DWP Rate Hikes Look a Lot Like Tax Hikes

DWPWhen is a utility rate increase really a local tax increase in disguise?

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The Los Angeles Department of Water and Power is seeking a rate increase of 25 to 30 percent, spread out over five years, in an effort to raise an extra $900 million for power and $230 million for water, a total of $1.13 billion, to fix aging infrastructure and comply with state mandates for renewable energy.

But over the last five years the DWP has taken $1.23 billion of the money customers paid for electricity and transferred it to the city of Los Angeles to be spent on the general expenses of city government. The transfer was $220 million in 2010, $259 million in 2011, $250 million in 2012, $247 million in 2013 and $253 million in 2014.

The Los Angeles City Charter says “surplus money” may be transferred from the DWP to the city’s reserve fund if the Board of Water and Power Commissioners consents. And the Board may withhold its consent if it finds that making the transfer would have a “negative impact on the department’s financial condition.”

Maybe the board wasn’t reading the financial statements, but the DWP’s Power System has been selling bonds to borrow hundreds of millions of dollars virtually every year. As of June 30, 2010, the Power System’s total outstanding long-term debt balance was $5.92 billion. By June 30, 2014, it was $8.165 billion.

How can the DWP transfer a “surplus” to the city at the same time it’s borrowing money and raising rates? Is this an illegal method of raising city taxes, which under Proposition 218 are supposed to be approved by voters?

In 1999, the Howard Jarvis Taxpayers Association sued the city of Los Angeles for overcharging for water and creating a “surplus” of over $20 million to transfer to the city every year. The case worked its way through the courts for a decade, and in 2009 the taxpayer group was victorious.

As a result, the DWP’s 2008-2009 financial statement for its Water System reported, “The court declared the 2007 Water System transfer illegal based on Proposition 218 and allowed the Water System to retain the $29.9 million and use it for water related activities.”

But over on the Power System side, the judge’s ruling didn’t apply.

The 2008-2009 financial statement for the DWP’s Power System reports that in fiscal year 2008, $182 million was transferred to the city, or 7 percent of the previous year’s operating revenue of $2.6 billion.

But for fiscal year 2009, the city transfer was bumped up to 8 percent. The previous year’s operating revenue was $2.8 billion, for a transfer of $223 million. It has been 8 percent every year since.

Taxpayer advocates are fighting mad.

“Notwithstanding our legal victory over the misuse of ratepayer funds, the city of Los Angeles seems hell-bent on finding ways to gouge the city residents,” said Jon Coupal, president of the Howard Jarvis Taxpayers Association. “The increase in DWP’s transfer to the city’s general fund unquestionably violates the principle of ‘cost of service,’ which simply means that ratepayers should pay no more for basic utility services than it costs to provide that service.”

What can be done about it? The Board of Water and Power Commissioners has the authority — subject to the veto of the City Council — to approve the city transfer or withhold it. In May 2009, the board actually rescinded a previously approved transfer.

The Board of Water and Power Commissioners is made up of five people: Mel Levine (president), William W. Funderburk Jr. (vice president), Jill Banks Barad, Michael F. Fleming and Christina E. Noonan. They meet on the first and third Tuesdays of each month at 11:00 a.m. in Room 1555-H at DWP headquarters, 111 N. Hope Street, Los Angeles, 90012. (However, the Aug. 18 meeting has been canceled.) Attend a meeting, or write to the commissioners at that address.

Call your City Council representative and the mayor. The DWP’s rates are set by city ordinance, which means the rate hike cannot take effect unless the council passes it and the mayor signs it.

If necessary, a local ballot initiative could amend the city charter to prohibit transfers of surplus money from water and power revenues to the city. Or a statewide ballot initiative could address the problem of utility rates that far exceed the cost of service.

Ratepayers have been abused for too long. It’s time we turned on the power.

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