DWP Bombshell: Poor Subsidize the Rich

Residents hit with soaring power rates while biggest customers get up to 40% discounts

An uproar erupted last week when Los Angeles Unified officials complained that the Department of Water and Power refused to extend its 10-year-old discount on electricity -- a 5 percent subsidy that has saved the school district more than $2 million a year.

But the truth is much more shocking.

In fact, LAUSD is among an elite group of DWP's 30 biggest customers that have been getting the 5 percent discount since the late 1990s -- a loss of revenue that amounts to subsidies of tens of millions of dollars that have been paid for by residential and other small customers.

And even that is only a fraction of the subsidy going to LAUSD and many other big consumers of electricity. DWP General Manager David Nahai admits in a letter to School Board Member Tamar Galatzan that the actual subsidy to the LAUSD and other large customers is far higher. "LAUSD is currently underpaying by roughly 30 to 40 percent because it consumes virtually all its power during peak periods when electricity costs are highest," Nahai wrote.

That would put the total subsidy to LAUSD as high as $16 million a year or more than $150 million over the last decade. While LAUSD is the biggest consumer of electricity, other big customers presumably use most of their electricity during peak hours and thus the 5 percent discounts are really much greater.

To his credit, Nahai told the DWP board on Tuesday that he intends to eliminate the 5 percent discounts to major customers as their long-term contracts expire. The contracts were written at a time when deregulation seemed imminent and the utility was locking up its biggest customers from the threat of competitors.

The disclosure comes at a time when the DWP is in the middle of a four-year series of rate hikes that will add nearly 25 percent to customers' bills, and that doesn't count pass-through rate hikes for power being bought at premium prices from Mexico, Utah and Oregon.

The subsidies fly in the face of the "full cost recovery" policy adopted by Mayor Antonio Villaraigosa and the City Council will they ended free residential garbage pickup and imposed a series of trash fee hikes.

How far city leaders intend to go in carrying out that policy with regards to major electricity consumers remains to be seen. So far, they have  lacked the political will to impose congestion pricing measures to relieve traffic congestion so it's doubtful they will push -very hard to make DWP's biggest customers pay the full costs of the electricity they consume.

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