By Hillel Aron
By Joseph Tsidulko
By Patrick Range McDonald
By David Futch
By Hillel Aron
By Dennis Romero
By Jill Stewart
By Dennis Romero
For years, the California electricity market had grown increasingly sluggish. Power plants were not being built, and prices were creeping up. In a unanimous vote, state legislators enacted what they thought a sure-fire plan to invigorate the market and drive rates down. In a word, deregulation.
Two key components of the new law were the Independent System Operator (ISO), which would function as the transmission grid for the state, and the state Power Exchange, which would buy and sell this freshly liberated electricity. It was late 1996, five months before these entities were supposed to be operational, but the process had stalled.
The chairmen of California‘s Public Utilities Commission and the California Energy Commission, along with a top aide to then-Governor Pete Wilson, picked up the phone and made a conference call to Freeman. Would he get the deregulation ball rolling?
Freeman was happy to oblige. Working as interim trustee, he hired a law firm, got the paperwork in order, secured computers and software, and made the required federal filing. By the fall of 1997, the Folsom and Pasadena-based entities that would form the cornerstone of California deregulation were up and running.
It was around that time that Freeman, always on the lookout for utilities in a fix, learned about L.A.’s troubled Department of Water and Power. The DWP was the nation‘s largest municipal utility, presiding over some 6,000 megawatts of power and employing nearly 9,000 workers, a substantial number of them engineers and laborers left over from the long-gone days when the department was still designing and building new plants. The agency had also amassed a whopping $4.1 billion in debt.
In the new world of deregulation, the presumption was that the DWP would be parceled off and sold in pieces to the highest bidder. One likely buyer was DukeLouis Dreyfus, a Connecticut-based outfit that generates and markets electricity. According to Freeman, Dreyfus already had its people stationed in the DWP’s Sunland control towers, the heart of the department‘s operation. “They had a deal in which they were going to be a strategic partner,” Freeman said. “But they really wanted to take over the generating capacity.”
As ISO trustee, Freeman had made deals like the Dreyfus buyout possible. But in the case of the DWP, he saw only trouble. “When I read about this, I thought it was an awful idea,” Freeman recalled. He asked a friend to arrange lunch with L.A. Councilwoman Ruth Galanter, who was so impressed with what he had to say that she talked to the mayor, and the City Council offered Freeman the DWP’s top job. He accepted, on one condition. “I told them I wouldn‘t take it unless they killed that deal” with DukeLouis Dreyfus, Freeman said. “I believed in deregulation, but still, I was cautious. A person can think somethin’ new is a pretty good idea and still have enough horse sense to figure out that it may or may not work out.”
One of Freeman‘s first acts was to force 2,000 workers to take a company buyout, a move that saved the agency $80 million per year and gained the DWP plenty of good press (he retains an outside public-relations firm), but that left the unions feeling betrayed. They contend that since the buyouts, the DWP has spent more than was saved on replacement workers hired as consultants. Freeman counters that spending on consultants has not greatly increased since the buyout.
But the bulk of the cash that has paid down the debt, which has dropped by two-thirds, to $1.4 billion, has come not from a smaller payroll but from the DWP’s sale of excess power on the spot market. In the last 18 months, the DWP has netted more than $200 million selling electricity to the very same state Power Exchange that Freeman helped launch.
That the DWP has extra power to sell is also Freeman‘s doing. Soon after his arrival, he amped up production, adding 1,000 megawatts to the agency’s capacity a -- in the current market, pure gold. “We‘re not exactly bad business people,” Freeman said. “We’re running a public enterprise efficiently.”
Even as Freeman whipped the DWP into financial shape, he worked on bringing the agency up to speed with his conservation vision. He established the Cool Schools Program to plant trees at L.A. schools and cut down on air conditioning, and he launched the Green Power Program, which enables consumers to pay slightly higher rates for energy from solar, geothermal and wind.
But recently, Freeman may have pushed his quest for conservation too far. In August, he asked the City Council to approve the sale of the DWP‘s 20 percent share in the Mojave coal plant in Nevada to AES, a Virginia-based power marketer. The majority share in the plant was owned by Southern California Edison, which had already agreed to sell. Freeman saw the move as a first step away from coal, the dirtiest of all fossil fuels and the source of 60 percent of DWP electricity.
The plant was one of the most polluting in the West -- as part of a deal cut with environmentalists, costly new scrubbers would have to be installed, and it wasn’t clear if the aging plant would even be operational long enough to make that expense worthwhile. “It‘s kind of like putting a clean dress on a dirty body,” Freeman said. “It only does so much.” He argued that the city should unload the plant while prices were good and invest the proceeds in cleaner capacity.