News

'No rate increases?' Not exactly

5 questions

Fred Pickel, the city's ratepayer advocate

Q: Are rates going up in water and power?

A: Yes, over the intermediate and long-term. Weather, energy markets, and other factors may make rates go up or down in the short term. For example, if it rains a lot throughout California this winter, if we have a big El Niño, overall water rates may go down for a few quarters.

Q: How much of the cost of water and power is within the city's control, and can you explain?

A: About half in both cases, on average, because about half of the rates depend on costs from outside sources that vary with the weather, energy markets, and other factors. Right now, because of high drought-related purchased water costs, the share of the water cost under city control is even smaller.

Q: So when the mayor says no rate increases this year, what does that actually mean for ratepayers?

A: We understood it was just for base rates. Base rates on water are about 20-25 percent of current costs. Base rates on power are about half. To achieve many infrastructure replacement and environmental goals, base rates and some components of the non-base rate adders need to go up. All utility services are experiencing tremendous change, and we need to revisit rates and their driving factors regularly.

Q: Is your office working toward better explaining these rate structures?

A: They're explained now, but I think we need to communicate what all is involved in these costs better.

Mayor Eric Garcetti promised water and power rates wouldn’t go up this year in Los Angeles. They’ve gone up anyway.

The Los Angeles Department of Water and Power Board of Commissioners recently approved a $2.95 raise in average customer power bills beginning in July. That followed a 33-cent average increase from the previous quarter from April to June.

Board approvals and automatic adjustments led to increases in water rates that DWP’s Chief Financial Officer Phil Leiber said would result in an average $6.41 increase in residential water bills from July through September.

“What’s the bottom line? The bottom line is that the proposed action will result in slightly higher rates,” Leiber said at a March hearing when the board approved an average 41 cent water rate increase.

The increases are “entirely consistent with council policy and the mayor’s statement,” according to DWP spokesman Joe Ramallo.

The distinction between Garcetti’s promise that the rates won’t go up and moves by the board of water and power commissioners to do just that has to do with something called “pass-through” rate adjustments.

Pass-through costs are designed to recover expenses to the utility that are outside their control, such as needing to purchase water during the drought and the fluctuating prices in purchased power, said Ramallo said.

Applying these pass-throughs has led to higher water and electricity rates overall for customers compared to last year, according to the Office of Public Accountability.

“I will not allow the DWP to raise rates this year,” Garcetti said to a standing ovation at his 2014 state of the city address in April. “The department must earn back your trust.”

The mayor really meant the base rate wouldn’t go up, according to spokesman Jeff Millman. And it hasn’t, even though utility staff wanted base rate increases for water and power this year.

The city’s Office of Public Accountability, entrusted with keeping an eye on the city’s water and power rates, said that when people talk about no rate increases, they mean the city’s base rates. Those haven’t increased for water since 2009. Power rates increased in November 2012 and July 2013.

But that makes up a fraction of what people actually pay on their bills.

“They don’t think the public will understand what a layered cake we’ve got here,” said Camden Collins, deputy director with the Office of Public Accountability. “Because there’s lots of layers to this cake.”

Still, the council can decide to reject these pass-through costs, as they did in 2010, when Garcetti served as council president. He and other councilmembers led the charge against the utility for a significant increase in rates through a pass-through called the Energy Cost Adjustment Factor.

That sparked a call for an independent ratepayer advocate to oversee the rate changes. The battle was so contentious the DWP at one point threatened to withhold its annual revenue transfer, which would have substantially affected the city’s budget.

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