COMPETITION FORCES UTILITY TO MARKET ITSELF : DWP'S MANAGER SEEKS TO PROMOTE AGENCY AS `HOME TEAM' FOR ENERGY.

Byline: LOCAL VIEW By Richard Nemec

TO steal a phrase from the Americana dictionary of advertising-ese, the 1999 model of the Los Angeles Department of Water and Power ain't your father's version of DWP.

Today's version is offering free movie theater tickets to the first 100 Valley customers recycling their old phone books, sponsoring school poster-drawing contests promoting green power and splashing the DWP name around Dodger Stadium as the ``home team'' for energy.

This is promotion. Marketing. What is this ``new'' public entity - the nation's largest local government-run utility - trying to sell us, or for that matter, tell us, with its current behavior?

DWP's ever-active General Manager S. David Freeman, who recently was given the public sector power industry's highest honor for nearly 40 years of distinguished service, says the multibillion-dollar city utility needs to learn to ``sell things,'' something it has never had to do as a government-run public monopoly.

Today, California is creating more competition in the energy utility industry, although mostly for the private sector monopolies such as Southern California Edison and The Gas Company.

Ironically, even though the DWP under Freeman is doing most of the economically correct things, its future most likely will not be shaped as much by its commercial success as it will by plain old local politics.

Freeman, I think, knows this better than anyone, and he is trying to sneak up on the city's politics gently with some proposals that are sure to be complicated and controversial in a political sense.

First, both DWP and city officials have reason to be content right now. Rates have been frozen since 1998 and won't change until 2002, a mountain of debt is being paid off by the DWP on an accelerated basis, and its ability to make some quick, short-term extra ``profits'' from the wholesale electricity market has lined the city coffers with millions of dollars.

Ultimately, in an increasingly changed electric industry, the City Council will have to decide if it wants to operate the DWP as a super-low-cost utility, or milk more revenues out of the city utility by charging rates above the DWP's costs of providing power, but below the private sector market.

Then, between now and 2002, Freeman wants to marshal political support for several avant-garde changes that could prove to be politically sensitive.

Freeman has repeatedly complained about the DWP's multiple layers of governance that require separate approvals from a five-member oversight board, city administrative and mayoral offices and ultimately concurrence by the City Council, which sets the department's consumer rates and approves all special contracts with large businesses.

He wants the day-to-day management to be between the general manager and a reconstituted, more independent board of directors. The council would still have to approve all rate changes.

He also wants to have the City Council put a charter amendment on next year's ballot that would re-create the DWP as a special district, apart from the normal city departments even though it is already a ``proprietary agency'' not dependent on the general fund for revenues. The city would still own all of the utility's assets.

With or without the new governance and status of the DWP within the city's organizational scheme, Freeman is thinking about two other areas: evaluating, reconfiguring and disposing of the utility's vast real estate holdings, and eventually adding new generation plants at the same time private sector power utilities are getting out of the generation part of the business.

The potential real estate sales should be welcome because they offer the prospect of further reducing long-term debt faster and lowering the DWP's day-to-day operating costs.

Building new generation plants while closing some old ones may run into some political trouble, because the construction will require taking on new debt in the form of tax-exempt bonds.

Freeman is already talking up the fact that there is ``good debt'' and ``bad debt.'' The good stuff helps build modern, efficient plants whose value and output will far exceed the annual cost of paying off the new debt.

Bad debt is the high-priced stuff the DWP assumed to buy parts of out-of-state coal and nuclear power plants that are not very economically appealing in the competitive power market that is being created today.

If you mix in the backdrop of a proposed Valley secession, which could complicate the DWP's future, Freeman is going to have to be a super-salesman to sell city elected officials on (a) making the DWP more autonomous, (b) keeping it in the power-generation business, and (c) taking on new long-term debt when it may eventually have to serve two masters - a smaller L.A. and a new Valley incorporated area.

Economically, I think Freeman is on solid ground, but politically the landscape may be as shaky as during one of our too-frequent 5.0 earthquakes.