ANTONIO R. VlLLARAlGOSA Mayo/'

December 7, 2011

The Honorable City Council City of Los Angeles Room 395, City Hall Los Angeles, California 90012

Dear Members: ·

Commission THOMAS S. SAYLES, Pres idenl

ERIC HOLOMAN, Vtce Pm ·idenr

RICHARD F. MOSS CHRlSTINA E. NOONAN JONATHAN PARFREY BARBARA E. MOSCHOS, Secreta!J"

RONALD 0 . NICHOLS Get1eral Manager

Subject: Proposed Water Quality Improvement Adjustment Factor and Associated Water Rate Ordinance Modifications.

Pursuant to Charter Section 676(a), enclosed for approval by your Honorable Body is Resolution No. 012-121, adopted by the Board of Water and Power Commissioners (Board) on December 6, 2011, approved as to form and legality by the City Attorney, which approves proposed Water Quality Improvement Adjustment Factor and Associated Water Rate Ordinance Modifications effective February 15, 201 2. As directed by the Board, transmitted to you are supporting documents.

If there are any questions regarding this item, please contact Ms. Winifred Yancy, Director of Local Government and Community Relations, at (213) 367-0025, or Mr. Jeffrey L. Peltola at (213) 367-1347 ..

Sincerely, ~

~~-~~~rr ~ :~~d Secretary

BEM:cr Enclosures: DWP Resolution

Board Letter

(Ordinance transmitted under sep~ate cover)

j. ! \1 (" . ') -j,. • t:

Water and Power Conservation ... a way of life 111 North Hope Street, Los Angeles, Californ ia 900 12-2607 Mailing address: Box 51 1 ll , Los Angeles 9005 1-5700

Telephone: (2 13) 367-42 11 Cable address: DEWAPOLA n~ Recyclal:«! and made hom 1et.)'ded waste 'CJ<;Y

c/enc: Mayor Antonio Villaraigosa Councilmember Jan C. Perry, Chair, Energy and the Environment Committee Gerry F. Miller, Chief Legislative Analyst Miguel A Santana, City Administrative Officer Rafael Prieto, Legislative Analyst, CLA William R. Koenig, Chief Administrative Analyst Winifred Yancy Jeffrey L. Peltola

WHEREAS, the Department of Water and Power of the City of Los Angeles (Department) desires to amend Water Rate Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, (Ordinance) to recover costs to comply with the increasing scope of Federal and State water quality mandates; and

WHEREAS, any proposed Ordinance modifications are to be effective February 15, 2012, or the earliest possible effective date thereafter; and

WHEREAS, the amendments to the Ordinance will include modifications to increase the current cap under Section 3.J. from $0.50 per Hundred Cubic Feet (HCF) to $0.85 per HCF, remove the $0.06 cap on the Water Quality Improvement Adjustment Factor (WQIAF) quarterly adjustments, and increase Schedule A, B, and C high season Second Tier base rates by $0.35 per HCF; and

WHEREAS, the modifications will allow collection of sufficient water revenues to commit to fund over $550 million in water quality projects required to comply with drinking water laws, and such projects are expected to be brought before the Board of Water and Power Commissioners (Board) for approval in the next twelve months; and

WHEREAS, the Department desires to comply with the Los Angeles City Council (Council) request to obtain the Council's approval for increased funding requirements prior to contractually committing to the expected water quality projects; and

WHEREAS, the Department desires to not enact broader rate restructuring until a full program of all Water System funding requirements and associated rate adjustments can be considered by the Ratepayer Advocate (RPA), which position is planned to be filled in early calendar year 2012; and

WHEREAS, the proposed water rate modifications associated with the Water Quality Improvement Adjustment Factor result in a 6% reduction in the system average rate for Fiscal Year 2011-12 from the prior Fiscal Year 2010-11 and would reduce the size of future rate increases, minimizing future rate impact to Department customers; and

WHEREAS, under the existing limitations in the Ordinance, the Department only collected $24 million in water quality revenues out of $159 million total needed to support water quality projects, resulting in a pass-through revenue collection shortfall; and

WHEREAS, with these rate modifications, the Department should be able to fund this revenue shortfall for water quality projects through bond markets, although a long term solution will have to be established during a multi-year water rate adjustment process; and

WHEREAS, the Ordinance modifications should result in annual average rate reductions in Fiscal Year 2011-12 from the prior Fiscal Year 2010-11 as a result of the large snowpack in the Eastern Sierra Mountains offsetting the need to purchase more expensive water from the Metropolitan Water District. Such rate reductions are in the amounts of 9.4% for typical residential customers with 12 HCF consumption, 7.2% for High Use single family customers with 24 HCF consumption, and 7.9% for Small Commercial customers with 100 HCF consumption; and

WHEREASJ in Fiscal Year 2012-13, the Ordinance modifications may increase average annual rates from Fiscal Year 2011-12 due to higher purchased water

. costs resulting from an average snowpack forecast. If the Department experiences an average snowpack this coming winter, such rates would increase in the amounts of 3.2% for typical residential customers with 12 HCF consumption, 3.0% for High Use single family customers with 24 HCF consumption, and 3.0% for small Commercial customers with 100 HCF consumption; and

WHEREAS, the Department has a Compliance Agreement with the US Environmental Protection Agency (USEPA) setting multiple non-negotiable deadlines to complete the covering of all Department open treated water reservoirs in accordance with the Long Term 2 Enhanced Water Treatment Rule, and the USEPA might subject the Department to multiple penalties in the amount of up to $25,000 per each instance per day for non-compliance; and

WHEREAS, beyond covering open treated water reservoirs, the Department is also subject to mandatory compliance with the water disinfection standards by April2014 under the USEPA Stage 2 Disinfectants and Disinfection Byproducts Rule; and

WHEREAS, the Department has conducted over 30 public meetings since June 4, 2011, to inform the public about water quality mandates and the associated costs facing the Department

NOW, THEREFORE, BE IT RESOLVED that the Board does consent that the Council adopt an ordinance after compliance with the procedures for new or increased fees and charges as set forth in California Constitution Article XIII D, Section 6, amending the Ordinance in words and figures as substantially follows, to wit:

' i . ~

ORDINANCE NO.---~--

An ordinance approving the amendment of rates previously fixed by the Department of Water and Power of the City of Los Angeles and charged for water distributed and for service supplied by the Department to its customers, by amending Ordinance No. 170435 approved by the City Council March 15, 1995, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802.

THE PEOPLE OF THE CITY OF LOS ANGELES DO ORDAIN AS FOLLOWS:

Section 1. That the rates to be charged and collected and the terms, provisions and conditions applicable for water and water service supplied by the Department of Water and Power of the City of Los Angeles to its customers for use within the Los Angeles Metropolitan area as fixed in Resolution No. ______ adopted by the Board of Water and Power Commissioners on are hereby approved. Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, is amended as follows:

Sec. 2. Paragraph b of Subdivision 3 of Subsection A of Section 2 of Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, is amended to read:

b. Second Tier Usage

Usage above the first tier usage block as prescribed 1n Section 2.A.3.a above shall be billed as follows:

Low Season

November 1 through May 31

High Season

June 1 through October 31

$2.690 and General Provision H, l, K, and L adjustments

$3.523 and General Provision H, I, K, and L adjustments

Sec. 3. Paragraph b of Subdivision 3 of Subsection B of Section 2 of Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, is amended to read:

b. Second Tier Usage

Usage above the first tier usage block as prescribed 1n Section 2.B.3.a above shall be billed as follows:

Sec. 5. Paragraph b of Subdivision 4 of Subsection G of Section 3 of Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, is deleted.

Sec. 6. Subsection J of Section 3 of Ordinance No. 170435, as amended by Ordinance No. 171639, Ordinance No. 173017, Ordinance No. 175964, Ordinance No. 177968, and Ordinance No. 179802, is amended to read:

J. ADJUSTMENT FACTOR LIMITATIONS

The sum of the Water Quality Improvement Adjustment Factor, the Water Security Factor, and the lesser of $0.088 per billing unit or the components of the Water Procurement Adjustment Factor for Demand Side Management and Reclaimed Water determined by the calculations provided in Sections 3.F, 3.G, and 3.1, excluding Sections 3.F.2.d, 3.F.3.1.c, 3.F.3.2.c, 3.G.2.b, 3.G.3.b, 3.1.2.b, and 3.1.3.b, shall not jointly exceed $0.85 per billing unit.

However, the limit of $0.85 per billing unit may be exceeded when the Board of Water and Power Commissioners adopts a resolution finding that a factor exceeding this limit is financially required, and the City Council, by resolution, approves the change. Any such increase shall become operative on the date of the City Council's approval. Substituting only the increased level of limitation, the Department may recalculate the existing Water Quality Improvement Adjustment Factor, Water Security Factor, and Water Procurement Adjustment Factor to take effect on the date of the City Council's approval even if that results in any of these factors being calculated and taking effect more than four times in a year.

Upon the effective date of any ordinance approving a change to the level of limitation described in this provision, substituting only the increased level of !imitation, the Department may recalculate the existing Water Quality Improvement Adjustment Factor, Water Security Factor, and Water Procurement Adjustment Factor to take effect on the effective date of said ordinance even if that results in any of these factors being calculated and taking effect more than four times in a year.

LOS ANGELES DEPARTMEt. OF WATER AND POWER (LADV\' , BOARD APPROVAL LETTER

[to: BOA~~W~~TER AND POWE_R __ COMMISSIONERS " DATE: ~~mber 10, 2011

I SUBJECT:

~~~-~~~~ ANN M. SANTiLLI

Interim Chief Financial Officer

Senior Assistant General Manager- Water System

CITY COUNCIL APPROVAL REQUIRED: Yes 00 NoD

PURPOSE

General Manager

IF YES, BY WHICH CITY CHARTER SECTION: 676(~)

Water Quality Improvement Adjustment Factor and Associated Water Rate

Ordinance Modifications

FOR COMMISSION OFFICE USE:

RESOLUTION NO.-------

Transmitted for your approval is a Resolution proposing modifications to Water Rate Ordinance No_ 170435, as amended, (Water Rate Ordinance) that wilt allow the LAOWP to continue to comply with all Federal and State water quality regulations and related deadlines. The modifications impact calculation of the the Water Quality Improvement Adjustment Factor. The modifications include increasing the current $0.50 per Hundred Cubic Feet (HCF), or one billing unit, limit within Section 3.J. of the Water Rate Ordinance to $0.85 per billing unit and deleting the quarterly limit of $0.06 per billing unit of the WQ IAF, effective February 15, 2012, or the earliest possible date thereafter.

NEED FOR IMMEDIATE RATE ACTION

LADWP is requesting this rate action immediately due to the following reasons:

,. This action will ensure that LADWP has sufficient revenues to initiate efforts to fund over $550 million of water quality projects needed to comply with drinking water laws_ These projects will be forwarded to the Board for approval during the next 12 months, with the initial $230 million project coming to the Board for approval in early December of 2011. The current Water Quality Improvement Adjustment Factor is insufficient to fund these major drinking water quality compliance investment obligations.

Board of Water and Power Commissioners Page2 November 10, 2011

e This proposed rate action will result in projected average rates for Fiscal Year (FY) 2011/12 that are 6% below that of the prior fiscal year (FY 2010/11 ).

• This proposed rate action will reduce the size of future needed rate increases and will minimize future "rate shock'' to LADWP customers .

., This proposed rate action anticipates a review by the City Administrative Officer and the Chief legislative Analyst, along with the independent third party review currently being conducted by PA Consulting Group (on behalf of the City Council).

While LADWP has numerous other program and project requirements beyond water quality compliance, the rate adjustments for those items will be considered as part of a more comprehensive water rate adjustment process anticipated early in calendar year 2012.

INCREASED WATER QUALITY REVENUES

Over the next 5 years, lADWP anticipates having to invest over $1. 1 billion in water quality improvement projects to meet required Federal and State water quality mandates. As shown in the table below, projects representing roughly half of this total investment will be coming to the Board for approval in the next 12 months.

Upcoming Critical Path Projects Est. Projected Date of Request for (Next 12 Months) Amounts Board Approval

Headworks Reservoir $230M December 2011 LA Reservoir Shade Balls $30M February 2012 LAAFP Ultraviolet Treatment Plant $27M March 2012 Silver Lake Reservoir Bypass Tunnel $40 M April2012 River Supply Conduit Units 5 & 6 $106 M May 2012 River Supply Conduit Unit 7 $121M September 2012

TOTAL $554 M

All of the additional revenue to be collected under this proposed rate action is intended to be used to support water quality activities. It is estimated that an additional $39 million in FY 2011/12 and $79 million ln FY 2012/13 of revenue will be collected under

Board of Water and Power Commissioners Page 3 November 1 0, 2011

this proposal. As shown in the chart below, the system average rate for FY 2011/12 would be 6% below the previous fiscal year under this proposaL This compares to an 11% reduction if no rate action was taken; however without the proposed Water Quality Improvement Adjustment Factor there would not be sufficient funding for the Headworks Reservoir contract to move forward.

$4.50 ------·-·-·.

$4.00

$3.50

$3.00

$2.00

$1.50

$100

$050

Total System Average Rate {Assumes Normal 2011/12 Winter Snow Pack)

Proposed Rate Acti~

No Rate Action

FY 11/12 SysAvg Rate $3.59 wl new $0.85 cap

r's

During FY 201 0/11, under the existing $0.50 per HCF cap, LADWP was only able to collect $24 million in water quality revenue. The actual funding required (O&M, debt service, and 40% of capital expenditures) to support the water quality activities and projects was $159 million. To the extent sufficient water quality revenues are not collected, these costs are subsidized by base rate revenue.

If the proposed modifications are approved and implemented by February 15, 2012, the level of revenues will allow lADWP to access the bond markets to fund the projects. Moving forward, a more permanent rate plan will have to be developed in conjunction with all stakeholders.

Board of Water and Power Commissioners Page4 November 10, 2011

CUSTOMER RATE IMPACTS

When the current water rates were developed in the early 1990s, they were at the forefront of conservation based rates. They were and still are 100% volumetric for most customers. These rates establish a "water budget" for each customer based on their specific conditions (lot size, temperature zone, and number of people in household may be considered). The volume of water sold at or below the established "water budget" is priced in the lower First Tier rates. Any water above that "water budget" is sold at the higher Second Tier price to encourage conservation. First Tier sales account for 89% of all water sold by LADWP

The typical residential water customer consumes roughly 12 HCF monthly. Roughly 52% of all LADWP water customers consume this amount of water, Essentially all of this is First Tier water. The typical "High Use Single Family" consumes approximately 24 HCF with 85% of this volume First Tier and the remaining 15% Second Tier. Only roughly 12% of all residential customers consume this much water or more on a monthly basis. listed below is a table showing the projected rate impacts with this Water Quality Improvement Adjustment Factor rate action at various monthly volumes:

Monthly Bill FY 10/1 i FY11/12 FY~ Typical Residential (12 HCF) $ 44.47 $ 40.30 $ 45.91

Dollar amount change (vs. FY 10/11) $ (4.18) $ 1.44 Percentage change (vs. FY 10/1 i) -9.4% 3.2%

High-use single fam••.w , ·I" ) $ 96.63 $ 89.69 $ 99.50

Dollar amount change (vs. FY 10/1 1) $ (6.94) $ 2.86 Percentage change (vs. FY 10/11) -7.2% 3.0%

Small commercial (1 00 HCF) $ 391.96 $ 361.07 $ 403.91

Dollar amount change (vs. FY 10/11) $ (30.89) $ 11.95 Percentage change (vs. FY 1 0/11) -7.9% 3.0%

*Assumes an average FY 2011/12 and forward winters

PURCHASED WATER COSTS AND FUTURE RATE IMPACTS

Through the foresight of City of Los Angeles and LADWP leaders over the last century, the Water System is able to bring high quality water to the City at a very low cost through the Los Angeles Aqueduct. However, the quantity of water available is highly dependent on the amount of snowpack in the Eastern Sierra Mountains. This snowpack

Board of Water and Power Commissioners Page 5 November 1 0, 2011

accumulates from November to April every year and is available to LADWP customers beginning in May when the snowpack melts. This water supply availability results in lower costs to our customers as it offsets higher cost purchased water from the Metropolitan Water District (MWD).

For financial planning purposes, an average snowpack is assumed for all future winters. As a result, projected FY 2012/13 rates are higher when compared to the FY 2011/12 rates that benefit from the recent 167% of normal snowpack:

Total System Average Rate

(Assumes Normal 2011112 and 2012113 Wln1er Snow Pack)

$4.50

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50

$1.00

$0.50

SysAvg Rate $3.99

Rate Action FYJZ/13 Rate

w/ FY11/12 Purchased Water Rate

sysAvg Rate $3.76

CQsiRecmP.-tYAoioo$1)llSw/1lfi<"Pi'V 3.15 ~.Si 3,!11 3.9-1 JSEC 3.8-1 3:fN 3_91 3JJ7 H!l 37S :'151 3.Q4 31.>fJ 3.-tl-8 :l.H 318 3.17 :l-34 3_16 J'/7 J~9 3DQ :HiE! 3B7 J!l\l' 32(1 H? 3.64 :l-.6:3 3ii"e 'jJ;l 3.Q7 -~U:il 3e:<' 3_00

3.75 3.w..l 3[1~ 3.94 3.8"8 3_64 389 JJ3-7 3.a7 3_19 3,7& 3'51 3."'4 3$f.l liis ].11 ~1Ei 3.17 ]34 ::DG 3.77 ~89 390 3aEI 39-5 JSil 3.!lil 3.9ll: 400 ::J."(l£1 :1':17 3.'95 J.'JB <l.Oii !lOS 404

WATER QUALITY REGULATORY MANDATES AND TIMEUNES

In December 2005, the US Environmental Protection Agency (USEPA) promulgated the following two water quality regulatory mandates:

1) long Term 2 Enhanced Surface Water Treatment Rule; 2) Stage 2 Disinfectants and Disinfection Byproducts Rule.

LADWP met the April1, 2009, deadline for the approval of a negotiated Compliance Agreement for the Long Term 2 Enhanced Surface Water Treatment Rule with the California Department of Public Health (CDPH).

Board of Water and Power Commissioners Page6 November 10, 2011

The first rule includes a requirement that all open treated water distribution reservoirs are either covered, removed from service, or provide re-treated water. LADWP has a Compliance Agreement with CDPH that has multiple interim deadlines and requires full compliance by 2022. Under the Compliance Agreement, LADWP must complete these projects by the following hard deadlines:

Remaining 5 Reservoirs CDPH To be Removed From Service Hard Deadlines

Silver Lake Reservoir December 2013 Ivanhoe Reservoir November 2014 Elysian Reservoir August 2015 Upper Stone Canyon Reservoir January 2017 Los Angeles Reservoir March 2022

The Stage 2 Disinfectants and Disinfection Byproducts Rule requires compliance with disinfection by-products standards by April 1, 2014, assuming a 2-year extension for capital projects.

The stated above deadlines are inflexible_ This inflexibility was demonstrated recently by the CDPH's August 24, 2011 denial of LADWP's request for a time extension to cover Elysian Reservoir. The time extension was requested on behalf of the Elysian Coalition to Preserve Open Reservoirs Subcommittee (Subcommittee). The Subcommittee had requested an additional 12 months to identify and secure external funding sources to help reduce the anticipated $110 million of construction costs for the buried concrete cover over the Elysian Reservoir. in their denial letter, the CDPH stated the following:

"CDPH does not consider a deadline extension to pursue outside funding sources to be in the best interest of public health, when a technically feasible option to install a floating cover on Elysian Reservoir by the agreed-upon deadline ls readily available ____ Failure to meet the deadline of August 3, 2015, specified in the April 1, 2009, compliance agreement would be considered a breach of the agreement and could subject LADWP to civil penalties."

More specifically, under Section 1414(g)(3) of the Safe Drinking Water Act, USEPA can impose a penalty of up to $25,000 per day per violation_ Failure to meet each of the Compliance Agreement's deadlines is considered a separate violation_ Additionally, LADWP would be vulnerable to civil lawsuits_

In 1992, the Blue Ribbon Commission on Water Rates had the foresight to anticipate ever increasing scope and cost of water quality mandates when it recommended the

Board of Water and Power Commissioners Page 7 November 10, 2011

creation of the Water Quality Improvement Adjustment. The Blue Ribbon Committee's Final Report stated that

" ... there are clear indications that the Environmental Protection Agency will be heightening water quality standards to levels that will require the [LA]DWP to fund expensive new water quality improvement efforts. The Blue Ribbon Committee felt strongly that water quality must be assured for all parts of the city even during times of drought and revenue constraints. The proposed rate structure includes a new mechanism for ensuring that the necessary capital investments are made every year to equalize and enhance water quality through a water quality adjustment."

These proposed modifications to the Water Quality Improvement Adjustment Factor are needed to ensure compliance with these required water quality laws for all LADWP customers.

PUBLIC OUTREACH

The rates process commenced June 4, 2011. Since then LADWP has met with over 1, 000 people at over 30 public meetings.

Regional meetings were held in the East Valley, West Valley, North Valley, East Los Angeles, South Los Angeles, West Los Angeles, and Harbor areas. We also met with business customers, as welt as stakeholders in the Owens Valley and Neighborhood Councils.

We reached out through: ®- Print ads in daily and community newspapers • Electronic ads on City Watch website ® Outreach to Neighborhood Councils ® Editorial board briefings ®- Television and radio interviews ®- Social media- Twitter, You Tube ®- Commercial and Residential Customer webinars

The initial rates process included information relative to the transformation that the water system must undergo to comply with regulatory mandates. The most pressing water system regulatory mandates relate to water quality. The comprehensive rates discussion has slowed while we await the formation of the Office of Public Accountability; however, due to the criticalness and timeline for compliance, LADWP

·'

Board of Water and Power Commissioners Page 8 November 10, 201 1

has bifurcated the water system rates discussion to focus immediately on the revenue required to meet water quality mandates.

SPECIFIC RATE CHANGES

LADWP's water rates are primarily comprised of base rates and "pass-through" adjustments, subject to certain limitations. As previously identified, the specific changes proposed in this package are greater cost recovery from the Water Quality Improvement Adjustment Factor. This factor can then be adjusted based on the actual costs for qualifying water quality activities. There are three specific modifications proposed to the existing rate ordinance:

• Water Quality Cap: The Water Rate Ordinance in Section 3.J. currently limits portions of the revenues collected for water quality, water security, demand-side management, and reclaimed water to a combined total of $0.50 per HCF LADWP proposes to increase that limit to $0.85 per HCF effective February 15, 2012.

* Water Quality Quarterly Cap: In addition to the $0.50 limit in Section 3.J., the WQIAF is limited to quarterly increases no greater than $0.06 per HCF. LADWP is proposing that this quarterly limit be deleted effective February 15, 2012. This will allow sufficient water quality revenues to be collected.

~ Increase to Second Tier Base Rates: Currently, amounts for water quality are embedded as part of the Second Tier base rates. In order to ensure that the users of higher quantities of water also contribute additional water quality revenues, high season Second Tier base rates will be increased by $0.35 per HCF effective February 15, 2012.

Accompanying these changes are the revised schedules 1 and 2 calculating the Water Quality Improvement Adjustment Factor under the proposed revised cap.

CITY COUNCIL APPROVAL

City Council approval of the modifications is requlred by ordinance.

RECOMMENDATION

It is recommended that your Honorable Board adopt the attached Resolution proposing modifications to the Water Rate Ordinance.

Board of Water and Power Commissioners Page9 November 10, 2011

JLP:d! Attachments e-c/att: Ronald 0. Nichols

Richard M. Brown Aram Benyamin James B. McDaniel Lorraine A Paskett

Ann M. Santilli Gary Wong Jeffery l. Peltola Ben Truong

.!

WATER QUAUTY IMPROVEMENT ADJUSTMENT FACTOR

FOR JANUARY, FEBRUARY, AND MARCH 2012

ATTACHMENT 1

(Ordinance No. 170435, as amended by Ordinance Numbers 171639, 173017, 175964, 177968, and 179802)

Estimated ExQenditures for the 12-month Qeriod ending December 31 , 2012

Water Quality Capital Expenditures Water Quality Operation and Maintenance (O&M) Expenses Water Quality Debt Service Estimated Water Quality Expenditures Subtotal Less: Qualified Water Quality O&M expenses included under

the Owens Valley Regulatory Factor (see Attachment 4) (a) Total Estimated Water Quality Expenditures

(b) 5% of (a)

(d) Estimated water sales (in units of 100 cubic feet) to all Los Angeles customers, excluding Schedules D and F, for the 12-month period ending December 31, 2012

Water Quality Improvement Component

5% Component

(e) Water Quality Improvement Adjustment Factor (WQIAF) 8 Adjustment due to Billing Unit limitation 0 WQlAF due to Billing Unit !imitation (details reflected on

0 (f) Attachment 2)

Existing Water Quality Improvement Adjustment for October -DecembE *Quarterly Adjustment Limitation

(g) WQIAF billed to the customers due to $0.06 limitation

Water Quality Adjustment Factor for the previous periods: October - December 2011 July - September 2011 April - June 2011 January - March 2011

•• Existing WQ Factor Subject to

$0.50 Cap

$223,236,100 55,708,900 44,136,521

323,081,521

(18,875,17"12 304,206,350

$15,210,318

221,074,846

$1.376

$0.069

$1.4451

($1.134)

$0.311

$0.154 $0.060

$0.214

$0.154 $0.140 $0.116 $0.077

*The current WQIAF shall not exceed the prior period adjustment by more than $0.06 per BU. '* WQIAF was approved by the Board on October 18, 2011. *'* WQIAF revised to reflect the new $0.85 cap effective February 15, 2012.

'*" Proposed WO Factor Subject to

$0.85 Cap

$223,236,100 55,708,900 44,136,521

323,081,521

{18,875, i 71) 304,206,350

$15,210,318

221,074,846

$1.376

$0.069

$1.445 I ($0.784)

$0.661

0 The factor needed to recover all qualifying expenditures irrespective of any cap adjustments. Qualifying expenditures include operation and maintenance, debt service, and capital for the twelve month period.

@ Reduction to factor to comply with cap limit shown in Attachment 2.

@ Resulting WQ!AF after adjustment to comply with cap limit.

I ncrease/(Decrease} due to Proposed Cap

Change

$0.000 $0.000 $0.000 $0.000

$0.000 $0.000

$0.000

$0.000

$0.000

$0.000

$o.ooo 1

$0.350

$0.350

ATIACHMENl 2

.... ~;ustment Factor limitations (General Provision J) (Ordinance No. 170435, as amended by Ordinance Numbers 171639, 173017, 175964, 177968, and 179802)

The Ordinance limits the sum of the Water Quality Improvement Adjustment Factor, the Water Security Adjustment Factor, and the lesser of $0.088 per billing unit (BU) or the components of the WPAF for Demand Side Management (DSM) and Reclaimed Water as calculated in Section 3.F.2.b. and SecHon 3.F.2.c., excluding the respective five percent components, to $0.50 per BU.

Water Quality Improvement Adjustment Factor, excluding 3.G.2.b. and 3.G.3.b.

Contribution of Water Conservation (DSM) and Reclaimed Water

Water Security Adjustment Factor, excluding 3.1.2.b. and 3.1.3.b.

Total per Billing Unit:

Adjustment Factor limitation: Limitation per Billing Unit

• Less: Water Security Adjustment Factor, excluding 3.1.2.b. and 3.1.3.b. Less: Maximum Contribution of DSM and Reclaimed Water

Water Quality Improvement Adjustment Factor, excluding 3.G.2.b. and 3.G.3.b. (a) 5% of Water Quality Expenditures (Attachment 2) (b) Estimated Water Sales in (hcf) (Attachment 2) (c)=alb 5% Component

$15,210,318 221,074,846

Water Quality Improvement Adjustment Factor (pursuant to Provision J limitations)

Existing Jan-Mar 2012 per

Provision J ($0.50 cap)

0.242

0.088

0.170

$0.500

$0.500 (0.170) (0.088)

$0.242

$0.069 $0.311

Proposed Increase/{ Decreas

Jan-Mar 2012 per Provision J

e)

($0.85 cap) due to Proposed

"'· ,.....,

0.592 0.350

0.088 0.000

0.170 0.000

$0.850 $0.350

$0.850 $0.350 (0.170) $0.000 (0.088) $0.000

$0.592 $0.350

$0.069 $0.000 $0.661 $0.350