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DWP chief plans to hitch horses, 'pull this wagon out'

Wednesday, Feb 14 2001
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At the end of HIs first day on the job as California’s chief energy negotiator, S. David Freeman emerged from the gubernatorial suite in downtown L.A. uncharacteristically close-mouthed. Freeman, lionized as the man who saved L.A. from the energy crisis, had been tapped by the governor to work some of his magic for the state. Now, suit rumpled and shoulders slumped, he ducked his head and made for the door. It had clearly been a long, hard day, and Freeman wasn‘t talking.

At his insistence, an interview -- which had been arranged before he accepted his new post -- could not begin and photographs could not be taken until all parties were safely outside the Ronald Reagan Building, where the governor’s offices are housed. “My job now is to negotiate,” he said, bracing himself against the evening chill as the photographer grabbed a few hasty shots. “And a good negotiator keeps his mouth shut.”

A few blocks away, on Broadway, Freeman sought sanctuary from the cold at a McDonald‘s, where the sight of his white cowboy hat, shiny red tie and double-breasted suit drew more than a few stares from the largely Latino after-work crowd. Warming his hands around a cup of black coffee, Freeman checked his watch frequently and had little patience for questions with long lead-ins. He was tired and a little prickly. “What else you got for me?” he asked more than once in his a pronounced Tennessee twang. “I just don’t have time to be doing this right now. Every day the state is losing millions of dollars. We need to get at it.”

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In the weeks to come, the lines carved between his unruly eyebrows would crease a little deeper as Freeman, who recently celebrated his 75th birthday, reached agreements for power contracts totaling 5,000 megawatts and ranging from three to 10 years. Although that first round of negotiations is now over, Freeman, anticipating future deals, still declines to discuss his strategy, or to reveal the terms already reached.

But his mandate is clear: Lock in the best possible prices for the power that California needs. Power-industry observers appreciate the sensitivity of Freeman‘s task and his unique qualifications for the job. “The owners of power plants, given the profits they made this summer and last winter, have very high expectations for profit,” said Ed Smeloff, director of the Pace Law School energy project in White Plains, New York, and co-author of a book on electrical power. “This is a psychological showdown.”

The pressure is intense; hanging in the balance are billions of dollars and, quite possibly, the economic health of the state. “Dave has to make some of the parties feel that if they don’t cut their deal now, they will be left out of the California market,” said Smeloff, who worked with Freeman when he headed the Sacramento Municipal Utility District. “The problem is, generators know it‘s a tight market.”

It’s a formidable task, but so far Freeman has delivered. That‘s no surprise to anyone familiar with an extraordinary resume that includes service in four presidential administrations and leadership of five of the biggest public power companies in the country. Throughout a public-power career spanning five decades, Freeman has time and again demonstrated an unconventional but realistic approach to some of the most vexing public-policy issues of the day. He championed conservation when consumption was unquestioned, and, as head of the DWP, brought the same healthy skepticism to bear on the matter of deregulation that he had exercised decades earlier when confronted with the conundrum of nuclear power. Over time what has emerged is a man who is flexible, tough-minded, and unconcerned if his views don’t jibe with popular opinion.

That‘s good news for Californians, who are counting on this electric horseman to help bring the state back from the brink of its deepening energy debacle.

Simon David Freeman grew up in Chattanooga, one of two boys raised by Orthodox Jewish parents who had emigrated from Lithuania. The Freemans lived modestly -- Dad ran an umbrella-repair shop. But their heritage made the Freemans an oddity in the segregated South, and the alienation Dave felt engendered an enduring kinship with blacks. After a stint in the merchant marine during World War II, he worked briefly as a civil engineer, then went back to school for a law degree. Drawn to the social unrest all around him, he joined lunch-counter sit-ins and helped the NAACP craft civil rights strategy in East Tennessee.

When John F. Kennedy took the White House in 1960, Freeman headed straight for the Justice Department’s civil rights division, but was promptly rebuffed. As Freeman recalls it, Bobby Kennedy‘s chief of civil rights told the young lawyer that his Tennessee pedigree would turn Southern juries against him. Freeman later acknowledged that, at the time, “A white person with a Southern accent on the side of blacks just drew out special anger from these people.” The irony could not have been more pronounced: The Jew who had never quite fit in as a Southerner was now being rejected because he was.

Still, Freeman had his heart set on playing a role in the Kennedy administration, and he soon went to work for the chairman of the Federal Power Commission. In 1967, under Lyndon Johnson, Freeman became the nation’s first-ever coordinator of energy policy. Conducting the first analysis of U.S. energy spending, he found that 90 percent was going toward nuclear power and none toward conservation. As Freeman delved into the worlds of energy, the environment and national policy, he quickly concluded that whatever course the nation chose to pursue, it would ultimately fail without conservation. This simple truth, which Freeman helped push to the top of the national agenda, became the foundation of his life‘s work.

Freeman stayed in Washington under Richard Nixon, drafting the first-ever message on energy policy delivered by a U.S. president. He also worked behind the scenes on the creation of the Environmental Protection Agency, as well as the Clean Air and Clean Water acts, laws that remain the bedrock of national conservation. But Freeman had his greatest impact as an architect of Jimmy Carter’s energy policy. As the U.S. came to grips with the OPEC oil cartel, Freeman forged his own path, arguing that America squandered half the energy it produced. He also cautioned against too much reliance on nuclear power, which he believed could prove both costly and dangerous. He urged the country to turn to conservation, and to consider renewable resources such as the sun and the wind. “I know this sounds like I‘m bragging,” Freeman said recently, “but I put energy efficiency in the public-policy lexicon.”

Stewart L. Udall, secretary of the interior under Kennedy and Johnson, says that characterization is correct. Udall, now 81, worked closely with Freeman during that time, nearly 30 years ago. “One of the best things that came out of the Carter administration was the energy policy,” Udall said. “The best things in it were renewable energy. Dave was the one who saw this.”

By far the biggest policy challenge to emerge from that national energy conflux was nuclear power. Freeman was thrust into the center of the debate with his appointment in 1977 to the head of the Tennessee Valley Authority.

The assignment marked a turn in direction from policy to practice that would endure for a quarter-century and establish Freeman as the nation’s premier public-utility fix-it man. Perhaps more important, it was the first of several assignments that would set him directly at odds with the nation‘s love affair with nuclear power.

Shortly after his arrival at the TVA, Freeman learned that the construction of 14 nuclear plants was threatening to bankrupt the seven-state agency, and decided that eight of the plants needed to go. It was a wildly unpopular move. TVA plants had fueled the atom bomb, and there was even a high school football team called the Oak Ridge Bombers. But Freeman prevailed, compensating for the loss of potential power by launching a range of far-reaching conservation and alternative-energy programs, including home insulation and solar power.

Freeman’s next nuclear challenge came with his 1990 appointment to the Sacramento Municipal Utility District. The utility‘s Rancho Seco nuclear-power plant was an operational and economic disaster -- it was out of commission more than half the time and so costly to operate that rates were soaring as much as 25 percent per year. The year before Freeman arrived, voters had had enough. They barred SMUD from operating Rancho Seco.

Freeman dealt the final blow, closing Rancho Seco for good. He negotiated a 19-year decommissioning operation that meant no rate hikes for consumers, built three smaller cogeneration plants that relied on steam, solar and wind power to replace what was lost at the nuclear plant, and launched an aggressive energy-efficiency and conservation plan that over a decade saved enough energy to power a midsize plant. He persuaded hundreds of homeowners and businesses to install solar panels, making Sacramento the nation’s leader in solar power, a distinction it retains today. And he launched a generous incentive program for residents to replace their old refrigerators with newer, more efficient models. Ed Smeloff, who served on the SMUD board at the time, remembers that program well. “There‘s a photo of this huge parking lot at SMUD full of all these old refrigerators,” Smeloff said. “And there’s Dave, wearing his hat, sitting on top.”

Just as Freeman was planning to leave SMUD, he got a call from Mario Cuomo, whose New York Power Authority had its own nuclear-power problem. One of its reactors had been shut down for months because of safety concerns. In a move that was classic Freeman, he repaired and reopened the plant, surprising critics who had labeled him anti-nuclear. As Freeman would demonstrate time and again, he was no ideologue; he assessed the New York situation on its own merits, and when he saw that the energy could be tapped safely and economically, he concluded it was a plant worth saving.

No sooner had Freeman completed his New York assignment, patching up a bit of the nation‘s 20th-century power panacea, than he was called to California to help install the next century’s energy antidote.

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.

City Controller Rick Tuttle, an ardent Freeman fan, fought against it. The power crunch in San Diego was making him nervous. Wouldn’t it be more prudent for the city to hang on to the plant, ensuring that if times got lean, there would be enough power, and enough diversity of sources, to shore up the city‘s supply? “I was and still remain worried,” Tuttle said recently. “I think it was not wise to make that move.” In the end, with the help of Mayor Richard Riordan and the support of the council majority, Freeman carried the day.

In light of today’s soaring natural-gas prices and the deepening severity of the energy shortage, this is one Freeman deal that, arguably, has not weathered well. When pressed to respond to Tuttle‘s opposition to the project, Freeman bristled. “I fought in World War II for Rick’s right to be wrong,” he said. “The decision was made on a number of points, but the decision was made. If I spent my time fretting over yesterday and last week and last year, nothing would ever get done.”

As it turns out, the sale has been held up by the state because of concerns over the Edison part of the package. Tuttle, seeing the slimmest of opportunities for a reprieve, has written to the state‘s Public Utilities Commission, urging it to hold off on approving the deal until the energy crisis is resolved.

From the earliest days of his public-power career, Dave Freeman had no intention of becoming just another gray-suited number cruncher. Though he was well-practiced at running power utilities, he was never just a manager. He had a vision for conservation and renewable energy, and he was better versed on the subjects than just about anybody. Never one to shy away from the spotlight, he sought out politicians and other public figures, both because he liked being around them and because he knew they could play a critical role in helping him advance his agenda.

While in Washington, he befriended many leading activists and Democratic politicians of the day, including Walter Mondale, Edward Kennedy, and Ralph Nader, who later called him “a most remarkable man.”

During his tenure at the Sacramento Municipal Utility District, Freeman forged deep bonds with many of California’s Democratic heavy hitters, from major party contributors such as real estate developer and (later) Lincoln-bedroom snoozer Angelo Tsakopoulos, to nascent politico Phil Angelides, who at the time was a realtor and head of the state Democratic Party. Freeman‘s then-wife, Suzanne, worked for Angelides as head of the statewide get-out-the-vote drive, and the couple threw themselves into Sacramento charities and civic causes. That Freeman was on a first-name basis with presidential hopeful Bill Clinton only added to his cachet, and he and Suzanne quickly became the toast of the Sacramento Democratic circuit.

Freeman had less success transforming his social ties into political appointments. While at SMUD, he was passed over for a spot in the Clinton White House; he had previously been under consideration for a post in the doomed Dukakis regime. Still, he was itching to be near the action.

On January 1, 2000, Freeman took a leave from his job as head of the DWP to run for the state Assembly, setting his sights on the Santa Monica--to--West Valley district being vacated by Sheila Kuehl. In this era of term limits, the chance to get elected and quickly ascend to the leadership appealed to him. “I’m basically an unabashed, old-fashioned liberal,” he said at the time. “In my heart I‘m just kind of a rabble-rouser. I’ve had to behave myself for a long, long time, and it‘s time for me to get back into public service.”

Freeman ran a good race, but his lack of connection to the community proved a liability. He lost to Fran Pavley, a middle school teacher who’d served four terms as mayor and councilwoman in Agoura Hills.

Perhaps the most notable thing about that campaign was the contributions Freeman received. The single largest donation, $40,000, came from Sacramento developer Angelo Tsakopoulos. But some $68,000, nearly one-fourth of Freeman‘s total campaign contributions, came from donors with a clear connection to the electric-power industry. These included PG&E, Edison, the DWP, and Jan Smutny-Jones, at that time head of the ISO. He also recieved $7,500 form the CEO of Enron, one of the very companies he is negotiating with now. Freeman says that those contributions were friendship-based, had no bearing on his work, and were inevitable, given his long career in the field. Certainly the fact that Freeman received donations from parties on all sides of the current energy-crisis tangle lends credence to his claims of no conflict.

Dave Freeman isn’t really a cowboy. Not of the “Git along, little dogies” variety anyway. He started wearing the hat about 10 years ago to protect his skin from the sun and still dons it each morning, as much for its symbolic force as for any shade it provides. During the heat of the ongoing electricity negotiations he is refusing all interviews, but periodically allows camera crews and still photographers to capture his image at work.

Were Freeman to try every hat trick in the book, it still wouldn‘t get the power here any quicker -- much of the electricity he has secured will not be available for months or years, until current obligations are fulfilled or new plants built. Such contracts are merely a stopgap measure; in the best-case scenario, they would provide less than one-third of the power California needs.

As for a long-term solution, state lawmakers are battling over that now. At the moment, there are two proposals on the table. The one favored by the governor and Assembly Speaker Bob Hertzberg (D--Sherman Oaks) entails bailing out PG&E and Edison in exchange for stock options, a notion that is anathema to some leading Democrats, as well as to consumer groups who feel that the tottering utilities should not be let off the hook so easily. The other proposal, put forward by Senator John Burton (D--San Francisco), is essentially a two-part plan that would entail buying the major utilities’ transmission lines, which account for 60 percent of the statewide total, and then creating a statewide power authority.

The line takeover would provide a middle-term solution, giving the state some control over the flow of electricity, which, in the wake of reports that providers are capitalizing on “power pockets” and gridlock, looks to be nearly as important as the actual supply. (In recent days the governor appears to be warming to this idea.) The long-term answer -- the statewide authority -- would enable the state to build and operate its own power plants, thereby insulating consumers from the whims of the market.

Opponents of the statewide authority argue that it smacks of socialism, and indeed it would be the nation‘s first new public-power agency in decades, bucking the national trend toward increased privatization of essential public services. But one of the bill’s advocates, state Treasurer Phil Angelides, argues that it is the only way to ensure that such a crisis never occurs again. “Is energy purely a commodity, or, as I believe, something so elemental to our needs that we need to view it differently?” he said. “The truth of the matter is that private power is investment-driven, not driven by the public interest. We ought to have a clinical understanding of what the private market can do well, and what it can‘t do well we ought to do for ourselves.”

And who would head such an authority? The man in the white cowboy hat springs to mind. Freeman, in fact, helped pen the legislation, which also includes a provision for investment in energy efficiency. “I don’t think there‘s anybody in the country better qualified,” said Stewart Udall, who now practices environmental law in Santa Fe. “I think that is the way California has got to go. You made an incredible mistake out there, and you’ve got to get it back on track. There‘s got to be state leadership. If the state doesn’t do it, you‘re in trouble.”

So here stands Freeman, three-quarters of a century into his own life, and within spitting distance of the chance to bring the grand tradition of public-works projects -- and his own conservation vision -- into the 21st century. Repair, conserve. His lifelong mandate writ large.

Yet when asked about his current and future plans, Freeman is circumspect. He gives the impression that he’s winding down, though he may just be playing it close to the vest.

In recent years, he‘s undergone a quadruple bypass and cataract surgery, and he jokes about his age. At his recent 75th-birthday party, he gave each of his nine grandchildren $75. “My 9-year-old grandson asked me, ’Next year are you gonna give us each $76?‘ and I said, ’I sure am.‘ And he said, ’I hope you‘re still alive.’”

But if the authority does go forward and Freeman is offered the helm, how could he resist the biggest challenge of his long and eventful public-power career: establishing a public agency that could pull the state out of the current crisis and create a legacy for decades to come. Or as Freeman puts it, “Let‘s hitch up a few more horses and get this wagon out of the mud.”

Research assistance by Christine Pelisek

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