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A Pyrrhic victory

The DWP loses a court case on electricity overcharges -- a ruling that likely will cost taxpayers too.

June 13, 2007

IT'S HARD TO CHOOSE sides. At least with the Freeway Series you can pick the Dodgers or go with the Angels, then sit down, have a hot dog and enjoy the game. But the game in this case is no fun, unless you're a high-priced trial lawyer. There are hundreds of millions of taxpayer dollars at stake, and the local rivalry pits the Department of Water and Power and the city of Los Angeles against the county, the school district, the community colleges, the University of California and the Metropolitan Transit Authority. Who do you root for if you're an L.A. resident and your right pocket is suing your left -- for more than $200 million in electricity rate overcharges?

That's part of the dilemma inherent in the court ruling late Monday that the DWP has for years illegally zapped state and local government agencies. Instead of charging them for electricity as though they were private customers, a San Bernardino County Superior Court judge said, L.A.'s water and power provider should have billed only enough to cover the proportion of capital facilities that served those public agencies. In failing to properly calculate that proportion, the DWP was found to have run afoul of the California government code -- at least as the law stood at the time the suit was filed. The law has since changed -- but too late to affect this case.

And the ruling goes further: It calls into question the continuing annual transfer of money from the DWP to the city budget. That dividend has long been a primary benefit of the city owning its own utility, helping to fend off City Hall's hunger for more tax revenue while still allowing residents to enjoy comparatively low rates. So the decision comes as a jolt to residents who pay electric bills to the city and who also are served, in one sense or another, by the city, the county, the MTA and the other entities involved.

The consequences to the city's budget are enormous, especially when the $223,832,609 verdict is considered along with a huge cellphone tax ruling against the city a month ago, another cellphone tax lawsuit still in the early stages and a suit pending against the DWP over water rates that is similar to the one that resulted in the decision on electric bills. The school district may be right when it claims that the city has been underwriting its operations in part at the expense of schoolchildren -- and bus riders and college students.

The DWP may have been too aggressive in defending its rates, and it may have gouged residents by choosing not to work more cooperatively with other agencies. It may be tempting to join the schools, the MTA and all the rest in a collective cheer. But the ruling, if it is upheld, underscores the destabilizing nature of intra-government disputes that wend their way to court. It can hardly be called a victory for taxpayers.

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