Secession Foes Cite Utility Bills

Helen Dalton often winces when she opens the water and power bill for her lushly landscaped home on half an acre in Sherman Oaks. The charge for the latest two-month period was $300.

Hotter months have sent her bill into the $500 neighborhood.

Dalton, a retiree on a fixed income, plans to vote against San Fernando Valley secession--in part because she worries that a municipal split would bring higher and higher utility rates. “It’s a concern,” she said.

As the debate over carving up Los Angeles enters its final month, the anti-secession campaign led by Mayor James K. Hahn is intent on making water and power rates a breakout pocketbook issue. Secessionists are just as determined to paint Hahn as a fear-monger who distorts the facts on utility rates to distract attention from City Hall’s broader shortcomings.

Both sides know that water and power pack a punch with voters still jittery from the state’s electricity crisis and forever sweating the next drought.

The message of the Hahn forces is stark: If the Valley and Hollywood cityhood proposals win at the polls on Nov. 5, residents of the new municipalities could lose the relatively stable rates and plentiful supplies offered by the Los Angeles Department of Water and Power. Sprinkling the lawn and cranking up the air conditioner would soon become expensive luxuries.

Secessionists contend that Hahn has grossly misrepresented the state-mandated terms of a breakup. They note that the Local Agency Formation Commission, which approved both cityhood measures for the ballot, has directed the DWP to continue serving an independent Valley or Hollywood at rates no higher than those charged in Los Angeles.

Under LAFCO’s formula, the DWP would become a contractor for the new cities, unless they chose to buy their water and power from other providers.

“I see no chance that we would not get water on the same terms and conditions as the rest of the city,” said Richard Close, an attorney who heads the secession group Valley VOTE.

Question of Authority

The anti-secession camp, however, insists that LAFCO overstepped its authority by including that utility-rate provision in the secession proposals. Hahn and other Los Angeles officials say the state Constitution and the City Charter give the DWP sole power to set rates. And opponents argue that the laws require the DWP to provide the cheapest possible service to its Los Angeles customers, even if that means higher costs for Valley and Hollywood cities.

They say it already costs more to serve the Valley, which has generally larger home lots and higher temperatures than the rest of the city, placing more demand on the DWP.

Legal challenges over utility rates are considered likely if secession prevails. LAFCO itself has suggested the courts might have to resolve the matter.

“It’s absolutely inevitable that it will end up in court,” said Steve Erie, a water expert and political science professor at UC San Diego.

Water originally brought the Valley and Los Angeles together. In 1915, the Valley agreed to be annexed by Los Angeles in exchange for access to the then-2-year-old Los Angeles Aqueduct. The aqueduct piped snowmelt from the eastern Sierra to the parched Valley floor, irrigating farms and later making possible the explosion in home building.

Secession leaders say that the Valley is now entitled to future DWP service at reasonable rates because the region has paid its share of building the utility’s infrastructure for 87 years. The secessionists initially demanded that an independent Valley get an ownership stake in the DWP, but LAFCO rejected that arrangement as unworkable.

The agency determined that, unlike streets and parks and city buildings, the DWP’s massive generation and delivery systems are too complex to divide up between Los Angeles and the Valley, not to mention Hollywood.

LAFCO decided that Los Angeles would continue to own the system, but could not jack up rates for the Valley or Hollywood if secession passes.

The DWP already provides water by contract to other cities and communities, including West Hollywood and Universal City, but charges them higher rates. That’s because the DWP acts as a middle agent for those cities, buying supplies from the Metropolitan Water District and delivering them on Los Angeles-owned pipelines. MWD water costs as much as 25% more than water from the L.A. Aqueduct, and the DWP passes those higher rates along.

Contract Arrangement

Anti-secessionists say the DWP could demand a similar arrangement with a new Valley or Hollywood city. That would mean steeper bills in the breakaway areas.

“I can’t see the DWP violating the City Charter and selling its cheapest water to an outside agency, such as a Valley city,” said Larry Levine, who heads the anti-secession organization One Los Angeles.

Hahn echoed that view. “We don’t think LAFCO has the ability to supersede water law or the City Charter,” the mayor said.

“We think if our cost goes up, we ought to be able to recover the cost.... There is a risk. Why take the chance of higher water and higher power rates?”

The City Charter says Los Angeles’ water rights cannot be sold, leased or disposed of without the approval of two-thirds of the voters, according to a former DWP attorney, Kenneth Downey. He said a simple majority vote on secession does not supersede that requirement.

Former DWP General Manager S. David Freeman, now the state’s power czar, said Los Angeles is also unlikely to give the Valley or Hollywood the cheapest electricity the utility generates, which comes from its hydroelectric plants. Instead, the DWP would probably sell the secession areas more expensive power from inefficient, gas-fired plants, Freeman said.

“It’s against human nature” to do otherwise, he said.

Fight for Business

Competition could play a role in stabilizing water prices. A Valley or Hollywood city could look elsewhere for water and power--to private utilities, for example--if the rate ceilings the commission imposed on the DWP were thrown out by the courts.

Secessionists say that would give Los Angeles a financial incentive not to raise rates for the breakaway cities.

“The city of Los Angeles needs the Valley as customers,” Close said. “It’s like Ralphs saying they don’t need 40% of their customers. They would be shutting down stores if they said that.”

Hahn concedes that Los Angeles would be hurt if the secession regions ditched the DWP. But he adds that such a scenario is another argument against a breakup, because rates would rise for DWP customers in a smaller Los Angeles.

“Clearly there are economies of scale, so if a significant customer base was removed somehow, those costs would have to be absorbed, and the only way I can see that is if we pass higher rates for the remaining customers,” Hahn said.

In the state’s recent energy crisis, the DWP was able to supply relatively cheap power and avoid the market gyrations and blackouts that afflicted other parts of California.

Citing that experience, Hahn said it is unlikely that Valley and Hollywood residents would want to turn to private utilities, such as Southern California Edison, because the deregulated rates of those utilities are much higher than the DWP’s.

Secessionists, though, say the new cities would be free to negotiate lower electricity rates.

And some cities in Los Angeles County already get better water prices than those charged by the DWP. A 2001 survey by the engineering firm Black & Veatch Corp. found that DWP’s residential customers were billed an average of $29.88 a month. In comparison, Long Beach averaged $27.28; Redondo Beach, $23.68; Santa Monica, $23.64; and Pasadena, $13.73.

Santa Monica got 82% of its water from MWD and Pasadena received 60%.

Phyllis Currie, a former DWP official who heads the Pasadena utility, said its low maintenance costs have kept prices low. Los Angeles ratepayers must subsidize costly DWP improvements.

Gerald Gewe, who oversees the water side of the DWP, said other cities can charge less because they have access to cheaper groundwater supplies. He said the groundwater under the Valley is owned by Los Angeles, and a Valley city would have to build a water collection and distribution system if it went somewhere other than to the DWP for water. That would increase rates, Gewe said.

Hahn and DWP General Manager David Wiggs said they have no plans to raise water and power rates as a knee-jerk reaction to secession. But they predicted that major rate-paying institutions, such as large businesses and colleges, might force the issue.

“If rates go up for customers because of secession, I think it would be very likely that customers who believe their rights are jeopardized will seek their legal remedies in court,” Hahn said.

One factor that could trigger a court fight, city officials say, is that the current rate structure allows Valley properties to use more water before they exceed the threshold for basic rates and are charged higher prices. A decade ago, the DWP adjusted rates to allow more water use by customers who live in areas with higher temperatures, including the Valley.

Wiggs says that rate-relief formula might be challenged if the Valley becomes a separate city. “I certainly think that is an issue that can be and probably would be raised by customers,” Wiggs said.

The result, he added, could be higher rates in the Valley.

Another wild card is whether the new cities would move to charge the DWP a franchise fee for providing them water. Wiggs said Los Angeles would have to determine if such a fee should be paid by ratepayers only in the secession areas or in the remainder of Los Angeles.

Lawsuit Doubted

But Richard Katz, co-chairman of the Valley Independence Committee, said secessionists have no plans to impose a franchise fee. He also expressed doubts that major DWP customers would sue over rate equity.

“That would only happen if the DWP was out there stirring things up,” said Katz, who serves on the state Water Resources Control Board.

He dismissed the anti-secession rhetoric on utility rates as “scare tactics.”

“Aside from all the lawyers arguing about everything,” Katz said, “once the city is created, a lot of this rhetoric goes away. Because the bottom line is the cities will cooperate more than fight.”