Los Angeles Water Utility Backs Bill to Create New Bond Mechanism

LOS ANGELES — A bill to enable the Los Angeles Department of Water and Power and other California public water utilities to issue project-specific bonds through a joint powers authority is moving through the state legislature.

Assembly Bill 850, by Assemblyman Adrin Nazarian, D-Los Angeles, is aimed at helping public water utilities to fund projects mandated by environmental laws.

If it passes, the law would allow LADWP to use an external joint powers authority to do bond issuances, said Phil Leiber, LADWP’s chief financial officer.

The benefits are that the bonds would be able to achieve a Triple-A rating, because operations risks rating agencies evaluate for utility revenue bonds would not be a consideration, Leiber said.

LADWP’s revenue bonds have double-A-minus and double-A ratings across the board for power and water, respectively.

Higher ratings by issuing bonds through an external authority mean the bonds could secure interest-rate savings and maintain reserves at one times versus the two times coverage typically required, Leiber said.

The savings means more money could be used for the long list of environmentally-mandated projects LADWP has in its long-range plan on the water side.

“This approach could save our ratepayers a significant amount of money,” Leiber said. “It could save 3% to 5% using this approach.”

The approach has been used in the past for investor-owned utilities, Leiber added.

“They used the bonds to reduce the rates,” he said. “In our case, the entity would be issuing bonds for specific projects  -- the mandated projects related to water quality and conservation.”

The JPA would actually levy rates to customers. They would show up as a separate line item on customer’s bills. The money would then be collected by LADWP for the JPA to make bond payments. The JPA would then turn over the proceeds to the water utility to fund the project the money was earmarked for.

The bill passed the Assembly on May 9 in a 72-0 vote. It is slated to be heard in the Senate Governance and Finance Committee on June 26, Nazarian said in an email.

“We are beginning the conversations in the Senate and will be working to garner the same bipartisan support that the bill has received in the Assembly,” Nazarian said.

The assemblyman said he authored the bill to address water contamination issues in his San Fernando Valley district.

“Los Angeles has embarked on a sustainability plan to increase its local water supply, decrease its reliance on imported water, and address the significant challenges of groundwater contamination,” Nazarian said. “To put this in perspective, 50% of the city’s wells are no longer in use due to contamination.”

This has increased the city’s reliance on imported water through the Bay Delta and has increased the cost of water to Los Angeles residents.

The bill was limited to groundwater clean-up, which is why it only applies to municipal water utilities, he said.

“Water is our focus; if there are other instances where such a financing mechanism is needed, then we are happy to look into it,” Nazarian said.

As the sponsor of the bill, LADWP has spoken to the utility’s ratepayer advocate about the legislation, and the mayor and city council, Leiber said.

LADWP’s capital plan on the power side will cost $7.8 billion on the power side and involve issuing about $5 billion in bonds over the next several years.

On the water side, the capital budget is about $3.5 billion for the next several years, of which about two-thirds will be bond-financed.

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