City officials and Los Angeles’s power company are sparring over big increases in electricity rates that the utility says it needs to pay for a push into renewable energy.
So far, the city council is balking at the requests. But both sides agree the utility will need more revenue, making some substantial increases likely later this year.
Los Angeles’s case could serve as a warning to officials in other cities and states who are also trying to change the energy mix of local utilities, substituting more power from renewable sources, such as wind and sun, for power from coal- or gas-burning plants.
The Los Angeles Department of Water and Power, the nation’s largest municipal utility, says it needs to collect significantly more money to manage costs associated with an ambitious plan to get more electricity from renewable resources and less from coal.
The utility currently gets about half of its power from coal, an unusually large amount for a utility in California, a state with no significant coal deposits.
The city’s goal is to get 20% of its electricity from green sources by the end of the year, which it is on track to achieve. It hopes to raise that to 35% to 40% by 2020.
Renewable power from sources such as wind turbines and solar farms, however, is considerably more costly than the coal-based electricity it replaces.
The city council had authorized the utility to raise rates 5%, or 0.6 cents a kilowatt hour, on April 1. That plan dissolved Thursday, when the utility’s board instead moved to impose an increase of about 5.7% and was halted by the city council, postponing any action for three months.
Jan Perry, a city council member who is chairwoman of an energy subcommittee, said the appointed utility board “overplayed its hand” in thinking it could ignore the wishes of the city’s elected officials.
Other council members accused the utility of extortion for threatening to withhold a $73 million payment to the city, which is running a deep deficit, until the department gets a satisfactory rate increase.
A looming revenue shortfall at the Los Angeles utility prompted its board last month to demand a double-digit increase of 2.7 cents a kilowatt hour this year, broken into several increases.
The budget crunch stems from lingering effects of high fuel costs two years ago and, more recently, increased purchases of renewable energy. The utility has been unable to charge customers the full amount of its rising costs because the city council has capped rates.
“The utility needs to raise rates. The mayor’s main concern is to make sure the citizens get something back for it, like cleaner energy and green jobs,” said Sarah Hamilton, press secretary for Mayor Antonio Villaraigosa.
Many businesses oppose rate increases in a weak economy. On Tuesday, the city council heard objections from residents and business owners. A representative of brewer Anheuser-Busch InBev NV, for example, indicated the rate increase could cost it up to $2 million a year.
Others said the city’s goal to generate green jobs was undercut by high electricity prices that would drive businesses from the city.
“We’re going to lose a lot of jobs,” warned Councilman Greig Smith. “And this proposal doesn’t shut down a single coal plant.”