Councilmember Herb Wesson, Chair Rules, Elections & Intergovernmental Relations Committee Los Angeles City Council 200 North Spring Street, Room 340 Los Angeles, California 90012 CC: Mayor Eric Garcetti Los Angeles City Council City Controller Ron Galperin Dear Committee Members: Thank you for the opportunity to comment on Councilmember Fuentes’ motion to restructure LADWP’s governance. Green LA is a coalition of advocacy organizations based in the City of Los Angeles. We have worked with LADWP for over a decade on the advancement of safe, reliable, and affordable water and power service. While we agree that the current structure could benefit from some reform, we urge you to oppose the specific efforts to remove or limit city council and mayoral oversight. The proposed motion as currently drafted would put unelected officials in charge of policy decisions undermining our democratic process. Policy decisions such as efficiency, resiliency, and equity require a fresh look by leaders that represent voters. For instance, Mayor Garcetti set LA on a path to transform our city’s water portfolio into a resilient one that can withstand long-term droughts and climate change. And, in the prior administration, Mayor Villaraigosa and the Council embraced these policies as they moved LADWP away from coal in 2013. Without democratic representation, we are not able to secure our institutions evolve or hold elected officials accountable when they do not respond to voter interests. The proposed motion would remove the oversight that ensures necessary checks and balances. Decision-making without proper oversight too often results in unaccounted for and wasted resources. For instance, the still unaccounted for $40 million spent on training and safety left a veil of distrust over DWP management. And, the years of over- billing due to a poorly-vetted billing software led to the waste of millions of dollars in legal fees. While we believe that lessons have been learned and could be remedied in the future by reform, we do not believe the proposed motion does an adequate job of doing so. Rather, the proposed motion does just the opposite of what it claims. For instance the following instances would decrease, not increase, oversight and transparency by: exempting the DWP board from City Council approval of potentially costly decisions like land acquisition and debt issuance; removing ratemaking oversight from the City Council; exempting the DWP board form City Council oversight of franchises, concessions, permits, licenses and leases, and sales of water; and, authorizing the board to hire independent legal counsel and budget/policy advisors that do not necessarily represent the City’s interest. Given the costly decisions for infrastructure improvements ahead, we do not trust the “interference-free” and “streamlined” approach proposed by the motion. Those approaches led to short-sighted and costly mistakes like the one Bay Area voters are paying for today. Due to a lack of oversight, the $6.4 billion San Francisco-Oakland Bay Bridge retrofit will require hundreds of millions dollars more, two years after completion, to retrofit again now that CalTrans has considered sea level rise impacts. Democratic oversight is the best way to ensure that every LA resident has access to safe, reliable, and affordable water and power service. Decisions that directly impact ratepayers today and for generations to come should be vetted transparently, with full public debate, by elected officials. While there is certainly room for improvement, the best way to make necessary changes is through more city council oversight and coordination among city departments, not less. Sincerely, Charming Evelyn, Chair, Water Committee - Sierra Club Angeles Chapter Claire Robinson, Managing Director, Amigos de los Rios Brenna Norton, Senior Organizer, Food & Water Watch Comments REIGN Agenda No. 1–CF16-0093 LADWP Governance and Pending CF 15-0148 Joint Powers Authority for Water Financing There is a rush for a Ballot Measure not properly vetted. We ask you postpone any decision until the Public, Taxpayers and Ratepayers are fully informed of the complexities, other than those presented. This Public Utility is an Enterprise operation under the City of Los Angeles, its Charter and its lawmaking. There is no State jurisdiction or other entity with direct control, yet a Mark-Roos Bond Pooling Act Joint Powers Authority JPA has been authorized by AB 850. Board of Water and Power Commissioners approved a Southern California Public Water Authority JPA (Board Resolution Nos. 015 151 and 015 068). Draft Ordinance is under consideration by the Council (CF15-0148). Currently, the utility is reported as an Enterprise Fund under the two Financial Statements: Power System (Power Revenue Fund) Water System (Water Revenue Fund) Joint Powers Authority (Mark-Roos) is a separate entity authorized to issue bonds and is also liable to lawsuits. It would be considered a Reporting Entity for financial reporting purposes for the Water System. Your areas of concern in the motion are: BOARD: The part-time, voluntary nature of the Board of Water and Power Commissioners (Board) limits oversight of utility operations. CITY HALL: DWP must report to multiple City entities, resulting in decentralized authority and inefficiency; Board actions - including ratemaking - would no longer require City Council approval unless the City Council asserts jurisdiction. OVERSIGHT: Board has limited access to independent analysis of Department proposals. PERSONNEL: The Department is unable to hire quickly and fill key positions with qualified personnel. TRANSFER: The Department's annual transfer to the City General Fund continues to increase. These areas of concern still places the entity as part of the City of Los Angeles and would not change financial reporting and indebtedness limits. The JPA would, however, change control of assets and place a parcel tax on property owners, outside of the rate structure and the Office of Public Accountability. This cost would not be assessed through the rate process and could be contradictory to the Capistrano Taxpayers Association opinion (G048969). There is a burden of proof of showing that agency had complied with the requirement water fees not exceed the cost of service attributable to a parcel. AB 850 Assembly Floor Analysis Report states; LADWP is seeking this financing structure because it qualifies for a higher bond- rating (AAA) than other types of financing available to the utility, thereby reducing interest rates and financing costs and, ultimately, rates for its customers. LADWP argues that a JPA is necessary because rate reduction bonds require a special tariff that is dedicated as a secured asset to the rate reduction bondholders. LADWP states that, like other municipal water utilities with outstanding revenue bonds, it is limited in its ability to pledge a portion of its revenues only to the rate reduction bondholders. A JPA charging the special tariff would not have such restrictions. In addition, the rate reduction bond issuer must be bankruptcy remote from the municipal water utility collecting the special tariff. An entity that is separate from the municipal water utility (such as a JPA) must issue the rate reduction bonds in order to meet this requirement. AB 850 states: The security for repayment of the bonds (the asset) takes the form of a non- bypassable, dedicated special tariff that would be collected by the participating water utility on behalf of the JPA as a separate line item on water utility customers’ bills. This places, in question, the burden of proof. Is the agency LADWP or the JPA, not yet in existence? Funding for the JPA is not yet identified. Does the JPA have the right, under Proposition 218, for billing on the utility customers’ bills though AB 850 states otherwise? Will the Proposition 218 procedures and requirements be recognized by the parcel owners? AB 850 requires: California Pollution Control Financing Authority to establish procedures for the expeditious review of a proposed issuance, including, but not limited to, the establishment of reasonable application fees to reimburse the California Pollution Control Financing Authority for costs incurred, as specified The review determination procedures established by the California Pollution Control Financing Authority CPCFA states: An issue is qualified if four main factors are satisfied. First, the project to be financed must meet statutory criteria. The second criterion requires that the municipal utility elects to finance the project pursuant to the statute. The third criterion states that the financing costs shall fall within the normal range of costs for comparable types of debt issuance. Lastly, the rates of the utility plus new charge are collectively expected to be lower than the utility rates would be if the project was financed through the issuance of the utility’s own revenue bonds. Though interest rates are expected to be lower, application fees to the CPFCA are $10,000 (non-refundable). No source of funds are yet recognized. With this law and adopted regulations, the Board of Water and Power Commissioners no longer have the Powers and Duties stated in the Charter for Water Assets for the benefit of the City when a JPA has control. As the Charter reads currently: Sec. 672. Possession, Management and Control of Water and Power Assets. The Board of Water and Power Commissioners shall have the possession, management and control of: (a) Water and Water Rights, Lands, and Facilities. Whether situated inside or outside of the City or the State of California, all the water and water rights of the Los Angeles River, all other water or water rights of every nature and kind owned or controlled by the City, and all the lands, rights-of-way, sites, facilities and property used for the capture, transportation, distribution and delivery of water for the benefit of the City, its inhabitants and its customers. The water and water rights, lands, rights-of-way, sites, facilities and other interests of the City related to its water business under the possession, management and control of the board shall be known as the Water Assets.