DWP HAS RESOURCES TO TAKE ADVANTAGE OF COMPETITION.

Byline: RICHARD NEMEC Local View

WHILE the 3.5 million citizens and thousands of businesses in Los Angeles still don't have a choice of electricity providers and probably won't for several years, the city's municipal utility, the Department of Water and Power, has increasingly more choices in how it buys and sells power.

As the DWP's high-profile leader David Freeman and his newly assembled senior management team try to devise the proper strategic response for the $2 billion-plus proprietary city department, the largest government-run utility in the nation, veteran city utility engineers like Bruce Hamer, wholesale marketing manager, quietly operate a growing $100 million-plus annual energy trading operation.

A 23-year DWP veteran, Hamer is content to leave the strategizing and policy-making to the City Council and the DWP's leaders downtown while he helps save millions of dollars for DWP customers by taking advantage of the increasingly competitive electricity business.

As with most things in our late, late 20th-century global economy, it all boils down to price.

As electricity is increasingly treated like a commodity such as soybeans, pork bellies or oil, it gets traded around the world and around the clock. That means if you are in the business of producing and selling electricity as the DWP is, you can play the market to a certain extent and save money for customers. There is currently a proposed ordinance before the City Council utilities committee to give the DWP authority to trade in the state-chartered wholesale power exchange in which the three major private sector utilities currently are required by law to buy and sell all of their power.

The DWP possesses a lot more generating and transmission capacity than it needs to serve the city, which in a truly open, free market can be either a liability or a blessing, depending on how you use it. In the current transition to a fully competitive electricity market in California, Hamer is confident that the DWP can use this excess capacity to its advantage in playing the wholesale market.

``We are a utility with sizable physical assets, including 6,000 megawatts of generation and some wonderful transmission facilities throughout the West,'' says Hamer, unable to hide his engineer's pride in this massive infrastructure that can be a bane or boon, depending on your political and economic point of view or what future time point at which the assets' value is measured.

In today's growing and increasingly competitive wholesale power market, the DWP is still somewhat of a novice, and at one time in 1996-97, under different leadership, the department courted an alliance with an experienced private sector energy marketer, Duke/Louis Dreyfus, to boost its trading capability and maximize the value of its physical assets the way private sector utilities increasingly are being forced to do. That deal died slowly with the leadership change when Freeman took command last fall.

The DWP now has stepped up its wholesale market plays on its own. It uses as its base price the cost of its in-basin, natural gas-fired generation at plants spread along the Southern California coast, the same way its private sector counterpart, Southern California Edison Co., traditionally positioned its metropolitan-based generating plants. (Edison, under the state's continuing electric deregulation, has sold all of its gas-fired plants to independent operators, many of which are affiliated with utilities in other parts of the country.)

With the basin prices as a bogey, the DWP determines on any given day, week or month if it can buy electricity under the basin price for its own use and sell its excess power (or choose not to generate it) in another area at a higher-than-basin price. The net effect is savings for DWP customers. Hamer estimates those savings were about $50 million this past fiscal year, July 1, 1997-July 1, 1998.

For the near future, while the DWP and City Council are crafting an overall strategic plan for the giant municipal utility, which operates like a city-run business aloof from taxpayer support and providing millions of dollars annually to supplement the city coffers, Hamer and his energy traders are optimistic that the DWP can prosper in the wholesale market, even without a private sector partner.

``Los Angeles is well positioned in terms of our assets to do well in this wholesale market,'' Hamer reiterated as often as he could during a 90-minute briefing at the department's market center.

Is this merely a case of hubris? Or is the DWP, in a sense, aloof from the current political and economic machinations of the electricity and natural gas industries? It may be too early to tell, particularly since the overhyped retail electricity market in California for mass consumers has been a big disappointment so far. And this means, the seeming inaction (or slow-to-act) mind-set of the DWP and city political leadership may work out OK.

There is $4 billion in debt backing the DWP's excess generation and transmission capacity. Freeman and the City Council are trying to accelerate the reduction of that debt. If they succeed by the time retail competition truly comes to California electricity sales early in the next century, people like Bruce Hamer may prove to be prophets to whom the brass downtown should pay more attention in the months and years ahead.

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Photo: The DWP has increasingly more choices in how it buys and sells power.

Bob Halvorsen/Daily News