City of Los Angeles

Los Angeles, California, United States

Raftelis assisted the City of Los Angeles (City) in pricing secondary treated wastewater that is sold to West Basin Municipal Water District (West Basin) for further treatment to produce tertiary treated water, or recycled water. Currently, the City is contractually obligated to sell up to 70 MGD of secondary effluent from Hyperion Treatment Plant (HTP) to West Basin at $7.50 per acre-foot (AF). The study was designed to determine alternatives for pricing the Hyperion Treatment Plant’s secondary effluent may be used to negotiate new rates for secondary effluent sold to West Basin when the contract expires. Raftelis reviewed the costs to produce secondary effluent at HTP as well as at other treatment plants within the City and reviewed West Basin costs of producing tertiary treated water for its customers. The pricing of recycled water is usually dictated by market forces. Our review indicated that the City could be cost-justified to increase its price on secondary treated effluent since West Basin customers may have some flexibility to increase their recycled water rates up to 90 percent of the potable water rate. 

Raftelis also provided litigation support to the City regarding its wastewater rate structure. The City, which used a modified percentage of water usage approach to determine wastewater charges, requested that Raftelis determine the prevalence of different wastewater billing approaches that are in use across the country. As a part of this survey, Raftelis identified the billing approach for over 900 wastewater utilities across the country, including over 200 wastewater utilities in California and the 50 largest public wastewater utilities. To complement the survey, we prepared a report that examined the differences in each of the billing approaches. The report described the following billing approaches: sewer meters; non-seasonal water usage; water usage with a cap; percentage of water usage; flat rate; and ad valorem taxes. 

Raftelis also performed a detailed evaluation of the differences in the non-seasonal water usage and percentage of water usage approaches for determining wastewater charges. We developed nine scenarios to examine the rate impacts under the two approaches in order to determine whether or not one approach was significantly better. We found that neither approach was superior. 

Finally, Raftelis examined the costs associated with shifting to a wastewater measurement approach that could theoretically allow more accurate wastewater billing. In the lawsuit, the plaintiffs mentioned that sub-metering would be a more appropriate approach for the City to use in determining wastewater charges. We performed an in-depth analysis of the potential costs associated with implementing sub-metering. We found that the costs associated with implementing such an approach would more than offset any potential benefit. Council approved the rate increases.