LA Dept. of Water & Power System Revenue Bonds Summary

This section begins after introductory notions including the introduction, finance plan, summary of board officers/positions, managers, etc.  Under the heading of “employees,” the text summarizes the employment conditions of department employees.  The data is accurate as of the end of 2016, with the department consisting of nearly two thousand full time water system employees with an additional near four thousand employees who support, on a shared basis, both the water and power systems (p. 15).  The organization of the department is divided into fourteen management positions with wages set by the city council and the existence of bargaining units.  The text also discusses ten memoranda entered into with the IBEW (International Brotherhood of Electrical Workers” which is valid through the end of September, 2017.  The vast majority (some ninety percent) of workers are represented by IBEW.  A source of potential conflict is changes to the department pension program, which is being challenged by the Coalition of L.A. City unions, though the department and city intend on defending themselves against the challenge brought by the coalition against the end of that agreement.  Furthermore, the department is presently negotiating an extension to the memorandum it has with the Service Employees International Union, Security Union, to avoid a work stoppage in the coming years.

Next, the text discusses the benefits and financial impact/organization of benefits on the department.  All employees are covered by retirement, disability, and death benefit insurance plans (pp. 15-16).  The assumed rate of investment returns on the retirement plan have decreased (beginning around 2010) from eight percent to seven-and-a-quarter percent, with the department’s required contribution as a payroll percent increasing to a little more than forty-five percent over that period of time, though the expectation is that a significant amount of the additional required contributions will be recovered through pass-through costs.  To go into greater detail on the matter, the actual contribution toward the retirement plan by the water system amounted to a little over a hundred and eighteen million for FY ending 16, and has adopted GASB (Governmental accounting standards board) provisions as of July 2013 for its financial statements.  The last actuarial valuation and review of the retirement plan, completed after that provision was implemented, placed the market value of the assets in the retirement plan at a little over ten billion, with as much as about three-hundred-fifty million in unrecognized investment losses.  As a matter of reorganizing retirement benefits, the board approved (at the beginning of 2014) a new retirement plan called tier 2, with a reduction in benefits and an increase in employee contribution to the plan.  This should result in a projected savings of nearly eight hundred-eighty million over the next thirty years based on assumed rates of investment return.

Within the benefits section of the text, additional post employment benefits are discussed.  These include healthcare benefits for active and retired employees along with their dependents.  These costs are shared by the Water and Power Systems, with the water system usually covering about thirty three percent of healthcare costs (p. 17).  But contributions from the power system are also increasing.  The market value of these assets was valued at about one and three-quarter billion, with about sixty million in unrecognized investment losses.  Similar to the retirement plans, tier 2 healthcare plans were initiated which provide reduced benefits and increased contributions from employees, which estimate to generate savings of about a hundred and thirty-six million over the next thirty years.  More GASB statements will be effective beginning in 2017-18 financial statements.  At the present time, however, a full evaluation is not complete so it is somewhat uncertain as to the effects these will have on water system financial statements moving forward.

In brief, the text next mentions that in the past, it was regarded as lawful for the City Council to direct a transfer of surplus funds in the Water revenue fund to the city’s reserve fund.  This practice was regarded as fair and lawful so long as the board consented (p. 18).  However, the Los Angeles County Superior Court recently ruled this as unconstitutional.  As such, no such transfers have occurred since FY 2005-06.

Next, the text goes on to discuss the department’s insurance program.  It consists of a combination of commercial and self-insurance policies.  The role of the commercial liability plans are for both wildfire and non-wildfire losses, and three million of self-insured retention.  Claims under three million belong to the department’s self-insurance plan, which presently has a balance of nearly twenty three million, with annual reviews in place to adjust as necessary (p. 19).  Further commercial plans include coverage for all risk property on a replacement cost basis: damage to buildings, structures, equipment, etc., with a loss limit of five hundred million in a single policy year.  There is not earthquake damage insurance, but the department has an arrangement with FEMA that allows it to be eligible for reimbursement from FEMA in the event of losses or damages from earthquakes.  Similarly, there is not coverage for physical plant damage or loss due to terrorism or war.  Yet the purchase of a TRIEA endorsement (Terrorism Limits and Terrorism Risk Insurance Extension Act of 2005) will help cover losses resulting from those types of activities when the Secretary of the U.S. Treasury certifies an act as meeting the definitions of terrorism as defined by TRIEA.  This can cover up to a hundred billion in losses.  Naturally, all of these plans and other initiatives are reviewed continuously so that modifications can be made as necessary.

Next, the text discusses investment policy and controls.  The majority of the water system funds are held in the water revenue fund, where the investments are managed by the city treasurer (p. 20).  The goal of the fund is fairly boilerplate: to preserve principal value, ensure investment consistency with liquidity needs, and to achieve maximum yield.  The water fund is part of a city pool of investments, all managed by the treasurer of the city.

Water Rates (pp. 22-30)

The next major heading in the text explains water rates.  Rates themselves are set by the board and approved by the City council.  Rates are intended to be uniform for equitable classes of citizens/customers (p. 22).  The actual structure of the rates changes, with the most recent structure enacted in March of 2016 (and included increased rates for a variety of customer classes) over a period going to 2020.  Base rates and pass-through adjustments serve to provide funding for quality projects and infrastructure investments (for purposes of remaining compliant and maintaining necessary infrastructure).  Pass-through adjustments are determined by the board on an annual or semiannual basis, and the water rate ordinance includes such adjustments as:

• Water supply cost adjustment (to recover costs of purchasing water)

• Water quality improvement adjustment (to recover costs of equalizing water quality)

• Base rate revenue target adjustment (to collect additional revenue based on consumption)

• Owens Valley regulatory adjustment (to recover capital and operating/maintenance costs of the Owens Lake Dust Mitigation Program)

• The low income subsidy adjustment (designed to recover credit costs provided to low income customers)

• Water infrastructure adjustment (to recover capital costs of specific investments and improve reliability of distribution systems)

• Water expanse stabilization adjustment (to maintain funds to help stabilize rates)

Of late, costs of water purchased have increase by about eighteen percent.  But overall rates decreased by a little more than half a percent, which was the result of conservation programs throughout the city and state.

This section also discusses the procedures in place for changes to the water rate ordinance.  These are initiated by board resolution, and like before, are subject to city council approbation (pp. 24-25).  It is also subject to proposition 218, where majority protest would prevent increases and neighborhood councils are also empowered to review any such changes in rates.  These procedures are in place to help maintain control, as the board’s authority to impose and collect rates is not subject to the jurisdiction of the CPUC (California Public Utilities Commission) or any state agency.

Billings and collections are also discussed here.  Commercial customers are billed monthly, residential bi-monthly.  Pricewatherhouse Coopers recently provided a new billing system but it was implemented insufficiently, resulting in a variety of difficulties in billing customers (p. 28).  Collection practices in 2014 were adjusted to account for past due balances due to the insufficiency of the new billing system, and customer payments decreased during this time as a result.  Setting aside the problems encountered due to those challenges, the department typically fails to collect on a little more than half a percent of its billed customers’ amounts due, and increased when the billing problems surfaced.  A new customer information and billing system was implemented and consultants are kept on retainer to ensure functionality.

The Water System (pp. 30-35)

The text then moves on to discuss the actual water system.  Given the city’s location in a semi-arid religion with little native water, the water system is an essential component of the city’s growth (p. 30).  The city itself took ownership of the water works system in 1902.  The aqueduct system is similarly old, having been first constructed in 1907 (finishing in 1913) with water from the Owens Valley lands.  Water diversion began to occur in 1940 and the aqueduct was expanded.  A second aqueduct project was launched in 1970.

Recent events are also chronicled here, which have an impact on the LA aqueduct system.  In March of 2017, a state of emergency was declared in response to possible flooding that could occur due to record snowpacks in the Sierra Nevadas which began to melt (p. 31).  Further, due to the unprecedented melt and water flow, it was expected that as much as two hundred thousand acre-feet of water should be transferred to Metropolitan.  

Metropolitan plays a major role in water distribution and supply in the area.  It was originally formed in the 1920s when Los Angeles and other Southern California cities formed it to be the major supplier of all its members (including the city).  The member agencies of the Metropolitan purchase water and have it delivered via the Colorado River aqueduct (constructed in 1941).  The initial State Water Project was approved in 1960, with a one and three quarter billion bond issue to help support the project (pp. 31-32).  The project is a five hundred and fifty mile water delivery system that is owned by the state.

As far as the distribution system, it has managed to meet the increased demands for domestic, commercial and fire-fighting water supply.  A little more than seven thousand miles of water mains and trunk lines help connect the system to these diverse clients, with more than sixty thousand fire hydrants, and more than seven hundred thousand customer connections and meters.  Ranges in elevation require the area to be divided into different pressure zones.

As noted previously, given the fact that Los Angeles is a highly populated area but without much of a native water supply, good water management requires effective water storage to assist in conservation.  The system has almost a hundred and thirty storage tanks and reservoirs, ranging significantly in size.  At their smallest they are ten thousand gallons, at their largest they are sixty billion gallons.  The text provides a useful table which provides elevation, gallons in millions, and acre-feet for the different major reservoirs and tanks located throughout the state.  Crowley lake aqueduct reservoir is by far the largest, with more than a hundred and eighty-three thousand acre-feet and nearly sixty billion gallons in storage capacity.

In addition to water distribution and water storage, another essential component of the department’s activities is in water treatment (p. 32).  Water treatment is important not only for regulatory compliance but for public health and service delivery.  The department owns and operates multiple treatment facilities that help with filtration for drinking water to ensure that what is provided to the public for consumption is safe.  

In addition to treatment by filtration, the department also uses disinfection measures, and has since the early 1930s (p. 34).  Across forty plus water treatment facilities, there are at least twenty chlorination and eight ammoniation treatment facilities which address both surface and groundwater supplies of water.  

Groundwater treatment in particular has been difficult.  Unaddressed contamination has negatively affected local well fields across several basins, and TCE and PCE contamination were found (p. 34).  Treatment facilities were built in the wake of these discovers in the early eighties, to help remove volatile organic compounds from the water.  The department continues to plan for wellhead and centralized treatment to help in the removal of contaminated groundwater.

Corrosion control has also received attention.  The EPA regulates the amount of lead and copper in drinking water, so the department made corrosion control stations (p. 34).  They minimize corrosively of water by reducing mineral (lead, copper, and iron) leaching into the water for the entire West LA area.

Finally, the departments water system infrastructure also helps manage fluoridation.  There are seven fluoridation facilities to treat the water supplies to ensure they meet fluoridation regulations establish by the CA DPH (California Department of Public health).  These efforts began in 2007 and continue to today.

Works Cited.

“$530,270,000: Department of Water and Power of the City of Los Angeles, Water System Revenue Bonds, 2017 Series A”. nd. [.pdf file].