DWP Audit

Rate increases vs. infrastructure investment. The DWP transfer to the general fund. Where the money leaks.

The Los Angeles Department of Water and Power is the largest municipal utility in the United States, serving more than 4 million residents and businesses across a 465-square-mile service territory. It delivers roughly 435 million gallons of water per day and operates a power system serving approximately 1.6 million customers. By any measure, it is a significant public institution.

It is also a significant source of revenue for City Hall. Every year, DWP transfers a percentage of its power system revenue directly to the City's General Fund. The transfer does not go to infrastructure. It does not pay down debt or fund capital improvements. It goes into the operating budget of a city that perennially spends more than it takes in from conventional tax sources. Ratepayers make up the difference, and rates have been climbing steadily for a decade.

Key Metrics

The DWP Tax

The general fund transfer has been a fixture of LA's budget for decades. Under the City Charter, DWP is authorized to transfer a portion of its power revenue to the General Fund as a "payment in lieu of taxes," similar to what a private utility would pay in franchise fees or corporate taxes. The formula has historically been set at approximately 8 percent of power system revenue.

In practice, critics argue the transfer functions as a hidden tax on utility ratepayers. Unlike a property tax or sales tax, it is not subject to Proposition 13 limits. It does not require voter approval. It is embedded in the rate base, invisible to most customers, and adjusted upward as rates rise. Consumer Watchdog called a 2017 transfer of $241 million "theft from ratepayers." The Los Angeles City Council approved it anyway.

The structural problem is predictable: when the City needs to close a budget gap, one lever it can pull is increasing the DWP transfer. Higher transfers require higher rates. The ratepayer base, which has no vote on the transfer formula, absorbs the increase. Low-income households, which spend a higher percentage of income on utilities, absorb it most acutely.

Sources: Consumer Watchdog press release (2017), ABC7 reporting on 2017 and 2024 transfers, LADWP Board resolutions, CBS Los Angeles. The transfer mechanism has not fundamentally changed between 2017 and the present; the amounts have grown as rates have risen.

Infrastructure Investment

The DWP's infrastructure challenges are not theoretical. The January 2025 wildfire season exposed aging hydrant systems, inadequate pressure capacity in the hillside distribution network, and a water storage deficit that left firefighters without adequate supply during the Palisades Fire. Post-fire litigation has placed LADWP's Power System at risk of billions in liability. KBRA noted an estimated $75 million in wildfire-related recovery costs for the Power System and $17 million for the Water System in early 2025 alone.

Against this backdrop, DWP announced an $18 billion capital improvement plan for 2026 through 2030, including $11.5 billion in planned borrowing. The plan is intended to address grid hardening, wildfire risk reduction, water system upgrades, and clean energy transition requirements. Whether the plan materializes at scale, or is quietly trimmed as the City's broader fiscal pressures mount, will determine whether DWP's infrastructure catches up to the demands placed on it.

The capital plan's ambition is notable. So is the leverage ratio. At 78.7% debt-to-net-fixed-assets, DWP is financing a significant share of its existing asset base with borrowed money while simultaneously planning $11.5 billion in new borrowing. Ratepayers will service that debt through future rate increases. The transfer to the General Fund continues alongside the debt service, meaning the revenue base is being asked to do three things simultaneously: maintain current operations, fund capital improvements, and subsidize City Hall's operating budget.

The Burnham Standard

Daniel Burnham designed for the next century. The 1909 Plan of Chicago specified widths of arterials, placement of parks, and waterfront setbacks that would guide development for generations. The infrastructure Burnham planned outlasted the politics of the moment by decades. That is the test for any public works institution.

Applied to DWP, the Burnham Standard asks three questions. First: are water systems built with redundancy so that a single infrastructure failure during an emergency does not leave firefighters without supply? The Palisades Fire answered that question for 2025. Second: is the power grid hardened against the weather conditions that the next century will deliver, not the conditions of 1960? DWP is beginning to address this, belatedly and under litigation pressure. Third: is the institution financially structured so that ratepayers fund infrastructure, not the City's operating shortfall?

• Water Redundancy Burnham Standard: multiple storage points, adequate pressure at elevation, hydrant systems that function during peak firefighting demand. Current reality: the Palisades Fire exposed inadequate hillside pressure and depleted storage tanks.
• Grid Hardening Burnham Standard: overhead lines converted or protected in fire-risk zones; automatic shut-off systems calibrated to wind events; vegetation management on a 10-year cycle. Current reality: DWP's $18B capital plan includes these elements but implementation is years away.
• Financial Integrity Burnham Standard: utility revenue funds utility infrastructure, not the City's general operating budget. Current reality: approximately $245 million per year flows from ratepayer bills to City Hall, a structural subsidy with no sunset and no voter approval.
• Rate Transparency Burnham Standard: ratepayers understand what they are paying for. Current reality: the general fund transfer is embedded in the rate structure and not itemized on customer bills. Most customers do not know it exists.