DWP Chief Makes Case for Rate Hikes

Residents who came to the Sherman Oaks Homeowners Association meeting Thursday to give an earful to Ron Nichols—head of the city’s Department of Water and Power—over proposed water and electric rate hikes, instead got an earful from him.

Nichols, DWP general manager for the past 10 months, listed state and federal requirements, looming time deadlines, aging pipes and environmental mandates that are costing the DWP billions of dollars.

“We’re going through some absolutely unprecedented changes,” he said, “the vast majority of which are outside of our control. ... All those things are driving our costs.”

Rate increases of about 5 percent annually for electricity and water over the next three years originally proposed for Nov. 1 this year are on hold until a ratepayer advocate is appointed, perhaps as soon as January, to review the proposed increases, he said.

Among the cost drivers is the federal government, Nichols explained, which requires water reservoirs be covered. Los Angeles has more open reservoirs than any other city. Five have been covered so far and five more remain, he said.

To meet federal air quality requirements Los Angeles reduced by half the amount of water it withdraws from Owens Lake in Inyo County to limit the amount of dust kicked up when the water evaporates. That and other dust-reduction requirements have cost the utility $1 billion over the last decade, he said.

The city’s own aging infrastructure also imposes costs. The city has 7,200 miles of water pipes, some of them 100 years old, yet replaces only 18 to 25 miles of pipe yearly.

“You do the math,” Nichols said. “That’s about 300 to 400 years to replace them. Pipes don’t last 300 to 400 years.”

As a result, city crews repair about three or four broken pipes daily, he said.

On the power side, the city has three natural gas-fired plants that pull in seawater for cooling, which the federal government has banned because of the negative impact on marine life. The city must build new power units at a cost of $2.2 billion with a 2029 deadline, Nichols said.

Federal environmental regulations banning coal-fired power plants would end Los Angeles’ arrangements with the Navajo Plant in Arizona and the Intermountain Power Facility in Utah when those contracts expire and bring additional costs.

Meanwhile, the state wants utilities to receive 30 percent of their energy from renewable energy by 2020 and also requires utilities to provide rebates to homeowners for solar energy projects. For DWP, the rebates come to $30 million annually. Another $800 million yearly is spent on replacing utility poles some of which are 50 to 70 years old, Nichols said.

Despite this litany, a questioner at Thursday’s SOHA meeting asked why water rates were going up even with successful conservation efforts to reduce consumption.

“If you weren’t doing conservation, we would be buying more water from MWD [Metropolitan Water District of Southern California] and your rates would be higher,” Nichols said.

“I know it’s hard to stand, cutting back and cutting back,” he added, “but the answer is, [without conservation] your rates would be higher yet.”

Before heading DWP, Nichols spent 35 years in the energy and water utility industry, specializing in developing and financing utility infrastructures and systems. In California he brought new electricity contracts to help solve the state’s 2000-2001 energy crisis and, in 2007, assisted in evaluating how carbon levels and electricity costs could be reduced statewide and in the West using energy efficiencies and renewable energy.