LADWP's David Wiggs Looks Beyond Energy Crisis To New Challenges

With FERC lifting its protective ban on the information that guided its assessment of the California energy crisis and local stories about DWP and its alleged market manipulation, share with our readers your response to such media attention.

Let's start with LADWP's own activities. This activity occurred before I was here and before Mayor Hahn was in office, so we both have said there is nothing that we personally need to protect or worry about. As a result, we've been totally and completely forthcoming in providing all of the information we can. To that end, we engaged the Washington, D.C. energy law firm VanNess Feldman to conduct a complete audit of the Department and its activities during the State of California's energy crisis. They reviewed thousand of documents, mails, and tapes, and interviewed a hundred different people.

Their report, which was made available to the public a couple of weeks ago, revealed that LADWP acted in a legal, professional manner. We did not manipulate the market, and we didn't withhold generation to drive prices up. It was a pretty clean bill of health. To prevent our city's transmission system from being exploited by future Enrons, the report recommends that we adopt some new measures to better protect ourselves. We have since installed new procedures going forward, and had an ordinance passed by the City Council just to make sure that, in the future, nobody knowingly participates in any transaction that could be used to game the system.

This issue does continue to surface, as you say, but we're fully prepared to respond. During the energy crisis, LADWP kept the lights on in Los Angeles, and we acted as a good neighbor to those California communities that faced rolling black outs. We acted appropriately and legally; our internal investigation has confirmed this, and now an independent audit by a reputable law firm has, as well. In fact, we are still owed about $180 million from this period of time for power we provided.

Put in perspective the continuing saga about the transparency of federal and state regulatory review and control of our energy markets.

We continue to try to work with the people in Washington, D.C. to exclude LADWP, and a lot of the other municipal utilities, from potential legislation that may affect our ability to serve our customers. Our purpose here at LADWP is to serve our native load-our retail customers. We are not a wholesale company-we only participate in that market because we have some excess capacity. We sold that capacity to California first during the energy crisis, and we would do that again if there were another energy emergency.

We have tried to communicate support for anything the federal government is trying to do with regional transmission or incorporating additional controls, as long as it does not adversely affect our ability to serve our native load, either from a reliability perspective or from a cross perspective-we've said we would work with them on any other aspects of it. So that's been my message, and we continue to deliver that message when we go to Washington, D.C.

Now give us your prediction three months out of what we're going to be reading about the energy crisis and deregulation.

This is still unclear. At this point, my understanding is that there probably will be an electricity title, but it probably won't push for total control over our transmission system. The whole deregulation area – I have felt all along – has not worked as well as it could or should have. I would caution again to go very slowly. I haven't seen where deregulation has ever produced sustained long-term benefits for the customer. I just don't think you're going to get this thing pushed towards regional transmissions organizations, and continued deregulation. I just don't think it's going to happen.

David, let's turn to DWP's energy agenda. What are the Department's priorities and challenges regarding power going forward?

The power side is in good shape. We just had our bonds upgraded to AA and are one of the few utilities around with bond ratings going up. We've done that because we have stuck with the basics-focusing on our infrastructure, upgrading and replacing our underground facilities, and our equipment. Our rates are still stable-don't expect any changes in our rates in the immediate future. Those rates are a good 40-100 percent less than our competitors, or less than the neighboring utilities. We again want to do everything we can to protect the utility from either state or federal legislation that would take control of or hurt our ability to serve our customers.

We are now focused on renewables. We're currently developing a renewable portfolio standard for Los Angeles and just entered into a contract for a significant new wind power facility, which will be the first one that the LADWP will own and operate. So we're taking the next step and building on the successes of our green power programs to actually owning and operating our own renewable resources.

LADWP is involved in a very exciting project in the harbor. I returned from a trip a few months ago that I took with the mayor to Asia, and we're pursuing a project called AMP, Alternative Maritime Power, to help the environment. We're going to be offering container ships that come in and dock at the harbor an environmentally friendly alternative to continuing to run their diesel engines in order to keep their refrigeration units and operations going. In the AMP program, we're going to plug these ships into our power source from the shore. It will enable these ships to keep operating, provide enhanced revenue for the City, and best of all, make a significant stride in cleaning the air in the harbor area. The military has a similar program in place called cold ironing. We've signed memoranda of understanding with several very large shipping lines around the world to pursue this. We should have a shipping line hooked up to AMP by the end of the year.

In addition, we were this year able to negotiate new long-term agreements with all but one of our unions. We continue to pay down our debt. We put a new gas ordinance in place so we can be protected against the volatile gas market, which you're seeing now, in our purchases. So all of those steps have put us in a pretty strong position going forward on the power side.

And on the water side of our public utility, David?

Our water services operation does face some challenges. I am happy to report that in the more than 100 years that LADWP has been providing Angelenos with a dependable water supply, our water is now of the highest quality it ever has been in our history. Nevertheless, we continue to face increasingly stringent water quality regulatory requirements that require substantial investments.

Our job of providing water to our customers has also changed. While security had always been a priority for the Department, the terrorist attacks were a catalyst for change in the way we look at securing our water system. Since September 11, LADWP has been implementing a $132 million security program that includes increased testing of water for contamination, hiring more security personnel, conducting more air patrols and installing fencing and electronic surveillance at key facilities. We will remain vigilant in ensuring the safety of our system so that we can continue to deliver the highest quality water to our customers.

Living in a semi-arid desert region as we do here in Los Angeles, we have ongoing water supply issues. In Los Angeles, we are in pretty good shape. I know that you've reported on the issues with the Colorado River affecting the Metropolitan Water District, where we buy some of our water. This failure to reach an agreement won't affect LADWP, at least in the near term. We have ample water and have the ability to contract for water. But in the long run, it's a concern to us. We continue to press hard on our conservation efforts.

Our customers have done a really good job of embracing our conservation programs. In fact, in the last three decades the population of Los Angeles' has grown by 35 percent. But, due to the aggressive and highly successful conservation efforts of our customers, water use has increased just seven percent. We are also looking to the future by exploring desalination, a program that will convert seawater to drinking water. With the technology getting more economical, this initiative may soon be a viable option for LADWP customers. We're in the midst of spending $2 billion over the next decade to improve the infrastructure. Many of our pipes and trunk lines have been around almost a hundred years now, so we're replacing them to ensure reliability and improve water quality. Combined, all of these efforts do translate to a considerable financial investment on the part of LADWP. But, this is what is necessary for the Department of Water and Power to continue to meet its mission of providing the residents and businesses of Los Angeles with a dependable flow of high quality water.

In last month's Metro Investment Report, we interviewed David Allgood of the League of Conservation Voters who asserted that LADWP is "way behind the curve on the use of renewable energy," well behind the 20-percent goal set by the state. What is your response, David?

I've spoken to him about that and we have taken some additional steps to own and operate our own renewables. LADWP started a program about four years ago of marketing and educating our community about what renewable power is, and its costs. And, the Department did a good job on that. Probably what hasn't been recognized as much is that we have done a real good job on demand side management. We've lowered our demand by about five percent because of the efforts from the conservation program-and these are more permanent changes, not just a change in attitude and habit by people.

We've had some very good success in our solar buy-down programs. In addition, we have had several manufacturing companies open operations in Los Angeles to manufacture solar roofs, and we continue to invest in incentives to make our solar programs possible.

So, we have done a good job of building up some of these programs, but it's not yet as many megawatts as we would like. I think what people are saying is that LADWP needs to be more active in developing the actual generation of renewable power. We agree, and have taken some steps to bring renewables up to higher level. In fact, that wind project I mentioned earlier will produce about 120 megawatts – that's enough energy to power more than 100,000 homes. We think this is a pretty good immediate step-and we're going to look at several other renewable projects over the next few years.

L.A. is going to adopt its own renewable portfolio standard. Its precise make-up is still being developed. It may or may not be exactly like the state's 20-percent mix, but its focus will be on cleaning up the air in and around the L.A. basin. Those are the types of projects we're looking for. Some may feel like we haven't moved as fast as we should, but LADWP is very committed to this and we're going to do it in a responsible manner for our rate payers.

Let's turn to the issue of water recycling. It's received a negative response from the public, particularly in the Valley where some leaders and a prominent newspaper dubbed it "toilet to tap." If water recycling has a limited future, what are alternative sources for new water for a growing population in Southern California?

Recycled water has been a cornerstone of our water planning for the last two decades. The most well-known of the water reuse programs is the East Valley Water Recycling Project. The original design called for the city to take wastewater, treat it three times, filter it naturally through soil for five years, and mix it with large amounts of groundwater before serving it to customers.

Los Angeles customers told LADWP they were not ready to ingest recycled water. City leaders, above all Mayor Jim Hahn, eloquently articulated the public's legitimate concerns. The Department strongly believes that customer confidence is our highest priority, so we decided the only appropriate response was to refocus the program. Therefore the water will not be served for residential use. Nor will the treated water be used to recharge groundwater supplies. Instead, the project's water will be served to golf courses and large industrial plants, and will be delivered through a separate set of pipes. This compromise achieves the goal of the recycling program: expanding our clean water sources through smart planning.

Overall, we will just have to look harder for other sources of water, LADWP water engineers continue to apply long-term thinking to help ensure a reliable supply for years to come. Ocean desalination will be the next technological advancement to boost our supplies. While desalination will not happen overnight, it may become a reality in the not too distant future.

Water recycling, however, is here. It is among the most feasible sources of additional water to meet Los Angeles' projected population growth when used for irrigation and industrial uses as we now plan.

We may also look at other contracts of buying water, certainly continue to work to grow participation in water conservation programs, and of course we still have a very strong source from our aqueduct system-it still provides us with more than 50 percent of our water.

You made reference to the Mayor's trip to Asia and the new Alternative Maritime Power Program designed to reduce air emissions in the port. There are some grumblings in the economic development community and at the port that this program will make the L.A. Harbor less competitive as a place to do business for those coming in with large ships. Are you concerned about the economics?

No, I don't think so. I've made it very clear that this has to make economic sense for the shipping lines or they're really not going to do it. We're in a position, because we have surplus power and because we have prices that are very competitive, where we can do long term contracts with these shipping lines that will make it economical. I don't honestly believe they will do it if they are disadvantaged in any way. We're going to work hard to create a good business environment for the shipping lines to participate in the AMP initiative.

Last question. There are rumors circulating that you are going back to the private sector. Give us a status report on your tenure with DWP.

I was approached and have been offered a particular position involving a troubled energy company. It is one that I am looking at hard and will decide here over the next couple of weeks if I want to do it or not. It plays to my background-a situation where I would need to run a company and take it through bankruptcy and restructure it. But I have not made any decision yet. I'm still here, and, as of now, I'm going to stay here. I've enjoyed this job a lot and I'm not really looking to move. But, sometimes opportunities come up that you can't ignore.