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Can David Nahai Keep the Lights On?

If there has ever been an uncontroversial moment in the history of the Los Angeles Department of Water and Power, this isn’t it. Facing a shaky future of drought and climate change, the utility at the heart of L.?A.’s very existence urgently needs to divest itself of its dirty, out-of-state, coal-fired power interests while at the same time serving an ever-growing population. It needs to scare up $200 million to upgrade deteriorating lines and wires while living up to its promise to make 20 percent of its energy green by 2010. And it needs to find more water. Traditional sources, from the Sacramento–San Joaquin River Delta to the Owens River Valley — both dependent on a capricious Sierra snowpack — may not sustain the city through the decade.

In October, Mayor Antonio Villaraigosa appointed H. David Nahai to replace Ron Deaton as the DWP’s general manager; earlier this month, the Los Angeles City Council confirmed the appointment after a hearing that Council Member Bill Rosendahl described as a “love fest.” Nahai has not enjoyed a love fest with the local media, however. Though he has served 10 years on the Los Angeles Regional Water Board and three years on the DWP’s board of commissioners, and has also served on the Santa Monica Bay Commission, he has never run a business larger than his own 15-person law firm. Some doubt he can manage the department’s nearly 9,000 employees and their powerful union, let alone root out the endemic corruption that has plagued the department through its history.

On a December afternoon on the 15th floor of the DWP’s Hope Street headquarters in the John Ferraro Building (JFB), the view is spectacular: a sky freshly scrubbed by a winter storm, new snow in the mountains, even a little glimpse of the sea 15 miles to the southwest. Speaking plainly, in neatly articulated, British-inflected phrases, the typically phlegmatic lawyer allows just a little enthusiasm to sneak into his voice as he details his plans for the agency.

“I wouldn’t have given up a highly lucrative business and all my other involvements if I didn’t think I could do it,” he tells the critics. “I know there is history to be made right here.”

L.A. WEEKLY:Three years ago, when the mayor appointed you to the DWP’s board of commissioners, the department had a goal of getting 20 percent of its energy from renewable sources by 2017. Later, the mayor asked that the goal be moved up by seven years. How likely does it seem that you’ll achieve that?

NAHAI: The 20-percent-by-2010 renewable mandate doesn’t look any different to me sitting on this side of the desk than it did when I was president of the commission or vice president of the commission. The challenges are the same, and the promise of getting there is also the same. Even as commission president, I set about making that a priority of the department. I used to hold meetings here every Friday morning at 8 o’clock on a weekly basis in order to find out what the previous week’s progress had been toward meeting that goal. Now I have a whole RPS [Renewable Portfolio Standard] team dedicated to reaching that objective. Since I’ve become G.M., I’ve expanded the team to be more cross-disciplinary, to take in purchasing, environmental and regulatory affairs, as well as the generation, transmission, distribution personnel, in order to make sure we get there. Los Angeles is wonderfully positioned to have access to three principal renewable sources: wind in the Tehachapis, solar in the Mojave, geothermal in the Salton Sea.

Transmission has been a big issue: Getting geothermal from the Salton Sea and power from wind farms in the Tehachapis, such as the new Pine Tree facility, is going to require building new transmission corridors. Some of those transmission lines might encroach on open space and protected habitat. It’s an odd problem from an environmentalist’s perspective: Everybody wants green power, but nobody wants the huge power lines necessary to bring it in from the desert.

LADWP is in a very fortunate position from two points of view. First, we already have an extensive transmission network. We own 20 percent of the transmission in the state. So for [the] 20-percent-by-2010 [mandate] we have adequate transmission. The Inyo-Rinaldi line, which runs all the way from Inyo down by the Tehachapis, will need what we call “phase zero” upgrades in order to accommodate the wind power that will come down that line, as well as one or maybe two large solar projects in the Mojave. But those upgrades are very minimal.

But for 35 percent by 2020 — which is our next milestone — that necessitates accessing the geothermal in the Salton Sea, for which we don’t have adequate transmission, and for which the Green Path [transmission corridor] has to be built. This is where some major transmission challenges come into the picture. Also, the entire area of the Tehachapis is a very significant wind resource. And the current transmission will not be sufficient to accommodate all the power that we would want to bring down from there. An additional line will have to be built. We are right at the beginning stages of that. What the configuration will be, how it will run — it’s just not clear right now.

 

Early plans for the Green Path indicated it might go through protected areas of the Mojave Desert. Are there ways to mitigate the impact of these large towers and transmission lines in environmentally sensitive areas?

Sure. First, as a society we have to make a basic decision, which is, where you have a utility such as ours, approximately 50 percent of the energy comes from coal — is that something we find acceptable? The answer to that, I think, is no. And the answer to that is mandated to be no by the flurry of laws that we’ve had from Sacramento. Assuming that one has to therefore diversify away from a fuel such as coal, which is base-load power — power that you can use all the time — then you have to find an alternative which has the same dependable characteristics. Wind and solar don’t. They are by their very nature intermittent sources of power.

Geothermal is base-load power. So then, that brings us to the next logical step, which is that we have 4 million people living in Los Angeles, and they have to have electricity to live, because we can’t all go back to living in huts. So that means that as we diversify away from the filthiest of fuels, which is coal, we have to have an alternative, a renewable alternative, which generally does the same thing. And in order to do that, we have to have the transmission to bring it home.

We’re committed in this department to doing that transmission in the least impactful way. This is why currently, for Green Path alone, we have six alternative routes. There are all kinds of criteria that have to be looked at: For instance, one of the proposed routes would require condemning 3,500 properties and would cost a billion and a half dollars. All of these kinds of conditions need to be studied as we go through the very public environmental-review process.

I think at this moment in time, most of the environmental organizations, especially the national and state ones, accept that and are willing to support our efforts. In return, we’re willing to promise that we’ll only use that line for renewable energy, except for spot purchases and except for the fact that we have existing nuclear — existing nuclear, which is 8 percent — that will have to go on that line as well. But there’ll be no new nuclear, and no fossil fuels, on that line.

The LADWP is perceived as behind the curve on renewable energy compared to other state utilities, such as Southern California Edison and Pacific Gas and Electric. What’s gone wrong in the past that has kept Los Angeles from bringing in more green power?

I think when you say “behind the curve,” it depends on whether you’re talking about total numbers, total percentage or pace of change. If you’re talking about pace of change, we’re ahead of everybody. Just in the last two years since the mayor appointed the new commission, we’ve almost tripled our renewables, from under 3 percent to 8 percent. I don’t know that anybody else has accomplished that pace of change.

In terms of total numbers, I think Edison is at 16 percent. And we’re at 8 percent.

The reasons for it? I think there’s been a certain attitude of “if it ain’t broke, don’t fix it.” We’ve got very reliable power from coal and gas primarily, and nuclear secondarily, at very low rates. I think that’s been the viewpoint. But it’s completely changed now. The LADWP today wants to be a leader in the field of renewable energy. Conservation, innovation, demand-side management, using less energy, prioritizing green building and restructuring rates to incentivize conservation — we’re at the forefront of all of that now.

Why is renewable energy important? Beyond climate change, beyond environmental concerns, why is it important to have renewable energy?

I’d offer a number of reasons. First, it’s necessary because it’s being imposed upon us. The law requires it. The profile of the LADWP right now includes 13 million metric tons of CO2 emissions annually, 13 pounds per megawatt-hour. That’s a very high level of emissions compared to other utilities in California. The new laws that are in effect are not going to tolerate it. That’s number one.

 

Number two, the people of Los Angeles aren’t going to tolerate it. People are very concerned about global warming. They understand the role that greenhouse-gas emissions play. Everybody accepts it as a reality, and as a result, I think people demand that change.

Next, it’s economically necessary. If you take a look at the volatility of natural-gas prices, it shows that you must diversify in order to take a hedge against the vagaries of the marketplace. As far as coal in particular is concerned, we’re at 47 percent coal right now. But that 47 percent accounts for 74 percent of our greenhouse-gas emissions.

Explain why you think renewable energy makes good economic sense.

I was on a panel the other day at the GreenXchange conference. The other panelists were all entrepreneurs. One of them was talking about new buildings and new construction standards; another was talking about new inventions in lighting, about how the incandescent light hasn’t changed now for decades, and now, all of a sudden, we have this explosion of new inventions in lighting: LEDs, compact fluorescents, all kinds of things. There was a gentleman there from Japan who has so advanced the design of cables that he’s actually succeeded in minimizing energy loss through the use of new cables.

Now, what are all these people doing? All of these people are there because we’re creating a new marketplace. DWP, when we first decided on the 20 percent by 2010, we put out an RFP [request for proposals] for the marketplace to respond to us. Most people expected we would get 10, 15 responses. We got 60. Those are 60 companies wanting to come in and provide renewable energy to the city of Los Angeles.

So, apart from the obligations that we have, both legally, and as a society, and environmentally, we also have tremendous economic opportunities here in this city.

There’s an argument out there that cutting CO2 emissions is going to cost money. What you’re saying flies in the face of that.

Not only that, but they’re not looking at what it costs not to do anything. That argument presumes that fires, floods, droughts, hurricanes — that those things don’t cost money. If you accept the premise that we’re going to be looking at longer heat waves; if you accept the fact that right here in the Southland, we’re going to be having longer fire seasons, and you start to think of the cost of having the kind of ravages that occur when these fires break out, or just the kind of lost productivity that we have when we have prolonged outages, or the effect on the health-care system, it becomes irrefutable that the cost of inaction far exceeds the cost of doing something.

We’re in a natural drought cycle right now, but we’re also facing a crisis on a number of fronts over where we get our water. The Sacramento–San Joaquin River Delta, from which we get nearly half of our water, is a crashing ecosystem; the Sierra snowpack is declining, the Colorado River is in really tough shape. What is the LADWP doing to avert a water-supply crisis?

At DWP, we’re proceeding on four or five fronts. First, as you know, there have already been calls for voluntary conservation, and a rolling out of the Drought Busters program. However, just since I became general manager, I formed a water-shortage team in order to look very carefully at the resurrection and possible expansion of the prohibited-use ordinances that are already on the books, so that those get rolled out if we don’t have an exceedingly generous snowpack in the next month or two.

That means mandatory conservation.

Yes. We’re also studying shortage rates, so that if the enforcement of the conservation ordinance doesn’t yield the necessary results, we would go to the next step, to monetary encouragement — we’ll call it that.

You mean the more you use, ?the more you pay.

That means you have different tiers. Up to a certain extent, you pay a very low, really enviable rate for the water you use. Once you exceed that rate — the actual per-unit cost of the water, it’s measured in 100 cubic feet — it starts to accelerate. We already do that, but we would look at modernizing those numbers, and to the extent necessary, make them even more effective.

But shortage rates are very controversial. Just like the power-rate restructuring in City Council has become subject to so many questions. We’re not going to shy away from it just because it’s going to be subjected to political discourse. We’ll see. One step at a time.

I think we’ve also come to the realization that we need to gain ourselves at least a measure of self-sufficiency as far as water is concerned. There will never be a day when Los Angeles won’t be dependent on imported water. We use 670,000 acre-feet, and that’s with great successes in conservation. In the last 25 years, we’ve grown by a million people, and yet our water use has not appreciated at all significantly, and that’s because of innovations such as low-flush toilets and low-flow showerheads.

 

There’s much more that can be done there as well, such as smart sprinkler systems, waterless urinals, green buildings — the planning department just adopted a green-building ordinance, and the DWP played a very significant part in bringing that about. So, as we move to the future, water conservation and power conservation will become part of the very basic design of building.

What about recycling? Orange County just instituted a massive water-recycling program; even the West Basin Municipal Water District in the city of El Segundo recycles 50 percent of its water. But I read recently that Los Angeles recycles only 1 to 8 percent.

Actually, it’s only 1 percent. It’s not a statistic that we’re very proud of. We’re going to more than triple it in the next three or four years, but we’re going to need to be a lot more ambitious than that.

Will that include the so-called “toilet to tap” recycling?

Right now it’s just for nonpotable uses. But 30 percent of our water use is outdoors. So, out of the 670,000 acre-feet of water the city uses annually, 230,000 acre-feet is used outside. All of those sprinklers that you see going — that’s all drinking water!

But I’m on record already as saying that I believe pretty soon we need to have a conversation with Angelenos about indirect potable use. Not only has Orange County done it; it’s done the world over. In European countries, where we wish we had a tenth of their rainfall, they’re recycling their water. I mean, this is not radical stuff. The technology is there. To have the current situation in which we treat our wastewater to very high standards and then dump it in the ocean — that surely is not tolerable.

What about ground water? Can we make better use of that?

Yes. The next area that we can tackle is aquifer remediation. We have a very vast aquifer in the San Fernando Valley, and we’re unable to take advantage of it because it’s contaminated with chromium 6, perchlorate and other contaminants. And DWP can no longer wait for that remediation to take the course it’s been taking. We need to play a more aggressive role in speeding up the remediation of the aquifer, which is a Superfund site. Once we do that, we’re going to find that aquifer will pay very handsome dividends because it can be replenished, utilized for water storage in wet years — it’s a natural water bank that we have right here within the city’s limits.

I was at the beach the other day as the tide went out just after a storm. I noticed a line of plastic and Styrofoam marking where the tide had been. I find it so appalling that we speed our rainfall down storm drains into the ocean, along with all the garbage that rain picks up on the streets. What can the DWP do about solving the urban-runoff problem?

We’re going to be moving on storm-water capture. The rainfall that we do get right now is wasted, at least 50 percent of it, and in the bargain it contaminates the coast because of the storm-drain system.

Imagine what we could do if we could capture that storm water, get it to spreading grounds, get it to percolate, get it to replenish underground aquifers, and again have it be there as a natural water bank straight from the skies to the ground, percolating through the subsurface to underground aquifers. We’re already able to do that with existing structures such as the Big Tujunga facility. But after years of neglect, its seismic condition is in some doubt. We have to make the investment to make sure its condition is safe.

Once we do that, we’ll be able to fill and refill that facility numbers of times during a rainy season, with the water flowing into spreading grounds that are already there. And we’ve entered into an agreement with the county in order to do that. Seed money has already been spent. And we intend to get the rest of the money from Prop. 84 funds [the water-quality bond passed in November 2006]. We tried to do it last year; we were not successful. We’re going to scratch and claw for it again the next session in Sacramento.

It would be huge if something like that could happen. It also seems like it’s common sense.

Right now the L.A. County beaches account for a $2 billion coastal economy. And if people feel that the water is contaminated, or they cannot walk on the beach for fear of getting cut with cut glass, or being assaulted with this dreadful sight of trash on the beach, why would they go? And if they don’t go, what happens to the beaches that are the pride of L.?A.? Our advertisement to the world?

 

That seems to be the front on which you can win some of these battles: It makes good business sense, high-minded values about the environment or not.

We’ve far too long suffered under this false assumption that somehow the environment and the economy run counter to each other. It’s absurd. Coastal contamination is a very, very clear example of how environmental degradation will cause economic damage. Not in the long term, but right here and now.

This agency you’re running now has a long and difficult history, and many people would say that mismanagement and corruption are endemic. It’s going to be hard, if not impossible, to change the way business is done here.

First, I reject the notion that organizations can’t change. That’s what they said about the regional water board when I first got there, and that’s what they’ve said about international law firms I’ve been a partner in. I don’t accept that.

Second, this organization has for a century delivered clean, reliable, safe, very inexpensive water to the city of Los Angeles, and since 1916 has delivered cost-effective, very dependable power to the city of Los Angeles. I want the work force here to feel proud of the service they’ve provided. I feel there’s a certain low morale around here.

That’s what I’ve heard. What do you plan to do about that?

I intend to deal with it by having employee meetings, by talking to the employees directly, and by doing away with this disconnect between the 15th floor of JFB, where you and I are sitting right now, and the 8,500 workers out there.

I was just at a function this morning with the electric-construction workers, and they were very happy to see me there. They feel like they do good work day in and day out, but they don’t feel that they have any connection with management.

While I was a commissioner, three DWP workers were on a job and they were consumed by a fireball. I visited the hospital and sat with them and their families. One of them later on lost his life. He was in his early 50s. And my very first function as G.M. was to go to an event held in the Valley, the 25th anniversary of an event held for burn survivors put on by the Grossman Burn Center in the Valley. A number of the people there were DWP employees, and they called me up to say something, and what I said at the event is that the Grossman Burn Center bears silent witness to the service and sacrifice of the men and women of the Department of Water and Power. Because so many of them suffer in accidents, get electrocuted, fall off poles — and when a crisis hits, they’re out there in all kinds of weather dealing with live electricity, trying to fix it. They provide a dedicated service, and I want them to know that that is appreciated by those who manage this organization.

I don’t think that’s been done terribly much in the past. And I think, and believe, that in having that conversation, we can also talk about the adaptability of the organization, and the need for certain changes to occur — on the power side, on the water side, internally on the information-technology side, in the ways that we do business — I think that I can remind the work force of the fact that each of them are ambassadors of the organization as well.

I think there’s a great deal to be proud of. I think there are changes that must be made. But I’m very confident, very optimistic, that the changes that need to be made can be brought about. And I think the organization is very much willing to accept leadership that’s decisive, unequivocal, that sets forth a direction and asks the organization to follow.

The DWP has had a long-standing problem with transparency. I’ve run up against it as a reporter — I’ve found ordinary information extremely difficult to get out of the DWP’s media-relations people, and staffers routinely have been forbidden from speaking to the press, even under controlled circumstances. Employees have also complained of retaliation when they make accusations of discrimination within the organization.

When I first got on the commission and was given the chairmanship of the personal-relations committee, and heard that drumbeat of complaints about retaliation and discrimination, I held three days of hearings just to encourage rank-and-file employees to come forward and talk. And they did. We gave them whistleblower-status protection, and as a result of that, I had six business units audited here, by outside auditors, at considerable cost, to try to root out any retaliatory or discriminatory type of practices.

 

As a result of that, there’s management training that’s going to be going on, a new kind of management ethos, a new way of communicating that’s going to be introduced. I’ve been very sensitive from day one to breaking down these kinds of barriers.

I remember when I did it back then, some people said, “Here comes this novice, outside commissioner opening up these floodgates. What will this do to the organization?” But people came and expressed themselves, there were investigations that were done, and as a result there are going to be improvements in this system.

At the moment, the Los Angeles City Council is taking 60 days to consider the 9 percent rate increase the DWP has proposed to pay for its infrastructure repairs. Part of what they’re looking at is whether that money will be wisely used. Why does the DWP need to impose a rate increase?

What the rate increases do is, they enable us to deal with Wall Street. In the parlance of financiers, you have to maintain certain “minimal capital requirements.” If you can do that, you can finance the money that you need at very low rates and have a payback period that’s very long-term, so that the pain of returning that money is hardly felt among the people.

If you can’t have your minimal capital, or you don’t have a sufficient rate base, your interest rates go up. So if we can get this additional money in, we’ll be able to deal with our infrastructure problems at very low rates. If we don’t, we’ll still have to spend the money, but it will be spent on the ghost of higher interest rates, without a concomitant benefit.

It takes someone steeped in the financial markets to understand that kind of equation at all.

Is that you?

I’ve had a decade on the executive committee of a bank, with very in-depth financial expertise. And more and more, this organization needs at its helm not a chief engineer, but a very savvy transactional lawyer who also understands the markets.

So, how do you answer the critics who say you’ve never handled an organization this big, and don’t know what you’re in for?

I had two critics, I’ll call them, of my management experience: One of them writes for CityBeat, and if you take a look at his latest entry in the latest editorial, it starts out saying, “Hand it to David Nahai,” and goes on to say that I know as much about the water side of things as Mulholland did. And my other critic is Marc Haefele, who later said he’d been far too critical of me, that his earlier critique was based on the black-and-white of my résumé. Having heard me, he went on to say that he thought I’d be the best G.M. in the place for decades. So I think I changed some minds. And that’s difficult for somebody to do — it takes something for someone to shift, and so I was happy about that.

But in response to the question, let me offer this: People who’ve observed me will say that I was just an extraordinarily involved commissioner. For two years as vice president and president, I was in the trenches, in the guts of this organization. I did much in the way of leadership and management. I had a hand in many of the remarkable changes that occurred in the agency over that period of time — both internally on personnel issues and the tripling of renewables in the energy mix.

As a result, now that I’m here, I feel I have the acceptance of the work force as well. That’s the first level I would offer about my experience. I have in-depth experience, management experience, of the utility itself.

Secondly, I spent 10 years on the regional water board: I’m an acknowledged water expert in the state. I was appointed by three very different governors with three very different philosophies. I was confirmed by the state Senate three times and served as chair four times, which is unprecedented. They actually honored me by naming the water-quality awards after me. They’re called the H. David Nahai Water Quality Awards.

Then you add to that my experience and leadership on the Santa Monica Bay Commission, in playing a leading role in helping to structure that commission.

And that’s just on the public-sector side. On the private-sector side, I’ve been a partner in an international law firm, a Wall Street law firm with offices as far afield as Budapest. So, large organizations and large deals and large numbers come as no surprise to me.

 

And I’ve actually realized the American Dream: I formed my own company, which started with me in a room and grew to seven lawyers and full staff. I met payroll every two weeks and in the bargain provided for my family quite well. I know how to run a business. And yes, this is a much larger business, but there have been many people who have sat behind that desk who have not personally had to meet a payroll. And there is no lesson like that.

So, in response to your question, I don’t feel daunted at all. I feel very comfortable.


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