dwp/dy/25"/mike1st/mark2nd

DOUGLAS YOUNG

Staff Reporter

Energy companies from North Carolina to Oregon are about to descend on L.A. City Hall, unleashing a lobbying blitzkrieg as they vie to be chosen as the partner of the Department of Water and Power in a future strategic alliance.

The prize for the winner is instant access to the DWP's 1.3 million customers and its massive energy infrastructure. In turn, the prize for the DWP is access to the private-sector efficiencies and marketing expertise considered crucial for the debt-laden municipal utility to remain viable in a future world of utilities deregulation.

Under current laws, Californians and most other state residents will be allowed to choose their electricity suppliers beginning in the 21st century. To prepare for the new world of deregulation, investor-owned and municipal power companies alike have been scrambling to boost their efficiencies and clout, often through forming alliances with other companies.

The DWP announced its intent last summer to form one such alliance, and the agency subsequently narrowed the field of possible partners to three companies, all of them out-of-state, investor-owned utilities.

The absence of Southern California utilities among the final candidates will prompt officials of those companies to take their cases directly to the City Council, thereby further intensifying the lobbying blitz.

DWP General Manager William McCarley said he expects to submit his recommendation of a strategic partner to the DWP board of commmissioners in the first week of February, or at the very latest before he leaves the agency March 1.

"I think in the next several weeks, you'll see some furious lobbying in the City Council. This will be some of the most critical decisions in the municipal corporation that I have had to face in my 32 years (working for the City of L.A.)," McCarley said in an interview with the Business Journal.

"There are people who want to partner with us, or on the other side of the issue, keep us from partnering with someone else, because when we put our assets into play with their business acumen or financial ability or marketing skills, we become much more of a player," he said.

The three finalists Enron Corp. of Houston, PacifiCorp of Portland, Ore. and a joint venture between Duke Power of Charlotte, N.C. and Louis Dreyfus Energy Corp. of Wilton, Conn. are anxiously awaiting McCarley's recommendation, the DWP commissioners' decision and, ultimately, the Council decision.

Meanwhile, the two local investor-owned utilities Edison International of Rosemead and Pacific Enterprises of Los Angeles, are hardly rolling over after being eliminated from consideration by the DWP.

Pacific Enterprises, which owns Southern California Gas Co., submitted a bid last year to partner with the DWP, but didn't make the final cut. Pacific Enterprises entered into a similar big alliance last October, when it announced its intended merger with Enova Corp., an investor-owned electric utility in San Diego.

Edison also wanted to bid for the alliance, but failed to meet one of the DWP's requirements that all bidders have less power-generating capacity than it has.

More generally, McCarley said the DWP is only interested in choosing a partner with assets and a service area that complement those of the DWP, which rules out the local utilities.

Pacific Enterprises and Edison have both vowed to fight the DWP's decision to exclude them from consideration.

"We have always expressed an interest to be a part of any energy alliance the DWP creates, and we're confident that we will be a part of DWP's efforts in the future to become more competitive in the marketplace," said Pacific Enterprises spokesman Mike Mizrahi. "We may not be on the short list, but no decisions have been made, and the door is still open. Our plan is to continue discussions with the DWP in all arenas."

Mizrahi did not rule out Pacific Enterprises bypassing the DWP altogether and taking its case directly to City Council members.

Likewise, Edison is gearing up to make its own pitch to city officials, confirmed spokesman Tom Higgins.

"We believe reasonably that we have a great deal of value that we can offer the city, and we'll try to lay out our reasons for thinking so to various city officials," Higgins said.

He pointed out that Edison recently announced voluntary plans to sell off fossil fuel-based power plants in its service area, which would bring it into compliance with the DWP's qualification requirements.

Higgins further said Edison will continue to "engage in conversations with various levels of city government" to point out the advantages the city would reap from teaming up with Edison.

"We believe that, because of our geographic proximity, we can offer more-comprehensive solutions than any other entity could," he said, adding that Edison's upcoming campaign would not be a "casual" one.

Regardless of what McCarley and the DWP board recommend, Edison and Pacific Enterprises are not expected to give up the battle without a fight.

"Southern California Edison would not like us to partner with some out-of-state (utility that) may be willing to pay a premium to get into the markets to help us compete, because that would debilitate their competitive position," said McCarley.

"Pacific Enterprises would not want us to join Edison or somebody else, because they see themselves positioned very powerfully because of their pending merger (with Enova). You have everyone positioning themselves trying to gain in this thing," he said.

Meanwhile, PacifiCorp one of the DWP's three finalists has retained two L.A.-based lobbyists to monitor the developing situation, and both lobbyists and PacifiCare officials are in touch with DWP officials "from time to time," said spokesman Dave Mead.

A spokeswoman from Duke/Louis Dreyfus declined to comment on that final candidate's lobbying efforts. Officials of Enron, the other finalist, were not available for comment.

McCarley said the DWP is looking for a partner skilled in wholesale marketing, retail marketing and energy management. It is also looking for a company that understands where the industry is going and will work to expand the DWP's business while also shouldering some of its risk, he said.

The corridors of City Hall were largely empty of energy industry lobbyists during the fourth quarter of 1996, according to a City Ethics Commission representative, though he added that registered lobbyists have until Jan. 31 to file their fourth-quarter activity reports with the city.

McCarley predicted that the dearth of energy lobbyists will change dramatically in the next few months, as the City Council takes up the issue of the DWP's future alliance.

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