Gao, Beilei
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William M. Paparian
Tuesday, January 13, 2026 7:27 AM
Gao, Beilei
Municipal Services Committee meeting - January 13, 2026 IYou don't often get email from iLearn why this is important [ I ] CAUTION: This email was delivered from the Internet. Do not click links or open attachments unless you know the content is safe. Report phish using the Phish Alert Button. For more information about the Phish Alert Button view article "KB0011474" on the DolT portal.
The proposed 9.5% phased electric rate increases for Pasadena Water and Power [PWP) in Fiscal Years 2026 and 2027—potentially taking effect as early as March 2026—are presented by city officials as unavoidable responses to a $67.9 million revenue shortfall, skyrocketing infrastructure costs, and the ambitious goal of 100% carbon-free electricity by 2030.
Yet, this narrative crumbles under scrutiny. The true culprits are chronic wasteful spending, a history of financial mismanagement, and bloated executive salaries that prioritize a top-heavy bureaucracy over the hardworking residents who pay the bills. These internal failures, not just external pressures, are forcing ratepayers to subsidize inefficiency and extravagance. Pasadena deserves better accountability, not another hike.
Pasadena's utilities have repeatedly demonstrated poor stewardship of public funds, turning what should be efficient operations into costly burdens passed directly to customers. The most glaring example is the approximately $3.5 million embezzlement scandal from the Underground Utility Program discovered in 2014, with convictions and sentencing in January 2019, where a former city employee siphoned funds over years, temporarily derailing efforts to bury power lines. This wasn't an isolated incident; it exposed systemic weaknesses in oversight, with funds accumulating unused for decades—making theft easier and highlighting how slowly the city spends on promised improvements. The program, funded by surcharges since the 1960s, generates millions annually yet progresses at a glacial pace, potentially taking centuries and billions to complete full undergrounding.
This pattern persists. The question is why rates are rising despite large reserves and falling costs for renewables like solar and batteries. PWP pushes aggressive clean energy timelines without fully exploring cheaper alternatives like competitive bidding, federal grants, or better reserve utilization. Instead, the utility relies on transfers to the city's general fund, which has ballooned unabated making ratepayers "pay three times over" for infrastructure, green goals, and unrelated city needs.
The Municipal Services Committee has rejected or delayed hikes, acknowledging future ones are "likely" but signaling skepticism about timing and necessity. Personnel and contractor costs rise faster than revenue, even as water usage drops—yet the response is hikes, not trimming overhead. Residents aren't imagining it: These hikes feel like bailouts for poor planning, where ambitious projects and deferred maintenance become excuses rather than solutions.
At the heart of the fiscal strain is compensation that is wildly out of step with Pasadena's realities. The General Manager of Water and Power—now David Reyes, appointed effective May 2025—commands a salary range of 1 $285,000 to $356,853 [plus generous benefits], overseeing a $450 million budget and 430 employees. This isn't modest public service pay; it's executive-level compensation competitive with private sector roles yet funded by ratepayers.
Other top positions compound the issue: Up to $186,000, and department-wide wages hit $52.7 million in recentyears, including significant overtime and other pay. Citywide, hundreds of employees exceed $100,000 annually, with management roles skewing even higher—often 20-30% above national averages for similar positions. Why should residents subsidize six-figure salaries and benefits when basic affordability programs remain limited? Utilities like PWP operate as not-for-profits yet mirror corporate excess in executive perks.
These salaries aren't frozen amid rate pressures; recent executive adjustments continue the trend. When combined with rising personnel costs, it's clear: Rate increases help sustain a bloated payroll rather than purely fund infrastructure or clean energy.
The proposed rate hikes are not inevitable—they are the consequence of wasteful spending rooted in historical mismanagement and ongoing inefficiencies, plus bloated salaries that reward executives while burdening families. Pasadena's residents, already hit by cumulative increases in water, sewer, trash, and now power, face bills that could climb dramatically without meaningful change. Officials tout low regional rates and equity measures, but these ring hollow when reserves sit unused, projects drag on, and leadership pay soars.
It's time for transparency and reform: Independent audits of spending, caps on executive compensation tied to performance and affordability, reduced general fund transfers, and genuine exploration ofcost-saving alternatives. Residents must demand accountability from the City Council and PWP—because sustainability should never come at the expense of fairness. Without addressing these root causes, the proposed increases are not progress; they are perpetuation of a broken system. Pasadena can—and must—do better. 2 Gao, Beilei
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Cynthia Cannady
Tuesday, January 13, 2026 8:14 AM
Gao, Beilei
Reyes, David; Jones, Justin; Hampton, Tyron; Lyon, Jason; Rick Cole MSC correspondence
[ I ] CAUTION: This email was delivered from the Internet. Do not click links or open attachments unless you know the content is safe. Report phish using the Phish Alert Button. For more information about the Phish Alert Button view article "KB0011474" on the DolT portal.
Dear Councilmembers:
PWP and its consultants have still not responded to the MS C Councilmembers direction that they provide a logical or factual basis for why PWP's residential customers should have to pay 31.5% of the burden ofplaimed electric power rate increases while other classes of customers get a significantly smaller percentage increase (e.g. 13.4% for large commercial.)
We believe that the rate study is seriously flawed in 5 ways:
1. It allocates cost to customer classes in an illogical and unsubstantiated manner.
2. It is based on incorrect or imprecise factual assumptions about the cost of service to different customer classes relying on "industry practice" and "assumed characteristics" rather than actual information about Pasadena ratepayers.
3. The class definition for residential is too broad and includes ratepayers with vastly different use and cost profiles. Customer classes are aggregated in a way that obfuscates the actual burden each customer within those classes impacts the system.
4. The rate study makes statements about rate changes for electric vehicles that lack analysis and factual documentation and may conflict with public policy to encourage and not burden EV adoption.
5. The entire study is marred by lack of transparency and public participation.
Accordingly, we ask that the MSC decline to approve this Rate Study and send it back to PWP for further analysis on the customer classifications and corresponding cost allocations, with public engagement and utilization of appropriate data.
The Issue:
The issue is not the fact that rate increases are necessary; the revenue shortfall is caused by a combination of expensive deferred maintenance of the local grid, inflation, supply chain problems and cost increases in all energy sources (not just renewables). The first part of the study concerns the revenue shortfall for the next two years (aka the "revenue requirement"). PWP and consultants report that this is $67.2 million over the next 2 years.
The issue is how these rate increases will be distributed among different Pasadena customers.
The California Constitution, as amended by Prop. 26, Article XIII C, Section l(e) provides:
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"The local government bears the burden of proving by a preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable costs of the 1 governmental activity, and that the manner in which those costs are allocated to a payor bear ^ fair or reasonable relationship to the payor 's burdens on, or benefits received from, the governmental activity." [emphasis added]
To comply with this requirement, California utility companies and their consultants conduct "Cost of Service" (COS) studies to comply with this general Constitutional requirement. These studies seek to ensure that:
electric rates are no more than is necessary to cover the reasonable cost of the service and the allocation of rates bears a fair or reasonable relationship to the ratepayers' burdens and benefits.
The PWP/New Gen study concludes:
"The COS results show that cunrent rates do not match the actual cost to serve most customers. Residential customers face the largest gap, requiring an estimated one-time increase of about 39% to reach full cost recover, compared to 7% for small commercial and 6% for large commercial. Medium commercial class is above cost and require adjustments downward to align with the COS Residential customers...." Despite the request of the MSC for clarification, neither the PWP staff memo nor the consultant's study document provide more than conclusory statements to explain why the cost to service the broad class of residential customers is more than the cost to service other classes of customers.
The staff memo states that "residential customers cost more to serve today than they did several decades ago...." (p. 3). But this has nothing to do with the issue: whether it costs more to serve residential customers than it does to serve other classes of customers. The memo then refers to "independent analyses" that"have increased the cost to serve residential customers" including investments in infrastructure, distribution grids, wildfire risks, and flat per-customer usage. But these realities apply to the cost to serve all ratepayers and the staff memo makes no effort to explain why these realities of electric power today impact residential customer service disproportionately.
PWP also points out that residential rates statewide have increased by 47% from 2019 to 2023 "outpacing general price growth..." (p. 4). This statement is apparently offered to support requiring Pasadena's residential rate payers to also endure this disproportionate burden. PWP continues: "Taken together, these external analyses help explain why the cost to serve residential customers has increased so dramatically over time." These conclusions are neither logical nor fair and have nothing to do with the COS analysis.
PWP's "Cost of Service Study Findings" are set out on pages 5-7 of the Staff Memo. But these "technical findings" are conclusory statements that do not explain why it costs more to provide service to residential customers than to other classes.
They say that "production costs" represent 49% of the total cost of electricity. Presumably this refers to the cost of buying imported electricity and generating it at the Glenarm plant. But this cost is common to all ratepayers and no explanation is given for why residential customers should pay more than other customer classes.
Distribution costs are found to be account for 41% of total costs. This presumably refers to the cost of maintaining and investing in Pasadena's local distribution grid. But the staff memo just refers to the consultants' rate study document for an explanation of "customer contributions to peak load, energy use and service requirements."
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In sum, the PWP staff memo responds to Councilmembers' serious questions with more words but not with answers.
2 The consultants' Section Three: Electric Cost-of-Service is somewhat more on point, but still does not answer the fundamental problem of why they allocate greater costs to servicing residential customers than other classes.
Their Rate Study had 4 steps.
Step 1 is determining the "revenue requirement" (the cost of doing business) that PWP has to make to stay in business
Step 2 attempts to categorize the different "functions" of the PWP system that have costs, for example, production of electricity (aka power purchase agreements to import electricity) or repairs to the distribution grid or customer service.
Step 3 looks at each function and attempts to break these down into types of costs (e.g. demand related, energy related costs). The fancy term "sub-functionalization" is used to describe this step.
Step 4 allocates cost to different customer classes. No explanation is given for how customers are grouped into classes other than a reference to "various customer class allocation methodologies." 5?
Step 4 should be where the fundamental issue of allocation and this is covered on pages 116 to 119 ofthe memo. However, these pages provide no coherent explanation of why the cost to service residential customers in Pasadena is greater than the cost to service large customers or other classes. The arguments appear to be:
1. High fixed infrastructiire costs refers to local grid maintenance and improvements. Why PWP and New Gen conclude that these investments in the system should be attributable to residential customers more than other classes is not explained. Don't all ratepayers need a functional distribution grid? Even if there were residential customers, the other classes of customers need PWP to complete the work on the central East West tmnk line. Conversely, if there were no large commercial, this grid functionality would be essential for medium commercial. These basic investments in the system are the necessary foundation of any local grid. The staff memo provides no logical basis for concluding that the cost of these investments is greater because of one class of customer or another.
2. Peak demand contributions. Figure 3-2 shows a higher monthly peak demand for residential. But this raises more questions than it answers. Do grocery stores and hospitals not have peaks for air conditioning for example? What about peakiness every day or other seasonal demand variations? Even if it is true that residential is more "peaky" than any other class, why does variability create greater cost? Is a steady high user less costly to service that a low use residential customer who only turns on the AC in August?
No attempt is made in all of this discussion of peak demand to relate to the mandate of the California Constitution (based on Prop. 26) to allocate rates fairly based on cost. The simple assertion that residential use is variable and peaky in summer months is not a sufficient factual basis for claiming that rate allocation is unfair.
Clearly, the mere fact that there are more numerically more residential customers who use more electricity is not sufficient to justify a disproportionate rate allocation.
3. Customer related services expenses. Why is electronic billing more expensive for residential customers? Bills are surely handled by software applications that send out bills to one and all? We don't use postage any more for most bills. And if we do, we should stop or impose a surcharge. 3 It is likely that commercial customers have many other customer related service expenses, including meetings with large customers to negotiate and evaluate special programs and planning. How can PWP compare the cost of servicing a customer like Caltech, Target or Amazon with the cost of communicating with individual ratepayers about their bills?
The Rate Study continually refers to its reliance on "industry standards", "theory" and assumptions about the cost of service. It appears that the cost allocations in Step 4 were based on these general assumptions, not on actual information about cost of service in Pasadena. The Rate study states that their cost allocations for custonier service related costs were: "Based on actual and assumed customer service characteristics...." (p. 116). If this were an adequate basis for rate allocation, there would be no need for cities who own public utilities to commission rate studies. All POUs and lOUs could use the same rate allocation and no study of their specific circumstances and costs would be necessary. That would not be in compliance with the Constitution's mandate for fair rate allocation.
Classification
The Rate Study provides no coherent explanation for the customer classification that it uses. On page 114, the Rate Study has a heading for "Classification," but the text does explain the logic of the 6 classes that are used in the study. On page 116, it refers to "various customer classes for the purpose of determining the COS for each class.
Further, why are commercial ratepayers split up into 3 different classes while residential ratepayers, who have vastly different load profiles, are aggregated into a single class? Even splitting up residential ratepayers into a single family and multi-family units would significantly split the load burden on the distribution grid.
Lack of transparency in the process and in the final documents submitted to City Council.
According to the staff memo, public engagement has been "central to the process" of the rate study. In fact, there has been no advisory panel or other public process for disclosure and analysis of the factual assumption and other aspects of the Rate Study.
For all of these reasons, Pasadena residential rate payers should not be burdened by excessive rate allocation, while commercial ratepayers of various sizes do not share the same burden.
We own our own utility for a good reason. We exercise democratic control over the utility and this enables our elected officials to use critical judgment, not just accept the unexplained dictates of consultants re-using data and software.
The current draft of the Rate Study should be rejected.
Cynthia Cannady
Sam Berndt
For PASADENA 100
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