Water Brought L.A. Together; Electricity Could Keep It Intact

Present-day Los Angeles was created by the need for water. The city had it, and others joined to get it. Talk of secession presumes that, somehow, access would continue.

But there hasn’t been much conversation about the other side of the equation involving the city’s powerful Department of Water and Power. If water brought the city together, it may turn out that electricity holds it together.

The DWP is a beacon of light in California at the moment. While 70% of California gets its energy from private utilities at increasingly high costs, our publicly owned utility opted out of deregulation and is making a good deal of money for the city selling our excess on the state market.

Ratepayers in Los Angeles can expect reductions. Ratepayers outside of L.A. are expecting significant increases.

What would happen if the San Fernando Valley seceded from Los Angeles? Would it be forced onto the open, deregulated market? Would it take its share of the DWP’s electricity production? Would it succeed in staying a partner with the DWP through a joint powers agreement?

One reason energy has not been part of the discussion is that deregulation of the electricity industry was assumed to lead to competition for customers who could buy energy anywhere, bargaining for the cheapest price.

The failure of deregulation is that, with the generation capacity squeeze, market prices rose with demand rather than fell. The reasons for the decline of reserve generating capacity are many: growth in the economy and population; the fact that some plants were off line for repair at an unfortunate time; the sale of their own generating plants by the private utilities to get into the deregulated market. All these factors resulted in the loss of control of generation that left utilities at the mercy of those who have not been shy about taking full advantage. The DWP, on the other hand, controls its generation and has more than a sufficient supply.

Business depends on reliable, low-cost energy. Secession advocates argue that a Valley city would be taken care of, but not only might questions not be answered before a vote, they might not be resolved afterward, if a joint powers agreement could not be worked out.

Although both water and power could be purchased from the DWP--or from other providers (the Metropolitan Water District might be able to supply the Valley)--one of the important issues of secession is neutrality, the requirement that neither the city nor any seceding part suffer economic loss because of separation. The Valley uses more water per capita than the rest of the city but pays only a slightly higher bill because part of its use is subsidized by the other side of the hill, where the lawns are smaller. It uses less electricity per capita than, say, the Harbor area because it is largely residential. But water and power don’t balance each other out when it comes to revenue. About 80% of DWP income comes from the electricity side, with some now coming from sales outside the city. Now, 5% of DWP’s profit is returned to the general fund--averaging more than $100 million a year. With differential use and differential value of these two basic resources, how would that profit be distributed between two cities?

*

When the secession movement started a few years ago, rosy pictures were easy to draw. Why couldn’t the Valley be like Burbank or Santa Monica? The sense of frustration at declining services was felt profoundly.

There were explanations for declining services, but no one addressed the sense of alienation and the belief that someone else was getting a bigger piece of the pie. Most of all, there was little concern about the complications of setting up a separate city because others had: Malibu and West Hollywood most prominently.

The problem, of course, with comparing the Valley to Malibu and West Hollywood is that they were never part of Los Angeles. They did not secede; they incorporated from unincorporated county territory. Laws have been changed in Sacramento to make secession more feasible, but even so, the Valley, Harbor area and Hollywood would have to go through a process of disconnecting from Los Angeles that these incorporating cities did not face. Electricity is a case in point. The only thing that can be said with certainty about the state’s energy crisis is that the solution is unknown. We are in unchartered energy territory.

Will Valley residents want to take the risk that they might lose out in a joint powers agreement that wouldn’t even be negotiated until after a vote on secession?

Even if they were willing to take the risk, if secession must be economically neutral--affecting neither party adversely--the uncertain economics of electricity may have a profound effect on that neutrality.