Court rules LA DWP ignored law and must pay LA schools and other agencies $223 million

June 12, 2007 -- The Los Angeles Department of Water and Power (DWP) intentionally overcharged Los Angeles County, the Los Angeles Unified School District, the Los Angeles Community College District and state agencies for electricity for nearly 20 years and must pay them $223.8 million, a state superior court judge has ruled.

After a six-week trial, Superior Court Judge John P. Wade ruled that the DWP “intentionally ignored the plain language” of the law regarding the rates it could charge Los Angeles County, the school district and the other plaintiffs in the case. He also criticized the DWP’s “lack of a sense of responsibility to good government.”

“For five years the DWP refused to talk to us about the case, ignoring its financial responsibility to resolve the matter quickly and with as little cost as possible. “We have always been ready to settle out of court, but the DWP was not willing to consider any significant refund. The DWP’s actions have cost LA taxpayers millions of dollars in legal bills while at the same time keeping much-needed funds out of the school district’s and state’s hands.”

Because the DWP has made enormous profits and has huge cash reserves, the judgment shouldn’t cause a financial strain on the agency.

DWP inflated its electric bills to governmental customers beginning as early as 1988, the judge said, ignoring a state law that set limits on what government agencies can be charged.

California state law and certain court rulings clearly state that publicly owned utilities can charge schools and other governmental customers no more than their proportionate share of the capital costs associated with the electric facilities from which they get power. If a government agency uses 10 percent of the power produced by a plant, for example, the utility could charge that agency only 10 percent of the capital costs for that plant.

The agencies said the DWP was charging the school district and other agencies up to 60 percent more than their legitimate share of capital costs. Evidence presented at the trial showed that the DWP was aware of this as a result of numerous studies it conducted over the past 20 years, but chose to continue to overcharge. The school district and other government agencies didn’t realize that the DWP was illegally draining their funds until a whistleblower brought the matter to their attention in 2000.

A witness at the trial testified that a DWP representative told him the DWP would play “hardball” and wouldn’t settle this seven-year-old case until it had no other recourse, despite overwhelming evidence against the DWP. During the trial, the DWP’s own expert admitted that the DWP had overcharged the agencies by millions of dollars.

After it became aware of the lawsuit, the DWP retaliated against the school district by refusing to give the school district the 5 percent discount stipulated in its contract with the DWP and even sued to get back the savings the school district had received under those contract terms in previous years. The state court dismissed the DWP’s lawsuit last year, but the DWP has continued to bill the school district for the full amount, without the discount.

“We hope the DWP will see that its continued refusal to give the schools and other agencies the money they are owed hurts all Los Angeles residents,” said Wayne T. Lamprey, an attorney with Goodin, MacBride, Squeri, Day & Lamprey LLP, who appeared as co-counsel for the plaintiffs. “Every bit of evidence on both sides was carefully examined by the court, including each side’s calculations of overcharges by the DWP. It is time to end this and get the monies back to the agencies that were overcharged.”

Judge Wade ruled that the DWP must pay the following amounts to:

  • Los Angeles Unified School District - $94.7 million
  • Los Angeles County - $45 million
  • Los Angeles County Metropolitan Transportation Agency - $39 million
  • California state agencies - $31 million
  • Los Angeles Community College District - $7.8 million
  • University of California at Los Angeles - $5.3 million

The lawsuit originally was brought by Sam Barakat, an energy consultant, under the California False Claims Act. The state False Claims Act allows private individuals to sue any entity that is defrauding municipalities, the state or their agencies.

After investigating the allegations, the California Attorney General, Los Angeles County, Los Angeles Unified School District, Los Angeles Community College District and the Los Angeles County Metropolitan Transportation Authority (LAMTA) joined the lawsuit.

Phillips & Cohen specializes in whistleblower cases involving fraud against the government. For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.

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Case citation: State of California ex rel. Barakat v. Los Angeles Department of Water & Power, No. SCVSS 100293 (Sup. Ct. San Bernardino).