Nichols Sees LADWP-CAISO Trading Ahead

After years of icy relations with environmental groups, the California Independent System Operator, and state agencies, the Los Angeles Department of Water & Power's new leaders are seeking a thaw that will allow the department to work more productively with outside parties as it sets a new course. The new board's emphasis on openness and collaboration may result in concrete changes at the department in the coming year, according to new board president Mary Nichols. This is expected to include mending the frayed relationship between the grid operator and the department, as well as increasing the pace of renewable energy projects for the sprawling city of Los Angeles, she said. Also confronting the new board is LADWP's aging infrastructure that has caused recent blackouts, and concerns that its unions wield too much influence. It also hopes to improve the department?s image tarnished by a scandal in which public relations executives working under contract face criminal fraud charges. Nichols hopes her new position allows her to remake the beleaguered department. Nichols, former secretary of resources under Governor Gray Davis, was appointed to the department?s board by Los Angeles' new mayor Antonio Villaraigosa, who pledged in his campaign to green America?s second largest city. Nichols, a former U.S. EPA assistant administrator under President Clinton, was thrust into the fray last month in an effort mend the department?s tattered relationship with the grid operator. While there has been tension under the surface for years, the poor relationship between the two bulwarks of the state?s power grid became public last month. An embarrassing transcript of a hostile response by an LADWP trader to a request by CAISO to buy power was released to the media by the grid operator (Circuit, Oct. 7, 2005). Nichols moved to redress the damage late last month with Yakout Mansour, CAISO chief executive officer. After discussing restoration of direct power trading between the two agencies, "We came to a very good mutual understanding," Nichols said in an interview with Circuit. She discounted the notion that California is seeing the ?balkanization? of its grid. There are "concrete steps" that should make it possible for LADWP and CAISO to sell and buy power directly from one another by next summer, she said. She hopes to resolve poor communication and structural issues that have prevented the two agencies from trading. Trading broke down when disputes?pending before the Federal Energy Regulatory Commission - arose during the state's power crisis about the department's power-purchase payments. During the crisis, CAISO was unable to collect money for power sold to financially struggling investor-owned utilities and pass it through to generators. "There is an issue regarding sales made four years ago that are caught up in the FERC refund process," said Gregg Fishman, CAISO spokesperson. "At some point there will be an order from FERC on how to collect that money and redisburse it." Meanwhile, the grid operator is credit worthy, he said, as are all of the participants in its market. While Nichols noted that LADWP has never failed to sell power to "a neighbor in distress," resumption of regular trading with CAISO could help ease supply concerns in Southern California. The California Energy Commission says rapid growth is straining available energy resources during peak periods and LADWP has ample reserve generation capacity. Relations between LADWP and the Energy Commission have also been strained. Earlier this year, the commission attacked the department for its reluctance to supply data for its 2005 Integrated Energy Policy Report. Commissioner John Geesman said that LADWP likes to operate as if it were "a separate planet" (Circuit, April 29, 2005). Earlier the commission had criticized the department for failing to coordinate on transmission issues and for its laggard pace on moving to renewable power technologies. Nichols countered, saying the department did supply the needed data for the 2005 IEPR. She emphasized that "LADWP needs to participate in statewide energy planning." However, the department is regulated by the Los Angeles City Council, which does not want to cede its jurisdiction to a state agency. "There's nobody who is more impatient about the pace of acquiring renewable energy than the Villaraigosa administration and myself," said Nichols. "So we are going to have a surge of activity on that front." The department's new commission will have to address "fundamental policy questions" about whether to build its own renewable energy projects or focus on purchasing renewable power. It also will have to decide whether to try to bring new renewable power on line under a new request for proposals or requests already outstanding. Nichols discounted the notion that the department should abandon repowering its old natural gas plants in favor of investment in more renewable power. "Talking about repowering in the same breath as talking about renewables is comparing apples and oranges," she said. Repowering will make the plants operate more efficiently, saving on natural gas and emitting less pollution, according to Nichols. Nichols said that blaming the department's problems on its unions is little more than looking for a scapegoat. The International Brotherhood of Electrical Workers was criticized for pressuring the city council to approve a pay hike above the city average and has been accused in press accounts of wielding too much influence over department mangers. "You can't blame the union for taking advantage of weakness if there is weakness in the city leadership. I think they have exploited weakness in the past in ways that have not been helpful to the department or even to the union's interests in the long run." Nichols hopes the department will make Los Angeles more sustainable. She wants to create a more holistic approach to managing the interrelated aspects of the city's water and power supply. "The city right now is living on the investments and the foresight of people in the 1970s who went out and bought land and bought coal mines and built a train and built a huge power plant in Utah and in Nevada and invested in a nuclear plant in Arizona," she said. "Those investments are now coming to the end of their useful life. It's really incumbent on the department now to be setting the course for the next generation."

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Nichols Sees LADWP-CAISO Trading Ahead

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