Under orders to slash their water use in the fourth year of a statewide drought, Los Angeles residents and businesses have largely risen to the challenge.
But this week, Los Angeles Department of Water and Power officials said that because its customers have done such a good job saving, the agency is short on revenue.
To help fill in the gap, the Board of Water and Power Commissioners approved a pass-through charge that will require an average customer to pay about $1.80 more a month, beginning in 2016.
“We have no other way of recovering the revenue to maintain the system for our customers,” Neil Guglielmo, director of budget, rates and financial planning for the DWP, said Wednesday.
The DWP fell about $111 million short of its revenue projection in the fiscal year that closed this summer, in part because Los Angeles residents and businesses reduced their water consumption about 10% more than expected, officials said.
The 18 billion gallons of unsold water left the utility about $57 million in the hole. Officials say they need that money — about $380 million in total — to cover “fixed costs” such as pipe repairs, aqueduct maintenance and continued operation of water-treatment facilities. A city ordinance allows the utility to recover those costs from customers using a so-called water revenue adjustment factor.
Guglielmo emphasized that even with the rate adjustment, the average water-conscious customer is still saving money: about $3.26 each month compared with fiscal year 2013-14. Back then, officials say, customers were using more water each month and paying for the added use.
“If they’ve conserved, they’re still going to save on their bill,” Guglielmo said.
The water agency has used its adjustment tool periodically since it was established in 1993 after another California drought. The commissioners last approved an adjustment in 2011, which took effect the following calendar year.
The DWP is not the only water agency to struggle with revenue shortages tied to conservation. Some water districts want to double their basic service charge. Others have implemented “drought surcharges” to help cover costs.
“When sales go down, you can end up in the red,” Ellen Hanak, director of the Water Policy Center of the Public Policy Institute of California, said in a previous interview. “It can be tricky in the near term.”
Heather Cooley, water program director of the Pacific Institute, said that even when demand for water decreases (as it has in L.A.), a utility’s fixed costs usually remain about the same. Those costs are then spread out among fewer units of water, making each gallon more expensive, even as a customer’s overall water bill goes down.
FOR THE RECORD:
DWP bills: In the Oct. 22 California section, an article about a planned rate increase for Los Angeles water customers quoted Pacific Institute water program director Heather Cooley as saying that the per-unit cost of water can rise when demand declines because a utility’s operations and maintenance costs remain about the same and must be spread out across fewer units. Cooley referred to fixed costs in general.
That paradox can be difficult for customers to “wrap their heads around,” Cooley said in a recent interview. “Then it becomes a problem of communication.”
Guglielmo said he and his team are constantly adjusting their revenue targets for future years and building conservation into their projections. It’s impossible to know for sure whether an adjustment will be necessary next year, but, Guglielmo said, “We hope we don’t have to use it.”
The 3.6% adjustment approved Tuesday expires at the end of 2016. But DWP officials have spent much of the last year advocating for a much broader rate hike, which would change how customers are charged for water and increase a typical residential customer’s bill by about 3.4% each year for five years.
On Wednesday, DWP officials sent an email to customers promoting two online videos that make the case for the five-year rate hike. The videos have been part of the utility’s presentation to Angelenos since the summer.
The first explains the need to upgrade the city’s power infrastructure, while the second lays out the details of the rate proposal. By the end of the year, DWP representatives expect to have participated in 45 community presentations on the rate hikes.
Officials are expected to bring the five-year plan before the board by mid-December. It would require additional approvals before it could take effect as early as next spring.
In a statement, the DWP urged its customers to share the videos online using the hashtag #LADWP, but a search of #LADWP posts shows Angelenos complaining about power outages — and the recent pass-through water charge.
“#LADWP hikes rates because they aren’t making enough revenue. We’re saving water like we’re supposed to,” one user tweeted. “U mad? I am.”