MID.” There is no further explanation of the “production cost model.”
The Falling Water Charge is then calculated as, “the difference between the Falling Water Value and assigned expenses, including operation and maintenance, administrative and general, and debt service.”
As abstract and arbitrary as these calculations may seem, anyone wishing for more detail and justification won’t find them by reading further into the memorandum. Instead, there follows a series of ever more damning conclusions that reveal just how arbitrary the Falling Water Charge really is. Here’s one:
“MID makes no effort to identify the costs incurred by the Irrigation Division related to the generation of hydroelectric power by the Electrical Division…Indeed, the flat rate formula that is used to establish the Falling Water Charge does not even take actual costs of repair, maintenance, upkeep, operation, or debt service into account.”
The analyst then adds that the Falling Water Charge, “can (and almost certainly does) go up without regard to a corresponding increase in costs incurred by the Irrigation Division.”
Two paragraphs later, this conclusion is recapitulated even more emphatically:
“MID has not made an effort to identify the costs incurred by the Irrigation Division in providing water for the generation of hydroelectric power to the Electrical Division. Thus, while it is certainly true that the Irrigation Division can charge the Electrical Division for costs incurred by the Irrigation Division in providing water to the Electrical Division for the generation of hydroelectric power, it cannot do so unless and until it makes a reasonable, good faith effort to identify such costs.”
It may be that MID Directors and management will find a way to avoid the most severe legal consequences of Proposition 26, but answering to angry ratepayers will pose an even bigger problem.
The Falling Water Charge in 2011 alone was $10,158,720. Even spread over the MID’s 111,000 electrical accounts, it’s a lot of money. And that’s just one year. Spread over the seventeen years since it’s been in effect, the Falling Water Charge is going to amount to very big bucks.
With the exception of newly elected directors Larry Byrd and Nick Blom, who can’t be held accountable for the Falling Water Charge, MID officials are going to have a hard time explaining why electrical rate payers have been for seventeen years paying hidden and unspecified costs to a separate branch of the MID for no services rendered.
In fact, it probably wouldn’t surprise anyone if they found themselves barricaded in the MID Boardroom surrounded by angry citizens brandishing torches and pitchforks. Read the memorandum here .