Ballot Box Brings Relief to DWP

Voters’ passage of propositions G, I and J prompted a big sigh of relief at the Los Angeles Department of Water and Power, where the measures were seen as key to enabling the utility to streamline and prepare itself for the new age of electric power deregulation dawning in January 1998.

But much remains to be done if the DWP, the nation’s largest municipal power company, is to compete effectively. Topping the list of priorities are reducing the DWP’s $7.9-billion debt and drastically reducing costs, a step that city officials say could mean eliminating 2,000 more jobs.

The city charter amendments, which all passed by comfortable margins, will ease restrictions on hiring and investment and enable the DWP to sell its excess generation capacity--as much as 20% above the 5,100 megawatts it typically generates for its service area--to outside customers.

“The most important piece of business is to exercise the new powers, to incorporate them into its arsenal of competitive weapons and get moving on them as quickly as possible,” said William Cox, municipal finance analyst at Standard & Poor’s, which last month downgraded bonds issued by the DWP and voiced concerns about the utility’s prospects in deregulation.

By enabling the DWP to market its excess power capacity, Proposition G sets the stage for a strategic alliance with a nationwide power marketer that the DWP expects to formalize by the end of December. The 1.3-million-customer utility will choose from proposals submitted by PacifiCorp of Portland, Ore.; Duke/Louis Dreyfus of Wilton, Conn.; and Enron Corp. of Houston.

Proposition I will allow the DWP to make more aggressive investments with its cash, which could mean several million dollars more in added income, said General Manager William McCarley.

Proposition J gives management the ability to hire 15 instead of seven non-Civil Service employees, which the DWP will use to recruit outside energy experts.

Annemarie Cavallaro, assistant business manager of the International Brotherhood of Electrical Workers, which represents 6,800 of the DWP’s 8,900 employees, said the union supported passage of the ballot measures, which will “allow the DWP to compete on a level playing field in a deregulated environment.”

The labor union has so far supported McCarley’s reorganization efforts, which have produced 2,000 job cuts over the last two years but no forced layoffs.

But the DWP must still reduce its annual costs by more than $400 million by 1998 if it is to be competitive in the free power market, analysts say. Further job cuts are considered inevitable.

“The only way the DWP can survive is to be able to first compete with [Southern California] Edison and other companies,” said Los Angeles Mayor Richard Riordan. “Right now, we have one-third the business of Edison and two-thirds the number of employees of Edison.”

The utility must also find a replacement for McCarley, whose resignation last month added to Wall Street’s worries about the DWP’s future. He is to stay on the job through January.