2016 - 2020 Rate Changes

 

On March 15, 2016, LADWP received City Council approval for a five-year rate change. The new rates, which will be effective April 15, 2016, provide for modest 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 in replacing aging infrastructure to ensure reliability.

  • Transform Water and Power Supplies:  LADWP water rates must support greater water conservation and expand 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 and accuracy of bills, enhance self-service options and other ways to improve the customer experience. LADWP will also continue to expand programs and measures that help our customers to 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.
While rate increases are never easy, LADWP rates still remain among the lowest in California.  A typical customer in LADWP service area pays approximately 10% to 30% less than similar customers served by investor-owned utilities in Southern California.

Approved Rate Changes

Through the approved rate action, typical residential customers will see a combined average increase of about 3% for water and power on their bill each year for five years. This reflects an average monthly bill increase of $4.20 each year from 2016 through 2020. Customers using low amounts of water and power will have a combined increase of 2.4% on average per year, or about $1.91 per month. High use customers (in the top 10% of water and power use) will pay 5.3% more on average per year, reflecting an increase of about $16.31 per month. For all customer sectors, including residential, commercial and industrial customers, the average annual rate adjustments are 3.86% for power and 5.26% for water over five years.

5-Year Water and Power Rate Changes with Monthly Cost*


*The final rate adjustments differ from the preliminary rate proposal, reflecting changes in budget expenditures, water conservation goals and anticipated revenues. For water rates specifically, the proposed rate is slightly higher mostly due to costs to meet Owens Lake dust mitigation project requirements as well as increased water conservation goals. On the power side, the proposed rates have decreased mostly due to declining cost of natural gas and other factors.

 
Prior Rate Adjustments

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 power rate change totaled 11%, or 1.41 cents/kWh, effective in November 2012 and July 2013. The Water Quality Adjustment increase of $0.35/HCF became effective in February 2012.

These rate adjustments were accomplished after engaging in extensive public education and outreach to customers, City leaders and other stakeholders to explain why these increases were needed and how the increased revenues would be used.  At that time, LADWP described this request as the beginning, and explained the need for more long-term sustained rate changes. 

Water Rates


5-Year Water Revenue Needs: $330 Million

The Water System revenue requirement is $330 million over the next five years.  The majority, 78%, is needed for infrastructure improvements for reliability and water quality projects. About 26% of new revenues also are necessary to meet regulatory requirements for water quality and for Owens Valley mitigation measures. The remaining new revenues will go toward expanding the local water supply, which includes recycled water, stormwater capture, and groundwater remediation. A fourth component, increasing water conservation, will receive additional funding. It does not reflect a rate increase, however, because it is offset by anticipated decline in purchased water.

Only 6% of new water revenues will go toward labor.

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What is the impact to my water bill?

Typical residential customers, using 12 HCF of water per month, will experience an average annual increase of 4.76% or less on their water rate, assuming non-drought weather conditions. For typical use customers, their monthly cost is expected to increase from $57.79 to $72.90 after five years. Low use customers, using 8 HCF of water, will see their monthly costs increase 2.63%. High use customers, using an average of 27 HCF of water, will have their costs climb about 7.16%.

Where does the money go?

O&M Labor and Benefits are 27% of the FY14-15 Water Fund, and will average 29% per year over the proposed five-year rate period – an increase of approximately 2% as a percentage of total operating revenues.  The chart below illustrates how expenditures will be reallocated under the five year plan:

Where_Money_Goes_Water.png

Water Investment Priorities

Infrastructure Reliability

5-Year Investment: $2.7 Billion

Mandates and Supply Transition

5-Year Investment: $1.7 Billion

7,200 miles of pipes are backbone of system.

  • Total water loss is half national average but pipes are approaching 100 years of age.
  • Replacement factors: Leak history, soil conditions, age, and disruption to community.

Recommended repair/replacement targets

  • Mainlines: Ramp up from 28 to 50 miles per year by 2020
  • Trunk lines: Test, evaluate and identify most vulnerable sections to correct
  • Replace 5 large valves annually
  • Replace 25,000 small meters annually
  • L.A. Aqueduct: Re-line 7 miles in 3 years

Visit Reliability & Infrastructure to learn more.


  • Continue to expand local water supply to reduce purchased water 50% by 2024 by increasing:
    • Conservation
    • Stormwater capture and reuse
    • Recycled water
    • Groundwater cleanup
  • Safe Drinking Water Programs for Open Reservoirs and Water Disinfection
    • Reservoir projects
    • UV Filtration
  • Owens Lake Dust Control

 

Water Rate Restructuring - Key Changes

  • Increasing Water Use Tiers: LADWP uses a water rate design with tiered pricing tied to customers' water consumption. The new water rates increase the number of tiers from 2 to 4 for single-family residential customers to recover the costs of providing water to high users while further encouraging conservation.

    The four tiers are based on utility costs plus conservation objectives, and are comparable with those set by other California water utilities. They are also consistent with the Mayor’s Executive Directive No. 5, which requested a review of water rate tiers to optimize conservation.

 Water_Tier_chart.png

  • Infrastructure reliability "pass-through" factor: As described above, LADWP's water infrastructure is aging. LADWP must ramp up replacement of aging mains, trunk lines and other equipment. To protect customer costs, the reliability adjustment includes an annual cap and only collects for expenses that have been incurred.

  • Restructuring for conservation - "decoupling": The water rates will be restructured to encourage conservation while maintaining appropriate revenues. 

  • Rebalancing: The water rates will be rebalanced among customer sectors,  based on the recently completed Cost of Service Study.

 

View or download the full LADWP Water System Rate Action Report

 

Power Rates

5-Year Power Revenue Needs: $720 Million

The Power System revenue requirement is $720 million in new revenues over the next five years.  The majority (80%) is necessary for power supply transition to a clean energy future, and to meet state mandates.

The remaining amount of rate changes will support the Power System Reliability Program to upgrade infrastructure reliability and also anticipated increase in fuel costs. Only 7.5% of new power revenues will go toward labor.

 Energy-chart-12142015.png

What is the impact to my power bill?

Typical residential customers will experience an average annual increase of about 1.5% or less on their electric rate. A typical electric residential customers, using 500 kilowatt-hours (kWh) per month will see a monthly increase of about $5.85 at the end of five years. A low-use electric customer, based on 250 kWh per month, will see a change of 2.2%, or $1.91, per month--about $4.20 at the end of five years. High use electric customers, based on 900 kWh per month, will see an increase of 3.4%, or $5.26 per month--about $26.30 at the end of five years.

Where does the money go?

O&M Labor and Benefits are 21% of the FY14-15 Power Fund, and will average 19% per year over the proposed five-year rate period – a decrease by approximately 2% as a percentage of total operating revenues.

power.png

Power Investment Priorities

Infrastructure Reliability

5-Year Investment: $4.5 Billion

Mandates and Supply Transition

5-Year Investment: $6.2 Billion

Power System Reliability Program (PSRP)

Prioritizes infrastructure replacement and spending for distribution, substation, transmission, and generation.

Example: Poles

  • 321,780 poles
  • FY14-15 replacement target:1,560
  • FY 15/16 target: 4,000
  • FY 19/20 target: 6,000

If LADWP replaced 5,000 poles per year, it would take over 17 years to replace all poles that are 60-plus years old, which is the avg. pole lifespan.

Visit Reliability & Infrastructure to learn more.

Power Supply Transformation

Over the next 15 years, LADWP will replace over 70% of its existing power supply to meet regulatory mandates and create a clean energy future for L.A. – a future with more efficient use of energy, greater reliance on renewable energy, and zero coal.

Elements include:

  • Expand renewables to 33% by 2020, including investing in local solar programs
  • Continue capital program to eliminate once-through ocean water cooling by rebuilding 9 generating units at 3 coastal power plants
  • Eliminate coal-fired power by 2024 to meet greenhouse gas emissions cap
  • Increase energy efficiency and reduce energy use 15% by 2020

Power Rate Restructuring - Key Changes

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 a new service charge for residential customers, and pass-through factors for infrastructure reliability and revenue decoupling, which is designed to recover fixed costs if anticipated revenues fall short. Following are the proposed pass-through adjustment factors:

  • Power access charge:  This proposal recommends a consumption-based charge to be connected to the power grid. 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.
  • Infrastructure reliability: The infrastructure pass-through factor will support ramping up replacement of aging power equipment. To protect customer costs, the reliability adjustment includes an annual cap and only collects for expenses that have been incurred.
  • Restructuring for conservation- "decoupling": The power rates will be restructured to encourage conservation while maintaining appropriate revenues.
  • Rebalancing: The power rates will be rebalanced among customer sectors,  based on the recently completed Cost of Service Study.

 

View or download the full Power System Rate Action Report

Rate Request Details

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 LADWP’s 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 will come from new labor contracts, which will save $456 million over four years (ending in October 2016). This will represent 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.

When will the new rates go into effect?

The rate change will go into effect starting April 15, 2016. Incremental adjustments would become effective July 1, 2016, July 1, 2017, July 1, 2018, and July 1, 2019.

Has the Office of Public Accountability/Ratepayer Advocate (OPA/RPA) provided an opinion about the rate changes and how can I obtain the RPA’s report?

Yes, after extensive review, the OPA/RPA issued their report and determined that LADWP's proposed rate actions are "just and reasonable." The OPA/RPA's full report is available at http://opa.lacity.org or click on the report link.  Based on the OPA/RPA's recommendations, LADWP incorporated accountability measures and "check-in" periods into the final rates ordinance to show progress toward meeting performance goals.

What was the process for approving the rate changes?
The water and power rate ordinances were approved by the Board of Water and Power Commissioners on December 15, 2015 and January 19, 2016 respectively. The City Council Energy & Environment Committee held hearings and recommended approval of the ordinances, which were approved by the City Council March 15, 2016 after the second reading.

Were there opportunities to comment about the rate changes?

From July 1 through December 2015, LADWP engaged in a major public outreach effort involving over 80 meetings and presentations on the rates proposals across Los Angeles. These included briefings for neighborhood councils, business groups and environmental groups. LADWP continues to welcome feedback on this website.

 

Rate Changes for Commercial/Industrial Customers

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