ENERGY—Study Confirms L.A.’s Energy Costs Holding Steady

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It’s no secret that Los Angeles has weathered the energy crisis better than neighboring cities by staying out of the deregulated electricity market, but a survey released last week of six California cities reveals how much ratepayers in Los Angeles benefited.

The average utility cost for a business in Los Angeles last year was $150,000, drastically less than what a business paid in San Francisco, San Diego, Sacramento, Long Beach and San Jose, all of which experienced huge rate increases.

The study, by Los Angeles research firm Kosmont Associates, takes into account the utility user tax and utility costs of electricity, natural gas and water for a prototypical light industrial business occupying 50,000 square-feet.

Thanks to the past year’s energy crisis, overall utility costs soared as much as 145 percent in Long Beach, punishing businesses there with a bigger hike than any other city in the study. Elsewhere in the state, Sacramento, San Francisco, San Jose and San Diego saw utility rate hikes of between 61 percent and 75 percent.

But in Los Angeles, which is served by municipal power, customers saw no increase in utility costs.

“The good news is that L.A. is providing stable pricing and a more consistent energy supply, and businesses love certainty,” said Larry Kosmont, author of the study. “The bad news is that utility costs in all the other major cities are doubling, and that sends a message that, in California, energy prices are rising.”

Los Angeles-based businesses might cringe at the city’s relatively high utility user tax of 10 to 12.5 percent, but they avoided massive increases when the Department of Water and Power decided to opt out of deregulation.

Going the municipal power route doesn’t guarantee low rates. Sacramento imposed a 75 percent increase on its customers last year even though it is served by municipal power. Lacking its own source, the city was forced to buy power from Southern California Edison.


Long Beach hit hard

Pity the manufacturing sector in Long Beach, another Southern California Edison customer. Despite a decrease in the city’s utility user tax of 10 to 8 percent and 4 percent reduction in the cost of water, costs soared higher than any of the six cities surveyed. Long Beach ratepayers are paying a price for being served by Southern California Edison and Long Beach Energy, the gas utility that hiked rates 26 percent. Long Beach Energy, which needed more gas during the year to generate power, was forced to buy its supply outside of California. The utility is in the process of negotiating with vendors within the state, including Southern California Gas, to find more reasonable gas prices.

Businesses in San Diego were hit the hardest. Despite not having a utility user tax, it still cost a typical business there about $325,000 to get power last year, up 63 percent from the previous year.

Because of the stunning rate increases, some small companies that are coming up for lease-renewal could look to Los Angeles for short-term relief.

Kosmont said that when a small company’s energy bills double, it needs to look for solutions immediately.

“This is welcome news for the city of L.A., which in the past few years has lost businesses to other lower cost areas in the state,” said Leila Mozaffari, vice president of the Torrance-based California Manufacturing Technology Center. “It’s an opportunity for the city to be an attractive location, not just for lower costs but for fewer interruptions.”

But, she added, lower costs in Los Angeles do not mean that conservation should be tossed to the wind. “With prudent energy management programs you can reduce costs by another 20 or 25 percent. Every watt that the DWP doesn’t have to use could be made available to other regions in the state that desperately need it.”

And L.A.’s status as a bargain for energy rates may be short-lived. Across the state, supply is beginning to catch up with demand as new power sources come online and as conservation measures kick in.

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