A city-mandated independent financial review of the Los Angeles Department of Water and Power (LADWP) last week supported the utility’s contention it needs new natural gas and renewable energy surcharges as well as permanent new retail water rates. The report prepared by the Barrington-Wellesley Group (BWG) will be considered by the LADWP five-member oversight board when it meets Tuesday.

As part of its proposal and the review, LADWP said its budget for buying natural gas this year is likely to see an overrun of more than $100 million. And in addition to this latest third-party review, the city-run utility next month will receive another outside review of the reliability of its energy infrastructure that is expected to lead to several new investments in the system.

Proposed rate changes have required some third-party, independent verification, according to the Los Angeles City Council. The council’s Chief Legislative Analyst’s office and the city’s chief administrative officer retained BWG, which submitted its report last Wednesday.

BWG confirmed that LADWP should create a natural gas surcharge to offset high natural gas costs to run its gas-fired generation plants in the Los Angeles Basin and a similar but separate surcharge to cover “marginally higher costs of clean, renewable energy and transmission expansions.” It also said the utility will require water rate hikes this summer and next summer of 3.9% and 3.5%, respectively.

LADWP General Manager Ronald Deaton said the utility “concurs” with the BWG report’s findings, saying that the $3 billion utility supports the need for water and power revenue increases, but he also agreed that LADWP needs to “work rigorously to minimize costs.”

Tuesday’s presentation of the report to the Board of Water and Power commissioners will officially kick off a 90-day period in which neighborhood councils and other stakeholders throughout the city will get a chance to review the proposals and file input.

LADWP has saved customers nearly $90 million over the past two years due to successful implementation of a financial hedging program and timely acquisition of natural gas fields, Deaton said. “However, a natural gas surcharge is still needed to maintain the power system’s financial integrity,” he said. “We estimate that this year’s cost of natural gas will exceed the current budget by nearly $100 million.”

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