Power pay: SSJID may buy PG&E with 100% cash

Just how will the South San Joaquin Irrigation District pay for the PG&E retail distribution system in Manteca, Ripon, and Escalon when the opportunity arises?

The district may just end up paying cash and not borrowing a penny.

That is a strategy the SSJID board is pursuing after instructing staff Tuesday to look into tax-exempt bonds to finance recent capital improvements as well as major planned improvements to the irrigation delivery system southwest of Manteca plus as its share of a third hyrdo power turbine at Tulloch Dam.

The SSJID board is not wavering in its vow to bring less expensive and more reliable electrical power to the people they serve. As they are preparing for another presentation before the San Joaquin County Local Agency Formation Commission for permission to enter the retail business after being in the wholesale business for 53 years with a virtually spotless record of delivering electricity to PG&E, the board is reviewing all of their financing options.

They can not issue tax-exempt bonds to purchase PG&E assets. They can, however, go back up to three years to finance capital improvements they've made plus others that are planned using the tax-exempt financing. It produces lower interest rates that more often than not cost less than the amount of interest significant reserves of SSJID money are drawing from investments.

The board's decision Tuesday means documents needed to issue tax-exempt bonds will be drawn up. That will allow the district then to get solid rates on what they can borrow money for. If it looks like they can borrow money for less than what they are getting in interest, the board indicated they'd go ahead with tax-exempt bonds.

"You've got to get the most out of your assets," SSJID General Manager Jeff Shields said.

Though Shields declined to elaborate, given the amount of unrestricted cash SSJID now has on hand and the amount of money flowing into the district's coffers from the sale of wholesale power to PG&E, they could have in excess of $80 million in cash on hand when the opportunity comes down the road to buy PG&E's local assets.

SSJID hired an expert who has put the value of the local PG&E system at less than $80 million. The final price - should the SSJID be allowed to enter the retail business - will be determined probably by the courts.

"According to the district's financial advisors, rates on AAA rated tax-exempt bonds are currently on par with or lower than the interest rates that the district earns on our reserves," Shields noted in a memo to the board. "Another advantage of issuing these bonds is that the district can not use tax-exempt bonds to purchase PG&E assets. So, there is a substantial economic benefit for the district to preserve its unrestricted cash for that purpose."

The district's financial position keeps growing stronger thanks to the Tri-Dam system that they created in partnership with Oakdale Irrigation District 53 years ago. Once the bonds were paid off after 50 years, the district has been receiving well over $10 million a year as its share of net proceeds after all Tri-Dam expenses are met.

Putting that revenue to work to lower retail electrical costs by at least 15 percent and to provide more efficient water service to farmers and city is what the board refers to when they keep indicating they plan "to have Tri-Dam benefits work for the people" they represent.

The "Tri-Dam benefit" allowed the district board to suspend water charges for farmers for 2008. At the same time, they reduced current year raw water costs to the three cities - Manteca, Lathrop and Tracy - that have water treated at the South County Surface Water Treatment Plant that the SSJID operates.

Major irrigation projects planned

The SSJID is undertaking a $25 million initiative to improve the quality of water delivered to farms southwest of Manteca, increase green energy production and protect $4 million in local annual property taxes from being hijacked by the California Legislature.

The plan calls for borrowing $25 million against the SSJID's property tax revenue each year to:

• cover the $8 million cost of building the West Coast's largest solar farm that tracks the sun to generate enough electricity to meet the power needs of the South County Surface Water Treatment Plant.
• pay for $6 million as SSJID's share - Oakdale Irrigation District is picking up the other $6 million - to add a six megawatt turbine at Tulloch Dam as part of the Tri-Dam System to increase hydroelectric power generation.
• pay $10 million to pressurize the SSJID's delivery system in District 9 - the area west of Ripon and south of Woodward Avenue to the Stanislaus River.

There are serious concerns about salt in the soils - a condition that is lethal to trees and plants - in that area of the district.

And because it is at the end of the SSJID system, the district often times has difficulty getting enough water to serve farms in the area. As a result, the SSJID pumps water from the ground in the area to supplement water runs.

That creates a problem as salt-laden water is in the aquifers.

Farmers need to be able to flush the soil with enough water to push the salts down and way from the roots. That sends it to the water table the SSJID does their supplemental pumping from. That in turns puts salt-laden water directly on the crops or tree roots.

A closed system would eliminate the need for pumping by sending water under pressure to the far reaches of the district.

Move also protects local property tax from being taken by the state

The move to encumber property tax for debt repayment effectively makes it impossible for the state to again siphon more local property tax from SSJID to help balance the state budget. Courts have ruled the state can't attach local revenue that is being used to pay back indebtedness even if the California state government is in a fiscal crisis.

There have been indications from Sacramento that special districts may have their property tax siphoned even more in favor of helping the state out of their budget crisis.

Since 1992 when then Gov. Pete Wilson and the California Legislature created the Education Revenue Augmentation Fund to shift property taxes from special districts to the state so Sacramento politicians could balance their budgets, the SSJID has lost $7 million in property taxes.

The state upped the percentage take during the $35 billion budget deficit in Gray Davis' final year of office.

Originally published;