City Council members sought to tighten their grip over Los Angeles' public utility Wednesday, after an influential Wall Street firm lowered the city's bond rating based in part on "the increased political contention" swirling around the budget at City Hall.
With council members angry about the refusal of executives at the Department of Water and Power to turn over $73.5 million in "surplus revenue" that they were counting on to help balance the budget, City Controller Wendy Greuel announced that she would immediately conduct a four-week audit of the utility's power operation.
DWP executives have said they cannot transfer any more money to the city treasury because the council has refused to approve a substantial electricity rate increase backed by Mayor Antonio Villaraigosa.
Councilman Greig Smith, who has long criticized the utility, proposed sweeping changes to the City Charter that would give the council control over the DWP's budget, allow it to remove board members with a two-thirds vote and limit Villaraigosa's power to appoint all five.
Smith's proposal would allow the council to pick two of the board's members, with a third coming from the neighborhood councils.
Most of the changes would have to be approved by voters in the municipal election next March.
"We want to see what they are spending their money on; we want to know what they're doing," said Smith, who quickly found nearly half a dozen co- sponsors for several of his motions. "We don't know."
The effort to gain more control over the DWP came one day after Villaraigosa announced plans to shut down non-essential services two days a week -- trimming employee paychecks -- to compensate for the potential loss of the DWP money. Because the transfer is in jeopardy, Moody's Investors Service announced Tuesday that it had downgraded its rating for the city's general obligation bonds from Aa2 to Aa3.
Utility officials, backed by outside consultants, had originally sought an immediate rate increase of at least 0.8 of a cent per kilowatt hour to cover the fluctuating costs of fossil fuels and the agency's initiatives on renewable energy and conservation.
The council responded by voting narrowly for an increase of 0.6 of a cent per kilowatt hour over three months.
The DWP board rebuffed the council's plan and approved an increase of 0.7 of a cent per kilowatt hour, describing the move as taking a middle ground.
Council members vetoed the DWP board's action one day before the rate increase was to go into effect, on April 1.
DWP Interim General Manager S. David Freeman, in turn, inflamed the council Tuesday by announcing that the utility would withhold the promised transfer of $73.5 million.
Efforts to strike back at the department on Wednesday were not limited to City Hall:
* One former appointee of Villaraigosa filed a ratepayer lawsuit against the DWP, saying the agency had an obligation to follow through on its promise to transfer the $73.5 million to the city's general fund.
Former DWP commission President Nick Patsaouras said in his lawsuit that the utility has an 8% surplus, enough to provide the money.
"As a taxpayer, I want to compel them, compel the DWP to honor their commitment," said Patsaouras, who stepped down from the commission in October 2008.
* School board member Tamar Galatzan said she would introduce a motion next week calling for the DWP to create a new rate classification for the Los Angeles Unified School District, one that would prevent it from paying the same rate as large businesses.
Galatzan, who won her seat in 2007 with $2.2 million in financial support from the mayor, warned that Villaraigosa's 12-month rate hike plan would cause the school district -- which she described as the DWP's largest customer -- to pay an extra $11.7 million a year. That would lead to a loss of hundreds of jobs at a time when the DWP is falling to make a case for more rate hikes, she said.
"I'm wondering, like many people, how they can simultaneously need a rate increase and at the same time transfer excess money into the general fund," she said.
In one step toward a compromise Wednesday, Villaraigosa sent a letter to the president of the DWP board, Lee Kanon Alpert, asking him to convene a meeting to discuss internal budget cuts that would allow the agency to transfer $20 million to the city's general fund.
At the same time, Villaraigosa underscored that he would "not now, or ever, request that you act in any manner that violates your fiduciary responsibilities to the ratepayers."
Freeman offered two weeks ago to give the general fund budget an extra $20 million if the council approved the first of Villaraigosa's four proposed rate hikes.
That proposal was viewed by some council members as a carrot, with Freeman's threat to withhold $73.5 million serving as the stick.
The DWP had promised to find the $20 million by paring back expenses, including non-essential travel.
Although a few council members were working Wednesday on plans to resolve the standoff, the rancor at City Hall continued through the day.
Council members chided Villaraigosa for announcing that he would shut down some city departments two days a week to keep the city from running out of cash.
Council President Eric Garcetti said the mayor's announcement had created "a very chaotic situation," with employees and general managers afraid that they would not get paid.
The council's top policy analyst told members that the mayor had no authority to order that move without their approval.
"The city is not shutting down beginning on April 12," said acting City Administrative Officer Ray Ciranna.
He added that his office was simply developing a plan at the direction of the mayor.