DWP'S RATES LIKELY TO RISE : HOMEOWNERS MAY PAY FOR OPEN MARKET.

Byline: Rick Orlov Daily News Staff Writer

The Los Angeles Department of Water and Power, the nation's largest city-owned electric utility, is about to enter a new era of open competition, for the first time facing the end of its monopoly and the possibility that city customers can defect to other electric providers.

The result, city officials say, is that Los Angeles homeowners, whose rates have long been subsidized by the big industrial users in the city, will have to go up.

The DWP can't afford to lose those big ratepayers to Southern California Edison, or any other competitor, officials said. Their plan is to cut the rates for large industrial users and that means the homeowner will have to bear more of the burden.

Such is the legacy - for city residents at least - of the open competition among electricity providers approved by the state Public Utilities Commission.

The heaviest impact is expected to be seen on 1.2 million residential customers who now pay 9.8 cents per kilowatt hour, with an average monthly bill at $49.90, the lowest in Los Angeles County, generating $589 million annually for the DWP.

A preliminary report from the DWP said residential rates should be increased at least 1.5 cents a kilowatt hour, adding $9 a month to the average bill. By contrast, Edison officials have said they plan to reduce their residential rates - now 25 percent higher than the DWP, with monthly bills averaging $66.20.

``We could try to stay the way we are, but the political pressure from the marketplace will force the City Council to make changes,'' said Bill McCarley, the departing general manager of the agency.

Even with an increase, McCarley said he believes the agency must continue to have lower residential rates than Edison or other firms.

``There's going to be a point where residential customers are sought after as well and we have to be competitive there,'' McCarley said.

The DWP's biggest problem is that with $7.7 billion in bonded debt, the utility isn't well positioned to be competitive in an open market, McCarley said.

Up to now, the DWP has charged higher rates to its 2,763 largest customers generating $595 million a year for operations and to cover the $240 million needed annually to cover the bonded debt.

But the bonds have largely financed expansion of utility services to residential customers, and so in the future they will have to bear the burden of the debt.

Councilwoman Ruth Galanter, who chairs a special committee that will be overseeing the rate changes, said higher residential rates are inevitable.

``Our challenge is to recognize that the people who live in this city are not only the DWP customers, we are also its owners,'' Galanter said. ``So, we are looking at restructuring the rates and that may reduce the subsidy we now give residential ratepayers.

``I've been reading a lot from other firms about how they will be reducing their rates. But what no one is telling residents here is that our rates are lower.''

Galanter said it will be up to her and other elected officials, particularly Mayor Richard Riordan, to make the case to the public on the need for the higher rates.

``This is going to be tough to sell, particularly if we don't see some significant leadership from our chief elected officer, the mayor,'' Galanter said.

``It's going to be very important as we go forward that a lot of public education take place and the most effective person is the mayor of the city.''

Deputy Mayor Gary Mendoza said Riordan has yet to take a position on residential rate increases.

``It is going to take a lot of study before that determination is made,'' said Mendoza, who is Riordan's deputy in charge of business and economic development. ``The DWP future is something all the city leaders have to be engaged in. The future of the city is tied to the DWP.''

The deregulation of the electric industry has been coming for years and was put into effect by the state Legislature last year. Competition between firms will begin officially in January 1998.

And the potential increases in residential rates comes during a political year where Riordan and eight City Council members are up for re-election.

A time line, released by the DWP for the council to consider rate increases, begins in June of this year, after the April 8 election and a June 3 runoff.

``No one should be surprised by that,'' said Brian D'Arcy, manager of Local 18 of the International Brotherhood of Electrical Workers representing DWP workers. ``The politicization of the department is what has caused so many problems and left it with so little credibility.''

Also, Councilman Joel Wachs, who is not up for re-election this year, said he is preparing to fight any effort to increase residential rates.

``I don't think we have to do it,'' Wachs said. ``I've heard these arguments before. Basically, the problem with the DWP is it is swollen with bureaucracy and has refused to change with the times.''

In particular, Wachs cited a 1994 study by the Barrington-Wellsley group showing the DWP with 25 percent more employees than needed.

But the agency has reduced its staffing by more than 3,000 workers since then to be below the study's recommendations and is in the process of making further cuts.

McCarley said the problem the agency faces, however, is the amount of debt it has from construction projects during the 1970s and 1980s.

Another factor facing the city is the amount it receives from the DWP each year in its transfer of money to the general fund.

In the past, this has been in the $100 million to $110 million range, but McCarley said he is recommending that be reduced to $60 million.

Also, he said he will suggest the DWP no longer pick up the $11 million a year tab for street lighting.

``We have been arguing for a long time the city has been using the DWP for programs it shouldn't be involved in,'' D'Arcy said.

Riordan has been steadfastly opposed to any tax increases and aides said he is waiting for a study on the city tax rates to see if any changes are needed.

Galanter said that while the loss of DWP money creates more of a hardship on the city's general fund, she also believes there are opportunities for the city to get more revenue.

``Part of the reason for deregulation is to increase economic activity in the city,'' Galanter said. ``If that does occur, then the city will be getting more money in. Also, we have to look at the possibility of the DWP being able to win other customers and other possibilities for revenue increases.''

Among these, she said, would be the sale of rights of way along DWP property to allow private firms to lay cable. Also, she said, the agency could get involved in selling off some of the excess energy it produces.