Mon, Aug

Water Rates Gushing Up to 24%

LA WATCHDOG - Our WATER rates are projected to increase by about 24% over the next two and a half years for a single family home that uses 24 billing units a month and 20% for the “typical” residential customer.

This rate increase will fund the Water Systems Basic Business Needs.  It will also finance the Strategic Water Investments (Infrastructure Replacement, Local Water Supply, and Water Conservation) that the Department of Water and Power considers a “vital, strategic investment” to insure its future “reliability, efficiency and sustainability.”

Basic Business Needs will increase rates by around 18.5% for the single family residence.    

Basic Business Needs includes covering the operating and borrowing costs associated with $1.4 billion of regulatory mandates over the next five years: reservoir covers and bypasses, water treatment facilities, and the Owens Lake dust mitigation.  And it also includes provisions for inflation, pensions, and purchased water as well an extraordinary level of expenditures to “protect” the Water Systems credit rating.  

Strategic Water Investments will add about 5.5% to the bill of the single family residence.

The associated three year $83 million increase would fund $244 million of increased capital expenditures and higher operating and maintenance expenses that would be used to replace aging pipelines, tanks, and pumping stations; expand the local water supply to decrease our reliance on expensive water purchased from the Metropolitan Water District; and to continue our conservation programs that are intended to reduce system wide consumption usage by 9% over the next 20 to 25 years.

While this 24% increase in rates over a two and a half year period is very expensive (9% a year compounded), especially when compared to the rate of inflation. it is possible to mitigate the impact on Ratepayers by allowing the Water System’s credit rating to be lowered a notch from AA- to A+.  Despite all the howls of protest a downgrading will generate, the Water System will still be a highly rated investment grade credit with wide acceptance in the market.  

As it is, the Water System is struggling to maintain its AA- credit rating as its massive capital expenditure program will require DWP to issue an additional $1.1 billion in debt over the next four years.  This will push its debt ratio to over 60%, a level that is not consistent with its current credit rating.

The Water System is projecting that it will need an additional $181 million over the next three years for “protecting its ability to borrow.”  But the $58 million cost in the first year represents about 7.2% of revenues, a very high price to pay for a very small savings in interest expense.  

As we go through the process of reviewing the proposed rate increases for the Water System, there are many issues and questions that must be addressed in addition to the credit rating.

For example, was the 14% increase in the Water System’s base rates in 2008 used efficiently to repair and maintain the Water System’s infrastructure?  And is the Water System benchmarking its operations to determine if its operations are efficient compared to other regional utilities? And is Shared Services an efficient organization?  And what is the impact on the Water System and rates of the $2.7 billion underfunded (70% funded) pension plan?

DWP also needs to provide the City Council and Ratepayers with projected financial information for the next five years, including income statements, balance sheets, and cash flow statements along with the necessary footnotes.

We also need to get a better understanding of the impact of Proposition 26, if any, on the Water System and any of its transactions with the City and entities under its control.

Ratepayers also need to understand why Phase 3 drought conditions and Shortage Year Water Rates are still in effect given the above average snowpack in the Eastern Sierras (Owens Valley) and the Colorado River Basin.

And what ever happened to the $63.4 million associated with Water Transfer Reserve that was hijacked by DWP and not returned to the Ratepayers?

The proposed 24% rate increase for a single family home has lots of moving pieces that are very difficult to understand, especially given the lack of trust in the Mayor, the IBEW Eight (Garcetti, Wesson, Hahn, Alarcon, Zine, Reyes, and Huizar), and campaign funding Union Bo$$ Brian D’Arcy, the public be damned business manager of the IBEW. That is why almost 80% of the voters approved the formation of a Ratepayers Advocate.

To its credit, our Department of Water and Power has made a concerted effort to be more transparent and responsive about its operations, strategic initiatives, and proposed rate increases.  Thank you.

Nevertheless, before any rate increases are even considered, we need a well funded, empowered, and truly independent Ratepayers Advocate to advise us on the merits of the proposed rate increases.  

NO Ratepayers Advocate, NO Rate Increase!   

(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] )

Tags: rate increase, DWP, Department of Water and Power, Jack Humphreville, water rates, Owens Lake, credit rating

Vol 9 Issue 48
Pub: June 17, 2011