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DWP ratepayers facing a bigger possible surcharge

L.A.'s mayor will propose an increase of 2.7 cents per kilowatt hour of electricity consumed. It's expected to add $2 a month to the bills of 55% of customers. Its effect on the other 45% isn't known.

March 12, 2010|By David Zahniser
  • A portion of the surcharge would go to improve conservation and obtain solar, wind and geothermal power. Above, the DWP's parking-lot solar array.
A portion of the surcharge would go to improve conservation and obtain solar,… (Luis Sinco / Los Angeles…)

Los Angeles Mayor Antonio Villaraigosa's political team has spent the last two months talking up the need for the Department of Water and Power to adopt a so-called carbon surcharge, one that would require ratepayers to pay more to cover the cost of renewable energy.

Now, that proposal has been incorporated into a larger increase, which would also force DWP customers to pay more to cover the cost of fossil fuels, such as coal and natural gas, which generate much of the utility's electricity.

Villaraigosa plans to announce his proposal Friday for increasing the DWP's surcharge, known as the Energy Cost Adjustment Factor, by 2.7 cents for every kilowatt hour of electricity consumed. Of that total, 0.7 cents would be set aside to improve conservation and obtain solar, wind and geothermal power, said Jay Carson, Villaraigosa's chief deputy mayor.

Carson said a majority of the DWP's customers -- who use the smallest amount of power -- would experience an increase of $2 a month on their bills, or 7.4%. He did not know the size of the increase that would be imposed on the other 45% of customers.

The mayor's proposal comes less than a month after a city-hired consulting firm also recommended that the DWP increase its energy surcharge by up to 2.7 cents. That firm, PA Consulting Group, concluded that its proposal -- which is somewhat different from the mayor's -- would boost the bills of DWP customers by up to 22%. Those numbers would drop, however, once the utility redesigns its rates to reward those who use less energy, the firm said.

DWP critics immediately voiced dismay over the proposal, saying ratepayers are already reeling from the downturn in the economy and other fee hikes imposed by the city. The existing DWP surcharge already has gone up 73% since 2006.

The surcharge is currently 5.09 cents per kilowatt hour and would reach 7.79 cents under the mayor's proposal. "We just don't know when this thing is going to end," said Jack Humphreville, who campaigned last year against Villaraigosa's solar energy ballot proposal, Measure B.

Humphreville said DWP costs are going up because Villaraigosa agreed in October to support a five-year package of pay raises for the utility's employees. Carson said the newest increase is needed, in large part, because the DWP has not been collecting enough money in its existing surcharge to cover swings in the price of fossil fuels.

"The vast majority of this was under-collection for natural gas," he said.

Carson said the money for renewables would be placed in a special fund, which he described as a "lockbox," and would increase transparency at the DWP.

Villaraigosa's appointees at the Board of Water and Power Commissioners are expected to vote next week on his proposal, which would be phased in over a year. From there, the Los Angeles City Council would need to decide whether to conduct its own review.

Although the DWP's existing surcharge has been used primarily to pay for coal and natural gas, renewable energy is "the single most important factor" driving the need for the new increase, according to the report prepared by PA Consulting. Between 2009 and 2011, the DWP's renewable energy costs will increase by $250 million, the report said.

The consultant also raised questions about the DWP's handling of its renewable energy program. When renewable projects came up for a council vote, DWP officials told the council that the utility had enough money in its Fuel and Purchased Power budget to pay for them, the report said.

That was only true if the DWP found a way to collect more money from its surcharge, the firm wrote.

"I don't think there was completely transparent reporting on what funds were necessary to pay for some of the proposed projects," said Andrew Rea, a partner at PA Consulting who heads the firm's Los Angeles office.

Villaraigosa's team said the higher surcharge is needed to help the mayor fulfill his promise for the DWP to get 20% of its power from renewable sources by Dec. 31. The mayor commissioned a poll two months ago that concluded voters would support a higher surcharge to help the DWP wean itself off coal.

Councilman Tony Cardenas said he does not know enough about the mayor's proposal but fears that it could have a big effect on some ratepayers. "It sounds like pennies," he said. "But it's actually $10 here, $100 there, depending on what the bill is."

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