Proposed budget cuts spending by $263 million while investing over $1.5 billion in infrastructure improvements
LOS ANGELES (June 7, 2010)— Los Angeles Department of Water and Power General Manager Austin Beutner will present the LADWP’s Proposed Fiscal Year 2010-11 Budget to the Los Angeles City Council tomorrow, Tuesday June 8th at approximately 10 AM in Council Chambers at Los Angeles City Hall. The proposed budget focuses on the core business of providing reliable, safe water and power to the City’s 4 million-plus population, ensuring regulatory compliance, improved customer service, and reduced spending in non-critical areas.
Last Tuesday, Mr. Beutner presented a proposed $4.2 billion budget to the Board of Water and Power Commissioners that forecasts approximately $3.3 billion in power revenues and $900 million in water revenues for FY 2010-11. The proposed budget projects about $3.74 billion in total expenses, which is scaled back by $263 million in cost reductions and deferred spending identified over the past four weeks since the Department budget was discussed by the City Council Budget & Finance Committee. View the proposed summary financial statement.
“A budget is foremost a statement of priorities and resources available to use for them. The $263 million in cuts and deferrals identified over the past month and included in this budget are strong first steps toward operating more efficiently, while making needed investments in our infrastructure,” said Mr. Beutner.
“This budget emphasizes strategic priorities, including reliability and regulatory compliance for both water and power,” Mr. Beutner said. “It also calls for a renewed focus on customer services – expanding online interactive services, increasing conservation programs to help customers save money, and simplifying LADWP bills and billing structures.”
To improve transparency and accountability of the Department, Mr. Beutner has called for an ongoing Business, Operations and Financial Review throughout FY 2010-11 with the goal of reducing costs. The reviews will cover all business processes and operations including real estate, customer service, contracting practices, risk management, renewable energy investment, balance sheet, working capital and cash management, and information systems. In conjunction with the City Controller’s Office, the Department is proceeding with creation of a ratepayer advocate.
“It is our hope to ameliorate the need for any increases by looking very, very carefully at what resources we already have to finance the critical investments that must be made to ensure continued reliable water and power services and meet pending regulations,” Mr. Beutner said.
Mr. Beutner pointed out that of the $3.74 billion in planned expenses, about $1.5 billion is for existing purchased power contacts (including coal power and renewable energy), purchased fuel (such as natural gas), and purchased water (about 50 percent of the city’s water is purchased from the Metropolitan Water District of Southern California)—all of which are costs that are already defined by contract or set by third parties. Over $1.8 billion is for LADWP-controlled costs such as labor, materials, depreciation payments and interest payments. Labor represents about half of those costs, or just 23% of the total budget.
To upgrade infrastructure for reliability purposes and to meet energy-related and water quality regulations, LADWP must make significant capital investments.
On the power side, LADWP will spend about $1 billion for capital projects. To improve reliability, LADWP is systematically replacing aging or overloaded distribution infrastructure, such as power poles, transformers, circuits, and underground cables and related electrical equipment.
In terms of regulatory requirements, considerable funds are budgeted to repower several in-basin natural gas generating units. These projects are necessary to meet local air quality rules for reducing NOX emissions, and new regional water quality rules for reducing ocean water cooling of power plants.
On the water side, $568 million in capital investments are allocated to meet stringent water quality requirements, such as eliminating or covering the city’s remaining open-air reservoirs and converting the water disinfectant from chlorine to chloramines to improve water quality. Capital investments are also needed to continue upgrading the city’s aging water distribution system, replacing mains and trunk lines, pumping stations, treatment plants and other infrastructure.
With an ongoing water shortage facing the city and state, LADWP will continue investing in sustainable water supply strategies, but is undertaking a strategic review of these programs to determine future milestones based upon available revenue. These include recycled water projects, water conservation and rebate programs, stormwater capture and groundwater cleanup projects to enhance the local water supply.
To minimize the impact on ratepayers, LADWP has identified $189 million in cost reductions, such as a hiring freeze on all noncritical positions and cancelling low-priority projects. An additional $74 million in spending has been deferred to future years.
The proposed budget does not contemplate any base rate increases for electricity or water use. However, it includes a 5 percent increase in the Energy Cost Adjustment Factor (ECAF) approved by the City Council in April. ECAF is a component of the electricity rate that primarily funds renewable energy and energy efficiency initiatives as well as fluctuating fuel costs, such as coal and natural gas.
The 0.6 cents per kilowatt-hour ECAF increase becomes effective July 1, 2010. Future ECAF increases—currently limited to 0.1 cents per kilowatt-hour under an existing cap—are being reviewed as part of the Power System Long-Term Strategic Plan, expected to be presented to the Board later this month.
LADWP also forecasts the need to increase various water charges of 4 to 6 percent for Tier 1 residential customers, up to 8 to 10 percent for Tier 2 customers and 8 percent for business customers, to cover the costs of infrastructure improvements and water quality requirements. The forecast increases are preliminary and are being reviewed as part of the Water System Long Range plan, which will be presented to the Board later in June.
To provide greater transparency and openness in its budget review, the budget presentation is posted on the Department’s website. Customers can also submit questions and comments on the budget online. A simple, easy to understand presentation of the Proposed Budget is viewable by visiting www.ladwpnews.com and looking under the “Hot Topics” section. Comments and questions can be submitted by choosing “Submit Inquiry” under the “Contact Us” tab.
Members of the City’s Neighborhood Councils can access the same information on the LADWP”s dedicated news and information site for Neighborhood Council’s at www.ladwpneighborhoodnews.com and submit questions and comments by selecting “Submit Inquiry” under the “Your Inquiries/Comments” tab.
Briefings will be held for the City Council, Neighborhood Councils, and business groups, as well as regional budget presentations for residential and commercial ratepayers.
Regional Outreach meetings are scheduled as follows:
In addition, a briefing for business customers and local chambers of commerce was held earlier today and was attended by over 50 representatives of local Chambers of Commerce and Business Customers.
Following the public outreach, officials will submit the final budget to the Board for approval on June 15.