Money in the Lake

A chill wind suspended a cloud of dust over the Owens Valley as the sun rose one recent spring day. “You couldn’t see the mountains,” recalled James Warren, who has spent his life below the towering eastern Sierra Nevada. “The entire valley is drying up.”

Now the bill for reversing the destruction of the valley’s watershed is coming due and is a main reason that the Los Angeles Department of Water and Power is looking for a large rate increase. The City Council turned down an 18 percent rate hike, and the DWP now proposes a 37 percent increase phased in over five years.

Since the days of William Mulholland, Los Angeles has taken water from the eastern Sierra, gradually turning the Owens Valley into a dust bowl. Two aqueducts traditionally have supplied Los Angeles with about half its water, some 450,000 acre-feet a year.

In recent years, however, legal actions brought by valley residents and federal and state authorities are forcing the city to take less water from the valley and carry out massive and expensive construction projects to restore the valley’s watershed.

“What I need is money,” said Gerald Gewe, DWP assistant general manager. The cost of restoration is one of the major but little-discussed reasons behind the 11 percent water-rate increase approved by the department’s board of commissioners last week, plus the department’s call for more increases in the years ahead. The City Council’s Commerce Committee approved the rate hike earlier this week. The full council must approve it too.

The department’s water-services system will be broke by 2006 unless it receives a 6.5-percent-a-year water-rate increase annually for the next five years, warned the accounting firm Deloitte & Touche in a report last week to the DWP board. Without the 37 percent increase to meet rising costs and pay off past debt, the department no longer will be able to meet its payroll or borrow money at reasonable rates for needed projects, much less contribute some $28 million a year of its net income on water sales to the city’s hard-pressed general fund, said the report.

The bottom line is that environmental work in the Owens Valley has raised the DWP’s costs and squeezed its net water-services income, which shrunk from $105 million in 2002 to $51 million last year on operating revenues of $551 million and $553 million, respectively.

“Many of these costs are environmental,” said Bernard Uffelman, U.S. regulatory-services leader for Deloitte & Touche.

The DWP faces new health standards for drinking-water quality, such as covering storage reservoirs to keep out animal droppings. Yet, it also has borrowed hundreds of millions of dollars to restore the Owens Valley — with even more expenditures on the way — which has pushed its indebtedness dangerously high in relation to revenues. Restoration requires the city to leave more water in the Owens Valley, which means it must pay for more water conservation in Los Angeles, plus purchase more water from the Metropolitan Water District. These steps are bumping the DWP up against cost-recovery caps under its current water-rate structure.

During the 1990s, the DWP entered a series of agreements to restore the Owens Valley watershed that require it to release enough water to the lake to end the regular clouds of salty dust that swirl in the wind, let water run through the river, and restore the aquifer to support vegetation. The department also has let more water flow to shrinking Mono Lake, which the city tapped in the 1940s.

Overall, according to Gewe, Los Angeles must return to the environment one-third of the water it historically has drawn from the eastern Sierra, which is raising costs to city residents.

When the DWP agreed to the Owens Lake dust-cleanup plan in 1998, it estimated the pipes and pumps needed to water the lakebed would cost $120 million. Today the construction cost has risen to an estimated $415 million, 70 percent of which is funded with borrowed money.

Soaring too has been the cost of a construction design and management contract with the environmental-engineering firm CH2M Hill. In 2001, three years after it entered the contract, the DWP estimated it would cost about $42 million. However, after three contract amendments the DWP commission has since approved — including two totaling $27 million that just now are being brought to the City Council for retroactive approval — payments to the firm are expected to total $106 million.

Members of the council’s Commerce, Energy and Natural Resources Committee bristled earlier this month before approving those retroactive contract increases.

DWP officials maintained that the project, the first of its kind in the world, involved many unknowns that ultimately increased the cost. The city administrative officer, however, recommended that the amendments in 2002 and 2003 be brought to the council for retroactive approval, even though money already had been spent.

The retroactive approvals, which committee member Janice Hahn called “housecleaning,” come amid numerous investigations into allegations that department commissioners made contract approvals contingent upon contractors’ campaign contributions to City Council members and candidates.

Contribution records show that CH2M Hill contributed the maximum amounts of $1,000 to Mayor James Hahn and $500 to his sister Janice Hahn in their 2001 election runs. After Mayor Hahn was elected, the firm quickly contributed $1,000 to his 2005 re-election campaign.