Fair use for educational/research purposes only

Thursday, January 4, 2001 Businesses Gird for Massive Electricity Rate Hike Shock

By MARLA DICKERSON, Times Staff Writer

Already beset by exploding natural gas prices, California businesses will be jolted by an extra $400 million in electricity costs if the state approves temporary rate hikes proposed Wednesday.

The move is being pitched as an emergency effort to bail out the state's two largest utilities, but business owners are more concerned about their own bottom lines, which are being shredded by the dramatic double spike in energy costs.

"If I made a stupid business decision, no one would come to bail me out," said Lewis Eagle, whose Carson company employs 70 workers making corrugated boxes. California's commercial users would see their average monthly bills increase 7% to 15% over a 90-day period under the plan proposed Wednesday by the state Public Utilities Commission.

Although the rate hike is being billed as a temporary surcharge, many business owners suspect that more price increases are in the offing--boosting that initial $400-million hit to amounts no one can yet foresee. That projection comes from the California Energy Commission, the state's chief power planning agency. While some large users expressed cautious optimism that the rate increases would put an end to costly power interruptions, others worry that continuing increases would send California's business sector reeling into a recessionary tailspin.

"Our biggest fear is that the price will eventually go so high it will put some people out of business," said Martyn Hopper, state director for the National Federation of Independent Business, which represents small businesses. "If you suddenly have significant increases in the cost of doing business, then you're going to see some major economic repercussions." It wasn't supposed to be this way. Businesses were major supporters of the landmark 1996 legislation that deregulated the state's electricity industry. At the time, they were paying rates that averaged 50% higher than those in the rest of the country. Deregulation was supposed to bring competition, lower prices and access to lower-cost surplus power being generated in other parts of the country.

But surging electricity demand--in a state that has not built a major new power plant in more than 10 years--contributed to soaring wholesale prices starting in May. Now Edison International, parent of Southern California Edison, and its Northern California counterpart, PG&E Corp., have come hat in hand to the utilities commission to ask for rate increases instead of the promised decreases.

The situation infuriates business owners such as Eagle, who runs Empire Container Corp. in Carson. Because the corrugated-box industry is extremely competitive, Eagle said, he won't be able to pass along price increases to his customers. Already squeezed by rising workers' compensation rates, stratospheric prices for natural gas, rising wages and higher transportation costs, Eagle said his already thin margins will be skeletal in 2001. "The cumulative effect is just a killer," he said. "It's coming straight out of my pocket." Indeed, lack of pricing power is a major problem for many California manufacturers, which are continually being pressured by large customers to do more for less. But food processor Mark Roth said rising utility bills, along with California's Jan. 1 minimum-wage hike and rising costs for raw materials, are forcing him to raise prices even though his retail customers will be none too happy about it.

"I'm torn up about it," said Roth, owner of El Burrito Mexican Food Products in Industry. "But it gets to the point where you have to do something to survive." Peter Dapper, owner of Amore Cheesecake bakery in San Diego, said he is still trying to recover costs from the summer's electricity rate spike. He and other customers of Sempra Energy's San Diego Gas & Electric unit were unwitting guinea pigs in California's deregulation experiment, as they were briefly subject to free-market electricity prices--and bills that doubled or tripled--until the state stepped in to reinstitute a rate cap. At the beginning of this week he raised the prices of his baked goods 6%. And he continues to reduce the number of hours his employees work by 20%. He remains conscious of turning off lights in empty areas and using the air conditioning only half as much as he used to. "The only way you can stay in business is to do this," Dapper said. For some large commercial users, higher electricity prices are preferable to the spate of electrical interruptions that have plagued California's industrial base this year. Silicon Valley companies, which are among the biggest energy consumers in the state, greeted the rate increase with cautious praise. Rolling blackouts in the Bay Area on June 14 cost an estimated $100 million in Silicon Valley, and high-tech manufacturers and the utilities have been scrambling since then to find ways to reduce consumption and prevent a recurrence. "A temporary price spike can be managed. Unreliable power cannot," said Michelle Montague-Bruno, spokeswoman for the Silicon Valley Manufacturing Group. "What we're trying to do is return the reliability of the energy infrastructure in Silicon Valley." Keeping the major utilities financially healthy is part of that scenario, and that means price increases, she said.

"Preliminarily, we believe the move will help return short-term stability to the market," Montague-Bruno said. "No one wants high electricity prices, but we suspect the CPUC has made the right decision." Other large electricity users aren't as sanguine. Fontana-based California Steel Industries Inc. is an "interruptible" electricity customer that must cease operations or face hefty fines when electricity supplies get critically low. The steelmaker was shut down seven times in December alone, and that wreaked havoc on production schedules and productivity.

President Lourenco Goncalves is incensed that interruptible customers like him face the same increase of 1 cent per kilowatt-hour as other users. "This is very upsetting, very unfair," he said. "We bore the brunt of crisis to keep the system up and running. The burden should be more evenly distributed."

* * * Times staff writers Joseph Menn, Ana Beatriz Cholo and Hang Nguyen contributed to this report.

http://www.latimes.com/cgi-bin/print.cgi

-- Martin Thompson (mthom1927@aol.com), January 04, 2001