ENERGY—A Black-Out Christmas?

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KEY L.A. INDUSTRIES SLAMMED BY ENERGY PRICE HIKES, FACING LOSS OF POWER

Higher energy prices and power cutbacks are slamming thousands of businesses in Los Angeles, as the state’s energy crisis deepens. From huge refineries and aerospace companies to neighborhood restaurants and coin-op laundries, businesses are being hit with huge utility bills or are having to make painful decisions to shut down operations, which in turn have hit the bottom line hard. “It’s been a huge disruption, both to our production process and our bottom line,” said Brad Spahr, president and chief executive of Composite Structures LLC, an aerospace parts subcontractor in Monrovia hit with power cutoffs that forced plant shutdowns and soaring natural gas bills. What’s more, these energy price hikes and disruptions come at an inopportune time for L.A. businesses: The economy is showing signs of slowing while other costs, like labor, rent and health care, are accelerating.

Here is a look at how L.A. businesses in several key industries are coping:


Manufacturing/Aerospace

Heavy users of both electricity and natural gas, L.A.’s manufacturing and aerospace firms are among the hardest hit by the energy crisis. With the still-booming economy, they are running their plants at full tilt just to keep up with orders. They can ill-afford power interruptions and they have limited options in the short term to reduce natural gas consumption. At its Long Beach C-17 military cargo plane manufacturing plant, Boeing Co. has been hit with $2 million in penalties from Edison in the last several months. Boeing, like hundreds of other major companies throughout L.A. County, signed up with a special state program initially designed to save money. This “Interruptible Power” program promises lower rates year-round in exchange for agreeing in advance to reduce power consumption by up to 50 percent during a Stage Two power alert. So far this year, there have been dozens of these Stage Two alerts; Boeing has often been unable to meet the strict power limitations and has thus been hit with fines of 100 times the market price of the power. “We’ve instituted extreme energy conservation measures,” said Boeing spokesman Rick Sanford. “We shut off our lights at 4:15 p.m., and we’re telling our people to come in earlier in the day.” Meanwhile, aerospace parts manufacturer Composite Structures has chosen not to pay the fines. Instead, president and chief executive Brad Spahr has closed down the plant. “We’ve been shut down 17 times this year,” Spahr said. “We send all of our 350 employees home when that happens. But the work doesn’t go away; when the power comes back on, we have to work overtime, which means we have to pay time-and-a-half for work that otherwise would have been done on normal pay.” Meanwhile, Spahr said his year-to-date natural gas bill is about $150,000, nearly 50 percent higher than last year. In November alone, the bill jumped to $25,000. December’s bill is likely to be much higher, given the recent spike in natural gas prices. “If this keeps up, our gas bill will triple, making it a significant cost for us,” Spahr said.


Refineries

L.A.’s oil refineries use huge amounts of electricity and a lot of natural gas. (The hydrogen in natural gas is used to purify crude oil.) But most L.A. refineries have gas-fueled cogeneration facilities that generate more power than the refineries need. The refineries sell that excess electricity onto the regional power grid; with power prices so high these days, that helps offset the higher natural gas costs. BP Amoco’s Carson refinery has a long-term contract with a cogeneration facility, which has helped blunt the impact of the price hikes. Refinery spokesman Walter Neil said BP Amoco is paying four times what it did last December for natural gas, but it locked in a long-term contract with its cogeneration supplier, which has kept electricity prices comparatively low. But Ultramar Inc.’s Wilmington refinery has no cogeneration plant and has been hit hard. Electricity prices, which used to comprise 15 percent of the refinery operating costs, have doubled over last year. The natural gas bill, while a smaller cost component, has gone up fivefold, according to refinery manager Tom Gipe. “Right now, we’re going through our inventories of natural gas,” Gipe said. “Once we’ve exhausted those, we’re going to have to cut back on our refining.” As for the higher electric bill, Gipe said there is little the refinery can do in the short run. Installing energy-saving equipment costs tens of millions of dollars. And, with a softening market for gasoline (supplies usually tighten just before the peak summer driving season and then loosen in the winter), Gipe said it’s not possible to pass on the higher production costs.


Restaurants

With their huge grills, restaurants are big natural gas users. And because they typically operate on small margins, restaurants often are unable to absorb higher costs. “We installed a lot of energy-saving equipment in the last year and our November gas bill was still 48 percent over last November,” said Ken Rausch, president of Edwards Steakhouse in El Monte. “We’re expecting an even higher bill for December quite a Christmas surprise, wouldn’t you say?” Rausch said that he may try to pass some of the price increases on to his customers. But with higher workers’ comp bills and a minimum wage increase slated for Jan. 1, he can’t pass on all the higher costs without alienating his clientele. “Between the energy costs, the workers’ comp and the minimum wage, it’s a very trying time for restaurants,” he said.


Hotels

With all those rooms that have to be lit and heated (or cooled), hotels can run up big electric bills. They also use some natural gas, especially in their kitchens. At Le Merigot in Santa Monica, when housekeepers turn down beds and fluff the pillows, they turn off heaters and turn out all lights except one by the door. “Which, by the way, is a flourescent fixture,” noted Fig Ortloff, general manager at the hotel, which is owned by CW Partnership Ltd. and flagged as a J.W. Marriott Beach Hotel & Spa. Ortloff said energy costs run about 4 percent of overall expenses. Ortloff recently had exterior lights replaced by more-efficient sodium lights, installed a timing system that responds to levels of daylight, and instructed staff to undertake such energy-saving steps as laundering only full loads of linens. But the hospitality industry tends to draw the line before letting guests notice any cutbacks. At the Raffles L’Ermitage Beverly Hills, the hotel has taken some energy-saving measures, but went ahead with an extravagant holiday lighting display. “It’s part of the business,” said Jack Naderkhani, the hotel’s general manager. “You want to give that holiday festive feeling to the people, especially in the neighborhood.”


Universities

L.A.’s college campuses have been hit hard by the electricity crisis. L.A.’s college campuses have been hit hard by the electricity crisis. Many of them had signed up for the interruptible power program and have been burned as they’ve faced frequent mandatory shutdowns. This past week was particularly difficult, as many students were taking final exams. “It’s been absolutely terrible,” said Sherry Bebitch Jeffe, political science professor at Claremont Graduate School. “For the first time, everything has just been shut down all the computers, all the faculty offices, all the classrooms.” Perhaps hardest hit has been tiny Biola University in La Mirada. Its generators, which typically supply the campus with 60 percent of its power, have broken down, forcing the 4,000-student campus to shut down all but the most essential lighting and ventilation systems for an indefinite period. “We’ve had to cut back to a subsistence level,” said Gene Andre, director of facilities services. But because Biola signed up for the interruptible power program, when those Stage Two power alerts hit, even that subsistence level can’t be met unless the school chooses to pay steep fines of $10,000 an hour, Andre said.


Small Businesses

Their bills may be smaller, but the impact of the energy crisis on corner stores can be just as severe. Take Sparkling Coin Laundry, which has two coin-operated laundries, in West L.A. and West Hollywood. Most laundry machines are powered by natural gas, which accounts for a whopping 25 percent of Sparkling Coin’s overall operating expenses. “In November, we were hit with a 33 percent increase in our natural gas bill,” said owner Arnold Epstein. “That’s a very significant cost factor.” In response, Epstein has shortened the drying cycles by 20 percent. “The customer has the option of partially drying the clothes or putting in more quarters to complete the dry cycle,” said Epstein. “All the coin laundry operators I know are doing this now to offset these gas bills.”

Staff Reporter Milo Peinemann contributed to this article.

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