Trump tariffs could cost LMUD ratepayers $2.5 million

Cort Cortez, the Lassen Municipal Utility District’s electrical operations manager says he’s one of those “the glass is half full” guys.

Despite that upbeat perspective, he issued a sobering warning to the LMUD Board of Directors at its Wednesday, Feb. 20 meeting — if President Trump’s tariffs are in place when the two large transformers and a third phase shifting transformer to be used at the new Skedaddle substation hit the Mexico/US border, those tariffs could cost LMUD as much as $2.5 million.

While many Americans mistakenly believe tariffs are paid by the government of a product’s country of origin, tariffs are actually paid by the company, organization, agency or individual importing the product into our county.

In this case, those tariffs, essentially an import tax imposed by the US government, would be paid by LMUD, and ultimately that cost would be shouldered by the publicly owned utility district’s ratepayers.

The two large transformers cost about $8 million each.

“As the board is well aware,” Cortez said, “our two power transformers from Siemens (a large international manufacturing company based in Germany) are being produced, manufactured and built in Mexico. The phase shifting transformer is being made and built in Brazil. So, I received this email from Siemens Feb. 11 saying, I’m paraphrasing, you have products being made in Mexico. On Feb. 1 President Trump issued executive orders imposing tariffs, and if there are any tariffs on these products, we will make you pay them.”

Cortez said LMUD general counsel Gene Chittock a reviewed this issue and “the consensus is there was a tariff put on our products that we would more than likely be financially responsible for.”

Cortez said the transformers were tested at the end of January, but LMUD won’t be ready for them until September. He said LMUD asked Siemens to store them until the district was ready for delivery.

“They’re about 100,000 pounds each,” Cortez said, “so you can’t just dump them off in the parking lot and when you’re ready, move them to Skeddale. We realized not too long ago in the very fine print that they sent us for the storage was that they were going to be stored in Laredo, USA (West Virginia).”

Cortez started investigating, and as of Thursday, Feb. 20, one of the units shipped from the factory Feb. 1 and the other transformer was supposed to have shipped Feb. 6, although LMUD can’t get confirmation of that.

“It’s not like Amazon where they give you a tracking number, and it says out for delivery on this date,” Cortez said. “It’s on a train somewhere in the middle of Mexico and I am cautiously optimistic, I can’t promise anything, that hopefully — Let’s go to the tariffs. President Trump signed an extension of Feb. 2 that he would suspend the tariffs for 30 days. That puts it to March 4. So if these two transformers get to the US border before March 4, that could, ultimately, possibly save the district $2.5 million in tariffs.”

Director Jess Urionguena asked since the district is nonprofit and publicly owned if there was a way it could be exempt from the tariffs.

LMUD’s General Counsel Gene Chittock said, “There is a process for an exemption certificate. I’ve been reviewing it and we intend on submitting a letter when we’re back in Washington, DC requesting that they issue such a certificate to LMUD. They haven’t carved out any exceptions to the tariff.”

Chittock said expects the government to carve out some exemptions once they attend to enforcement, he hopes they cross the border before the tariffs are imposed.

He said the Brazil tariff is a reciprocal tariff (both countries impose the same tariff on the same commodity), and the Mexican tariff is 25 percent.

Urionguena said, “The tariff is more of a trade item. I mean, it’s not like we could have said we want these built in the United States. It just doesn’t happen that way.”

“I would expect we’re going to push for an exemption,” Chittock responded, “and I would expect at least we should get a hard look at it … It is on our radar. We realize it’s a big chunk of money we’re trying to offset. There are a lot of unintended consequences with all of this that won’t be totally known until we’re in the middle of it.”