Friday, June 15, 2007

Is The DWP Ripping Off Other Government Agencies?

The breaking story Wednesday of how the DWP ‘ripped off public agencies’ by $222-million was initially so confusing the LA Times had to post three different versions of it on their website before they - finally – got the story right.


A former state law – which was changed last year – stated that government utilities can only charge other government agencies for the costs of producing the specific electricity that particular agency purchases.

The possible ambiguity of that statement put into question if other capital expenditures of the utility can be covered in that charge and if other costs – such as the transfer fee paid yearly to the City of Los Angeles – can be considered in calculating those bills

If not, then government agencies would be paying rates less than other DWP ratepayers, which would seem to be inherently unfair as it would force private rate payers to subsidize government agencies. Likely one of the reasons why that state changed the law last year so that government agencies will now pay the same electric bills that the rest of us do.

The initial press coverage though, confused the issue when it was first reported that the judge called the DWP city power transfer ‘illegal’ – which is not what happened. He merely said it was illegal for the DWP to add that cost to the bill it changes other public agencies due to the now repealed state law.

As for the impact on local ratepayers (and local LA taxpayers) who are not government entities – there should be none in the near future since this ruling will be appealed. The DWP lawyers claim that all of their costs of doing business should be factored into all of their bills. But should the DWP lose on appeal – and it took seven years for the case to get this far – then the amount owed will be considerably larger than just 185 million a year the city currently receives from the DWP, and this would be close to 3% of the city’s entire budget.

A major hit, but, hopefully one we will not have to face for a number of years, if ever, unless a settlement is negotiated in the near future. But if we do have to pay – between DWP ratepayers and City of Los Angeles taxpayers, we will have to cough up at least $222-million at a time when both the $30-million DWP water transfer fee to the city budget and the $270-million cell phone tax that goes into the city budget are also being challenged in court.

And if all of those hits were to land at the same time – we are talking about close to 8% of the city’s entire revenue stream vanishing, with well over $300-million of those revenue losses possibly being permanent. (Brady Westwater is a writer, Chair of the LA NC Congress and a regular contributor to CityWatch.)

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