Los Angeles Electric Rates
Re “Why Utility Deregulation Won’t Benefit L.A. Rate Payers,” Opinion, Dec. 24: Robert Phillips and Steven Erie use selective information and half-truths to argue that, due to politics, the Department of Water and Power is badly handicapped in competition with investor-owned utilities (IOUs) in a deregulated environment.
Mayor Richard Riordan believes the DWP can and must compete effectively in a deregulated environment. Fortunately, DWP enjoys several key advantages that are not available to the IOUs. IOUs pay property, income and business taxes to state and local governments, typically ranging from 9% to 13% of total operating revenues. The DWP is exempt from such taxes. Similarly, IOUs borrow money at taxable interest rates, on average 25% to 30% more expensive than the tax-exempt rates DWP enjoys. These benefits save DWP more than $120 million per year--substantially more than the transfer anticipated by the city during the current fiscal year.
Phillips and Erie further suggest that transfers to the city make it impossible to reduce debt. However, they ignore the fact that, during calendar year 1994 (the most recent year for which financial statements are available), the three California IOUs reduced long-term debt by more than $730 million, while paying shareholder dividends ranging from 80% to 130% of total net income!
Their assertion that residential rates should be raised to facilitate lower rates for commercial and industrial customers ignores Southern California Edison’s public commitment to lower all rates, including residential rates, by 25% over the next few years. If implemented, this proposed cut would place Edison’s residential rates at a par with or lower than DWP’s residential rates. Thus, the residential increase proposed by Phillips and Erie would at best have a short-term impact on the challenges facing the department. The mayor believes the department should find creative ways to deliver competitive commercial and industrial rates without increasing residential rates.
MICHAEL F. KEELEY
Chief Operating Officer
City of Los Angeles
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