Ron Kaye: The restructuring of GWP

Like dominoes tipping over, one after another, cities — first Vallejo, now San Bernardino, next Compton — are seeking relief from their fiscal incompetence and reckless irresponsibility by hiding behind bankruptcy laws that leave creditors and employees in the lurch, and the citizens to protect and serve themselves.

You have to wonder how many others will follow suit as the state of California and the hundreds of government agencies under its jurisdiction keep on budgeting fictitious spending cuts, improbable tax and revenue increases and ineffective long-term public employee pension reforms as if the four-year recession soon will end and the good times are just around the corner.

With that as a backdrop, the drama in recent months over what is going on with Glendale Water & Power is worth examining to see whether city leaders are, like so many others, masking over problems or coming to terms with past mistakes to fix what got broken.

The utility's general manager was replaced, water rates were increased, electricity rate hikes are being sought, a credit rating agency downgraded its water bonds, and the utility workers bolted from the city union to join the International Brotherhood of Electrical Workers — but have yet to get a contract, despite 19 negotiating sessions.

“GWP is in transition in every sense, from the labor standpoint, from the leadership standpoint, from a financial standpoint; but the takeaway for us is that at least we know where we are going,” City Manager Scott Ochoa said last week as he talked about the “fundamental restructuring” he is carrying out in the utility's management and culture.

“Where GWP is going is where the rest of the organization already is. GWP is like the moon orbiting the earth. The attitude is, ‘We're separate. We have our own money. We are doing our own thing.' That's what has to change going forward as we reconcile our finances, zero-out capital expenditures, and achieve cost attainment, better leadership, strong management — all those things are the future of GWP.”

The point man for carrying out the changes is Steve Zurn, the city's public works director who is serving as interim GWP general manager and likely will get the position permanently in the fall after a top-down analysis of the organization is complete.

Most people take utility services for granted. Turn the faucet, the water flows. Flip a switch, the lights come on. But there are critics who question the need for rate increases, regard smart meters as a waste of $60 million, and denounce the $20-million-a-year transfer of “surplus” electricity revenue to the general fund — a common practice among public utilities — as an illegal tax.

GWP avoided rate hikes since the recession began — a period in which Los Angeles' Department of Water and Power increased rates by more than a third — but spent heavily on upgrading reservoirs, installing smart meters and other water infrastructure. Utility officials burned through cash, reducing the reserve from $200 million to $39 million, and even had to borrow $21.8 million from the power fund to pay the bills.

“We didn't bond out the revenue stream as we had planned, but that didn't stop us from doing the infrastructure work,” said Ochoa, who has faced a challenging seven months as city manager, dealing with a General Fund budget deficit, the loss of redevelopment funds, and GWP restructuring.

The result was the water side was left with a depleted reserve fund, burdened with debt and only getting 2% rate hikes this year and next, which the Fitch credit rating service scornfully called “very modest” in downgrading GWP.

Higher rate increases of 4 and 5% the following years and the proposed 14.7% power rate increases spread out over four years combined with staff reductions, cost controls and reduced infrastructure investment are intended to put GWP back on a sound financial footing by 2017.

Ochoa said the current round of public meetings on the electricity rate hikes exemplify what is meant to be a new attitude at the utility.

“The way we did the outreach, the extent of it, the multimedia aspect of it — it's online, on Twitter, on TV — we're trying to talk to anybody that wants to talk to us about this, as opposed to just punching a ticket and saying we tried. We may not agree with the criticisms, but we're listening.

“That type of mentality is what is animating this new re-envisioning of what the organization is. It's about understanding what the mission is: We exist for the betterment of the community. We know where we are going in building a team for the long haul to be able to turn GWP into a premier public utility.”

RON KAYE can be reached at Share your thoughts and stories with him.

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