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The Lid Comes Off

Photo by Debra DiPaolo

The International Brotherhood of Electrical Workers Local 18, headed by business manager Brian D’Arcy, is leading the Department of Water and Power toward moral and fiscal disaster, according to a "for your eyes only" memo sent to Mayor Jim Hahn by a top DWP official.

In the six-page memo obtained by the Weekly under the state Public Records Act, DWP Assistant General Manager Mahmud Chaudhry warns Hahn that those who would stop the pillaging of the nation’s largest public utility are powerless to act in the face of "the union’s ability to affect the lives and careers of top managers, the implicit threat of strike and Local 18’s influence on politicians running for office or re-election." Since last summer, DWP’s problems have been the subject of ongoing City Council reviews.

"The DWP has become a fox-run henhouse of epic proportion," Chaudhry writes. "The union now runs the department. They blur the line between . . . bargaining and criminal extortion."

The memo describes Local 18, which represents 98 percent of the DWP’s 8,000 workers, as a relentless bully, prone to manipulating the selection and decision-making of top managers and punishing those who resist, while extracting vast concessions for its members, who already earn more than other unionized city workers. It points to pay raises far exceeding the rate of inflation, "outlandish applications of benefits that spring up overnight" and contracting entities funded with public dollars but controlled by the union with no public accountability.

"By choosing union peace at any price, DWP leadership finds itself paying an exorbitant price," writes Chaudhry, formerly in charge of DWP’s largest power unit and now director of customer service. "Anxious to avoid conflict, management finally relinquished the duty — and with it the power — to exert control. With no one minding the store, it may be a matter of time before the union’s extreme bargaining advantage begins to impact the annual [revenue] transfer to the city."

Chaudhry, in the September 16 memo, urges the mayor to amend the City Charter to restore executive positions to civil-service status, institute mandatory annual performance evaluations and take steps to protect the city’s water and power supply against a strike. He claims that former general manager David Wiggs and acting general manager at the time, Henry Martinez, were beholden to Local 18, which had secured appointments for them based on union preference unrelated to performance or ability. "Favorite sons are protected from the consequences of their misdeeds, while rank and file see how well union cronies are treated," Chaudhry writes. "Conscientious managers are despised by the union, and tormented daily with false accusations, ridicule and personal attack. Those who associate with them can expect the same fate. Others soon equate ethical management with relentless retribution that can only be alleviated by vowing allegiance to Local 18." Wiggs and Martinez could not be reached for comment.

Five weeks after receiving the memo, Hahn acknowledged "a change in corporate culture" was needed and tapped former city legislative analyst Ron Deaton to lead the troubled DWP. The mayor’s choice of Deaton, considered the most influential person in City Hall, infuriated D’Arcy, the union boss, who sources say was boasting he could stop it from happening. Now the two are headed for a power struggle. "People are nervous about choosing one side or the other," said one official, who added that D’Arcy is still calling the shots at DWP. Deaton, recently diagnosed with cancer, took a two-week leave of absence but was back at work this week. Neither he nor D’Arcy returned calls for comment. But sources say Deaton, who has declined to meet privately with D’Arcy, as previous DWP managers had every Monday at Taylor’s Steak House, is troubled by D’Arcy’s rise over the last 10 years. It is during that period that the utility has had persistent labor-relation problems, including lawsuits alleging retaliation and intimidation by managers favorable to Local 18, and an erosion of management’s ability to say no to the volatile labor boss.

An example of unchecked bargaining power, Chaudhry writes, is the three-year, retroactive pay raise for Local 18, calling for 5 percent, 4 percent and 4 percent annual increases, despite the lowest inflation rate in 15 years. Retention bonuses offered to skilled line workers during the 1998 Staff Reduction Program were later given to unskilled workers, who received 14 percent raises in their first year. After citing a 60 percent increase in the price of tools, Local 18 received a 300 percent increase in tool allowance, Chaudhry writes. Allowed to handpick management members of the Joint Resolution Board, which approves contracts under the joint labor-management process, Local 18 struck a deal with Martinez, acting alone, to exclude managers in charge of the most labor-intensive units, which typically have the most complaints. Finally, he urges Hahn to demonstrate moral leadership worthy of a second term, and to disabuse Local 18 of the notion that it can exploit the bargaining process at the public’s expense.

 

Hahn would not comment, but his chief of staff, Tim McKosker, tried to downplay the memo: "This complaint seems to be about some objection to the rights of working men and women to organize and bargain at arm’s length for better wages and benefits." In response to questions about the memo’s allegations that go beyond customary union bargaining tactics, McKosker said, "We support the rights of working men and women to organize and bargain at arm’s length for better wages and benefits."

The Fleishman-Hillard scandal and a criminal probe into pay-to-play at City Hall have bogged down the Hahn campaign. Amid that turmoil the DWP’s proposed 18 percent rate hike has endured as a symbol of government waste at ratepayer expense. Spurred by resistance from the city’s neighborhood councils, the City Council approved an 11 percent increase, but the image of a ravenous public utility lingers. In the last three years the DWP has been the subject of several scathing audits by the city controller. DWP supply contracts have been held up in City Council and found to be out of compliance. However, no public official, agency or mayoral candidate has publicly questioned or examined Local 18’s role in running the city’s dysfunctional cash cow, which transferred $239 million to the city’s general fund last year, while demanding a rate hike. And yet, the open secret in City Hall for years has been the intemperate, demanding and dominating presence of Brian D’Arcy. "There’s a mindset that if you mess with Brian, the mayor will come down on you," says one city official. "Once that idea was out here, the mayor’s staff let it grow. It has resulted in arrogance on Brian’s part. Or greed. Maybe he just keeps asking for more because he knows he can get away with it."

Most of Hahn’s challengers had little to say about allegations that Local 18 is out of control. Councilman Antonio Villaraigosa, a longtime ally of D’Arcy’s, and whom Local 18 backed in the 2001 mayor’s race, did not return calls for comment. Nor did Bob Hertzberg. State Senator Richard Alarcón, who has based his campaign on reform of local government, seemed unconcerned. "Doesn’t management always make these kinds of complaints?" he said. Councilman Bernard Parks, who said the memo is evidence of serious problems at the DWP, called for an independent Inspector General to oversee the DWP. He also wants a full audit of all DWP expenditures. Local 18’s manipulation of the DWP "is not the exception, it’s the rule," he said. "Public unions carry such clout only when the mayor gives up some of his power," Parks said.

As an example of gains that could not be justified, Parks and others pointed to a pay hike for dozens of employees after Local 18 took over the DWP’s members of the Engineers and Architects Association. The remaining EAA members who work for other city agencies still don’t have a contract, union sources say. "It was the worst $5 million the city ever spent," said Parks, who voted against the raise along with Councilman Greig Smith. "There was no discussion by the City Council. People in City Hall have allowed union leaders to believe they are in charge of the city."

Higher DWP salaries for comparable workers — justified on the basis that the DWP is a revenue-generating department — has irked city employees for years, according to Julie Butcher, head of Service Employees Union Local 347. Warehouse and tool-room workers at the DWP start out around $40,000, she said, which is where her members top out. Maintenance workers, for example, earn salaries 20 percent higher at DWP than in other city departments. Mechanics earn 19 percent more. "Anything I say sounds like jealousy, but if you take the revenue-generating argument to its logical limit, it says that people who don’t work for an agency that collects money deserve less," she said.

City officials, including Hahn, are no strangers to the issues raised by the Chaudhry memo. Yet it provides the public with its first look at the deep concerns inside the front office of the DWP. Historically the DWP has remained aloof, almost secretive, in managing its internal problems. Last July, an exposé by the Weekly revealed a 10-year pattern of secret settlements in discrimination, harassment and retaliation lawsuits negotiated by the City Attorney’s Office and its outside attorneys, and approved by the DWP Board of Commissioners. Since then DWP workers from security, fleet operations, central purchasing and janitorial services have persistently voiced concerns of abuse and corruption, some appearing before the City Council and the Commerce, Energy and Natural Resources Committee headed by Councilman Tony Cardenas. Council members Cindy Miscikowski, Wendy Greuel and Dennis Zine have introduced a motion to address retaliation and harassment, which is pending.

 

Cardenas has attempted, with limited success, to resolve irregularities in an exclusive cleaning supply contract that has resulted in retaliation against DWP workers who complained, but which Martinez nevertheless extended, days before Deaton took over. Deaton suspended the exclusive contract with Empire Cleaning Supply, but only after Cardenas challenged the DWP’s integrity in the Commerce Committee. On Tuesday Cardenas acknowledged the looming power struggle between Deaton and D’Arcy: "There are reforms that have to take place from top to bottom and some of those will cause conflict between Ron and Brian. As chairman, I have a responsibility to sort those conflicts out in my committee."

Meantime, workers continue to publicly state their fears that Local 18 will not represent them vigorously when they call attention to mistreatment by "favorite sons" of the union and are then punished by management. Some say their union representative sided with management and testified against them at Civil Service hearings. "People don’t trust Local 18," says a custodian who has been threatened with being fired. "But they’re afraid to go against it."

Local 18 has spent $34,000 on city elections since 1998 but its influence isn’t about the money, a City Hall insider says. With each stage in the DWP’s rocky history, managers have ceded more power to D’Arcy. But sources say his style is wearing thin, both on the DWP Board of Commissioners and in City Hall. He is still favored by Miguel Contreras, president of the County Federation of Labor, however, and therefore elected officials step lightly where D’Arcy is concerned. Sources familiar with him say he believes the DWP can run itself — but Deaton is said to see things differently. Last October, Local 18 negotiated a 5 percent raise for line workers who ended up earning more than their supervisors. After a sickout protest by a group of supervisors, D’Arcy joked, "We hardly knew they were gone." Chaudhry in his memo to Hahn concludes, "If the union believes that it cannot be stopped, it will never stop pushing the envelope to see what more can be ‘mutually gained’ at the city’s, the department’s and the public’s expense."

Last Friday Councilman Parks criticized the writing of the memo itself, declaring it a symptom of the politicization of the DWP. He praised the selection of Deaton, adding that Deaton cannot turn the DWP around by himself. "He needs the support of the mayor and an independent board of commissioners, otherwise it is business as usual with a happy face on it," Parks said. "Deaton is not corrupt. But if he cannot get the job done, he has to come before the mayor or the city council and ask for support. A clear message must be sent about what is appropriate and what is not." As for Local 18’s means of intimidation cited by Chaudhry in his memo, Parks said the general manager cannot compromise the DWP under threat of strike, and that discrediting managers who speak up in the face of departmental excess is a cowardly way to manage. "We’ve been unveiling leaf after leaf under the Hahn administration for the last year and a half," he said.

Local 18 is a dominant force in the day-to-day operations at DWP. D’Arcy’s staff attends virtually every meeting concerning DWP operations, according to sources at the DWP and in City Hall. He controls requests for proposals, which bottleneck at his desk, sources say, and Local 18 controls the joint labor-management process. The result has been a fierce protection of union jobs when major city contracts are at stake, such as the $238 million project to replace the Valley Generating Station, put on hold in 2001 when D’Arcy threatened to take the city to arbitration. Yet D’Arcy insists on contracting out services, such as a $53 million contract for tree trimming, which other city workers could perform, and perform cheaper; and oversees two contracting entities that control millions of public dollars, which meet in private and have received no oversight.

Veteran DWP workers say the joint labor-management agreement, which grants the union immense power, is intended to promote efficiency and protect jobs, but has devolved into an unexamined tool of control for D’Arcy. They point to an agreement in May 2002, signed by the DWP and Local 18, guaranteeing fair pay for civil-service employees who work above their classification. Numerous employees alleged retaliation when they demanded higher wages, however. The joint process also created the Joint Safety Institute, funded by the DWP since 2000 at a rate of $1.3 million per year. In 2002, a $6 million trust was created to fund the Joint Training Institute, which leases space for an operation in Sun Valley that executives at DWP reportedly know little about. A veteran employee who has visited the facility says the JSI consists of "two consultants from out of state who keep offering the same seminar over and over, simply changing the tabs on their binders." JTI, the employee says, has produced no recognizable program of any value. Little is known about the JSI and the JTI because they are exempt from public meeting laws according to an Attorney General opinion. The City Council has never asked for a report on the two institutes, although DWP insiders say there has been no rise or fall in workplace injuries, raising questions about their effectiveness. "Why not meet in public?" asks Butcher, whose members meet openly as part of a citywide Joint Labor Management Benefits Committee. "DWP is a public entity."

 

Under the joint labor-management process, Local 18 contracted out the construction of a fuel-cell power plant in 2000 for $2.5 million, but employees say it produces just $150,000 per year in savings. "DWP is paying for someone else’s research and development," an employee says. Local 18 also is restructuring health benefits, workers’ compensation and deferred compensation, according to department insiders. It has called for the termination of a 25-year-old Employee Assistance Program, which monitors claims of emotional or psychological stress. Local 18 is heavily influencing the management of DWP’s $6 billion pension, insiders say. "They want it all," says a veteran of the department. Chaudhry writes that a principal tool in D’Arcy’s arsenal is the ever-present threat of strike. "Preying on that fear, union negotiators are able to leverage any demand, however trivial or irresponsible, into a concession."

So potent is the fear of a strike, Chaudhry writes, when executives of the DWP broached the subject of a strike contingency plan the ranking member in attendance remarked that the union "wouldn’t like it" if such a discussion took place. "After that ominous warning the subject was dropped entirely," he writes. The last strike occurred in 1993. At the time it was the first in 20 years. The nine-day strike resulted in a new contract for Local 18 members and a 9 percent salary increase over four years. The strike came on the heels of unsuccessful efforts by Mayor Richard Riordan to transfer funds from the DWP to the city in excess of the usual 5 percent transfer, and to dip into the DWP pension to pay for more police and firefighters. City Councilman Joel Wachs called the strike "shockingly irresponsible." But it galvanized Local 18 for the long haul.

Former Riordan chief of staff Bill McCarley took over as general manager in 1994 and put in place the joint labor-management structure that Chaudhry and others in the department say has run amok. With a dire need to reduce the department’s $7.9 billion debt, McCarley cut 2,000 jobs in 1994, while the DWP hired an international consulting firm, PSC Energy, for $1.1 million per month to transform the culture from "an entitlement mindset" to a customer-service organization. In exchange for its cooperation Local 18 was allowed to participate in future management decisions such as selecting a new general manager. Labor-management teams were established "to examine and improve all aspects of system operations." When McCarley left the department in 1996 D’Arcy praised him and said, "He brought us in as partners."

McCarley’s successor, David Freeman, the former head of the Tennessee Valley Authority, turned joint labor management into an art form, insiders say. He navigated the DWP through a $350 million buyout in 1997 without threat of a strike, again reducing the staff by 2,000 jobs. In exchange he allowed D’Arcy to pick the management members of the Joint Resolution Board, which was supposed to streamline and improve the employee grievance process. A succession of non-civil service managers came on board — several from Southern California Edison, which is heavily represented by a different IBEW local.

Freeman launched initiatives under the banner of Green Power in partnership with Local 18, but they have been discredited. An audit by City Controller Laura Chick concluded that Green Power — marketed heavily by the Hahn administration through the efforts of Fleishman-Hillard — never produced results. In 1998, Freeman projected a power rate decrease of 15 percent by 2003. Instead, by 2004, the DWP proposed raising rates 18 percent. Freeman did not return calls for comment.

In 1999, Freeman brought in a pivotal figure named Raman Raj to take over corporate services, labor relations, human resources, security and equal opportunity. He had directed pension fund management, union relations, compensation and training at the MTA from 1996 to 1999. Raj is a human-resources veteran who began his career at the Southland Corporation, in Dallas. He later worked for Flying Tigers in Los Angeles and Kaiser Permanente. He left the MTA under circumstances the MTA would not disclose.

 

Raj’s two-year stint at the DWP marked a period of turmoil for the DWP, during which employee allegations of discrimination, harassment and retaliation peaked. He was fired in 2001 after the department was forced to pay $1.3 million to its equal-opportunity manager to settle a claim of harassment and retaliation alleging that Raj and his subordinates were interfering with equal-opportunity investigations on behalf of Local 18. Raj later negotiated a separation agreement after threatening to sue the DWP. In October 2004, days before Deaton was scheduled to take the helm, acting general manager Henry Martinez approved a contract with Cap Gemini and Raj’s company Resources Roundtable as consultants to the DWP-IBEW Oversight Committee, to devise strategies for "enhancing the use of resources, eliminating duplication of efforts and supporting an integrated approach to the DWP’s implementation of more effective business processes." A source familiar with the inner workings of Local 18 and the DWP says of the contract, "That is typical of managers doing what Brian wants. Henry has never been able to say no to Brian." Raj has not returned a dozen calls for comment. Raj brought political connections to the department, along with Freeman. Raj has been a member of the steering committee of the Saxophone Club of the Democratic National Committee and, sources say, a longtime ally of Antonio Villaraigosa, dating back to the time they both worked at the MTA. Villaraigosa, in past interviews, has denied a close relationship with Raj, who has contributed to Villaraigosa’s campaign.

In his memo to Hahn, Chaudhry refers to Villaraigosa when he writes, "I see no reason for Local 18 to abandon its former commitment to your main adversary." Chaudhry then urges Hahn to curb union domination of DWP’s managers as a means of distinguishing himself from Villaraigosa. "The damage attributable to Local 18 is done," he writes. "Your administration and character have been impugned by association. Those who question character can be silenced by a unilateral demonstration of moral leadership worthy of a second term."

Chaudhry, who is on personal leave and out of the country, puts it on the mayor to solve DWP’s problems: "Only the mayor can demand more of management than routine capitulation to inordinate pressure for unreasonable concessions that do not result in mutual gains."

To read this memo as a .pdf file, click here.

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