Water Quality Program: Total $401 million, Capital ($315 million) and Operating & Maintenance ($86 million)

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2 FINANCIAL INFORMATION The Water Revenue Fund Preliminary Budget incorporates expenditures for the Water System, including the share of expenditures associated with the Joint System and Power Revenue Fund that support Water System functions. Estimated appropriations for FY total 2.17 billion. Net of receipts from the Power System, contributions in aid of construction, individuals, and companies and other miscellaneous sources, appropriations are 1.73 billion. BACKGROUND Development of the FY Preliminary Budget commenced in September 2016, with continued analysis and refinement. The final budget will be submitted for your review and approval in May The preliminary budget is consistent with the approved five-year rate action. Pass through rates would continue to adjust for, in part, variable and uncontrollable costs including infrastructure investments, continuing water quality improvements and decreased purchased water from the Metropolitan Water District. The LADWP continues to emphasize cost control and fiscal discipline across all programs and enhanced performance metrics reporting contributing to greater cost efficiency and accountability. The FY funding priorities are consistent with the Mayor s priorities and reflect continued investment to comply with mandates, upgrade aging infrastructure, and create a more sustainable and local water supply. Some of the proposed budget highlights are as follows: Water Quality Program: Total 401 million, Capital (315 million) and Operating & Maintenance (86 million) Planned water quality capital projects will continue to fund investments in FY that develop the highest quality of water through the reservoir covers, bypasses, trunk line replacement, and regulatory compliance for construction, operation and maintenance, equipment, and supplies for facilities and systems to provide high quality water and meet State and Federal water quality standards. Construction is scheduled to be completed at Elysian Reservoir in the coming fiscal year and to start at Upper Stone Canyon Reservoir in the coming months, The budget includes continued financing with State Revolving Funds for qualifying projects and reduced rate bonds issued through the Southern California Water Authority Joint Powers Agreement. Replace Aging Infrastructure: Total 391 million, Capital (275 million) and Operating & Maintenance (116 million) Ensuring reliable water for domestic use and fire protection, replacement and repair of water pipelines and other water system facilities are critical priorities for the Water Transmittal of Preliminary FY LADWP Budget to the City Council - Water Revenue Page 2 Fund Receipts and Appropriations Budget and Associated Schedules/March 1, 2017

3 System. To address these priorities, the Water System has developed the Water Infrastructure Program (WIP). To support the WIP, the Water System is developing an Asset Management process to assess the reliability of aging distribution mainlines, trunk lines, pump stations, pressure regulating stations, tanks, reservoirs, aqueducts, and meters and services and plan for appropriate ongoing maintenance and operations. The Water System is on schedule to meet current year mainline replacement goals as well as meter replacement, pumping station and regulator station improvements and completed significant refurbishment of sections of the Los Angeles Aqueduct this fall. Local Water Supply and Conservation: Total 289 million, Capital (178 million) and Operating & Maintenance (111 million) Currently, the LADWP receives its water supply from four sources: 1. Owens Valley and Mono Basin via the Los Angeles Aqueduct 2. Pumping groundwater in the San Fernando Groundwater Basin, the Sylmar Basin, and the Central Basin 3. Recycled water 4. Purchases from the Metropolitan Water District of imported water delivered through the Colorado River Aqueduct and the California Aqueduct To ensure long term reliability, resilience and low-costs, the Water System is investing in increased local supply and conservation. Investments include increased storm water capture capability, additions to the recycled water purple pipe infrastructure, and long term recycled water strategies. The City met the Mayor s January 1, 2017 conservation goal of 104 gallons per capita usage. Investments and continued outreach provided in this budget will support customers in longer-term goals. The Water System is aggressively pursuing funding for supply projects through the State Proposition 1 program. Owens Valley Regulatory: Total 114 million, Capital (82 million) and Operating & Maintenance (32 million) The LADWP plans to complete the remaining sections of dust mitigation, work to reduce the water-intensive measures on the lake, which will increase the long-term availability of water. CITY ATTORNEY The Office of the City Attorney reviewed and approved the Resolution as to form and legality. Transmittal of Preliminary FY LADWP Budget to the City Council - Water Revenue Page 3 Fund Receipts and Appropriations Budget and Associated Schedules/March 1, 2017

4 ATTACHMENTS Resolution Cover Letter to the City Administrative Officer Preliminary Budget Presentation LADWP Strategic Plan Preliminary Water Revenue Fund Receipts and Appropriations Water Revenue Fund Capital Improvement Program Preliminary Retirement, Disability, and Death Benefit Insurance Plan Federal and State Grant Funding Estimates Water Revenue Fund Salaries and Authorized Number of Positions (based on Annual Personnel Resolution) Transmittal of Preliminary FY LADWP Budget to the City Council - Water Revenue Page 4 Fund Receipts and Appropriations Budget and Associated Schedules/March 1, 2017

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7 Mr. Richard H. Llewellyn March 1, 2017 Page 2 Estimated General Fund Revenues In addition to reliable, low-cost utility services, the LADWP provides the City of Los Angeles with ongoing financial support through the collection and remittance of Utility Users Tax - Electricity (UUT) revenues and the Power Revenue Transfer. Based on the sales forecast for FY , the UUT for next fiscal year is estimated to be 410 million. For the Power Revenue Transfer, the estimate for FY is 242 million and is based on the outlook for the FY fiscal year. Power System The total Power Revenue Fund Receipts and Appropriations budget for FY is 4.70 billion, net of receipts from the Water System, contributions in aid of construction, individuals, and companies and other miscellaneous sources, and reflects critical investments for compliance with regulatory mandates related to the power supply and increased funding to address aging infrastructure. Power System Reliability Program: 908 million Repowering and Renewable Portfolio Standard: 376 million Energy Efficiency Program: 178 million Water System The total Water Revenue Fund Receipts and Appropriations budget for FY is 1.73 billion, net of receipts from the Power System, contributions in aid of construction, individuals, and companies and other miscellaneous sources, and reflects investment in local water supply projects to reduce our reliance on costly imported water and meet regulatory mandates, while continuing funding to improve drinking water quality and replace aging system infrastructure. Water Quality Program: 401 million Water Infrastructure: 391 million Local Water Supply and Conservation: 289 million Owens Valley Regulatory: 114 million Multi-year Financial Planning The FY budget continues a multi-year effort to prepare the utility for the future and will address the challenges involved in evolving the power and water systems. The LADWP continues to update and refine multi-year financial plans for both the Water and Power Revenue Funds, with funding prioritized towards investment in critical infrastructure, increased system reliability and more sustainable water and energy supplies. Funding is also required to ensure that resource needs are met within

8 Mr. Richard H. Llewellyn March 1, 2017 Page 3 our customer contact centers and meter routes, with focus on rebuilding customer confidence and expanding efforts to improve the customer experience with all LADWP operations and services. Lastly, through the efforts of the highly skilled and dedicated LADWP workforce, we will increase agency transparency and accountability through use of operational and financial performance measurements, while improving productivity through increased use of technology and innovation. In conclusion, the LADWP is looking forward to working closely with Mayor Garcetti, the Los Angeles City Council, Ratepayer Advocate, and your Office to finalize a FY budget that is fiscally responsible and provides the resources required to provide the citizens of the City of Los Angeles with quality and reliable water and power, now and into the future. Sincerely, David H. Wright General Manager NMG:mma/jm Enclosures c/enc: Board of Water and Power Commissioners Joseph Brajevich David H. Wright Martin L. Adams Donna I. Stevener Richard F. Harasick Reiko A. Kerr Andrew C. Kendall Louis C. Ting Jeffery L. Peltola Neil M. Guglielmo Marianne M. Anz

9 FY PRELIMINARY BUDGET Board of Water and Power Commissioners March 21, 2017

10 Presentation Budget Status Recent Accomplishments Development of FY Budget Key Expenditure Plans & Recommended Budgets Staffing Timeline & Next Steps Appendix Budget Detail 2

11 Budget Status The goal of the Preliminary FY Budget is to: Create a budget that is consistent with the LADWP Strategic Plan, approved rates, and financial plans Address customer-driven priorities Continue to emphasize cost control and fiscal discipline The Department s goals align with the Mayor s FY Budget Policy directive to maximize resources, prioritize the needs of our residents, and strive for greater effectiveness. 3

12 Power Recent Accomplishments: Repowering & RPS We ve made major strides in Energy-related initiatives Local Solar: Customer solar rebates & feed-in tariff, approx. 220 MW to date Charge Up L.A.: Installed 2,000 new customer chargers through 2016 Scattergood GS in El Segundo: Began demolition of Unit 3 in preparation for Phase II Repowering (Units 1-2) Springbok I/II Solar Plants and Beacon Solar, two phases: Springbok I/II and Beacon 3&4 totaling 375 MW came on line in late These are part of 650 MW of new solar projects in the Barren Ridge/Beacon area clean energy for 250,000 customers/year 4

13 Power Recent Accomplishments: Power Sustainability & Infrastructure We doubled investment in Energy Efficiency programs We replaced residential and commercial infrastructure to improve system reliability Lighting retrofits and other efficiency solutions helped reduce energy use by 412 GWh for FY 15/16 citywide Replaced over 2,700 transformers since FY Replaced over 4,000 poles since FY

14 Water Recent Accomplishments: Water Quality & Infrastructure Installing new Earthquake Resistant Pipe. Exceeded 2016 mainline replacement goal of 150,000 feet, installing nearly 170,000 ft. On target to reach 16/17 goal of 185,000 ft. Water Distribution Trunkline Construction working in coordination with the LA Filtration Plant to improve disinfection of the water supply 6

15 Water Recent Accomplishments: Water Supply & Sustainability We ve continued expanding the sustainable local water supply LADWP broke-ground on the Tujunga Spreading Grounds Stormwater Capture Project. Conservation: Reduced residential water use in Gallons Per Capita per Day (GPCD) from 106 (Jan 16) to 104 (Jan 17.) Groundwater: Continued to plan and secure funding for San Fernando Groundwater Basin remediation. Added new customers and projects to increase Recycled Water deliveries 7

16 Development of FY Budget: Customers - Mandates - Reliability This preliminary budget, which will continue to be updated and refined over the coming weeks, includes funding to: Support investment in planned water and power capital infrastructure Accelerate reliability and increase replacement cycles Comply with regulatory mandates Support the LADWP Customer Bill of Rights commitment to prompt, consistent and easily accessible customer service Maintain LADWP s financial metrics and preserve our low cost of borrowing 8

17 Power Revenue Fund: Key Expenditure Plan Summary FY FY FY in Millions Actual Approved Estimated Proposed OPERATING EXPENSE Non-Renewables 1, Renewables CO2, Emission and Other Expenses 34 6 (39) (14) Total Fuel and Purchased Power 1,356 1,436 1,431 1,542 Operation and Maintenance 1,081 1,028 1,033 1,057 Property Tax Depreciation TOTAL OPERATING EXPENSE 2,992 3,124 3,064 3,278 CITY TRANSFER DEBT SERVICE INCREASE IN FUND NET ASSETS REVENUE REQUIREMENT 3,517 3,685 3,665 3,882 TOTAL CAPITAL INVESTMENT 1,173 1,486 1,345 1,591 Notes: 1) All data based on Power Case #1 2) The annual cost associated with the Capital Investment is reflected in Debt Service and Depreciation. 9

18 Power Revenue Fund Financial Categories Summary Power System Reliability Program Replace the rapidly aging backbone and infrastructure of the Generation, Transmission, Substation, and Distribution Systems; as well as the supporting technology to maintain system reliability and improve replacement cycles Infrastructure & Repowering Evaluates and prioritizes maintenance and replacement of major power infrastructure, including repowering the thermal units for once-through Cooling (OTC) regulatory compliance Operating Support Provide shared and joint services including customer service, fleet, purchasing, finance, IT and human resources Energy Efficiency Provide customers the opportunities to reduce energy reliance to achieve long term savings targets and have greater control over their bills Renewable Portfolio Standard Develop greener power resources via renewable energy and transition from coal to cleaner sustainable energy supplies 10

19 Power Revenue Fund: FY 17-18: Capital Expenditures Trend 11

20 Power Revenue Fund: FY 17-18: O&M Expenditures Trend 12

21 Power Revenue Fund: FY 17-18: Fuel & Purchased Power Trend 13

22 Water Revenue Fund: Key Expenditure Plan Summary FY FY FY in Millions Actual Approved Estimated Proposed OPERATING EXPENSE Purchase Water Operating and Maintenance Property Taxes Depreciation TOTAL OPERATING EXPENSE DEBT SERVICE INCREASE IN FUND NET ASSETS REVENUE REQUIREMENT 1,132 1,132 1,110 1,121 TOTAL CAPITAL INVESTMENT 668 1, Notes: 1) All data based on Water Case # 2 2) The annual cost associated with the Capital Investment is reflected in Debt Service and Depreciation. 14

23 Water Revenue Fund Financial Categories Summary Water Quality Develop the highest quality water through reservoir covers, bypasses, and trunkline replacement, and regulatory compliance Water Infrastructure Replace aging pipeline and infrastructure, including regulator and pumping stations; and maintain operations through in-place refurbishment of the entire Los Angeles Aqueduct system Water Supply Invest in recycled water, storm water, and groundwater to increase local supply and meet State conservation goals and Mayor s long-term ED5 goal Owens Valley Regulatory Compliance Construction continues on the Owens Lake Dust Mitigation Program- Phases 9& 10 Operating Support Provide shared and joint services including customer service, fleet, purchasing, finance, IT and human resources 15

24 Water Revenue Fund: FY 17-18: Capital Expenditures Trend 16

25 Water Revenue Fund: FY 17-18: O&M Expenditures Trend 17

26 Water Revenue Fund: FY 17-18: Purchased Water Trend As of February 21 st, Eastern Sierra snowpack was at 268% normal water content to date 18

27 Staffing Plan by System FY 17-18: Proposed Funding & APR Total Budget ( in Millions) Joint System Water System Power System Total LADWP Labor ,129.1 Overtime Benefits Labor funding, 771 positions, above current occupancy is allocated primarily for implementing: Water and Power Systems Programs Enhancing Customer Service Human Resources, Financial Services and Fleet Services Corporate Safety and Project Management Offices Office of Sustainability Succession Planning Based on retirement eligibility criteria of Age 55 with 30 or more years of service and Age 60 with 5 or more years of service, approximately 2,223 employees or roughly 23% of the existing LADWP workforce will be eligible to retire within FY ; actual Retirement for FY as of January 31, 2017 is 117 employees Proposed change in Annual Personnel Resolution from 10,015 to 10,650 positions 19

28 Labor Funding FY 17-18: Proposed Changes Compared to the rate action, the proposed labor funding for FY 17/18 is 99 million higher than the FY16/17 incremental labor funding resulting in a cumulative 268 million increase primarily for: Power: PSRP, Infrastructure and Repowering Water: Water Quality, Recycled Water and Infrastructure Customer Care Billing (CCB) Class Action Lawsuit This change has no impact on the recently approved rates, as various offsets in contracting services were made to maintain the target revenue requirement. 20

29 Timeline and Next Steps Currently, requesting Board approval for FY Preliminary Budget transmittal Management Review and Update of Preliminary Budget: March and April 2017 Present and request Board approval for Final FY Budget: May

30 Budget Detail APPENDIX 22

31 Power Revenue Fund FY 17-18: Budget Overview FY Capital (in Millions) FY Actuals Power System Reliability Program Infrastructure & Repowering Approved FY Estimated Proposed Operating Support Energy Efficiency , , , ,591.4 Renewable Portfolio Standard Total - Capital O&M (in Millions) Power System Reliability Program Operating Support Infrastructure, Public Benefit & Repowering , , Renewable Portfolio Standard Total - O&M ,057.2 Fuel and Purchased Power (in Millions) Renewables Coal and Nuclear Natural Gas Other Non-Renewables & CO2 Emissions Total - FPPB 1, , , ,

32 Power Revenue Fund Power System Reliability Program FY Capital (in Millions) Distribution FY Actuals Approved FY Estimated Proposed Transmission Substation Generation Power System Application Technology Total - Capital O&M (in Millions) Distribution Apprentice and Journeyman Training Substation Apprentice and Journeyman Training Substation Total - O&M The Power System Reliability Program (PSRP) is critical for the replacement of the rapidly aging backbone and infrastructure of the Generation, Transmission, Substation, and Distribution Systems. PSRP initiated in FY 14-15, is the evolution of the existing reliability program to improve how funds are prioritized and the overall effectiveness of the program. This includes the replacement of Poles, Crossarms, Transformers and Cables, Substation Automation, and Circuit Breakers. Specifically the construction of 12-mile Scattergood Olympic 230kV Cable A. 24

33 Power Revenue Fund Power Infrastructure & Repowering FY Capital (in Millions) New Business- Revenue FY Actuals Scattergood Repowering Approved FY Estimated Proposed Infrastructure- Other Distributed Sys Reliability Castaic Power Plants A&B's Haynes Gen Station A&B's (0.4) General Facilities Improvements AMR Automatic Meter Reading Haynes Unit 1&2 Repowering Repowering- Other Total - Capital O&M (in Millions) In-Basin Plant O&M All Other Infrastructure Nuclear Gen Exp Castaic Power Plnt O&M Total - O&M The Power Infrastructure and Repowering evaluates and prioritizes maintenance and replacement of major power infrastructure, including repowering the thermal units for once-through Cooling (OTC) regulatory compliance. Also included is New Business for system growth and expansion; additions/betterments for various generation facilities. 25

34 Power Revenue Fund Energy Efficiency & Other Functions FY Capital (in Millions) Energy Efficiency Actuals Financial Info System Total FY Approved Estimated FY Proposed LADWP is aggressively ramping up its Energy Efficiency spending in order to achieve long term savings targets as well as mitigate the short term loss of the Aliso Canyon gas storage facility. EE spending in FY is estimated to be approximately doubled versus FY LADWP is prudently planning the replacement of its Financial, Human Resources and Procurement Systems. The Replacement Program will address problems associated with the Department s legacy mainframe systems which are over 20 years old; lack integration; and lack appropriate reporting, and analytical capabilities. The Replacement is also aimed to modernize business operating procedures, and adopt industry best practices. 26

35 Water Revenue Fund FY 17-18: Budget Overview FY Capital (in Millions) FY Actuals Water Quality Approved FY Estimated Proposed Infrastructure Water Supply Operating Support Owens Valley Regulatory Total - Capital , O&M (in Millions) Operating Support Infrastructure Water Supply Water Quality Owens Valley Regulatory Total - O&M Purchased Water (in Millions)

36 Water Revenue Fund Water Quality FY Capital (in Millions) FY Actuals WQIP Reservoir Improvements Approved 56.5 FY Estimated Proposed Groundwater Remediation & Clean-up WQIP Trunkline Improvements Water Treatment Improvements Chloramination Station Installations Meter Replacement Program Total - Capital O&M (in Millions) Distr Reservoir O&M Distribution Treatment Opns Filter Plant Opns WQ Control Water Quality Regulatory Water Quality Ground Water System Flushing Communit Outreach-Water Total - O&M Water Quality Highlights: significant accomplishment in FY16-17 includes Completion of the floating cover replacement for Franklin Reservoir Initiation of construction for Upper Stone Canyon floating cover Completion of Silver Lake Bypass line and removal of Ivanhoe Reservoir from the Distribution System Initiation of construction on LA Reservoir UV treatment Facility 28 50% construction completion of RSC 5 & 6 trunk line and tunnel

37 Water Revenue Fund Water Infrastructure FY Capital (in Millions) FY Actuals Distribution Mains Approved 81.0 FY Estimated Proposed Services, Meters and Hydrants Trunkline & Major Sys Connection Infrastructure Reservoir Improvements Pump Stations Water System Support/General WSO Info Technology WSO Facilities WSO Capital Projects Tools and Equipment Resource Development Total - Capital O&M (in Millions) Distribution Mains O&M Water System Support/General Service Connection O&M Water Information Technology Oper Bldg & Yard O&M Regulator Station O&M Meters O&M Fire Hydrant Maintenance Total - O&M Water Infrastructure Program : Water Operations Division has met its goal of rehabilitating 4 pressure regulating stations and expects to exceed the goal by 2 by the end of the fiscal year. In addition, Water Operations Division has surpassed its goal of 9 pump and motor replacement by 2. Water Distribution exceeded its mainline replacement goal of 150,000 feet, installing nearly 170,000 feet. 29

38 Water Revenue Fund Water Supply FY Capital (in Millions) Recycling & Storm Water FY Actuals Water Conservation Approved 48.9 FY Estimated Proposed LAA Aqueduct Groundwater Total - Capital Water Conservation Recycling & Storm Water O&M (in Millions) Groundwater LAA Aqueduct Total - O&M Storm Water In mid-2016, Water Resources broke ground on the Tujunga Spreading Grounds Enhancement Project (TSG). The TSG project will enhance the existing spreading grounds by combining and deepening basins, installing two intakes and incorporating a new remote telemetry system to optimize its operation. Once completed in late 2018, TSG will have the capacity to double its stormwater recharge amount from 8,000 to 16,000 AFY. Water Supply Recycled water to new customers including Bond Park, Delano Park, Bette Davis Park, Chevy Chase Park, Woodley Park East, Branford Park, LACMTA, California State Historic Parks and the Los Angeles Department of Cultural Affairs. Water System staff is finalizing the grant application to secure up to 9 million of Proposition 1 funding for the Griffith Park South Water Recycling Project. 30 Water System staff is working on a 5-year update of the 2012 Recycled Water Master Plan.

39 Water Revenue Fund Regulatory Compliance: Owens Valley FY Capital (in Millions) FY Actuals Approved FY Estimated Proposed Supplemental Dust Control Owens Valley Dust Mitigation Owens Lake Master Project Total - Capital O&M (in Millions) Owens Lake O&M 3.8 Lower Owens River O&M Total - O&M

40 KEY TARGETS/ SUCCESS MEASUREMENTS To meet our vision, we have identified specific targets that we aim to meet in the next 5 years. These targets will measure our organizational performance and keep us on track to meet our mission and vision. By 2021, LADWP will: Meet 100% of performance metrics defined in class action lawsuit Meet 100% of rate case performance targets Attain the top quartile in performance benchmarks or at least 90% in customer satisfaction surveys Meet or exceed all local, state and federal energy efficiency, water conservation and sustainability goals Be recognized locally, nationally and globally for innovation and environmental stewardship with awards, grants, presentation opportunities and in publications CORE VALUES FIVE-YEAR GOALS Provide exemplary customer service Maintain competitive rates while remaining financially stable Increase organizational effectiveness, efficiency and innovation Implement 100% advanced/smart meters for water and power Increase the reliability of our water and power infrastructure Achieve zero injuries for our employees and the public Be a leader in environmental stewardship CUSTOMERS FIRST NEXT STEPS Identify the strategic objectives with benchmarks and key performance indicators (KPI s) to meet the goals set forth in the strategic plan. Communicate the Strategic Plan to all employees and department stakeholders and promote their understanding and participation in the various elements to achieve our goals and objectives. Create more focused strategic plans for divisions to implement the overall strategic plan. Transparency Safety Reliability Accountability Exemplary Customer Service Integrity Innovation Equity Fiscal responsibility Professional excellence Rev. 1/2017 Strategic Plan Strategic Plan 2

41 Serving as the General Manager of the largest city-owned water and electric utility in the nation is an honor and a privilege. The Los Angeles Department of Water and Power is a great place to work, and every day, I see our employees working hard to provide outstanding customer service. I am proud to lead an organization that has provided reliable water and power to Los Angeles for more than a century. LADWP exists to serve to all customers safe, reliable and cost-effective water and power. All 9,000 of our employees demonstrate this day in and day out. The lineman who climbs a pole in the middle of a storm, the first responder to a water main break, the customer service representative who resolves a billing inquiry over the phone, the engineer who designs the recycled water pipeline all of them are dedicated to keeping the lights on and the water flowing for the people of this great city. Even though LADWP is more than 100 years old, we continue to grow as an organization. We are resilient and continuously work to adapt to many changes in our city and state, the county and our industry. As we undergo a major transition of our water and power supplies, we are also working to maintain and improve the reliability of our services throughout this transformation. Serving our customers remains our priority, and the mission, vision and goals in this plan reflect this. We all know our day-to-day operations well and consistently rise to the challenges that come our way. Our Strategic Plan provides a road map to keep us on track to meeting our long-term goals, and keep us focused on our specific priorities as a thriving, sustainable and world-class organization. It makes clear our priorities and sets our direction. I am pleased to share this plan with you. It is a living document that we will consult and update regularly. It serves as our playbook in responding to various growth opportunities and organizational challenges. It confirms LADWP s continued commitment to the customer service, reliability and sustainability deserved by the nation s second largest city With respect and appreciation, DAVID H. WRIGHT General Manager PUTTING OUR CUSTOMERS FIRST MISSION STATEMENT This Strategic Plan sets forth our mission, vision, core values and goals, as well as objectives we will use to guide and measure our success in delivering safe, reliable, low-cost water and power to our customers in an environmentally responsible manner. As a municipally owned utility, LADWP exists by and for our customer-owners. Through it, and through constant measurement and review we commit to making continuous progress toward meeting its goals. The Los Angeles Department of Water and Power (LADWP) provides our customers and the communities we serve safe, reliable and costeffective water and power in a customer-focused and environmentally responsible manner. The Los Angeles Department of Water and Power is the largest municipal water and power utility in the nation. It was established more than 100 years ago to deliver reliable, safe water and electricity to Angelenos. Largely credited with supplying the water to allow Los Angeles to expand from a small town to the second largest city in the nation, today the LADWP serves 3.8 million residents and businesses in Los Angeles. LADWP provides its 666,000 water customers and 1.4 million electric customers with quality service at competitive prices. The elements of this plan will guide LADWP through an unprecedented, rapid transformation that is changing the way we and other utilities have operated for the past 100 years. With renewable energy integration, energy storage, distributed generation, regulatory uncertainty, customer expectations, cyber security, expansion of local water supplies to combat drought and climate change, and massive investment in replacing aging infrastructure, flexibility, agility and accountability are key to ensuring we continue to deliver on our mission for the next 100 years. FIVE-YEAR VISION STATEMENT By 2021, the Los Angeles Department of Water and Power (LADWP) will be trusted and valued by our customers and recognized nationally and globally as a leader in innovation and environmental stewardship.

42 Serving as the General Manager of the largest city-owned water and electric utility in the nation is an honor and a privilege. The Los Angeles Department of Water and Power is a great place to work, and every day, I see our employees working hard to provide outstanding customer service. I am proud to lead an organization that has provided reliable water and power to Los Angeles for more than a century. LADWP exists to serve to all customers safe, reliable and cost-effective water and power. All 9,000 of our employees demonstrate this day in and day out. The lineman who climbs a pole in the middle of a storm, the first responder to a water main break, the customer service representative who resolves a billing inquiry over the phone, the engineer who designs the recycled water pipeline all of them are dedicated to keeping the lights on and the water flowing for the people of this great city. Even though LADWP is more than 100 years old, we continue to grow as an organization. We are resilient and continuously work to adapt to many changes in our city and state, the county and our industry. As we undergo a major transition of our water and power supplies, we are also working to maintain and improve the reliability of our services throughout this transformation. Serving our customers remains our priority, and the mission, vision and goals in this plan reflect this. We all know our day-to-day operations well and consistently rise to the challenges that come our way. Our Strategic Plan provides a road map to keep us on track to meeting our long-term goals, and keep us focused on our specific priorities as a thriving, sustainable and world-class organization. It makes clear our priorities and sets our direction. I am pleased to share this plan with you. It is a living document that we will consult and update regularly. It serves as our playbook in responding to various growth opportunities and organizational challenges. It confirms LADWP s continued commitment to the customer service, reliability and sustainability deserved by the nation s second largest city With respect and appreciation, DAVID H. WRIGHT General Manager PUTTING OUR CUSTOMERS FIRST MISSION STATEMENT This Strategic Plan sets forth our mission, vision, core values and goals, as well as objectives we will use to guide and measure our success in delivering safe, reliable, low-cost water and power to our customers in an environmentally responsible manner. As a municipally owned utility, LADWP exists by and for our customer-owners. Through it, and through constant measurement and review we commit to making continuous progress toward meeting its goals. The Los Angeles Department of Water and Power (LADWP) provides our customers and the communities we serve safe, reliable and costeffective water and power in a customer-focused and environmentally responsible manner. The Los Angeles Department of Water and Power is the largest municipal water and power utility in the nation. It was established more than 100 years ago to deliver reliable, safe water and electricity to Angelenos. Largely credited with supplying the water to allow Los Angeles to expand from a small town to the second largest city in the nation, today the LADWP serves 3.8 million residents and businesses in Los Angeles. LADWP provides its 666,000 water customers and 1.4 million electric customers with quality service at competitive prices. The elements of this plan will guide LADWP through an unprecedented, rapid transformation that is changing the way we and other utilities have operated for the past 100 years. With renewable energy integration, energy storage, distributed generation, regulatory uncertainty, customer expectations, cyber security, expansion of local water supplies to combat drought and climate change, and massive investment in replacing aging infrastructure, flexibility, agility and accountability are key to ensuring we continue to deliver on our mission for the next 100 years. FIVE-YEAR VISION STATEMENT By 2021, the Los Angeles Department of Water and Power (LADWP) will be trusted and valued by our customers and recognized nationally and globally as a leader in innovation and environmental stewardship.

43 KEY TARGETS/ SUCCESS MEASUREMENTS To meet our vision, we have identified specific targets that we aim to meet in the next 5 years. These targets will measure our organizational performance and keep us on track to meet our mission and vision. By 2021, LADWP will: Meet 100% of performance metrics defined in class action lawsuit Meet 100% of rate case performance targets Attain the top quartile in performance benchmarks or at least 90% in customer satisfaction surveys Meet or exceed all local, state and federal energy efficiency, water conservation and sustainability goals Be recognized locally, nationally and globally for innovation and environmental stewardship with awards, grants, presentation opportunities and in publications CORE VALUES FIVE-YEAR GOALS Provide exemplary customer service Maintain competitive rates while remaining financially stable Increase organizational effectiveness, efficiency and innovation Implement 100% advanced/smart meters for water and power Increase the reliability of our water and power infrastructure Achieve zero injuries for our employees and the public Be a leader in environmental stewardship CUSTOMERS FIRST NEXT STEPS Identify the strategic objectives with benchmarks and key performance indicators (KPI s) to meet the goals set forth in the strategic plan. Communicate the Strategic Plan to all employees and department stakeholders and promote their understanding and participation in the various elements to achieve our goals and objectives. Create more focused strategic plans for divisions to implement the overall strategic plan. Transparency Safety Reliability Accountability Exemplary Customer Service Integrity Innovation Equity Fiscal responsibility Professional excellence Rev. 1/2017 Strategic Plan Strategic Plan 2

44 DEPARTMENT OF WATER AND POWER This Department, under the City Charter, is responsible for supplying the City and its inhabitants with water and electric energy by constructing, operating, and maintaining for that purpose works extending throughout the City and to Inyo and Mono Counties to import water and electric energy and to other western states to import electric energy; fixes rates for water and electric service subject to approval of the Council by ordinance; controls its own funds; and maintains a retirement, disability, and death benefit insurance 0 plan. WATER REVENUE FUND RECEIPTS Estimated Estimated Receipts Receipts Receipts ,300, ,100,000 Balance available, July ,400,000 Less: Payments to City of Los Angeles (Held in Reserve) ,300, ,100,000 Adjusted Balance ,400, ,800,000 1,150,000,000 Sale of Water (1)... 1,241,000, ,636, ,918,000 From Power Revenue Fund for services and materials ,123, ,600, ,000,000 Proceeds from sale of bonds for construction expenditures made by Water Revenue Fund Proceeds from Securitization (2) ,000, ,000,000 Proceeds from Revolving Line of Credit... (500,000,000) 73,400,000 96,000,000 Proceeds from State of California Loan... 48,000,000 46,800,000 26,000,000 Contributions in aid of construction... 27,000,000 36,274,887 40,169,000 Customers' deposits... 41,092,000 6,956,600 3,596,000 From individuals, companies and governmental agencies for services and materials... 3,595,900 28,300,000 23,000,000 Miscellaneous... 22,000,000 2,692,068,187 2,917,783,000 Total Water Revenue Fund... 2,596,211,800 APPROPRIATIONS Estimated Estimated Expenditures Expenditures Appropriation ,789, ,831,000 Salaries and wages ,316, ,600, ,316,000 Materials, supplies and equipment ,761, ,000, ,000,000 Water purchased for resale... 97,000, ,545, ,019,000 Contracts - Construction work ,427,000 9,161,700 11,736,000 Contracts - Operation and maintenance work... 9,514,700 30,960,400 29,006,000 Rentals and leases... 30,538,400 84,790,900 91,932,000 Outside services and regulatory fees ,609,000 10,838,700 1,985,000 Purchase of land and buildings... 2,995,100 13,906,200 14,800,000 Property taxes... 15,900,000 26,710,100 21,275,000 Utility services for electricity and heat... 21,320,800 27,578,900 12,466,000 Injuries and damages... 18,961,800 43,800 47,000 Postal services... 43,700 43,503,700 57,977,000 Professional services... 84,716,100

45 WATER REVENUE FUND APPROPRIATIONS (Continued) Estimated Estimated Expenditures Expenditures Appropriation ,075,900 1,961,000 Transportation, lodging and employee mileage reimbursements in connection with construction, operation and maintenance work... 1,786,200 4,573,400 9,672,000 Insurance... 9,671,900 7,117,424 7,046,000 Refunds of customers' deposits... 7,208, ,822, ,938,000 Reimbursements to Power System for proportional share of intradepartmental facilities and activities ,403, ,500, ,000,000 Bond redemption and interest Water Works Revenue Bonds ,000,000 86,272,100 94,755,000 Health Care Plans ,016, ,290, ,032,000 Retirement and Death Benefit Insurance Plan ,718,500 1,935,083,124 2,206,794,000 Total Appropriations (3)... 2,165,910,340 (20,885,063) (130,589,000) Adjustments (Accrual, etc.)... (65,401,460) 736,100, ,400,000 Unexpended Balance Unappropriated Balance ,900,000 2,692,068,187 2,917,783,000 Total Water Revenue Fund... 2,596,211, Included "pass-throughs" for water supply costs, water quality improvements, water reclamation and conservation projects, water infrastructure, water expense stabilization, Owens Valley regulatory adjustment, low income subsidy adjustment and water right revenue. 2. Proceeds from securitization of capital expenditures for mandated and local water supply projects. 3. Net of receipts from Power System, individuals and companies, contributions in aid of construction, customer deposits, and other miscellaneous sources, the Water Revenue Fund Operating Budget is 1,732,098,540.

46 WATER REVENUE FUND CAPITAL IMPROVEMENT PROGRAM Projected Expenditures INFRASTRUCTURE - BASE Water Services Organization Information Technology... 14,870,000 Water Services Organization Facilities... 8,353,000 Other Water Services Organization Capital Projects... 3,324,000 Tools & Equipment... 1,600,000 Total... 28,147,000 INFRASTRUCTURE - OPERATING SUPPORT Joint Capital-Water Share... 29,995,000 Water System Share Settlement Costs... 21,849,000 Fleet Equipment Replacements & Additions... 16,581,000 Fleet Construction Projects... 10,393,000 PC Equipment - Water Serv... 2,413,000 Water Security Systems... 2,361,000 John Ferraro Building Capital... 1,128,000 Additions & Betterments - Water FN CAO ,000 Fueling Station Infrastructure ,000 Ergonomics & New Furniture - Water System ,000 Tools & Equipment - Integrated Support Services Shops ,000 Tools & Equipment - Corporate Services Organization ,000 Miscellaneous Capital Projects ,000 PC Equipment Water - Joint ,000 Cyber Security - Water Funded... 27,000 Industrial Graphics Equipment... 23,000 Cafeteria Equipment... 1,000 Total... 88,014,000 INFRASTRUCTURE - PASS THRU Distribution Mains ,399,000 Services, Meters & Hydrants... 42,763,000 Trunk Line & Major System Connections... 36,397,000 Infrastructure Reservoir Improvements... 22,147,000 Pump Stations... 18,090,000 Water Systems Infrastructure Support... 8,152,000 Regulator Stations... 5,480,000 Seismic Improvements... 2,088,000 Griffith Park Water Distribution System ,000 Total ,076,000 OWENS VALLEY REGULATORY Supplemental Dust Control Development... 48,887,000 Owens Valley Dust Mitigation... 32,081,000 Owens Lake Master Project ,000 Total... 81,672,000 WATER QUALITY Water Quality Improvement Project - Reservoir Improvements ,456,000 Ground Water Remedtn and Cleanup... 64,025,000 Water Quality Improvement Project - Trunkline Improvements... 50,327,000 Water Treatment Improvements... 22,126,000 Chlorination Station Installations... 14,737,000 Meter Replacement Program... 13,172,000 Total ,843,000

47 WATER REVENUE FUND CAPITAL IMPROVEMENT PROGRAM (continued) Projected Expenditures WSCA - GROUNDWATER Groundwater Management... 14,251,000 Total... 14,251,000 WSCA - LAA LA Aqueduct System - Additions & Betterments South... 11,127,000 LA Aqueduct System - Additions & Betterments North... 8,729,000 E. Sierra Environmental Capital... 6,993,000 Total... 26,849,000 WSCA - RECYCLED WATER Water Recycling - Capital... 75,368,000 Watershed - Stormwater Capture... 24,029,000 Total... 99,397,000 WSCA - WATER CONSERVATION Water Conservation - Water Funded... 37,964,000 Total... 37,964,000 Gross Capital ,213,000 Accounting Accruals and Adjustments... 1,379,000 Net Capital Improvement Program ,592,000

48 DEPARTMENT OF WATER AND POWER WATER AND POWER EMPLOYEES' RETIREMENT, DISABILITY AND DEATH BENEFIT INSURANCE PLAN FY RETIREMENT FUND RECEIPTS Actual Budget Estimated Budget ,259, ,241, ,242,000 Department Contributions 435,333,497 70,175,263 73,000,000 73,000,000 Member Contributions 76,650, ,507, ,170, ,600,000 Investment Return 781,450, ,941,453 1,286,411,578 1,198,842,000 TOTAL RECEIPTS 1,293,433,497 APPROPRIATIONS 505,591, ,200, ,200,000 Benefit Payments 550,368,000 33,807,268 46,288,365 46,288,000 Administrative Expense* 46,269,233 23,542, ,923, ,353,000 Available for Investment 696,796, ,941,453 1,286,411,578 1,198,841,000 TOTAL APPROPRIATIONS 1,293,433,497 *Total active investment management fee of 27.9 M for Actual, 39.7 M for Estimate, and 39.7 M for Budget. DISABILITY FUND RECEIPTS Actual Budget Estimated Budget ,066,832 18,531,555 16,812,000 Department Contributions 16,721, , , ,000 Member Contributions 475,680 2,117,398 1,481,000 1,290,000 Investment Return 1,570,000 19,642,546 20,481,205 18,571,000 TOTAL RECEIPTS 18,766,994 APPROPRIATIONS 15,944,802 17,698,500 16,264,000 Benefit Payments 16,750, ,498 1,094,005 1,094,000 Administrative Expense 971,046 2,740,246 1,688,700 1,213,000 Available for Investment 1,045,948 19,642,546 20,481,205 18,571,000 TOTAL APPROPRIATIONS 18,766,994

49 DEPARTMENT OF WATER AND POWER WATER AND POWER EMPLOYEES' RETIREMENT, DISABILITY AND DEATH BENEFIT INSURANCE PLAN FY DEATH BENEFIT FUND RECEIPTS Actual Budget Estimated Budget ,229,494 8,569,819 8,455,000 Department Contributions 8,530, , , ,000 Member Contributions 345,000 1,631,456 1,161,000 1,020,000 Investment Return 1,240,000 10,187,135 10,068,659 9,813,000 TOTAL RECEIPTS 10,115,202 APPROPRIATIONS 7,518,804 7,905,000 7,600,000 Benefit Payments 7,714,000 1,058,074 1,130,100 1,130,000 Administrative Expense 1,033,522 1,610,257 1,033,559 1,083,000 Available for Investment 1,367,680 10,187,135 10,068,659 9,813,000 TOTAL APPROPRIATIONS 10,115,202 RETIREE HEALTH BENEFITS FUND RECEIPTS Actual Budget Estimated Budget ,606,726 85,960,367 83,852,000 Department Contributions 87,197, Member Contributions - 19,216, ,900, ,890,000 Investment Return 131,800,000 99,823, ,860, ,742,000 TOTAL RECEIPTS 218,997,318 APPROPRIATIONS 79,895,671 85,200,000 83,091,000 Benefit Payments 86,415,158 5,332,099 7,428,030 7,428,000 Administrative Expense** 7,479,899 14,595, ,232, ,222,000 Available for Investment 125,102, ,823, ,860, ,741,000 TOTAL APPROPRIATIONS 218,997,318 **Total active investment management fee of 4.6 M for Actual, 6.7 M for Estimate, and 6.7 M for Budget.

50 FEDERAL AND STATE GRANT FUNDING ESTIMATES Subfunction Actuals Estimated Estimated Grantor Grant Type Grant Period Code Grant Receipts Grant Receipts City Match Grant Receipts City Match (F, F/S, S, O) (FR, C, E) CA State Water Resources Control Board, Base SRF - LA Aqueduct Filtration Plant Ultraviolet Light Disinfection... BL 945,903 2,054, F/S C 06/26/ /26/2017 CA State Water Resources Control Board, Base SRF - Manhattan Wells Ammoniation Station... BL 730,187 2,269, F/S C 06/26/ /26/2017 CA State Water Resources Control Board, Base SRF - North Hollywood Ammoniation Station... BL 509,222 2,490, F/S C 06/26/ /26/2017 CA State Water Resources Control Board, Base SRF - Silver Lake Reservoir Bypass & Flow Regulating Station... BL 1,922,366 1,077, F/S C 06/26/ /26/2017 CA State Water Resources Control Board, Base SRF - Headworks Flow Regulating Station and Power Plant... BL 400, F/S C 3/10/2015-9/10/2016 CA State Water Resources Control Board, Watershed Grant Program -- Woodman Avenue Multi-Beneficial Stormwater Capture Project*... BL S C Closed CA State Water Resources Control Board, Prop. 50 Security Program - LADWP Water System Security Upgrades & Intertie Project... BL 3,654,457 2,534, S C 11/29/ /31/2017 California Energy Commission Grant for Western District Yard CNG Fueling Station*... BL S C Closed California Energy Commission Grant for Installation of EV Charging Station... BL 500, S C 6/30/14-12/31/16 CA Energy Commission - installation of EV Fleet Charging Stations... BL 75, S C 06/28/13-08/30/16 CA Energy Commission - installation of EV Workplace Charging Stations... BL 75, S C 06/30/13-03/31/16 CA Energy Commission - installation of DC Fast Charger through SCPPA... BL 49, S C 07/01/14-12/31/16 FEMA - October 2003 Wildfires-Power*... AL F/S FR Closed CDAA - November 2003 Storm-Power... AL - 40,284 - S FR 11/12/03-05/02/05 FEMA - January 2005 Winter Storms-Power... AL 1,994, ,961 - F/S FR 12/27/04-10/03/08 FEMA - January 2005 Winter Storms-Water... AL - 181,432 - F/S FR 12/27/04-10/03/08 FEMA - February 2005 Winter Storms-Power... AL - 447,282 - F/S FR 02/16/05-06/31/07 FEMA - February 2005 Winter Storms-Water... AL 94, F/S FR 02/16/05-06/31/07 CDAA Inyo Freeze Grant (Extreme Cold Temperatures)-Water*... AL S FR Closed CDAA Inyo Complex Fire-Power**... AL 391, S FR 07/07/07-06/30/08 FEMA California Wildfires-Power**... AL 133, F/S FR 10/21/07-04/21/09 FMA Flood Mitigation Assistance PJ09*... AL F/S FR Closed FEMA - November 2008 Sayre Wildfires-Power**... AL 737,757 3,813,147 - F/S FR 11/13/08-08/31/11 FEMA - November 2008 Sayre Wildfires-Water**... AL 440, F/S C 11/13/08-08/31/11 CDAA Station Wildfires-Power***... AL S FR 08/26/09-11/30/18 (est.) FEMA January Winter Storms-Power***... AL F/S FR 01/17/10-10/31/18 (est.) CDAA December Winter Storms-Power... AL ,272 S FR 12/17/ /31/12 CDAA July Inyo Storms-Water... AL - 123,394-3,213,228 S FR 09/30/13-08/31/17 CA Dept. of Water Resources - Proposition 50 Water Conservation Projects*... BL S C Closed CA Dept. of Water Resources - Proposition 84 Drought Round Implementation Grant - Mission Wells Project... BL 3,466, S C 01/1/10-06/30/18 CA Dept. of Water Resources - Proposition 84 Drought Round Implementation Grant Manhattan Wells Project... BL 2,926,701 15,305 - S C 01/1/10-06/30/18 CA Dept. of Water Resources - Proposition 84 Drought Round Implementation Grant Terminal Islands Project... BL - 120,207 2,638,399 2,334,298 18,581,884 S C 01/1/10-06/30/18 CA Dept. of Water Resources - Proposition 84 IRWMP, Tujunga Spreading Grounds Enhancement Project... BL - 1,860,000 5,500,000 1,553,781 5,500,000 S C 04/03/13-06/30/18 CA Dept. of Water Resources - Proposition 84 IRWMP, Central Los Angeles County Regional Water Recycling Project, Phase 1A BL 16,850 1,000,000 5,000,000 1,000, ,000 S C 04/3/13-12/30/17 CA State Water Resources Control Board, Proposition 84 Stormwater Grant Program -- Laurel Canyon Stormwater Capture Project... BL 314,865 1,685, S C 07/1/13-08/30/17 US Bureau of Reclamation-CII Landscape Incentive Program*... BL F C Closed U.S. Economic Development Administration Grant... EA - 2,124,000 - F C 9/27/12-9/2/17 U.S. EPA -- Elysian Park Water Recycling Project... BL 193,096 27,779-75,936 - F E 12/1/11-10/15/16 U.S. EPA - O&M Aeration Facility Assistance... BL 895, ,000 77, ,616 46,957 F FR 09/28/11-09/30/15 Smart Grid Demo Project (ARRA)****... BL 727,027 F C /30/16 Total Water & Power... 20,465,328 23,420,063 13,942,982 8,832,131 24,628,841 * Disaster completed & payment received in full - (Highlighted per CAO's Instructions) **Project completed and grant agreement closed - Do Not Delete Program - Retained on the schedule in order to capture historical receipts (future funding not expected) ***Expecting receipts ****ARRA Component Included