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LADWP Power Rate Proposal Cost Reduction Report

LADWP Power Rate Proposal Cost Reduction Report

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Published by Bill Rosendahl

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Published by: Bill Rosendahl on Aug 28, 2012
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11/06/2013

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CITY OF LOS ANGELES
CALIFORNIA
August 23, 2012The Honorable Members of the Los Angeles City CouncilCity HallLos Angeles,
CA
90012Honorable Members:Please find attached the
Los Angeles Department
of
Water and Power (LADWP)
-
Power System Financial Review and Rate Restructuring Analysis
report. TheFinancial Review was prepared
in
accordance to Council Action,
of
April
8,
2011,instructing the City Administrative Officer (CAO) and the Chief Legislative Analyst (CLA)to conduct
an
independent third party review
of
the LADWP's RevenueRequirements/Rate Restructure and Rate Action proposals (CF#10-0475-S7).
On
December
2,
2011, the City Council also instructed the CAO and the CLA to include anassessment
of
cost reduction options as part
of
the Financial Review (CF#1 0-04 75-SB).The Office of Public Accountability (OPA) was included as a joint administrator of theReview upon the establishment of the Office. PA Consulting Group (PA) prepared theFinancial Review through a contractual agreement through the CAO/CLA and the OPA.The objective of the Financial Review
of
the LADWP's power system rate and raterestructuring proposal
is
to
ensure that the financial interests
of
the City residents areprotected by conducting a rigorous analysis
of
the financial condition
of
the LADWP,major cost drivers and the impact
on
the ratepayers. Furthermore, the goal is to providegreater transparency, comprehension and confidence of each of these elements prior toconsideration
of
a proposal by the City's decision making bodies.Please note that PA's Review provides the following key findings and recommendations:
Power Rate Proposal:
The LADWP's increasing revenue requirements are driven by regulations, powersystem reliability needs, and credit rating considerations.To address these needs
in
the short-term, the LADWP's proposed 5.5% averageannual two-year rate increase is determined to be reasonable and warranted.The surcharge-based restructuring approach of the two-year rate increase shouldbe revisited
in
two years' time and be replaced with fully restructured permanentrates once legal considerations allow.
 
.Cost Reduction Assessment:
In
2011, the LADWP launched a 3-year cost reduction plan and has met orexceeded its first year objectives through the implementation of a hiring freeze,eliminating vacancies, reducing overtime costs, refinancing debt and increasedcollections.Achieving operational cost containment will help mitigate significant future rateincreases. Many of the transformational changes cannot occur withoutrenegotiating the existing labor contracts. The existing labor contracts expire
in
approximately two years.
In
conducting the Financial Review, every attempt was made to ensure theindependence
of
PA from the LADWP. Information was provided and verified by theLADWP. PA was tasked with reviewing information, comparing LADWP to other utilitiesand developing their own analysis and conclusions. The PA scope
of
work wasestablished independently by the CAO/CLA and
OPA
Our Offices limited our interactionwithPA to clarification of information, formatting, contract compliance and the checking
of
logic. PA was not directed
in
the formulation of conclusions and/or recommendations.Sincerely,
4-J;~
Migu~l
A Santana
~
City Administrative Officer
c;;:z~tJO.P
Frederick
H.
PickelOffice
of
Public Accountability/Ratepayer Advocate
F..
MillerChief egislative AnalystCC: Honorable Mayor Antonio
R.
VillaraigosaHonorable Board
of
Water and Power CommissionersRonald
0.
Nichols, LADWP General Manager
 
 
Los Angeles Department of Water and Power Power System Financial Review and RateRestructuring Analysis
Prepared for the Office of Public Accountability (OPA), Chief Legislative Analyst and the City Administrative Officer (CAO) of theCity of Los Angeles August 23, 2012

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