Mountain town may face a 162 percent rate increase

Carl Nolte, Chronicle Staff Writer Saturday, February 3, 2001 ©2001 San Francisco Chronicle

URL: http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/02/03/MN45606.DTL

As autumn turned to winter, the management at one of California's smallest utility districts bet that the price of electric power would go down. Instead, it went up -- and now the 11,000 customers of the Lassen Municipal Utility District are facing gigantic rate increases.

In its nightmarish worst-case scenario, the district says it might have to raise electric rates by 162 percent, shocking this mountain and sagebrush town.

An increase like that "would destroy the community's economy" said Jim Chapman, a county supervisor and immediate past president of the Chamber of Commerce. It would cost the citizens $17 million, ruin small businesses, cause at least half the businesses on Main Street to close their doors, produce what he calls "a domino effect . . . a death spiral.

"This place," he says, "would be a ghost town."

Tough talk from a man who spent 25 years in public life in Susanville; but he's a moderate. Other people here are just plain furious -- all the frustrations of small town life come boiling out when the citizens talk about LMUD -- pronounced Elmud.

LMUD, they say is run by crooks, robbers, thieves and idiots. The audience at board meetings became so abusive that the meeting had to be adjourned. One longtime director quit cold last week; he said he'd been threatened with physical violence.

"It is damn serious," said Chapman. It was the understatement of the week.

TOWN WITH QUIRKS

Susanville is not an ordinary town. The signs put the population at 17,500, but nearly half of the residents are inmates of two prisons. In Susanville, the downtown is called uptown, and the area twice tried to secede from California and join Nevada. The town brags that no one ever sweats there, and no wonder: The winters are long and tough.

Last week, the high school girls soccer team played a game in a snowstorm. The home field is an advantage: The team is undefeated.

The increases touch everybody.

"There are people here on a fixed income," said Jim Corden. "There's a limit to what they can pay." Many of them are his customers: He owns a supermarket and a car wash, among other things. "I have a lot to lose," he said.

Even the local Indian casino is affected. The casino, out on the edge of town, would not remind anybody of Las Vegas. It's in a low, single-story building, only 1,200 square feet, with about 100 slot machines and the usual games. But even the slot machines are run by electricity.

"Our bill would go from about $2,300 a month to $7,000," said Laura Urmson, the assistant manager, "It would just eat into what we make."

Already, they have a hiring freeze.

Urmson is also vice president of the Lassen Youth Fastpitch Softball league,

which fields girls teams. In a normal spring, there are 22 teams, all sponsored by local merchants -- car lots, restaurants, hardware stores.

But this year, she's having a tough time: It's been a long, long winter and fewer than half the sponsors have signed up. The rest don't know where the money is coming from.

"So it's even hitting the kids," she said.

Lassen is caught in the middle of the state's energy muddle. LMUD has no power generation facilities of its own -- it buys its electricity on the open market.

But that doesn't mean the county isn't humming with electricity. A big transmission line -- the Alturas-Reno line, called RAT for short -- goes right through the county.

Not only that, there are four co-generation plants, one big plant and three small ones, that produce electric power in Lassen County. The biggest one can make enough power to light up the whole place. But they are bound to a contract with Pacific Gas and Electric Co.

It gets worse: Customers on the eastern edge of Lassen County are served by the Plumas-Sierra Utility District, created back in the 1930s in the New Deal era Rural Electrification Administration days. This district has a federal contract for cheap power, and while LMUD is raising rates, the little REA outfit is lowering them.

PLENTY OF LIGHT FOR INMATES

Two of the REA customers are the High Desert State Prison and the California Correctional Center, right on the edge of Susanville. So while the honest citizens of Susanville are turning off the porch lights, the prisons are blazing with light.

"You know what it's like?" said Phil Bertanzoni, who's in construction in town. "It's like starving to death in a grocery store."

It wasn't always this way.

"Last year at this time, we were looking at a rate reduction," said John Baxter, LMUD's general manager. The district was buying power from PG&E under a contract. Baxter thought he could do better, especially in the winter, when rates usually drop.

LMUD was one of those local districts nobody pays much attention to. It was formed in the late 1980s to buy out the old California National Power Co. -- mostly because it was felt a municipal district could offer lower rates.

The governing board has five directors, all elected, and paid $100 a meeting to a maximum of $600 a month. There is a paid staff of 43, including three meter readers. At the top, Baxter, who has lived in Lassen for years and who has been active in the district since it was formed, earns $101,000 a year.

The district started to drift into trouble this summer. When Baxter got out of the PG&E contract and went shopping for power, he found the rates zooming. By fall, he was paying $100 a megawatt hour to the Turlock Irrigation District

--and selling it to customers for an average of 8.5 cents. LMUD passed up long-term contracts at rates like this on the assumption that rates would drop in the winter. They always had.

Soon, the $5 million the board had voted for power costs was all gone. Then,

the costs ate $3 million in reserves. The public didn't notice what was happening. If Baxter could get power at the usual cheap winter price -- between $40 and $60 a megawatt hour, all would be well.

So LMUD stayed the course, like a ship headed for the rocks.

Instead of dropping, the price went up. The best Baxter could do was to buy power from the city of Redding at $140 a megawatt hour, a ruinous price.

The LMUD board was told in early December. The week before Christmas, Baxter presented the alternatives at a public meeting. He outlined what he called the worst-case scenario -- a 162 percent increase, technically a surcharge. A $50 bill would be $125, a $100 bill would be $250.

The problems, he said, were not of Lassen's making. It was all the fault of deregulation. "We are the poster child for all that is wrong and went wrong with deregulation," district counsel Frank Cady said.

"It was not received well," Baxter said of the news, which everybody calls "The bombshell."

Gross mismanagement is the least unkind thing citizens called it. They wondered how Baxter had passed up chances to buy power at lower rates, only to end up buying it at higher rates.

Some threatened the manager and the board. Others accused the board of spending public money. Cady called the reaction at two public meetings, "vile" and "disorderly."

There was plenty of blame: the power companies, the managers, the environmentalists who prevented the construction of more power plants -- "bunny huggers," LMUD director Richard Parker calls them.

Meanwhile, Baxter who is at the eye of the storm, appears calm. He does not plan to resign, he said. He says the problem is not of LMUD's making. "We are not insulated," he says.

The huge rate increase is just "the worst case," he says. When the board meets Tuesday, he will have a recommendation.

He will not say what it is. He is negotiating, he says. Is it a 40 to 50 percent increase? A small smile. "No comment," Baxter says.

Whatever happens, a huge increase in rates is likely, and the quiet life in Lassen will never be the same.

"It was a hell of a fun time we had," said Bertanzoni, "and it's over."

E-mail Carl Nolte at cnolte@sfchronicle.com

-- Martin Thompson (mthom1927@aol.com), February 03, 2001