There will be no deviation from the Los Angeles Department of Water and Power’s (LADWP) “green path” to developing more reliance on renewable sources of electricity, deemphasizing its out-of-state coal-fired generation assets and hedging against fickle wholesale natural gas markets, according to the new head of the nation’s largest municipal utility. If the city-run utility could legally do it, long-term contracts for coal-fired generation from its Intermountain Power Project (IPP) in Utah would be terminated, according to CEO David Nahai.

Nahai views the push to the green side as much an “obligation” as a goal, and an “opportunity” more than a legal and regulatory challenge. Politicians and their constituents are “compelling us all to move in a cleaner direction,” he said, adding that he was buoyed by the utility’s bidding request last year for renewables that drew responses from 60 projects located all over the West.

“These things impose a change in how we do business,” he said. “It is not just a matter of environmental ambition, it’s a matter of statutory obligation. Furthermore, I think there is very much a desire inside the city of Los Angeles to take global warming seriously. They prize clean air and clean water.

“There are economic reasons that dictate more diversity of power generation sources. Anyone watching the vagaries of the natural gas business in the last few years knows that you simply can’t put all of your eggs into the baskets of more gas, coal and nuclear any longer. You have to have some diversification to hedge against the volatility of the marketplace.”

Nahai spoke to NGI about a wide-ranging number of issues that currently surround the $4 billion municipal enterprise that is committed to having 20% of its power supplies come from renewable sources by 2010 even as it struggles to push beyond its current 8% level. A new transmission line proposal, deemed the “Green Path” project, faces a two- to three-year delay because of local opposition along the route from the geothermal and solar power sources in the Imperial Valley in the southeast corner of California.

He also touched on the state’s changing relations between public- and private-sector utilities, the inevitability of higher retail power rates after more than a decade with no increases, and expansion of some long-sought renewable projects and related transmission lines.

While Nahai comes from an environmental law practice and has served on regional and local water boards for more than a decade, and his political bosses in city hall all embrace the push for renewables, he concluded that the city really has no choice given the new state law establishing portfolio standard goals and greenhouse gas (GHG) emissions standards

In curbing coal-fired generation, Nahai said he is unsure whether a carbon tax is coming or what kinds of other limitations on coal will be in place, so diversification makes sense at LADWP. In addition, Nahai said the city-run utility will attempt to capture some of the economic advantages of a strong diversification. Renewable providers, new technology and other aspects are creating new companies and new jobs.

For LADWP, he thinks the utility must make its decisions regarding its fuel mix independent of some of its historic ties as the major owner/operator of the mammoth IPP coal-fired plant and as a major member of the state-chartered joint powers authority, the Southern California Public Power Authority (SCPPA), which helped bankroll participation in parts of the plant and related transmission line into California.

“In many instances, our decisions on fuel mix will coincide with SCPPA’s programs and direction, but in some instances they may not,” Nahai said. “We have to make those decisions [to disagree] as they come along. “What happens regarding the [IPP] coal resources is something that remains to be seen.”

Does that mean LADWP will take an active interest in selling its majority share of the IPP coal plant? “That’s not a question that I can answer at this time.”

Nahai hopes to have approvals by the end of the first quarter for a three-pronged rate increase and restructuring proposal calling for the first retail power price hikes in more than a decade. At stake in the rate tussle is LADWP’s plans for a critical $1 billion, five-year facelift of its infrastructure and a restructuring of its rates into a tiered system that encourages more conservation.

On Dec. 5 Los Angeles City Council abruptly sent the $230 million rate increase proposal back to utility managers with questions that likely would delay the first-phase increase, due Jan. 1, to March 1 or later.

Nahai described as a “work in progress” the restructuring of the utility’s rates to make them more like those of California’s private-sector utilities, which for years have had rate blocks for usage in which rates get increasingly higher for volumes above basic monthly levels, which can change on a seasonal and geographic basis.

He thinks the city officials recognize the “basic premise that we cannot continue to neglect our basic infrastructure, and we have to make the necessary investments to upgrade and maintain it.”

Pine Top, an occasionally stalled 120 MW wind project in the Tehachapi Mountains north of Los Angeles, starts construction later this month. A groundbreaking is set for Jan. 31. Nahai indicated that the utility is looking for even more wind-generated power supplies from Tehachapi, which is the region getting serious attention for more than $1 billion in new high-voltage transmission lines to bring an anticipated several thousand megawatts of wind power to market.

In August LADWP bought 12,000 acres for the Pine Top project and future expansions, and Nahai said the utility fully intended to develop more wind power resources in the area. Pine Top is scheduled to begin commercial operations in April 2009, and the existing LADWP transmission lines are expected to be adequate to deliver those supplies.

Not indicating at this point that it wants any part of the new transmission line from Tehachapi being built by its private-sector utility neighbor, Southern California Edison Co., LADWP last year awarded a contract to an electrical contractor to build an eight-mile, 230-kV transmission line to link Pine Top to the nearby Barren Ridge Switching Station north of the high desert town of Mojave.

Along with new statewide laws and initiatives forcing closer cooperation with the private-sector utilities, Nahai cited better cooperation between the two sectors, but also said his utility would only go so far in the “lovefest.” While LADWP is not going to join the private-sector utility-dominated state grid operator, Nahai indicated there may be several opportunities in the future for the public- and private-sector utilities to adopt joint approaches to transmission.

“It is certainly my desire to have more amicable relations with the other utilities and with the regulatory agencies [California Public Utilities Commission (CPUC) and California Energy Commission],” said Nahai, who assumed the top job at LADWP last Dec. 1 after first resigning his position as the head of the five-member mayor-appointed LADWP oversight committee. “I think there is a great deal of knowledge that can be shared, synergies explored, and I think everyone tends to do better in an atmosphere of cooperation.”

Then Nahai added the caveat that “at all times,” he and the rest of the 8,500-employee city-run utility must have the “interest of the city and its ratepayers in mind.” He specifically singled out neighboring Edison, saying there “is no reason we cannot have a more collaborative relationship,” along with the CPUC and cooperation on its energy efficiency initiative.

The long-standing dispute with the California Independent System Operator (CAISO) surrounding LADWP’s refusal to become a participating member will not change, Nahai said. As his recent predecessors have concluded, it would be uneconomic for the city utility, with 20% of the state’s grid, to join CAISO.

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