The Los Angeles Department of Water & Power\u2019s use of renewable energy is likely to peak at 19 or 20 percent this year and decline to 15 percent by 2014 unless its rates are increased and restructured, according to a consulting firm hired by the Los Angeles City Council to independently review the department. Rate increases are also necessary, said city consultants, to avoid a credit downgrade. News of the shrinkage was unveiled at a council Energy and Environment Committee hearing March 16, the day after Los Angeles Mayor Antonio Villaraigosa proposed creating a \u201ccarbon surcharge.\u201d It would add about $2.50 to $3.50\/month to residential bills, where customers\u2019 power use stays within the first of three usage tiers. The surcharge would fund renewable power development and energy efficiency programs. Under the mayor\u2019s plan, a carbon surcharge of 0.7 cents\/kWh would come on top of his additional proposal to lift the cap on the department\u2019s energy cost adjustment factor by 2 cents\/kWh. The current cap allows the department to increase the factor--which was set up to allow the pass through of higher fuel costs to ratepayers--by only 0.1 cents\/kWh each quarter. \u201cBecause the price of energy has been rising our Water & Power Department needs a significant rate increase to keep the lights on and to get out of a financial hole,\u201d said Villaraigosa in announcing the rate hike plan. To ensure that the surcharge is transparent, the mayor said he would appoint \u201ca neutral ratepayer advocate\u201d in the Office of the Controller to oversee it. The surcharge would appear as an itemized charge on customer bills. On March 18, the muni\u2019s board of commissioners approved a 0.8 cent\/kWh increase in the department\u2019s energy cost adjustment factor. The board backed the increase to meet rising energy costs and maintain the muni\u2019s credit rating. Environmentalists supported the move, but some customers complained, including the city\u2019s financially pinched school district. The city council is expected to review the hike, though it does not need to approve it before it takes effect April 1. The muni\u2019s board acted after PA Consulting analysts warned the council committee that unless the council \u201cimmediately\u201d allows the department a 0.7 cent\/kWh bump in its energy cost adjustment factor the muni will see a credit rating downgrade. The downgrade, they said, would increase LADWP\u2019s interest payments by tens of millions of dollars year. The increased credit risk stems from a $130 million under-collection in the \u201cenergy cost adjustment factor,\u201d acknowledged committee chair Jan Perry. PA Consulting analysts said the under-collection resulted mostly from the high price of natural gas in 2008, but also from renewable energy projects. The mayor\u2019s plan is aimed at helping LADWP reach the 20 percent renewable energy mark this year and stay there, but will not provide the money needed to reach his 40 percent renewable energy goal for the muni. \u201cI\u2019m as gung ho an environmentalist as anybody, but over the next two or three years I\u2019m not going to be pushing to do too much more than we have to,\u201d said councilmember Paul Koretz. PA Consulting analysts told the committee that adding 2.7 cents to the adjustment factor would place LADWP rates on a par with those charged by neighboring Southern California Edison. The muni has long prided itself on having lower rates than those charged by investor-owned utilities. Environmentalists endorsed raising rates to move to renewable energy, but at the same time urged careful accounting of related expenditures. Coalition for Clean Air representative Monique Lopez urged the council to make sure renewable energy spending is subject to regular audits.