Marcie Edwards: LADWP’s New GM Ready and Expected to Lead

Now confirmed and on the job as General Manager of the LADWP, share how your responsibilities both in Anaheim and, prior to that, with LADWP prepare you for leadership of the nation’s largest municipal utility.  

I went down to Anaheim in late 2000 as general manager of their utility. There are tremendous similarities, frankly, between LA and Anaheim. It’s just a matter of bumping the decimal point over by one. Where LA has a roughly 500-square-mile service territory, Anaheim has a roughly 50-square-mile-service-territory. However, it operates very differently in that the smaller agencies, such as Anaheim, have a tendency to operate more laterally as opposed to in a silo fashion. You’re engaged to a more incremental extent in orchestrating the output of the utility on both the electric and water sides.

Frankly, I had a ball down there. It’s a fun service territory. That particular community—not to differentiate it from this one—is very business-centric. A strong business community is what holds up the tax base and provides greater opportunities for the hotels. They have a bed tax—it’s one of the major forms of revenue for the city.

I ran the utility for nearly 13 years. I had been lucky enough to craft an excellent team, and I needed to get out of their way. I was still having a good time in Anaheim, but I’d been doing double duty across the street as the deputy city manager and assistant citymanager in conjunction with still running the utility for a number of years. When the opportunity became available to be Anaheim’s City Manager, I thought, “I’ll go over and do that so that these people I’ve spent a lot of time and effort mentoring can take over running the utility.” Of course, they’re doing fabulously.

Working for the city was fun; it wasn’t all that different from the utility. It’s a very relational job. Here in LA, all of the departments report directly to the mayor, whereas small cities all have a city manager form of government. My job was probably a lot more like his, when you talk about the physical plant aspects of operating a city. The Anaheim Mayor and Council define the broader policy objectives for the city, while the city manager is the administrative arm. 

LADWP, you will agree, has a rather unique governance structure—your bosses include the council and mayor, the commission, and, of course, rate payers. What experiences could possible prepare a leader to navigate an agenda of change through such a maze?   

In some respects, this governance structure evolved due to the size of LA—the complexity of the varying concerns and issues. In smaller cities, there are not as many voices and as many concerns, so it’s easier to affect a balance point to move forward. LA’s processes are significant, but then so are the different schools of thought. I think it’s evolved over time to reflect an opportunity for everyone to have a say in the mix. It may take longer sometimes to arrive at the direction, but it won’t be because of a lack of opportunity for discourse.

Mayor Garcetti has made reform of DWP a priority, hoping to better manage the department’s notorious union politics. Is finding common ground around a reform agenda possible?

It is not a simple issue. There have been longstanding policies and practices with labor and management for 30 to 40 years. Couple that with the fact that the agency itself has been around for so many years and is quite bureaucratic. It does make change and reform difficult.

At the end of the day, though, union leadership is interested in its members—the continuity of their jobs and their success. Therefore, labor and management start out at least having a common platform in that way. There’s nothing we can get done without labor. This is an incredibly capital O&M intensive business. You need to have labor to do that. We can’t automate putting pipe in the streets and wire in the air. There are processes in place now—a variety of joint labor management committees, in essence—that try to work through the incremental issues associated with moving forward. Then, they move that to a joint resolution board that contains the union leadership and management, and we try to work to solve many issues there.

There are always going to be issues that come up and make it more or less complex, but I think there’s enough commonality of interest, ultimately, that people are still heading in the same direction.

It’s always difficult for unions to give back hard won benefits—plus, you succeed a number of general managers and city administrations that have given a lot to IBEW Local 18 over the last decade. How then do you now press reform of water and power priorities and operations?

In part, I’m very lucky that the recent contract led by Mayor Garcetti actually creates over a 30-year term,over $6 billion in savings for our customers. The savings over the four-year term of the contract with IBEW are $415 million. There were billions of dollars in concessions extracted. I think it demonstrates the point that while it’s difficult, it’s not impossible.

Going forward, the trick will be blending labor with the rapidly expanding use of technology. People want predictability in their job functions, but job functions now are migrating rapidly. We have tasks that we didn’t have two years ago or five years ago. We’re going to have to find ways to meet with labor to ensure that we continue totrain people to take those jobs. That’s what they want to do. It adds to and enhances their roles because they are establishing new careers, new training opportunities, and greater membership. It benefits us because it starts to provide us with a labor pool that has the skill sets to meet some of the new technological challenges. I think it’ll be a win-win. 

Both with water and electricity, technological innovation offers great opportunities for efficiency and conservation (i.e.smart meters). Sensors and two-way data communication allow for real time monitoring, for example, of distribution system leakage. How then will new technologies, given pressure on rates and existing labor agreements, either inhibit or incent changes in practice? 

Historically, I have always run multiple parallel pilots—not simply to test the efficacy or the viability of atechnology, but also to acclimatize the labor force. This allows us to learn where the failure points and training points are. That technique has served me well. LA has been engaged in any number of pilots in the area of meter reading. They’re testing different communication backbone systems for automated meter reading. Some meters work in some portions of the city. Others don’t, due to the topography. The mayor used the following phrase, which I love: “Try to fail forward.” As you test these new systems out, and you find they’re not optimal, you’re still coming away with the intellectual capital that helps on the next run through.

Our customer information system rollout is a perfectly good example. Due to the fact that it’s very difficult for bureaucracies to roll out information technology projects in particular, we had to replace a 40-year-old system. We weren’t going from version1.1 to 1.2. We were going from a stone tablet to the new system. It’s had some bumps, but they’re working through it.

We print and mail roughly 40,000 bills a day to our customers. The system was holding back 2,000 because it was not able to line those up with the expected parameters. Those numbers are going down. Initially, we were estimating almost 20 percent of the bills. We’re now down to under 10 percent. We should be under 5 percent next month. Call volumes initially went through the roof. They’re still averaging too high, but we’ve got a class of 49 customer service reps that are rolling out at the end of this month, and that will help drive the call volumes down. We’re building the airplane while we’re flying it, and there has to be a greater risk tolerance when you’re doing IT conversions. Even IT experts aren’t entirely IT experts. Programs can be obsolete by the time they get installed. 

Since LADWP is the collection agency for so many other public agencies and jurisdictions, DWP’s billing technology snafu is serious. You and the mayor recently met with a number of your stakeholders. What did you learn from these meetings? 

In some respects, a lot of their problems were a reflection of the older system. Many of them didn’t even know that we’d been hand billing a number of our solar customers because the old system simply couldn’t handle it. The bumps now lie in trying to convert bills into an automated system that have been very complex as a result of some of the previous agreements. I still think it’s largely a conversion issue. It’s not something systemic that there are no fixes for. We’re working our way through it.

As an example, initially we had delayed billing revenues of $111 million. That’s down to less than $70 million now. The relative norm for us with respect to delayed billing is $40 million, where you’re not billing because of typical business-related reason like we can’t get access to read the meter. I’m not expecting to drive it under $40 million. We’ve been making batch fixes to a lot of the processing, and I’m seeing real progress.

We are waiting on some of theother, larger corporate initiatives because it’s important that we demonstrate to our customers that our billing issues are settled and that they can trust the amounts we’re asking them to pay. We’ll be doing fixes, like in every IT system now. If we do it right, we’ll be upgrading it in a year or two.

What initiatives is DWP waiting on?

I don’t know if waiting is the right word.

It is unlikely that I’m going to recommend a rate increase this year, simply because I want to ensure that I have a receptive and balanced environment. That having been said, the upward pressure on rates is inevitable. We have significant mandates to reduce once-through cooling in power plants. We have requirements to move our renewable portfolio to 33 percent by 2020. We met the first 20 percent threshold. More importantly, though, I truly think you’re going to see more change in the next 10 to 15 years than we’ve seen in the last 50. That’s because the proliferation of disaggregated renewable technologies is ultimately going to change the way that electricity is built, bought, sold, and transmitted. The whole regulatory and market paradigms are going to shift.

We grew up building large, centralized facilities in areas that were far from the service territory, and then transmitting that energy to Los Angeles. While there are certainly some economies-of-scale issues, the price of some of the disaggregated technologies, like solar, continues to drop as people tool up and technological advances speeds up. It will not surprise me, ultimately, to see those technologies coupled with some form of energy storage system. You’ll see them all the way down to the residential level.

The utility’s role will then be to supply enough system inertia and backup service. When you flip on your air conditioner, your little solar batteries aren’t going to be able to handle seven or eight times the starting current, but the grid can provide that to you. We’ll provide backup services and grid-stability services, but we may not be the main purveyor of the physical, electric commodity.

What do you need to do to the grid to facilitate or permit that as an outcome? How do you migrate your investments? That’s the challenge we’re in right now. We have these large, centralized facilities, and we have these mandates to update them. Nobody wants to go through a period where the response to instability is to shed load. But these projects all take a lot of money. You don’t want to build them with the expectation that they’re going to depreciate over the next 35 years, because change in coming far more rapidly than that. I think we need to find ways to spread the risk and further the technology. The investments that are going to be made in the grid may not be the most logical, because they were built under the old paradigms. We’re going to have to allow for a range of outcomes, as opposed to saying, “We see the load going up by this percentage for the next 30 years.” I think those simplistic assumptions are over.

VerdeXchange, which the LADWP participated in and supported, had a panel this January titled “Are American Utilities Now in a Death Spiral?” CPUC Commissioner Peevey said that a “Death Spiral” is  “all hoopla,” but he cautioned that whatwould allow current utilities to succeed going forward would be smart, capable managers who can navigate new terrain. Would you concur?

I think lumping all utilitiesacross America makes that statement a little broad. But the part about managers? To some extent, yes. It’s sort of like that Star Trek movie “The Undiscovered Country.” It’s the captains of your ships that are going to be charting really unknown territory. Our abilities to work together, to work within the regulatory structures and to work within the market structures, are all going to be pivotal. Plus, we all are now very dissimilar, as the impacts of deregulation broke apart groups that were similarly situated for years. As an example, LADWP is still a vertically integrated agency, so we still have generation, transmission, and distribution. Whereas, a significant part of California’s utility industry has been horizontalized to where the market performs a set amount of functions. All of those influences that didn’t exist before act on the California market in a variety of ways.

Then, you have the environmental interests. Ultimately, those are extremely laudable goals, but it’s a matter of integrating those interests in a way that meets the needs of a dissimilar population.

We’re used to working as a group because utilities all used to work in generally the same way. However, there are a variety of utility models now. Even the needs of the municipal community now varies. The needs of agencies in Northern California, where they have a lot of heavy hydro and varying impacts of their Air Quality Districts, are verydifferent than here in Southern California. Not to say it’s every man for himself, but you need people at the helm that are willing to encompass a variety of likely futures other than their one narrow vision. Because you just don’t know what you don’t know.

Is there an informed civic, politically sophisticated community in your jurisdiction to work on and support navigating such change? It seems LA has a lot of silo-like interest groups.

They do. 

And you, as earlier noted, have a cumbersome governance structure. Elaborate on your challenges and what assistance you need. 

What I need will be different going forward. Right now, I’m in the info-gathering stage. What have been the ongoing plans in the agency? How do they talk about them? Who supports them? Who does not? What are all the interest groups? What are their end games? The accumulation of that profile of the constituent base—not only customers, but also interest groups—then allows you to overlay the needs of the utility, as defined by staff and others.

When you lay that out—it’s part of cloud thinking theory—it then allows you to make assumption sets. “If I went in this direction, the broadest of constituencies would be served, plus that meets the agency’s goals of X, Y, and Z.” Then you can start to build an initial support base and weave in the interests of others. You certainly can’t run roughshod over groups, even in smaller cities. They call this a democracy for a reason. Not everybody is going to get everything they want. To some extent, there’s going to be bargaining and negotiating over what gets paid first.

Energy efficiency is a really good example. I think investments in energy efficiency are a very valid investment. You’ve heard this saying: “The cheapest electron is the one you don’t use.” This is true. But by the same token, you want to watch that investment such thatyou’re not stranding a significant amount of capital on the developmental side, on technologies that are potentially going to peter out. All of these are balancing acts. There’s really enough to go around.

We’re playing across the panoply of interests now, between solar, geothermal, wind, and other, more developmental technologies. I personally love the storage technologies, if we can work through the technical and communication-related aspects. You hear that the challenge of renewables is the intermittency problem. Germany is hitting a point where the intermittency problem is now huge. Assuming that’s coming, the way to balance any power grid is to have supply sources that can be fed in, in sufficient time during those intermittency periods to aid stability. We know roughly what those portions are. We know you can store power in a variety of ways. We just have to drive the cost down, and effectively create the communications pathways to where we can release that energy at the appropriate times so that it creates value and savings for utilities and their customers.. 

The California Energy Commission and PUC have shown great interest in storage technologies. Connect the dots for our readers—what’s on the horizon that you are following closely regarding energy storage and battery power?

I think it’s probably the same with all of the technologies. You’re looking for that tipping point where there’s enough economies of scale that the production costs start to get driven down. Sure, you help sponsor it up to that point. But once you see it make that turn, you start making investments to draw the technology in locally because thatmeans it’s hit a point where the market itself is investing in it. You see government subsidies start to peel away, and that to me is always the signal that it’s time to make a lot broader investments in that particular area.

I like storage technologies. Battery storage technologies have taken longer than I thought they were going to take. I thought the proliferation of electric cars would stimulate battery technological growth faster than it has. Projections five and ten years ago said that we’d be off gasoline by now, and certainly you haven’t seen that. But you’re also seeing a greater foothold. You’re seeing ubiquitous plug-in stations in places you wouldn’t have thought before. The market is starting to take a greater and greater role in that side.

 I am surprised that battery technologies aren’t moving faster. It’s also a scale issue. We need large blocks of power. Or we need it at the household level, where those systems are automatically within small micro-grids, comparing and contrasting what their little grid takes, then feeding in or taking out of the system. Then, the grids potentially interconnect.

You’re talking about a scale of information technology and management in which no one as of yet has demonstrated a significant level of competency. It will be the market, in conjunction with educational institutions that starts to push some of thosebroader technologies. It’s not necessarily government.

Elaborate on the promise of microgrids. January’s VerdeXchange Conference featured a panel on microgrids that included Susan Kennedy, a former PUC commissioner and chief of staff to two governors. Are microgrids the future?

In a vacuum, if you were talking about new housing development where, as things came up, you created these neighborhoods to include microgrids and managed them in that way, I think it’s very feasible. I know that Edison has a couple of demonstration facilities along those lines. It’s like anything else—it’s when you get into the retrofit of existing technology and existing systems that it starts to get a lot more difficult quickly. It’s the same thing with electric cars. People who are out there driving 10 year old Insights still want to find a place to plug in. They don’t care about these new high-powered chargers. The same thing with microgrids. So, in a largely urbanized setting like LA, it’s a far heavier lift to take the existing technology and move it into a microgrid structure. While I think for new and growing communities it would be the way to go, it’d be harder to implement here.

Labor is not DWP’s only Stakeholder. Environmental interest groups also play a powerful political role in driving California and LA energy policy and practice. Many focus primarily on moving utilities away from reliance on coal, banning fracking, and/or demanding higher regulatory targets. What’s your read their priorities, and how do you enlist them into supporting the mayor’s LADWP agenda of change?

It’s in large part our job to manage the conversion to a different resource stack that the people have made clear that they want. The challenge for us is in not only articulating the cost associated with doingthat, but also finding different ways to deliver our services to help manage that cost equation, which again slams you right in the nose with technology. How are you going to use and implement it to keep this from just being an ever-escalating cost factor?

There are any number of interest groups here from solar, to wind, to energy efficiency, to you name it. They each have a particular goal in mind, and obviously the first step is that we share the wealth on the developmental side, and then we comparatively stack the cost of those technologies. You stack your investment accordingly because we still have an obligation to deliver a product that’s priced at some affordable level. We don’t put all our eggs in the technology that still is carrying a price plus 50 percent added on it. But we still put money into that because you just don’t know when that next little evolutionary step is going to be something that shifts the playing field. You’re going to see much greater focus in the utilities now on agility as opposed to predicting what they think the future is going to be over the long term.

What does that mean?

It means preparing the agency to be able to make a variety of conversions.  One potential view of the future is if the proliferation of residential solar hits a certain point that we need to be able to shift ourselves into being the grid stability provider and the backup power provider. But who knows—that could begin to happen in five years or in 20. You need to have the ideas in place for how you are going to migrate these varying businesses and what direction you’re going to take them in.

Intermountain Power Project is a perfectly good example. That’s a contract LA is in until 2027, and you need to have physical generation injected into the grid out there. Power systems need generation located throughout the grid to maintain overall electric stability. To convert that coal burning facility to gas-power, you’re going knock down the environmental footprint by half or more right off the top, and you can still use it as a provider of grid stability so that you can import more renewables across the associated transmission lines. That’s a conversion, or a version of the future, that I think meets the environmental goals pretty substantially, but  still provides a lot of flexibility.

I also believe we need to stay shorter term in terms of the power purchase agreements because, again, you don’t know long-term what the market will be. Also, I think you want to take, to the extent you can, equity positions, because you can withdraw from an equity position at a later time if needed. It’s harder to get out of a 30-year contract with another player, unless you build in offramps or exit thresholds. That’s what I mean by flexibility. Everyone has to learn to be more flexible in this. You just can’t hold a single vision of the 30-year view anymore.

Let’s turn to water, LADWP’s other responsibility. In one of VerdeXchange events in 2011, your predecessor Ron Nichols said, “On the water side, we have 7,200 miles of water pipelines in Los Angeles. We are presently replacing them to the tune of about 15 to 25 miles a year. The problem is that a growing portion of those 7,200 miles ofpipes are over 100 years old, and they were never designed to last for longer than 100 years.” Will water infrastructure be your priority?   

Yes, we presently have something like a 300-year replacement cycle. When you look at the viability of our internal water distribution system, the observations Mr. Nichols made were absolutely correct. I think there has been a concerted effort to ready ourselves to make significant change outs, but what you have seen happen in the short term is that you hit these multi-year droughts, and the cost of purchased water goes up 40 or 50 percent. People’s bills are just hit immediately because that’s largely a cost we pass through to customers, given that we purchase much of our water from a wholesale agency, the Metropolitan Water District. These increases in the cost of purchased water then have a tendency to slow the capital investment because there’s only so much these people can pay for at any given time. It’s not that everyone leans on the “let’s pray for snow,” concept, but it is an important part of timing the capital.

To the extent we normalize at all on the water side with respect to normal rain/snowfall, then we are going to be able to make a far more enhanced investment in the distribution replacementsystems. But the logical question is, “What if it doesn’t? What if it stays like this for the next three or four or five years, to where purchased water costs continue to skyrocket?”

Well, we built this city in largely a desert community, and we cannot, I believe, create local water resources fast enough to necessarily meet that demand. But that will be the fallback. You’ll start to see much more local storage, more desal plants, and recycling facilities.

Recycling facilities can have small physical footprints. We were doing that in Anaheim—building small ones in urbanized environments to overcome the limitations of sewer systems that were creating a too high threshold cost for developers. “Add $10 million to the cost of development because there are these choke points in the sewer system, or you could add a $2 million on-site recycling facility, at which point you can use that for your landscaping and water features. It’s non-potable water.” There are a lot of creative ideas out there. The fact remains that when you’re paying $3 for 800 gallons of water, you need to bear in mind that even compressed air costs more. Water is still a tremendous value for our customers. 

The mayor hosted a US water conference in Los Angeles late last year and spoke eloquently about One Water—the notion of managing water holistically—stormwater, wastewater, imported water, groundwater, and thinking of all of it as a system.  Like most jurisdictions, Los Angeles has balkanize our water. Sanitation, Public Works, and LADWP all have partial responsibilities. What is the likelihood, over the next decade or more, of  reorganizing the way we manage and regulate water in Los Angeles.

I think in large part that’s already happening. What we haven’t developed enough is sufficient facility to talk about it, because typically we have been a company of engineers. There are any number of initiatives along those lines. We’re going to be working to clean up the groundwater basin in the San Fernando Valley so that we can use that for storage. We’re working on a variety of stormwater capture mechanisms. 

You’re doing that across the silos. Are you doing that with the other departments in the City of LA?

In part, yes—the advantage in Sanitation is that they have access to an effluent stream that we don’t have, since we’re not on that end of the business, so to speak. Therefore, it requires working together. That’s one of the advantages that I bring from working at a small city is that those silos are shorter, so they’re far easier to bridge and work together. In fact, I have an appointment with the guy who runs Sanitation in a week to talk further about how we canbring our plans together under the umbrella of the mayor’s initiative. I think that collaboration is happening.

If we have the opportunity to interview you again next year, what issues will you be addressing? The mayor, for example, is focused on metrics.

He’s right—you can’t make better what you don’t measure. Things that get attention are what get addressed. His focus on metrics and dashboards—that’s a very viable thing. We’re in the midst of working with the mayor’s office now to define those metrics that are really indicators of customer satisfaction, livability, and a sustainable community.

Trying to agree and communicate on the right kind of metrics so that we can move our portion of the city government in the direction that the mayor and the policy body want to head—those discussions are ongoing. I enjoy that. We’ve been submitting dashboards for a variety of smaller initiatives because those have a start and stop while we’re working on some of the longstanding one. 

Lastly, LADWP is represented on the MWD Board. California has a drought. Met’s been deeply involved for years in drafting the next California water bond. What are LADWP’s priorities in regards to the next water bond?

If given my druthers, my interest would be some support for the groundwater basin cleanup in the San FernandoValley. That supports the interest of MWD in that it would result in less water that MWD would have to import. It restores a water storage solution for not only Los Angeles, but to the extent that Los Angeles can use that basin for storage, it reduces our reliance on any other sources. It’s a much broader regional benefit for us to find a way to fix that basin, which became contaminated back in the 40s and50s. Much like any big project, the fix will require a combination of things. You’ll never be able to define every exact individual that contributed to that problem, but there will be a number of players who definitely should participate in the remediation, as should LA. But, given the regional bang for the buck, remediation of that basin would be an investment with respect to the upcoming water bond that would benefit both MWD and LA.