August 23, 2011 - From the July, 2011 issue

L.A. Civil Grand Jury Report: ‘Who is Really in the Dark?'

With the backdrop of several politically contentious ballot measures and debates in City Hall (as well as in the media) regarding the future of the L.A. DWP's performance, governance and rate structures, the Los Angeles County Civil Grand Jury recently undertook a report to study the DWP, providing numerous findings and recommendations for the future of the utility. The report produced by the Grand Jury, excerpted here from the Executive Summary by MIR, provides a fresh set of eyes on issues of paramount importance to the city and its residents. For the rest of the report and the rest of the findings on the DWP, please visit http://grandjury.co.la.ca.us/gjreports.html.

The Civil Grand Jury (CGJ) undertook an investigation of the Governance and Oversight of the Los Angeles Department of Water and Power (LADWP or Department). A major impetus for this review was the transfer discussion and public relations battle that took place among various Mayor's Office, Board of Commissioners (Commission), Los Angeles City Council (Council), Department, and International Brotherhood of Electrical Workers Local 18 (IBEW or Union) personnel in the spring of 2010. There were many additional issues that became apparent during the CGJ preliminary investigations that contributed to this focused investigation.

PURPOSE

The purpose of the review was to analyze four (4) distinct and separate areas of interest as identified by the CGJ. The project scope and objectives identified for this review are:

1. Review the governance structure of LADWP and potential associated costs of existing Succession Planning processes and practices.

2. Review Union involvement in LADWP policies, rates, etc. and contingency plans if workers strike. Describe Union involvement in City elections and campaigns.

3. Review rate setting and General Fund transfer events in the spring of 2010. Determine if sufficient and accurate information is being provided to City officials and the public to ensure transparency of LADWP's financial condition and to facilitate decision-making.

4. Determine whether the current ballot measure to provide a Public Ratepayer Advocate has the necessary oversight authority to warrant official support by the CGJ. (A decision has recently been made for the Public Rate Advocate issue to go before the voters. This Report was scheduled for completion prior to the election, there was consensus that this issue should only be reviewed in high level. Update: The Public Ratepayer Advocate measure presented to the voters passed on March 8, 2011 with a large majority.)

I. GOVERNANCE OF LADWP (INCLUDING EMPLOYEE TRANSFER AND SUCCESSION PLANNING)

SUMMARY

There is ample evidence that LADWP is treated more like a City Department, than as a stand-alone utility serving the ratepayers of the City. It is clear that political involvement of the city has had a negative impact to the efficient and effective management of the utility. Examples of this include:

1. Substantial Commission and General Manager turnover in the past ten (10) years.

2. Transfer of money from the Power section which is basically required by the City. While these are officially based on a "surplus," the amount is included in the Department's budget of the previous year. Only mismanagement by the Department or some extraneous event would cause the funds not to be available and transfers made.

3. Employees are transferred from the City to the Department to avoid City layoffs without adequately considering the financial ramifications to the Department or its pension system.

4. Various political requirements, including Executive Order 4 and Proposition 245, allow the Mayor and City Council greater control over the Department by having access to Department issues to make corrective actions.

5. Civil service within the City makes evaluations and promotion of personnel more in line with City structure than it would if the utility were to stand alone.

6. Political power and involvement of the Union representing the Department with elected City officials.

II. IBEW POLITICAL INVOLVEMENT

SUMMARY

The IBEW has substantial involvement in both the operations and governance of the Department and in the political issues facing the City. They achieve this by monetary political contributions and by involving their members into the political and governance processes.

In addition, there is a personal level of involvement between the IBEW Business Manager and the Mayor and other politicians. Although this involvement has been criticized as "heavy handed" by many in the City and the Department, it should be remembered that the Union representatives and management are only doing their job by watching out for their members.

Many of the people we interviewed felt that the Union's involvement may be too heavy handed or disruptive. It is the responsibility of City politicians and Department management to stop it.

III. CITY TRANSFER AND ECAF ISSUES

SUMMARY

The City has benefited substantially from the transfer of "surplus" funds from the DWP.

However, it was the "Transfer Issue" in the spring of 2010 that caused substantial concern among City politicians, DWP officials and the public. Over the past twelve (12) years, the City has received over $2.2 billion from the LADWP based on the City Transfer. The transfers of money from the Department to the City each year are basically required by the City and are based on an amount that has been budgeted by the Department rather than a determination of "surplus" funds.

The discussion of the Transfer Issue also caused many to question the rate setting process within the Council and specifically the components of Departmental rates, especially the Energy cost Adjustment Factor (ECAF) "rate," and the visibility/transparency of what is included in the various rates among ratepayers. The CGJ finds that the application of the ECAF rate may be convoluted and not a transparent process which, understandably, leads various constituencies to question its accuracy and appropriateness.

IV. RATEPAYER ADVOCATE ISSUES

SUMMARY

The strength of the ratepayer advocate measure is more a function of the future actions of the City Council, rather than the passage and implementation of the proposed measure. As important to what the ratepayer advocate will do are the issues that the ratepayer advocate should not do. It is not reasonable to assume that the existence of the ratepayer advocate will solve all of the various management, political or personnel deficiencies in existence at the

Department. It can and should, however, shine a light on current and projected future costs for programs proposed by the Department and/or political entities, and ensure that the rates being charged to the public are fair, prudent and affordable under existing economic conditions.

Summary of Report Findings and Recommendations

FINDINGS

1. The governance of the Department of Water and Power is distributed among several different groups including the Board of Water and Power Commissioners, the Mayor, the City Council, the City attorney and IBEW.

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2. There has been a significant turnover in both Commissioners and General Managers for the LADWP, especially in recent years, which diminishes the overall governance continuity.

3. There is a perception that political contributions rather than specialized skills or experience may play a primary part in the decision to appoint personnel to the Commission or other governance positions.

4. There are a variety of governance structures in place at other municipal utilities; there is no one structure that meets all needs.

5. Although there was originally some concern that personnel were taking higher paying jobs at LADWP for only a short time (pension spiking) in order to increase lifetime pensions, such does not appear to be the case. However, the number of transfers from the City to the Department may have a negative impact on the pensions for the Department.

6. Succession planning does not take place within LADWP to any meaningful extent.

7. The IBEW is very active in local and state elections, local and state legislation and in ongoing City politics. It also contributes substantial time and money to the election of City politicians, including various Council members, the Mayor and the City Attorney which potentially allows for a substantial amount of power in the day-to-day governance of the Department.

8. There is considerable belief that the unions are increasingly involved in the operations and management of the Department.

9. The public sector unions, especially IBEW, have been successful for their members by accomplishing a higher level of salary and benefits than other employee unions. This information is of concern to many ratepayers since it will increase the rates developed to pay for services.

10. The IBEW represents about 88% of all LADWP employees which is an unusually high percentage for utilities.

11. Although the LADWP and the IBEW engage in "mutual gains bargaining" through a Joint Labor Management Resolution Board (JRB), the bargaining results are reportedly more in favor of the Union. The number of grievances filed by the Union has not materially changed as a result of this process.

12. The LADWP is at risk by having a high percentage of essential personnel in the same Union and does not have a current "strike plan" to continue operations and serve the citizens of Los Angeles in case of a work action.

13. The Department has provided substantial funds to the City of Los Angeles in the form of Power and Water transfers for many years.

14. Although the Department had numerous reasons for not wanting to make the transfer without a rate increase that it felt it deserved, holding the City "hostage" under these circumstances was inappropriate since the Department had the cash to make the transfer, although they had it reserved for other uses.

15. The ECAF as currently constituted at LADWP contains several elements that typically would not be found in a Cost Adjustment Factor.

16. The current ECAF design does not provide for adequate oversight and transparency into long-term commitments made by the Department, particularly with respect to Renewable Portfolio Standard (RPS) and Demand Side Management (DSM).

17. The implementation of a Ratepayer Advocate at LADWP would be unusual in the municipal utility industry.

18. Some people believe that the impact of the Ratepayer Advocate ballot measure is minimized because other proposed Charter amendments were not approved for the same ballot.

RECOMMENDATIONS

1. LADWP's governance needs clarification and simplification. A stronger, independent Commission system is warranted.

2. Establish guidelines for Commissioner appointment and reduce the politics of appointment, real or perceived.

3. Expect LADWP Commissioners to serve full five-year terms.

4. Reduce the bureaucratic impact to the Department due to Mayoral or Council involvement.

5. The City and LADWP should come to an agreement to rescind the reciprocity agreement until such time as the number of employees transferred back and forth between the City and LADWP reaches equilibrium. Personnel should only be transferred as required by LADWP and then only with full financial contribution to the pension fund.

6. Fully staff and fund the Workforce Planning Group to encourage a full review of options for future LADWP employment and work with City Personnel Department and the Civil Service Office to allow some changes in hiring and promotional practices for high level essential jobs.

7. Determine if the current state of union/management relations is equitable and not favorable to one side at the expense of the other.

8. Immediately develop a confidential strike preparation plan and ensure that cross training and documentation of essential functions is included in the process and plan.

9. Take steps to ensure that this transfer problem doesn't happen again.

10. The CGJ agrees with the CCF Recommendation that a "new proposal for rate restructuring should be drafted and analyzed. One aspect of this proposal would be to split the current ECAF into several separate rate components. This will provide the Council (and the public) with greater visibility of LADWP's cost structure and of the justification for any rate increases."

11. Increase the transparency of the cost of each current ECAF item by showing the item and amount of the ratepayer bill.

12. Ensure that the Ratepayer Advocate's function is clearly defined and that the function is not captured by politicians or a bureaucracy that will stagnate their independence and ability.

13. Ensure that the public has primary input into the appointment of the Ratepayer Advocate. The "citizen's committee" should have ample representation from Neighborhood Councils and other citizen-based organizations.

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