DWP Seeks ‘Strategic Alliance’

In another case of a California utility girding for the onset of deregulation, the Los Angeles Department of Water and Power is discussing forging a “strategic alliance” with one of three major energy companies to better market its excess power and improve efficiency, a company executive said Tuesday.

The disclosure comes the day after Los Angeles-based Pacific Enterprises and San Diego-based Enova Corp. announced a $4.3-billion merger proposal to create the nation’s largest utility with 5.9 million customers. Several analysts and industry observers on Tuesday predicted that outside companies will make competing, hostile takeover bids for one or both companies.

Analysts also said the proposed deal would put more competitive pressure on DWP and Southern California Edison.

Ranking as the state’s third-largest electricity utility after Pacific Gas & Electric and Southern California Edison, with 1.3 million customers, DWP has been on an aggressive cost-cutting program to prepare itself for the deregulated electricity market to be phased in starting January 1998. DWP has reduced its payroll by 2,000 jobs, or 20%, over the past two years.

But DWP General Manager William McCarley said Tuesday that the company still needs to lower its energy prices, especially for commercial customers, in view of oncoming deregulation. So, DWP is seeking a “marriage of skills and assets” to help it develop power marketing and management expertise and a range of other business services.

McCarley said DWP began strategic discussions this summer with Houston-based Enron; Duke/Louis Dreyfus, a joint venture of the Louis Dreyfus natural gas firm of Wilton, Conn., and Duke Power of Charlotte, N.C.; and PacifiCorp, a Portland, Ore., electric utility holding company. McCarley didn’t comment on a timetable for a possible agreement.

McCarley said he was not surprised by the Pacific Enterprises-Enova plan, saying it was “reflective of a trend. . . . It will provide a competitive challenge for us.”

Since DWP is a municipally owned utility, it can’t buy, or be acquired by, a prospective partner. But McCarley said a partnership could help it sell its excess power generation, which amounts to 10% to 15% more than what it needs.

“We are exploring our whole business plan” in anticipation of utility deregulation, he added.

DWP is proposing a charter amendment on the November ballot to allow the utility to take on more business activities, broaden its investment and “restructure its debt and operate in a more businesslike fashion,” McCarley said.

Enron and Duke/Louis Dreyfus executives were unavailable for comment. A spokeswoman for PacifiCorp declined to comment on DWP talks but said her company is considering business relationships throughout the nation. The company owns Pacific Power and Utah Power, serving seven states and 1.3 million customers.

In New York Stock Exchange trading Tuesday, Enova shares closed at $22.50, up 12.5 cents, while Pacific Enterprises stock finished at $32.125, down 12.5 cents.