City hears DWP report showing $180 million in unpaid energy sales; council requests regular updates

Los Angeles — The Los Angeles Department of Water and Power told the City Council on May 11 that it is owed about $180 million for power sales made to statewide wholesale markets during the California energy crisis and that some payments are months overdue.

The debt traces to sales made to the California Power Exchange (CalPX) and the Independent System Operator (ISO), the department said. Bob Rozanski, assistant chief financial officer for DWP, told the council the unpaid balance is currently about $180,000,000 and that the department expects a partial payment of roughly $33,000,000 on the day of the report.

Why it matters: The unpaid sums are tied to state- and market-level disruptions that have led to bankruptcy filings and court proceedings. Council members pressed the department and the city attorney’s office for regular public updates and legal strategy because the amounts, while not expected to force rate increases, represent a material financial exposure for the city.

Rozanski outlined how DWP’s sales policy changed after the state emergency: DWP prioritized in-state sales and, after wholesale defaults in early 2001, limited sales to counterparties with prompt-payment safeguards. He said DWP has sold energy to the California Department of Water Resources (CDWR) since mid-January under a cost-plus policy and has received $257,000,000 in payments from the CDWR to date; about $53,000,000 remains owed by CDWR and $33,000,000 was expected the day of the meeting. An earlier letter-of-credit that backed sales (about $104,000,000 of a larger facility) has been exhausted, Rozanski said.

Deputy City Attorney Kel Johansen described the legal landscape: the city is participating on an official committee in the CalPX bankruptcy and is monitoring the PG&E bankruptcy and other related proceedings. Johansen said the city is pursuing a full accounting through bankruptcy filings and other court processes and has retained outside bankruptcy counsel to protect the city’s claims. He noted that CalPX transactions are governed by a Federal Energy Regulatory Commission (FERC) tariff that limits DWP’s visibility into counterparties without court action.

Council debate focused on risk and timing. Councilmember Mike Wachs asked whether full payment is likely; Johansen and Rozanski said recovery is uncertain and may take years. Councilmember James Savornich warned that as an unsecured creditor the city may recover only a small fraction of the $180,000,000 and urged realistic planning. Rozanski and DWP staff said they are managing near-term collections by invoicing CDWR twice a month and requiring payment within 10 days to reduce exposure. The council’s legal staff requested to brief members in closed session on litigation strategy; members agreed to schedule an executive session soon.

Council action: The council voted to note and file the report, requested continuing status updates, and agreed to receive monthly briefings; the roll call on the item recorded 10 ayes. The council also directed staff to prepare for a closed-session briefing to obtain legal advice about litigation and bankruptcy strategy.

Details that were provided at the meeting include: - Total unpaid balance reported by DWP: approximately $180,000,000 (past due) for sales to CalPX and ISO. - Approximate portion attributed to CalPX: about $64,000,000 (DWP said it is pursuing an accounting to determine actual recipients). - Portion attributed to ISO and related entities: roughly $117,000,000 (subject to ongoing allocations and bankruptcy implications). - Amount DWP has received from CDWR to date: about $257,000,000; CDWR owed about $53,000,000 at the time of the report, with roughly $33,000,000 expected that day. - Earlier letter of credit secured $104,000,000 and was exhausted; DWP negotiated twice-monthly billing to CDWR with payment within 10 days to mitigate exposure.

DWP staff and the city attorney said they are monitoring bond ratings and believe current debt levels will not force immediate retail rate increases in the city’s service territory. They cautioned, however, that outcomes depend on the bankruptcy process, state legislation, market conditions and weather-driven demand in the coming summer months.

The council’s next steps include a requirement that DWP provide regular status updates to council and staff; an executive session for legal strategy was scheduled to allow the city attorney and outside counsel to advise councilmembers on bankruptcy and litigation matters. The council chair said the committee will ask for reports monthly and will call back DWP and legal staff with any new developments.

Ending: Councilmembers repeatedly stressed the need for transparent, regular updates to the public and to ratepayers. The department committed to continued billing and collection efforts, to pursue its claims in bankruptcy court, and to return to the council with more information as it becomes available.