As Losses Mount, Companies Work Around Outages
As blackouts moved from theory to reality, many Southern California businesses spent Day 2 assessing their losses and digging in for what they expect to be a long, hot summer.
An hour without electricity may be an inconvenience for most residents. But for manufacturers and many other businesses, even a brief loss of power can generate tens of thousands in losses.
Whether shaping metal or making salsa, businesses of all kinds complained Tuesday about the lack of warning of impending outages, even as they sought sometimes creative ways to work around the loss of power.
Rattled by news reports of Monday’s rolling blackouts, Industry-based El Burrito Mexican Food Products started its Tuesday shift at 2 a.m. Workers had just finished cooking and packaging the last batches of salsa and masa when the lights went out at 10:20 a.m.
“We dodged a bullet,” said El Burrito founder Mark Roth. “Losing a day’s production of salsa would have cost me $15,000 to $20,000.”
But other companies weren’t so fortunate.
Long Beach-based Delco Machine & Gear was still totaling up its losses from Monday’s blackout, which amounted to at least $30,000 in lost wages and production, said Nick Campanelli, vice president of manufacturing. The company, a division of Florida-based B/E Aerospace Inc., makes parts for the aerospace industry. The sudden loss of power caused its sophisticated metal cutting and grinding machines to crash, ruining precision parts in production.
But the losses don’t end there. He said employees will need to spend hours resetting the equipment. Campanelli is particularly irked that the company received no warning.
“Five minutes’ notice,” he fumed. “That’s all I needed.”
Although businesses such as Campanelli’s typically receive no warning that they are about to lose power, insurance companies count the rolling blackouts as “planned events,” a determination that in most cases disqualifies a business from making a claim.
“I know it must be frustrating for businesses who have the power go off suddenly, but these outages are planned by the grid operators,” said Pete Moraga of the Insurance Information Network of California. “That means it would not be a covered peril in a traditional business insurance policy.”
Typically, business insurance covers loss of profit and damage from unforeseen events such as fires or windstorms. The component of the policy that covers interruptions in business kicks in after a given amount of time elapses, usually 24 to 48 hours.
Business polices can be written to include unusual coverages, Moraga said, but he has never heard of a policy that covers losses from a rolling blackout.
Some companies are taking measures not to get caught in a situation where a blackout can hurt them.
The region’s largest steel supplier shut down for two hours Monday after Southern California Edison called to warn of tight supplies.
“We just can’t take a chance,” said Lourenco Goncalvez, president of California Steel Industries Inc. in San Bernardino County. “We have a lot of safety issues. People could get hurt.”
Goncalvez said the plant has multiple 20-ton and 25-ton overhead cranes that operate with electromagnetic devices, which would fail if they lost power suddenly. Falling materials could injure workers below, he said. “We have been asking to be exempt from rolling blackouts,” he said.
Goncalvez said he couldn’t put a price on the lost production at the 24-hour plant and said he worried more about the long term.
“Two hours is nothing,” he said. “My concern is this thing will start to happen almost every day. If it will be like this all summer, you can be sure it will have dramatic consequences for the entire economy. . . . We’re going to have a shortage of steel products in California. Maybe the government does not consider this is serious. We’ll see.”
At Sport Chalet, a La Canada Flintridge-based chain of 22 sporting goods stores in Southern California, an administrative assistant monitors the state power situation, hoping to warn any stores that are in danger of losing power, said Craig Levra, the company’s chief executive.
Levra said the assistant was assigned the monitoring duties last year, when rolling blackouts were still only a threat.
The chain put in place an emergency plan--similar to what it would do in a major earthquake. Backup power will kick on emergency lights and allow the cash registers to complete transactions. Employees are instructed to escort customers from the building safely, Levra said.
Other businesses, however, have plans to remain open during the 60- to 90-minute blackouts.
When power went out at two Cheesecake Factory restaurants in Orange County on Monday afternoon, the eateries switched to serving cold dishes such as sandwiches and salads, said Howard Gordon, senior vice president of the Calabasas Hills-based chain.
The restaurants had enough backup power to operate emergency lights and cash registers. Large windows provided the rest of the light, Gordon said.
So far, the 99 Cents Only Stores chain has missed the shotgun pattern of the blackouts. But with nearly 100 stores in California, company President Eric Schiffer believes it is only a matter of time before the lights go out at one of its outlets.
Though the stores have some backup power, the chain has systems in place to operate without it. Its cash registers can open mechanically, Schiffer said. Because an item sells for a multiple of 99 cents, sales clerks are equipped with “blackout sheets” that calculate a customer’s tab, including tax. All the clerk has to do is count the number of items in the shopping cart and check the tables on the sheet.
This week’s power crunch has been exacerbated by the fact that so-called interruptible electricity customers no longer face large penalties if they decline to shut down their operations when supplies get critically low.
The Public Utilities Commission suspended the fines in January to ease the burden on about 1,400 businesses that found themselves bearing the brunt of the crisis to prevent rolling blackouts in the rest of the state.
According to Edison, about 10% of its interruptible customers are complying with requests to curtail electricity usage during crunch time. But Scott Keller isn’t among them.
The owner of Chino-based STC Plastics Inc. said he was forced to shut down more than 20 times since September, costing him as much as $10,000 in lost production per day. He ignored requests Monday and Tuesday to curtail usage and said he doesn’t feel a twinge of remorse.
“If I’m shut down, I can’t pay my workers,” he said. “I’d feel more guilty about that.”
But this is one area where insurance eventually might help. Moraga said some carriers are developing plans that would cover penalties for continuing to use power after they have been asked by a utility to cut back.
