Mon, Aug

The 26% Electric Zap

LA WATCHDOG - Our residential POWER rates are projected to increase by about 26% over the next two and a half years, or 9.6% per year, substantially higher than the rate of inflation.

And while this percentage increase of 26% is not too different from the 24% increase in our water rates, the total dollar difference is over four times, $800 million for power versus $200 million for water.  

This billion dollar bump does not include the increase in the 8% Power Transfer Fee or the 10% City Utility Tax that add another $150 million to the Ratepayers’ tab. Nor does it include an additional $120 million in our sewer fees that are part of our anxiously awaited bimonthly bill from our Department of Water and Power.

Overall, we are talking about an increase of $1.25 billion in our DWP bills over the next two and a half years, assuming that the Mayor does not increase his Trash Tax for the sixth time since 2005.

About 70% of the proposed power system rate increase relates to its Basic Business Needs.  These include costs associated with meeting the $3.4 billion of Regulatory Mandates over the next three years (Solar, Other RPS, and Once Through Cooling), the ever growing pension costs for the 70% funded DWP Retirement Plan, inflation, wage increases, and other basic requirements.

The basic business costs also include an astonishing $530 million over the next three years to “Protect the Ability to Borrow.”  This averages out to about $175 million per year, or about 5.5% of this year’s power revenues.  

The proposed 26% power rate increase also includes $509 million of operating and capital costs for the Strategic Power Investments for Energy Efficiency ($47 million), Renewables ($110 million), Power Reliability ($319 million), and Accelerated Coal Replacement ($33 million), all of which DWP considers vital to its long term reliability.

There are many aspects of the power rate increase that need more review: the DWP pension plan; the IBEW Labor Premium; manpower and staffing levels, especially given the hiring of 1,600 City employees; the efficiency of DWP’s operations and the need for benchmarking as recommended by the last two charter mandated Industrial, Economic, and Administrative Surveys; the efficiency of Shared Services; and the Joint Training and Safety Institutes.

Also needing additional scrutiny are the Solar Initiatives, including Solar Incentives, Feed In Tariffs, and Utility Built Solar installations; the five year projections that include the income statements, balance sheets, and cash flows; the Rate Restructuring Plan; the infamous Energy Cost Adjustment Plan; the cost of any cap and trade payments; and the impact of Proposition 26 (the Supermajority Vote to Pass New Taxes and Fees Act) on the Rate Increases and the Power System’s 8% Transfer Fee to the City’s General Fund, especially since this matter will be litigated.

However, there are four areas that need a comprehensive review and analysis.

What are the tradeoffs between the Power System’s current AA- credit rating; the costs associated with protecting that credit rating, especially given DWP’s high debt ratio; the very modest increase in interest rates associated with a downgrading to A+ rating (still a very respectable investment grade rating that allows access to the bond markets); and how does a lower investment grade credit rating impact the increase in rates?

We also need to have a thorough understanding of the Strategic Investment in Power Reliability, the Department’s past performance subsequent to the 2008 rate increase that was designed to address the infrastructure’s reliability, and whether the proactive steps associated with this Strategic Investment are sufficient to insure long term reliability of our Power System.

DWP is anticipating spending $33 million over the next three years on its Accelerated Coal Replacement initiative to phase out the coal fired Navajo Generation Station in 2014, five years earlier than legally required.  But given that the total cost of full divestment is projected to be $800 million, we deserve a better understanding of these future costs and whether an early phase out is feasible given the cost of all the other environmental mandates.  

And what is the status of Goldman Sachs’ efforts to divest DWP’s interest in this Arizona based power plant and what values do they place on this asset?

And finally, what is the status of the Once Through Cooling regulations that impact the Haynes, Scattergood, and Harbor gas fired coastal power facilities that represent 39% of DWP’s total generating capacity and 85% of the DWP’s in city generating capacity? As it is, the last minute “unit by unit” compliance standards adopted by the State Water Resources Control Board in May 2010 are, in a word, “infeasible,” costing DWP and the Ratepayers $2 billion extra compared to previously acceptable “facility wide” compliance, and jeopardize the reliability of the DWP’s vertically integrated generation, transmission, and distribution systems and the early phase out of the Navajo Generation Station.

Fortunately, Jan Perry, the Chair of the Energy and Environment Committee, has called for a hearing on Once Through Cooling, only to have it mischaracterized by the environmental community to Sacramento regulators.

Ron Nichols, DWP’s General Manager of 150 days, and the DWP professionals have developed an unprecedented (at least for DWP and the City) transparent and open plan that allows the Ratepayers to have a much better understanding of our Department of Water and Power, its programs and costs, and the impact on our water and power rates.

Nevertheless, these rate proposals, which seem reasonable given the City’s past neglect and failure to invest in the future of DWP, need to be thoroughly scrutinized by the politically appointed DWP Board of Commissioners, the Energy and Environment Committee, the City Council, and PA Consulting, the Council’s well regarded consultant.

And the Ratepayers Advocate. NO Ratepayers Advocate, NO Rate Increases.

(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

Tags: DWP, ratepayers, inflation, DWP bills, rate increases, transfer fee, Department of Water and Power, Utility Tax, energy efficiency, renewables, power rates

Vol 9 Issue 49
Pub: June 21, 2011