DWP HID RATE HIKES BEFORE CITYHOOD VOTE OUTSIDE ANALYSIS DISCOVERS AGENCY'S TRUE PROJECTIONS.

Byline: Beth Barrett and Rick Orlov Staff Writers

Los Angeles Department of Water and Power officials knew for years they would need a massive rate hike to finance a $2 billion capital program but kept it secret during the 2002 San Fernando Valley secession effort and misled the City Council during the current water rate debate, the Daily News has learned.

Only after an independent analysis demanded by Councilman Tony Cardenas disclosed Tuesday that the utility would need a 33 percent water rate hike over the next five years to pay for the construction work did utility officials acknowledge they had planned for a large increase for years.

By December 2002 - one month after Valley secession was defeated, in part because of threats that residents would face far higher utility rates - DWP officials were projecting the need for water rate hikes of up to 35 percent. DWP officials acknowledged Wednesday that they knew massive hikes would be needed throughout the secession campaign.

Cardenas, chairman of the Commerce, Energy & Natural Resources Committee, charged DWP officials, including Gerald Gewe, the assistant general manager for water, with being ``disingenuous,'' and of withholding the truth. He said he'll demand that they answer at a public hearing.

``It's unconscionable,'' he said. ``My gut told me there's something they aren't telling me. I guess this is it ... I'd like to call them right now, but that would be a private conversation, and I want them to answer in public. I'm pretty upset.''

Cardenas said the DWP has a long history of not being ``transparent.''

``Am I disappointed that the rates are going up? Not as much as them not being forthright about the cost of running the water system.''

Cardenas' committee on Tuesday recommended that the full council approve an 11 percent rate hike, believing it was a compromise on the 18 percent hike request. He said he was shocked to learn now that DWP officials have routinely told bond companies of their plans, but not city leaders or voters.

Gewe said while ``precise numbers'' weren't shared with politicians or residents, the utility officials consistently said the current rate hike would not be ``the end of the line.''

``We were focused on the short term. You don't need the distraction of the long term,'' he said.

The issue of DWP rates boiled to the surface during the 2002 secession campaign when Mayor James Hahn and others frequently warned that utility rates would soar if the Valley split from the rest of the city.

On Wednesday, Sahar Moridani, a spokeswoman for Hahn, said the mayor has resisted the DWP's yearly efforts to raise rates and only supported the 11 percent increase after being convinced of its necessity.

She denied that secession played a role in Hahn's thinking, adding: ``That makes no sense. Why wouldn't he hold it off now if it has to do with a campaign year?''

DWP officials in September 2002, two months before the cityhood vote, assured the council that approving pay raises of 14 percent to 18 percent and top retirement benefits for more than 5,000 electricity workers at a cost of up to $139 million would have no impact on rates for the next ``several years.'' Councilman Bernard Parks, who is exploring a challenge to Hahn in next year's mayoral contest, said Wednesday that he was told that a decision was made to hold off on the rate increase two years ago because of the Valley secession drive.

``When they first said they wanted to raise rates by 18 percent, I called them in and asked for information. They told me they really needed more, but that it was decided to hold off for a while.

``Then, they told me originally they wanted to raise the rates a couple of years ago, but were told to hold off because of the secession issue.''

Asked whether secession had played a role in the DWP holding off on the rate hike request, Gewe said, ``I'd prefer not to make a comment.''

Gewe defended not better informing city leaders, saying such long-term projections aren't ``commonly made available to the mayor.''

Until at least 1996, the utility provided the five-year projections through a document known as the ``Financial Report to the Mayor and City Council,'' but it was discontinued, said Robert Rozanski, the DWP's assistant chief financial officer.

Gewe added that individual council members and utility commissioners were briefed in general terms that the 18 percent increase would not be sufficient.

``They didn't know precise numbers,'' he said.

Neither were neighborhood councils, some of which aggressively opposed the rate hike and pressed for information, given the higher figures.

Councilwoman Cindy Miscikowski, who sits on the council's Commerce, Energy and Natural Services Committee overseeing the DWP, said she believes that the need for a rate increase goes even further back and was complicated by secession.

``I think there were a variety of reasons, but we haven't had a rate increase for 11 years,'' Miscikowski said. ``There was secession, but that was only a couple of years ago.

``Prior to 11 years ago, we would have more regular raises to cover the costs. You can't tell me the DWP was so well managed all those years that it didn't need a rate increase.''

In July 1998, the utility had penciled in a 15 percent increase over five years, but it was never enacted as the DWP downsized the staff on its electricity side.

The construction program includes paying for dust control in the Owens Valley, covering city reservoirs, and ongoing upgrades to the water system, including old pipes. Over half of the work is required by regulations, Gewe said.

Peter Murphy, a director at Standard & Poor's who specializes in municipal utilities, said the capital program is ``substantial'' even for such a large public utility.

``That's too much debt to finance without a rate increase,'' he said, adding that a hike in the ballpark of 33 percent over five years appeared sufficient.

Beth Barrett, [phone]

beth.barrett(at)dailynews.com