BILL ANALYSIS Ó
AB 850
Page 1
Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Roger Dickinson, Chair
AB 850 (Nazarian) - As Amended: April 15, 2013
SUBJECT : Public capital facilities: water quality.
SUMMARY : Authorizes a joint powers authority (JPA) to issue
rate reduction bonds for local publicly-owned water utilities to
finance projects necessary to comply with water quality, water
conservation or water reclamation mandates. Specifically, this
bill :
1)Authorizes a JPA to finance utility projects through the
issuance of rate reduction bonds, and to impose and adjust
utility project charges in connection with the financing
pursuant to the provisions of this bill.
2)Allows a local agency that owns and operates a publicly owned
utility (POU) that provides water service to apply to a JPA to
finance costs of a utility project for the POU with the
proceeds of rate reduction bonds. In its application to a JPA
for the financing, the local agency shall specify the utility
project to be financed, the maximum principal amount, the
maximum interest rate, and the maximum stated terms of the
rate reduction bonds.
3)Prohibits a local agency from applying to a JPA for financing
of a utility project pursuant to this bill unless the
legislative body of the local agency has determined all of the
following:
a) The project to be financed is a utility project;
b) The local agency is electing to finance costs of the
utility project pursuant to this bill and the financing
costs associated with the financing are to be paid from
utility project property, as defined, including the utility
project charge for the rate reduction bonds issued for the
utility project in accordance with this bill; and,
c) Based on information available to, and projections used
by, the legislative body, the financing is expected to
result in lower rates to the customers of the local
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agency's POU compared with financing the utility project
through bonds payable from revenues of the POU.
4)Provides, subject to the requirements of Article XIII D of the
California Constitution, that a JPA financing the costs of a
utility project or projects for a local agency's POU with rate
reduction bonds is authorized and directed to impose and
collect a utility project charge with respect to the rate
reduction bonds as provided in this bill. The imposition of
the utility project charge shall be made and evidenced by the
adoption of a financing resolution by the governing body of
the JPA.
5)Requires the financing resolution described above to include a
number of components, including a separate charge to the bill
of each customer, as specified; a description of the financial
calculation, formula, or other method that the JPA is to use
to determine the utility project charge, which includes a
periodic adjustment method to be applied at least annually to
correct for any overcollection or undercollection of financing
costs or to make any other adjustment necessary to ensure
timely payment of the financing costs of the rate reduction
bonds, as specified; and, a requirement that the JPA enter
into a servicing agreement with the local agency for the
collection of the utility project charge, as specified.
6)Requires the financial calculation, formula, or other method,
including the periodic adjustment method, established in the
financing resolution, and the allocation of utility project
charges to, and among, water distribution customers to be
decided solely by the governing body of the JPA and requires
it to be final and conclusive.
7)Prohibits the periodic adjustment method from being applied
less frequently than required by the financing resolution and
the documents relating to the applicable rate reduction bonds.
Once the financial calculation, formula, or other method for
determining the utility project charge, and the periodic
adjustment method, have been established in the financing
resolution and have become final and conclusive, they shall
not be changed.
8)Provides that moneys collected by the local agency or its POU,
acting as a servicing agent on behalf of the JPA, as a utility
project charge shall be held in trust for the exclusive
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benefit of the persons entitled to the financing costs to be
paid, directly or indirectly, from the utility project charge
and shall not lose their character as revenues of the JPA by
virtue of possession by the local agency or its POU. The
local agency or its POU shall provide the JPA with the
information as to estimated sales of water and any other
information concerning the POU required by the JPA in
connection with the initial establishment and the adjustment
of the utility project charge.
9)Provides that the determination of the legislative body of the
local agency that a project to be financed with rate reduction
bonds is a utility project shall be final and conclusive and
the rate reduction bonds issued to finance the utility project
and the utility project charge shall be valid and enforceable
in accordance with the terms of the financing resolution and
the documents relating to the rate reduction bonds.
10)Provides that the JPA shall require, in its financing
resolution with respect to a utility project charge, that as
long as a customer obligated to pay the utility project charge
obtains water distribution service from the applicable POU,
the customer shall pay the utility project charge regardless
of whether or not the customer obtains water or water services
other than water distribution service from a person or entity
other than the POU.
11)Provides that the utility project charge shall be a
nonbypassable charge to all water distribution customers of
the POU in the class or classes of customers specified in the
financing resolution that are receiving water distribution
service from the POU at the time of adoption of the financing
resolution and all future water distribution customers in that
class or classes. If a customer of the POU that is subject to
a utility project charge ceases taking water or water services
other than water distribution service from the POU, the
customer shall remain liable for the payment of its share of
the utility project charge as if it had not ceased taking the
water or water service from the POU. The liability may be
discharged by the continued payment of its share of the
utility project charge as it accrues or by a one-time payment,
as determined by the JPA.
12)Provides that all provisions of a financing resolution
adopted pursuant to this bill shall be binding on the JPA.
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13)Requires the timely and complete payment of all utility
project charges by a person liable for the charges to be a
condition of receiving water service from the POU of the local
agency and provides that the local agency and its POU are
authorized to use established collection policies and all
rights and remedies provided by law to enforce payment and
collection of the utility project charge. In no event shall a
person liable for a utility project charge be entitled or
authorized to withhold payment, in whole or in part, of the
utility project charge for any reason.
14)Requires the JPA to determine whether adjustments to the
utility project charge are required upon the issuance of the
rate reduction bonds and at least annually, and at additional
intervals as may be provided for in the financing resolution
or the documents relating to the rate reduction bonds, as
specified.
15)Requires all revenues with respect to utility project
property related to rate reduction bonds, including payments
of the utility project charge, to be applied first to the
payment of the financing costs of the related rate reduction
bonds then due, including the funding of reserves for the rate
reduction bonds, with any excess being applied as determined
by the JPA for the benefit of the utility for which the rate
reduction bonds were issued.
16)Requires the JPA to be obligated to impose and collect the
utility project charge in amounts, based on estimates of water
usage subject to the utility project charge, sufficient to pay
on a timely basis the financing costs associated with the rate
reduction bonds when due.
17)Provides that the pledge of a utility project charge to
secure the payment of rate reduction bonds shall be
irrevocable, and the State of California, the JPA, or any
limited liability company (LLC) acting pursuant to 38),
(below), shall not reduce, impair, or otherwise adjust the
utility project charge, except that the JPA shall implement
the periodic adjustments to the utility project charge
relating to rate reduction bonds as required by the applicable
financing resolution and the documents relating to the rate
reduction bonds. Revenue from a utility project charge shall
be deemed special revenue of the JPA and shall not constitute
revenue
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of the local agency or its POU for any purpose, as specified.
18)Provides that a utility project charge shall constitute a
utility project property when, and to the extent that, a
financing resolution authorizing the utility project charge
has become effective in accordance with its terms, and the
utility project property shall thereafter continuously exist
as property for all purposes with all of the rights and
privileges of this bill for the period, and to the extent,
provided in the financing resolution, but in any event until
all financing costs with respect to the related rate reduction
bonds are paid in full, including all arrearages.
19)Provides that utility project property shall constitute a
current property right notwithstanding that the value of the
property right will depend on consumers using water or, in
those instances where consumers are customers of the POU, the
POU performing certain services.
20)Provides that, in the event a local agency for which rate
reduction bonds have been issued and remain outstanding ceases
to provide water distribution services, either directly or
through its POU, references in this bill to the local agency
or to its POU shall be to the entity providing water
distribution service in lieu of the local agency and the
entity shall assume and perform all obligations of the local
agency and its POU required by this bill and the servicing
agreement with the local agency while the rate reduction bonds
remain outstanding.
21)Requires rate reduction bonds to be within the parameters of
the financing set forth by the local agency pursuant to this
bill in connection with the rate reduction bonds and requires
the proceeds of the rate reduction bonds made available to the
local agency or its POU to be utilized for the utility project
identified in the application for financing of the utility
project or projects, as specified.
22)Requires a JPA to authorize the issuance of rate reduction
bonds by a resolution of its governing body. Rate reduction
bonds shall be nonrecourse to the credit or any assets of the
local agency and the POU for which the utility project is
financed and shall be payable from, and secured by a pledge
of, the utility project property relating to the rate
reduction bonds and any additional security or credit
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enhancement specified in the documents relating to the rate
reduction bonds.
23)Requires a JPA issuing rate reduction bonds to pledge the
utility project property relating to the rate reduction bonds
as security for the payment of the rate reduction bonds, as
specified. All rights of a JPA with respect to utility
project property pledged as security for the payment of rate
reduction bonds shall be for the benefit of, and enforceable
by, the beneficiaries of the pledge to the extent provided in
the documents relating to the rate reduction bonds.
24)Provides, to the extent that any interest in utility project
property is pledged as security for the payment of rate
reduction bonds, that the applicable local agency or its POU
shall contract with the JPA, which contract shall be part of
the utility project property, that the local agency or its POU
will continue to operate its publicly owned utility system
that includes the financed utility project to provide service
to its customers, will, as servicer, collect amounts in
respect of the utility project charge for the benefit and
account of the JPA and the beneficiaries of the pledge of the
utility project charge and will account for and remit these
amounts to, or for the account of, the JPA.
25)Provides that a financing resolution, any other resolution of
the JPA, or the provisions of the documents relating to rate
reduction bonds to the effect that the JPA shall take action
with respect to the utility project property relating to the
rate reduction bonds shall be binding upon the JPA, as its
governing body may be constituted from time to time, and the
JPA shall have no power or right to rescind, alter, or amend
any resolution or document containing the requirement.
26)Provides, except as otherwise provided in this bill, that the
recovery of the financing costs for the rate reduction bonds
from the utility project charge shall be irrevocable and the
JPA shall not have the power either by rescinding, altering,
or amending the applicable financing resolution or otherwise,
to revalue or revise for ratemaking purposes the financing
costs of rate reduction bonds, determine that the financing
costs for the related rate reduction bonds or the utility
project charge is unjust or unreasonable, or in any way reduce
or impair the value of utility project property that includes
the utility project charge, either directly or indirectly; nor
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shall the amount of revenues arising with respect to the
financing costs for the related rate reduction bonds or the
utility project charge be subject to reduction, impairment,
postponement, or termination for any reason until all
financing costs to be paid from the utility project charge are
fully met and discharged.
27)Provides, except as otherwise provided in this bill, that the
State of California does hereby pledge and agree with the
owners of rate reduction bonds that the State of California
shall neither limit nor alter the financing costs or the
utility project property, including the utility project
charge, relating to the rate reduction bonds, or any rights
in, to or under, the utility project property until all
financing costs with respect to the rate reduction bonds are
fully met and discharged. This provision does not preclude
limitation or alteration if and when adequate provision shall
be made by law for the protection of the owners.
28)Authorizes the JPA to include the pledge described above and
undertaking by the State of California in the governing
documents for rate reduction bonds, and requires the JPA to
make the adjustments to the utility project charge relating to
rate reduction bonds provided by this bill and the documents
related to those rate reduction bonds as may be necessary to
ensure timely payment of all financing costs with respect to
the rate reduction bonds. The adjustments shall not impose
the utility project charge upon classes of customers which
were not subject to the utility project charge pursuant to the
financing resolution imposing the utility project charge.
29)Provides that financing costs in connection with rate
reduction bonds do not constitute a debt or liability of the
State of California or of any political subdivision thereof,
other than the special obligation of the JPA, and do not
constitute a pledge of the full faith and credit of the State
of California or any of its political subdivisions, including
the JPA, but are payable solely from the funds provided for
under this bill and in the documents relating to the rate
reduction bonds. This provision in no way precludes
guarantees or credit enhancements in connection with rate
reduction bonds.
30)Requires all the rate reduction bonds to contain on their
face a statement to the following effect: Neither the full
faith and credit nor the taxing power of the State of
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California or any political subdivision thereof is pledged to
the payment of the principal of, or interest on, this bond.
31)Provides that the issuance of rate reduction bonds shall not
directly, indirectly, or contingently obligate the State of
California or any political subdivision thereof to levy or to
pledge any form of taxation to pay the rate reduction bonds or
to make any appropriation for their payment.
32)Provides that utility project property shall constitute
property for all purposes, including for contracts securing
rate reduction bonds, whether or not the revenues and proceeds
arising with respect thereto have accrued.
33)Provides, subject to the terms of the pledge document with
respect to a pledge of utility project property, that the
validity and relative priority of a pledge created or
authorized under this bill is not defeated or adversely
affected by the commingling of revenues arising with respect
to the utility project property with other funds of the local
agency or the POU collecting a utility project charge on
behalf of a JPA.
34)Creates a statutory lien on the utility project property
relating to rate reduction bonds. Upon the effective date of
the financing resolution relating to rate reduction bonds,
there shall exist a first priority statutory lien on all
utility project property, then existing or, thereafter
arising, to secure the payment of the rate reduction bonds.
This lien shall arise pursuant to law by operation of this
bill automatically without any action on the part of the JPA,
the local agency or its POU, or any other person. This lien
shall secure the payment of all financing costs, then existing
or subsequently arising, to the holders of the rate reduction
bonds, the trustee or representative for the holders of the
rate reduction bonds, and any other entity specified in the
financing resolution or the documents relating to the rate
reduction bonds. This lien shall attach to the utility
project property regardless of who shall own, or shall
subsequently be determined to own, the utility project
property including any local agency or its POU, the JPA, or
any other person. This lien shall be valid and enforceable
against the owner of the utility project property and all
third parties upon the effectiveness of the financing
resolution without any further public notice.
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35)Provides that the statutory lien on utility project property
created by this bill is a continuously perfected lien on all
revenues and proceeds arising with respect thereto, whether or
not the revenues or proceeds have accrued. Utility project
property shall constitute property for all purposes, including
for contracts securing rate reduction bonds, whether or not
the revenues or proceeds arising with respect thereto have
accrued.
36)Allows the JPA to require, in a financing resolution creating
utility project property, that, in the event of default by the
local agency or its POU, in payment of revenues arising with
respect to the utility project property, the JPA, upon the
application by the beneficiaries of the statutory lien, and
without limiting any other remedies available to the
beneficiaries by reason of the default, shall order the
sequestration and payment to the beneficiaries of revenues
arising with respect to the utility project property.
37)Provides that a JPA that has financed a utility project
through the issuance of rate reduction bonds is not
authorized, and no governmental officer or organization shall
be empowered to authorize the JPA, to become a debtor in a
case under the United States Bankruptcy Code or to become the
subject of any similar case or proceeding under any other law,
whether federal or State of California, as long as any payment
obligation from utility project property remains with respect
to the rate reduction bonds.
38)Provides that a JPA may elect to effect a financing of a
utility project pursuant to this bill through a single member
LLC formed by the JPA, as specified.
39)Provides that this bill and all grants of power and authority
in it shall be liberally construed to effectuate their
purposes, and all incidental powers necessary to carry into
effect the provisions of this bill are expressly granted to,
and conferred upon, public entities.
40)Provides that the provisions of this bill are severable. If
any provision of this bill or its application is held invalid,
that invalidity shall not affect other provisions or
applications that can be given effect without the invalid
provision or application.
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41)Makes conforming changes to the Joint Exercise of Powers Act
(Act).
42)Provides the following terms and definitions:
a) "Authority" includes any successor to the powers and
functions of that entity.
b) "Conservation or reclamation purposes" means a utility
project designed to reduce the amount of potable water to
be supplied by a POU or reduce the amount of water imported
by the POU, including without limitation, storm water
capture and treatment, water recycling, development of
local groundwater resources, groundwater recharging, and
water reclamation.
c) "Financing costs" means any of the following:
i) Interest and redemption premiums that are payable on
rate reduction bonds;
ii) The cost of retiring the principal of rate reduction
bonds, whether at maturity, including acceleration of
maturity upon an event of default, or upon redemption,
including sinking fund redemption;
iii) A cost related to issuing or servicing rate
reduction bonds, including, but not limited to, servicing
fees, trustee fees, legal fees, administrative fees, bond
counsel fees, bond placement or underwriting fees,
remarketing fees, broker dealer fees, independent manager
fees, payment under an interest rate swap agreement,
financial advisor fees, accounting report fees,
engineering report fees, and rating agency fees;
iv) A payment or expense associated with a bond
insurance policy, financial guaranty or a contract,
agreement, or other credit enhancement for rate reduction
bonds or a contract, agreement, or other financial
agreement entered into in connection with rate reduction
bonds; or,
v) The funding of one or more reserve accounts related
to rate reduction bonds.
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d) "Financing resolution" means a resolution adopted by the
governing body of a JPA financing a utility project with
rate reduction bonds that establishes and imposes a utility
project charge in connection with the rate reduction bonds
in accordance with the provisions of this bill. A
financing resolution may be separate from a resolution
authorizing the issuance of the rate reduction bonds.
e) "Mandate" means a requirement, imposed by a mandating
entity by any means, including without limitation, a
statute, rule, regulation, an administrative or judicial
order, a building, operating, or licensing requirement or
condition, or an agreement with, or license or permit from,
the mandating entity, on a facility of a POU or a facility
operated in whole or in part for the benefit of a POU, or
on the operations of the POU, or on the water pumped,
acquired, or supplied by the POU.
f) "Mandating entity" means the United States (US); a state
of the US; an agency, department, commission, or other
subdivision of the US or a state of the US; a court of the
US or a state of the US; or any other body or organization,
that has jurisdiction over the operations of a POU, the
facility of a POU, or a facility operated in whole or in
part for the benefit of a POU, or the water pumped,
acquired or sold by a POU. "Mandating entity" does not
include a local agency that owns the POU.
g) "Publicly owned utility" means a utility furnishing
water service to retail customers that is owned and
operated by a local agency or a department or other
subdivision of a local agency and includes any successor to
the powers and functions of the department or other
subdivision.
h) "Rate reduction bonds" mean bonds that are issued by a
JPA, the proceeds of which are used directly or indirectly
to pay or reimburse a local agency or its POU for the
payment of the costs of a utility project, and that are
secured by a pledge of, and are payable from, bonds as
provided in this bill.
i) "Utility project" means the acquisition, construction,
installation, retrofitting, rebuilding, or other addition
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to, or improvement of, any equipment, device, structure,
improvement, process, facility, technology, rights or
property, located either within, or outside of, the State
of California, and that is used, or to be used, in
connection with the operations of a POU for conservation or
reclamation purposes or in response to a mandate related to
water quality.
j) "Utility project charge" means a charge paid or to be
paid by water distribution customers of a POU to pay
financing costs of rate reduction bonds issued to finance a
utility project for a POU that is imposed pursuant to this
bill, including any adjustment of the charge pursuant to
this bill.
aa) "Utility project property" means the property right
created pursuant to this bill, including without
limitation, the right, title, and interest of a JPA for any
of the following:
i) In and to the financing resolution and the utility
charge established with respect to the rate reduction
bonds, as adjusted from time to time in accordance with
this bill;
ii) To be paid the financing costs of the rate reduction
bonds and to all revenues, collections, claims, payments,
moneys, or proceeds for, or arising from, the utility
project charge relating to the rate reduction bonds; or,
iii) In and to all rights to obtain adjustments to the
utility project charge relating to the rate reduction
bonds pursuant to this bill.
EXISTING LAW
1)Authorizes, under the Act, two or more public agencies (i.e.
federal government, any state, any state department or agency,
county, county board of education, county superintendent of
schools, city, public corporation, public district, and
regional transportation commission in any state) to enter into
a joint powers agreement to exercise jointly any power common
to the contracting agencies that each can do by itself.
(Government Code, Section 6500)
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2)Authorizes JPAs to issue tax-exempt bonds for a variety of
purposes.
3)Regulates POU activities and rates at the local level, through
locally-elected boards and/or city councils.
FISCAL EFFECT : None.
COMMENTS :
According to the author, "AB 850 will result in interest
savings, lower debt service, and reduce local borrowing costs to
decrease future utility rate increases. JPAs, formed under
existing law, have successfully allowed public agencies to
finance the construction of capital projects by issuing
tax-exempt revenue bonds. JPAs have helped meet critical needs,
within the state, by helping to accelerate the construction,
repair and maintenance of public capital improvements. AB 850
will simply expand this same authority and benefit to JPAs
formed by municipal water utility companies.
The advantages of rate reduction bonds to water ratepayers and
the City include:
o The ability for ratepayers to more transparently track and
mitigate the costs of mandated projects;
o Lower financing costs due to the expectation that the rate
reduction bonds will obtain triple-A ratings;
o Strengthening water utilities' credit rating - the rate
reduction bonds are not treated as a debt of the utility for
rating purposes, which assists in maintaining bond credit
ratings to fund other water capital projects;
o Lower water rates for customers - the enhanced security of
rate reduction bonds allow the water utility to lower the
excess margin of revenues over bond payments from the
customary 2x bond payments to 1x bond payments, which results
in only collecting the amount owed from the water utility
ratepayer, not 2x the amount owed as in traditional bonds."
AB 850, allows the JPA to issue rate reduction bonds to finance
projects for POUs that provide water service. Eligible projects
must be necessary to respond to or comply with a water quality
mandate, such as a mandate under the Safe Drinking Water Act
(SDWA), or to reduce customer water demand or the amount of
imported water the POU provides.
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RATE REDUCTION BOND:
A rate reduction bond is the securitization of a cash flow
stream generated by a fee charged to utility consumers.
Deregulation of the electric utilities was introduced to foster
a competitive environment and to reduce the rates charged to
customers. However, when states deregulated utilities, the
resulting decrease in revenue caused many utility company assets
to become uneconomic to operate. These uneconomic assets are
referred to as "stranded assets." Rate reduction bonds were
developed to enable utilities to bridge the gap between the book
value of stranded assets in the previously regulated environment
and their current market value in a deregulated one. The use of
rate reduction bonds allows for an extended recovery period of
those costs at AAA rated.
Under this bill, bonds would be issued to investors by the JPA
and the bond proceeds would go the participating municipal water
utility. 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.
Rate reduction bonds were used by California's investor-owned
electric utilities (IOUs) when the state restructured its energy
industry in the late 1990's. In that instance, the California
Infrastructure and Development Bank (I-Bank) formed a trust that
issued the bonds on behalf of the IOUs. These instruments
proved to be very successful on the bond market despite a
challenge by The Utility Reform Network (TURN), which argued
that ratepayers should have received a greater rate reduction
under the state's deregulation law - which provided an
across-the-board 10% rate cut - because ratepayers were
shouldering the debt service of the bonds. After losing an
appeal before the California Public Utilities Commission (PUC),
TURN petitioned the Supreme Court, which refused to grant a
judicial review of the PUC's decision.
This bill restricts the issuance of rate reduction bonds
exclusively to fund capital utility projects for publicly-owned
water utilities that are required to respond to or comply with a
water quality mandate, such as a mandate under the SDWA. Bond
proceeds can fund projects that reduce the amount of potable
water supplied by the utility or reduce the amount of water
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imported by the utility. This would include projects for storm
water capture and treatment, water recycling, development of
local groundwater resources, groundwater recharging, and water
reclamation.
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.
This method of securitization allows a lower debt service
coverage ratio by the bond rating agencies due to the enhanced
security provided by the dedicated special tariff and bankruptcy
remoteness. As a result, the amount of funds collected from
customers to meet the debt service coverage ratio is reduced.
Individual municipal utilities can have debt service coverage
requirements of about two times the annual principal and
interest payments of the bonds. With the rate reduction bonds,
this can be reduced to one times coverage.
California's joint powers agreements are federations of federal,
state, and local public agencies that jointly perform duties
that each entity could perform on its own. Joint powers
agreements collaborate to address public needs, such as
financing public facilities, forming insurance pools, and
enhancing planning and regulation. Joint powers agreements can
be structured as an agreement between existing agencies or as a
creation of a new, separate entity called a JPA.
POU activities and rates are regulated by locally elected boards
and/or city councils. POUs are subject to the Ralph M. Brown
Act, the Public Records Act, and Competitive Bid Requirements.
LADWP is the largest POU in California, serving 3.9 million
customer owners.
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
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to the rate reduction bondholders. A JPA charging the special
tariff would not have such restrictions.
LADWP estimates that ratepayers would save as much as $3 million
per year for each $100 million of financing under this bill's
provisions. In the case of LADWP, with its planned spending for
water quality and local water supply projects, rates are
projected to be 2-4% lower during the course of the next five
years than they would be absent this financing approach.
LADWP cites several types of projects that could be financed
under the structure created by this bill:
Water quality compliance : LADWP is currently working to
implement multiple projects as part of a Water Quality
Improvement Program (WQIP) to comply with two primary drinking
water standards under the SDWA: the Long-Term 2 Enhanced Surface
Water Treatment (LT2) Rule and the Stage 2 Disinfectants and
Disinfection Byproduct (Stage 2 DBP) Rule.
The LT2 Rule requires open distribution reservoirs to be
covered, treated, or removed from service to protect finished
tap water from microbial pathogens such as Cryptosporidium. The
Stage 2 DBP Rule addresses disinfection byproducts suspected to
have carcinogenic and reproductive health effects.
LADWP expects to spend about $1.4 billion between fiscal years
2011/12 through 2015/16 to complete the WQIP and meet the
compliance deadlines set by the California Department of Public
Health. This expenditure amount represents 40% of LADWP's total
Water System capital budget for that period.
Groundwater cleanup : Despite efforts that began in the late
1980's under the US Environmental Protection Agency's Superfund
program, groundwater contamination has continued to spread in
the San Fernando Basin (SFB), forcing LADWP to shut down half of
its local groundwater wells in the basin. Typically, local
groundwater provides approximately 11% of the City of Los
Angeles' total water supply and up to 30% during drought years.
Recent projections indicate that local groundwater is expected
to provide only 8% of total supply during this upcoming water
year (April - March) due to increasing contamination.
Replacement water is purchased from the Metropolitan Water
District of Southern California, which imports their supplies
from the Sacramento-San Joaquin Delta and the Colorado River.
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In 2009, LADWP began an $11.5 million 6-year study to develop a
comprehensive remediation and cleanup strategy to address the
contamination in the SFB and preserve the basin's public and
environmental benefits. This strategy includes the development
of a state-of-the-art Groundwater Remediation Complex that will
include both centralized and localized (well head) treatment
facilities. The design and construction of the Groundwater
Remediation Complex is estimated to cost between $600 and $900
million. The Complex is anticipated to be operational by 2021.
Water recycling : The City of Los Angeles' Water Recycling
Program includes planned investments to expand the "purple pipe"
network for non-potable water use, upgrade existing treatment
plants, and use advanced-treated, recycled water for groundwater
replenishment. These projects would be candidates for funding
through rate reduction bonds.
An example of a "purple pipe" project is the Elysian Park Water
Recycling Project, which is currently in the planning phase.
The project scope includes the construction of about 10,800
linear feet of pipe, a 3,000 gallons-per-minute pump station,
and a two-million-gallon storage tank. The project would
replace about 400 acre-feet per year of potable water with
recycled water for Elysian Park and future customers in central
Los Angeles. The total cost of the project is currently
estimated at about $30 million.
Groundwater replenishment (GWR) is a process in which
advanced-treated recycled water can be sent to spreading basins
to percolate underground and augment the City's groundwater
supply for later use. GWR is a proven alternative for expanding
availability of safe, high-quality drinking water, and has been
successfully implemented in communities across the US. GWR for
Los Angeles will require an additional treatment system to be
built at an existing water reclamation plant in Van Nuys. The
additional treatment will include microfiltration, reverse
osmosis and other purification processes.
Stormwater capture : Stormwater capture projects facilitate
groundwater recharge and help maintain healthy water levels in
groundwater basins. The projects can also provide local flood
control benefits, improve surface water quality, increase water
conservation and reuse, and result in societal benefits
including open space enhancements, habitat restoration, and
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watershed education opportunities.
Centralized stormwater capture projects typically include
projects such as spreading grounds upgrades and dam
improvements. Distributed stormwater capture projects can
include residential-level improvements (e.g., rain barrel, rain
garden installation) and neighborhood-level improvements (e.g.,
vegetated swales, infiltration basins).
An example of a centralized stormwater capture project is the
Hansen Dam Water Conservation Project, which will create a water
conservation pool behind Hansen Dam to allow for stormwater
capture and storage. The stored water would allow for
additional dam releases to downstream spreading grounds, where
an additional 3,400 acre-feet per year would then percolate back
into the groundwater basin. The design and construction cost of
this project is estimated at about $5 million.
An example of a decentralized stormwater capture project is the
Woodman Avenue Stormwater Capture Project, which will capture
surface runoff and stormwater from a 130-acre drainage area and
divert it to a new street median containing a vegetated swale.
The project will create new habitat with native and
California-friendly plants, provide about 80 acre-feet-per year
of groundwater recharge, and include other amenities that
benefit the neighborhood. The total cost of this on-going
project is estimated at $3.5 million.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Water Agencies (ACWA)
California Municipal Utilities Association (CMUA)
California Special Districts Association (CSDA)
Los Angeles Department of Water and Power (LADWP)
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
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