LOS ANGELES — Los Angeles Department of Water and Power commissioners have passed an electric rate increase that lays the groundwork for issuing more than $2 billion in revenue bonds.
Commissioners approved the increase, which will be phased in over two years, on Wednesday.
The electric rate hike, which will be 5.5% for residential customers and 11% for commercial customers, now heads to the Los Angeles City Council’s energy and environment committee for a hearing next Wednesday.
If the council approves the rate increases, they would take effect later this year.
“It is never easy to raise our customers’ rates, but the department has made the case that these investments are needed to comply with legal mandates and to invest in replacing aging infrastructure,” Thomas Sayles, president of the DWP board, said in a statement.
The rate hike would increase revenues by $168 million over the next two years enabling LADWP to issue $1.1 billion in new debt in fiscal 2013 and $1.2 billion in new debt in fiscal 2014, according to the financial plan presented to the board.
The department, which has $6.3 billion in existing long-term debt on the power side, doesn’t plan to issue any new debt this year to pay for power improvements, according to the financial plan.
The board also agreed with LADWP general manager Ron Nichols’ decision to defer action on a proposed 5% water rate increase that would have taken effect in July 2013 to allow time for the city’s independent ratepayer advocate, Fred Pickel, to further review the proposal.
LADWP already implemented a water rate increase of 4.6% in March, which gives the department breathing room until the additional water rate increase could be implemented in July 2013, if it’s approved.
The utility issued $414 million of water system revenue bonds in two tranches on Aug. 9. Wells Fargo Securities priced the $322 million of Series B bonds and Siebert Brandford Shank & Co. priced the $92.7 million Series C. The water bonds are rated Aa2 by Moody’s Investors Service and AA by both Standard & Poor’s and Fitch Ratings.
LADWP also plans to issue $557.7 million in long-term debt in fiscal 2013 to pay for water system improvements, which include $162.2 million to replace aging water pipes that have an average age of 100 years, according to the financial plan. If it does issue that debt, it would increase the department’s overall long-term debt to $4.02 billion by fiscal 2014 on the water side.
The report issued by Pickel, the ratepayer advocate appointed earlier this year, confirmed that rakes hikes are needed. He also credited the utility for cutting costs and made recommendations for cuts beyond the immediate two-year rate period to achieve reductions in future rate increases.
LADWP has been working on a variety of efforts aimed at switching the city’s power generation to wind, solar and other methods of generating power to meet a goal of 33% renewable energy by 2010, according to officials.
Those efforts, combined with conservation efforts, should also help the city transition away from its dependence on coal when the contracts for coal power expire. The department also has been working to eliminate the use of ocean water cooling at its coastal power plants.
“We need to aggressively invest in replacing aging poles, transformers, wires, cables and cross-arms, as well as build new power distributing stations and repair old ones,” Aram Benyamin, LADWP senior assistant general manager for power, said in a statement.
“This increase will allow us to make a significant investment in reducing our current backlog of repairs to maintain the outstanding power reliability our customers expect and deserve.”