District Memo Criticizes Air-Conditioning Plan

A proposal by a utilities consortium to speed up air-conditioning work on Los Angeles Unified School District campuses was described as too expensive and ill-advised in an internal district memorandum obtained by The Times on Monday.

The Energy Alliance deal pushed by Mayor Richard Riordan looked promising on its face, vowing to bring air-conditioning to 301 schools within 15 months--a fraction of the time it would take the district to contract out individual projects.

As outlined in a 38-page report submitted to the district two weeks ago, the proposal calls for the district to pay a 15% management fee and the estimated $193-million cost for the installation, which will be funded by the $2.4-billion Proposition BB school bond approved by voters in April.

But the district’s Internal Analysis Unit said the cost and trade-offs would be unreasonable, particularly because the plan would lock the district into utility rates just months before deregulation could radically reduce those costs. The Energy Alliance is a consortium of the city Department of Water and Power and Energy Pacific, which includes the parent companies of San Diego Gas & Electric and The Gas Co.

The memo by analysis unit Director Roger Rasmussen particularly homed in on the management fee, saying the industry norm is between 3% and 5%.

Rasmussen also questioned the advocacy of Steven Soboroff, who plays the dual role of Riordan’s senior advisor and chairman of the school district oversight committee that would advise the school on whether to spend bond money on the air-conditioning proposal.

“We are also concerned about the climate in which negotiations are being conducted,” Rasmussen wrote. “Mr. Soboroff, in his capacity as chairman of the BB Oversight Committee, is actively promoting this agreement, even though the Department of Water and Power (a department of the city of Los Angeles) has a financial interest in the outcome.”

Soboroff, reached by phone, said the criticism was unfair and based on a lack of complete understanding of either the proposal or his role in it, noting that he has just as fervently pushed to seek competitive air-conditioning bids.

He and Riordan are simply “taking a position on the concept, not the player,” he said. “What I’m promoting is getting schools cooler, quicker and cheaper. Whether the Energy Alliance gets it or another firm gets it doesn’t matter to us.”

Furthermore, Soboroff said the memo appears to be a rationale for sticking with an old system that he believes has rewarded many contractors who “overcharge and underperform.”

But Soboroff has been closely involved with the deal from the beginning, first bringing it to the media’s attention and last month participating in a closed-door meeting between members of the Energy Alliance and Ruben Zacarias, who took office as superintendent last week.

Zacarias said Monday that at the mid-June meeting he asked many of the questions included in Rasmussen’s memo. He described them as points of negotiation rather than deal-killers, saying he remained optimistic that an amended version of the proposal might eventually secure school board support.

“It raises some questions that need to be answered,” he said. “I’m still gung-ho. . . . But we still have to be responsible to the taxpayers.”

Newly elected board President Julie Korenstein, who represents schools in some of the hottest San Fernando Valley neighborhoods, called Rasmussen’s memo “very alarming.”

“I’m torn, of course, because we want that air-conditioning in this year,” Korenstein said. “But I have very grave concerns. . . . All of a sudden there was this group of people being pushed by the mayor. But I want to know, who are these people and why are they so excited about this?”

Mike Mizrahi, a spokesman for Energy Pacific, one member of the alliance, said Rasmussen must have misunderstood the calculations in the proposal.

The 15% management fee would be a part of the district’s proposed budget of $193 million, not an addition to it as the memo states, Mizrahi said. Three years of energy credits would reduce that total by $7.5 million, he said.

“The equation should read $193 million minus $7.5 million, which equals $185.5 million,” Mizrahi said.

Rasmussen defended his calculations, which he said were based on the statement in the proposal that the district would pay “cost plus a 15% fee on all project management, design, equipment and installation costs.”

“If they’re saying they could do the work for the cost that we expect to spend, then that would be a different proposal, and certainly that would be worth looking at,” he said.

He also pointed out that the report was inconsistent on whether subcontractors would be competitively bid, saying first that they would, but later adding that “if time or definition of scope does not permit” a selection would be made “based on past experience and expressed commitment.”

But Mizrahi said the proposal calls for competitive bids on all subcontracting.

Despite Rasmussen’s critique, Mizrahi said the alliance will continue with the mutually agreed-upon 30-day analysis of campuses to verify that the district’s cost estimates are correct.

“From that point it’s going to be up to the district to move ahead with our proposal, or to look at some other avenue,” he said.

With regard to the concern about being locked into above-market rates, Ned Bassin, energy manager for the alliance, said the alliance wants to give the district an escape clause. “We think we will be competitively priced. If we’re not, they’re free to go elsewhere.”