When you drive past a gas station, do you find yourself thinking about where you are going to buy your next tank of gas? Do you find yourself counting gas stations that are still under $3.00 a gallon? I recall my parents drawing a line in the sand, stopping only at stations that sold gas under 28.9 cents a gallon. Back then, they used the streetcar, the bus, and pinched each penny as hard as they possibly could.
It seems ridiculous that each gas station still tacks on 9/10 of a cent at the end of each billboard price, doesn't it? It only represents 1/300th of the price. Nevertheless, that 9/10 of a penny is an example of how minutia can be predictor of fact. Maybe they started the 9/10 of a cent convention to get the extra two bits out of every $5.00 (20 gallon) fill-up. Now though, we need to make better sense of the convention since two bits out of every $60.00 (20 gallon) tank full is minutia and hardly seems worth the effort. They must have known the price would go up tenfold and they justified the tenths place would drop off when priced crossed the 99 cent mark. Of course, if you give them credit for predicting the price was going to go up tenfold, then you should also credit them for recognizing that the situation has not changed. Since the convention remains, we should expect the price to go up another tenfold but this time figure it happening in terms of months rather than decades. Consider the price of fuel is $3.00 a gallon while not 6 months ago it was only $2.00. The price is related to increasing demand, decreasing supply, and to a lesser degree, manipulation, mindset, and choice.
Ponder for a moment how many things are driven by fuel or energy and derived from fuel. Now this time, before you go and change the subject, let’s see if we can improve our chances of transition (survival) and make some choices that might mitigate the effects of exponentially increasing fuel costs and its effects upon our relative prosperity, our city, and our nation’s economic place in the world of tomorrow.
On one hand, you could surmise that fuel costs affect us all and like boats in a rising tide – we will all float through it. On the other, you might consider that the majority of boats are tied economically to terra firma and that the ability to float is directly related the length and flexibility of their obligations and financial moorings. Without some serious adjustments to these constraints, there will be a number of boats that will be drawn under the rising tide by their choices and self-induced encumbrances. Those businesses most susceptible are those that are directly dependent on fuel – airlines and utilities. Their survival will be a function of how well their leaders are able to maintain flexibility and prudently avoid other encumbrances.
Consider the rising price of fuel on the airline industry – fuel is a primary resource. The cost of fuel is affecting all airlines. However, it is the flexibility of other constraints that dictates who remains. Case in point, United Airlines and Delta, which maintained top equipment, compensation rates, benefits packages, and facilities are going under while Southwest, whose management chose prudently, is flying high. In hindsight, what was the true worth of demanding lucrative labor contracts in terms of today’s layoffs, salary, pension, and benefit cuts? I would contend it was United Airlines and Delta management’s inability to respond prudently to labor’s demands for more that contributed to their endangered status. Southwest managed its constraints conservatively – in terms of survival, less is just a little bit better. An inch of restraint and prudent decision-making across the board, in the selection of planes, negotiating costs of labor, and benefit packages, etc. resulted in longer-term survival to the benefit of their employees and customers.
Our utilities are in the same situation. All face rising fuel costs. Survival will be based upon leadership in terms of strategy, fitness, and flexibility. DWP may be the very least prepared. Edison, PG&E, et al went through – or almost through – bankruptcy. In competitive lingo that means they faced insolvency, considered their situation deeply, developed an action plan, and responded to adverse economic conditions. Their strategy is age old. They did not have to be the fastest – just a bit more nimble than tiger’s supper. Whether economic, technological, or strategic, a monopoly is a temporary volatile condition. Survival means constant improvement, innovation, and evolution because competition never goes away.
DWP took a short cut. Politics bought out and replaced DWP leadership. The new management decided not to play deregulation. Instead, they exercised a political loophole and took a temporary hiatus from competition. DWP management looked good. They took credit for the harvest and the fruits of previous leaders. They leaned back and grew fat and happy on their plagiary. They did not break a sweat like the other utilities.
Now, after a few years of carpetbagger influence, forgotten laurels, and conflicted interests, they do not look so good. They cannot seem to raise rates fast enough to cover infrastructure maintenance costs, much less survive their own mismanagement. The overwhelming culprit here is conflicted leadership, city managers whose decisions reflect the near-term interests of politics and labor rather than maintaining a long-term focus on the well-being of their customers, the citizens of Los Angeles. Their decisions have had a systemic degrading effect on merit-based promotional systems, customer service, productivity, and employee morale.
The politicians have repeatedly poked holes in DWP’s financial health: increasing City transfers, saddling DWP with non-DWP benefiting contracts like Fleishman Hillard, transferring real-estate holdings to other city departments, subsidizing special political endeavors like the Democratic National Convention, providing lighting for Banning Park, rebuilding Van Nuys City Hall, or chauffeur services to foreign dignitaries. The DWP leaks cash like a sieve all over the city.
From a responsible citizen’s point of view, it is fleeting political bliss from accountability. There will be hell to pay. To this debilitating mix, demand a 15 to 30 percent increase in labor, benefit, and contract demand and top it with the threat of a strike. Albeit deserving, this is DWP management’s nightmare. The union threat is real no doubt. DWP management served their reign like couch potatoes. D’Arcy will turn off the TV if they do not get more apple pie to complete their vision American dream. Pray tell, how does this mismanaged civil hostage situation under the auspices of “joint labor management” represent good prudent stewardship?
It seems nothing has changed in recent politics. Ron Deaton, the Water and Power Board of Commissioners, and Antonio Villaraigosa are moving too fast to endorse D’Arcy’s slicing steaks out of the City’s cash cow. Instead of holding back, the 3 year contract has been extended to 5 years. Presumably to avoid a re-election issue. We should ask, "Who is serving at the pleasure of whom?" It is wonderful that Antonio Villaraigosa is on the scene to establish a new vision and leadership for Los Angeles. But, we are not fools. D’Arcy has been stoking the fire and has had the coals burning hot. He does not need Villaraigosa’s endorsement or help in clearing the way to throw another filet on the fire.
Words and promises are trumped by leadership and action. Good faith negotiation should have resulted in prudence. Like the airlines, it is long past time to jettison incompetent leadership, close the backroom and sideline interests, and focus on either running the DWP consistent with the long-term interests of its customers and its employees. Or, sell it before it is trampled into insolvency, its employees set free, and its infrastructure turned over to the highest bidder. Can wiser heads prevail? Let us think this through again. We are talking about our city’s centurion provider, aren’t we?
