How are LADWP rates determined?

The LADWP rates are established to recover the costs of providing electricity and power to Los Angeles residents. There are three basic categories of costs: (1) the cost for LADWP to generate or acquire water and power; (2) the capital costs of the infrastructure (e.g., power lines and substations; water mains and water lines) that bring electricity and water to customers; and (3) operations and maintenance (O&M) costs. For FY2017-18, the LADWP Power System had a $4 billion budget; only $1.5 billion was for fuel and purchased power; the Water System had a $1.45 billion budget; only $114 million was for water purchases. The infrastructure and O&M costs are relatively constant and don’t change much even if people use less water and power. This is one reason why, even as you use high-efficiency appliances, electronics, and lights, there isn’t always a corresponding and proportionate reduction in your LADWP bill. The LADWP electric rate structure is quite complex. A complete explanation can be found on the LADWP website 

Concerning water rates, the cost of purchased water makes up only a relatively small portion of your water bill. The rate for water is set by several factors including the source of the water, your average consumption, and the particular season. Unfortunately, one of the long-term effects of climate change is that the amount of precipitation we receive here in Los Angeles or from the Owens Valley will be more variable. This means we cannot be lulled into a sense of water abundance based on a few years of rain after a fairly lengthy drought.

Although solid waste and sewer charges appear on your LADWP bill, those services are provided by the Department of Works Bureau of Sanitation (Sanitation). Under the California Constitution, enacted by Proposition 218, the City’s solid waste and sewer charges may not exceed the actual cost of providing each service. Until 2003, the City paid for the cost of solid waste collection from the General Fund rather than user fees.

The Sewer Service Charge (SSC) is based on metered water usage, the same meter for general water usage. The SSC has several planned rate increases over the next few years to accommodate inflation and generate funds for constructing and maintaining waste infrastructure and facilities around the city. The charge uses a single base rate which is multiplied by the number of days in the billing period and average daily sewage volume. The average daily sewage volume also incorporates a figure called the Dry Winter Compensation Factor (DWCF). The DWCF accounts for the prior winter’s rainy season. You can read more about the rate calculation, find ways to lower your charge, and find other resources to mitigate the SSC on the flyer LA Sanitation sends annually or with this link. The City adopted a new SSC ordinance in 2012. More than three-fourths of the additional revenue generated by that rate adjustment is going to maintain and expand the capital improvement program. Moreover, this is an area where stronger environmental regulations increase the cost of providing sewage services. 

Because the Bureau of Sanitation does not provide solid waste collection to apartment buildings and condominiums with more than four units, this meant that residents of multi-family buildings were subsidizing single-family homes, which was one reason the City shifted to fully funding solid waste collection through user fees. Both the City and State have enacted requirements that Los Angeles substantially reduce the amount of waste it sends to landfills. These waste reduction and recycling programs cost more. I believe these environmental goals, including the need to support recycling and organics separation.