DWP-city feud could increase L.A. budget deficit

A bruising political fight among Los Angeles’ top elected leaders over a proposed hike in electricity rates threatened Thursday to deepen the city’s financial crisis while suggesting that Mayor Antonio Villaraigosa had sharply misread the public mood at a time of recession.

Residents, business owners and City Council members were quick to criticize the mayor on the heels of a dramatic late-night showdown Wednesday, pitting the Department of Water and Power board -- all Villaraigosa appointees -- against a council battered by ratepayers upset over increases sought by the mayor to bolster his green energy agenda.

Unless some electric rate hike is approved, the city’s budget shortfall would balloon to $290 million, forcing elected officials to drain reserves, City Controller Wendy Greuel said.

That would leave the city with little cash by June 30, the end of the fiscal year, she said.

“There’s no cushion,” Greuel said. “So when the reserve fund gets below zero, there’s no money left. Cooler heads should prevail about the fiscal situation in the city. This is too serious of an issue to not try to resolve this.”

Even if officials were to suddenly shift their positions, no DWP increase could be granted over the next three months because of state laws that regulate the timing of utility rate hikes.

After rejecting the first of the mayor’s four proposed electricity rate hikes last week, the council offered to compromise with a short-term 4.5% increase.

But late Wednesday, the DWP board rejected that, insisting on at least a 5.7% increase over the next three months.

Minutes later, at its own late-night meeting, the council unanimously refused to budge.

Without more revenue, DWP officials have threatened to back away from their promise to give $73 million to the city budget fund that pays for basic services, such as the Los Angeles Police Department. City leaders are already racing to balance that budget by laying off 4,000 employees.

On Thursday, DWP officials said they had not changed their position on the likelihood of a transfer without a rate increase.

“We are carefully evaluating next steps to safeguard our [financial] position,” acting general manager Raman Raj said in a statement.

Ratepayers across the city, from low-income seniors to corporate real estate firms, had expressed alarm at the possibility that they could face four consecutive increases in the middle of a steep downturn.

“People are struggling to survive,” said Watts Neighborhood Council President Jacquelyn Simms, whose part-time job with the city’s Recreation and Parks Department was recently eliminated. “They’re just holding us hostage because they know we need water and electricity.”

The backlash to the mayor’s proposal has been especially potent in the San Fernando Valley, where homeowners are more reliant on air conditioning during the summer and have a long distrust of the DWP, an agency that only four months ago provided raises to its workforce.

Residents have spoken out against the mayor’s proposal to boost residential electric rates by a range of 9% to 28%, depending on the size of a home and the amount of power use, over the next 12 months.

“A 28% rate hike? They could be handing out bottles of whiskey and still couldn’t sell that to people,” said Sherman Oaks resident Ron O’Neal.

DWP officials briefed business leaders on March 10 to explain the effect of the rate hike. As they worked out the math on calculators, participants in that meeting discovered that the increases were 21% to 22% over a 12-month period.

“They were aghast. It was huge,” said Carol Schatz, president and chief executive of the Central City Assn, a downtown business group.

Gary Toebben, president and chief executive of the Los Angeles Area Chamber of Commerce, described the push for higher rates at City Hall as a “case study of a process not to follow.”

With rate increases temporarily sidelined, the mayor has an opportunity to rebuild the DWP’s credibility, Toebben said. “He now has . . . an opportunity to do it right, to start over,” he said.

Villaraigosa acknowledged the difficulty of selling the rate hikes in such a steep economic downturn but said it was his job to make the tough calls, even when they are unpopular. The DWP is not collecting enough money to pay for various expenses, including the cost of existing coal contracts, and needs to shift to renewable sources of energy, such as wind and solar, to avoid huge fines from state air regulators, he said.

“The fact is, the state is breathing down our necks . . . where we could be looking at fines of $300 million [in 2012] and $600 million on top of that,” he said.

Villaraigosa said he would assess the effect of Wednesday’s votes and look for common ground with council members, who faced much of the fury from constituents upset over the prospect of an increase.

Twenty minutes before the council’s emergency 8:45 p.m. meeting Wednesday, Councilman Tom LaBonge -- a former DWP employee who frequently stands by the utility -- said he was taking a call from a 60-year-old North Hollywood resident who cried as she pleaded with him to reject any increases.

Villaraigosa’s campaign for the increases began in earnest two months ago, when he announced the results of a poll showing that nearly two-thirds of voters would be willing to spend $2.50 per month more on electricity to end the DWP’s reliance on coal.

Days later, the DWP and the mayor’s office began pitching a plan for four increases -- enough to generate an extra $648 million per year.

The mayor repeatedly argued that only 6% of ratepayers, the richest residents in the city, would see the high-end increases of 28%.

Nearly three-fifths of DWP customers, primarily renters and owners of small single-family homes, would see rate hikes closer to 9%, or between $2.41 and $3.41 per month by January.

That message did not reassure some ratepayers.

Jan Sobel, president and chief executive of the West Valley Boys and Girls Club, said her organization might have to choose between reduced services and no air-conditioning in the summer to cope with an anticipated $8,000 increase in the club’s electric bill.

And Henry Broomfield, 57, a retired home-health worker now on disability, said he was already having to choose between paying his DWP bill and his gas bill.

Larry Piles, the general warehouse manager of Showa Marine and Cold Storage, pleaded with the DWP board to reject the proposal.

After the board approved the first of Villaraigosa’s four increases, Piles began working with a broker to find possible sites for his company in nearby Vernon.

On a narrow 8-6 vote on Tuesday, the council scaled back the first of the four proposed increases, calling on the DWP board to do the same. The DWP board said it wanted slightly more, enough to add $6 million to the utility’s coffers by June 30.

That was a grave miscalculation on the part of Villaraigosa’s DWP appointees, said Councilman Greig Smith, who opposed the increase.

With only eight votes in favor of a smaller increase, the council had essentially sent a “last, best offer” -- one the DWP board rejected, he said.

“This department seemed to think they run the city, rather than the other way around,” Smith said.

david.zahniser@latimes.com

phil.willon@latimes.com

Times staff writers Rich Connell and Robert Faturechi contributed to this report.