Mayor Backs Carbon Charge as LADWP Renewables Face Decline

By Published On: March 19, 2010

The Los Angeles Department of Water & Power’s 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 “carbon surcharge.” It would add about $2.50 to $3.50/month to residential bills, where customers’ power use stays within the first of three usage tiers. The surcharge would fund renewable power development and energy efficiency programs. Under the mayor’s plan, a carbon surcharge of 0.7 cents/kWh would come on top of his additional proposal to lift the cap on the department’s 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. “Because 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,” said Villaraigosa in announcing the rate hike plan. To ensure that the surcharge is transparent, the mayor said he would appoint “a neutral ratepayer advocate” 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’s board of commissioners approved a 0.8 cent/kWh increase in the department’s energy cost adjustment factor. The board backed the increase to meet rising energy costs and maintain the muni’s credit rating. Environmentalists supported the move, but some customers complained, including the city’s 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’s board acted after PA Consulting analysts warned the council committee that unless the council “immediately” 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’s interest payments by tens of millions of dollars year. The increased credit risk stems from a $130 million under-collection in the “energy cost adjustment factor,” 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’s 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. “I’m as gung ho an environmentalist as anybody, but over the next two or three years I’m not going to be pushing to do too much more than we have to,” 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.

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