IT'S DWP VS. STATE PRICE-GOUGING DISPUTE FLARES.

Byline: Dana Bartholomew Staff Writer

Tensions between the Los Angeles Department of Water and Power and the state escalated Tuesday amid accusations that the city has engaged in price-gouging for its excess energy supply.

Weeks of negotiations on long-term sales of DWP power to the state have yet to yield a contract because of differences in determining city energy costs and demands that the state cut pollution penalties for running plants full time.

As Gov. Gray Davis threatens to seize power plants - and surplus power from the DWP and other public utilities - to ensure adequate electricity this summer, state officials charged the DWP on Tuesday with demanding more for peak power than even out-of-state generators.

``In essence, we avoid buying power from L.A. Water and Power when we can, because the prices tend to be higher,'' said Oscar Hidalgo, spokesman for the state Department of Water Resources, which has spent $8 billion since January to avoid blackouts across the state.

``We're working with them, as well as other munis, to get the cost of power down.''

Statewide, the DWP and other municipal utilities have charged a peak power average of $360 per megawatt hour, versus $310 from energy companies, state officials said.

Neither DWP nor state water officials would discuss specific rates charged by the Los Angeles utility.

DWP officials, however, say there are significant cost differences between public and private generators. While the DWP has sold peak power to the state using outdated plants fueled by expensive natural gas, private generators pay far less for the same power.

Most of its power, DWP officials add, was sold at cost plus 15 percent.

What has especially incensed state officials is a recent decision by DWP commissioners to rescind a commitment to sell excess power at the cheaper rate. The city's ``cost'' - now in dispute - includes the price of natural gas, the cost of buying pollution credits, the transmission taxes, depreciation, startup costs and maintenance.

When former DWP General Manager David Freeman left the agency to head the new state Power Authority last month, DWP commissioners did an about-face and decided to charge market rates barring any power alerts.

``Residents of Los Angeles should not subsidize the energy requirements of other Californians,'' Mayor Richard Riordon said in a letter to DWP commissioners. ``Therefore, we must be able to cover our full costs.

``Once these costs are recovered, we should forgo any additional markup through the summer months.''

Meanwhile, at the DWP downtown headquarters on Bunker Hill, a digital display ticks off a reward of municipal utility independence at a time of soaring energy prices.

With each passing second, the DWP pays $15 toward its $1.2 billion debt. Or $1.296 million a day toward whittling down a debt of more than $4 billion four years ago.

Since January, the DWP has raked in $100 million from its sale of excess energy. It's also benefited from refinancing debt, lowering operating costs, selling its Mojave Desert power generator and new contracts with out-of-state power plants.

City Attorney and Mayor-elect James Hahn on Tuesday reiterated his threat to sue the state if Davis carries out his threat to seize power from the city of Los Angeles as a violation of state and federal laws.

Los Angeles, like Glendale and Burbank, refused to participate in a botched deregulation scheme blamed for energy shortages, rolling blackouts and rising prices for ratepayers of Southern California Edison and other credit-defunct private utilities.

Whereas the DWP once sloganed ``debt-free by 2003,'' it now expects to burn the mortgage by the end of 2005, DWP officials said. Negotiations with the state are expected to wind up next week if the complex issues can be resolved - including the political rivalry between Davis and the potential candidacy for governor next year of Riordan as his Republican governor.

While the state and the DWP have agreed to roll back energy prices to cost plus 15 percent, at issue is what that cost entails. State lawmakers who have criticized the DWP for withholding energy cost data threatened to subpoena the agency on Monday unless it shuttled records dating to 1994 to Sacramento. ``It's true the DWP doesn't offer the cheapest power to the state,'' DWP spokesman Eric Tharp. ``We go round and round about every line item. We want to be able to assure our (state) customers that all of our costs are covered.

``We hope to have an auditor come in and independently verify our costs.''

Consumer advocates who blasted out-of-state generators for depleting the state's budget surplus were softer on public utilities for charging higher rates.