I. EXECUTIVE SUMMARY
The Mayor's Blue Ribbon Committee on Water Rates was appointed to develop a water
rate structure that is equitable and promotes conservation, water recycling, and improved water
quality. The quality of the water delivered should be consistent throughout the City. Therefore, the
Department of Water and Power must continue to improve the infrastructure to achieve this goal.
The Committee, in response to strong public sentiment, felt that it was important to create
rates which did not penalize those customers who conserve during a water shortage. The new
structure has been designed to focus the increases on those who are consuming more than 175%
of the water used by a typical home. Those who consume more than this level will pay a higher
rate which is set at the marginal cost of water.
The new rate structure causes the marginal or higher block usage to be priced at the true
cost of acquiring and delivering additional water. Thus, the customer is informed that if they use
water excessively they must be willing to pay the cost per unit of adding new supplies.
The new structure effectively encourages residential customers not to use significantly
more water than a typical home. It also encourages.commercial and industrial customers not to
exceed 125% of their winter usage in the five peak summer months. The net result of the new
structure is that 71% of the residential customers and 65% of the commercial/industrial customers
will see a reduction in their average annual bill assuming that they maintain their current level of
A wide range of problems regarding the complexity of the bill were expressed during the
Committee's public hearings. The new structure will result in a bill that is easy to understand.
There will be no fixed minimum monthly charge, no monthly charge based on the size of one's
water meter, no inexplicable "WECA" or "LISA" charges, etc. The Committee determined that it
was unreasonable to expect customers to react to the economic message in the water bill when the
bill itself is so complex.
The elimination of the fixed monthly minimums and fixed meter charges improves the
equity of the bills, but requires the Department of Water and Power to improve its usage
forecasting. The Department must expand its long range planning capabilities to avoid future water
shortages and to better estimate the cost of alternative supplies. However, the need for automatic
rate adjustments due to revenue fluctuations is a reality. The proposed cost adjustments are
permitted only for water purchases and items approved by the Board of Water and Power
Commissioners in the specially defined areas of water conservation, reclamation projects, and
water quality. Any such projects require the Proposition 5 review process by the City Council. The
new structure addresses the need for stabilized revenue, improved equity and conservation
messages, and Council oversight of cost changes.
The proposed rate structure should ensure that necessary investments in improving and
equalizing water quality throughout the city are made. Presently, some of the older sections of the
city receive what is commonly referred to as "brown water". No City residents in these areas or
any other should have to personally take actions to improve their water.
The new rates are shown below in comparison to the current rate structure. Both structures
generate the same amount of revenue for the Department of Water and Power, but the new rates, in
addition to being lower for most customers, will also fund a much more inclusive definition of
Blue Ribbon Committee on Water Rates
Volume of water sold. This problem is accentuated by the need to buy additional water from the
Metropolitan Water District (MWD). This water costs the Department much more per gallon than
water from its own sources. However, this increased cost per unit has translated into a public
outcry over the issue of raising rates at the same time customers are being asked to conserve.
A third problem with the current rate structure is that the subsidized classes (low income
and lifeline) are unjustifiably restricted to single family homes. In the evolving demographics of
our city, those who would otherwise qualify for and receive these benefits reside more and more in
The old rate structure subsidized the equity classes by allowing them to purchase some
water at a discount. However, in order to fully receive the benefit, the customer would need to use
at least 9 billing units. Under the recommended structure, a flat credit would be given without
requiring that the customer waste water in order to receive the full benefit The price per billing unit
for these customers would be the same as the price for all other customers in the residential class -
they simply receive a fixed monthly reduction to satisfy the equity concerns. Thus, these
customers will have the same incentive to conserve as all other ratepayers.
The Committee found the present low income subsidy to be unjustifiably low. The new
rate proposal would raise the subsidy from a maximum of $2.00 each month to $5.00 per month
for most families. The new rates for the first time in City history will also take into account the
residential density when determining the subsidy. Low income customers with over three residents
can have their monthly credit increased $1.00 for each additional resident up to a total subsidy of
The use of the water bill as the basis for qualifying for low income and lifeline programs
precluded the possibility of providing the benefits of either of these two programs to those who are
arguably the most needy apartment tenants. With very few exceptions, apartments do not have
individual water meters. Under the proposed rate structure 160,000 apartment residents can
receive low income benefits, compared with a combined 60,000 single family customers who now
receive the low income or lifeline benefits. The subsidies to these new participants will appear as a
credit on their electric bill.
In the past, commercial and industrial users paid water bills that did not directly reflect their
actual use of water. If the proposed water rate structure is implemented, commercial and industrial
bills will directly track usage essentially requiring higher payments when business requires
higher water use and lower bills when business is down. With the elimination of the service
availability charge and implementation of the marginal cost summer charges, 65% of business
customers can expect lower bills, and most of those which do increase will go up less than 10%.
The following sections of this report outline the assignment given to the Committee, its
approach and activities, the general principles behind its recommendations, and a more definitive
discussion of its recommended rates. Special attention is paid to drought year rates and specific
rates are recommended for each water shortages ranging from 10 to 25 percent The transition to
these rates and how the City can avoid the problem of meeting conservation goals with basic rate
increases is also discussed.
Finally, the report lists several recommendations which are designed to improve the City's
long-term outlook for water, and future rate setting decisions. Among the most important
Committee is its strong endorsement of a water offset policy which will effectively require growth
to pay for growth. Development would be required to offset the increased water demand created
Blue Ribbon Committee on Water Rates
by their projects by installing conservation measures in public facilities, fund specific conservation
programs, or underwrite recycling projects.
The Mayor's Blue Ribbon Committee on Water Rates held over 75 meetings, heard public
input from a wide variety of interested parties, listened to experts from all corners of the water
industry in California and several Western cities, and spent hours and hours considering alternative
approaches to the water rate problem. The resultant recommended rate structure, when taken with
our policy and planning recommendations will combine to assure the City of long term water at
reasonable prices. Failure to make the fundamental switch to forward looking rates could lead to
substantial future water problems if other municipalities are more progressive than Los Angeles.
The proposed rates are a starting point. They start the City on the same forward looking
road in water rates that it took in the mid-1970s for energy a road that has served it well in that
quarter. The Committee believes that as Los Angeles refines the general approach we have
recommended, it will have a much improved water outlook by the time the next Blue Ribbon
Committee investigates water rate structures in the 2005-2010 era.