ML17306A320

Los Angeles Dept of Water & Power 1989-90 Annual Rept.

ML17306A320
Person / Time
Site:	Palo Verde
Issue date:	12/31/1990
From:	Caruso R, Gage M, Green D LOS ANGELES DEPT. OF WATER & POWER
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LOS ANGELES DEPARTMENT OF WATER AND POWER 1989-1990 ANNUAL REPORT

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RESOURCE MANAGEMENT IN THE 1990s 9'112170364 911209

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INTRODUCTION TO PROVIDE ADEQUATE AND RELIABLE SUPPLIES OF WATER AND'ELECTRICITY FOR THE CITY OF LOS ANGELES THROUGH THE 1990s AND BEYOND, THE DEPARTMENT OF WATER AND POWER MUST OPERATE EFFECTIVELY IN A CLIMATE WHERE SENSITIVITY TO THE ENVIRONMENT AND THE NEEDS OF ITS, CUSTOM E'RS ARE PARAMOUNT.

~z THESE PRIORITIES REQUIRE EACH OF OUR EMPLOYEES TO WORK WITH RENEWED DEDICATION AND CONCERN FOR THE WOQLD AROUND THEM.

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I WATER AND-POWER DOLLAR WATER REVENUE DOLLAR IN CENTS ~

WATER EXPENDITURE DOLLAR IN CENTS I 3 4 5 8 25 h

14 55 36 14 19 16 I Fire hydrant rentalI 4 Payments to the City '

- 3 Other Retirement Plan costs related to operations 5 Gtnernmental 14 Capital improvements 36 ResTdential 14 Debt service costs 55 Commercial and industrial 16 Other operating expenses 19 Operating salaries arid wages 25 Purchased water and energy POWER REVENUE DOLLAR IN CENTS POWER EXPENDITURE DOLLAR IN CENTS 2 3 4 13 7 35 54 12 28 15 '13 t

2 Street lighting 4 Retirement Plan costs related to operations "3 Other 5 PaymentstotheCity 13 Industrial 7 Capiml impnnements 28 Residential 9 Debtservicecosts 54 Commercial 12 Opemting salaries and wages 13 Fuel 15 Oilier operating expenses 35 Purchased energy

COMPARATIVE HIGHLIGHTS

% Increase  % Increase Year ended June,30 1990 1989 (Decrease) 1990 1989 (Decrease)

Service Gallons in billions Kilowatt,hours in billions t

Sales 208.8 208.1 0.3% 21.8 21.9 (0.5%)

Customers average number (thousands) 643.4 640.6 0.4% 1,344.6 1;325.3 1.5%

Financial In millions In millions 5 354.6 S 306.7 15.6% $ 1,866.7 $ 1,734.6,7.6%

Revenue'"'perating costs") 230.4 206.0 11.8% 1,455.9 . 1,301.2 11.9%

Net income 62.6 42.3 48.0% 156.5 153.4 (19.1%)

Payments to City of Los Angeles 15:0 12.9'6.3% 85.8 78.5 9.3%

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Capital expenditures 113.1 118.1 (4.2%) 360.4 '36.2 s 7.2%

r Net utilityplant 1,282.1 1,202;0 6.7% 3,744.8 3,523.9 6.3%

Capitalization equity and long-term debt 1,319.4 1,250.3 . 5.5% 3,904.4 3,626.1. 7.7%

(A) includes otherineorne net Excluding depreciation

.I expense (B)

PRESIDENT'S'ESSAGE a

As it enters its 90th year of opeiation, the Los Angeles Department of Water and Power is.

proud to be part of the ongoing success story that is the City of Los Angeles. Access to adequate supplies of water and electricity were certainly key elements in this achievement.

~ I Today the Department is entering a new era, characterized by new concerns over quality

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of life and the kind of environment we will leave our children and grandchildren. This year's DWP annual report takes a close look at the responsibilities these new concerns place on the men'and women who manage this enterprise.

Three of us Commissioners Nichols, Green and I are new to th'e'Board of Water and Power Commissioners this year. We are honored to serve with the two incumbent mem-bers, Commissioners Caruso and Echevarria, who have rendered distinguished service to this Department and the city for many years. I We are also pleased to be part of'the larger DWP "family," the 11,000 employees who have made this the finest publicly owned utility in the nation. Their dedication and diligence are in the'best tradition of the Department.

Finally, our thanks.to the Mayor and Los Angeles City Council, as well as other city officials and their staffs, for their continuing support and especially through, these last four difficultyears of drought.

MICHAELGAGE President

~ I9 9 0 B 0 A R D 0 F WAT E R AN D P 0WE R C 0 M M I'S S I 0 N E R S hIICHAEL GAGE President RICK J. CARUSO DOROTHY GREEN Vice President . Commissioner ANGEL M. ECHEVARRIA hiARYt D. NICHOLS Commissioner Commissioner

FROM THE GENERAL MANAGER The year just past has been an eventful one for the Los Angeles Department of Water and Power. Thanks to a gratifying public response to conservation appeals, our Water Sys-tern was able to meet demand in this fourth year of drought through voluntary water conservation. The Power System, impacted by lower hydroelectric production and periodic curtailments of natural gas, still managed to supply all the city's power needs with flying colors.

~The Department made significant strides last year in affirmative action, employee safety and customer service. Our financial position remains strong, with DWP revenue bonds rated among the best in the public utility sector. Meanwhile, Los Angeles water and power customers continue to enjoy rates substantially below those prevailing in sur-rounding communities.

As a result of these achievements, we enter. 1990-91 confident that we can continue to provide quality service to the nearly 3.5 million people of Los Angeles as we move toward the 21st century. We are indebted to the 11,000 employees of this Department, whose hard work and dedication have made these achievements possible.

Despite these positives, the road ahead signals a number of changes in the way we approach our business. Although the Department prides. itself on its record as a respon-sible operator, new public concerns for the environment require that we increase our

~ diligence in this area.

This means DWP employees and managers must be more sensitive to the world outside II our operating sphere, to issues like global warming, recycling, resource conservation and the health effects of electric and magnetic fields.

We must also look more closely at the parameters that have guided our industry's planners-for the last two decades. We need to be more receptive to ideas that fall outside

those boundaries, including greater reliance on alternative energy sources like solar and geothermal and expanding the concept of purchasing conservation.

In the area of water resources, we must give even more emphasis to conservation, and take a closer'look at opportunities for reclaiming wastewater. Above all, we must recognize that these resources are finite.

As rapidly as the resource priorities are changing, the human side of our business is changing even more rapidly. The transformation in the work force of Southern Califor-nia more ethnically diverse, multilingual, younger will require radical changes in the way we reLruit, train'and develop future employees.

We welcome the fresh ideas and spirit that the new members bring to the Board of Water-I and Power Commissioners, and we look forward to working with them to meet the challenges that lie ahead.

In June, 1990, Norman E. Nichols announced his retirement as General Manager and Chief Engineer After 33 years of dedicated service. Throughout his long and distin-guished career, he demonstrated a keen understanding of the utility industry and was a

. major force in the development of electric transmission and generation throughout the West. His insight and strategic vision positioned the Department well for the future.

~p '(tf DA N I E L W. WAT E RS General Manager and Chief Engineer

THE DEPARTMENT IN BRIEF The Los Angeles Department of Water and Power supplies water and electricity'to the approximately 3.5 million residents of the nation's second largest city. As the largest municipally owned utilityin the nation, DWP has more than 11,000 employees sei ving a, 465-square-mile area ranging from the San Gabriel Mountains to the Pacific Ocean. It I

began municipal distribution of water in 1902 and electricitp in 1916.

's a proprietary agency of the Los Angeles City government, the DWP receives no tax support. Its operations are financed entirely by. the, sale of water and electricity. Revenue bonds are its main source of external financing.

The DWP is administered by the Board of Water and Power Commissioners, whose five

.members are appointed by the Mayor and confirmed by the City Council for terms of 1

five years. The, Board establishes water and electric rates, subject to approval by the City Council.

DEPARTMENT OF WATER AND POPOVER DANIELW. WATERS General Manager and Chief Engineer ELDON A. COTTON Assistant General Manager Power JAhIES F. WICKSER Assistant General Manager Water NORMAN L. BUEHRING Assistant General Manager External and Organizational Services NORMAN J. POWERS Chief Financial Officer

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RESOURCE MANAGEMENT IN THE 1990s PRESERVING A DELICATE BALANCE'

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MANAGING THE RESOURCES THAT HAVE MADE LOS ANGELES ONE OF THE MOST PROSPEROUS AND ATTR'ACTIVE CITIES IN THE WORLD IS A CHALLENGE NEVER IMAGINED 1

BY THE PIONEERS WHO SETTLED HERE 200 YEARS AGO. AS STEWARDS O'F THE MOST VITAL

=OF THESE RESOURCES, THE DEPARTMENT OF WATER AND POWER TODAY FINDS ITSELF AT A t

CRITICAL CROSSROADS. ll AS THE CITY HAS MATURED INTO A MAJOR CENTER OF COMMERCE AND CULTURE ON THE PACIFIC RIM, ITS GROWING NEED FOR WATER AND ELECTRIC ENERGY HjL4 PLACED. HEAVY DEMANDS ON THE RESOURCE BASE )END ECOSYSTEM OF THE SURROUNDING REGION. 5 SOUTHERN CALIFORNIA'S WATER REQUIREMENTS SPAWNED MASSIVE AQUEDUCT SYSTEMS FROM THE SIERRA NEVADA AND THE SACRAM'ENTO DELTA. SUPPLEMENTED BY SUPPLIES FROM THE COLE) RADO RIVER AND LOCAL UNDERGROUND WELL'S", THIS WATER BECAME OUR LIFE STREAM. 5 MEANWHILE,

, THE CITY'S DEMAND FOR ELECTRICI fY HAS REQUIRED US TO IMPORT POWER FROM THE

'PACIFIC NORTHWEST, UTAH, NEVADA AND ARIZONA. IN 1989, MORE THAN 5.5 MILLION I

r TONS OF ARIZONA AND UTAA COAL WERE BURNED TO PROVIDE ELECTRICITY FOR THE PEOPLE OF LOS ANGELES. 9 THE DWP HAS REDUCED IN-BA'SIN AIR EMISSIONS BY 90'ERCENT OVER THE LASX'0 YEARS, AND WILL CONTINUE TO IMPROVE AIR QUALITY IN THE FUTURE. It BUT, MEETING THE NEEDS OF ITS-CUSTOMERS AND PROTECTING THE NATURAL ENVIRONMENT HAS BECOME A GROWING CHALLENGE FOR THE MEN AND'OMEN WHO MANAGETHE NATION'S LARGEST PUBLICLY OWNED UTILITY. IT'S A

'BALANCING ACT WITH NOTHING LESS THAN OUR CITY',WELL BEING AT STAKE. ll IN THE FOLLOWING PAGES, WE EXAMINE SEVERAL WAYS THE DWP, IN 'ITS 90TH YEAR OF OPERATION, MANAGES THE PRECIOUS HUMAN, ENVIRONMENTALAND FINANCIAL

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RESOURCES THAT MAKE THIS ONE OF THE MOST VIBRANT CITIES IN THE WORLD.

RESOURCE'ANAGEMENT IN THE 1990s TURNING THE CORNER ON ELECTRIC VEHICLES i t e near y 1 50 years since it was coined, the term "smog" has come to symbolize the darker side of life in Los Angeles. And, despite decades of rhetor'ic and good intentions, smog e continues to blight the environment of this sunswept region.'"9 A corner in the war against air pollution may have been turned recently, however, when the South I Coast Air Quality Management District (SCAQMD) issued a multiphase plan that included proposals to curb our reliance on gasoline-powered automobiles. 'il In-eluded in the plan was a'call for increased use of electric vehicles in the Los Angeles

,, I Basin. The SCAQMD's target is to repla'ce 70 percent of the gasoline vehicles in Southern California with electric (or other ultra-low-emission) vehicles. by the year DECAF OR REGULAR? 2010 an ambitious schedule, supporters admit, but an achievable one. 'll For-tunately, the Department of Water and Power spurred by the Electric Vehicle Initiative fathered by Los Angeles City Councilman Marvin Braude 'has already 1

launched a major development program,'in conjunction with Southern California

! o Edison, that'could hasten the arrival of electricvehicles in significant numbers by'he year 2000. 'll Over the next three years, the DWP will provide-design and If g development funding. of up to $ 12 million to participants in the program. The Replacing an old refrig- resulting product will be production-ready vehicles with top speeds of 70 mph and erator with a new high-an effective range of up to 150 miles. When they go into full-scale production in mid-efficiency model saves electricity in a 'nough 1992; each vehicle will cost between $ 20,000 and $ 30,000. ii The-plan is to year to brew mote have 10,000 electric automobiles, vans and trucks traveling the streets of Los .

than 1,500 pots of coffee Angeles by 1995;.eliminating an estimat'ed 1,350 tons of pollutants each year.

, andtoast3,000slices of bread. Powering the vehicles will add only minimally to the city's electrical demand, since .

most will be recharged during off-peak hours. 'I1 The best news for smog-sensitive commuters is that electric vehicles are 97. per'cent less polluting than con-

'ventional vehicles, even considering emissions from electric generatin'g plants. % Conventional wisdom has long held that Angelenos will be hard to wean from their 'dependence on gasoline. But the DWP. and other suppor'ters of the Electric Vehicle Initiative are betting that process willbe easier than many "experts" think.

ith more than 11 000 employees the DWP has one of the largest and most diverse work forces in Los Angeles. To make sure it is also one of the best in the industry, the Department aggressively pursues ways to help employees reach their full potent'ial.

Through employee development programs like "Investment in Excellence," the Department has involved several thousand people from throughout the organiza-tion in this process,.with excellent results. 'll Part of the ongoing effort to io

ELECTRIC VAN POOL

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4I ELECTRIC VEHICLES WILL FORM THE CORE OF A NEW FLEET OF ALTERNATE-FUEL CARS AND VANS THAT IS EXPECTED TO MAKE UP 70 PERCENT OF THE TRAFFIC ON SOUTHERN CALIFORNIA STREETS AND FREEWAYS B'Y THE YEAR 2010. THE DWP HAS BEEN A LEADER IN THE DEVELOPMENT OF PRACTICAL AND ECONOMIC ELECTRIC VEHICLES.

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DWP EFFORTS TO ENCOURAGE ITS CUSTOhIERS TO CONSERVE WATER BROUGHT SIGNIFICANT RESULTS IN 1990, WHEN WATER USAGE IN LOS ANGELES DROPPED AROUND 10 PERCENT. THE DEPARTMENT ALSO STEPPED UP ITS DRIVE TO hIAKE GREATER USE Og'1PCYCLED WATER FOR IRRIGATION AND REPLENISHING UNDERGROUND WATER TABLES.

RESOURCE MANAGEMENT IN THE 1990s I

maximize human resources focuses on DWP's top managers the 285 men and women wpo must deal with rapid change in the utility industry and growing pres-sure on all industries to do more with less. One of the toughest changes they must manage. is the work force itself a blend of cultures, education, men and women, young and old, each with its own values and work style. 'Il For the past two years, these managers have been taking part in an innovative program aimed at strengthening their ability to sh'are responsibility with staff as a means of promoting productivity, creativity and job satisfaction. Several factors distinguish DWP's man-agement development program from most employee training activities. 'Il For one thing, it is peer directed. A subcommittee of middle managers, working with a THE 1990 DROUGHT representative of the Department's Human Resources Division, structures and HOW BAD WAS IT?

designs the program, ensuring that their peers buy into the process. '9 It is also competency-based, built around a core curriculum that zeroes in on the kind qf trairiing support managers need to become more effective leaders. 'll - The core course, covering nine days, addresses such topics as the changing work force, valu-ing diversity, interpersonal and group processes, conflict resolution and listening skills. The coie curriculum is supplemented by presentations on significant issues lns Angeles got just and strategies by senior executives and support c'ourses in such areas as information seven inches of rain last systems use aqd communication skills. Il Focus groups are another critical com- year. The lowest annual ponent, helping managers assess which ideas work for them and which do not and total for the city was

/ 4.08 inches in 1953. But determining what techniques might be applied to get the most mileage from the it could be worse: The training. 'jl A further 4enefit of the program is that it facilitates communication town of Bagdad, Cali-fornia once went for two among managers from all divisions of the Department, fost'ering the feeling that years without a drop of they are part of a larger team working toward common goals. jl "I realize we all precipitation.

face the sa'me challenges," says Gloria Elgort, one of the participants. "I now-have a better understanding of the power that goes with leadership and how important it is to delegate some of my decision-making responsibilities to the people who work with me."

MAKING EVERY DROP COUNT;,&On April 1 1990 the DWP received the official forecast of the snow runoff in the Sierra Nevada, The news was not encour-aging: Los'Angeles faced its fourth straight year of drought. Never since data collection began in 1935 had the city undergone so many consecutive years where the snowpack was less than 70 percent of normal. 'jl The prospect of yet another year of drought triggered an ambitious campaign to conserve the city's increasingly valuable water supply. A task force'swung into action to come up with new pro-grams that could be used in conjunction with existing on'es to make a real impact on consumption. jl To spur residential conservation, the Department now offers 13

RESOURCE MANAGEMENT-IN THE 1990s-0

$ 100 cash rebates for residential installations of ultra-low-flush toilets, home water surveys to boost efficiency, lawn-watering guides, conservation kits with low-flow shower heads and toilet-tank displacement bags, and low-interest loans for such water-saving devices as drip irrigation. More'than 1.3 million low-flow shower 0

heads have been distributed to our customers. '5 Golf-course-operators and

,other large-turf customers were trained on ways to irrigate more efficiently, while Water Conservation A'dvisory Committees are being set up for commercial and JJ industrial users anxious to cut operating costs by reducing water consumption.

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'i! Teams of "Drought Busters" trained in water conservation began touring the I'LWASH city in specially marked vehicles'to spot waterwaste and convert wasters into YOU DRY

'savers. 'll A $ 2 million advertising campaign in major print and broadcast media, public information activities,"a Conse'rvation Hotline and a host of land-scape water management efforts also contributed to a dramatic reduction in water use during the last three months of the 1989-90 fiscal year. li "Our biggest ii( <

JJ J challenge has been to create a water conservation program that gets results by changing people's habits, not their lifes'tyles," says George Martin, Director of

.Water Conservation. n"We try to make people aware of the shortage, explain their

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Atr drying one dish- stake in conservation and then support their efforts to cut back."' As water J

0 washer load saves supplies get tighter, the DWP also p'ushed ahead with plans to reclaim and recycle enough electricity to run a personal computer or "used" water for irrigation, industry and recharging our underground reservoirs. It color television for 0'aunched a two-year study at the Headworks Spreading Grounds near GriffithPark two hours.

to assure that reclaimed water returned to the groundwater will always exceeded health-based drinking water standards. ii Los Angeles moved closer to finaliz-'ng plans to use reclaimed water to" irrigate 1,400 recreational acres in the Sepulveda JJ 0 Dam Basin, as well as supplying four large irrigation customers along the Ventura

. Freeway.

'll "We have a strong commitment to make greater-reuse of our water in the future," explains Steve Ott, Reclamation Coordinator. "There's real'potential here, and we intend to take full advantage of it."

IJ A NAG I N GAY I TAL RE soURGErobablynosingle 0

more important to the City of Los Angeles than the watershed of the Eastern Sierra Nevada. Without the mountain snowmelt that flows into Inyo and Mono Counties, the city we, know could not exist. 'll To protect this vital resource, which in normal years'provides more than half the water supply for Los Angeles, the Depart-ment of-Water and Power has an extensive watershed management program that O

0 allows for multiple uses of the 312,000-acres of city-owned land in the region. The Department's multiple use policy allows a va'riety of activities that are compatible D

0 with water quality protection. 'll More than'40,000 acres of the city-owned l4 0

EN Vl RONM ENTAL OiVENS VALLEY L.

1'il hlULTIPLE USE AGREEhlENTS ON DWP ACREAGE IN THE OWENS VALLEY PERhlIT FARhlERS, CAhIPERS> FISHERhlEN AND HUNTERS TO SHARE IN THE NATURAL BENEFITS OF THESE LANDS, WHILE PROTECTING THE VITAL WATERSHED. hlEANWHILE, A PLANT AND WILDLIFE hlONITORING PROGRAM ASSURES THE LONG-TERhl SURVIVAL OF THE ECOSYSTEM.

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is@u4%%4SKVMiSICNA%1llk ~!2<k//////////////k////////////////////////// <))III)1)I)IIII)1)Ii))))Illa'~1)I)II11111%%11)( ////I/// /I///////luu/uauaruia(/II/I// 111)I)IIIIIIII)I))IIII)ill)'lllll)l))))I'lll v ~ l ((((((((((N(((((((( ))))))NI)l)l))))) MAJOR INVESThIENTS IN A FILTRATION PLANT AND OTHER WATER TREATMENT FACILITIES ASSURE CONTINUING HIGH QUALITY WATER FOR DWP CUSTOMERS. STATE AND FEDERAL WATER QUALITY REQUIREMENTS, WHICH ARE EXPECTED TO GET EVEN hIORE STRINGENT OVER THE NEXT DECADE, WILL REQUIRE FURTHER INVESTMENT IN THE 1990s. RESOURCE MANAGEMENT IN THE 1990s land'are leased to ranchers for grazing cattle, with approximately 18,000 acres irrigated for pasture and alfalfa, which requires little use of fertilizers or pesticides. Land is also leased to government agencies and private parties for beneficial uses such as campgrounds, airports and scientific studies. While most DWP lands are open to the public for recreational use, camping is restricted to designated areas. 'll A key feature of. the DWP's management program is an ongoing inven-tory and monitori'ng of plant and wildlife in the area. Started in 1979, the inventory by a DWP team of botanists and wildlife biologists now includes'ore than 1,000 species of plants and animals carefully mapped across the 312,000-acre survey area. l) How and where these species thrive can indicate the condition and trend of the THE CHECK P PLEASE overall'watershed.  % The DWP, working with the California Department of Fish and Game, has also developed a multitude of fish and wildlifeprograms on its lands. Under a cooperative agreement signed with Inyo County in 1985, some 18 enhancement/mitigation projects have been implemented in the Owens Valley. 'll These projects range in scope from development of agricultural greenbelts to wildlifeand waterfowl habitats and recreation, and are primarily aimed at beautify- / ing the Valley and enhancing the local e'conomy. 'll As a member of the Inter-agency Committee on Owens Valley Land and Wildlife, the Department Declining a glass ol participates in a wide range of cooperative projects and programs to benefit the water in a restaurant saves about eight ounces Owens Valley. li How long do the DWP experts expect the Inyo/Mono water- of water for drinking shed to provide its life-giving resource? "Ifwe do our jobs," says one manager, "it purposes, plus a gallon more to wash the glass. will last forever." QUAL ITYTHENAMEQFTGAhe fiist thing Leonard patton does when he begins his shift at the Los Angeles Aqueduct Filtration Plant control r room is sit down at his computer and check all the critical functions at the state-of-the-art plant. 'll For the next eight'hours, he uses his computer system and telephone to monitor and direct nearly every phase of the operations designed to give the people of Los Angeles the best'possible water. if "I direct about 99 percent of the operations. from the control room, which means I'e got to pay every minute," says Patton. "It's a lot of responsibility, but I like.the fact 'ttention that we'e turning out safe, clean water." 'll The $ 146 million Filtration Plant project, capable of treating 600 million gallons of water a day; is the cornerstone of the DWP's solid commitment to water quality. li Water from the eastern Sierra' the city's primary source travels as far as 338 miles along the Los Angeles Aqueduct before reaching the plant. Although the water is protected along the way to keep it free from contamination, the treatment process doesn't begin until the water enters the large filtration complex in Sylmhr. 'll With a flick of the wrist, RESOURCE MANAGEMENT IN THE 1990s Patton and his fellow control room operators can tune in.on the water's progress at any stage in the plant via computer and make necessary adjustments. ll They monitor the water through an elaborate treatment procedure that uses ozone gas as a primary disinfectant and then chlorine to provide lasting protection. Ozone is a ~ powerful, quick-acting disinfectant that also improves taste, odor and color. 'll Pattpn also tracks a variety of processes that reduce turbidity a cloudy condition caused by fine, dust-like particles that might hinder disinfection. 'll The coln-plete run through the plant takes anywhere from 30 to 45 minutes, depending on the volume being processed, before the water is released to the DWP's distribution system. The process never stops. ll A few miles to the southeast, employees at THE $ 100 SOLUTION -the Department's North Hollywood Groundwater Treatment Facility also rely on advanced technology to ensure high quality in water from the underground basin of the San Fernando Valley. 'll The tower uses an air stripping process to achieve sharp reductions in the levels of chemical contaminants like trichloroethylene in the water. The air evaporates the'organic compounds, which are removed with carbon filters and properly disposed of. ll The two operations, along with well-trained and conscientious employees, make it possible for the DWP to supply water that is Flushing toilets is one of always better than all state and federal health-based requirements. the biggest residential , uses of water in Los Angeles. DWP rebates its '~government is the potent, the omnipresent customers $ 100 for each standard toilet replaced teacher," wrote Supreme Court Justice Louis Brandeis in 1928. "For good or for ill, it with an ultra-low-flush teaches'the whole'people by its example." 'll In its efforts to encourage cus-model. The new toilets tomers to save energy and water, the DWP has no more powerful resource at its can cut water use for disposal than its own record on conservation. 'll For the past three years, the flushing by up to 75 percent. Department has promoted energy conservation through Cash Incentive Programs designed to encourage the installation of energy-efficient lighting and space condi-tioning systems. These allow more efficient use of existing generation sources and could help defer the need for additional generation capacity. 'll Typical of the DWP's conser0ation emphasis is the planning for its new Anthony Office Building, now under construction in the San Fernando Valley. When completed in late 1991, the 315,000 square-foot structure will embody the latest in energy-saving technol-ogy, as well as a number of "user friendly" applications to make it a more productive workplace. 'll For example, the building will be cooled using a thermal energy storage system that does most of its work during off-peak hours, using water that is chilled and stored overnight to cool the offices during daytime hours. Windows will be made of special glass that lets in maximum light with minimum heat. Lighting. fixtures will be controlled automatically by detectors that measure natural light levels, turning the fixtures off when ambient light is sufficient. 'll To conserve 18 DROUGHT- TOLERANT PLANTS ill ~ /g '/ A" a~eA a$ Kc~~ USING DROUGHT- TOLERANT PLANTS IN LANDSCAPING HAS BECOME POPULAR IN MANY WATER-SHORT AREAS OF TklE SOUTHWESTERN U.S. TklE DWP PLANS TO INCORPORATE THIS TYPE OF LANDSCAPING AT MANY OF ITS FACILITIES IN THE FUTURE, INCLUDING LOCAL DISTRIBUTING STATIONS AND THE NEW ANTHONY OFFICE BUILDING. THIS "XERISCAPE" LANDSCAPING CAN CUT WATER USE FOR IRRIGATION BETWEEN 30 TO 60 PERCENT OVER THE LONG TERM. FINANCIAL l) 1)) i )

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ll ti II-- IJ ii il I fi-( ii II ~ I1I I hlAINTAININGA SOLID DEBT RATING IS A MAJOR PRIORITY FOR THE DWP, WHICH FINANCES FUTURE GROWTH THROUGH REVENUE BONDS WHOSE INTEREST RATES ARE KEPT LOWER BECAUSE OF THE DEPARTMENT'S FINANCIALSTRENGTH. THIS HIGH RATING SAVES DWP RATEPAYERS hllLLIONS OF DOLLARS A YEAR. RESOURCE MANAGEMENT IN THE 1990s water, the 35-acre, site will be landscaped with drought-resistant "native" plants, trees and 'groundcover a concept known as "xeriscaping." Once these plants are established, they survive. with virtually no irrigation other than rainfall. 'll Workers at the Anthony Office Building will enjoy a number of other special bene-fits, including the most comprehensive child care facility of any public building in Los Angeles: up to 72 children will occupy the 7,000 square foot center. ji The building willconserve another critical resource money. When it is complete, it will save the DWP more than $ 1.5 million each year in rent on expensive downtown Los Angeles office space, while consolidating several key functions under one roof. 'jl Another example, so to speak,'of setting a good example. TIME OF YOUR LIGHT oday's financial marketplace is a tough arena. Using computers and sophisticated communication links; traders can move. millions of dollars across the globe with the flick of a finger. Complex financial products are packaged and marketed like designer jeans on exchanges that never close. jl To raise money for future construction programs, the Department of ~ Water and Power must compete regularly in this fast-paced arena. In a single year, the DWP must manage (iie., borrow, refinance or disburse) about $ 3 billion, nearly Replacing a 100-watt for the rest of the City of Los Angeles. incandescent light bulb as much money as the entire annual budget with a fluorescent lamp 'll This process requires a solid understanding of today's complicated financial saves enough power, in markets, as well as the ability to manage risk. That DWP managers have mastered just the first hour of use, 'o run an electric clo'ck this process is reflect'ed in the Department's high standing among financial analysis, for'more than a'month. who rate the DWP. among the top credit risks of all public power agencies. This rating translates into lower costs of borrowing for the DWP and savings to Los ~ Angeles ratepayers. Each tenth of a percentage point (0.001) in annual interest on the Department's $ 2.2 billion. in outstanding revenue bonds amounts eo annual interest payments of $ 2.2 million about the cost of the DWP's new San Fernando Valley water aeration plant. 'll Credit markets are monitored closely by DWP financial managers in an ongoing effort to lower borrowing costs, by refinancing higher-cost debt when interest rates decline. At the moment, the DWP is also exploring "hedging" strategies that could insulate it against sharp rate fluctuations, while still permitting it to capitalize on lower rates. jl A key element of DWP's financial management is keeping investment banks and analysts informed on Departmental activities that affect its financial strength and needs. Specialists from major.U.S. financial centers'are in frequent contact with DWP management, and make periodic visits to DWP for "on-the-spot" updates. jl These and other activ-ities of the Finance and Accounting staff are designed to assure that its "owners," the ratepayers in Los Angeles, get the best return possible on their investment. 21 OPERATIONS OVERVIEW I ~ i '~,xtreme drought- conditions persisted'n the Southwestern U.S. for a fourth year during 1989-90, combining with prolonged warm weather in the Los Angeles Basin to put+em strains on the city's water and electricity supply systems. I For the first time since it was completed in 1913, the Eastern Sierra watershed over the last two years has failed to provide at least half the water needs of the city, accounting for 47 percent of the city's needs in 1988-89 arid only 30 percent in 1989-90. The 1989-90 flow was.the lowest in 49 years. Also contributing to the decline was a court-ordered cutoff of stream diversions to protect the ecosys-tern of Mono Lake, which normally provides up to 15 percent of the city's water. The shortfall was made up through purchases of more expensive water from. the Metropolitan Water District. Low aqueduct water flow also affected electric "power deliveries, with generation from aqueduct hydroelectric plants cut to 50 percent of normal. This deficit was.made up through increased purchases of electricity from the Pacific Northwest, Arizona, Nevada and Utah. Altogether, the DWP Water System supplied 208.9 billion gallons to some 643,400 customers, vs. 208.1 billion gallons for 640,572 customers in 1988-89. This represents a 0.72 percent drop in daily per capita water consumption from 181.2 gallons to 179.6 gallons for the 12 month period. But consumption during the last third of the fiscal year,'following several months of a'DWP-sponsored conservation campaign, was actually down by 10 percent. Meanwhile, the Power System sold 21.8 thousand gigawatts (billion kilowatts) of electricity in / 1989-.90, vs. 21.4 thousand gigawatts the previous year. The System was serving 1,344,558 customers at, the end of the 1989-90 fiscal year, up 1.5 percent fro'm 1,325,282 customers on June 30, 1989. In June 1990, Norman E. Nichols retired as General Manager and Chief Engineer after 33 years of service with the Department. Daniel W Waters, Assistant General Manager External and Organiza-tional Services, was named general manager and chief engineer to replace him. RATER SYSTEM HIGHLIGHTS I 'e city's water supply. picture was clouded in 1989-90 by continued dry weather and adverse judicial decisions. water su'pplies appear adequate through the end of 1990,.Mayor Bradley'has called on cus- 'hile ~ ~ .tomers to reduce water usage by 10 percent, to allow "banking" of supplies iII case next year is also dry. Banking is achieved by increasing surface storage in Owens Valley reservoirs'(chiefly Crowley Lake) and by reducing groundwater pumping from the San Fernando Valley.. With Phase I of the city's Emergency Water Conservation Ordinance in effect since April'1988, the Department initiated an'rray of programs to achieve the Mayor's goal. Largely voluntary, Phase I restricts uses such as hosing down driveways and requires recycling of water used in decorative fountains. These and other voluntary efforts led to dramatic conservation efforts during the last quarter of. the 22 r I fiscal year: a 12 percent reduction in April, 11 percent in May and 17 percent in June. The Department's goal is to instill a long-term conservation-ethic.  ! Two court actions during the past year affected DWP water supplies from the Owens Valley and Mono'asin. An El'Dorado County Superior Court, in June 1990, ordered the release of ov'er 60,000 acre feet of ~ water in four Mono Basin streams to re-establish fisheries that existed, before the city began taking water 'rom the Basin. Replacing the water from other sources will cost DWP customers about $ 20 million 'a year. The same court also began hearings to determine if an existing'injunction prohibiting the city fiom taking water from the Mono Basin should continue. The injunction remains in effect until Mono Lake reaches 6,377 feet above sea level. As of June 30, 1990, the lake's level stood at 6,375 feet. Following years of study and negotiation, the City. of Los Angeles and Inyo County,in July 1989, agreed in principle on a long-term groundwater management plan for Owens Valley. The City and County are now jointly preparing an environm'ental impact report on the proposed plan.-This milestone agreement,.when finally approved, willresolve more than 18 years of controversy and litigation. I In August 1989, the city agreed to begin Phase IIIof a demonstration project aimed at controlling dust'hat rises around Oxyens'ake. in high winds. The current $ 2 million.study includes construction of . sprinklers to control the dus't. A severe storm in the Owens Valley on Aug. 8, 1989 caused flash flooding that caused about $ 1.3 million in damage to a two-mile section of the Los Angeles Aqueduct near Olancha. DWP crews repaired the damage and returned the Aqueduct to full service within 11 days four days. ahead of schedule. =, .Water service in Los Angeles was not affected. Water quality, as well as supply, remained a high-priority item during the year, The Los Angeles Aqueduct Filtration Plant. continued to discharge water with average turbidity more than five times better than current state standards.. Levels of trichloroethylene'in the San Fernando'Valley groundwater supply, meanwhile, were several times better than regulations allow. The De'partment began construction of a new demonstration plant to test a highly promising treatment process using ozone,and hydrogen peroxide to remove organic chemicals from San Fernando Valley groundwater. More than 435,000 feet of underground distribution lines in older parts of the city were lined with cement mortar as p'art of a long-term program to upgrade ari aging infrastructure and further enhance ~ water quality. / 'A major improvement project was launched, at the North'ollywood Pumping Station to bring this facility up to seismic standards, increase groundwater utilization capability, improve water quality, I reduce maintenance and generate hydroelectric power. To ppsition itself for the future, the System began developing a strategic plan, expected to be completed in mid-December. The plan willadd'ress the key'issues of water suppl'y, quality and customer service. The System'also set up special task forces to deal with such priority concerns as drought planning, conserva-tion and reclamation. I 23 OPERATIONS OVERVIEW s An across-the-board revenue increase of 6.5 percent went into effect April 1, 1990, six months beyond the planned implementation date. The average water bill in Los Angeles rose around $ 1.25 per month in 1989-90 due to the revenue increase. Increased purchased water costs added another $ 2.75.'n February 1990, Duane L. Georgeson retired as Assistant General Manager - Water, and was replaced by James F. Wickser, who had been Assistant Chief Engineer Water. WATER SYSTEM FACTS IN BRIEF Year ended June 30 1990 1989 Use of Water Average Los Angeles population served 3,460,000 3,427,000 Average daily use per capita (gallons) 179.3 181.2 Water sales for fiscal year (billion gallons) 208.8 208.1 Maximum daily demand (million gallons) 835.7 833.1 Water Supply (in cubic feet per second) Local Supply (groundwater) 129.8, 188.3 Los Angeles Aqueduct (Owens Valley/Mono Basin Supply) 284.4 Metropolitan Water District (California and Colorado River Aqueducts) - 545.5 417.5'52.3'58.1'.0* Gross Supply 959.7 Diversion from local storage 00.0 Net Supply to distribution systems 959.7 'Adjustedyear.end supply totals. 960.1'OWER SYSTEM HIGHLIGHTS ncreased emphasis on conservation, envi-. ~ ronmental protection and 'energy efficiency highlighted developments within the Power System during 1989-90. In addition, the System was called on to achieve higher performance levels, establishing new peak demand records on successive days during June 1990. 'esponding to a continuing rise in demand and recognizing the constraints on development of new capacity, the Power System is placing increased emphasis on conservation efforts. In updating its Strategic Plan last year, the System incorporated several goals aimed at improving environmental performance. Also, as part of the Department's management program for critical issues affecting operations, the Power System spearheaded the development of the initial action plan for the electric and magnetic fields issue. The newly revised action plan will incorporate steps to address these issues over the next 'EMF) several years. 24 LOS ANGELES WATER SUPPLY NORMAL VS. 1990 SUPPLY NORMAL YEAR SUPPLY Basevt on Fiscal Years 1971 1990 Avenge 14o/o MWD 16'/o Groundwater 70'/o L.A. Aqueduct 1990 SUPPLY Basevt on Fiscal Year 1990 itveeage 30'/o L.A. Aqueduct 57'/o MWD 13'/o Groundwater 25 POWER SYSTEM ENERGY MIX PETROLEVM'S SHRINKING SHARE ENERGY hl I X 1975 17.8'/o Purchase 43.2'/o Oil 10.3o/o Gas 11.6'/o Hydro 17.1 /o Coal ENERGY Mix 1990 14tn nt o(June 30, 199rt 98o/ P rch 4.8/o Oil 3.3o/o Nuclear 19.1o/o Gas 57.5'/o Coal 5.5 /o Hydro 26 The Department'.s record in developing new generating capacity over'the last decade has been notable for its environmental success, with the most recent DWP power projects incorporating latest emission control technology.'or more than a decade', projects have been designed to avoid adverse environmental impacts, and unavoidable impacts have been mitigated. Sensitivity to ecological concerns will continue to be a hallmark of Power System activities during the 1990s. Through public outreach efforts and inter'nal programs, the Power System is pressing a number of energy efficiency and conservation programs: < Major Account Group representatives work as partners with large customers to find efficient and e'nvironmen'tally positive ways to utilize electrical energy. . < Through literature distribution and public affairs programs, the Power System provided information on energy savi'ngs to all.its customers in'1989-90, and continues to offer energy audits on request to homeowners, as well 'as commercial and industrial customers. > The High-Efficiency Lighting Program continued to save commercial/industrial customers over $5 million per year by encouraging conservation modifications,to th'eir existing lighting systems. '. > The DWP's heat pump incentive program entered its fourth year, with some 14,000 units installed I during 1989-90, bringing the total mumber installed since the program started to 36,500. > In its program of repowering its Los Angeles Basin generating facilities, the System constantly seeks ways to decrease pollution and increase energy efficiency. Plans for'epowering the Harbor Generating Station call for'state-of-the-art controls that will reduce nitrous oxide (NOX) emissions from DWP facilities in the. Basin by around'20 percent. The project will also use reclaimed water from a City wastewater treatment facility. The Power Sy'tem issued a request for pioposals (RFP) for generating systems of.up to 600 megawatts to come on-line between now.and the year 2000. This RFP is designed to encourage development of . smaller-scale alternatives, as well as conventional systems that will give the DWP greater diversity in generation resources. In addition, the Power System has requested proposals for developing geothermal properties the DWP 'I leased from the Federal government in the early 1980s. Initial development willbegin in 1994,'with power production expected to start in the late 1990s. Between 100 and 150 megawatts will be produced. ~ 'Air quality concerns and the prospect. of tighter regulations have spurred efforts by the DWP to encourage development of efficient, cost-effective electric vehicles (see page'10): The Power System is also involved in an associated project aimed at'developing electrified roadway technology, in which current carried by cables in the pavement recharges vehicle batteries. In a joint venture with Southern California Edison,.the DWP will fund construction and testing of a section of electrified roadway in the Playa Vista area. Testing could begin in late 1990. ~ Despite slight increases in electric demand in Los Angeles last year, the System was able to meet needs'ithout purchasing additional capacity. This was possible because the DWP has invested in facilities that give Los Angeles access to power fr'om areas of the Western Unit'ed States and Canada. The Department estimates it will need approximately 1,700 megawatts of additional capacity by the year 2010. 27 OPERATIONS OVERVIEW Allprevious peak power deinand records were exceeded on June 26 and 27, 1990, when downtown Los Angeles temperatures reached 112 and 109 degrees, respectively. The 5,137 megawatts delivered on the 26th and 5,312 megawatts on the 27th surpassed the previous high of 4,774 megawatts set in 1989. DWP's overall power capacity on June 30, 1990, was 7,104 megawatts, 0.15 percent above the prior year. POWER SYSTEM FACTS IN BRIEF Yesrended June30 1990 l 989 Power Use Residential customers 1,151>820 1,135,017 Commercial customers 17,0,755 '68,031 Industrial customers 19,098 19,370 All others , 2,885 2,864 . Total customers all classes 1,344,558 1,325,282 Sales to ultimate customers kilowatt hours 21,321,441,000 21,460,324,000 Sales to other utilities kW hours 442,449,000 437>31 1 >000 Average annual kW-hours per residential customer 5,084 5,181 Net dependable capability, kilowatts 7,249,000 .'Includes purchased capacity; does not deduct short ter>n sales ofexcess capacity. 7,280,000'XTERNAL AND ORGANIZATIONALSERVICES lWOIMj made notable strides in improving the Department's peiformance in the areas of customer service, human resource management and commu- , nity outreach during 1989-90. In keeping with its commitment to improved customer service, the Telephone Service Center went to rotund;the-clock operation in March, allowing customers to call with questions or service problems at any time. The Department also geared up to offer Saturday service, from 8 a.m. to 3 p.m., to turn on water and electricity. The new program went into effect July 1. The DWP continued its progress in furthering employment opportunities'for women and minorities, particularly at management levels. Among the top 150 positions in the DWP, more than 40 percent are now held by minority and/or female employees. The changing work force prompted expansion of the DWP's nationally recognized child care program. 'Plans were initiated to incorporate a child care center at the DWP's downtown headquarters building, and the Department's Anthony Office Building in Sun Valley willinclude facilities to care for 72 children. Some 2,000 employees about 40 percent male "now benefit from DWP's child care services. 28 Wellness programs provided health information, as well as 1,800 blood pressure and cholesterol tests. 'or employees. These tests avert potential health problems and contribute to employee. productivity. / Approximately 200 employees took part in follow-up sessions for the Commercial Division's "Invest-ment in Excellence" program, which emphasizes team-building as a me'ans of strengthening performance-and moralb. More than 4,000 employees have participated:in the seminar program. strong emphasis on safety resulted in further reductions in the number of serious injuries'and 'WP's lost workdays during 1989. Serious. injuries declined by 36 percent from the previous year, while lost workdays due to injury dropped 26. percent. The D'epartment has achieved'a 64 percent reduction in serious injuries over the last d'ecade. ~ The continuing drought has increased the need for effective community outreach programs, and the Department responded with a number of initiatives'in this area. A $ 2 million water conservation advertising campaign'in major print and broadcast media was one of the efforts undertaken. DWP education programs, emphasizing conservation and water quality; reached 100,000 students and 3,000 teachers at all grade levels in some 400 DWP service area schoqls during 1989-1990. New educational programs were conducted starting in January 1990 to teach elementary school children about electric safety, electric generation, air quality, water quality and water conservation. The 'programs featuring theatrical presentations of "Plash Batterypack and His Magic Machine," and "Alice'n Waterland" were presented to an estimated 50,000 pupils. In addition, the Department's.continuing year-round electric safety piogram was presented to an estimated 10,500 children. Advances in computer technology helped DWP employees work smarter and faster during the year.- The Department moved ahead in its program to provide user-friendly access to,business and control systems information throughout the organization. The ultimate goal is to integrate stand-alone com- . puters in the DWP system, including personal computers, into a single network. A new records management system went on line during the year', making it easier for employees to catalog, store, access and use docum'ents. As documents are transferred to microfilm, the need for storage space dimini'shes and storage costs are reduced. Recycling activities took-on increased importance in 1989-90. The Department disposes of much of its surplus metals, meters, paper, tires and batteries through dealers who ship the scrap to overseas 'manufacturers, where most of it is recycled. More than 11 million pounds of these salvageable materials, including 3,500 discarded transfor'mers, were sold to recyclers by the DWP in 1989-90. Revenues from such sales are expected to exceed $ 4 million in 1990. . To build a framework for the future, the Department has established an Issues Management Program, J 'identifying the most critical issues it faces in the years ahead and'is developing action plans to better understand and manage those issues. The four high-priority issues are air quality, water quality, electric and magnetic fields (EMF) and the changing work force. = 29 1989 1990 FINANCIAL STATEMENTS THE WATER SYSTEM V Statement of Income Statement of Retained Income Reinvested in the Business Balance Sheet Statement of Cash Flows Notes to Financial Statements THE POWER SYSTEM Statement of Income V Statement of Retained Income Rcinvested in the Business Balance Sheet Statement of Cash Flows Notes to Financial Statements 30 LOS ANGELES DEPARThlENT OF WATER AND POWER FINANCIAL REVIEW Operations for fiscal year 1989-90 resulted in a decrease of .5 percent in sales of electric cncrgy and a .3 percent mcrcase in water sales. Operating revenues 6f the Department's Water and Power Systems totaled more than $ 2.2 billion, a gain of $ 182 mil-lion over the previous fiscal year. The Power System accounted for $ 134 million of the increase, primarily due to higher energy costs billed to customers. The Water System added S48 million to the total, mostly from higher purchased water and energy costs billed to customers, the increase in sales mentioned above and the effect of the April 1990 revenue increase of 6.5 percent. The operating revenue of the Water System increased by 16% from 1988-89 to a total of S348 million. Net income amounted to $ 63 million, or 48 percent above the S42 million in the previous fiscal year. I A total of $ 113 million was spent by the Water System on capital construction, most of which went toward the improvement of the water distribution and supply system, as well as water quality programs. P Higher Power System operating rcvenu'es, offset by increases in operating and debt expenses, resulted in net income of $ 156 million, down 19 percent from prior year's total of S193 million. Thc Power System invested $ 360 million in capital construction for the year. Major expenditures werc additions and I modifications to the electrical distribution, generation and transmission facilities. Total assets of the Department at June 30, 1990, were approximately S5.9 billion. Of this amount, $ 4.4 billion was recorded in the Power System and the remainder in the Water System. FINANCING ACTIVITIES During the year, the Power System sold two issues of revenue bonds in the aggregate amount of S250 million. The initial $ 150 million revenue bonds were sold at the interest rate of 6.97 percent,,while the subsequent S100 million revenue bonds were sold at the interest rate of 7.17 percent. Outstanding bonds, notes and revenue certificates at June 30, 1990, totaled S1.94 billion for the Power System and $ 380 million for the Water System. Both systems met their maturing payments on bonds and notes. COSTS AND TRANSFERS I In accordance with its basic fiscal policy, the Department pays all costs of operation, debt service and part of the cost of capital improvements from current revcilues. The remainder of the cost of capital improvcmcnts is met through sales of revenue bonds or notes and from contributions in aid of construction. Besides'meeting all costs of operation from current revenues, the Department paid $ 101 million into the reserve fund OE the City in support of general City government. More than 85 percent of that amount came from the Power Revenue Fund. Operations of the Water and Power Sys-tems arc entirely self-supporting and no financial obligation or tax burden is placed on the citizens of Los Angeles. LOS ANGELES nEPARThlENT OF WATER AND POWER REPORT OF MANAGEMENT The management of the Department of Water and Power of the City of Los Angeles is responsible for the integrity of the financial statementS and the other related financial data contajned in this Annual Report. The financial statements and accompanying footnotes which follow were prepared by the Department in accordance with generally accepted I accounting principles applied on a consistent basis. Where necessaiy, the financial information provided in this report include amounts based on the best estimates and judgments of management. The Department maintains a system of internal. accounting control that is delineated to provide reasonable assurance that assets are safeguarded from loss or unauthorized use and that the pecuniary records properly reflect the authorized transactions of the Deparfment. This system is supported by written policies and procedures, organization structures, that assign appropriate division of responsibility, the selection and training of qualified personnel and is augmented by programs of in'ternal audits. Management recognizes that there are inherent limitations in the effective'ness of any internal I control system based upon the recognition that the cost of such systems should3iot exceed the benefits to be derived. The Department believes that its system of internal accounting control appropriately balances this cost-benefit relationsh'ip. The Department's financial statements have been audited by Price Waterhouse and Simpson Bc Simpson, Certified Public Accountants, in accordance with generally accepted auditing standards. Their audit included examiriing, on a test basis, evidence supporting. the amounts ahd disclosures in the financial statements, assessing the a'ccounting princi-ples used and sigriificant estimates made by managemeiit, and evaluating the, overall financial statement presentation. Additionally, the independent accountants review the Department's quarterly financial information. A review is sub-staniially less. in scope than an audit in accordance with generally accepted auditing standards and, accordingly, the independent accountants do not express an opinion on the quarterly financial information. The independent accountants meet regularly with management to discuss their audit and their findings as to the integrity of the finan-cial stat'ements and the adequacy of the internal controls. The Board of Water and Power Commissioners is responsible for reviewing the Department's financial reports and monitoring accounting practices. The Board, composed of commissioners who are not officers or employees ofthe, Department, receives and reviews the repoits submitted by the independent accountants. 32 LOS ANGELES DEPARTS!ENT OF WATER AND POWER WATER SYSTEM STATEMENT OF INCOME 9 (In Thousands) Year ended June 30 1990 1989 1988 Operating Revenues Residential S125,470 $ 110,069 S 94,525 Commercial and industrial 191>236 ~ 166,558 142,456 Other 31,450 23,621 ~ 20,051 Total operating revenues 348,156 300,248 257,032 Operating Expenses l 42I,988 '31,072 Purchased water 71,814 Purchased energy 12,962 12,991 11,613 Other operating expenses 105,725 109,627 95,443 Maintenance 39,849 38,424 34,243 Depreciation. 35,270 32,814 30,584 Total openting expenses, 265,620 238,844 202,955 Operating Income 82,536 61,404 54,077 Other Income'and Expenses, Net 6,428 6,477 2,685 Income before debt exp'enses 88,964 67,881 56,762 Debt Expenses Interest on debt 28,578 . 27,556 23,749 Allowance for b'orrowed funds used during construction (2,196) (2,006) (1,380) Total debt expenses 26,382 25,550 22,369 Net Income 5 62,582. 5 42,331 34,393 STATEMENT OF RETAINED INCOME REINVESTED IN THE BUSINESS (In Thousands) Year ended June 30 1990 1989 1988 Balance at beginning of year $ 493>979 $ 464,500 $ 442,526 Net income for the year 62,582 42,331 34,393 556,561 506>831 476,919 Less Payments to the reserve fund of the City, . 15,012 12,852 12,419 Balance at end of year $ 541,549 $ 493,979 5464,500 Tha areompaniring noir>are an in>>gral parr ofrhrsa fina nliul<<airmen>>. 33 LOS ANGELES DEPARTh'IENT OF WATER AND POWER WATER SYSTEM. BALANCE SHEET (In Thousunds) June 30 1990 1989 Assets UtilityPlant, at original. cost Source of water supply S 244,792 S 243,355 Pumping 56,229 53,499 Purification 146,754 139,947 ~ Distribution 1,208,083 1,105,323 General 126,030 122,252 11781,888 1,664,376 Less Accumulated depreciation 5774678 542,259 1,204,210'7,879, 1 122 117 Construction work in progress 79,947 Net utilityplant 1,282,089 1,202,064 Current Assets Cash and investments 71,878 89,091 Customer and other accounts rcccivable 58,384 54,166 Accrued unbilled revenue 21,605 29,056 Materials and supplies, at average cost 20,259 16,112 Prepayrqents and other current assets 9,574 11,539 Total current assets 181,700 199,964 Total utility plant and assets 81,483,789 $ 1,402,028 Capitalization and Liabilities Capitalization Equity 'etaIned income reinvested in the business S 541,549 S 493',979 Contributions in aid of construction 410,378 376,599 951,927 870,578 Long-term debt 367,477 379,724',319,404 Total capitalization 1,250,302 Current Liabilities Long-term debt due within one year 12,460 20,180 Accrued interest 8,270 9,432 Accounts payable and accrued expenses 83,501 83,472 Customer deposits 40,154 38,642 Total current liabilities 144;385 . 151,726 Commitments and Contingencies Total capitalization and liabiliti'es S1,463,789 $ 1,402,028 The accompan>ing notes are an integral part of these'inancial statements. 34 LOS ANGELES DEPARThtENT OF WATER AND POWFR WATER SYSTEM STAT'E MENT OF CASH FLO31VS (In Thousands) Year ended June 30 I990 I989 1988 Cash Flows From Operating Activities: Nct income S 62,582 S 42,331 S 34,393 Adjustments to reconcile nct income to net cash provided by operating activities: Depreciation 35,270 32,814 30,584 Allowance for'borrowed funds used dttring construction (2>196) (2,006) ~ (1,380) Changes in current assets and liabilities: Customer and other accounts receivable (4,218) 606 (9,252) Accrued unbilledsevenuc ~ 7,451 (7,385) 3,983 Materials and supplies (4,147) (623) (999) ~ Prepayments and other current assets 1,965 3,367 (65) Accrued interest '(1,162) 1,680 1,287 Accounts payable and accrued expenses . 29 13,928 97 Customer deposits 1,512 2,830 1,571 Net cash provided by operating activities 97,086 87;542 60 219 Cash Slows From Financing Activities: Sale of revenue bonds 49,500 84,626 Sale of advance refunding bonds 36,598 Contributions in aid of construction 33,779 18,770, 31,878 Reduction of long-term debt (19,967) (20,054) (19,327) Amount deposited in escrow accounts and offset against advance refunding bonds (36,598) Payments to the reserve fund of the City (15,012) (12,852) (12,419) Net cash provided by (used in) financing activities (1,200) 35,364 84,758 I Cash F]ows From Investing Activities: Expenditures for plant and equipment (113,099) (118;144) (97,784) Cash'nd Investments: Net increase (decrease), (17,213), 4,762 47,193 Beginning of year 89,091 84,329 37,136 End of year S 71,878 S 89,091 3 84,329 Supplemental disclosure of cash flow information: Cash paid during the year for interest S 36,799 S 32,223 28,820, 4 The accotnpan>8ng notes are an integral part ofthese fwancial statements. LOS ANGELES DEPARThtENT OF WATER AND POWER WATER SYSTEM NOTES TO FINA,NCIAL STATEMENTS Note A Summary of Significant Accounting Policies The Department The Department of Water and Power of the City of [us Angeles exists under and by virtue I of the City Charter enacted in 1925 as a separate proprietary agency of the City. The Water. System is responsible for the quality and distribution of water for sale in the City. Financial statement presentation The financial statements of the Water System are presented in conformity with gener-ally accepted accounting principles. The financial statements are substantially in conformity with the uniform system of accounts prescribed by the California Public Utilities Commission excep~ for the method of accounting for contribu-tions in aid of construction described below. The Department is not subject to regulations o'f such commission. Utilityplant The costs of additions to utility plant and.replacements of retired units of property are capitalized. Costs include labor, materials and allocated indirect charges such as engineering, supervision, transportation and construc-tion equipment, retirement plan contributions, and certain administrative and general expenses: The costs of repairs . and minor replacements are charged to appropriate maintenance accounts. The origirial cost of property retired, plus removal cost, less salvage, is charged to accumulated depreciation, Depreciation Depreciation expense is computed by the straight-line method based on estimated service lives. Deprecia-tion provision as a percentage of average depreciable utilityplant in service was 2.5%, 2.5% 2.4% for fiscal years 1990, 1989 and 1988, respectively. Cash.and investments The Department's cash is deposited with thc City Treasurer who invests the funds iri securities r under the City Treasurer's pooled investment program, whereby available funds of the City and its independent operat-ing departments are invested on a combined basis. These invcstmcnts are valued at cost, which approximates market. Contributions in aid of construction Under the provisions of the City Charter, amounts received from customers and others for constructing utilityplant are combined with retained income reinvested in the business to represent equity for purposes of computing the Water System's borrowing limits. Accordingly, contributions in aid of construction are, shown in the accompanying balance sheet as an equity account and are not offset against utilitypbnt. Revenues Rcvcnucs consist of billings to custoniers ftIrwater consumption and include amounts resulting from a pur-chased water and energy cost adjustment formula designed to permit the full rccovcry of purchased water "and energy costs. The Department projects these costs to establish the cost recovery component of customer billings and any differ-cncc between billed and actual costs, resulting in over- or under-recovery of purchased water and energy costs, is adjusted in subseq'uent billings. The Water System recognizes purchased water and energy costs in the period incurred and accrues for'estimated unbilled revenues for water sold but not billed a't the end of a fiscal year. The Water System's rates are established I by a rate ordinance which is approved by the City Council. The Water System sells water to other Dcpartmcnts of the City at regular rates provided in the ordinance. l Debt expenses Debt premium, discount and issue expenses are deferred and amortized to expense over the lives of the related issues. ~ Allowance for funds used during construction (AFUDC) AFUDC represents the cost of borrowed funds used for the construction of utilityplant. Capitalized AFUDC is shown as part of the cost of utilityplant and as a reduction of debt I expenses. The average AFUDC rates were 7.8%, 8.1% and 8.4% for.fiscal years 1990, 1989 and 1988, respectively. 36 Note B Long-Term Debt" \ ~ Long-term debt outstanding at June 30, 1990, consisted of revenue bonds due serially in varying annual amounts through 2028. Interest rates, which vary among individual maturities, averaged approximately 7:2% and 74% at June 30, 1990 and 1989, respectively. The rcvcnue bonds generally are callable ten years after issuance. Scheduled annual principal maturities during the five years succeeding June 30, 1990 are $ 12 million, $ 12 million, S13 million, million and $ 13 million, rcspcctivcly. '13 ~ ~ In fiscal year 1990, the Water System sold advance refunding bonds totaling $ 37 million, which decreased its aggre-gate debt service payments by $ 10 million over the next 42 years and'resulted in an economic gain (difference between the present values of the old and new debt service payments) of S4'million. I)ntil the bonds to be refunded are called, interest on the advance refunding bonds is payable from interest earned on securities of the United States government 'urchased out of the proceeds of the sales and held in escrow accounts with Security Pacific National Bank, Los Angeles and Citibank, N.A., New York. At June 30, 1990, $ 122 million'ofthese escrow accounts have been offset'against the advance refunding bonds in the accompanying balance sheet (during fiscal year 1990 there were no refunded bonds redeemed). After the monies in the escrow accounts are applied to'redeem the bonds to be'called, principally through . 1995, interest on the advance refunding bonds will be payable from Water System revenues. 4 Note C Shared Operating Expenses r The Water System shares certain'administrative functions with the Department's Power System. Generally, the costs of these functions are allocated on the ba'sis of benefits provided to the Systems. Operating expenses shared with the Power System were S275 million,'S251 million and $ 256 million for fiscal years 1990, 1989 and 1988, respectively, of which $ 89 million, $ 85 million and S89 million were allocated to the Water Sys-tem. The in'ter-fund transactions resulted in a net amount of $ 17 million and $ 22 million iticluded in the Water System'ccounts receivable at June 30, 1990 and 1989, rcspectivcly. Note D Employee Benefits Retirement, disability and death benefit insurance plan . The Department has a funded contributory retirement, disabil-ity and death benefit insurance plan covering substantially all of its employees. Plan benefitsere generally based on years I of service, age at retirement and the employees'ighest 12 consecutive months of salary before retirement. The Depart-ment funds retirement plan costs on a level premium actuarial method as determined by the plan's independent actuary. For'funding purposes, prior service costs relating to the plan are amortized generally over a 30-year period ending June 30, 2003. Total benefit plan costs for fiscal years 1990, 1989 and 1988 for the Water System include the following (amounts in millions): 1989 '988 Service cost . $ 12 S10 . '$11 Interest cost 40 41 38 Actual return on plan assets (41) (61) (10) costs'990 Net amortization and deferral Net retirement plan cost Disability and death ben'efit plan costs and administrative expenses 14 25 5 39 29 5 (11) 28 Total benefit plan $ 30 $ 34 $ 32 37 'os ANGELES DEPARTMENT OF WATER AND POWER WATER SYSTEM NOTES TO FINANCIAL'TATEMENTS The following schedule reconciles the funded status of the plan with amounts reported in the financial statements (amounts in millions): June 30, June 30, 1990 . i989 present value of benefit obligations: 'ctuarial Vested benefits, S484 S481 Non-vested benefits 1 Accumulated benefit obligation 484 482 Projected future compensation level 88 95 Projected benefit obligation 572 577 Plan assets at fair value 476 432 Projected benefit obligation in excess of plan assets 96 145 ~ Unrecognized nct gain and effects of changes in assumptions 12 (26) Unrecognized net obligation at July 1, 1987 being recognized over 15 years '86) (94) Accrued pension liability S 22 $ 25 Thc discount rate used in determining the plan's projected benefit obligation incieased from 7.75% in fiscal year 1989 to 8.0% in fiscal year 1990. The assumed rate of increase in future compensation levels was 6.0% in both years. The long-term rate of return on plan assets was 8.0% in both 1990 and 1989. Plan assets consists primarily of corporate aqd gov-ernment bonds, common stocks, mortgage-backed securities and short-term investments. 'I Health care costs' In addition to the retirement plan, the Department provides certain health care benefits to active employees. The cosr of providing such benefits to active employccs amounted to $ 8 million, $ 7 million and S6 million for fiscal years 1990, 1989 and 1988, respectively. The costs of providing these benefits are accounted for on the pay-as-you-go method. r Other post-employment benefits Health care and life insurance are provided to retired employees and their dependents. The cost of providing such benefits to retired employees amounted to $ 3 million, S2 million and S3 million for fiscal years 1990, 1989 and 1988, respectively. The costs of providing these benefits are accounted for on thc pay-as-you-go method. Note E Commitments and Contingencies Payments to the reserve fund of the CityUnder the provisions of the City Charter, the Water System transfers funds at its discretion to the reserve fund of the City. Such payments are not in lieu of taxes and are recorded as distributions of retained income. The Department expects to make payments of $ 17 million in fiscal year 1991 from the WaIer System to the reserve fund of the City. Litigation A number of claims and suits are pending against the Department for alleged damages to persons and prop-erty and for other alleged liabilities arising out of its operations. In the opinion of management, any. ultimate liability r which may arise from these actions will nor materially affect the Water System's financial position as of June 30, 1990. 38 REPORT OF INDEPENDENT ACCOUNTANTS August 27, 1990 To the Board of Water and Power Commissioners Department of Water and,Power City of Los Angeles In our opinion, the accompanying balance sheet and the related statements of I income, rc'taincd income reinvested in the business and cash flows present fairly, in all mate'rial respects, the financial position of thc Water System of the Depart-ment of Water and Power of the City of Los Angeles at June 30, 1990'and 1989, and the results of its operations and its cash flows for each of thc three years in thc period cndcd June 30,. 1990, in conforfnity ivitIigenerally accepted account-ing principles. These financial statements are the responsibility of the Depart-ment's management; our responsibility is to express an opinion on thes'e financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that wc plan and perform the audit to obtain reasonable assumnce about whether the financial statcmcnts are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the finan-cial statements, assessing the accounting principles tised and significant estimates I made by management, and evaluating the overall financial statement presenta-tion. We believe that our audits provide a reasonable basis for.the opinion expressed above. 39 LOS A34GELES DEPARThIENT OF WATER AND POWER POWER SYSTEM STATEMENT OF INCOME ~ (In Thousands) Year ended June 30 1990 1989 e 1988 Operating Revenues Residential S 519,339 S '84,591 S 430,696 Commercial and industiial 1,251,296 1 >1 62>027 1 >085>557 Other 79,258 69,703 53,775 Total operating revenues 1,849,893 1,716,321 1,570,028 Operating Expenses Fuel for generation 247,592 253,576 228,499 Purchased power- 647,585 534,462 470,957 Other operating expenses 392,202 364>394 339,219 Maintenance 168,481 148,742 153,062 'Depreciation 139,031 136,954 124,004 Total operating expenses . 1,594,89.1 ',438,128 1,315,741 Operating Income 255,002 278,193 254,287 Other Income and Expenses, Net 16,835 18,257 18,037 Income before debt expenses 271,837 296,450 272,324 Debt Expenses Interest on debt s 118,128 110,289 '02,437 .Allowance for borrowed funds used during construction, (2,757) (7,268) (5,674) Total debt expenses 115,371 103,021 96,763 Net Income $ 156,466 S 193,429 $ 175,561 STATEMENT OF RETAINED INCOME REINVESTED IN THE BUSINESS I In Thousands) Yearended June30 1989 1988 Balance at beginning of year $ 1,785,701 $ 1,680,322 Nct income for the year 193,429 175,561 2 057>094 1 >979>1 30 1,855,883 Less Payments to the reserve fund of the City 85,818 78,502 70,182 Balance at end of year s1,971,276 s1,900,628 $ 1,785,701 The accompanying notes are an integral part of these financial stateineri ts. 40+ LOS ANC ELKS DEPARThIENT OF" WATER AND POWER POWER SYSTEM BALANCE SHEET (In Thousands) June 30 1990 I9S9 ) Assets UtilityPlant, at original cost . Production $ 1,795>244 $ 1,756,070 Transmission 659,553 641,473 Distribution 2,225,202 2,005,735 General 374,715 320,030 5,054,714 ',723,308 Less Accumulated depreciation 1,574,733 1,458,485 3,479,981 3,264,823, Construction work in progress 244,412 241,729 Nuclear fuel, at amortized cost 20,401 17,385 Nct utilityplant 3,744,794 3,523,937 ') Current Assets Cash and investments 125)506 143,183-Customer and other accounts receivable, less $ 3,400 and $ 2,400 allowance for losse's 't 187,242 '69,084 Receivable from Intermountain Power Agency 64,556 . 49,573 Accrued unbilled revenue , 109",911, 94,576 Materials and supplies, at average cost 105>063 85,061 Fuel inventory 59,338 60,721 Prcpayments and other current assets 15,521 27,663 Total current assets 667,137 629,861 Total utilityplant and assets $ 4,411,931 $ 4,153,798 Capitalization and Liabilities Capitalization Equity 'I Retained income reinvested in the business $ 1,971,276 $ 1,900,628 Contributions in aid of construction 135,213 123,041 2,106,489 2,023)669 Long-term debt 1,797,950 1,602,469 Total'capitalization 3,904,439 3,626,138 Current Liabilities Long-term debt due within one year 53,180 51830 . Revenue certificates 90,000 90,000 Accrued interest 33,069 36,526 Accounts payablc and accrued expenses 231,530 238,036 Over-recovered energy costs 19,372 47,687 Extension and other deposit's 15,785 13,908 Deferred credit Intermountain Power Agency 64,556 49,573 Total current liabilities 507,492 - 527,660 ) Commitments and Contingencies Total capitalization and liabilities $ 4,411,931 $ 4,153,798 Tha attompan>ing notrs ara anintrgral part %hrsa financial statemrnts. E LOS ANCELES DEPARThIENT OF WATER AND POWER POWER SYSTEM STATEMENT OF 'CASH FLOWS (In Thousands) Year ended June 30 1990 I989 1988 Cash Flows From Operating Activities: Net income S 156,466 193,429 S 175,'561 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 139,031 136,954 124,004 ',527',516 ~ Amortization of nuclear fuel 3,258 Allowance for borrowed fund used during construction (2,757) (7,268) (5,674) Changes in current assets and liabilities: Cust'orner and other accounts receivable (18,158) '25,774) (3,023) Receivable from Intermountain.Power Agency, (14,983) (49,573) Accrued unbilled revenue (15,335) (5,794) '(4,247) Materials and supplies (20,002) (10,398). (11,654) Fuel inventory 1,383 (4,598) 9,774 Deferred energy costs 5 8,928 . Prepayments and other current assets 12,142 10,113 (7,509) Accrued interest (3,457) 5,878, 4,191 Accounts payable and accrued expenses (6,506) 25,656 (30,593) Over-recovered energy costs (28,315) (9,865) (15,644) Extension and other deposits 1,877 (2,019) (3,750) Deferred credit Intermountain Power Agency 14,983 49,573 Net cash provided by operating activities 219,627 313,841 2479880 Cash Flows From Financing Activities: Sale of revenue bonds, 247,929 99,527 198,108 Sale of advance refunding bonds 85,216 Contributions in aid of construction 12,172. 18,216 13,473 Reduction of long-term debt (51,198) (52>843} (67,223) 4 Amount deposited in escrow accounts and offset against advance refunding bonds (85,216) Payments to the reserve fund of the City '85,818) (78,502) (70,182) Net cash provided, by (used in) financing activities 123,085 (13,602) 74,176 Cash Flows From Investing Activities: 'Expenditures for plant and equipment" (360,389) (336,226) (317,316), ~ ~ Cash and Investments: Net increase (decrease) (17,677), (35,987) 4,740 Beginning of year 143,183 179,170 174,430 End of year 5 125,506 5 143,183 5 179,170 Supplemental disclosure of cash flow information: Cash paid during the year for interest,. S 126,236 S 105,602 S 100,435 The accompanying notes are an integral part of tlrcse financial stateme'nts. 42 LOS ANOE'LES DEPARThtENT OF WATER AND, POWER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS Note A Summary of Significant Accounting Policies The Department The Depaitment of Water and Power of the City of Los Angeles exists under and by virtue of the City Charter enacted in 1925 as a separate proprietary agency of the City. The Power System is responsible for the genera-tion, transmission and distribution of electric poyver for sale in the City. Financial statement presentation The financial statements of the Power System are presented in conformity with gener-ally accepted accounting principles. The financial statements are substantially in conformity with the uniform system of accounts'prescribed by the Federal Energy regulatory Commission and the California Public Utilities Commission except for the method of accqunting for contributions in aid of construction described below. The Department is not subject to regulations of such colnmissions. plant The costs'of additions to utilityplant and replacements of retired units of property are capitalized. Costs J'tility include labor, materials and allocated indirect charges such as engineering, supervision, transportation and construc-tion equipment, retirement plan contributions,end certain administrative and general expenses. The costs of repairs and minor replacements are charged to appropriate maintenance accounts. The original cost of property retired, plus .removafcost, less salvage, is charged to accumulated depreciation. Depreciation and decommissioning Depreciation expense is computed by the straight-line method for all major projects completed after July 1, 1973 and for all office and shop structures, related furniture and equipment, and transportation and construction equipmcnt. Depreciation for facilities completed prior to this date is computed by the 5% sinking fund method bhsed on estimated service lives. Depreciation provision as a percentage of average depreciablc utilityplant in service was 3.1% 3.2% and 3.2% for fiscal years 1990, 1989 and 1988, respectively. Decommissioning of the Palo Verde Nuclear Generating Station, in which the Power System has an ownership inter-est, is projected to start sometime after 2022. Based upon a study performed by an independent engineering firm, the Department's share of the estimated decommissioning costs is S44 million in 1989 dollars. Decommissioning costs are charged as part of depreciation expense over the life of the nuclear power plant. A Nuclear Decommissioning Fund has been established and the Power System is setting aside funds for its share of the estimated future decommissioning costs. 'Nuclear fuel Nuclear fuel is amortized and charged to Fuel for Generation in the Statement of Income on the basis of actual thermal energy produced relative to total thermal energy expected to be produced over 'the life of the fuel. Under the provisions of the Nuclear Waste Policy Act of 1982, the federal government assumed responsibility for thc future disposal of spent nuclear fuel. 43 LOS ANO ELKS DE PARThiENT OF WATER AND POWER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS t Cash and investments The Departinent's cash is deposited with the City Treasurer who invests the funds in securities under the City Treasurer's pooled investment program, whereby available funds of the City and its independent operat-ing departments are invested on a combined basis. These investments are valued at cost, which approximates market. AtJune 30, 1990 and 1989, cash and investments include $ 16 million and $ 18 million, respectively, of restricted bal-ances relating.to bond redemption and interest funds, self-insurarice fund and nuclear decommissioning fund. Fuel inventory Coal inventories are stated at average cost. Fuel oil inventories are stated at cost, using the last-in, first-out method. Contributions in aid of construction Under the provisions of the City Charter, amounts received from customers and others for'constructing utilityplant are combined with retained income reinvested in the business to represent equity for purposes of computing the Power System s borrowing limits: Accordingly, contributions in aid of construction are shown in the accompanying balance sheet as an equity acco'unt and are not offset against utilityplant. Rev'enues Revenues consist of billings to customers, for consumption of electric energy and include amounts resulting from'an energy cost adjustment formula'designed to permit the full recovery of energy costs. The Department projects these costs to establish the energy cost recovery component of customer billings'and any difference between billed and actual energy costs, resulting in over- or under-recovery of energy costs, is adjusted in subsequent billings.'he Power System recognizes energy cos'ts in the period incurred and accrues for estimated unbilled revenues for . energy sold but not billed at the end of a fiscal year. The Power System's rates are established by a rate ordinanc'e which is approved by the City Council. The Power Sys-tem sells electric energy to other Departments of the City at regular rates provided in the ordinance. Debt. expenses Debt premium, discount and issue expenses are deferred and amortized to expenses over the lives of the related issues. Allowance for funds used during construction (AFUDC) AFUDC represents the cost of borrowed funds used for the construction of utilityplant. Capitalized AFUDC is shown as part'of the cost of utilityplant and as a reduction of debt expenses. The average AFUDC rates were 7.7%, 7.6% and 7.9% for fiscal years 1990, 1989 and 1988, respectively. Receivable Intermountain Power Agency Note B and Deferred Credit As of July 1, 1988, an amendment to an Intermountain Power Agency (IPA) bond resolution provided for the use of sur-plus construction funds from the Intermountain Power Project. As a member participant of this project, the Depart-, ment's share of such surplus funds totaled $ 125 million through June 30, 1990, of which $ 60 million was used as an offset against purchased power from IPA in fiscal year 1989. AtJune 30, 1990, the Department had a'remaining receivable from IPA of $ 65 million. 44 e Note.C Jointly-Owned UtilityPlant The Power System has undivided interests in several electrical generating stations and transmission systems which are jointly-owned with other utilities. Each project participaht is responsible for financing its share of construction and operating costs. The following schedule shows the Power System's investment in each jointly-owned utilityplant as included in the balance sheet at June 30, 1990 (dollar amounts in millions):, s Shareof Plant in Service Ownership Capacity Accumuiated Vyork In Proiects Interest (megawatts) Cost Depreciytjon Progress Palo Verde Nuclear Generating Station (Note H) 5.7% 217 $ 489 $ 42 $ 8 Navajo Steam Generating Station Mohave Coal Generating Station 21.2% 20.0% 477 316 180 86 '1 77 6 Pacific Intertie DC Transmission System 40.0% 800 164 15 ~ 5 Other transmission systems Various 72 16 1 $ 991 '181 $ 26 The l'ower System will incur certain minimum opcmting costs on the jointly owned facilities, regardless of the amount of energy generated or the-ability to take delivery of its share of energy generated. The proportionate share of these expenses. is included in the appropriate categories of operating expenses. Note D Revenue Certificates AtJune 30, 1990 and 1989, the average interest rateof revenuecertificates payable was 5.7% and 6.4% with various maturities of up to'127 and 130 days, respectit)ely. The Dcpaitment has an unsecured standby line of credit of $ 90 million which may be used ifthe certificates cannot bc rcfinanccd as they mature. Note E Long-Term Debt M Long-term debt outstanding at June 30, 1990, consisted of revenue bonds due serially in varying annual amounts through 2029. Interest ntcs, which vary among individual maturities, averaged approximately 6.8% at June 30, 1990 and,1989, The revenue bonds generally are callable'ten years after issuance. Scheduled annual principal maturities during the five years succeeding June 30, 1990 are $ 53 million, $ 55 million, $ 56 million, $ 58 million and $ 58 million, respectively. In fiscal year 1990, the Power System sold advance refunding bonds totaling S86 million~ which'decreased its aggre-gate debt service payments by S19 million oyer the next 43 years and resulted in an economic gain (difference between the present valtIes of the old and new debt service payments) of $ 8 million. Until the bonds to be refunded are called, interest on thc advance refunding bonds is payable from. interest earn'ed on securities of the United Staies government . purchased out of thc proceeds of the sales'and held in escrow accounts with Security Pacific National Bank, Los Angeles and Citibank, N.A., New York. AtJune 30,1990, $ 134 million of these escrow accounts have been offset against the advance refunding bonds in thc accompanying balance sheet (on September 1, 1990, $ 37 million of the refunded bonds be redeemed). After the monies in the escrow accounts are applied to redeem the bonds to be called, principally . 'ill through 1995, interest, on the advance refunding bonds will be payable from Power System revenues. 1 r 4$ LOS ANGELES DEPARTMENT OF WATER AND POWER , ~ POWER SYSTEM NOTES TO-FINANCIAL STATEMENTS Note F Shared Operating Expenses The Power System shares certain administrative functions with the Department's Water System. Generally, the costs of these functions are allocated on the basis of benefits provided to the Systems. l Operating expenses shared with the Water System were $ 275 million, $ 251 million and $ 256 million for fiscal years 1990, 1989 and 1988, respectively, of which $ 186 million, $ 166 million and $ 167 million were allocated to the Power System. The inter-fund transactions resulted in a net amount of $ 17 million and S22 million included in the Power System accounts payable at June 30, 1990 and 1989, respectively, Note G Employee Benefits Retirement, disability and death benefit insurance plan The Department hah a funded contributory retirement, disabil-ity and death benefit insurance plan covering substantially all of its employees. Plan benefits are genemlly based on years of service, age at retirement and the employees'ighest 12 consecutive months of salary before retirement. The Depart-ment'funds retirement plan costs on a level premium actuarial method as determined by the plan's independent actuary. ~ For funding purposes, prior service costs relating to the plan are amortized generally over a 30-year period qnding June 30, 2003. Total benefit plan costs for fiscal years 1990, 1989 and 1988 for the Power System include the following (amounts in millions): 1990 1989 1988 Service cost $ 36 S 33 $ 35 Interest cost 127 130 120 Actual re'turn ori plan assets (130) (194) (31), Net amortization and deferral 43 122 (37) Net retirement plan cost 76 91 87 Disability and death benefit plan costS and administrative expenses 13 13 12, Total benefit plan costs $ 89 , $ 104 $ 99 46 The following schedule reconciles the funded status of the plan with amounts reported in the financial statements (amounts in millions): June 30, June 30, 1990 1989 Actuarial present value of benefit obligations: Vested benefits S 1,532 $ .1,527 Non-vested benefits 1 "1 Accumulated benefit obligation 1,533 , 1,528 Projected future compensation level 278 300 Projected benefit obligation =- 1,811 1,828 Plan assets at fair value ) 1,509 . ~ 1,368 . Projected benefit obligation in excess of plan assets 302 460 Unrecognized net gain and effects of changes in assumptions 38 (83) Unrecognized net obligation at July 1, 1987 being recognized over 15 years (277), (299) Accrued pension liability $ 63 S 78 The discount rate used in determining the plan's projected benefit obligation increased from 775% in fiscal year 1989 to 8.0% in fiscal year 1990. The assumed rate of increase in future compensation levels was 6.0% in both years. The long-term rate of return on plan assets was 8.0% in both 1990 and 1989. Plan assets consist primarily of corporate and governmeiit bonds, common stocks, mortgage-backed securities and short-term investments. Health care costs In addition to the retircmcnt plan, the Department provides certain health care bcncfits to active employees. The cost of providing such benefits to active employees amounted to $ 24 million, $ 21 million and $ 19 million for fiscal years 1990, 1989 and 1988, respectively. The 'costs of providing these benefits ar'e accounted for on the ppy-as-you-go method. Other post-employment benefits.Health care and life insurance arc provided to retired employees and their dependents. The cost of providing such benefits to retired employees amounted to $ 9 million, $ 8 million and.S9 million for fiscal years 1990, 1989 and 1988, respectively. The costs of providing these benefits are accounted for on the pay-as-you-go method. Note H Commitments and Contingencies Payments to the reserve fund of the City Under the provisions of the City Charter, the Power System transfers funds at its discretion to the reserve fund of the City. Such payments are not in lieu of taxes!ind are recorded as distributions of retained income. Thc Department. expects to make payments of $ 92 million in fiscal year 1991 from the Power System to the reserve fund of the City. 47 LOS ANOELES DEPARThiENT OF WATER AND POWER - POWER SYSTEM NOTES TO FINANCIAL STATEMENTS Long-term purchased power and transmission contracts The Department has entered into a number of energy and trans-mission service contracts which involve substantial commitments. These include an agreement with the Intermountain Power'Agency, a Utah State Agency, for purchase of energy from the Intermountain Power Project (IPP) for which the Power System has served as the project manager and operating agent. The Department's total interest in IPP includes a 44.6% "take or pay" obligation and an excess power contract for 18.2% for a total of 62.8%. The Dcpaitment also has r t'wo agreements with the Southern California Public Power Authority (SCPPA), a California Joint Powers Agency, for 67% of'SCPPA's 5.9% entitlement to the energy generated at the Palo Verde Nuclear Gencmting Station and for 59;5% in the capacity of the Southern Transmission System, which. transmits energy from IPP in Utah to Southern California. Significant data related to ihese agreements, which are scheduled to expire from 2022 to 2027, at'June 30, 1990 are as follows: Department Total Bonds ~ Sham of. Outstanding Capacity (millions) (megawatts) Palo Verde Nuclear Generating Station (through SCPPA) / '1,046 151 Intcrmountain Power Project 5,017 1,004 Southern Transmission System (for IPP power through SCPPA) ~ 1,017 1,142 J All these agreements require the Power System to make certain minimum payments, which are based upon debt service requirements. While these payments are fixed charges (of approximately $ 340 million in each of the next five. years), the Department is also required to pay additional amounts (of approximately S130 million in each of the next five years) for operating and maintenance costs related to actual deliveries of energy under these agrecmcnts. Total payments under these contracts were approxirhately S530 million, $ 440 million and S320 million in fiscal years 1990, 1989 and 1988, respectively. These aggregate purchased power costs are recovered through the energy cost recovery component of customer billings. The Department also has a contract through 2017 with the U.S. Department of Energy for the purchase of available energy. gencratcd at the Hoover Power Plant. The Department's share of'capacity at Hoover is approximately '00 megawatts. Nuclear Insurance As a 'participant in the Palo Verde Nuclear Generating Station, the Department could be subject'to . assessment of retrospective insurance premium adjustments in the event of a nuclear incident at Palo Verde or at any other licensed reactor in the United States. Litigation 'A number of claims and suits are pending against the Depaitment for alleged damages to persons and ~ 'roperty and for other alleged liabilities arising out of its operations. In the opinion of management, any ultimate liabilitywhich may arise from these actions will not materially affect the Popover System'sfinancial position as of June 30, 1990. 48 REPORT OF INDEPENDENT ACCOUNTA'NTS August 27, 1990-To the Bo'ard of Water and Power Commissioners Department of Water and Power City of Los Angeles 'n our opinion, the accompanying balance sheet and the related'statements of income, retained income reinvested in the business and cash flows present fairly, in all material respects, the financial position of the Power System of. the Depart-ment of Water and Power of the City of Los Angeles at June 30, 1990 and 1989, and the results of its operations and its cash flows for each of the three years in 'he period ended June 30, 1990, in conformity with generally accepted account-ing principles. T(ese financial statements are the responsibility of the Depart-ment's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require thgt we plan and perform the audit to obtain reasonable assurance about wh~ther the financial statements are free of material misstatement. An audit includes examin-ing, on a test basis, evidence supporting the amounts and disclosures in the finan-cial statements, as'sessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presenta-tion. We believe that our audits provide'a reasonable basis for the opinion expressed above. I \ n 49 LOS ANGELES DEPARTMENT OF WATER AND POWER 4 ~ ~ WATER SYSTEM SELECTED FINANCIAL DATA AND STATISTICS (S Millions) 1990 1989 1988 1987 1986 Statement of Income Operating revenues Residential S 1255 S 110.1 S 94.5 S 92.4 S 84,2 Commercial and industrial 191.2 166.5 142.4 135.2 122.9 Governmental and other 19.5 17.8 14.3 14.8 13.4 Fire hydrants 4.5 4 4 4.1 4.1 4.0 Miscellaneous, 7.5 1.4 1.7 1.9 1.5 Total revenues S 348 2 S 300.2 S 257.0 S 248.4 S 226.0 Operating income 82.5 61.4 ,54.1 4 69.9 69.4 As% of revenues 23.7% 20.5% 21.1% 28.1% 30.7% Net income S 62.6 S, 42.3 $ 344, S 446 $ 61.8 Balance Sheet Net utilityplant Si;282.1 $ 1,202.1 $ 1,114.7 $ 1,046.1 $ 988.8 Capital expenditures 113.1 118.1 4 97 8 91.7 102.0 Capitalization Equity 951.9 870.6 822.3 768.5 712.1 Long-term debt 367.5 379.7 350.2 . 285.6 305.0 Total capitalization 1,319.4 1,250.3 1,172.5 1,054.1 1,017.1, Debt as % of net utility 28.7% 31.6% 30.2% 25 3% 28.0% plant'"'nterest on debt 28.6 27.6 23.7 22.0 23.2 Payments to City of L.A. 15.0 12.9 12.4 11.3 10.4 'perations. Gallons sold (billions) 208.8 208.1 203.6 210.1 204.3 Customers average number (thousands) 643.4 640.6 637.8 632.3 630. 1, Avenge revenue per hundred cu. ft. sold (in cents) Residential 119.0 106.0 92.8 87.2 81.8 Commercial and industrial 124.2 107.9 93.6 87.5 81.7 Water supply (in cu. ft. per second c.f.s.) supply 'ocal 129.8 188.3 166.9 137.0 144.5 DWP Aqueduct 284.4 451.9 573.6 661.4 671.8 Metropolitan Water District 545.5 319.2 207.7 177.1 123.9 Gross supply 959.7 959.4 948.2 975.5 940.2 Diversion from (to) local storage 0 ~ 1.5 (0.3) (1.7) (6.6) Net supply to distribution systems 939.7 960.9 . 947.9 973.8 933.6 (AI Excludrs rrusnus notrs and advansa refunding rrvrnua bonds. Los ANGELES DEPARThIENT OF WATER AND POWER WATER/POWER NETWORK ~ h l lp Celdo DC.AC Convener Station /// OREGON )! Parifie HVDC Intertie CALIFORNIA Tnnsmhsion Line Intennountain Ibwer Project NEVADA 1 'TAH Los Ange Owens Rive~ Aqueduct System Owens Gorge hlcCullough Switching Navajo Ibwer Plants Generating Statibn Strnion Cabfornta owensGorge ~Aquedua,g t ,(State Water y Sylmar DC.AC Transmtssjon v U Hoover Dam Ibwer Plant )'s, Protect) (//g Converter Station hlead Switching /) I Station El Dorado Sub-Station ARIZONA Phoenix a Valley Geneiating Station Area a Scanergood Generating Station l a taynes Gcncratlng Stat ton a Hafhof Gencrktmg Stalloll ~ Palo Verde Gcncrating Station --- Water Supply Power Supply Generating facilities in other western states are playing larger roles in the City's power supply. Water, also imported from hundreds of miles away, is brought to L.A. by aqueduct to serve the needs of the nearly 3.5 million population. v Eighty percent of this report is ~ printed on rccyclcd paper. ~ ~ I ~ OPERATING R E V E N II'E S KILOWATT HOURS SOLD 8 in htsttions lo ttsttions 2a 142$ 18 950 12 47$ s. 86 87 88 89 90 86 87 88 89 90 ta Residential 18 Commercial and Industrial ra Street Lighting and Other 81 Miscellaneous AVERAGE NUMEER OF CUSTOMERS ENERGY PRODUCTION ln Thoosansts Kwh ln 8sttions 28 1050 21 350 86 87 88 89 90 86 87 88 89 90 18 Hydro ta Thermal '8 Purchases OPERATlNG REVENUES GALLONS SOLD 8 inwdtions In Billnnss 220 270 56$ l80 iso 90 86 87 88 89 90 86 87 88 89 90 a Residentinl a Commerciel end Industrlnl a Other a Fire Ilydrnnts a hiiscellnncous AVERAGE NUhIBER OF CUSTOMERS WATER SUPPLY In Thoussnds In Cu. Ft. Per Second $ 2$ 7SO 350 SOO I7$ 250 86 87 88 89 90 86 87 88 89 90 a Local Supply a DWP Aqueduct a hlelropolitnn Water Distria LOS ANGEI.ES DEPARTMENT OF WATER AND POWER sr> POWER'YSTEM SELECTED FINANCIAL DATA AND STATISTICS IS Millions) 1990 . 1989 1988 1987 1986 Statement of Income Operating revenues Residential S 5193 S 484.6 $ 430.7 S 388.7 ' 379.5 '32.2 '5 Commercial and industrial .1,251.3 1,162.0 1,085.5 963.1 Street lighting and other 54.5 53.5 39.7 38.2 37.9 Miscellaneous 24.8 162 141 . 134 ~ Total revenues $ 1,849.9 S1,716.3 $ 1,570.0 $ 1,403.4 $ 1,358.1

Operating income 255.0 278.2 254.3 256.3 259.5'9.1,%

As% of revenues 13.8% 16.2% 16:2% 18.3% Net income $ 156.5 S '193.4 $ 175.6 $ 186.8 - S 193.6 r ~ I Balance Sheet Net utilityplant $ 3,744.8. $ 3,523.9'36.2 $ 3,324.9 S3,133.5 $ 2,943.9 Capital expenditures 360.4 317.3 303.4 392.6 Capitalization Equity 2,106.5 2,023.7 1,890.5 1,771.7 1,646.1 Long-term debt 1,797.9 1,602.4 1,554.2 1,408.9 1,476.1 Total capitalization 3,904.4 3,626.1 3,444.7 . 3,180;6 3,122.2 Debt as % of net utility 48.0% 45 50/ 46.7% 44.5% 49.3% on debt plant'"'nterest 118.1 110.3 102.4 '6.9 Payments to City of L.A. 85.8 78.5 64.4 97.5'0.2,67.9 Operations Killowatthours sold (billior)s) 21.8 21.9 21.1 20.5 20.3 Customers average number (thousands) 1q344.6 1>325.3 1,304.6 1,275.9 1,262.0 Average revenbe per kwh sold (in cents) '.2 Residential 8.9 7.7 7.1 6.9 Commercial and industrial 8.3 i7 3 6.8 6.6 7.7'.8 Energy production (billion kwh) Hydro 1.4 1.8 2.9 3.8 . ~ Thermal 22.0 20.8'" 21.0'" 16 7(s) '3. 8"'7.6 Total generation 23:4 22.6 22;8 19.6 Purchases '.9 2 9(8) 7(s) 3 5((o 5 3(8) Total production 25.3, '5.5 24.5 23:1 22.9 Net system capability (thousand megawa'tts) Hydro 1.4 1.4 1.9 1.9 .1.9 Oil and gas owned Jointly owned and firm purchases 3.1 4;5 2.9, 3.1 4.5 2.8 ~ 3.1 5.0 '.2 . 3.3 2.4 '.3 ~ '.3 5.2 2.1 7.4 7.3 7.3 7.6 7.3 (A) Estcludks rhvcnuc notes and advance nfunding rhvcnuh bonds. (B) Rhstathd duc to rcclassification. " I -sz