View Mobile Site

Text Size: Smaller Larger Normal

TID looks at rate increases for 2012

POSTED April 5, 2011 10:48 p.m.

The Turlock Irrigation District may need to raise rates an effective 9 percent for 2012 primarily to meet debt obligations associated with the Tuolumne Wind Project, district Trustees learned in a financial forecasting workshop on Tuesday.

The rate increase could be followed by a further, less than one percent increase in 2013, though that increase is less certain. Both projected increases are currently based on a “scientific best guess” financial projection, which could be partially averted by a recovering economy.

The district has not adjusted rates since February 2009. Since then, the district has completed or planned two major power generation projects – 2009’s Tuolumne Wind Project, an approximately $425 million, 137.6-megawatt TID-owned wind power plant in Klickitat County, Wash. and this year’s approved, approximately $485 million 174-megawatt natural gas Almond 2 Power Plant.

In the meantime, the district has mitigated the costs of the Tuolumne Wind Project through a fee called a Power Supply Adjustment, a 1 cent per kilowatt charge which generates about $20 million in revenue for TID. That fee is intended to be adjusted biannually to reflect shifting fuel costs, without the need for time-consuming rate changes, however, and was not intended to carry the wind project long-term.

Any rate increase, which must generate approximately $36 million, would likely be partially offset by eliminating the PSA, resulting in an effective 9 percent rate increase.

 Possible increase driven by bond requirements

The district currently holds strong, A+ and A1 bond ratings with major ratings agency Fitch, Moody’s, and Standard and Poor’s. Both Fitch and Standard and Poor’s have tagged the district’s ratings as stable, but Moody’s says the district’s rating has a “negative outlook,” primarily due to declining debt service coverage rates.

To maintain those solid A+ and A1 ratings, and to turn Moody’s negative into a stable, the district must increase revenues to cover at least one and half times the debt owed annually. That translates into a $36 million increase next year, primarily as the district will begin paying down the principal on the Tuolumne Wind Project.

Should no rate change be adopted, the district’s debt service coverage would drop to 12 percent in 2012, and would not rise above 50 percent by 2016.

In total, TID has about $2.3 billion in outstanding debt. The district paid approximately $58 million in debt service this year, but payments are due to jump to $69 million in 2011 and $87 million in 2012. Debt payments will remain above $90 million through 2026, then hover near $85 million through 2031.

That overall debt structure is acceptable, according to TID consultant Bill Newman, of Public Financial Management.

“It’s good, solid debt,” Newman said. “It’s for new projects.”

The district has embarked on several major projects over the past few years as it made the move into generation to better control its own fate, including overhauling the Almond Power Plant in 2003, 2005’s 250-megawatt natural gas-powered Walnut Energy Center, and the aforementioned Tuolumne Wind Project and Almond 2 Power Plant.

“We’ve got a significant amount of brand new generation, as far as power plants go,” said TID Chief Financial Officer and Assistant General Manager of Financial Services Joe Malaski.

Utilities around the state are carrying similar debt loads – or will soon be – as they race to hit a state mandate to generate 33 percent of energy from renewable resources by 2020.

Thanks primarily to the Tuolumne Wind Project, the district currently generates 26 percent of load from renewable resources, but is still short of the 33 percent standard. The state’s definition of renewable doesn’t include hydroelectric generation, however, which accounts for large portions of TID’s energy.

“If we can’t do anything about the definition of renewable, we’re obviously going to have to make more investments at some point,” Malaski said. “...No matter what we buy, it’s going to be more expensive than what we have now.”

Rather than raising base rates, board member Joe Alamo suggested the district create a new fee, like the Power Supply Adjustment fee, called the Renewable Supply Adjustment fee to indicate to consumers that the price hikes would be brought about primarily by the state mandate to go green. He said it would help consumers identify just how costly renewable is.

“Our customers obviously want green power, they voted for it again,” Alamo said. “They want it; we got to show them what it’s costing them.”

To contact Alex Cantatore, e-mail acantatore@turlockjournal.com or call 634-9141 ext. 2005.

Commenting is not available.

Share on Facebook Bookmark and Share
Commenting not available.

Please wait ...