DWP is outmaneuvered in deal for wind farm site
A business venture led by a friend and advisor to Los Angeles Mayor Antonio Villaraigosa outmaneuvered the city last year to buy land in Kern County that the Department of Water and Power wanted for a wind farm.
The purchase of Onyx Ranch, which covers nearly 68,000 acres east of Bakersfield, highlights the dual roles played by J. Ari Swiller, an entrepreneur whose field, renewable energy, has received a significant boost from the mayor’s pledge to make Los Angeles “the greenest big city in America.”
Swiller and the mayor have long-standing ties. Both were employed by supermarket billionaire Ron Burkle at the start of the decade, after Villaraigosa lost his first run for mayor. When Villaraigosa announced his second mayoral bid in 2004, Swiller served as a campaign fundraiser. And after Villaraigosa won, Swiller helped him decide who should be appointed to various city commissions.
Since 2004, Swiller also has been a co-owner of Renewable Resources Group, a Los Angeles-based firm that develops and invests in clean energy.
In the case of Onyx Ranch, the venture headed by Swiller beat the DWP to the land, bought it for $48 million and, before the transaction was completed, offered to sell less than half of it to the utility for $65 million.
H. David Nahai, the DWP’s general manager, rejected the offer. Swiller’s venture, a partnership between his and another firm, then sold the portion sought by Los Angeles for $42 million to the city of Vernon, a neighboring industrial community with its own electric utility.
Since then, Los Angeles officials have been weighing whether to wage a potentially costly and lengthy legal battle against Vernon to gain ownership of the land, considered prime territory for towering turbines that would generate electricity from the winds that blow across the Tehachapi Mountains.
Villaraigosa’s appointees at the DWP met behind closed doors two weeks ago to discuss a possible purchase from Vernon, a move that would help the mayor keep his promise to bring wind, solar and geothermal to the nation’s largest municipally owned utility.
The man monitoring the DWP’s progress on that promise is Deputy Mayor S. David Freeman, who was appointed in April to handle environmental issues for Villaraigosa. Freeman also knows Swiller, having helped him found Renewable Resources Group in 2004. He left the firm in 2005 to become one of the mayor’s harbor commissioners.
Swiller has repeatedly declined requests from The Times to say whether he has other business activities that intersect with the mayor’s policy priorities. He also declined to be interviewed directly, asking that questions be sent to his lawyer.
In her written responses, attorney Lynda B. Goldman said Swiller did not know that the DWP wanted control of Onyx Ranch until early 2008. A private wind developer who was party to the negotiations, however, said that he believes Swiller knew of the DWP’s involvement months earlier.
Nick Patsaouras, a former DWP commissioner, said he believes that the Swiller venture’s purchase and resale of the valuable terrain has probably delayed the DWP’s plan for developing a wind farm on the site by at least three years. Patsaouras, a onetime Villaraigosa appointee, also warned that the DWP would probably be forced to pay a higher price than it had anticipated.
“Now they are in a situation where they will have to pay a premium,” he said.
Villaraigosa spokesman Matt Szabo said the mayor would not comment on whether the city utility should complete such a purchase -- or whether the transactions at Onyx Ranch have complicated the DWP’s wind farm plans. Szabo said Villaraigosa was unaware of the situation and “does not discuss his friends’ private business matters with them.” He added: “It’s not part of the mayor’s agenda to worry about people’s private business dealings.”
Swiller’s attorney said her client had no conversations about Onyx Ranch with the mayor or any of his representatives. She called Patsaouras’ assertions about the effect on the DWP “highly questionable” and said Swiller and his partners made “numerous attempts to purchase the property.” One of Swiller’s business partners made an offer in 2001. Three years later, Swiller’s firm made another attempt, she said.
“For more than a decade, it has been common knowledge among renewable-energy professionals active in Southern California that Onyx Ranch could produce wind power,” she wrote.
Goldman said Swiller’s venture had hoped to develop a wind farm on the southern portion of Onyx Ranch but changed plans once the DWP threatened to go to court to force a sale of the property. Given the risks associated with an eminent domain action, Swiller’s venture concluded it was best to sell 30,000 acres of Onyx Ranch and “remove itself from the future development of the site,” Goldman said.
The DWP’s Nahai said he was not troubled that someone close to Villaraigosa had bought and resold property sought by his agency.
Swiller “has this friendship to the mayor. He’s an advisor to the mayor. But at the same time, he’s a business person,” Nahai said. “So if nothing untoward occurred here, he’d be as free as anybody else to try to do a business deal.”
To reconstruct the transactions involving Onyx Ranch, The Times reviewed public records from agencies that include the DWP, the Kern County Planning Department and the city of Vernon. Details also come from a court challenge filed when three members of the fractious family that owned the property unsuccessfully sued to stop the sale to Swiller’s venture.
Onyx Ranch had been owned for generations by a trust controlled by the Rudnick family, descendants of a Russian Jewish immigrant who came to America in the early 1900s and parlayed a business as a traveling salesman into a cattle-ranching empire.
The DWP spent years working to gain control of the ranch, hoping to make it the site of the utility’s third wind farm in Kern County. As recently as last fall, utility managers included a wind farm at Onyx Ranch in its plan to meet Villaraigosa’s 2010 deadline for ensuring that 20% of the city’s power comes from renewable sources.
To accomplish that goal, the DWP turned to a La Jolla-based company, Padoma Wind Power. Padoma responded to the department’s request for renewable energy proposals in 2004, the same year it signed a letter of intent with the Rudnicks to negotiate in good faith, according to Jan Paulin, the company’s president and chief executive.
Padoma hoped to lease roughly 9,300 acres from the Rudnicks and develop a wind farm on the site. It then planned to sell the electricity to L.A. over nearby DWP transmission lines. Although the DWP identified Padoma as a potential developer of wind energy in 2005, two years passed before the utility and the company signed a limited agreement and began negotiations.
In June 2007, DWP executive Randy Howard met with Padoma officials and the Rudnicks at the L.A. Convention Center to restate the city’s interest in pursuing the project, Paulin said in a recent interview.
“He said the DWP was very committed to this project and wanted it in the ground ASAP,” Paulin said. “He encouraged us, and the Rudnicks, to get together as soon as possible to negotiate the land lease.”
One month later, Padoma entered into an exclusive 90-day agreement to negotiate with the Rudnicks, who had been haggling among themselves for years over how to dispose of their holdings. The family’s trust had already received offers from the Nature Conservancy and Florida Power & Light and taken no action.
In September 2007, Paulin met with three members of the Rudnick family in Century City. The family’s trustee, Oscar Rudnick, was accompanied by Swiller, Paulin said.
According to Paulin, Swiller told him at the meeting that his firm wanted to purchase Onyx Ranch. Paulin also said he told Swiller that the DWP was “very interested” in using the property to create a wind farm and was already in negotiations with Padoma to buy the power. “None of that was news to him, at least as far I could judge,” Paulin said.
To buy the land, Swiller’s firm had teamed up with CIM Group, a Hollywood-based real estate company well-known around Los Angeles City Hall. Over the last seven years, city agencies have agreed to provide CIM with $58 million worth of loans and subsidies. And two city pension boards have agreed to invest up to $115 million in CIM funds on behalf of city retirees.
A few weeks before Swiller met with the Rudnicks in Century City, CIM Group had persuaded the California Public Employees Retirement System to invest up to $200 million in a new infrastructure fund managed by the firm.
A marketing booklet promoting that fund talked up plans to “acquire a 68,000-acre ranch located near Tehachapi” for development of a wind farm. A spokesman for the firm declined to say if any of its investment funds financed the purchase of Onyx Ranch.
Swiller was the “senior executive” of the joint venture between CIM Group and Renewable Resources Group, according to one court document. In his own declaration filed with the court, Swiller identified himself as “the operating member” of the venture, which took on the name ReNu Resources LLC. “He spearheaded the transaction,” Paulin said.
CIM, working with Swiller’s firm, sent a purchase and sales agreement to the Rudnick family in November 2007. Weeks later, Paulin wrote letters attempting to block the sale to Swiller’s venture, saying the Rudnick family had violated the terms of its exclusive negotiating agreement with Padoma, according to court records.
The Rudnicks brushed aside Padoma’s complaints, according to correspondence contained in the court file.
By January 2008, DWP officials had become so concerned that Padoma was faltering in its effort to gain control of the ranch that it sent its own letter to the Rudnicks stating that Los Angeles was now interested in buying the land -- not just leasing it.
The DWP told the family it was prepared to pay $50 million, Nahai said. But city officials also notified the trust that they might file an eminent domain lawsuit to get the property through a court-ordered sale -- a fact that disturbed Oscar Rudnick.
“If anybody’s wearing a black hat, it’s the DWP,” he said. “How would you like it if somebody threatened to condemn your land?”
Agree to sell
Weeks later, the Rudnicks rejected the idea of a lease with Padoma and agreed to sell to the Swiller-CIM partnership.
In February 2008, Rudnick family members voted 60% to 40% to sell to the Swiller group. The price was $48 million.
Swiller’s lawyer said that was the same month her client “learned that DWP had an interest in purchasing or otherwise gaining site control of the property.”
Three of Oscar Rudnick’s uncles, led by Philip Rudnick, 77, challenged the sale in court, saying other family members had failed to take the best deal for the trust’s beneficiaries. In a declaration filed in court, Philip Rudnick accused Oscar Rudnick of improperly allowing Swiller into the family’s negotiations with Padoma.
The elder Rudnick also said in his declaration that during a lunch break at the meeting in Century City -- while Padoma executives were not present -- Swiller had urged the family to abandon its plans with Padoma.
Oscar Rudnick disputed that version of events, saying his uncle wanted to preserve a deal with Padoma because he had an additional piece of property that he planned to develop with that firm. Swiller, for his part, “did not urge family members in one direction or another as it related to Padoma Wind Power’s request,” his lawyer said.
A judge upheld the sale of Onyx Ranch in May 2008 and said that Philip Rudnick had not filed his lawsuit “in good faith.” The losing side filed an appeal.
On May 15, 2008 -- two weeks after Kern County Superior Court Judge Robert S. Tafoya issued the ruling, but before the deal had actually closed -- Swiller’s business partner, D. Cole Frates, approached the DWP, Nahai said, and asked if the agency would be interested in paying $65 million for the 30,000-acre southern half of the property.
In a recent interview, Nahai characterized the figure as “not even within the realm of possibility.” Nahai said he told Frates that there was no point in negotiating with a company over land that it did not yet own -- and was still embroiled in a lawsuit.
“We’d already made our position clear as to what we’d be willing to pay,” Nahai said.
Weeks later, Swiller met personally with a high-level DWP executive about the property on Onyx Ranch.
Paulin said Swiller also continued to talk with Padoma, which was trying to resurrect its proposed wind lease. The company spoke to Swiller from April to October 2008 about jointly developing a wind farm on the Onyx Ranch property, Paulin said.
Paulin said that during that period, he had no idea Swiller’s venture was also trying to sell the land to Vernon, a city with more than 1,000 mostly manufacturing business and a municipal utility that has developed and sold energy assets over the past decade.
The Vernon City Council voted in August 2008 to pay $42 million for 30,000 Onyx Ranch acres -- with an option to buy additional acres nearby.
Swiller’s lawyer said ReNu had been contacted by Vernon about “alternative energy opportunities.” A CIM Group spokeswoman said in a statement to The Times that Vernon was “the most aggressive bidder among several entities that expressed interest in the Kern County land.”
Vernon City Atty. Jeffrey Harrison said his city did not seek out ReNu to purchase the land: “I guess it would be best to characterize it as, they found us.”
Paulin said the transaction showed that the Rudnicks could have negotiated better. ReNu, the Swiller-led buyer of Onyx Ranch, “sold part of the property to Vernon for almost as much as they paid for the whole thing,” he said. “The beneficiaries threw away a lot of money on this deal.”
The Swiller-CIM partnership closed escrow on Onyx Ranch in October 2008 and within days sold the portion to Vernon. But it held on to something that one official described as highly valuable: the ability to pump water out of the Oynx Ranch ground and sell it. Lorelei Oviatt, division chief of the Kern County Planning Department, said those rights are “a priceless commodity right now.”
In December, DWP officials notified Vernon that it may now be the target of its eminent domain lawsuit.
Nahai said his agency won’t buy the land “if the price and terms aren’t right.”