Analysis
By Jack Humphreville
DWP Rate Payers are a disparate, diverse and unorganized group consisting of 1,400,000 power customers and 640,000 water customers. But who watches out for their wallets when DWP proposes a massive Rate Increase? Theoretically, the Board of Commissioners, the Mayor, the City Council, and Controller would assume that responsibility.
 Unfortunately, there are massive, well organized, well funded money
hungry constituencies whose agendas do not necessarily coincide with
those of the Rate Payers: DWP and its Board of Commissioners; City
Hall, the Mayor, the City Council and the Controller; and DWP’s
union.
As a result of this imbalance and in order to create a more open and transparent environment, the DWP Oversight Committee, which consists of 74 certified Neighborhood Councils, recommends the formation of an independent Rate Payers Advocate (“RPA”), funded by DWP, to provide additional oversight of DWP. This is not the only call for additional oversight. Others include Antonio Villaraigosa and Jack Weiss, the Los Angeles Chamber of Commerce and Greig Smith. In many ways, it is similar to the Public Utilities Commission that monitors investor owned utilities.
The RPA would have timely access to information regarding DWP’s operations, finances, and management as well as monitor the reliability of its operations. It would also disseminate this information and its findings to the Rate Payers, City Hall and the public. Importantly, the RPA would be independent of City Hall and other parties that have conflicts of interest. However, the RPA would not be involved in management or have the right to veto management decisions or set rates.
The RPA’s members would be knowledgeable about utilities, finance, and the management of large complex enterprises like DWP and would not have ties to the political establishment. The RPA would have liaisons with senior members of DWP management, including operational and financial management.
Additional oversight is certainly needed. The reliability of the power system has deteriorated. There is over $2,000,000,000 of deferred maintenance. There is a $2,000,000,000 unfunded retirement liability related to post retirement medical benefits and pensions that is not disclosed on the balance sheet, but is buried in the footnotes of the financial statements. DWP has failed to implement the money saving recommendations of the Huron Consulting Group that relate to work force management, project management, Shared Services, Customer Service, outsourcing, and information technology, among others.
While DWP has been more open about its operations and finances, it has been unwilling to disclose the non core projects (often referred to as public benefit, special or pet projects) and their substantial cost. Nor has DWP been forth coming about the history of transfers to the City’s General Fund. Nor has DWP disclosed that its first quarter profits were $70,000,000 over budget, about the amount of the requested annual increase!
DWP has also misled the public about the size of the proposed Rate Action. The Water increase has been advertised as 6.2%. However, the DWP Oversight Committee concluded that the base rate revenues are projected to increase over 16%, pass through revenues at 11%, and overall revenues about 14%. We did not consider the increase in purchased water since this is outside the control of DWP.
Likewise, DWP advertised the increase in power rates as “fairly modest,” “$1.75 a month,” and 8.5% over the three year period. Again, the DWP Oversight Committee arrived at different conclusions. We do not consider a $655,000,000 increase in our power bills as “fairly modest.” Rather, base rates are projected to increase almost 16%, pass through rates 57%, and the average cost per kwh increases 23% and rates for single family residences about 30%.
The DWP Oversight Committee believes that the RPA needs to be independent of City Hall since the City receives over $500,000,000 a year from DWP as a result of the 10% City Utility Tax, the 7% levy on power revenues, the 5% levy on water revenues, and the funding of special projects by DWP that are the responsibility of the City. If the proposed Rate Action is approved, the City’s General Fund would benefit by another $100,000,000.
Nor has the Controller been vigilant. The City Charter requires that an audit be conducted every five years. However, the last audit was done in 2002 and we have not even seen an RFP for the new audit.
The Board of Commissioners have not looked out for the Rate Payers as witnessed when they rubber stamped the DWP Rate Action on October 2, 2007. DWP was given hours to make their case while members of the Oversight Committee were allowed three minutes each to make their points. But then again, the Commissioners are political appointees that serve at the will of the mayor and do not have the experience with large revenue generating organizations.
Likewise, the RPA should be independent of the DWP union. The union enjoys compensation levels that are significantly higher than other city workers and other regional utility workers. Some estimate this premium to be $200,000,000 per year. As a “first installment,” the union mailed, at great expense, over 30,000 DVD’s in order to apply political pressure on City Hall. The union has also been a significant contributor to local political campaigns. Other city workers are interested in high DWP compensation levels since it sets a benchmark for city workers.
The DWP Oversight Committee does not recommend the current Rate Action. DWP does not need an increase in base rates. For example, since the transfer from the water system to the City’s General Fund is not legally permitted, there is no need for any increase.
Likewise, the power system does not need an increase in base rates. Power had $450,000,000 in unrestricted cash at year’s end and profits in the first quarter were $70,000,000 over budget. DWP has not “earned” this increase since it has not implemented the many money saving recommendations proposed by the Huron Consulting Group which was hired by the City to review the rate increases.
No wonder we are recommending an independent Rate Payers Advocate. (Jack Humphreville serves on the NC/DWP Oversight Committee. Humphreville is a businessman, community activist and an occasional contributor to CityWatch.)
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