A Lightning Rod in Governor’s Race

Anyone who tries to make a political issue of the electricity crisis will have trouble avoiding S. David Freeman.

The energy veteran has held so many key jobs through California’s deregulation debacle that he is now both sniper and target in the battle for the governor’s office.

When the crisis kicked up last year, Freeman was running Los Angeles’ public utility under Mayor Richard Riordan, now the best-known Republican candidate for governor.

This year, Freeman left Los Angeles to work for Democratic Gov. Gray Davis, who is seeking reelection. So he knows firsthand the energy controversies that will reverberate in the coming election year:

Did Riordan, when he was mayor, order the Los Angeles Department of Water and Power to charge the highest price possible for electricity that was needed to avoid rolling blackouts elsewhere in the state last winter?

Freeman had a ringside seat.

Did Davis lock California into higher than necessary power costs for the next decade by signing $43 billion in long-term contracts, as Riordan and other critics suggest?

Freeman negotiated those contracts.

Does California need a new state agency to guarantee that the power price spikes and blackouts of this year never return?

Davis thought so, and named Freeman to lead it. Riordan calls the public power authority a “mistake” and a “new hulking bureaucracy.”

For all the charges and countercharges about how Riordan and Davis behaved during the electricity emergency, they’ve got this in common: Both men trusted and hired Freeman.

His experience in the electricity industry goes back 50 years. He has led the Tennessee Valley Authority, the Lower Colorado River Authority and the New York Power Authority, and he helped turn the Sacramento Municipal Utility District into a national leader in energy conservation.

With a Tennessee drawl, a cowboy hat and a salty wit, he stands out in an industry not known for flamboyance.

“There’s probably nobody in America who knows more about power than Dave Freeman,” said Garry South, chief political consultant to Davis. “I’m glad he’s working for us.”

Riordan felt the same about Freeman at the DWP, at least initially.

As mayor of Los Angeles, he chose Freeman in July 1997 to manage the nation’s largest municipal utility district.

For a while, the relationship was easygoing. Though his staff tried to micromanage, the mayor himself stayed out of Freeman’s way except to pass on an occasional joke, Freeman said. The mayor supported him when he laid off 1,500 DWP workers and tried to shrink the utility’s $4-billion debt.

But by April, Freeman was glad to go, Riordan was eager to see him gone, and they flung barbs at each other as they parted.

Freeman says the mayor got jealous. The power chief appeared frequently in the national news last winter when Los Angeles, boasting abundant electricity, glowed bright while Christmas lights were dimmed across the rest of the state.

“I was the luminary of L.A.,” he said, “so they couldn’t fire me.”

Tension between the mayor and his utility manager built along with the energy crisis, which first manifested itself in May 2000. As high prices and scarce megawatts bedeviled the state’s biggest private utilities, the DWP found itself in an enviable position. Its power supplies were more than adequate. The utility could sell its excess supply on the market.

On many afternoons, as state transmission grid operators hustled to buy enough megawatts to avoid blackouts, the DWP came through--often at remarkably high prices.

In the first three months of this year, some of the most desperate months for grid operators, the DWP charged the state an average of $292 per megawatt-hour, according to state data. The average price charged by all power sellers was $269 per megawatt-hour.

Freeman said he never sought a windfall for the DWP. He rallied other public utilities to ask federal regulators to cap prices. But Riordan wasn’t so willing to forgo profits, said Freeman.

“I had terrible fights with Dick Riordan, first over the issue of whether we would continue to sell electricity when the state had no credit,” Freeman said, “and then I had terrific fights with him about what to charge. He wanted to charge the market price.”

Jaime de la Vega, senior policy advisor to the Riordan campaign, said, “Clearly Mayor Riordan was concerned that all costs were covered for the city of Los Angeles.

“But Mr. Freeman determined the price,” he said, “and determined who would be sold to.”

Freeman said he ordered the DWP to sell power at cost plus a 15% markup, though an audit performed this year by his successor concluded that the utility’s profits on power sold through the market averaged 56% and that profits on power sold to state grid operators averaged 21%. Over the 13 months that ended in May, the DWP profited by $200 million on sales of $680 million, according to the audit.

Freeman said the discrepancy was probably due to the rules of California’s largely defunct market, which often awarded power sellers higher prices than they had originally bid. Both Freeman and Riordan have suggested that Los Angeles refund whatever money it earned above a 15% profit.

Asked about alleged price gouging by the DWP, Riordan said its profits were “relatively in keeping with other suppliers.” He added that the agency is still owed $180 million by utilities.

Davis’ political handlers crow that Freeman “has got the goods” on Riordan. “The more Dick Riordan starts to criticize the governor on energy, the more susceptible he is to a devastating counterattack that points out what Dick Riordan tried to do at [the] DWP,” said South. “He’s setting himself up for a huge fall.”

But Sherry Bebitch Jeffe, who teaches political science at USC, said voters are too shrewd to give much weight to such attacks coming from Freeman.

“Right now, Dave Freeman is an advisor to an incumbent governor who is running for reelection,” she said. “He would have been more credible had he remained in a neutral corner.”

One hangover lingering from the electricity crisis, in fact, could make Freeman a political liability for Davis, not Riordan.

For months, critics have accused Davis of overreacting to the crisis by asking Freeman to take a leave of absence from the DWP, then allowing him to commit the state to 54 agreements with private energy companies. The contracts are expected to cost utility customers $43 billion over the next 20 years.

In a news release last week, Riordan called the contracts “an appalling display of mismanagement that will only further damage other financially strapped services, including health care, education and after-school programs.”

The governor asked Freeman to try to lock up power at an average price of $55 per megawatt-hour at a time when energy companies were earning as much as $500 per megawatt-hour in the spot market.

Freeman delivered contracts with an average price of $70 per megawatt-hour. Those prices looked good compared to the market last spring, but no longer.

The cost of power bought on short notice, not through a contract, has plunged to $30 per megawatt-hour or less. The contracts are too expensive in comparison, critics say, and force the state to buy electricity at times when it is not needed, such as in the middle of the night and early morning.

For months, Freeman defended the contracts in his characteristically droll way, calling them insurance against price spikes and blackouts.

But greater scrutiny has led to more headlines about potential conflicts of interest, the sale of surplus power at a loss and possibly illegal provisions in the contracts. With a drumbeat of criticism getting louder, Davis recently suggested that some contracts be amended.

Last week, Freeman did an about-face too. He told a legislative panel that there may be a way to get cheaper prices from energy companies through the intervention of the new public power authority.

Freeman is now ensconced in Sacramento with a $220,000-a-year job as chairman of the 3-month-old power agency, officially called the California Consumer Power and Conservation Financing Authority.

Riordan has said that hiring Freeman to head the authority was one of Davis’ “major mistakes.”

With that comment, Freeman said, Riordan picked a fight.

“I’m not involved in the politics of the gubernatorial campaign,” said Freeman. “I’m not planning to be out on the campaign trail. I’ve got a job to do. But everybody has the right of free speech and verbal self-defense.”