Business & Economy

LA City Council rejects DWP rate hike

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Water and power bills in the city of Los Angeles won't go up for at least three months. That's because last night, the city council and DWP commissioners dueled to a standoff about how much to raise bills.

(Audio: KPCC’s Molly Peterson has been covering this issue. She told Steve Julian what the standoff is all about.)

The City Council has been rebuffing efforts by the DWP to raise rates since last fall, telling the DWP that they need more information on how they run their business.

California law allows the DWP to raise its Energy Cost Adjustment Factor surcharge only at the beginning of each quarter.

Because of the council's unanimous veto last night, DWP misses a deadline to impose the rate hike April 1 and cannot have another rate hike until July 1 at the earliest – and then only if the council agrees.

The dispute was over the size of the rate hike.

The council on Tuesday approved increasing the DWP's Energy Cost Adjustment Factor by six-tenths of a cent per kilowatt hour, which would have added about 4 percent to the average customer's monthly electricity bill.

Five-tenths of a cent of the increase was intended to help the department compensate for fluctuations in the price of coal and natural gas, and the other tenth was to be deposited into a trust fund proposed by Villaraigosa to develop new sources of renewable power and new energy conservation programs.

Despite warnings from both Council President Eric Garcetti and Councilwoman Jan Perry that this was the maximum rate hike the council would accept, the Board of Water and Power Commissioners – all Villaraigosa appointees – last night voted to approve a seven-tenths of a cent per kilowatt hour rate hike, increasing the trust fund remittance to two-tenths of a cent.

This would have raised the average DWP customer's electricity bills by about 5.7 percent.

Within an hour of the board's decision, the council asserted jurisdiction over the proposed rate hike and vetoed it.

"This wasn't a negotiation," Garcetti said. "This wasn't something where we said, 'Hey, give us a counter-offer.' They [the board] were the ones who waited, didn't meet for two weeks, and we said what we would vote for and they didn't vote that way."

Villaraigosa said he was "disappointed in the council's vote tonight."

"The commission took the council's concerns seriously and did its best to address them and meet them halfway to protect the DWP's fiscal security and commitment to renewable energy," Villaraigosa said.

Raman Raj, the DWP's acting general manager while interim General Manager S. David Freeman is on vacation, reiterated tonight that the DWP would withhold $73.5 million from the cash-strapped city if the council rejected the rate hike.

"It's a stupid thing to leverage," Perry said, adding the council has instructed its attorneys to check whether the city can forcibly take money out of the DWP's debt reduction trust fund.

The DWP has been asking the council to approve a rate hike since the fall of last year.

Freeman said earlier this month that the DWP was losing about $6 million a week by not collecting a large enough Energy Cost Adjustment Factor and therefore risked having its bond rating downgraded.

Garcetti told the board today that several members of the council were against a rate increase during a recession – but enough were willing to approve what an independent analysis said was the minimum necessary to avoid a bond rating downgrade.

When the board called for an even larger rate increase, Councilman Greig Smith and several others balked.

Smith pointed out the increase proposed by Villaraigosa and the DWP would result in several city departments paying millions more in electricity bills.

"We can't afford that," he said, noting the city has a $685 million budget deficit over the next 14 months and was slated to lay off up to 4,000 employees.

In an earlier hearing, DWP Chief Financial Officer Jeff Peltola said aside from the Energy Cost Adjustment Factor, a 2.9 percent base rate hike is planned every year from 2012-2014.

If all the planned rate hikes are approved by both the board and the council, Peltola said DWP customers' rates would go up about 37 percent in four years.

This story incorporates information from KPCC wire services.