Class-Action Suit Calls DWP Rate Hike an Illegal Tax

Five Los Angeles residents filed a class-action lawsuit Thursday against the city Department of Water and Power, seeking to block a recent water rate increase as an illegal tax and to have the agency refund $800 million to ratepayers.

State Sen. Richard Alarcon (D-Sun Valley), a candidate for mayor, brought some of the plaintiffs together for a news conference to announce that attorneys have filed the suit in Los Angeles County Superior Court against the DWP, Mayor James K. Hahn and the City Council.

The lawsuit alleges that the city engaged in fraud, saying that the DWP, since 2000, has transferred $800 million in what it claimed was surplus revenue to the city general fund, but has borrowed $1 billion in long-term debt.

The legal action seeks to prohibit the DWP from transferring money to the general fund while the agency still has debt, to force the return of the $800 million already transferred and to refund that amount to ratepayers.

In addition, the lawsuit challenges the legality of the 11% water rate increase that took effect in June, alleging that the nearly $60 million expected to be raised by it is close to the amount the DWP recently transferred to the general fund to close a budget deficit.

“This is a hidden tax,” said Frank Jacobs of Sylmar, one of the plaintiffs. “You are not going to get by with this thing. We are going to fight this thing both tooth and nail.”

Harry M. Nakada, 80, a North Hollywood resident, said he joined the lawsuit because he believed the city misled ratepayers by saying the increase was necessary to cover the cost of homeland security efforts.

“They have to come and say the right thing and be honest with the people,” said Nakada, who said the rate hike was especially harmful to the nursery business from which he retired.

Soledad Alatorre, 80, of Pacoima lives on a fixed income and said she could not afford to pay 11% more for water. “A raise of 11% for something we need very badly -- that’s not fair,” she said.

City officials said they have been transferring surplus DWP revenue to the general fund since the early 1900s because the municipal utility operates for the benefit of the city and its taxpayers.

The City Charter allows the annual transfer, which this year totaled $238 million, as long as it involves surplus funds. This year’s amount includes an additional $60-million transfer because the city general fund, which pays for police and fire services, faced a huge deficit.

Deputy Mayor Julie Wong said the transfer was cleared by the city attorney’s office, and she denied there was a link between the 11% water rate hike and the supplemental transfer to the general fund. That transfer, she said, came from a separate account with revenue from the power system.

“This is just a political stunt to get attention,” Wong said, adding that Alarcon had supported previous DWP transfers. “This is something that Richard Alarcon himself voted for when he was on the City Council because he understood it makes financial sense for the city. If he is serious about this, why doesn’t he sue himself?”

Alarcon was a city councilman before his election to the state Senate in 1998, but he said Thursday that none of his past votes to approve DWP transfers included a supplemental transfer such as the $60 million this year.

The state senator acknowledged he planned to make the challenge to the water rate increase a major issue in the mayoral race but insisted that did not take away from the seriousness of the claims of the plaintiffs in the lawsuit.

“It is political. There is no question about it, but the plaintiffs’ case is real,” Alarcon said. “I will use it in a campaign because I believe the rates should be rolled back.”