DWP’s Escape From Current Energy Crisis Is a Quirk

Ironies abound in the present statewide energy crisis.

Take for example the praise that is being heaped on S. David Freeman, the personable general manager of the Los Angeles Department of Water and Power. Here is a person who is being credited with accomplishing the miracle of rescuing the city of Los Angeles from this mess.

Not only is Freeman’s name on everyone’s lips, but his hosannas for public ownership are being heard everywhere. One result is that Freeman has been elevated by Gov. Gray Davis to help the state extricate itself from the crisis.

The irony is that only three years ago, Freeman was pleading with the Los Angeles City Council and the members of a commission revamping the City Charter to free the DWP from municipal ownership.

Freeman’s proposal was to turn the DWP into a hybrid private company overseen by a publicly appointed board and obligated to turn over a percentage of its profits to the city instead of stockholders. This was to assure a continued flow of funds to the city from the utility and, at the same time, avoid the city bureaucracy. This would have allowed Freeman, and future general managers, to compete on an equal footing with private utilities in the new, deregulated market. Under this plan, he would have been free to bypass the City Council on contract approvals and the civil service system in the hiring and firing of personnel.

Freeman predicted that unless his plan was adopted, the DWP would lose all of its big industrial customers to the deregulated private utilities, and this would lead to a spiral of bankruptcy for the DWP and the city. Unfortunately for Freeman, but fortunately from today’s perspective, the City Council balked.

Undaunted, Freeman approached the charter reform commission to write his plan into the new Los Angeles charter, but he was rebuffed by Chairman Erwin Chemerinsky. Chemerinsky was quoted in the Nov. 23, 1998, issue of The Times as stating that Freeman’s approach would allow the city to divest itself of a huge public asset without public approval.

In the same story, former City Administrative Officer Keith Comrie was even more forthright. He said, “There is no reason the DWP cannot continue to supply power more cheaply” than private companies. He added that strong public oversight over the utility would ensure that the DWP was fair to its customers and true to its responsibility to the city.

Today, Freeman acknowledges that putting faith in deregulation was a mistake, but he does not elaborate. He must now realize that he nearly trapped the city in the present crisis.

To be fair, there are those who believe that Freeman’s formula for privatizing the DWP will be necessary if deregulation can be made to work. However, his personal attempt to lobby the charter commission was uncharacteristic of an official in his position. It was also uncharacteristic of a person who has devoted most of his life to publicly owned utility service.

This opens speculation that Mayor Richard Riordan, who made no secret of his belief that publicly owned enterprises were inefficient and wasteful, may have encouraged Freeman to approach the commission. Freeman was appointed by Riordan to finish the job initiated by Riordan’s previous appointee, William McCarley, to eliminate waste at the DWP.

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Riordan’s goal was to introduce private-sector efficiencies in city departments and extract the savings to fulfill an election pledge to, among other things, add an additional 3,000 police to the Los Angeles Police Department.

Riordan’s distrust of public ownership was reinforced by two independent audits indicating that the utility was overstaffed, principally with high-paid engineers, and burdened by more than $4 billion in debt, largely from an excess of expensive power plants in Utah and Arizona.

The good news about this excess was that the city had 7,100 dependable megawatts of generation, well above its average normal summer peak of 5,000 megawatts. The bad news was that the wholesale cost of power from these out-of-state plants was 6 cents per kilowatt-hour compared with a market value of 3 cents per kilowatt-hour, an alarming difference at that time.

To Freeman’s credit, he did not sell off the power plants, with one exception, a 20% share in a coal-fired plant on the Colorado River. He used the money to upgrade cleaner gas-fired plants in the Los Angeles Basin.

However, none of this activity qualifies Freeman for the mantle of hero. If there are heroes, then the much-maligned engineers who were pressured to retire early by McCarley and Freeman deserve the accolade.

As a result of their foresight, the city is free of the threat of statewide brownouts, and Los Angeles residents continue to enjoy low electric rates. In addition, the sale of excess power from these plants has allowed Freeman to eliminate much of this debt.

The power plants are paying off like slot machines for Los Angeles, and will continue to do so until Davis can bring power rates in the rest of California down to a level that will compete with the city’s rates.

If additional praise is to be parceled out for the city’s good fortune, then members of the City Council, as well as Chemerinsky, Comrie and others who were skeptical of Freeman’s request to privatize the DWP deserve a thank you from the citizens of Los Angeles.