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L.A. City Council grills DWP executive, asks agency for help in budget crisis

April 6, 2010 | 12:44 pm
With the city’s financial solvency hanging in the balance, the Los Angeles City Council called on Mayor Antonio Villaraigosa on Tuesday to corral his appointees on the board of the city’s public utility and convince them to hand over $73.5 million in “surplus funds” that the city was counting on to balance its books.

In a unanimous vote, council members demanded that the board of the Los Angeles Department of Water and Power “honor their commitment” to transfer the money by mid-April to help counter a $212 million shortfall.
City officials are scrambling for a backup plan a day after the head of the utility, S. David Freeman, told council members in a letter that he was urging the DWP board to withhold the money because the agency has no surplus.
His recommendation followed a dramatic standoff last week between the council and the DWP over planned electricity rate hikes that officials at the utility, along with outside consultants, said were critical to cover rising coal costs and renewable-energy contracts. Initially, Villaraigosa had pushed for rate hikes that would have ranged from 9% to 28%.
Public outcry led council members to reject rate increases of that magnitude. They approved a more modest rate hike of 4.5% last week to help ensure the fiscal strength of the utility. But instead of agreeing  to the council’s more modest action last Wednesday, Villaraigosa’s appointees on the DWP board voted for a 5.7% increase over three months, which was rejected late that night by the council.

During a testy exchange with council members Tuesday, Freeman said the failure to green-light an electricity rate increase had “decimated our financial future.” On Monday, one of the nation’s top bond rating agencies withdrew a “AA-" rating on two DWP bonds worth $720 million.
Freeman said he understood that city officials need every “nickel that you can get,” but added that the utility's board “has a responsibility for DWP not to get in a situation where we can’t borrow money and our bond rating goes down, down, down.
“I think there is unanimity that we need a sizable increase to pay our bills and that hasn’t happened,” Freeman said. “So I don’t see how you can expect the department to declare a surplus when we have a deficit on our hands.”

Council members, however, said the agency’s reversal on this year’s transfer from the utility’s Power Revenue Fund did not make sense. Several noted that when DWP officials promised the $73.5 million transfer as recently as March 1 -- as part of a total transfer of $220 million this year -- they never linked that move to a rate increase, which would have provided a modest amount of additional revenue.
Members asked the mayor to work with the DWP board to find $73.5 million from within the utility’s $1 billion in cash assets.
“The people of Los Angeles and the ratepayers deserve better, they deserve more honest analysis and they deserve this being depoliticized,” Council President Eric Garcetti said. “...Something fishy is going on here.”

-- Maeve Reston at Los Angeles City Hall