The Los Angeles Department of Water and Power (DWP), the largest municipally owned electric utility in the United States, has been the monopoly supplier of electricity to the city's 1.4 million business and residential customers. DWP has provided reliable service, low residential rates, and substantial payments from operating income to the city. However, it now faces major challenges as California proceeds to deregulate, restructure, and introduce competition into the electricity sector.
Since 1998, investor-owned utilities (IOUs), such as Southern California Edison, have been required to offer their customers “direct access” to competitive electricity suppliers. Cities with municipal utilities may decide for themselves whether or not to open their markets, but pressure to allow customers more choices will intensify over the next several years. In response, DWP has implemented a series of measures to reduce its operating costs and has set a goal of paying off all or most of its debt on generating plants by 2003. At that point, DWP would be better prepared to compete with other electricity suppliers if the city council decides to open the Los Angeles market.
However, DWP's general manager and others have questioned whether DWP, organized as a city department and subject to the checks and balances of city governance, will be able to compete effectively. This report examines DWP governance issues in the context of electricity deregulation and restructuring and discusses alternative structures for governing DWP as a municipally owned utility. The study explicitly does not consider privatization or sale of DWP electric power operations or assets.