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| DWP Joins the Fun
by John M. Curtis Copyright September 10, 2001
Defending its actions, former DWP chief S. David Freeman—now Gov. Gray Davis’ key power consultant and head of the newly minted California Power Authority—dismissed the report’s findings. “We made a fair amount of money. It was not price gouging,” said Freeman, who’s pointed his finger at out-of-state power brokers, accusing them of market manipulation and piracy. Freeman insisted that the DWP had “standing orders” to sell surplus power for no more than 15% profit, despite the audit’s finding that the public agency averaged around 30%. Confirming the audit’s suspicions, Freeman indicated that if the profits exceeded 15%, then “I’m not embarrassed about it. It says nothing more than there’s enterprise at [the] DWP,” suggesting that entrepreneurial influences at City Hall lent blessings to raking in some hay. After all, how often does City Hall get to turn a nifty profit? Freeman’s probably right when he denies price gouging. Charging going rates, the DWP did nothing wrong other than misrepresenting their profit margins. Freeman’s handpicked successor, David Wiggs, said he found no written promise to charge only 15% profit for surplus power sales. Confronted with the audit, “Maybe in hindsight it would have been better not to be so specific, but to say, ‘Look we’re gonna limit our recovery to a reasonable return for our customers,’” said Wiggs, proving, if nothing else, that he’s up to the task of blowing smoke. First, there’s no proof of the 15% promise, then he concedes he’s protecting ratepayers. You can’t have it both ways. It’s one thing to admit to charging market rates, it’s still another to profess supreme ignorance. Now the omniscient Freeman can’t recall who was responsible for setting DWP’s rates for surplus power. With so many unanswered questions, the state, DWP and notorious out-of-state power brokers all seem equally proficient at blowing smoke. “It would be ironic if it turns out that the LA Department of Water and Power was charging more than Gov. Davis’ Texas Pirates,” said Sen. Fred Thomson (R-Tenn.), to whom Freeman assured in writing that the DWP’s profit margin was 15%. Owed $180 million, LA’s new mayor James K. Hahn must now deal with the inescapable reality that the DWP overcharged the state for surplus power. Thrown into the mix is the former LA mayor Richard Riordan, whose business instincts influenced DWP policies and whose gubernatorial plans are all but certain. “The mayor never directed them to generate a profit from these sales,” said Jaime de la Vega, a senior advisor to Riordan’s campaign committee, denying that the savvy mayor lent his blessings to Freeman to get what the traffic would bear. “If we’re gonna continue to sell it to them, we ought to make a lot of money. He was thinking of it the way a good businessman thinks of it,” said Freeman, characterizing Riordan’s views on selling surplus power. Riordan’s short-lived feud with Davis over his threat to confiscate DWP’s power suggested that the mayor fully supported the DWP’s aggressive marketing. Like the overheated stock market, selling inflated power could only last so long. When power surpluses exploded and the market crashed, the small window for making tasty profits closed. Faced with surpluses into the foreseeable future, there’s little hope of reclaiming sizable profits anytime soon. Lurking in the background is also the Federal Energy Regulatory Commission’s [FERC] review of Davis’ claim that out-of-state energy suppliers bilked the state for over $10 billion. PricewaterhouseCooper’s audit leaves the DWP praying that FERC finds the state’s estimate grossly exaggerated, reducing its exposure below $30 million. With the current power glut and DWP unable to sell any more power, LA can’t afford to pony up $30 million. When supplies were tight, Riordan supported Davis’ attack on out-of-state power companies, usurping the state’s supplies and driving prices through the roof. Now that fingers point toward the DWP for price gouging, both Freeman and Riordan experienced their own blackouts. With Freeman now Davis’ chief energy pitchman, both sides undulate with equal skill. For the record, on Riordan and Freeman’s watch, DWP’s profits doubled—still unaccounted for by both men at the helm. Doubling profits, it’s clear that out-of-state power brokers weren’t the only ones salivating from California’s energy feeding frenzy. While it’s tempting to blame only free enterprise, government also has a problem with unbridled greed. Given the chance, Reagan correctly recognized government’s insatiable appetite to tax and spend. With the legislature now investigating price gouging by public utilities, the DWP will have to perform some fancy footwork to explain away its Texas-sized profits during the power crisis. Both Freeman and Riordan couldn’t have been clueless about the DWP’s inflated charges to the state for surplus power. As Gov. Davis’ energy czar S. David Freeman conceded, “We made a fair amount of money. It was not price gouging,” admitting that the DWP doubled its profits, but still charged less than the going rates. One things for sure: As the election approaches, both Davis and Riordan will need skillful spin doctors to get their roles straight in California’s power crisis. Now on opposite sides of the fence, expect fingers wagging in both directions. No one envies poor voters trying to make sense of the whole mess. About the Author John M. Curtis is editor of OnlineColumnist.com and columnist for the Los Angeles Daily Journal. He’s director of a Los Angeles think tank specializing in political consulting and strategic public relations. He’s the author of Dodging The Bullet and Operation Charisma. |
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umping on a good thing, Los Angeles Department of Water and Power [DWP] joined the feeding frenzy, gouging the state along with out-of-state power suppliers for electricity purchases from May 2000 through May 2001—or so says a PricewaterhouseCoopers audit recently dug up by the LA Times. Immune to deregulation and oozing with power, the DWP played nice guy, supplying the state surplus power when the California Independent System Operator begged for electricity. Like out-of-state power brokers, the DWP showed no compunction about charging going rates when shortages threatened statewide blackouts. Looking at the detail, the audit revealed that the DWP made $200 million in profits on $680 million in electricity sales, clearing a hefty 30% profit, more than double its published margin of 15%. While DWP’s profits were miniscule compared to some out-of-state power brokers, the record shows that they charged an average $293 per megawatt hour, compared with price spikes hitting a whopping $2,900.|
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