DWP Shouldn’t Ask All That the Traffic Will Bear

The current difference of opinion between the mayor and the general manager of the city’s Department of Water and Power is a classic difference between the attitude of the public sector and the private sector.

Mayor Richard Riordan wants the DWP to charge the highest price it can for the surplus electricity it is selling to the state. DWP head S. David Freeman is selling this surplus electricity for a nominal price and on credit at that. While it is not absolutely clear the DWP will be paid, given the crisis facing the state’s two largest private utilities, the odds are fairly strong that political influence in Sacramento will see that it is.

California is in the midst of a disaster on par with our earthquakes and wildfires. True, much of it is of our own making in the flawed deregulation plan, the unanticipated strong economy and the historic unwillingness of residents to allow power-generating plants to be built in their neighborhoods. But the threat of this energy crisis extends far beyond the rolling blackouts and the long-term health of the two major private utilities. If the state cannot ensure reliable and cheap energy, the failure will wash over the entire state like a tidal wave. Los Angeles will not stand alone as an island in the sea forever. For all our pride of investment in the public infrastructure that built the region, we are just as dependent on those around us as they are on us.

While there is something to be said for not risking either the economic standing of the DWP or its ability to supply the city’s energy needs, free market efficiency in pricing is not a government role.

When Riordan was quoted saying that San Francisco deserves “no mercy,” it brought to mind his comment early in his administration that he was glad the fires consuming Malibu weren’t crossing over to the Pacific Palisades. It is not as if Richard Riordan has no heart. It is much more likely that he just doesn’t understand that government is there to serve the people, and that it isn’t a competition. Certainly cities compete with each other, but none of us will be served if we degenerate into the battles between the Italian city/states of the Renaissance. The DWP kept Southern California from blackouts. What if Northern California cuts off the water? What if the private utilities did fail? What if the instability of energy discouraged new industry from coming here?

We are in such good shape largely because of Freeman’s leadership and unwillingness to follow the mayor’s urging to sell our own electrical generators a few years ago when deregulation first appeared. Luck certainly played a role, but the difference in vision between the public servant whose career has been in public utilities and the businessman mayor are really what’s at issue. The job of government is not to maximize profits; it is to provide service.

Freeman has an instinct for the long view. The DWP returns 5% of its profit to the city’s general fund, and the rest to its customers in the form of lower rates. It needs to reinvest to keep itself functioning well, but it does not need to make every penny it possibly can.

The energy crisis is serious and has long-term ramifications for California. While there is no sure-fire commitment that this good deed will go unpunished, there is every reason to believe that keeping the private utilities operating until a longer-term solution can be worked out is critical to the state’s economy. It is also clear that a failure of the private utilities will be born by all Californians as the state buys energy from the wholesalers, who seem inclined to gouge us for everything they can get.

Having the DWP add to the problem by charging more would only come around to bite us as state taxpayers. Charging less does not hurt us, makes it easier for others and even gives us a bit of positive public relations. That’s not a bad place for government to be.