Smaller Manufacturers Paying Big Price for Reduced Power Rates

JSN’s plastics plant in Irvine went silent in the wee hours Thursday for the second day in a row.

Managers sent the company’s 90 employees home, chalking up more lost production time, with thousands of dollars more in sales down the drain.

“If this keeps up, we can’t survive,” Chief Executive Jim Nagel said.

Like legions of other small and mid-size Southland manufacturers, plastics producers are paying big time for joining the state’s so-called interruptible list, which extends users reduced power rates but obligates them to drop consumption drastically during crisis periods.

While bigger enterprises are absorbing millions of dollars in penalties in lieu of cutting power, the plastics industry’s tight margins make such a move impossible. The businesses’ round-the-clock, seven-days-a-week schedules make backups such as generators prohibitively expensive.

Saint-Gobain Calmar Inc., which has a factory with about 300 employees in Industry, shut down Thursday for the 22nd time in six months, after enduring just two stoppages in the previous year and a half.

“We had no anticipation of this when we signed up for the program,” said Karen Brubaker, the company’s director of human resources.

The power crunch is combining with a slowing economy to make California manufacturers particularly vulnerable. Nationwide, the sector contracted in last year’s final three months, and the state energy crisis will translate into only more layoffs and lost revenue, analysts said.

“This is hitting us at the wrong time,” said Raymond Sfeir, a Chapman University economics professor who conducts a quarterly survey of Orange County manufacturing.

Bigger manufacturers have more of a cushion, he said.

Some, such as Toshiba America Information Systems Inc. in Irvine, turned down the interruptible option and its 15% price break, fearing potential shutdowns. Others wish they had but have been able to absorb the financial punishment--so far.

Irvine communications chip maker Conexant Systems Inc., which paid $2 million in extra power bills in its last quarter and an additional $3 million in January, is squirming to get off the interruptible hook, spokeswoman Lisa Briggs said. The Public Utilities Commission, however, froze the list in November and is not slated to reopen the matter until March.

“We can’t wait that long,” Briggs said. “We need to get out.”

The urgency is greater still for smaller companies, whose only option is to shut down. Or possibly foment a revolt. The Orange County Business Council is urging members to unite and refuse to pay penalties for excess consumption.

“It’s not just one or two industries; it’s across the board,” Orange County Business Council spokeswoman Julie Puentes said. “Some companies are just saying we’re not going to do it.”

Rob Hurtt, an Orange County plastics manufacturer who was a state senator when electric deregulation passed unanimously, was among those suggesting that businesses jointly reject the punitive rates.

Hurtt said no one involved in the legislation ever imagined a situation such as the one his company faces, with costs for electricity 13 times higher than the normal rate. His plastics operation shut down this week, and his separate tin-can manufacturing line was working only graveyard shifts.

“As a little guy, you don’t have much firepower alone. We’re going to have to band together,” said Hurtt, whose Container Supply Co. in Garden Grove employs 150 hourly workers whose paychecks have been cut severely.

By midafternoon Thursday, JSN had received word it could reopen its shop and start turning out squeeze tubes and bottle tops for shampoo and other products. But Nagel said he would face the same grim equation again in coming days.

“I haven’t sat down to figure out how long we can hold out,” he said. “That’s the $64,000 question.”