DWP PUTTING MILLIONS ASIDE FOR HEALTH CARE.

Byline: Beth Barrett  Staff Writer

The Los Angeles Department of Water and Power is setting aside $100 million a year in ratepayer money to gradually cover a $1.3 billion unfunded liability to pay lifetime health care benefits for its retired workers, the Daily News has learned.

Disclosure of the liability has raised new concerns for DWP critics who have objected to the utility's transfer of nearly $250 million this year to the city general fund even as an 11 percent water-rate hike was being imposed and controversy swirled on spending millions of dollars on public-relations contracts and ineffective ``green power'' programs.

``DWP workers are very well paid and if you asked the average ratepayer where they think their rates are going, they'd probably say to pipes, to purchase water on the wholesale market ... the average ratepayer isn't aware a huge chunk of the bill goes for compensation that's out of line with the private sector,'' said Jon Coupal, president of the Howard Jarvis Taxpayers Association in Sacramento.

New DWP General Manager Ron Deaton, who as former chief legislative analyst was the City Council's top adviser, said it was important to safeguard the health benefits program, which has been only sporadically funded since a trust was set up in 1997.

``It's the responsible thing to do,'' Deaton said.

Robert Rozanski, DWP chief administrative officer, said the utility needs to protect its bond rating by ensuring it has ``no big liabilities.''

He said the DWP's electrical rates are among the lowest in the West, while water rates are competitive. Roughly two-thirds of the $100 million comes from the power side, and one-third from the water side.

The underfunded trust fund - only about $300 million has been set aside to date - didn't affect bond house reviews of the utility during meetings last week in New York.

Daniel J. Aschenbach, Moody's Investors Service senior vice president and lead analyst on the DWP account, said the utility has strong financial margins, partly because it reduced its power-generation debt several years ago in anticipation of deregulation as well as the water-rate hike.

While the DWP could have kept rates lower, they would have faced higher payments later when the unfunded health costs and other debts came due, he said.

``Then you start operating with slim margins, and then if you had this pension unfunded liability that grew, their debt ratios would be very high right now.''

The DWP has an AA3 rating now, and it doesn't appear to be in danger of dropping, he said. The DWP's $6 billion pension fund, not including the retirees' health benefits, is about 97 percent funded.

There are about 8,000 DWP retirees, and about an equal number of active employees who will be eligible for the benefits.

The DWP lagged other city pension programs in addressing funding for health care costs for years - putting little into the trust fund until health premiums skyrocketed a few years ago, doubling to nearly $1.8 billion.

``Everybody freaked,'' Rozanski said, and about $100 million was put into the trust fund for fiscal 2003 and 2004.

The city's two other pension plans for police and fire, and for civilian workers since the early 1990s have pre-funded health benefits, and have significantly lower, or no, unfunded health liabilities for their retirees.

Sources familiar with city pension plans said the DWP's decision to keep retirees' health costs off to the side for years, by paying the bills as they came in, was ``unhealthy'' and made the utility more vulnerable when premiums soared a few years ago.

``It's not that unusual to keep it off to the side; it's cheaper to fund it on the side ... you can put things off,'' one source said. ``With political institutions, people can always put it off until it's someone else's money. It's very unhealthy to do that; it can lead to surprises - unpleasant ones.''

Councilman Tony Cardenas, chairman of the Commerce, Energy and Natural Resources Committee, attended the New York meetings and said none of the bond houses signaled concern about the health costs after reviewing the utility's trust fund plans.

``I have a lot of confidence in Ron when he tells me person to person he's aware of the issues,'' Cardenas said. ``He's put together a road map.''

Beth Barrett, [phone]

beth.barrett(at)dailynews.com