DWP defends withholding $73.5 million from L.A.

Executives with the Los Angeles Department of Water and Power on Tuesday issued a sharply worded defense of their decision to withhold $73.5 million from city coffers in the middle of a recent fight over electricity rates, saying they did so to protect the utility’s credit rating and its customers.

During a lively exchange with City Council members, several of whom made no effort to disguise their disdain for the DWP, current and former managers of the nation’s largest municipally owned utility responded to a report that accused them of misleading both the council and the public about the agency’s financial health.

After a lengthy standoff between the council and DWP over proposed rate increases, City Controller Wendy Greuel reviewed the utility’s records and concluded that, contrary to its claim, the utility could have made the promised transfer to the cash-strapped city budget without first being granted the increase.

But DWP Interim Chief Financial Officer Mario C. Ignacio said Greuel’s report contained “material misstatements of fact” and wrongly concluded that the utility could have dipped into an $800-million cash balance to make the transfer.

Ignacio said the DWP has for years left that reserve untouched to reassure bond investors of its credit worthiness. Former Interim General Manager S. David Freeman went further, calling some of Greuel’s arguments “borderline ludicrous.”

“I stand by everything I said,” Freeman told the council, referring to the April 5 letter in which he refused to make the transfer.

Freeman’s remarks were part of a spirited back-and-forth over a dispute that put Los Angeles’ fiscal woes into the national spotlight. At one point, DWP commission President Lee Kanon Alpert insisted to council members that none of his votes on electrical rates were motivated by pressure from aides to Mayor Antonio Villaraigosa.

At another point, a high-level mayoral aide refused to identify the Villaraigosa staffers who had convened in a back room behind the DWP commission during a pivotal vote.

Unlike investor-owned power companies that pay regular dividends to stockholders, the DWP transfers more than $200 million each year to the city’s general fund, which pays for police, fire and other basic services. This year, that transfer was broken into two installments — $147 million followed later by $73.5 million.

Freeman and the DWP refused to make the second payment after the council rejected the first of four rate hikes sought by the mayor and his DWP board. Outraged council members responded by saying that the DWP was trying to extort them into passing the rate hikes. With the city already in a financial crisis, Villaraigosa added to the drama by taking steps to shut down some departments two days per week.

The mayor and council reached a compromise days later, averting the closures. But Greuel’s report said the department needlessly plunged the city deeper into a financial crisis.

On Tuesday, Freeman complained that Greuel should have contacted him before holding a news conference outside DWP headquarters to announce her findings. “Mr. President, if you and I were the referees and this were a football game, we would give the controller a 15-yard penalty for piling on,” he told Council President Eric Garcetti.

Greuel defended her audit, saying that she relied on the DWP for her interviews and records. “They clearly believed they had enough information and did not need to include David Freeman in sharing that information,” she said.

Freeman was on vacation in Israel for much of the rate debate and was replaced by First Deputy Mayor Austin Beutner, the utility’s new interim general manager, upon his return. Within weeks, Beutner announced that he would hold off on any additional increases by cutting $263 million from the utility’s budget.

Garcetti told Freeman that those cost-cutting measures demonstrated that the utility had presented the council with a “false choice” — approve a rate hike or else damage the agency’s credit rating. “Mr. Beutner has shown there are other ways to save money,” he said.

Council members repeatedly complained about their inability to get answers from DWP executives. And they questioned Beutner’s decision to issue an 18-page response to Greuel’s report only minutes before Tuesday’s council session, allowing little time for them to review it before questioning utility leaders.

Councilman Paul Koretz said he could not understand why, if DWP’s financial picture was so bad, the utility’s board rejected a compromise rate increase offered by the council that included all of the money sought for day-to-day operations. Shortly before that vote, Villaraigosa’s appointees on the DWP board took a 40-minute break and headed into a back room with the mayor’s top advisors.

When Councilwoman Jan Perry asked Villaraigosa’s deputy chief of staff, Matt Szabo, to identify those advisors, he responded: “I’m not going to get into the names,” he said.

Perry, who heads the committee devoted to DWP issues, turned to her colleagues moments later, saying, “This is what we’ve been dealing with.”

The Times has previously reported that those officials were Szabo, Chief Deputy Mayor Jay Carson and Chief of Staff Jeff Carr.

By the end of Tuesday’s meeting, Councilman Greig Smith said he did not see any value in continuing to search for someone to blame. Smith said he wants to push for new ways of reforming the DWP and argued that the recent rate fight sullied the reputations of both City Hall and the utility.

“This council, that board, this department all looked like fools through this process,” he added.

david.zahniser@latimes.com