LOS ANGELES — When Los Angeles Department of Water and Power General Manager Ron Nichols announced he would step down at the end of January, the focus was on a recent controversy involving two non-profits.
The recent turmoil overshadowed Nichols' role as architect of an $8.9 billion capital improvement program the nation's largest public electric utility planned through 2017 to meet deadlines for environmental mandates from the state and federal government. He brought order to a department that appeared fractured and untrustworthy, according to business leaders.
The department has been under fire over transparency issues related to the Joint Training Institute and Joint Safety Institute, two LADWP affiliated non-profits managed by Brian D'Arcy, leader of the utility's largest employee union.
D'Arcy's role as head of International Brotherhood of Electrical Workers Local 18 makes him a power broker in L.A. politics.
The two D'Arcy-managed entities received $40 million from LADWP over the last 10 years - and LADWP commissioners want to know what the money has been spent on.
The controversy came when commissioners, a board appointed by the mayor to oversee the department, asked Controller Ron Galperin to audit the non-profits.
While LADWP trustees turned over documents, the union trustees refused. Galperin issued a subpoena to obtain the documents from union trustees. A court hearing is slated for early February on the matter.
Current events appear mild compared to the atmosphere surrounding the municipal utility before Nichols took over in January 2011.
Nichols arrived several months after an announcement by former Los Angeles Mayor Antonio Villaraigosa and interim LADWP General Manager David Freeman that the utility would have to raise rates anywhere from 5% to 20% in one year to pay for environmental mandates.
That announcement set off a firestorm of finger-pointing between the mayor's office, city council, controller's office and the business community.
"When the department came to us with that proposal, none of the numbers they gave us, as to why they needed to do this, made sense," said Carol Schatz, president and chief executive officer of the Central City Association, a downtown Los Angeles business advocacy group. "There was no indication of what the costs really were; the numbers kept moving, like a shell game."
The level of distrust between the City Council, the business community, ratepayers and the department was so steep before Nichols started that the council created a ratepayer advocate position to keep an eye on the LADWP.
It was clear in hearing after hearing that the numbers just did not add up, Schatz said.
"We felt the department was being incredibly disingenuous with us," she said.
The mild-mannered Nichols gained the trust of business leaders, she said, by bringing a level of transparency previously missing from the department.
"In my 23 years of working with the city, Ron was the only general manager who knew anything about running a utility," Schatz said. "David Freeman may have had some - and there may have been an interim with a bit of experience, but most of the people appointed came from different parts of government bureaucracy and didn't have water and power experience."
Shortly after Nichols started, Schatz said he worked with her to organize meetings with business owners all over downtown.
"He came in at various times after that to explain why a rate increase was going to be necessary," Schatz said. "While the property owners were not crazy about it, at least they felt they were dealing with someone with integrity, honesty and whose numbers were real."
Nichols has been largely successful in getting buy-in from business and residential ratepayers for a series of stair-step rate increases from five to seven percent through 2020 to pay for the projects.
He started by making $500 million in cuts over a three-year period that included reducing DWP staff by 500 positions, primarily through attrition as people retired. He went through every item over $25,000 on a $4.3 billion revenue budget looking for places to cut. His cuts included reducing cell phone usage, cutting travel costs and reducing the number of cars provided to workers.
"If you are asking for rate increases, you better make sure you have done everything you can to avoid raising rates," Nichols said.
When asked about the qualities the city should look for in a replacement, Gary Toebben, president and chief executive officer of the Los Angeles Area Chamber of Commerce, suggested a Nichols clone.
"He won over even some of the most severe critics of LADWP," Toebben said. "I was disappointed when he announced he was leaving, because he has done an outstanding job."
During his first 18 months, Nichols said he attended 70 of 80 public hearings to convince ratepayers that the first two-step 10.9% rate increase, approved in September 2012, was necessary.
"Every utility job is 24-hours, seven-days-a-week because you never know what will go bump in the night," Nichols said. "At LADWP, it's 24-7 just doing the job."
The demands involved in planning the capital projects and making sure they physically get done and get financed is hard enough, he said.
"Then you have to convince people the rates need to be adjusted, and then there are the politics of Los Angeles," Nichols said. "It takes a lot out of you - and there is a reason the position has turnover."
The city went through five general managers between 2007 and January 2011 when Nichols was hired.
"Three years as general manager of LADWP is a long time," Nichols said. "I refer to it as dog years."
Among his achievements is a feed-in-tariff program where businesses who install solar panels on their roofs can sell back power to LADWP; it is expected to produce 400 megawatts by 2016. He also created a 15-year plan to build nine different gas-fired power plants to replace all of the utility's existing plants that use ocean-cooling, a process banned by the state.
By 2018, the city will receive 3,000 megawatts of its power from solar and wind farms. With all of the changes planned, Nichols said the utility will replace 70% of its entire power supply in the 15-year period leading up to 2028. He has reduced the amount of power the city receives from coal from 41% to 28%. The city is on target to be coal-free by 2025, three years earlier than outlined in state mandates, Nichols said.
On the power side alone, the proposed projects will result in $750 million to $900 million in bonds annually.
Nichols said when he turned 60, he began reflecting on what he wanted to do with the rest of his life. He wants to work for another 10 years in the same position before retiring - and he couldn't see himself working another decade as LADWP's general manager. Although he didn't start a job search while at LADWP to avoid any conflicts, he will be returning to "the love of his professional life," the utility industry.
"The first thing I am going to do is something I've never done in my adult life - I am going to take a month off," he said.
"I will bet his phone has been ringing off the hook with people trying to hire him since he announced he was resigning," said Mel Levine, chairman of the LADWP commission.
Although finding a clone isn't on the list of qualities city leaders are seeking, Levine said they do want someone with the level of experience running a utility that Nichols had.
Nichols' successor, announced late Thursday afternoon, will be Anaheim City Manager Marcie Edwards. Prior to her appointment as city manager she ran Anaheim Public Utilities for 13 years. Before that she worked at LADWP for 24 years in a variety of positions.
Nichols has 38 years of such experience and had been consulting with LADWP on a regular basis before he was hired permanently.
Just prior to LADWP, he worked as the managing director of Navigant Consulting, an international consulting firm with over 2,000 employees, for 14 years. Prior to that, he worked as a vice president for 17 years at Sacramento-based Resource Management International, an energy and water utility consulting firm he co-founded.
His replacement will have the task of convincing ratepayers of the need for rate increases through 2017 to complete the capital improvements program. The department has $1.1 billion in bond sales planned each year through 2020 that will fund two-thirds of project costs on both the water and power sides, Nichols said.
"The good news is that some very, very good candidates emerged," Levine said.
When Nichols told Levine he was leaving in October, the commission chair said he thought they would have a very difficult time finding someone qualified, because of the complexities of the job.
City leaders were able to convince Nichols to stay through January.
"Although the position is exceptionally challenging, we found that it provides an exceptional opportunity for someone versed in this business. It is the largest municipal utility in the country," Levine said.
Mayor Eric Garcetti was elected last year despite IBEW Local 18's vocal and financial support for opponent Wendy Greuel, which Levine said is an indication that Garcetti is focused on making sure LADWP is as effective and efficient as possible.
"That went into his selection of commissioners," Levine said. "This will have a very big impact on how he is judged as mayor and he knows it."
That realization also informed his search for a successor to Nichols, Levine said.
"Marcie Edwards has the toughness and expertise necessary to take on the status quo at the LADWP," Garcetti said in a statement. "During the mayor's race, LA voters gave me a mandate to reform the DWP, and with Marcie Edwards, we are going to make sure the DWP is more efficient, tightly managed, reliable and that costs are cut."
Toebben said it would take a while for Nichols' replacement to attain the level of trust he had with ratepayers.
That could slow down adoption of rate increases needed to push forward on the city's capital program.
