Los Angeles Agency Considers $300 Million Sale Leaseback of HQ

Los Angeles Times - June 14, 2010

The top executive at the Los Angeles Department of Water and Power, the nation's largest municipal utility, is laying the groundwork for a sale of some of the agency's biggest assets — including the utility's iconic downtown Los Angeles headquarters — as it seeks to cover rising costs without raising electricity rates.

DWP Interim General Manager Austin Beutner said Monday that he would not pursue any additional power rate increases for the remainder of the calendar year. But that decision would come with a series of tradeoffs, he said.

Beutner, a former investment banker, is hoping to generate $150 million by selling city-owned natural gas reserves in Wyoming. He is looking at unloading the city's stake in an Arizona coal-fired power plant years ahead of schedule. And he said he is "serious" about trying to sell the utility's 17-story office building on Hope Street to a private buyer, who would lease offices back to the agency on a long-term basis.

» Don't miss a thing. Get breaking news alerts delivered to your inbox.

"It's real simple. If you can't raise rates, what are you going to do?" Beutner said.

"Do you want to own a building, or do you want to have renewable energy?" he said. "You pick. I don't care. If you like the building better, that's fine. You can't have both. So policy is about making an informed choice."

The various proposals are part of Beutner's new strategic plan for the nation's largest municipal utility, which will be presented to Mayor Antonio Villaraigosa's five-member DWP board Tuesday. Beutner said the proceeds of the cost-cutting efforts would help pay for upgrading the DWP's aging infrastructure, comply with new government regulations and push ahead with Villaraigosa's directive to get more energy from wind, solar and geothermal sources.

The DWP headquarters, across from the Music Center in downtown, opened in 1965 and was designed by A.C. Martin and Associates. Beutner said the sale of the headquarters could generate $300 million.

Councilman Tom LaBonge voiced strong doubts about selling off critical assets, particularly the DWP headquarters, which is named after former City Council President John Ferraro — LaBonge's boss for 16 years.

"Mr. Beutner is obviously a much better businessman than I," said LaBonge, who voted against electricity rate increases earlier this year. "But as a public official, I wouldn't want to see us sell assets that we might have to buy back again."

Villaraigosa got into a major standoff with the City Council in March over a series of proposed increases that would have boosted residential rates from 9% to 28%, depending on the household. So far, the council has approved a 4.8% increase effective July 1.

In the wake of that dispute, Beutner decided to hold the line on future increases for at least nine months, partly by cutting expenses and partly by tapping DWP assets. Beutner hopes to cancel plans for a new billing office in Van Nuys — a move that could save $20 million — and is weighing a possible sale of 100 acres of property that the DWP owns in Malibu.

The DWP is already scheduled to divest itself of a 21% stake in the Navajo Generating Station, a coal-fired power facility in Arizona, by 2019. But Beutner said he would act far more swiftly to sell that stake, a move that could generate up to $500 million.

One possibility would be to sell the stake within two years while gradually scaling back the city's use of coal from that facility, he said.

That strategy drew strong praise from Rhonda Mills, Southern California program director of the Clean Power Campaign, an environmental advocacy group. Mills said the Navajo plant would lose value as new environmental regulations are put into effect across the nation.

"It will cost us more in the future than if we get out of it now," she said.

Beutner's long-term strategic plan represents the latest shift in direction for a utility that has had five general managers in three years. During much of that time, Villaraigosa has promised to ensure that the DWP gets 20% of its power from renewable energy by Dec. 31 and 40% of its power from those sources by 2020.

By contrast, Beutner said he would focus less on Villaraigosa's numerical target for renewable energy and more on an overall goal: cutting the utility's carbon emissions in half.

Former DWP General Manager H. David Nahai said he retained Goldman Sachs to study the possibility of selling the city's stake in Navajo and purchasing back its power. Still, he voiced dismay at the notion of a lease-back of DWP headquarters.

"We're going to sell a gem of a piece of real estate, an iconic building, in the lowest real estate market since the Great Depression? That does not make sense," he said.

As part of his DWP strategic plan, Beutner said he wants a "ratepayer advocate" to serve as a watchdog on behalf of the utility's customers. That advocate should be housed in the office of City Administrative Officer Miguel Santana, the budget advisor to Villaraigosa and the council, Beutner said.

That marked a change from two weeks ago, when Beutner said he wanted the ratepayer advocate to serve in the office of City Controller Wendy Greuel. Asked about that earlier statement, Beutner said he "may have misspoken."

A June 7 DWP news release also said the utility was working with Greuel to create the ratepayer watchdog. Days later, Greuel released a report sharply criticizing the DWP for threatening to withhold $73 million from the city's budget unless it received its planned rate increase.

Beutner said that having a ratepayer advocate in the controller's office would "politicize" the position. Greuel, in turn, said Beutner's statement on the ratepayer advocate is "the exact opposite" of what he told her two weeks ago.

"It's really obvious that his position changed after I released a critical review of the Department of Water and Power," Greuel said. "That's why this position needs to be independent." Sphere: Related Content