An audit released Wednesday proposed that the Los Angeles Department of Water and Power cut its staff by up to a quarter, or 2,900 employees, to save as much as $223 million a year.
With deregulation of the power industry looming, the DWP must make the dramatic staff cuts if it hopes to compete with private utilities, city officials said. The savings are also needed to help pay for the city's ongoing expansion of the Police Department, they said.
Although city officials were nearly gleeful about the prospect of scaling back an agency they have long bashed as wasteful, they were also wary about the many competing demands on the DWP, the largest municipally owned utility in the country.
City Councilwoman Ruth Galanter, who helped present the audit to DWP officials Wednesday, summed it up this way: "What we are trying to do is reduce costs to the bone, continue our social and environmental policies, keep residential electric rates down, decrease industrial rates to be more competitive and still have money to transfer to the city.
"You can't do all those things, so you have to make some tough choices."
The question of what choices to make will have to wait, while the city attempts to implement the recommendations from the Barrington-Wellesley Group, a New Hampshire-based consulting firm.
The firm was hired late last year by the City Council, which had been outraged by reports that the DWP had spent more than $800,000 on catered food around the time of a nine-day strike by employees. The utility's managers had previously been chastised for expensive charter airline flights and excessive contracts.
The auditing firm compared the DWP to other utilities and found that it generally charged customers lower rates, but that its expenses were high. The firm concluded that 2,300 to 2,900 employees should be cut from the 11,627-person work force to bring it in line with private utilities.
The report suggests that the cuts can be made over five years, without layoffs, through attrition and early-retirement incentives. The nearly 1,400 full-time engineers and support employees who handle repairs and additions to the electric system could be replaced by as few as 313 employees, the report suggests.
The division responsible for power distribution has too many managers and restricts employees' duties too strictly by job classifications, the audit found. It also concluded that the utility has too many clerks, drivers, maintenance workers, and employees who manage phone and computer systems.
Despite the excess of employees, the DWP has been able to sustain relatively low rates because it receives tax benefits that private utilities do not, the audit said.
The study found residential power rates were 17% lower for DWP customers than those of other big-city utilities. The DWP reported that a typical residential customer who is billed $99 a month would pay nearly $126 to Southern California Edison, which serves most surrounding communities.
The DWP is also lower than neighboring Edison for industrial customers, but 5% higher when compared with utilities in other urban areas.
City officials are worried that they must cut industrial rates to keep manufacturing customers. Some are already fleeing the DWP system. UCLA, for example, recently opened its own power station, cutting $15 million from DWP's annual revenues.
The state Public Utilities Commission has proposed deregulating the power industry starting in 1996. Deregulation would allow large industrial users to shop for bargains. The loss of industrial users could trigger what some DWP managers refer to as the "death spiral."
"We know we are going to have to compete and if we don't, we are going to lose our industrial customers," said Dennis Tito, president of the DWP board. "Then our residential rates will go up higher than our competitors'. If that happens, voters will demand the utility be sold."
City officials also worried that being thrown into a competition with private utilities could hurt fledgling conservation and environmental efforts--the purchase of electric cars, tree plantings and retrofitting to create cleaner-burning power plants.
"With the rawest form of competition, any social and environmental costs would have to be pulled out, otherwise you could not compete," said Ron Deaton, the city's chief legislative analyst.
Union representatives said they welcomed the calls for reduced management at the DWP but that they doubt that the recommended use of outside contractors would save money.