EDITORIAL : WHO DO YOU TRUST?; DWP SURVIVAL PLAN IS A TEST OF FAITH AND LEADERSHIP.

THE Los Angeles Department of Water and Power's general manager, S. David Freeman, is whipping the DWP into shape to compete in California's deregulated market for electricity.

It's a giant undertaking, and one that's absolutely necessary since the state has decided it will have an open market for power.

After deregulation, electricity customers will be free to choose their suppliers. The DWP's costs are far too high to be competitive because, like much of the city government, it has been grotesquely mismanaged for so long.

Unless the utility reforms, it will lose customers to competitors offering cheaper prices. It would end with the financial collapse - bankruptcy - of the system at a heavy cost to Los Angeles taxpayers, who would have to pay DWP's nearly $8 billion debt (about twice what the power system is worth).

Freeman announced a sensible plan a few days ago, aimed at cutting costs and paying off debt. He calls for eliminating about 2,000 positions, mostly among management and engineering ranks.

Notably, Freeman recommends a rate freeze, and anticipates rate reductions in 2002 for all residential customers and many commercial and industrial customers.

For the plan to go forward, the City Council must agree to several important points. For example, Freeman believes the DWP must be able to negotiate and sign power contracts with its customers without final approval from the council or the Water and Power Commission. Competitors would have a distinct advantage if they could learn the terms of proposed DWP contracts.

Freeman also wants contracts to remain confidential after they are signed, for competitive business reasons - although they would be subject to review by, say, the City Attorney's Office.

This is a very risky proposition but his proposal is tantalizing because of the crisis of confidence facing the city and its elected leaders.

The council, the mayor and others have for the most part run the DWP and other operations as if they were the owners, so that the most important considerations were their own political interests and in many cases those of their contractor pals and others who stand to benefit. That's why the bureaucracy is so fat and ineffective.

Freeman has drawn the line: The only way to avoid bankruptcy is to run the DWP like a business instead of a charity for politicians and public employees.

Based on the council's record, we are skeptical about its ability to set up proper safeguards so the public interest is genuinely served by insulating the agency from political meddling while at the same time ensuring independent auditing to prevent corruption of the utility.

This is a great test of the council's commitment to real reform. In the end, the people of Los Angeles will have to ask themselves who they trust: Freeman, a newcomer with a national reputation and no political debts to pay in Los Angeles, or the City Council which is laden with political obligations and was in charge all along as the DWP dug itself - and taxpayers - into this deep hole.