SAN FRANCISCO – The Los Angeles City Council unexpectedly shot down Mayor Antonio Villaraigosa’s plan to raise electricity prices to fund city electric utility’s transition to renewable energy late Friday.
The Los Angeles Department of Water and Power, the nation’s largest municipal utility, hopes to raise rates by 22% over the next year and by more than 37% by 2012, but the council voted to reject the increases after The Bond Buyer’s deadline Friday.
Villaraigosa pushed hard for the hikes, saying they were essential to preserve the LADWP’s credit ratings as it spends billions to increase the renewable power in its electricity portfolio. Several council members said they’ll eventually have to hike rates, but the council was miffed that the mayor and LADWP ignored the council’s request for alternatives to the department’s rate hike request.
“We’re not saying we reject the possibility of any increase,” said council President Eric Garcetti. “We’re saying that the package as it is today should not move forward.”
The council plans to consider the matter again tomorrow and has asked the LADWP board to schedule a meeting to address its concerns before it approves the rate hikes.
Council members are under pressure to reject hikes from residents who faced a jobless rate of 14.5% and local businesses that said the proposal would cost jobs.
The utility wants to implement the 22% rate hike in four steps over the next year. The proposal would raise $648 million a year in revenue, including $168 million for a new Renewable Energy and Efficiency Trust Fund funded by a carbon reduction surcharge.
The department management said in council hearings this week that they also planned annual increases through 2014 that would raise rates 37% from current levels.
Villaraigosa enlisted Gov. Arnold Schwarzenegger, former Vice President Al Gore, and environmental groups to lobby for the electricity price increases. Villaraigosa has been a chief proponent of the city’s drive to get 20% of its power from renewable energy by the end of this year and 40%, with no coal, by 2020.
Villaraigosa attacked the council vote.
“Today the majority of the City Council, led by the council president and president pro tempore, took a major step backwards in our efforts to move away from the City’s over-dependence on dirty fossil fuels,” Villaraigosa said in a statement.
The rate hikes will allow the utility, which has about $5.1 billion of power revenue bonds outstanding, to spend less reserves to fund its ambitious capital program than previously planned.
Fitch Ratings and Standard & Poor’s earlier this month affirmed their AA-minus rating on the power system’s revenue bonds ahead of a $720 million bond issue. Moody’s Investors Service affirmed its Aa3 rating on the debt.
All three agencies noted the utility’s need to raise rates to maintain its current ratings.
“Rating pressure could develop should upcoming rate changes test customer tolerance for higher rates and management actions then affect LADWP's financial metrics,” Moody’s said in its report. Fitch called the rate hike a “positive credit development.”
Villaraigosa and the LADWP warned that failure to impose the rate increases would harm both the utility and the city’s general fund. The utility says it cannot afford to make a $73.5 million transfer to help the general fund this year without the rate increase.
