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City Controller Wendy Greuel says DWP misled public with threat to withhold money during budget crisis

June 10, 2010 | 12:29 pm
Executives at the Los Angeles Department of Water and Power misled the public when they threatened to withhold $73.5 million from the city’s budget two months ago as part of their demand for a hike in electricity rates, City Controller Wendy Greuel said Thursday.

Greuel launched an examination of DWP accounts after executives with the nation’s largest municipal utility refused to turn over the money on April 5. That decision came after the City Council voted against a rate hike backed by Mayor Antonio Villaraigosa.

A report released by Greuel on Thursday dismissed the DWP’s reasons for refusing to make the transfer. Greuel said the utility would have had the money to make the $73.5-million transfer – considered vital to the city’s slumping treasury -- even if it received no increase at all.

“The DWP’s actions unnecessarily plunged the city into a fiscal crisis,” said Greuel, standing in front of the agency’s downtown headquarters. “We never should have been held hostage” by the DWP, she said.

Greuel said the DWP also misled the council and Villaraigosa, who at one point issued a policy report saying the city would be plunged into bankruptcy without the transfer.

Nevertheless, Greuel stopped short of saying that anyone should be fired over the incident. And she declined to say whether the DWP officials deliberately lied about the utility’s financial situation.

DWP Interim General Manager Austin Beutner, who has pushed for Greuel to become the DWP’s ratepayer advocate, questioned the findings of the new report but provided no details.

“While we don’t wish to engage in an extended debate over the auditor’s findings, it appears there may be several errors of fact in the report,” he said in a prepared statement.
Beutner was first deputy mayor throughout the three-month rate fight, staying silent on the proposed hike even though overseeing the DWP was part of his job portfolio.

The council ultimately approved a 4.8% electricity rate increase, which will go into effect July 1. Since then, Beutner has promised the council that he would seek to minimize rate increases by cutting spending and selling off surplus property. He said in his statement that the utility is “moving forward, not looking back.”

The dispute among the DWP, the mayor and the council left many in the public with the impression that city government was spinning out of control. Once the DWP threatened to withhold the transfer, Greuel sent a letter warning that the city was in danger of running out of money. That, in turn, prompted Villaraigosa to announce plans to shut down city government two days per week.

The mayor reversed course days later.

Greuel said the DWP’s actions contributed to a downgrade in the city’s bond rating by Wall Street financial firms. And she said the DWP did not need to have $300 million in its reserve fund, which she described as one of the utility’s arguments for blocking the transfer.

“It’s hard to look at these numbers and not say that the DWP was trying to extort the City Council into passing its proposed [rate] increase,” Greuel said in an e-mail sent shortly after her news conference.

-- David Zahniser at Los Angeles City Hall
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