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DWP's renewable energy efforts will boost rates, report says

A five-year review said the Los Angeles utility's plan to increase such power sources has not been properly analyzed regarding costs to customers.

February 06, 2009|David Zahniser

The Los Angeles Department of the Water and Power's decision to embrace renewable energy will have a "significant impact" on the electricity bills of customers, according to a five-year review of the nation's largest municipal utility.

In a 223-page document released Thursday by City Controller Laura Chick, PA Consulting Group also said the DWP would have difficulty accomplishing Mayor Antonio Villaraigosa's plan to make renewable power -- generated from wind, solar and other sources -- one-fifth of the city's energy portfolio by 2010.

Although the plan would have lasting environmental benefits, the DWP has not "appropriately analyzed or communicated" the magnitude of the program's cost to its customers, the report said. The size of those rate increases would depend on the type of renewable energy developed by the DWP, said PA analyst Andrew Rea.

If the DWP "has a mix that relies more heavily on solar, those costs will be substantially higher," he said.

DWP General Manager H. David Nahai disagreed with the report's findings, saying no additional rate hikes are planned before 2010. As the DWP pushes to make 35% of its power renewable by 2020, the department will look for ways to absorb the additional costs through strategies other than rate hikes -- such as selling the utility's interest in a coal-powered plant, Nahai said.

"We want to turn to our ratepayers last," he said.

The company that prepared the report is already at the center of controversy over Measure B, a March 3 ballot measure that would require the DWP to add 400 megawatts of solar power by 2014. Two months ago, the firm privately informed the City Council's top analyst that the solar measure is "extremely risky." After The Times reported on those findings, DWP officials removed the firm as a paid consultant at the agency.

Measure B supporters characterized PA Consulting Group's review of the solar plan as superficial. And on Thursday, Measure B campaign manager Michael Trujillo -- a Villaraigosa staffer who frequently works on the mayor's political initiatives -- called the latest report "snake oil."

Chick embraced the report, however, saying she agreed with the finding that the political nature of the DWP makes it harder to hold the utility accountable for its actions. Chick said politics have intruded too frequently on DWP business, from the hiring of high-level staff to the handling of Measure B, which went onto the ballot without review from the DWP's five-member commission.

"I will be voting no on Measure B because I think the entire process of how it ended up on the ballot stinks," Chick said. "I don't think that it's been done in an open and understandable, much less thoughtful, way."

The differing views over Measure B are at least partly the product of a disagreement over the degree to which solar technology costs will drop in coming years. Huron Consulting, a DWP consultant, concluded that the solar measure would cost as much as $1.6 billion, not counting tax credits.

PA Consulting concluded that the cost could reach $3.6 billion, without tax credits, in large part because the firm took a considerably more conservative view of the degree to which solar technology expenses will fall, Rea said.

Still, only a fraction of Thursday's report -- which is produced for the DWP every five years under the City Charter -- dealt with the solar ballot measure. The remainder touched on various challenges facing the DWP, such as volatile natural gas prices and rapidly changing energy policies.

The report said decision-making lacks efficiency at the DWP, where top managers control some policies and Villaraigosa's office oversees others. That arrangement is further complicated by the presence of the DWP board, a group of mayoral appointees that micromanages some projects, Rea said.

"Boards are there to provide guidance, oversight and direction. Management is responsible for developing a plan and having clear measures for that plan," he said. "Right now, you don't have either of those things at the department."

Nahai voiced support for Measure B and defended his agency's management structure, saying Los Angeles has benefited from having the mayor intervene on DWP water policy and other issues.

"It's the mayor's job to initiate and lead on exactly these measures," he said.

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david.zahniser@latimes.com

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