L.A.’s Latest Luminary

Once again, glory goes to S. David Freeman, the cunningly eccentric 74-year-old general manager of the Los Angeles Department of Water and Power.

As the California energy crisis deepens ominously, much of the state is bracing for a rate hike next month. But the city-owned utility enjoys a lucrative energy surplus while the 3.8 million residents it serves benefit from some of the steadiest and lowest electricity bills in the state, thanks in good measure to Freeman.

A native Tennessean who sports an ivory-colored cowboy hat night and day, indoors and out, he was already a legendary utility chief and energy expert in 1997 when he took the job at the DWP, then an overstaffed, debt-burdened agency approaching bankruptcy.

Not only did he reduce the payroll by 1,500 employees and halve the $7.9-billion debt without raising prices to residential consumers, he also helped the nation’s largest municipal utility avoid deregulation, the 1996 state plan that lifted restrictions on electricity trading to spur competition.

So now that some critics blame deregulation for today’s electricity chaos--prices skyrocketing, private utilities saying they may go broke, threats of rationing, Gov. Gray Davis snuffing out the Capitol’s Christmas lights--Freeman looks visionary. Or lucky. Again.

There he stands in Griffith Park by the DWP’s lavish display of holiday lights, which serves as a glowing monument to the city’s electricity surplus and an unintended tweak of the governor’s nose.

“If you want to have a very merry Christmas, celebrate it in L.A.,” he has been saying for a month.

On Friday afternoon, the utility was pouring 3,371.8 megawatts of electricity into the city, according to a digital meter behind his desk in his capacious 15th floor downtown office. The walls are adorned with photos of him with Jimmy Carter, Al Gore, Mikhail Gorbachev and other luminaries. “I haven’t put him in the closet yet,” Freeman, a Democrat, said of the Gore picture.

The son of Jewish immigrants from Lithuania, he had an unremarkable childhood in Chattanooga, Tenn., he said. His father was an umbrella repairman and haberdasher who taught him two things: Enjoy life and stand for something. “If you don’t fight for your beliefs, you’re not livin’,” Freeman said in a rough voice with an accent as thick as a Great Smoky Mountains mist.

He is single, a veteran of three marriages with three grown children and nine grandchildren. He spends his scant free time, he said, reading, dining with friends and walking around Santa Monica, where he lives in a rented condominium--and pays Southern California Edison bills.

He describes himself as a restless boss and thinker.

“I have a theory,” he said one

afternoon while being chauffeured in a city car to Los Angeles International Airport, another stop on a packed schedule that would wear out a man half his age.

“If you have any initiative and any contributions to make, they are pretty much exhausted in four or five years. And then you just start defending your mistakes.”

Before coming to the DWP, he ran four public utilities, including the nation’s largest, the Tennessee Valley Authority, where he halted construction on eight power plants, earning the once-denigrated utility awards from environmentalists.

His reputation as a visionary can be traced to the start of his time as an analyst on President Lyndon B. Johnson’s science and technology staff in the mid-1960s, when he arranged for the first federal grants to study solar power. He stayed on to advise President Richard Nixon’s staff, helping coordinate environmental policy.

The first laws requiring car makers to build vehicles with better gas mileage? Those labels on new refrigerators and other appliances that tell you how much energy they use? Home insulation standards? He had a hand in them, too, as a Senate staffer in the mid-1970s.

A seminal 1974 study that he directed for the Ford Foundation, “A Time to Choose,” set the tone for America’s energy policies for years to come--after much controversy. Published a year after the oil embargo, it showed for the first time that the nation could find all the energy it needed if it boosted efficiency, cut waste and developed alternative sources such as solar power.

Sounds like common sense, but conservatives hammered him for what they interpreted as an anti-growth philosophy. Even liberals attacked him for being an ideologue.

“But he was right,” said Mason Willrich, an energy scholar and former chief executive of Pacific Gas & Electric Enterprises, a subsidiary of the private utility. Willrich, who has known Freeman for decades, said he’s “one of the major figures in the energy business since the Arab oil embargo.”

“Every place Dave has gone, he’s certainly not been shy,” said Willrich, now a partner at Nth Power, a Bay Area venture capital firm specializing in energy projects. “He wades right into the major problems and leaves each place a lot better than he found it.”

Once a Worker for Deregulation

Crucial to the DWP’s current fortunes, many observers say, is that it dodged deregulation. But the complex story of how it did so has a Freemanesque twist: His previous job was working for the state to make deregulation possible.

Before deregulation, public and investor-owned utilities alike generally made their own electricity and distributed it through power lines they owned or controlled. Because each utility functioned as a monopoly in its service area, state law limited what the utilities could charge consumers.

With deregulation, which the Legislature made into law in 1996 by a unanimous vote, the state’s major investor-owned utilities--Southern California Edison, San Diego Gas & Electric and Pacific Gas & Electric--sold off power plants and forfeited control of the transmission grid.

In return, they won the freedom to buy electricity on a newly created open market at prices that would presumably be lowered by competition. According to the original agreement, the utilities would also be able to set prices for residential customers by 2002, or sooner if they eased bad debts.

Meanwhile, the state’s public utilities were given time to consider whether they wanted to take the deregulation plunge.

State officials, familiar with Freeman from his work heading the Sacramento Municipal Utility District, recruited him to oversee development of the new systems for auctioning the juice to power companies, called the Power Exchange, and running the grid, the California Independent System Operator.

“I thought the experiment might work and I helped put it together,” he said of his work setting up deregulation, “but I never became a religious believer in it.”

What changed his mind was that California, rebounding from recession, needed more electricity just when the private electricity companies were unloading power plants. Distributors now had to bid against one another for an ever-tighter supply. Prices climbed. Last summer, the spot wholesale price for electricity was 100 times higher than it had been the year before.

Some critics of the deregulated market darkly suggest that wholesalers have withheld electricity to drive up prices. Freeman scoffs, arguing that bedrock supply-and-demand principles are the real problem. “I don’t think it’s happening because of a conspiracy,” he said. “It’s happening because of a shortage.”

Lately he has been on a media blitz (facilitated by the prominent public relations firm Fleishman Hillard), decrying “rip-off” prices of wholesale natural gas that he says have quadrupled in the past and threaten a promised 10% reduction in electricity rates by 2002.

“The markup,” he said, “is just out of this world.” He’s now considering whether the DWP should expand the reach of the agency into producing natural gas for its own use.

Although Freeman has opened a new front for his barbed remarks, he is still fighting against free-market electricity, bluntly proclaiming that its deregulation should be repealed and that the state should consider taking over the transmission grid as well as ailing power plants.

That position strikes some critics as pure Freeman: excessive, especially given his early work implementing deregulation.

“Some of his public posturing is very ironic,” said Jan Smutny-Jones, executive director of the Independent Energy Producers Assn. And the irony, he added, extends to all the money that the DWP has made selling surplus electricity at a premium to the strapped California market.

“The L.A. DWP has probably done as well as any market participant out there, if not better,” Smutny-Jones said.

In fact, the DWP has made more than $200 million over the last 18 months selling electricity to the state Power Exchange. The department could be making even more money, as some on Freeman’s staff have suggested doing, but he said he wanted to strike a balance between reasonable profit and seeming to be a “greedy socialist.”

The city’s biggest moneymaker, the DWP pays no taxes but surrenders 5% of its revenue to the city, which amounted to $110 million last year.

The department’s enviable financial condition was not the work of Freeman alone, cautioned Brian D’Arcy, business manager for the International Brotherhood of Electrical Workers.

D’Arcy works closely with Freeman--the two have breakfast every week--and admires his intuitive business sense. But, he said, “Dave has done a good job trying to take credit for everything. I joke with him that if Al Gore didn’t take credit for the Internet, he would have.”

The electrical workers union, a coalition of California public utilities and William McCarley, Freeman’s predecessor at the DWP, all lobbied lawmakers to exempt the DWP and other public utilities from deregulation before Freeman took the Los Angeles job, D’Arcy said.

Still, Freeman says he came up with the plan to restore the utility’s health by cutting costs rather than raising consumers’ bills, as some city and union officials suggested doing.

He said he resisted Mayor Richard Riordan’s idea of selling off the utilities’ power plants. And he rejected a proposal already approved by the DWP board to sell the utility’s excess power capacity not to the state but to a private company, which would market it.

“That was the turning point,” he said. “That would have been the first step down Dereg Road. And we didn’t take it.”

“He’s made some really heroic decisions,” said Felicia Marcus, director of the Environmental Protection Agency’s Western regional office in San Francisco. She said she was also referring to his leadership in fighting dust pollution in the Owens Valley by returning water to the dry lake, which the DWP notoriously drained at the turn of the century to supply Los Angeles’ water.

“He has the experience and the twinkle in his eye to want to do the right thing,” she said.

“And you’ve got to love the hat.”

He got his first one a decade ago at Texas Hatters near Austin while working in that part of the country. Moving to Sacramento, he discovered that the hat seemed to charm folks, as did his accent.

“Sacramento can be a little bland,” he said. “People there really take to you if you’re eccentric without actually being crazy.”