Hobart and William Smith Colleges

Peter Luchetti ’77

MANAGING CHAOS

Luchetti, a veteran infrastructure investor, previews the big challenges and changes on the horizon for California — and what the rest of the country can learn.

In August of 2020, the LNU Lightning Complex Fire burned more than 350,000 acres across six counties in northern California. Claiming six lives and destroying nearly 1,500 homes, apartments, businesses and other structures, it was one of the deadliest and most damaging fires in the state’s history. It’s also not an anomaly. Some of the state’s most destructive fires have occurred in that region within the past 10 years, scorching millions of acres and razing entire communities.

Peter Luchetti ’77 owns a generations-old family ranch in Lake County, north of San Francisco, that lost three employee homes and two 19th-century barns in the 2015 Valley Fire. Luchetti, the founder of Table Rock Capital LLC, has spent most of his career in infrastructure investment. He says that the persistent threats to lives and livelihoods call for a new paradigm that embraces the chaotic nature of the near future.

Even with ample precautions, your family ranch suffered damage from the Valley Fire and the LNU Lightning Complex Fire. How did those events shape or change your sense of infrastructure priorities?

Once you’re the victim of a wildfire, you find out how people respond to them. If I call 911 during fire season and they have the resources, we could have 50 to 100 personnel on firetrucks, water tankers and bulldozers at the ranch within 20 minutes — and overhead, Blackhawk helicopters, a 747 airtanker, DC10 air tankers, all with the goal of putting the fires out in five acres or less. And they do it 90 percent of the time.

But during drawdown, when the fires are so large that first responders can no longer make it out, you call 911 and they tell you, “We’re fully deployed. You’re on your own.” During the Valley Fire, we were allowed to drive in to take care of our cattle; on the way, we had to push telephone poles and transformers off the road, chainsaw tree branches that were downed, and euthanize animals because they were injured or burned. During the LNU Lightning Complex Fire, it took seven days for firefighters to get to us; we had to go fight the fire ourselves in the meantime.

Due to climate change, these large fires are occurring continuously from the beginning to the end of fire season. As former chief of Cal Fire Bob Porter once said, every square foot of California can and probably will burn at some point. In that context, what’s important to understand about these catastrophes — whether you’re talking about a flood, hurricane, tornado or fire — is that the size, scope, magnitude and frequency of these events have eclipsed what we know the institutional response to be today.

Beyond wildfires, California is dealing with ongoing challenges at the crux of the environment and infrastructure, including drought-related water issues, coastal erosion and housing shortages. What lessons should other states and communities take from California’s experiences?

We need flexibility. Every first responder in the country is trained in NIMS (National Incident Management System) and ICS (Incident Command System), which are very rigid, almost linear structures. ICS starts with FEMA and Homeland Security and trickles down through the federal government to local governments to your local responders. It defines the way emergency response works across the United States, and it’s a beautiful system that’s served us well for a long time, but climate change has basically debunked the entire premise. There’s just no way the response can be adequate. And that’s where the high-reliability organization model comes in. These are public organizations that are willing to overcome prior historical norms and values and embrace managed chaos to respond more realistically to these crises. Seeing the big picture and how the various pieces come together, being able to evolve and change and morph as our society and economy changes — that’s the basis of public policy.

Table Rock makes long-term investments in public infrastructure, like the $41 million, 30-year contract to improve the water and wastewater systems in Rialto, Calif. What are the benefits of this long-term model, especially as it concerns adapting to and evolving with social, economic and environmental change?

We are what’s called a buy-and-hold investor, and we think that’s good for our partners and we think it’s good for us. When a city confronts diffculties in running their own infrastructure, they can outsource it to a group like Table Rock. We’re considered national experts in water-wastewater, and we run systems on behalf of communities like Rialto, a city of 103,000 people in Southern California, where we took over waterwastewater, billing, collections and customer service. These are essential services that people rely on every day, and when you take responsibility for something like that, it’s amazing how deeply involved you become in the culture and economics and ethos of the city.

We’re now in our tenth year of that 30-year contract. Through a series of very curious questions and conversations with the city, we found that there’s enough biogas produced by the bio-digestion process at the wastewater treatment plant to account for about 70 percent of the energy needs of the waterwastewater system, which accounts for about 20 percent of the energy use of the city itself. There was about five acres of unutilized space at the wastewater treatment plant, so we proposed putting solar panels and a 2.5 megawatt battery there. Between that and an engine that uses the biogas from the biodigester process, we’d be accounting for 110 percent of the wastewater plant’s energy usage, allowing us to take the excess energy and sell it into the grid for a positive arbitrage. In the end, we’ll save about $1.5 million a year in operating expenses, we’ll have a carbon free plant and we’ll be making money for the city in the process.

You’ve been investing in infrastructure for more than 40 years. How did you get your start, and what role has liberal arts thinking played in your strategy?

I came to infrastructure through finance and banking. I started my career on the trading floor and then ran derivative operations at Goldman Sachs in New York. Later, I took over the derivatives group at Bank of America and ran that globally for a number of years. In my early 40s, I was offered the opportunity to run global investments, providing advice and financing for large capitalization projects such as transportation, energy, communications, water, wastewater and social infrastructure.

Investing is a liberal arts process where, in reconciling these conversations and thinking about the impact of all the different issues at play, you’re constantly learning, constantly resetting, constantly starting over. What’s so fascinating — whether we’re talking about wastewater systems or methane detection satellites or managing wildfires — is that before you know it, you’ve got a foot in just about every discipline you could imagine.

When I got to Hobart College, I was a wild kid from California. I graduated high school as a junior and started college when I was 16 years old. Since then, everything that I’ve learned that could be described as “vocational” has become obsolete in a relatively short period of time. But if you’re trained in the liberal arts, you can appreciate these changes and the intensity of them, and take risks to do something good for humanity.

Looking ahead, where do you see the biggest opportunities and challenges related to infrastructure?

We’re going through a period of strong political reactions and polarization, but I’m optimistic that we can embrace the sort of creative destruction that goes on in American culture to accommodate a transformational economy and society. With all its limitations and regulations, I believe in America as a capitalist system, in the freedom it offers to create things and deploy capital, but the change we have to be willing to embrace as a society is really large. The U.S. and China are the largest energy consumers in the world, and we can’t continue to run our economies using energy in the same way we have in the past. We don’t have to do it with a smaller GDP — we just have to do with a GDP that’s less carbon dependent. But to accomplish that, you have to be willing to change radically.