Facing Budget Headwinds, LADWP Trims Sails

By Published On: April 8, 2011

The Los Angeles Department of Water & Power plans to trim expenses over the next three years by cutting $440 million from its budget, muni general manager Ron Nichols announced April 5. “Our customers are being forced to tighten their belts in this economy, and we need to be more frugal too,” said Nichols, maintaining that the cuts would not diminish the quality of the muni’s service. Nichols joined Los Angeles Mayor Antonio Villaraigosa to unveil the cuts just minutes after a city council committee decided to slow the muni’s long-term renewable energy and modernization plan by commissioning a one-year study of the blueprint. The full city council also must approve the study. Villaraigosa maintained the budget cutbacks would not prevent the muni from moving forward on renewable energy. The dual moves come amid intense pressure to cut city spending. They follow recent negotiation of major concessions on benefits by many city employee unions. In explaining the budget cuts with the mayor at Los Angeles City Hall, Nichols said they would fall into three major categories. First, he said, the department plans to save $70 million annually on labor by instituting a hiring freeze and trimming overtime. Nichols said that the department would not replace a large number of retiring workers, except for essential positions. He said most of the labor savings would come from administrative positions, rather than by cutting back field personnel that keep the lights on and water flowing in the huge city. Next, he said, the department plans to cut yearly operational spending by $20 million, trimming expenditures on everything from office supplies to staff travel and canceling the popular annual Christmas lights festival the department traditionally holds in Griffith Park. To round out the promised savings, Nichols said the muni would cut capital expenses by $70 million over the next three years. He estimated that $50 million of the savings could come through refinancing bonds. Looking ahead, Nichols promised the department in the coming weeks would review planned capital expenditures related to meeting regulations, promoting energy efficiency, modernizing its distribution system, and cutting reliance on coal power. He did not rule out a rate increase. Chair of the city council’s environment and energy committee Jan Perry said she expects a forthcoming “rate action” by the department. Perry noted the possibility of a rate hike at a meeting where the committee approved a contract for $780,000 with PA Consulting to spend as much as a year evaluating the department’s integrated resources plan and a council-ordered effort to restructure power rates. The resources plan calls for moving the department from 20 to 33 percent renewable energy by 2020, carrying out extensive energy efficiency programs, and modernizing power plants and the distribution system. The department maintains the plan would entail 5 to 8 percent annual rate increases for the next five years. The rate restructuring requested by the council would break down the muni’s energy cost adjustment factor--which is automatically passed through to customers--into three categories to show the cost for renewable energy, demand side management, and the transfer of surplus collections to the city’s general fund.

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