One year Ago- Ron Nichols at VX2012: Los Angeles Department of Water and Power Must Meet Renewables Obligations

David Abel: I’ll just set the context and then ask Ron Nichols, General Manager of the Los Angeles Department of Water and Power, to step forward to speak first. We deliberately tried to start the day not with the euphoria of the first four years of renewables unbounded, where everything was possible, but to talk more about the challenges of this agenda in the real world—challenges driven by Washington, the state, the uncertain nature of the economy, the price of energy, and the source and reliability of energy. That’s why we structured this opening session to talk about where we are. Ron is a little constrained by rates and approvals. How do we reach that agenda? How do we execute those goals and overcome and navigate those challenges?

Ron Nichols: I look at what California and Los Angeles are dealing with right now, and I see it as a phenomenal opportunity. Running the largest municipal utility in the US right now, this is the most exciting interesting time to be providing electric service to customers since Edison invented the light bulb. It’s a great time to be here, but it’s a very daunting time to be here as well.

On this graph, I have the dates 2020 - 2029 featured for a specific reason; they are the duration of time in which certain things have to get done by law. There are things we want to do; there are things we have to do; there are things we must do; and there are things that the law says ‘thou shalt do,’ and those are not necessarily all one in the same. The 33 percent renewable requirement—it was a goal of ours for the City, and now it is the law of the land. I am glad. It makes my life a lot easier: we don’t debate this anymore; we just get it done. Ending the importation of coal power—sometimes I feel like I have a big target on my back with that issue, given that 40 percent of LA’s power comes from imported coal. 

It’s not a question of ‘are we going to’: we are. It’s now a question of how quickly can we do it, and we’re moving forward as fast as we can.  The fact that we have an obligation, by law, to have 10 percent energy conservation by 2020, that opportunity is something we very much welcome.

The thing that is unique to Los Angeles is that we have a requirement to get rid of once-through cooling. That means we have to completely rebuild nine different power plants at three different sites. By law, that needs to be done by 2029, meaning we’ll go through it every month from now until then getting that done. On top of that we have some very specific state solar mandates that we have to develop. All of these things individually would be interesting challenges. Collectively, it’s a lot.

Underlying all of this is that these numerous goals feed into meeting AB 32 requirements for cap and trade. As Los Angeles, if we meet all of those requirements, we’re good to go. We’ll meet our requirements for reducing our carbon footprint and being within the provisions of AB 32. If we don’t, there is a very large hammer to make sure we do.

The first thing that we should always do is consider the prospect of the best energy we could ever create, which is energy that we don’t use. As Bill Allen and David Abel mentioned, rates are a big issue for us, and we need to move forward on doing more on energy efficiency. We need to get to 10 percent by 2020. We are moving up that ladder now, and we are looking at getting another 8.5 percent between now and then. Our board just adopted that, and, frankly, they are not satisfied with it. I’m not satisfied. As a utility, we are not satisfied with that level.

Every time we have not had sufficient rates in our budget, the very first thing that we cut is energy efficiency. We do that because we have so few degrees of freedom. We simply can’t continue doing that; it’s a huge issue for us. We’re going to spend $1.25 billion to get there between now and 2020. We should be spending more, and we should be getting more.

This chart shows how we are going to attain 33 percent renewables by 2020. Existing wind is a big piece; new wind is a huge piece. Small hydro will never grow from what it generally is, unless we can find something that we haven’t found yet. Biogas is kind of a feeder in there. Solar and geothermal are huge pieces of what we’re doing to replace coal. We have a lot of arrows in our quiver, but the reality is that each one of these requires dozens and dozens of contracts, commitments, and projects that make working on these things tougher to do. I’m not complaining about it—it’s just the reality of replacing 1600 MW of coal, taking a couple of plants and replacing them with dozens of other actions.

Solar has different pieces for us. We have our SB 1 program for our solar incentive program, which has had its ups and downs (I think it’s on the upswing now). We have utility-built solar, which is a piece that will grow over time. We have power purchasing agreements that will be larger-scale solar tied to our existing transmission system. Our feed-in tariff is just starting, and I’ve received a lot of healthy advice as to why we aren’t doing more faster. There’s a lot different things we need to do with solar, and that’s just one piece of the diagram.

I spoke earlier about once-through cooling, and most people who don’t deal with it don’t realize that we have some 2700 MW of gas-fired power plants on the coast that we’re going to be rebuilding. Starting this year, we already have one that has broken ground and another that we’re getting contracts for. Every single year, from now till 2029, we’ll be tearing down one power plant and putting another in its place to get off of any water cooling. We will have zero water-cooled power plants on the coast by 2029. Through that process, we’ll renew and rebuild those plants so that they’ll be able to more quickly follow varying operations of wind and solar as we add that in there. But that is a $2.2 billion dollar investment we’ll be making to get there.

The big issue, the thing that is a huge driver in all of this, is our requirement to get off coal. SB 1368 gets us off there; most people don’t realize we have already closed the Mojave plant. By law, we need to close the Navajo plant by 2019, and our plan is to do that by 2015. I look at this not as a situation where you have to get off coal in order to allow renewables—it’s the other way around. Developing 33 percent renewables enables us to get off of coal. This is an opportunity, not a burden. While there are some associated costs, we see ourselves as being better off.

The intermountain project in Utah is a bigger issue. We don’t own that plant—we are a power purchaser of it. We have thirty-six other parties to work with in trying to change that. We are working as quickly as we can to get off of that as well.

Let’s be clear: natural gas has a huge role to play in moving away from coal. We’re going to end up being 47 percent natural-gas-powered. The fact is, without renewable sources we would be about 80 percent natural gas, which is an untenable position. 47 percent is a mix we can live with. Does it have some consequences and risks? It does, because power supply is not the only thing we’re dealing with. We have an aged infrastructure out here. We’re spending $800 million dollars a year—the biggest capital investment we’re going to make in the next decade—to replace aging infrastructure that we should have replaced years ago. We’re playing catch up on that.

So when you tie all of that together, are we at a tipping point? I’m not going to sit here right now and say exactly what our future rates are going to be—generally speaking, if everything were to go fantastically, if natural gas prices stay where they are now, if energy conservation comes out where we expect it to be, if our renewables come in where we want them to, we would be at about a 4 percent increase per year for the rest of this decade. Do I think that is likely? No, I don’t.

If things are more expensive on the average, then six percent a year may be more likely. Some years will be more; some will be less. Is that a tipping point? Is that something we can’t contain? I don’t think so; I think we can live within this. Now, it is a lot easier for me to say that knowing what we need to fund, but if you look at where LA is relative to other California utilities, our rates are lower. All the other utilities are dealing with much of the same. We may not use as much coal, but they don’t have as much once-through cooling.

Our rates will remain lower than theirs. No one wants to see their rates go up, but we are going to be cheaper than our neighbors. I believe we can do it, we can get it done, and we can get it done in a way that will not be a detriment to our local economy. If we do it right, we can create more jobs in the economy here. We just have to get on with it, and we have to recognize that’s what it’s going to be. We’ve planned for it; we live with it; we have an economy that can sustain it; and more importantly, we have an environment that will benefit from it.

I hope I can get everyone’s support in creating a multiyear plan to enable us to move forward. However, we have so many constraints in terms of getting things done that if another mandate is layered on, then we are at that tipping point. We have a lot on our plate, we have to digest it, and I think that we can.•••