SAN FRANCISCO — A disagreement between Los Angeles Mayor Antonio Villaraigosa and City Council members over the size of an electric rate increase at the city utility turned into a standoff last week — meaning there will be no rate increase at all for now.
The management at the Los Angeles Department of Water and Power — overseen by a mayor-appointed board — had been seeking to change a quarterly cost-adjustment formula in a way that would have increased rates by 22% over the next year.
Villaraigosa said the rate increases were central to his plans to increase the utility’s use of renewable energy while preserving its double-A-minus level ratings.
But the mayor and LADWP hit a roadblock at the City Council, with most members expressing skepticism over the need for such rate increases amid complaints from businesses and voters.
The council last week exercised its rights to block the utility’s rate adjustments, with a narrow majority voting Tuesday to accept a 4.5% rate increase, or 0.6 cents per kilowatt-hour, that would have taken effect Thursday, the first day of the new quarter.
But Villaraigosa’s LADWP board, meeting Monday afternoon, voted to impose a slightly larger increase of 0.7 cents per kilowatt-hour.
The City Council promptly convened to veto the 0.7-cent increase, leaving the department with no rate increase whatsoever and no chance to implement one before the next quarter begins July 1.
Council President Eric Garcetti told KABC-TV the council had made a final determination of what rate increase it would accept and the utility ignored it.
“We said what we would vote for and they didn’t vote that through,” he said.
Other council members said LADWP had come nowhere near justifying such a large rate increase in the middle of a recession. “The DWP months and months ago should have been making its case,” Councilman Paul Krekorian told KABC. “If there was any justification for this kind of an increase, they could have made that case to the public. They chose not to do so.”
The department has been planning to sell about $700 million of electric revenue bonds this month. It was unclear Thursday what would happen to that deal after the rate-increase standoff.
The rating agencies all affirmed double-A-minus level ratings and stable outlooks in advance of that deal. But they indicated they are paying attention to rate issues.
“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 Investors Service wrote in its analysis of its Aa3 rating affirmation.
“Timely rate recovery and support of needed rate increases by the community and regulatory body (City Council) will be key drivers for the rating,” Fitch Ratings wrote in its affirmation of the utility’s AA-minus rating.