Audit of DWP Endorses Rate Hikes Totaling More Than 7%

An audit of the Los Angeles Department of Water and Power recommended that the agency be allowed to raise water rates by 7.4% over the next two years to cover escalating costs and said additional increases totaling nearly 10% may be justified during the following three years.

The financial analysis released Wednesday was conducted by Barrington-Wellesley Group Inc. at the request of the City Council, which had balked at raising rates 3.8% last year because members did not believe the need had been proved.

Despite the analysis, the cumulative increase worried Councilwoman Jan Perry, who is the chairwoman of the council committee that oversees the DWP.

“That’s pretty frightening and not an increase low-income people can bear,� Perry said, pledging to hold public hearings on any proposed rate increase.

DWP board member Nick Patsaouras said auditors have identified $140 million in potential savings, including $20 million in the water system, which would eliminate the need for a 3.9% rate increase proposed by the auditors to be approved for July.

“It would be very difficult for me to be convinced we need to raise rates in July,� he said.

Mayor Antonio Villaraigosa withheld his endorsement of any rate increase until the DWP and its board look at “significant issues� raised by the study, including potential cuts in spending and more efficient use of the agency’s workforce and overtime.

In a letter to DWP board President Mary Nichols, the mayor asked members to consider contracting some services, limit nonessential hiring and evaluate whether it can sell some of its vast landholdings. “Before the board finalizes any revenue actions, you should take all necessary steps� to lessen potential rate increases on customers, Villaraigosa wrote.

DWP General Manager Ron Deaton said he supported the first two years of water rate increases because they are needed to cover quality and infrastructure improvements, many of which are mandated by the state and federal governments. He also backed the proposed efficiencies, including $51 million in cost reductions in the electrical system from implementing automated meter reading.

In addition to the 3.9% increase that auditors said was justified this year, they said a 3.5% increase would be warranted a year later, and that increases of 5%, 2.9% and 2%, respectively, may be necessary in the following three years.

The auditors recommended that the DWP impose a surcharge on electricity bills starting July 1 to pay for its expansion into potentially more costly green-power projects, including solar and wind energy.

Rather than set an annual percentage increase for electricity bills, the auditors suggested that the DWP lift a freeze on passing on the rising cost of natural gas to customers.

Even as it endorsed higher water and power bills for customers, the audit questioned the DWP’s spending practices, proposing a freeze on expenses beginning with next year’s budget.

The audit called on the DWP to adopt a “rigorous cost containment mind-set� and to “examine all expenditures with a critical eye toward reducing costs at every level.�

The study identified $119 million in potential cuts to the electric system budget.