Shock Therapy

There's been one big winner in California's much-reviled, phony electricity deregulation plan: Los Angeles' publicly owned Department of Water and Power. Since the state restructured its electricity markets in 1996, the DWP has raked in hundreds of millions of dollars by selling excess power to juice-thirsty private utilities. Just since January, reports the Los Angeles Daily News, the DWP has earned more than $100 million through such sales.

The deal works like this: When California passed "deregulation," public utilities retained their various perks, including the right to buy heavily subsidized hydroelectric power from the federal government. So the publicly minded fellows at the DWP purchased loads of cheap, subsidized power, marked up the price—sometimes by as much as 10 times the original cost—and then resold it to private utilities.

Those massive profits tell only part of the story of the DWP's good fortune. Thanks to deregulation, the utility's reputation has gone from public laughingstock to public power exemplar. Five years ago, long before California was famous for regular rolling blackouts, the public utility was mired in debt totaling about $8 billion, far higher than the national average for public or private utilities. According to its own press releases, the DWP had the "largest workforce per kilowatt-hour" in the industry, meaning it was woefully inefficient at generating electricity. All it had going for it was its state-mandated monopoly.

When deregulation passed, it brought with it the threat of competition with private providers. That was enough to promote big change at the lackluster utility. In 1997, the city hired a new general manager, David Freeman, to turn things around. By April 2000, Freeman had paid off more than $2 billion of the utility's debt. How? By doing what private companies do to improve the bottom line: laying off workers, selling property, and cutting costs. And, of course, by selling high-priced power to the rest of the state. "Just two and one half years ago the very survival of this utility was uncertain," said Freeman at a May press conference held at the utility's downtown headquarters.

A cheery Los Angeles Times op-ed in late April informed readers that "Kilowatt socialism saved L.A. from the energy crisis." Not exactly, comrade: It turns out the energy crisis saved a socialist utility.