The Los Angeles City Council will consider today whether to assert jurisdiction over the Department of Water and Power board's decision to hike rates starting April 1.
At least 10 votes are necessary to give the council authority to either affirm the increase or send it back to the DWP for revision.
In her motion to assert jurisdiction, Councilwoman Jan Perry said "in order to ensure the DWP's financial stability and minimize impacts to ratepayers, it is critical that the council carefully review the board's action and reconcile policy issues."
At present, an Energy Cost Adjustment Factor surcharge of 5.09 cents per kilowatt-hour is tacked onto DWP customers' bills every month. Mayor Antonio Villaraigosa's press deputy, Sarah Hamilton, said the plan is to raise the ECAF by 2.7 cents per kWh over a year, starting next week.
Of those 2.7 cents, 2 cents will be used to address DWP's failure in previous years to collect a large enough ECAF to offset fluctuations in the price of oil and natural gas and pay for renewable energy sources, Hamilton said.
The remaining .7 cents is the portion of the ECAF that has been dubbed the carbon reduction surcharge.
DWP Interim General Manager S. David Freeman said Thursday that DWP is "losing about $6 million a week" by "undercollecting" on ECAF.
DWP Board President Lee Alpert said during the same hearing that an increase was necessary to prevent a bond rating downgrade in the DWP's ECAF account which could potentially cost the city $70-$80 million in additional interest payments.
Hamilton projected the revenue that would be generated by adding 2 cents per kWh to DWP customers' monthly bills would bring in $480 million – 8 percent of which would go to the city.
"[DWP] is permitted by the Charter – not required – to remit 8 percent of its revenue," Hamilton said. "As far as I know, that practice will continue."
DWP's remittance to the city this year is about $250 million. Despite that, the city still faces a deficit of about $685 million over the next 14 months.
Hamilton denied allegations made by Councilman Dennis Zine that the ECAF increase is a "hidden tax."
"I don't believe this is a hidden tax," Hamilton said. "In fact, part of this whole initiative is to make it very clear where the money is going in a very transparent process. This will show up as a line item on a customer bill and there is a proposed ratepayer advocate who would be based in the City Controller's office."
The carbon reduction surcharge is expected to generate $168 million which would be deposited into an Energy Efficiency and Renewable Trust Fund dubbed the "lockbox."
Hamilton said it will pay for a feed-in tariff program that would let owners of homes and businesses with rooftop solar panels sell electricity directly to the DWP at a guaranteed price for a set period of time.
"In most cases, businesses can dramatically reduce or even eliminate their power bills," Hamilton said. "And in some cases, businesses can even use the feed-in tariff to make money."
Other uses of the carbon reduction surcharge are still being decided, according to Hamilton. Villaraigosa previously said the money would be used to train workers to retrofit homes and businesses to make them more energy efficient. He estimated the programs would create 18,000 jobs over a decade.
The 2.7 cents per kWh increase in the ECAF will be implemented incrementally, DWP spokesman Joe Ramallo said.
DWP customers' bills will go up 0.8 cents per kWH in April, July and October, and by .3 cents per kWh in January – until the ECAF reaches 7.79 cents per kWh.
Once all the increases have kicked in, Tier 1 customers – who make up 55-60 percent of all the DWP's customers – will be charged an extra $2.50-$3.50 a month, Hamilton said.
Tier 2 customers will see their monthly bills go up $11-$16 while Tier 3 customers should expect an increase of $52-$65, she added.
Hamilton said businesses will face a significant hike of 21-26 percent in their monthly bills unless they take steps to become more energy efficient.
"Obviously, we recognize that [rate hike] could be difficult for some businesses," Hamilton said.
"The objective of this whole initiative is not to charge more, it's to use less, which is why we're dedicating 100 percent of the carbon reduction surcharge to renewable energy and energy efficiency and we're offering homeowners and businesses alike the opportunity to participate in the feed-in tariff to offset their energy costs," Hamilton added.
Asked to respond to criticism from several council members that a recession is the worst time to increase DWP rates, Hamilton said "The position of the mayor is now is the time to invest in our future and in our green future."
She noted the DWP risked being fined at least $300 million within a few years if it fails to meet the targets set by state law for reducing greenhouse gas emissions.
"With state penalties for Assembly Bill 32 coming down the pike, [the mayor] would rather invest in our future now and see the return in L.A. in the form of green jobs and a cleaner, greener DWP and a cleaner, greener Los Angeles, [rather] than pay money to Sacramento and see zero return on our money," Hamilton said.
Villaraigosa has set his own targets: renewable energy should make up 20 percent of the DWP portfolio by the end of this year, and 40 percent by 2020. He also wants the city to be coal-free by 2020.