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Los Angeles Daily News

Bureaucracy, Lack of Innovation Led to LA Blackout

Time to corporatize LA's Department of Water and Power

Adrian Moore
September 14, 2005

You'd think we would have learned something from the gigantic Northeast blackout that left 50 million Americans without electricity in 2003. But Monday's blackouts that left up to 2 million people around the Valley and Los Angeles without power shows just how archaic and inept the city-owned utility, the Los Angeles Department of Water and Power, has become.

The DWP is a relic, a remnant of many public utility dinosaurs created two centuries ago that came to their full during the Great Depression. What was "modern thinking" back then is now a bureaucracy built extensively on outdated, burdensome rules and regulations. Pick an adjective to describe a poorly functioning agency — politicized, inefficient, unresponsive — and you've described the DWP.

The city's municipal enterprise has shown a stunning lack of innovation and, even more worrisome, an inability to keep up with the industry's best and latest practices. Some leaders would say budgets are too tight - as if Californians and Angelenos don't pay enough taxes to enjoy modern electrical systems - or that the accidental cutting of power lines while attempting to upgrade the system is actually, somehow, a sign that the DWP is heading in the right direction because the blackouts didn't spread even further.

Wrong.

The DWP's absurd oversight system stifles innovation and lends itself to backroom deals and power plays that have long left city residents holding the bag.

The rest of the world has moved on from this outdated model of a power utility, and it is time that Los Angeles did, too. Most of the power in the United States is provided by private, investor-owned utilities, a model that has proven to be cost-effective and responsive to consumers. It is time to "corporatize" the DWP.

Corporatization - a model that has worked all over the world with national electric utilities, from Argentina to Australia and from Great Britain to New Zealand.

Corporatization means shifting the DWP from being a government department to an incorporated, for-profit business owned by the government. The city would set rules guarding against monopoly pricing and to ensure compliance with environmental mandates.

The new DWP would have a board of directors run by a strong chairman. Instead of living in the government's world of red tape, the new DWP would work and function under ordinary corporate law. It would pay the same taxes as any other business, including local property taxes to the municipalities where it has facilities. And, if it turned a profit, it would pay dividends to its shareholder, the city of Los Angeles.

But here's the key for taxpayers: If the DWP were operating as a business, management, budget and operating decisions would be based on serving customer needs directly, not serving political or special-interest needs. That means a new focus on reliability and quality.

Of course, as the owners of the DWP, the city needs, and would have, some ultimate means of accountability and oversight. The city would negotiate an annual policy statement with the board detailing specific performance measures that must be met. The CEO, in turn, would work out performance agreements for his management team, and so on, down the line. Everyone would be accountable and required to meet their goals - unlike in today's DWP.

What would taxpayers get from a shift to corporatization? Better service, modernized equipment and lower costs - thanks to streamlined operations and a changed corporate culture that comes with shedding bureaucracy.

We'd also get a DWP with greater overall productivity, a more predictable revenue stream for the city from annual property taxes and business taxes paid by the DWP, and dividends paid in profitable years.

Los Angeles should learn from this blackout. The writing is on the wall, and since the lights are back on, let's hope city officials can see that it is time to reform DWP.

Adrian Moore, Ph. D., is vice president of research at Reason Foundation.


Adrian Moore is Vice President, Policy


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