DWP Urged to Eliminate 1,500 Jobs, Increase Rates

Warning of a fiscal “death spiral” without immediate and drastic cost- cutting measures, a new report urges the Los Angeles Department of Water and Power to cut 1,500 jobs, or 17% of its current work force, raise residential electric rates and overhaul its management structure.

The study by Price Waterhouse and PSC Energy Corp. paints a grim picture of DWP’s readiness for the deregulated power market coming in 1998. It said DWP is threatened with the loss of its big industrial customers to lower-cost competitors, which Mayor Richard Riordan says could drive the nation’s biggest municipal utility into bankruptcy.

To avoid that, DWP must boost the artificially low rates it now charges residential customers so that it can lower rates paid by industrial users, who currently subsidize the home market rates, said the report commissioned by the utility.

The report doesn’t specify how much residential rates would have to increase, but General Manager William McCarley predicted a 10% increase to bring them more closely in line with those charged by Southern California Edison.

The report will provide the basis of a series of recommendations McCarley will soon make to the City Council to reorganize DWP. But McCarley said Friday that his proposals will go further.

For example, although the report said 1,500 jobs should be cut by 2004, he said 2,000 jobs should be eliminated over “the next three to four years.”

Most of the cuts could be made through attrition, but some layoffs are inevitable. In fact, DWP is currently negotiating to lay off 200 engineers and other technical staff, McCarley said. Officials at the Engineers and Architects Assn., an employee group representing 2,500 DWP employees, was not available for comment Friday.

The utility has already reduced its payroll by 2,000 jobs to 8,900 workers since early 1994, without forced layoffs and with the support of its biggest union, the International Brotherhood of Electrical Workers.

But the union served notice Friday that it may not be so cooperative in the next round. IBEW assistant business manager Annemarie Cavallaro declined to comment specifically on the report, saying she hasn’t read it, but said generally the union does not agree that the DWP is overstaffed.

DWP’s industrial customers currently pay 42% higher rates than those charged by Edison, a future competitor, and even higher on a percentage basis than many out-of-state companies that will be free to raid California for business starting in 1998, the report said.

In recommending a rate increase for residential customers, the report said the current subsidization of DWP’s little customers by its big ones has resulted in especially low rates for DWP’s residential customers--27% below those charged by Edison.

The loss of big commercial and industrial customers to outside competitors offering lower rates is what many of the nation’s municipal utilities dread most about the coming free energy market. Losing them would saddle residential ratepayers with utilities’ debt and fixed costs, forcing dramatic--and possibly untenable--increases in rates to individuals.

The report says a top priority should be to refinance much of DWP’s $7.9 billion in debt and to put in place a “joint powers agency,” a new board of directors that would give the utility more operational freedom and flexibility from City Council oversight.

Debt could be reduced by raising cash from the sale of assets and by cutting back on the DWP earnings that are transferred to the city to help it fund its operations. Last year, transfers totaled $125 million.

While the report recommends the mothballing of DWP’s generating station in the Valley and one-third of its Haynes station, McCarley said he recommends instead that DWP sell several of its plants totaling 1,000 megawatts or 14% of DWP generation capacity to raise cash.