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LADWP Presents 5-Year Water and Power Rate Proposal to Replace Agin...

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LADWP Newsroom
FOR IMMEDIATE RELEASE

DATE: July 8, 2015 2:30:45 PM PDT

Citywide Public Education and Outreach Is Planned Over Next Four Months

LOS ANGELES The Los Angeles Department of Water and Power (LADWP) has proposed a 5-year water and power rate action
that provides funding to accelerate the replacement of aging infrastructure, better protect against drought conditions, and meet water
and power supply mandates while improving customer service. The proposed rates are also designed to further incentivize
conservation while keeping LADWPs rates low in comparison with nearby utilities.
LADWP presented the Water and Power Rates Request 2016-2020 to the Board of Water and Power Commissioners during a
special meeting Wednesday, kicking off a four-month outreach effort to inform L.A. residents, businesses, and stakeholder groups
about the rates proposal and get their input. The process follows an agreement LADWP has with Neighborhood Councils and other
key business and community stakeholders to provide a 120-day review period prior to adoption of new rates.
The Board will take a close look at this rates proposal to ensure it both focuses on providing positive savings and also the necessary
revenue for upgrading and replacing aging water and power infrastructure, expanding the local water supply to protect against
drought conditions, continuing to meet mandates that are transforming our power supply, and creating a clean energy future for Los
Angeles. We also look forward to recommendations that will be provided by the Ratepayer Advocate, Board President Mel Levine
said. In May, the Board had asked LADWP management to develop a rates proposal based on an independent 5-year revenue
requirement study.
The rates proposal must address these needed investments while incentivizing conservation and keeping rates low and competitive,
Levine said. The next step is to share this proposal with our customers so that they understand the need and have opportunity to
provide input, Levine said.
The first public meeting, which will also be streamed online, is scheduled for Wednesday, July 22, at 6 p.m. at LADWPs John
Ferraro Building in downtown Los Angeles. Web streaming will be available at www.MyLADWP.com. A series of additional
community meetings will be announced soon, followed by hearings by the Board and City Council in the fall.
The proposed rate changes presented to the Board today would vary, depending on how much water and power a customer uses
and whether they are a residential, commercial, or industrial customer. A residential customer using a typical amount of water and

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7/8/2015 8:18 PM

LADWP Presents 5-Year Water and Power Rate Proposal to Replace Agin...

http://www.ladwpnews.com/go/doc/1475/2556990/

power would see an average annual rate increase of 3.4%, or $4.75 per month over the next five years. This means a typical
customers water and power bill would increase by $23.73 per monthfrom $132.44 to $156.17 at the end of five years.
Customers who use a low amount of water and power would see a 2.4% average annual increase, about $1.95 per month a
difference of $9.74 per month at the end five years. Approximately 75% of residential customers fall into either the low or average
user category. Customers using a high amount of water and power would see a 5.4% average annual increase, about $17.64 per
month a difference of $88.19 per month at the end five years. If adopted, LADWPs combined water and power rates would still
remain below those of most neighboring utilities.
We know from experience that investing in the citys critical pipes, poles and other water and power infrastructure pays off in
reducing main breaks and power outages, said Marcie Edwards, LADWP General Manager. LADWP water main leaks are less than
half the state average, and have decreased by 37% over the past seven years thanks to proactively replacing older and more
vulnerable pipes. But our cycle of replacement is still too slow and more pipes are getting older at a faster rate. We need to ramp
up replacement of this and other infrastructure to minimize disruptions for our customers and save water, Edwards said.
The proposed rate changes over five years will provide the steady, gradual revenue increases necessary to achieve a reliable and
sustainable water and power future for Los Angeles, while giving our customers the certainty they need in setting their own budgets
as well as more opportunities to save through expanded conservation programs, Edwards said. About 85% of new water revenues
will go toward investing in infrastructure and about 75% of new power revenues will be used to meet existing state and local power
supply mandates to transition to cleaner energy.
In addition to improving reliability, new revenues are necessary to expand and secure the citys local water supply and reduce
dependence on more expensive, purchased water that is imported from Northern California and the Colorado River. The revenues will
support local water supply programs already underway, including providing matching funds for grants, to accelerate groundwater
cleanup, improve stormwater capture, and expand recycled water for irrigation and industrial uses, as well build an advance
treatment facility to replenish groundwater. The funds will also support conservation programs that help customers manage their
water and power use and potentially save on their bills.
To further incentivize water conservation, the proposal recommends increasing water rate tiers, which are based on consumption,
from two to four tiers for single-family residential customers. The goal is to incentivize conservation while recovering costs of
providing water to those customers who consume higher amounts of water. The proposed tiers are based on utility costs and
conservation goals and will result in lower rates for customers who use low amounts of water.
Increasing revenues to upgrade and replace aging infrastructure is also needed on the power side. Over half of LADWPs 320,000
poles are at least 60 years old, which is the average design life of a power pole. In addition, 75% of new power revenues are
necessary to continue the transition of LADWPs power supply to comply with goals and mandates. Over the next 10 to 15 years,
LADWP will eliminate the use of coal power to reduce greenhouse gas emissions, expand renewable energy to 33% of power sales,
increase energy efficiency to reduce electricity use by 15%, and rebuild coastal power generating stations to eliminate ocean water
cooling.
General Manager Edwards said the rates proposal comes after LADWP has significantly cut costs, completed an independent
benchmarking study and cost studies, reviewed and negotiated new labor contracts with pension reform that will achieve significant
savings for customers.
In April, LADWP completed Phase 1 of an independent benchmarking analysis that showed LADWPs electric rates are below those
of privately owned utilities in the region and the state. LADWPs water rates are also competitive with those of other water utilities in
the region. LADWP compared favorably on water and power service reliability and overall operating costsa key measure of
efficiency.

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7/8/2015 8:18 PM

LADWP Presents 5-Year Water and Power Rate Proposal to Replace Agin...

http://www.ladwpnews.com/go/doc/1475/2556990/

From FY 2011- 2013, LADWP saved nearly $467 million by reducing labor costs, refinancing, and other cost cutting measures. In
addition, a new labor contract with its largest employee bargaining unit, the International Brotherhood of Electrical Workers (IBEW),
will save $456 million over four years (FY 2013/14 2016/17) and an estimated $5 billion over 30 years. The contract also includes
salary reforms to bring the pay scale of 34 common civil service classifications in line with other City of Los Angeles employees and
pension reforms for all new employees.
LADWP also has made strides to correct problems that ensued following the launch of its new customer care and billing system.
During the peak of the problems, customers were waiting over 30 minutes on hold. Call hold times were under five minutes as of last
week. Other key indicators have consistently exceeded industry standards consistently below industry standards, including the
number of meter reads, estimated bills, and timeliness of billing.
As part of the outreach process, LADWP has launched a new website, www.MyLADWP.com. Visit the website to:
Learn more about the 2016-2020 Rates Request
Check upcoming community briefings and webcasts
Provide comments, sign up for email notifications and participate in a customer survey that will help LADWP improve its
customers experience.
###

For more information contact:

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Joseph Ramallo
Communications Director, LADWP
(213) 367-1361

7/8/2015 8:18 PM

WATER AND POWER RATES REQUEST 2016-2020


Fact Sheet

The Los Angeles Department of Water and Power (LADWP)


is proposing a five-year rate action that seeks modest water
and power rate increases each year based on the following
priorities and key principles:
Replace Aging Water and Power Infrastructure
Over a century of delivering water and power requires
major investment to accelerate replacement of aging
infrastructure to ensure continued reliability.
Transform Water and Power Supplies
LADWP water rates must support expanding our local
water supply to reduce reliance on more expensive,
purchased water. Legal mandates require a complete
transformation of our power supply.
Improve Customer Service
LADWP is working to provide high-quality and responsive
service in every interaction, increase timeliness of bills,
and enhance self-service options and offer other ways
to improve our customers experience. LADWP will also
continue to expand programs and measures that help our
customers manage their water and power use and save
on their bills.
Keep Rates Competitive
LADWP will make these needed investments while
ensuring that our rates remain competitive with
nearby water and power utilities and affordable for our
customers. LADWP will continue to find cost savings
through process improvements, benchmarking against
peer utilities, and other measures.

Proposed Rate Changes


Typical residential customers will see an average increase of
about 3.4%, or $4.75 per month, for water and power on their
bill each year for five years. Low-use customers will have a
combined water and power bill increase of 2.4% on average
per year, or about $1.95 per month. High-use customers (top
10%) will pay about 5.4% more, or $17.64 per month each
year for five years.

Proposed Rate Structure Changes


Expanding Water Rate Tiers

LADWP uses a water rate design with tiered pricing tied


to a customers water consumption. The rate request
recommends increasing the number of tiers from 2 to
4 for single-family residential customers. The goal is to
incentivize conservation while recovering the higher costs
of providing water to high users.
The proposed tiers are based on utility costs and conservation
objectives, and are comparable with those set by other
California water utilities. They are also consistent with the
Mayors Executive Directive No. 5, which requested a review of
water rate tiers to optimize conservation.

Other Changes

Adding a reliability pass-through factor to pay for water


and power infrastructure improvements.
Restructuring rates to encourage conservation while
covering basic service costs.
Rebalancing the rates among customer sectors, based
on the recently completed Cost of Service Study.

Proposed 5-Year Water and Power Rate Changes with Monthly Costs
Low-Use Residential

Typical Residential

High-Use Residential

Small Commercial

Current Monthly Bill

$76.14

$132.44

$292.33

$240.04

5-Year Avg. Annual Power Rate Change

$1.37 (3.5%)

$2.28 (3.0%)

$7.31 (4.7%)

$6.65 (3.8%)

5-Year Avg. Annual Water Rate Change

$0.58 (1.4%)

$2.46 (3.8%)

$10.33 (6.1%)

$2.35 (2.8%)

Total 5-Year Average Rate Change

$1.95 (2.4%)

$4.75* (3.4%)

$17.64 (5.4%)

$9.00 (3.5%)

Average Monthly Bill Increase


At the End of 5 Years

$9.74

$23.73

$88.19

$45.02

Average New Monthly Bill


At the End of 5 Years

$85.88

$156.17

$380.52

$285.06

(250 kWh/Month
8 HCF/Month)

Amount is rounded up

(500 kWh/Month
12 HCF/Month)

(900 kWh/Month
27 HCF/Month)

(1,000kWh/Month
15 HCF/Month)

Cost Savings
To help keep rates low, LADWP has saved $467 million over
three years by reducing labor costs, refinancing, and other
spending cuts. This exceeded the reduction goal of $459
million that was established during the prior power rate action
in 2012. In addition, a new labor agreement with the largest
LADWP employee bargaining unit will provide $456 million in
savings over three years (fiscal years 2013-14 through 20152016), and an estimated $5 billion in savings over 30 years.

Additional information
Visit www.myladwp.com to:
Learn more about the 2016-2020 Rates Request
Check for upcoming community briefings and
webcasts
Take our survey and contact us with comments
and questions

5-Year Revenue Needs


Power: $900 million
Power revenues will need to increase from $3.5 billion
to $4.4 billion over the next five years. The majority
75% will support the transition to a clean energy future
and meet state mandates for reducing greenhouse gas
emissions, expanding renewable energy, and rebuilding
coastal power plants to eliminate ocean water cooling.

Water: $230 million


The majority of new water revenues 85% will support
infrastructure repair and replacement for reliability, and
infrastructure improvements to meet water quality regulations.
Additional revenues will also support the Local Water
Supply Program, which is especially critical due to the
record, multiple-year drought facing Los Angeles and the
State of California.

Renewable
Energy
20%
Local Solar
10%

Ma

Repowering
2%

u
n d ate s a n d S

gu
l

Water
Quality
22%

Water
Infrastructure
Program
63%

an

Coal
9%

Tr

Energy Efficiency
34%

Stormwater
2%
Groundwater
5%
Water Recycling
4%

ly

Reliability
15%
Fuel
10%

siti o n 7 5 %

%
y 25
ilit
b
lia

Owens Valley
4%
r
e
t
a
W
cal
Re
Lo

y
or
at

Fuel a
nd
Re

Where the New Revenues Will Go

pp

u
I nfra str

7.5% of power funds are for labor

ctu

re

*6% of water funds are for labor

Competitive Rates

How L.A. Water and Power Bills Compare Before and After Rate Changes
Santa Barbara
San Francisco
San Diego
Beverly Hills
Arcadia (GSW)
Glendale

FY 15/16
Anticipated Combined Increase

Long Beach
Torrance
Santa Monica

FY 16/17
Anticipated Combined Increase

Pasadena
Burbank
LADWP

$0

$50

$100

$150

Combined Average Monthly Bill

$200

$250

*Data for the listed utilities only available for FY 15/16 and FY 16/17

Follow us on:

www.myladwp.com

Water & Power Rates Request

2016-2020
Frequently Asked Questions

General Questions
Why does LADWP need a rate adjustment?
The Los Angeles Department of Water and Power (LADWP) is requesting a five-year rate change that
seeks small rate increases each year based on the following investment priorities:

Replacing and upgrading aging water and power infrastructure to ensure reliability.
Transitioning water and power supplies to meet regulatory mandates and sustainability goals by
expanding renewable energy, local water supplies, energy efficiency and water conservation.
Improving customer service.

LADWP will make these investments while ensuring that our rates remain lower than similar utilities and
affordable for our customers.
How will the proposed rate changes affect my bill?
Typical residential customers will see an average increase of about 3.4% for water and power on their
bill each year for five yearsabout the same as the rate of inflation. This reflects an increase of about
$4.75 more per month, each year from 2016 through 2020 for the typical LADWP customer. A typical
residential customer averages 12 hundred-cubic-feet (HCF) of water and 500 kilowatt-hours (kWh) of
power.
Customers using low amounts of water and power will have a combined water and power bill increase
of 2.4%, or about $1.95 per month, annually for five years. High-use customers will see a combined
water and power bill increase of 5.4% on average per year, or about $17.64 per month. About 10% of
residential customers fall in the highest tiers of water and power consumption, averaging 27 HCF of
water and 900 kWh per month.
What is the process for approving the rate changes?
LADWP has been providing water and power rate reports to the Rate Payer Advocate (RPA) for review
since February 2015. The RPAs analysis and recommendations are expected in the fall of 2015.
Based on the RPAs review, LADWP may make changes to its original rate plan to address specific
RPA recommendations. Once the rate plan is finalized by LADWP, the rate ordinance will need to be
approved by the Board of Water and Power Commissioners and the L.A. City Council. If approved, the
rate ordinance must be signed by the Mayor and will be effective 30 days after that.
When will the new rates go into effect?
Under the current timeline, LADWP anticipates providing the proposed rate ordinance to the Board of
Water and Power Commissioners in November 2015 and to the City Council for consideration in
December 2015. If approved by the Board and City Council, and signed by the Mayor, it is expected
Rates FAQs

6/26/2015

that the first rate change would go into effect during the first quarter of 2016. Incremental adjustments
would become effective July 1, 2016, July 1, 2017, July 1, 2018, and July 1, 2019.
Is this rate increase going to pay for better customer service?
LADWP is working to improve the customer experience by increasing the timeliness of bills, expediting
response to customer calls, enhancing self-service options, and other measures. Additional revenues
have been allocated in the proposed rate request to accomplish these goals. LADWP continues to work
on programs that provide customers with water and energy saving rebates, technical assistance,
incentives, and direct installation of water and electricity efficiency measures in their homes and
businesses to better manage their use and save costs.
Will your new billing system be able to handle the changes to the rates and rate structures
given the past issues?
Yes, LADWP has verified that its billing system is capable of handling the new rate structure.
Why are you asking us to conserve and then asking for more money?
The rate increases are necessary to keep up with the increasing costs to operate and maintain a
reliable utility as well as to meet regulatory mandates. LADWP plans to accelerate the pace of replacing
aging water and power infrastructure to improve reliability now and in the future. While the rates will
increase on average overall, the rates are designed to encourage conservation so that customers who
use the least amount of water and power pay lower rates.
How do LADWP rates compare to other utilities?
Historically, LADWPs water and electricity rates have been among the lowest in the region when
compared to neighboring utilities in Southern California, and the rates will remain competitive after the
new rates take effect. The chart below illustrates how much money a typical residential customer in
LADWPs service area has saved compared to customers using the same amount of water and power
in neighboring areas and other major cities in the state.

Rates FAQ

6/26/2015

How will LADWP rates compare after the proposed rate changes?

*Data for the listed utilities only available for FY15/16 and FY16/17.

What is LADWP doing to help customers keep their utility bills low?
LADWP offers a variety of programs and incentives designed to help customers use less water and
electricity and save on their utility bills. These programs include rebates and incentives for all
customersresidential, small and large businesses, and industrial customersto reduce their water
and energy use. LADWP also has programs that offer free installation of efficiency upgrades for homes
and small businesses that can help save electricity, water, and natural gas. More information about
ways LADWP can help you conserve can be found at ladwp.com/save.
For qualified customers, LADWP will continue offering lower rates through the Low-Income Discount
Program and Lifeline Program. Visit ladwp.com/lowincome to learn more.
What efforts have been made by LADWP to reduce costs prior to seeking rate changes?
From February 2011 to June 2014, LADWP implemented a multi-million dollar cost reduction plan to
achieve a quick and measurable impact on LADWPs expenses, and to help keep rates reasonable in
light of industry-wide operational, regulatory and financial challenges.
As of June 2014, LADWP had saved an estimated $467 million, which exceeded the target by $8
million.
Additional cost savings going forward include:
The most significant cost savings comes from a new labor contract with LADWPs largest
employee bargaining unit, which will save $456 million over four years (ending in October 2016).
This will represent a savings of $5 billion over 30 years.
Lower cost financing for water and power projects will save approximately $267 million.
Corporate Performance Unit benchmarking and performance metrics will ensure cost efficiency
and accountability.

Rates FAQ

6/26/2015

What would happen if the proposed new rates are not approved in timely manner?
The outcome depends on the length of the delay. If it is only a few months, LADWP has the option of
absorbing the short-term losses or using the decoupling mechanism that is proposed in the water and
power rates request. Decoupling allows a potential revenue shortfall to be recovered in the following
fiscal year. (See below for a full discussion on decoupling.)
For longer delays, LADWP would likely need to request a substantially larger rate increase in the future
to collect the additional revenue needs, which are described in the water and power rates sections
below. The longer the delay, the higher the risk for a larger rate increase as well as potential cuts in
programs that are beneficial but not directly tied to reliability or regulatory mandates.
Is there an opportunity to comment about the rate changes?
LADWP welcomes your feedback. We are hosting a series of public meetings and webinars, as well as
the opportunity to provide information online at www.ladwp.com/rates. Through the website, you will
also be able to ask questions and provide feedback. You can also connect with us on social media,
including Facebook (/ladwp) and Twitter (@ladwp).
The public may also provide comments during public hearings of the Board of Water and Power
Commissioners, the City Council Energy & Environment Committee, and the full City Council when the
rate ordinance is heard by those governing bodies. Visit ladwp.com/Board for the LADWP Board
agendas and http://council.lacity.org for agendas of the Energy & Environment Committee and the City
Council.
Has the Rate Payer Advocate provided an opinion about these rate changes and how can I
obtain the RPAs report?
LADWP has worked extensively with the Office of Public Accountability, staffed by the Rate Payer
Advocate, holding regular meetings and soliciting feedback since February 2015. Since July 2013, biweekly meetings have been held to review major aspects of LADWPs financial plans. The proposed
rate design and financial plans for fiscal years 2016-2020 are continuously reviewed.
The RPAs analysis and recommendations are expected to be available in June 2015. LADWP may
make changes to its original rate plan to address specific RPAs recommendations. The RPA report will
be posted at LADWP.com/rates under Downloads.
Power Rates
How much will the power rate increase?
Typical residential customers will experience an average annual increase of 3% or less on their electric
rate.
How will the proposed rate changes affect my electricity bill?
The table below shows the anticipated rate changes for low-use, typical use, and high-use customers.
Proposed Power Rate Changes

*Bills are estimated based on low use (250 kWh), typical use (500 kWh), and high use (1,000 kWh)

Rates FAQ

6/26/2015

Why are LADWPs power rates going up?


The power rate increase is necessary to expedite the pace of replacing aging infrastructure to ensure
reliable power delivery to customers now and in the future. Additional revenues are necessary to
continue the transition of LADWPs power supply to comply with regulatory mandates. Over the next
10 years, LADWP will eliminate the use of coal power, expand renewable energy and energy efficiency,
decrease greenhouse emissions, and repower the generating units at coastal power plants to eliminate
use of ocean water cooling. Additionally, funds will be used to improve timely and accurate billing and
customer service, expand online customer service options, and expand rebate programs to offset bill
increases.
How much in power revenues are needed to meet these goals?
LADWPs power system needs about $900 million additional revenue over the next five years to
transition its power supply, comply with regulatory mandates, fund infrastructure reliability projects, and
cover increased fuel costs. Failure to meet the regulatory mandates could result in significant fines for
LADWP, which would in turn have adverse effects on rates.
How are the additional revenues going to be used?
The table and pie chart below show how the funds will be used. About 75% is necessary to meet
mandates and transition the power supply to create a clean energy future for Los Angeles. The
remainder will support the infrastructure reliability program and increased fuel costs.
5-Year Budgeted Costs
Historical
Average
*
$525M

$785M
$61M
$1.4B

Core
Initiative
Infrastructure
Replacement
(PSRP)
Supply
Transition &
Mandates **
Energy
Efficiency
TOTAL
(Capital and
O&M)

Proposed
5-Yr Avg.

Proposed
5-Yr Total

$895M

$4.5B

$1.1B

$5.5B

$176M

$879M

$2.2B

$10.9B

*Historical average is based on most recently competed fiscal years, 2012-13 and 2013-14.
**Supply transition and mandates includes coal transition, renewables and repowering coastal power plants.

Where the New Revenues Will Go

Rates FAQ

6/26/2015

When was the last time power rates went up?


In 2012, LADWP received approval from the Board of Water and Power Commissioners and the City
Council for an increase in the water quality adjustment and a two-year power rate increase. The twoyear power rate increase totaled 11%, or 1.41 cents/kWh and took effect in November 2012 and July
2013.
Are there any changes to the power rate structure?
While there are no changes to the existing tiered structure for usage and geographic location during the
peak season, June through September, LADWP is proposing several other changes including:

Infrastructure reliability pass through: Much of LADWPs power grid was built in the
1940s 1960s. Over 45% of LADWPs 321,000 poles are 60-plus years or older and more than
that will need replacing in the next five years. The infrastructure pass-through factor will support
the cost of upgrading and replacing these poles and other critical infrastructure that is aging. To
protect customer costs, this factor includes an annual cap and only collects for expenses that
have been incurred.

Restructuring to encourage conservation: This pass-through factor enables LADWP to


maintain stable revenues, which is necessary to continue receiving strong bond ratings, and
keep the costs of borrowing low. Decoupling allows the Department to recover fixed operating
costs while encouraging conservation as well as distributed generation technologies, such as
customer-owned solar systems. Decoupling is a standard utility solution to recover fixed costs if
the target amount of revenues is not achieved. Decoupling also protects customers. For
example, if forecasted usage and revenue is higher than expected, decoupling protects the
customer from over collection.

Power access charge: Currently LADWP has no service charge (a fixed monthly charge) for
residential customers. The 2016-2020 rates request introduces a graduated, consumptionbased service charge. The charge is designed with three tiers of usageTier 1 being the
lowest. The goal is to ensure that all customers contribute to the fixed costs of operating the
power system in proportion to the amount of power they use.

Rebalancing: In developing the proposed rates ordinance, LADWP has rebalanced the rates
to be equitable among customer sectors, based on a 2014 Cost of Service Study.

How will the rates encourage conservation and sustainability?


LADWP uses a tiered rate structure for electric rates that encourages conservation, especially during
the summer months. See Proposed Power Rate Changes Table above.
How do LADWP power rates compare to other utilities?
Historically, LADWPs electricity rates have been lower than similar power utilities in the region and
state. LADWP electric rates will remain competitive after the new rates take effect.

Rates FAQ

6/26/2015

Electric rate comparison before and after LADWP proposed rate changes

Water Rates
How much will the water rate increase?
Typical residential customers will experience an average annual increase of 2.5% or less on their water
rate, assuming non-drought weather conditions.
How will the proposed rate changes affect my water bill?
The table below shows the anticipated impact on a typical residential customers bill.

Why are LADWPs water rates going up?


The July 2014 water main break on Sunset Boulevard highlighted the need to accelerate the
replacement and/or upgrade of LADWPs vast array of infrastructure that is critical for reliably delivering
high-quality water to Angelenos. With a significant amount of pipe installed at the turn of the century,
LADWP faces a major challenge in keeping pace with the replacement and upgrade of these aging cast
iron water mains and riveted-steel trunk lines. The water rate adjustment is also necessary to continue
meeting stringent water quality regulations, and to continue expanding the local water supply to help
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6/26/2015

reduce reliance on expensive purchased water. The need to expand L.A.s local water supply has
become more critical as drought conditions continue throughout the state.
How much in additional water revenues are needed to meet these goals?
LADWPs Water System needs about $230 million in additional revenue over the next five years, from
$1.1 billion to $1.4 billion.
How are the additional revenues going to be used?
The table and pie chart below show how the funds will be used. The majority--63%--will go toward the
Water Infrastructure Program for reliability. Another 26% of the funds will support water quality and
Owens Valley regulatory mandates. The remaining rate adjustments will support the Local Water
Supply Program, including expanding conservation programs, water recycling, stormwater capture, and
groundwater cleanup.
5-Year Budgeted Costs
Historical
Core Initiative
Avg.
Infrastructure
$306M
Replacement
Supply
$134M
Transition*
Mandates:
$299M
Water Quality
Mandates:
$103M
Owens Valley
Total
$842M
(Capital & O&M)

5-Yr Avg.

5-Yr
Total

$523M

$2.7B

$341M

$1.7B

$314M

$1.6B

$217M

$1.1B

$1.4M

$7.0B

Where the New Revenues Will Go

*Supply Transition includes Conservation, Recycling


Groundwater Remediation, Stormwater Capture,
In-City Pumping, and Resource Development

When was the last time water rates were increased?


LADWP has not increased basic water rates since July 2009 when a 3.1% water revenue adjustment
went into effective. Subsequently, shortage year rates have been in place since June 1, 2009. In March
2012, LADWP received approval to raise the water quality adjustment factor from $0.50 to $0.80 a
35-cent adjustment on water rates.
How do LADWP water rates compare to other utilities?
Historically, LADWPs water rates have been among the lowest in the region when compared to
neighboring utilities and other water agencies in the state. The proposed residential single family water
rates will continue to be competitive with other California water utilities.

Rates FAQ

6/26/2015

Water rate comparison before and after LADWP proposed rate changes

What impact, if any, will the drought have on my water bill?


When LADWPs water supplies are lower than normal, the Department must increase the amount of
more expensive water purchased from the Metropolitan Water District (MWD). LADWP rates are
designed so that MWD purchased water is coverd by a pass-through factor on customer bills. In the
past few years of the drought, the amount of MWD purchased water has been much higher than
normalaveraging over 50% of L.A.s water supply.
If drought conditions continue, a typical customers bill could increase more than the estimated levels
shown abovefrom 2.7% to 2.9% annually, or an average of $3.75 to $4.02 on their monthly bill each
year. A high-use customers bill could increase from a 5.6% annual increase during a normal year to
5.8% during a drought year. This represents a range of $16.58 to $17.17 more on their monthly bill over
five years than at present rates.
When will LADWP know how much the drought will impact rates?
When setting the Water System budget each fiscal year, LADWP determines the amount of water that
will be available through LADWP-owned supplies from the Los Angeles Aqueduct or local groundwater
and recycled water based on the prior years precipitation and snowpack levels.
Why are water rates going up even though we are being asked to use less water?
Over the next five years, LADWPs water system needs $230 million in additional revenue to fund
infrastructure reliability projects, comply with water quality requirements and other regulatory mandates,
and expand the local water supply. That said, however, LADWP rates are designed to encourage
conservation, so those who use the least amount of water will see a lower increase on their bill. If the
water supply levels improve, and there is less reliance on purchased MWD water, customers may see
their bill decrease further.

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What changes are being proposed to the water rate structure and will they encourage
conservation or sustainability?
LADWP currently has two rate tiers based on water use. Given the serious water supply shortage, the
rate request proposes increasing the number of tiers from two to four for single-family residential
customers. This change is designed to further incentivize conservation, while ensuring lower rates for
customers who use the least amount of water. Following is the average annual bill impact for a highuse residential water customer.
How will the tiers be determined?
Tier 1 Basic use; the lowest tier covers the cost of basic indoor water use (approx. 8 HCF/
month).

Tier 2* Efficient use; covers the cost of basic indoor water use and outdoor water use for
drought-resistant landscaping.

Tier 3* Considered high water use. Price based on above-average outdoor water use for
landscaping and the need to supplement with more expensive imported purchased water.

Tier 4 Considered excessive use. Price reflects cost of increased purchased water and
expanding local water resources, such as recycled water.

*Tier 2 and 3 allotments will also vary based on temperature zone and lot size.

How will the new tiers affect customers rates?


The majority of water customersabout 55%will fall in the lower two tiers (Tiers 1 and 2). Only 9% of
water customers use an amount of water that will put them in the highest tier (Tier 4). The diagram
below shows how the rates will change for each tier under the rates proposal.

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Are there other new charges being considered for the water rates?
LADWP is proposing to add the following:

Infrastructure Reliability: As described above, LADWP must accelerate and expand its
infrastructure reliability program. This pass-through factor would cover the cost of increasing
mainline repairs and replacements, trunk line improvements, and other critical infrastructure
reliability efforts. To protect customers, this factor includes an annual cap and only collects for
expenses that have been incurred.

Revenue Decoupling (or Expense Stabilization): The same as the decoupling factor being
introduced for electric rates, this is a mechanism to ensure financial stability and maintaining
high bond ratings. It will allow the recovery of fixed costs to meet financial requirements, and
also protects customers from over collection.

Securitization: Under AB 850, LADWP formed a Joint Powers Authority (JPA) with the city of
Burbank to receive low interest financing for mandated and local water supply projects. This
pass-through adjustment, which will appear as a line item on customer bills, will reduce the
Water revenue requirement by $45 million over five years, which represents a 2.9% savings on
future rates.

What will happen to the Shortage Year rates?


The proposed water rate structure calls for eliminating shortage year rates. LADWPs revised water rate
structure is being designed to ensure financial stability even during periods of drought.
Will there be any financial impacts because of the drought?
Mayor Eric Garcetti issued an Executive Directive on October 14, 2014 to dramatically reduce the use
of costly MWD purchased water while increasing water conservation and the use of recycled water. Key
goals include:
Reduce water use per capita in the city by 20% by 2017
Reduce the purchase of imported water by 50% by 2024
The proposed water rate structure and rate changes have taken these policy goals into account by
incentivizing conservation, and allocating additional revenues to expand the local water supply. As
stated above, customers will also see fluctuations in the purchased water pass-through depending on
continued drought conditions.

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