DWP’s Spending Comes Under Scrutiny

After a year of strong sales and profits, the Los Angeles Department of Water and Power is coming under new scrutiny, with the city’s top money manager charging that the utility has made a habit of waste and profligacy.

City Controller Laura Chick has launched a full-scale audit of the city agency, repeatedly accusing DWP officials of wasting hundreds of thousands of dollars on lavish parties, community events and staff perks.

Making matters worse, state Atty. Gen. Bill Lockyer has filed a $60-million claim against the DWP, alleging that the municipal utility gouged state customers during the energy crisis as part of a long pattern of overcharging ratepayers.

DWP officials deny any wrongdoing. They say the state got a good deal during the energy crisis. As for the parties and other extras? DWP brass say it’s just part of being “a good corporate citizen.”

The department has long regarded itself more as a private company than a publicly owned utility, critics say. And that has proved a chronic source of tension at City Hall.

Back when Tom Bradley was mayor, financial watchdogs ordered the DWP to cut the perks. And though the parties were on hold for a while, it didn’t last long. Ten years ago, Controller Rick Tuttle bashed the agency for its catering bills and travel expenses. Now, Chick is taking up the charge.

“I’ve heard DWP officials refer to the utility as a giant company,” Chick said. “It’s not a company. And if it was, it is being run in an unaccountable, unbusinesslike way. They are neither behaving like a Fortune 500 company that is accountable to shareholders nor like a public utility that is accountable to ratepayers. They are carving out their own category. I’m afraid it looks more like Enron.”

Some of the questionable expenditures:

* More than $7 million was paid to a Los Angeles public relations firm in the last 18 months, even though the department employs its own PR staff.

* More than $600,000 has been spent on parties, luncheons and corporate sponsorships in 2002.

* Nearly $85,000 was used last year to purchase silver belt buckles to give to top-performing department employees.

“For years, the DWP has been on a very different track,” said Stephen Erie, a political science professor who is writing a book on the DWP. “They really see themselves as separate from city government.... And having saved L.A. from the energy crisis, the DWP really does have a sense of entitlement.”

But DWP officials say their organization--which raises more than $3 billion in revenue annually--is largely misunderstood by Chick and other bureaucrats. The parties may seem like unnecessary expenses, but they are essential for supporting the community and boosting the morale of DWP employees, said the utility’s general manager, David Wiggs. Nevertheless, he said he will put guidelines in place dictating how the department should spend its money.

“In the private industry, you use a certain percentage of your revenue to support your community in sponsorships and things like that,” Wiggs said. “It’s good business, and it’s the right thing to do. It’s good for economic development and customer relations.”

He added: “There was no one wasting money on lavish parties. This was all going back to the community.”

Wiggs also disputed Lockyer’s claim that the DWP had taken advantage of the state during the energy crisis.

“I’m convinced that the department did not do anything other than be a good neighbor to the state,” said Wiggs, who did not join the DWP until after the state’s power shortage had eased. “We sold power for less than the maximum but more than cost.” He said the markup was about 25% to 30%, which he called “very reasonable.”

“I’m very comfortable that the department didn’t do anything wrong,” Wiggs said.

Lockyer recently lodged another complaint against the utility, alleging that the DWP used unauthorized special fees to deliberately inflate monthly electric bills paid by state government entities located in the city. He says the utility knowingly overcharged the state for more than a decade, thus “taking unjust advantage of government ratepayers.”

Though Lockyer and Chick are waging very public battles with the utility, their complaints do not seem to resonate with its Los Angeles customers, who enjoy relatively low rates.

The agency ranked highest in customer satisfaction among power utilities in the western United States in a survey released last week by J.D. Power and Associates.

Mid-sized businesses in Los Angeles gave the DWP high marks in power quality and reliability, customer service, price, value and company image, the survey found.

Wiggs, who took over as head of the department in May after S. David Freeman left to work for Gov. Gray Davis on state power issues, said he believes the survey proves that “public servants can provide excellent customer service and successfully compete with private-sector entities.”

Before joining the DWP, Wiggs worked both in the private and public sectors.

In the early 1990s, he served as president of El Paso Electric Co. And more recently, he worked as the chief energy advisor to former Assembly Speaker Bob Hertzberg (D-Sherman Oaks). At the DWP, Wiggs earns an annual salary of $284,000, plus a $3,500 monthly housing allowance.

In casual conversation and in speeches, he often refers to the department as a “company.” Chick believes the DWP should see itself as what it is: a city agency.

“It should be a good member of the city family,” Chick said. “They don’t want to be regulated. They don’t want to be accountable. That’s part of what this is about.”

Chick has made the DWP the focus of her administration, which began in July. Although she has picked up support from some taxpayer advocates, others at City Hall have wondered privately why she is attacking one of the city’s more highly regarded agencies.

Bills Will Be Sent to City Council for Review

She launched her initiative several weeks ago, when she held a news conference in front of the DWP. Dubbing it the “Department of Wasteful Practices,” Chick announced that she is refusing to pay more than $601,293 in DWP bills, sending them instead to the City Council for review.

Since then, she has dispatched two of her auditors to the DWP building to comb through its records full time.

Some of the expenditures Chick takes issue with include $100,000 for a black-tie dinner celebrating the reopening of City Hall and a $75,000 sponsorship of the Los Angeles Memorial Coliseum. As part of that deal, the department receives VIP tickets for USC basketball games, ice shows and the circus. Those tickets are then given to clients, DWP officials said.

Chick has also refused to pay a $27,000 bill for a private concert for large business customers in February.

“Everything they do needs to have bang for its buck,” Chick said. “They need to have guidelines.”

Certainly, Chick’s concerns about the DWP are nothing new at City Hall. Throughout the 1990s, her predecessor--Tuttle--expressed similar reservations. In 1993, he issued one of his strongest DWP audits, criticizing the department for spending $800,000 on catering for managers during an employee strike.

“They tended to see themselves of a world somewhat apart from the rest of the city,” Tuttle said.

In an effort to rein in the DWP, Chick said, she will appear before council members’ government efficiency meeting next week. The matter will then go before the council’s Budget Committee for review.

One key councilman said Friday that although he agrees that the DWP should give an accounting of how it spends its discretionary funds, he supports the use of department funds for special events, sponsorships and other efforts that benefit the community.

“Laura has brought out some good points, but ultimately the DWP has to be a good citizen like all the rest of corporate America,” said Nick Pacheco, who heads the council’s Budget Committee. “Basically, the City Council’s always squeezing corporations to support charities. We shouldn’t turn a blind eye to DWP just because it’s our corporation.

“They take in $3 billion worth of people’s money. Who wouldn’t expect them to give back to the community?”