Controller finds DWP misled the public when it threatened to withhold funds from city

Executives at the Los Angeles Department of Water and Power misled the public when they threatened to withhold $73.5 million from the city’s budget two months ago as part of their demand for a hike in electricity rates, City Controller Wendy Greuel said Thursday.

Greuel launched an examination of DWP accounts after the nation’s largest municipal utility refused to turn over the money April 5. That decision came after the council voted against a rate hike backed by Mayor Antonio Villaraigosa.

A report released by Greuel on Thursday dismissed the DWP’s reasons for refusing to make the transfer. Greuel said the utility would have had the money to make the $73.5 million transfer — considered vital to the city’s slumping treasury — even if it received no increase at all.

“The DWP’s actions unnecessarily plunged the city into a fiscal crisis,” said Greuel, standing in front of the agency’s downtown headquarters. “We never should have been held hostage” by the DWP, she added.

Greuel said the DWP also misled the council and Villaraigosa, who at one point issued a policy report saying the city would be plunged into bankruptcy without the transfer. Nevertheless, Greuel declined to say whether the DWP officials deliberately lied about the utility’s financial situation.

Villaraigosa, who selects the DWP board and the utility’s top executive, thanked Greuel for her report and said he wanted to make sure “situations like this will not happen again.” But his top appointee at the utility, DWP Interim General Manager Austin Beutner, questioned the findings, saying it may contain “several errors of fact.”

Beutner did not elaborate. But he pointed out that the next DWP transfer — which will reach $254 million and was proposed by Villaraigosa — equates to $5.22 per month for a typical residential power bill.

Beutner was Villaraigosa’s first deputy mayor throughout the three-month rate hike fight, staying silent on the proposed increase even though overseeing the DWP was part of his job portfolio.

The council ultimately approved a 4.8% electricity rate increase, which will go into effect July 1. Since then, Beutner has promised the council he would seek to minimize future rate increases by cutting spending and selling off surplus property. He said the utility is “moving forward, not looking back.”

This year’s standoff between the DWP, the mayor and the council left many in the public with the impression that city government was spinning out of control. Once the DWP threatened to withhold the transfer, Greuel sent a letter warning that the city was in danger of running out of money. That, in turn, prompted Villaraigosa to announce plans to shut down city government two days per week.

The mayor reversed course days later.

Greuel said the DWP’s actions contributed to a temporary downgrade in the city’s bond rating by Wall Street financial firms. She said the DWP did not need to have $300 million in its reserve fund, which was one of the utility’s arguments for blocking the transfer.

“It’s hard to look at these numbers and not say that the DWP was trying to extort the City Council into passing its proposed [rate] increase,” Greuel said in a statement.

Greuel stopped short of saying that anyone should be fired over the incident. But former DWP Board President Nick Patsaouras said the employees responsible for withholding the money should be disciplined to show that there are consequences for the utility’s actions.

The damage from that threat went beyond the city’s credit rating, said Patsaouras, who sued the agency over its refusal to make the transfer. “It hurt the city’s image worldwide,” he said.

Some business leaders took a different view, saying DWP officials should be allowed to move past the refusal to make the transfer.

“Should someone be fired for it? No, not at all,” said Stuart Waldman, president of the Valley Industry and Commerce Assn. “Any time you have a dispute between the council and the mayor, you’re going to have posturing.”

david.zahniser@latimes.com