Controller’s audit says utility misled City Council

BY GARY WALKER

Support for revamping the way that the Los Angeles Department of Water and Power (DWP) is structured has picked up steam following an audit that criticizes the utility company’s controversial decision not to release millions of dollars to the city unless its request for a rate increase was met earlier this year.

The Mar Vista Community Council voted June 8th to unanimously support six motions approved recently by a neighborhood council coalition group that recommend changing the manner in which the utility board is appointed.

Among the revisions being proposed are the authority to remove the utility board’s general manager and its commissioners with a two-thirds vote of the Los Angeles City Council and reconfiguring the board with City Council appointees, as well as an elected member of a neighborhood council.

Currently, only the mayor appoints DWP’s commissioners.

“I voted for the motion because I believe that it is absolutely relevant,” said Bill Koontz, the community council’s second vice president.

The Mar Vista council’s motion occurred days before the findings of an audit of the water and power utility that made headlines citywide. City Controller Wendy Greuel released the results of the investigation June 10th that contradicts DWP’s assertion that it did not have enough money to transfer $73.5 million to the city coffers in April.

The utility had refused to release the money to the city’s general fund unless the council agreed to raise the water rates for DWP’s nearly 700,000 water customers and approximately 1.4 million electricity customers.

“I can say with 100 percent certainty that the DWP did have the $73.5 million available to transfer to the city, and could have done so without putting itself in any financial jeopardy,” Greuel said in a statement.

In addition, the controller said the utility did not need to ask for a controversial Energy Cost Adjustment Factor, a rate hike that angered citizens and members of the council alike, as the demand came during a time that city officials were proposing laying off up to 4,000 employees and grappling with a $480 million shortfall over the next two years.

Greuel used some of the harshest language to date by a city official to chastise the DWP for its conduct during earlier budget talks.

“The department also did not need a controversial Energy Cost Adjustment Factor to complete the power revenue transfer,” Greuel stated. “My audit lays out in detail that none of the reasons given by the DWP for refusing to transfer the money are supported by facts.

“As of April 1st, the DWP’s power revenue fund had approximately $752 million in it, more than enough money to transfer the $73.5 million to the city,” the city controller continued. “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 increase.”

After the council agreed to the rate increase in April, the DWP sent the city the $73.5 million.

City Councilman Bill Rosendahl agrees with Greuel, a former colleague on the council.

“We felt that this was extortion,” Rosendahl, a member on the council’s budget and finance committee, said of the utility’s argument for a rate increase before releasing the funds to the city. “It validates everything that we said in April about the DWP withholding this money unless we agreed to a raise in the fees that my constituents would be paying.

“At best, this was irresponsible and at worst it was extortion,” the councilman added.

Former interim DWP General Manager David Freeman told The Argonaut on April 15th that his department was unconcerned about a pending audit, which Greuel had announced earlier that month.

“They can audit us until Kingdom come. We’re not afraid of an audit,” he asserted. “Bring on the auditors.”

Del Rey Neighborhood Council President Mark Redick also took DWP to task for demanding the rate increase and for the results of Greuel’s audit.

“To stand before an elected city body and lie is unconscionable,” Redick, who will leave the neighborhood council next month, said. “This flagrant deception, on top of (Mayor Antonio Villaraigosa’s) shell game policy with neighborhood councils and his house of cards budget, underscore the undermining of the credibility of a major public agency at City Hall.”

The controller also addressed what she called a dearth of accountability and secrecy at DWP.

“This audit is clear; there needs to be greater transparency at the DWP. The insulated culture and the lack of accountability in the department must change,” Greuel’s report states. “The DWP has lost the trust of the public through this debacle and it will require dramatic steps over the coming months and years to rebuild the confidence of the ratepayers.”

Redick concurs that trust and credibility, already waning for city officials due to the constantly changing layoff and furlough numbers, has been perhaps irreparably harmed with this latest revelation.

He also believes that the motions approved by the Mar Vista council provide an initial blueprint to what he calls a necessary reconfiguration of the DWP.

“It’s a good first step,” Redick said. “The mayor should not have sole control over DWP.”

Koontz likes that the proposal calls for having a neighborhood council member as part of the newly proposed DWP board.

“I would love to see a member of the neighborhood council system sit on the board of commissioners,” he said. “I believe that would bring some out-of-the-box thinking and a different voice to the table, a voice that might be more in tune with the average ratepayer.”

Rosendahl, who also supports the inclusion of a neighborhood council member on the DWP board, said the audit was a watershed moment for the city’s governing body.

“We’re getting a handle on this department, which has been out of control for a long time,” he said.

Koontz is disturbed about DWP’s apparent reluctance to embrace the concept of “shared sacrifice,” which Villaraigosa has requested of municipal employees and the city’s unions.

“In this time of fiscal crisis, I can’t believe that the DWP would not implement across-the-board cuts in salary like every other department,” he said. “Additionally they recently OK’d bonuses for some of their management.

“It seems from the outside that the DWP has a history of not playing ball and because they actually generate dollars for the city, the council and the mayor seemS to give them carte blanche to raise rates on the citizens of Los Angeles.”

Greuel’s findings include a determination that DWP officials had done a financial projection without an energy cost adjustment increase and their own numbers showed they would be able to maintain their targeted fund balances even after completing a full revenue transfer to the city.

Freeman argued in April that it was essential for the agency to have the revenue generated by a rate hike.

“We were counting on this rate increase. When it was suddenly turned down, we didn’t have a flow of money coming in to declare a surplus,” the former interim director claimed.

The DWP also claimed that it needed to increase its reserve fund from $150 million to $300 million to maintain their bond rating, according to the controller’s report.

“After reviewing credit rating analysis and documents from DWP’s own financial advisor, there is no evidence that having $300 million in their reserve fund is required to maintain their bond rating,” the audit states.

Bond ratings take into account many factors, and are not based on one specific criterion.

On Monday, June 14th, DWP General Manager Austin Beutner announced that the utility is considering selling some of its assets in order to cover its rising costs. He also said DWP would not seek any additional increases for this calendar year.

Redick gave credit to Greuel, who came to Del Rey in March to address the city’s budget crisis, for taking on the utility.

“Congratulations to Wendy Greuel, who could become one of the greatest controllers in the history of Los Angeles,” he said.

DWP officials did not return calls for comment.

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