Bill May Shield Utilities From Claim

Assemblywoman Jackie Goldberg has introduced a bill that could help the Department of Water and Power avoid a lawsuit seeking hundreds of millions of dollars in alleged electricity overcharges paid by school and government agencies.

To the consternation of the measure’s opponents, including the Los Angeles Unified School District and the University of California, the bill shot out of the Assembly earlier this month on a unanimous vote with no debate.

“The fix was definitely in,” charged Eric Havian, an attorney in San Francisco who with Atty. Gen. Bill Lockyer is suing DWP under a civil fraud law on behalf of several state and local agencies. “I’ve never seen something move through like this.”

Havian and Lockyer assert that the bill by the Los Angeles Democrat was introduced to derail the lawsuit and shield the DWP from paying $600 million in damages for knowingly adding certain capital costs to electric bills since 1990.

“They thought they could get away with overcharging public agencies, including the state,” said Lockyer spokesman Tom Dresslar. “They didn’t. So, now they are running to the Legislature to try to enact an escape hatch.”

Officials of the DWP deny gouging anyone or making an end run around the legal system. They say the bill would merely eliminate “ambiguities” in existing law and make it clear that the disputed charges are legal and proper.

The public organizations suing the state’s largest electric utility include Los Angeles County, Los Angeles Unified School District, Los Angeles County Metropolitan Transportation Authority, University of California, California State University, Los Angeles Community College District and other state government departments.

Goldberg and DWP executives say the fees charged to public entities to defray capital expenses are legal, noting that they had been accepted without question for a decade. In their view, capital expenses go beyond the initial costs of constructing a capital facility and include continuing costs of maintaining equipment with a finite life span.

“Nobody ever intended for them to be relieved of responsibility for the ongoing maintenance of the system. They use the system heavily,” Goldberg said. She and supporters of the bill accuse the law firm of Phillips and Cohen of aggressively pursuing managers of cash-strapped public agencies and encouraging them to join the suit as a way to improve their financial condition in this time of state and local budget deficits.

“Their claim is almost to a level of racketeering,” Randy Howard, DWP’s director of corporate communications, said. He said the private attorneys stand to get a “large take” in fees, if they prevail.

Howard warned that if the bill failed or DWP lost the suit, the costs charged to the public agencies would be shifted to other customers. “Everybody else’s rates would go up,” he said.

Havian disputes this. He said DWP could easily absorb the cost without raising rates because it has received record revenue in the last few years. “They are awash in cash,” he said.

‘Capital Facilities Fee’

At the heart of the high-stakes fight is the inclusion in monthly DWP bills of a “capital facilities fee,” a charge that is rolled into the energy bills of all customers to defray capital costs.

But the public agencies argue that they have been severely gouged. They say the amount charged by DWP is embedded so deeply in other rates that it cannot be separately identified to determine whether the agencies are being charged too much. Current law, dating to 1988, allows them to be charged only their proportionate share of the use of capital projects.

“If governmental customers only use 5% of a power generation facility, the publicly owned utility can charge those governmental customers no more than 5% of the capital cost of that facility,” the lawsuit asserts.

The attorney general contends that a confidential DWP “cost of service” study in the early 1990s showed that the department was charging the state and other public customers far in excess of their proportionate share.

One group of state government and other public customers used 22.08% of the department’s capital facilities but was charged 29.45%, the suit says. A second group of state and other “large general service” customers used a 20.85% share but was charged almost double, at 39.3%, the suit says.

The attorney general asserted that DWP knew it was violating the law but decided to ignore it. “As a result of these practices, the state has been overcharged by millions of dollars for capital costs,” he said.

Attorney Havian said a breakdown of alleged overcharges, including accumulated interest from 1990, included these: Los Angeles Unified School District, $138.5 million; Los Angeles County, $81.2 million; state of California, $63 million; Metropolitan Transportation Authority, $18.9 million; and Los Angeles Community College District, $12.5 million.

Charge of Stealing

Harold Kwalwasser, general counsel of the Los Angeles school district, charged in an interview that DWP has been “stealing from us. This case is about whether kids in Los Angeles are going to have adequate teachers and textbooks or whether DWP is going to keep the money they knew should never have been collected in the first place.”

Goldberg and DWP’s Howard said that if the public agencies prevail in court or in the Legislature, the monthly bills of hundreds of government and education customers would be subject to negotiation each time the fee was adjusted, a circumstance never intended by the 1988 law. “That’s an accounting nightmare,” he said.

Proponents of the bill -- also sponsored by the San Francisco Public Utilities Commission and the East Bay Municipal Utility District, both of which have faced similar litigation -- deny it was introduced in an attempt to derail the lawsuit. They said it would only clarify the law.

The bill is silent on whether it would be retroactive and validate DWP’s disputed charges. Lockyer wants an amendment to make clear that the bill would be prospective. A Goldberg aide said the issue was deliberately left open for the courts to decide.

Bill Tied to Lawsuit

“If this bill becomes law, the LADWP will run into court and say the Legislature has clarified existing law. That would severely undercut our position,” said Dresslar. “If they lose this bill, they lose the lawsuit.”

The bill, introduced Feb. 20, does not mention the pending lawsuit.

The Assembly Local Government Committee approved it 5-1 and sent it to the full Assembly. In the midst of rapid fire action on a tall stack of bills May 8, Goldberg took her measure up for passage.

She made a brief summary of its contents. It was approved 67-0 without question or debate and sent to the Senate.