California’s energy crisis is costing Santa Clarita Valley companies millions of dollars in penalties and lost production, threatening to reverse years of carefully crafted efforts to turn the region into a business hub. The problem stems from contracts between Southern California Edison and 17 area companies that signed on to receive discounts on their electric bills in return for a promise to interrupt service should a power shortage develop. As a result of the energy crisis that has seized the state’s utility companies, these companies have been forced to cease production or pay fines amounting to about 100 times the normal charges for electricity. “We have a very rapidly growing and highly technological industrial and business development (program) and the impacts have been draconian,” said Connie Worden Roberts, a member of the executive committee for the Valencia Industrial Association, a group of 350 area businesses. “We looked at eight of the small- to medium-sized companies who had to deal with interruptible rates. During the month of December alone, these eight companies lost over $1.5 million worth of business.” On Friday, Jan. 26, the California Public Utilities Commission issued a temporary stay prohibiting the utilities from charging additional fees to companies that continue to operate during service interruptions. But much damage was already done. During January alone, there were 12 days of service interruptions, in some cases occurring three times a day for as much as six hours at a time. “We have had shutdowns, even back into last summer, and we’ve worked in complete and total darkness, with the exception of candlelight and flashlights,” said Karen Purvis, marketing and corporate communications manager for Bertelsmann Services Inc., a unit of the international media company with four facilities in the Santa Clarita Valley. “We have not had any layoffs, but people have had to go home and those people don’t get paid.”Most of the companies operating with interruptible service contracts signed on for five-year terms during the 1990s, encouraged by the fact that the utility companies had not called for any interruptions in over a decade and the promise of savings averaging 15 percent to 20 percent on their electric bills. In many cases, the additional charges they have incurred to stay open during the interruptions have eaten through all their earlier cost savings. “I think we’re pretty close to break-even,” said Bill Barritt, chief financial officer for Aerospace Dynamics Inc., a maker of components for defense and aerospace. “What started out to be a business incentive turned out to be a temporary loan. I’m surprised they didn’t charge me interest.” ADI has paid out “several hundred thousand dollars” to remain open during service interruptions, Barritt said, a cost that is nonetheless lower than the expense of shutting down the manufacturing facility and powering it back up again. Other companies have paid even steeper prices. “In my region, we paid up to $2 million in penalties last summer during the blackouts,” said Bruce Greenwood, regional vice president for Costco Wholesale Club, of the warehouse stores in his area, including one in Santa Clarita. “Now we are facing penalties of up to $5 million, $4 million of which we incurred just in the month of January.” Unable to shut their doors, retailers like Costco and Sears, which was also affected by an interruptible service contract in the Santa Clarita Valley, are incurring costs of about $9 per kilowatt hour during interruption periods, 100 times their regular rate of about 9 cents per kWh. Those companies that are unable to afford the additional charges have shut down their plants, but they have paid an equally high price in lost production and revenues. “It’s killed us,” said Doug Sink, chief financial officer at musical instrument maker Remo, Inc. in Valencia. “We had one of our worst months in the company’s history in December because of this. We couldn’t fill orders and January is looking like the same thing. Five or six months of this and we’d have to move out of state.” Like the other companies that signed on for interruptible service contracts, Remo, which moved to Valencia from North Hollywood in 1996, was attracted by the large cost savings. “The first three years, it saved us about $60,000 a year in electric costs,” said Sink. “The first two years, we didn’t have any interruptions. In 1998 there were three. In 1999, there was one, and in 2000 there were tons.” With no resolution of the crisis in site, and uncertainty looming over whether the CPUC will lift the ban on interruption charges, companies like Costco have purchased their own generators, but the cost of doing so is out of reach for many of the companies involved. “Generators go for about a million dollars in initial cash outlays, not including the price of gas,” said Barritt. “For a million dollars per facility, that’s not a good solution. And now I have a whole new set of problems that are foreign to me that I have to get up to speed with.” The companies involved say they would opt out of their contracts in an instant, even if it meant paying higher energy costs. But a stipulation that allows companies to exit the program in November was changed to March. “So we’re kind of indentured servants to it,” said Sink.
LIGHTS—Power Interruptions Expensive in Santa Clarita