Power Crunch Leaves Economy Bruised
Kings County dairy farmer George Longfellow dumped $2,000 worth of milk after California’s energy crunch severed power to his Tulare cooperative.
California Steel Industries Inc. of Fontana, the largest steel plant on the West Coast, idled day and swing shifts, sending 400 workers home without pay after the company was hit with $1 million in fines for violating its energy savings agreement with Southern California Edison.
The Miller Brewing plant in Irwindale halted production four days this week because a similar interruptible power agreement sent its daily electricity bill up tenfold, to $150,000.
Knott’s Berry Farm kept several rides shut down and was grateful that the winter is slow season at theme parks.
Across the state, in agriculture, manufacturing, tourism and high technology, skyrocketing bills and power outages are threatening to drive some California businesses under and cost workers their jobs.
In the macro view of economic forecasters, the impact so far amounts only to minimal bumps and bruises for the immense California economy.
Economists are more worried about the message the current chaos may send--that the state’s political and business leadership cannot effectively resolve California’s mounting infrastructure woes.
“Everybody is looking around and asking if it’s possible that these bozos can’t get it together,” said Stephen Levy of the Center for Continuing Study of the California Economy in Palo Alto.
“If they can’t solve this, how will they solve greater infrastructure issues, such as a lack of housing, airports, water and schools?”
Already, millions in state money that could have been used for infrastructure improvements are being diverted to keep the lights on, said Lisa M. Grobar, director of the Cal State Long Beach Economic Forecast Project.
If rolling outages are continuing a month from now, the problems are likely to be much more serious, Levy said. Not only would a lengthy crisis cause much more economic damage, the long-range cure could leave California at a disadvantage against other states.
“If California has to pay significantly higher rates for power than the rest of the country for a sustained period of time, our economy will become uncompetitive,” said Grobar.
Energy prices become a factor in the decision by companies--especially energy-gobbling manufacturers--on whether to expand or relocate, Grobar said.
Those problems, though, lie ahead. For now, while the disruptions may be small to the state as a whole, they have a huge impact on individual businesses.
Longfellow, the dairy farmer in the Central Valley town of Tulare, has no choice but to milk his 850 cows. If he does not, they risk infection or illness. His problem is what to do with the milk.
“I’ve dumped 2,000 gallons in the last 24 hours,” Longfellow said, “and I’m just one dairy.”
Longfellow and 250 other dairy farmers in the area truck their milk to Land O’ Lakes, one of the state’s largest processors, which has been stuck paying the same fines as many other businesses in the state. These businesses all have agreements with utilities to reduce power consumption during peak periods of demand in return for lower rates.
Land O’ Lakes, which processes as many as 230 tanker loads of milk a day, has been forced to shut down operations at least 15 times since mid-December, said executive vice president Jack Prince.
“This problem has the potential to be substantially more devastating than any earthquake we’ve seen,” Prince said.
Lourenco Goncalves, chief executive of California Steel Industries Inc. in Fontana, is also regretting his agreement to voluntarily reduce power consumption.
His energy-intensive business must cut production “as long as this crazy situation goes on” or face huge fines that would eat away his profits. The plant uses 40 megawatts of electricity every day.
Goncalves said he hopes to keep his graveyard shift at work and will run only his shipping operations during the day.
Most of his idled workers will be forced to dip into their vacation banks, he said.
Power users in Los Angeles have not faced the same constraints. The city-owned Department of Water and Power has long-term contracts that have allowed residents to escape the problems plaguing other utilities and their customers.
That has made the city and its power supply more tempting to Frank J. Pocino, president of Pocino Foods Inc., a family-owned meat-processing company in the city of Industry.
Because of Southern California Edison power interruptions, his plant has been shut down a total of 64 hours this month, slashing production time by one-third, Pocino said.
“Right now I’m sitting in an office with half the lights off and no production going on,” he groaned Friday afternoon.
Pocino said that because of DWP’s seemingly stable power supply, he will call city officials next week to talk about moving his 120-employee company back to Los Angeles, where the business was founded in 1933. Even so, he worries California’s energy problems eventually could translate into higher taxes that hurt the state’s businesses, regardless of where they get their electricity.
“In the long term, I don’t see any viability staying in the state of California,” Pocino said.
Similar worries and tales of economic hardship could be heard across the state on Friday.
In Tulare, a bleary-eyed Brian Ford smiled in relief after he hooked up a giant generator that averted a crisis at United States Cold Storage, where 4 million pounds of food is shipped every day. Ford, the facility’s 36-year-old manager, had slept only a few hours for the last three nights.
When the 800-kilowatt generator arrived from San Francisco, tractor-trailers full of food, including ice cream, that had been waiting in the parking lot could finally be unloaded into the giant cold storage facility.
This year power has been cut at the plant a dozen times, including each of the past three days, when the plant was down 16 hours out of 24.
By keeping all the doors shut, the plant avoided spoiling food, but Ford had to send 50 truckloads--about 1 million pounds--to other storage plants.
Across the San Joaquin Valley, particularly in the region’s agricultural industry, power was a constant topic.
“Unlike the Silicon Valley, this valley deals in perishable goods,” says Jim Marderosian, co-owner of Bee Sweet Citrus in Fowler. “Right now, agriculture can deal with a rolling blackout or two. But if these things become everyday, and they happen in the middle of the summer harvest, we’re talking about a real problem. You can’t tell a grape or a peach to stop ripening.”
In Silicon Valley, however, high-technology companies say they, too, face serious problems--losses of tens of millions of dollars this week alone.
Industry leaders are appealing to Sacramento for an immediate solution to the power crunch.
Said Kevin Brett, spokesman for LSI Logic, a Bay Area semiconductor manufacturer headquartered in Milpitas: “The big question is, how long does this go on?”
Times staff writers Karen Alexander, Robin Fields and E. Scott Reckard in Costa Mesa, Mark Arax in Fresno, John Johnson in Tulare, Joe Mozingo and Stuart Silverstein in Los Angeles contributed to this story.
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Power Points
Background
The state Legislature approved electricity deregulation with a unanimous vote in 1996. The move was expected to lower power bills in California by opening up the energy market to competition. Relatively few companies, however, entered that market to sell electricity, giving each that did considerable influence over the price. Meanwhile, demand has increased in recent years while no major power plants have been built. These factors combined earlier this year to push up the wholesale cost of electricity. But the state’s big utilities--Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric--are barred from increasing consumer rates. So the utilities have accumulated billions of dollars in debt and, despite help from the state, have struggled to buy enough electricity.
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Daily Developments
* California could burn through more than $5 billion in taxpayer money in three months to stave off blackouts, officials warned Friday.
* Shortages at gas stations and a spike in prices could begin within days, because major pipelines lack power to send fuel from refineries to terminals around the state.
* Air quality officials moved to overhaul regulations for power plants; greater emissions would be allowed short-term in exchange for control equipment within two years.
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Verbatim
“This problem has the potential to be substantially more devastating than any earthquake we’ve seen.”
--Jack Prince, executive vice president of Land O’ Lakes
