DWP'S LOTS OF POTENTIAL PROPERTIES COULD YIELD MUCH MORE REVENUE.

Byline: Beth Barrett Staff Writer

Even as it has jacked up water rates and wants more increases, L.A.'s Department of Water and Power owns a real-estate empire of more than 315,000 acres throughout the state and the Southwest but only earns about $7.5 million a year off the properties, a Daily News review of records shows.

Preliminary reports released by the DWP indicate the agency is failing to maximize a potentially huge revenue stream that could ease the city's fiscal crunch, prompting some officials to demand a comprehensive inventory and market study of the utility's vast holdings.

Most of the utility's properties are concentrated in the Owens Valley, but holdings include about 1,400 acres under transmission lines throughout the L.A. Basin. About 700 of those acres are licensed mainly for nurseries, parking lots and telecommunication towers - uses officials concede are not always the highest the land could bear.

While the DWP has increased some of the agreements - including raising Owens Valley leases and boosting annual minimum bids for nurseries from about $1,000 to $3,500 per acre - critics say it still doesn't reflect the immense financial possibilities of the land.

``It's my strong belief there are tens of millions of dollars in new revenues if they went one by one and analyzed the deals and brought them into the light of 2006,'' said City Councilman Bill Rosendahl.

``A lot of the deals that were struck in the past over land, use and relationships need to be revisited.''

Rosendahl has demanded a study, coordinated by City Administrative Officer Bill Fujioka, of DWP holdings including parcels in Nevada, Arizona and Utah.

Fujioka said the review will be part of a broader study ordered by Mayor Antonio Villaraigosa of all 8,000 city-owned properties.

DWP General Manager Ron Deaton - the city's longtime legislative analyst who was promoted by former Mayor James Hahn to head the utility in November 2004 - said the department's extensive real-estate portfolio is highly complex and segmented. It is currently being comprehensively analyzed for ways to increase revenue while balancing protection of the city's watershed in the Owens Valley and neighborhood concerns in the L.A. Basin, he said.

The ongoing real-estate review is far-reaching, sources said, and there are preliminary discussions that it would be ``simpler'' to sell off all properties in the Owens Valley towns of Bishop, Independence and Lone Pine than to renegotiate leases for cafes, auto repair shops and other businesses.

Deaton declined to comment on possible sales of these properties, many of which are in Inyo County, which gives current tenants the first right of refusal in bidding on leases or sales. Other revenue-generating options are being reviewed, including bidding out a recreational boat rental concession at Crowley Lake in Mono County.

``We'll do a concentrated look at what the transmission lines' potential is,'' he said, adding that required conditional-use permits for public storage buildings or similar structures could complicate the process. ``One way or the other we'll be more aggressive in the stewardship of the land under those transmission lines.''

Deaton said additional revenues from watershed lands could be used for deferring some of the proposed rate increases, while those from properties associated with the power grid could go toward landscaping or other improvements in transmission line corridors.

The DWP has little interest in selling the vast tracks of ranch land, now being leased in some cases for little more than $1 per acre annually, saying the department needs to be able to control how its watershed is managed. But leases also will be looked at as they come up for renewal.

Last June, former DWP commissioners tentatively approved a 3.8 percent water-rate increase for 2006, with similar hikes following in each of the successive four years. The increase has yet to happen, however, amid scrutiny of the agency's finances by the new board.

DWP commissioner Nick Patsaouras, among new commissioners appointed by Villaraigosa and tasked with reforming the $4 billion-a-year agency, said he believes the DWP's leases are deeply undervalued. He intends to propose hiring an outside consultant to perform a real-estate analysis.

``It's the best-kept secret: the assets of DWP,'' Patsaouras said. ``No one took the leadership to push them.

``You look at the Owens Valley ... we let the farmers maintain it for (practically) nothing. Let's see if we can sell it.''

Commission Vice President David Nahai said scant attention has been paid to the value of the DWP's properties, or to their highest and best use.

``This is one area that has just been ... neglected,'' Nahai said, adding that the commission recently received an inventory of all properties and adopted procedures that include requiring that any proposed sale of surplus property be reviewed by the commission's contracting committee.

``It is something very much on the radar of this commission. We're going to delve into it.''

The department hasn't done a recent highest-and-best-use study for its real-estate holdings, and has even failed to meet modest goals. For example, in fiscal 2005, L.A. Basin licenses yielded just $4.68 million - nearly a half-million dollars shy of the $5.14 million projected.

The DWP has 650 active license and lease agreements in the basin area, but only 380 are revenue producing because the rest are nonrevenue licenses for crossing rights to other public utilities, said Craig Luna, the DWP's manager of real estate in the basin.

The DWP also gets about $2.7 million in gross profits each year from 963 ranch and business leases, use permits and license agreements in the Owens Valley.

There is little ``secondary land use'' out of state because most of the utility's generation plants are co-owned with other utilities and the transmission lines are in desert locations, said Henry Martinez, the DWP's chief operating officer.

``Secondary land use is very rare in those areas,'' Martinez said, adding that it was an anomaly when the DWP and three partners agreed to sell land near a power plant to the city of Lofton, Nev., for a playground complex.

Luna said the DWP typically has looked for ``passive uses'' such as nurseries in the basin - which make up about 73 percent of the licenses - or agreements that require licensees to maintain the property but give the agency revocation rights.

``They have little pots that can be moved out in an emergency,'' Luna said. ``It helps small businesses, moms and pops. It's a win-win from this standpoint.''

Luna acknowledged that the properties - now typically licensed for five years at a time - could fetch higher values.

Southern California Edison, an investor-owned utility, realizes about $20 million a year on its properties through a variety of uses, including storage and recreational-vehicle parking.

Such uses were authorized in 1996 ``to create asset value for ratepayers and shareholders,'' said Mark Meizner, Edison's manager of real-estate operations.

Most of the DWP's land in the Owens Valley - 251,958 acres in Inyo County and 62,501 acres in Mono County - is designated for watershed protection, with the bulk leased to ranchers at rates tied to the commodity price of beef or alfalfa. Other license agreements are with other utilities for power, phone and fiber-optic lines.

Usually, rent on commercial property is based on about 5 percent of the property's market value, and lessees are responsible for property taxes, said Clarence Martin, DWP waterworks engineer.

``The purpose of department-owned land up here is not intended to squeeze every penny out of our lessees, but to maintain our watershed,'' Martin said.

But not all Owens Valley lessees are happy with the arrangements - especially as rents on contracts now are being raised annually.

``Now it's a new rate for every year. ... It was one rate for the five years. Their rationale was they were getting pressure, that these are too good of deals. I think it's crummy,'' said Martin West, who owns the Pizza Factory building on Bishop's Main Street but leases the land from the DWP for $2,130 a month.

``No lease is a good deal. You can't control your own destiny. I always hoped they'd turn around and have it appraised and let the lessees buy it.''

Councilwoman Jan Perry, chairwoman of the Energy and Environment Committee, said she supports the property inventory and lease and license review, but cautioned that goals for revenue production be balanced.

``What are the long-term goals to generate revenues against security issues, such as tampering (with transmission lines)?'' she said.

Beth Barrett, [phone]

beth.barrett(at)dailynews.com

DWP'S EMPIRE

Here is a look at some of the property licenses and leases that generate revenue for the Los Angeles DWP. For a complete list, see www.dailynews.com:

--Looney Bins trash-recycling company, Sun Valley: About 1 acre at $20,640 a year.

--Valley Crest Tree Co., San Fernando: About 4.1 acres at $14,560 a year; two 7-acre parcels at $24,745 a year.

--Country Fresh Herbs Inc., Tarzana: About 3 acres at $10,850 for the first year.

--New View Landscape, Reseda: About 4.5 acres at $15,750 a year; about 1 acre at $3,713 a year.

--Pizza Factory, Bishop: .75-acre, 15-year lease, at $2,130 a month.

--Bishop Country Club Inc., Bishop: 144 acres, 5-year lease, at $2,420 a year.

--Bishop Gun Club, Bishop: 81 acres, 5-year lease, at $360 a year.

--Beauty shop, Lone Pine: .02-acre, 5-year lease, at $2,600 a month.

--Sporting goods store, Lone Pine: .02-acre, 5-year lease, at $250 a month.

--Livestock grazing, Independence/Manzanar/Olancha: 33,285 acres, 5-year lease, at $42,603 a year.

Source: Department of Water and Power

CAPTION(S):

photo, box

Photo:

Records show real estate such as this nursery under DWP power lines along Wilbur Ave. is not earning enough revenue for the DWP.

Tina Burch/Staff Photographer

Box:

DWP'S EMPIRE (see text)