For quite some time there has been a back-door tax on Los Angeles Residents through the power of the Department of Water and Power. There have been those that have railed against the way the DWP does business for years, but I think that for the most part their activities (and their detractors) have flown under the radar for a variety of reasons.

DWP rates are indeed lower than other regional power suppliers. DWP in particular looked good back when power rates were being manipulated, and rolling blackouts were occurring, with Enron at the bottom of a system of market manipulation that had been allowed to come into being through a combination of de-regulation and a relative lack of supply that really was a result of market manipulation (although there were plenty of claims that the lack of power plants having been built and infrastructure upgrades were to blame).

There was a lot of outcry over the market manipulation, and many lost their retirement because they believed in Enron and had tied their financial future into the stock of the corporation, some did go to jail over the scandal. LADWP however controls enough of its power that it's rate-payers suffered no blackouts. In fact, during the time of the rate manipulation, actually sold excess power to other utilities at the prevailing (manipulated) rates. While getting paid entailed a legal battle (those that owed LADWP for the power that was sold at the time), LADWP finally received $146.5 Million in 2009 for that period. http://www.wadisasternews.com/go/doc/1475/360415/ . You might think that sort of windfall would actually help subsidize DWP expenses, and bring DWP ratepayers a credit of some sort, or at least delay an increase in rates. You'd be wrong.

DWP is a municipal monopoly. In theory this means that rates can be kept lower because there are no shareholders demanding dividends. Any profits can be (in theory) used to pay for improvements, or to reduce rate costs, or both. Or, those profits can be transferred to the city in order to keep tax rates from increasing on the public. Or, those profits can be a backdoor tax on ratepayers.

On a regular basis, DWP makes transfers to the city of Los Angeles General Fund. It is a regular dance for the DWP to request a rate hike, or threaten to withhold the transfer of funds. This year though the proposed rate hike was so high that it couldn't be ignored. And when questions were brought up, the rationale for the level of rate increase that was proposed kept changing. And given the current economic environment coupled with the nature of unchecked government spending, coupled with the Mayor's apparent fixation to ensure a "green" city despite the cost has brought a spotlight to this issue that may or may not fade away soon, but hopefully it will be an issue that the people take back under control.

No way to know what is going to happen next, but there is at least some talk about changing how the board for the LADWP is appointed. That probably won't be enough though. An audit with teeth needs to be performed, and how any surpluses that they do earn need to be better monitored as to how they are used, but that's more a matter of the "surplus" being a government slush fund of sorts.

The city has a lot of problems. The worst part is that this isn't even the biggest problem. This is a symptom. It's likely to be get worse before it gets better, but the real question is "how much worse can it get?" I don't think I'm going to like the answer.