LA WATCHDOG - The review of the Department of Water and Power’s proposed two year, 11.2% increase in our power rates by the Ratepayers Advocate and PA Consulting has resulted in greater levels of transparency, especially with regards to the impact of Proposition 26 (The Supermajority Vote to Pass New Taxes and Fees Act) and the power of the IBEW, the DWP’s domineering union controlled by campaign funding Union Bo$$ Brian d’Arcy.
Based on the City’s convoluted logic and legal opinions on how to skirt Prop 26, the DWP rate increase will take the form of a complicated energy surcharge which will allow the Power System to continue to transfer $250 million to the City’s General Fund as well as 8% of any additional revenues.
Underlying this scam is the fact that the Mayor and the City Council know that voters would not approve the transfer, especially since the City has not reformed its budget process by amending the Charter to require the City to “Live Within Its Means.”
The PA Consulting report also details the excessive wage and benefit premiums relative to other regional utilities that campaign funding Union Bo$$ Brain d’Arcy has “negotiated” with his buddies (Villaraigosa, Garcetti, and Zine) on the Executive Employees Relations Committee.
The report also discusses the IBEW’s highly restrictive work rules, which, for example, include a penalty if any DWP work is outsourced, even if such work is not a core function of the DWP.
There also appears to a significant level of overstaffing in Joint Services, adding to DWP’s all ready high overhead relative to other regional utilities.
And while DWP rates are 10% to 20% lower than other regional utilities, that gap is rapidly narrowing as DWP’s expenses are increasing at a significantly faster pace than these comparable utilities.
At the same time, DWP’s credit rating is under considerable pressure due to the massive capital expenditure program to fund state mandated environmental regulations. As a result, the debt capitalization ratio is anticipated to increase to 68% from its current level of 56%, a ratio that warrants a downgrading or a further increase in our already spiraling rates.
Ironically, as DWP is spending billions and billions on new generating capacity and infrastructure improvement, its reserve generating capacity is diminishing.
PA also pointed out the cost consequences of the decision to phase out the coal fired Navajo Generating Facility (previously estimated to be $800 million) and failure of the Board of Commissioners to properly analyze the impact of increasing the energy efficiency goal to 10% from 8.6%.
On a positive note, PA Consulting was impressed with the progress that DWP management has made in its ambitious three year, $449 million cost reduction plan.
The Ratepayers Advocate and the PA Consulting report have increased the level of transparency.
But this is just the beginning as Ratepayers will need to get a better understanding not only of DWP’s operations, finances, and unfunded environmental obligations, but of the relationship between our DWP and the City Hall, the Elected Elite and their cronies, whether it is pet projects, the dumping of surplus City employees (and their pension liabilities) onto the DWP payroll, the legality of the $250 million transfer to the City’s General Fund, and most importantly, the inherent conflict of interest in having our elected politicians negotiate the 2014 labor agreement with campaign funding Union Bo$$ d’Arcy.
To get a better understanding of what needs to be done to improve the operations and finances of our Department of Water and Power, the following 16 recommendations from PA Consulting are a good start.
CityWatch will have more for you later, including information on the proposed increases in our water rates.
RECOMMENDATIONS (Pages 137-138 of the PA Consulting report)
RATE RESTRUCTURING RECOMMENDATIONS
1. The proposed rate ordinances should be adopted on an interim basis.
2. The surcharge-based restructuring approach should be revisited in two years’ time and replaced with fully restructured permanent rates once legal considerations allow
3. Conduct a new formal cost of service study in order to prepare for subsequent rate restructuring.
4. The City should explicitly consider some of the program costs that would be collected in the new surcharges.
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COST SAVINGS STUDIES
5. Examine the costs associated with repowering construction through a benchmarking study or through a bottom up review of costs and consideration of equipment procurement practices. Review the cost per plant and technology for the program to ensure that costs are reasonable on a per MW basis.
6. Conduct a benchmarking assessment of the Power Reliability Program’s targets, spending level, and effectiveness to make sure the appropriate resources are being brought to bear in this area.
7. Begin to work with the union to find common ground that allows greater flexibility to contract out effectively and bring salaries and benefits closer to market rates, as indicated by LADWP’s utility peers.
8. Benchmark staffing and outsourcing levels against that of utility peers. Identify opportunities to contract out and explore the potential savings to begin making a case where promising opportunities exist. Investigate the outsourcing potential across all Systems, with the best additional opportunities expected to found in Joint Services.
9. Complete a rigorous review of the hedging plan in the interest of locking in today’s low fuel prices and protecting ratepayers from downside risk.
10. Review overtime expenses allocation, as well as a review of LADWP’s contractual requirements that have an impact on overtime.
11. Evaluate the net impact of increasing the number of odd-hour shifts (at a 4-7% salary premium) as a means of limiting overtime.
12. Set a firm three-year plan for energy efficiency, similar to that of the other large California utilities that plans expenditure levels at a realistically achievable tempo according to cost effectiveness measurements and includes savings verification.
13. Consider the costs and benefits of a ratings downgrade.
PROCESSES REVIEW
14. Find greater efficiency by pursuing process improvement efforts across a range of areas and practices. Appropriate studies should be completed to identify the cost reduction potential associated with a range of process improvements.
15. Adopt a more methodical approach to assessing and communicating the viability of new investments, an important effort that has been practiced more effectively in the Water System. All evaluations should include the consequences of inaction, alternatives considered, and cost-benefit analysis. Any non-mandated projects that cannot be shown to reduce costs or increase revenue collection should not be undertaken without further review.
16. Review the Joint System cost allocation methodology to ensure that both systems are bearing their appropriate share of the costs.
Here’s the PA Consulting Report.
(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: [email protected]) –cw
CityWatch
Vol 10 Issue 69
Pub: Aug 28, 2012
