John Gilbert came to work at 6 a.m. on a chilly day last week to deal with California’s power mess.
Gilbert is senior vice president and general manager of the Hilton Waterfront Beach Resort in Huntington Beach, which is part of Southern California Edison’s interruptible energy program. In exchange for sharp rate cuts, the Hilton Waterfront and other OC businesses agree to have their power cut back or even shut off during times of shortage.
Gilbert, like other so-called “interruptibles,” figured the hotel would have to cut back power a day or two during summer. But he and others say they’ve gotten more than they bargained for with the power crunch. Shortages have been a daily occurrence lately, and interruptibles that don’t cut back are being socked with penalties.
“We’ve paid thousands and thousands in penalties and charges,” Gilbert said. According to Hilton Waterfront managing partner Steve Bone, the hotel paid an extra $7,000 to $9,000 a day in electricity penalties on several occasions last year. And 2001 is off to an even worse start.
Interruptible businesses are commiserating together and trying to form a unified front in their dealings with Edison and the California Public Utilities Commission, Bone said.
“The PUC is viewing us as a political football,” he said. “Businesses have fewer votes than residential customers. So they are penalizing the businesses. We’re being picked off at the pass by exorbitant penalties on the use of our electricity.”
General Manager Gilbert minces no words when offering what he thinks the energy shortage means to businesses: “This is the most important crisis facing California’s economy today,” he said.
Edison has several classes of interruptible programs. The most common is dubbed I-6, where big electricity users get rates of around 6 cents to 7 cents per kilowatt hour for their power under normal circumstances. I-6 customers, however, agree to cut back on usage upon notification from Edison.
If a customer fails to operate at or below their “firm service level” during an interruption, the Public Utilities Commission requires Edison to collect penalties. Penalties can range from $7.20 to $9.30 per kilowatt hour, depending upon what the customer’s service voltage is. Gilbert said the Hilton Waterfront’s electric costs shoot up from 6.3 cents a kilowatt hour to $9.30 a kilowatt hour in the penalty situation.
Acute Situation for Business
Scores of businesses in Orange County and throughout California are wrestling with the state’s energy crisis. But for Gilbert and others in the interruptible program, the situation is perhaps most acute.
“Our biggest obstacle is the energy crisis in California. We need the juice,” said Howard George, chief financial officer of Costa Mesa-based Ceradyne Inc., an industrial ceramics maker with 250 OC employees and some of its buildings in Edison’s interruptible program.
“We’ve had to shut down since the beginning of December a couple of days a week for at least an hour to an hour and a half,” George said. “If it continues on, it will have an effect. We hope it gets resolved and the situation will calm down.”
Some companies have indicated that if the energy crunch persists, it stands to affect their future in California. Some manufacturers have broached the issue of expanding elsewhere if the crisis isn’t solved.
The Hilton Waterfront’s Gilbert said he doesn’t have that luxury.
“We don’t have the option to leave the state,” he said. “We have to grin and bear it.”
Many interruptibles concede that they willingly signed up for the I-6 program and now are seeing their worst-case scenarios realize. But what irks them most, they say, is the Public Utilities Commission’s decision to block their efforts to end their interruptible contracts, as originally permitted.
“My difficulty with the I-6 rate is that the rules changed with deregulation,” Gilbert said. “Once the rules changed, we lost the option to change the contract.”
The Public Utilities Commission temporarily suspended the right of customers to opt out of the interruptible power program in late October, citing fears of widespread user flight. The order’s in effect until March 31, but commission spokeswoman Kyle Devine said regulators hope to have a decision before that date.
Before the commission’s decision, interruptible customers would have been able to opt out of their contracts in November. The decision, however, exempts companies that signed their interruptible energy pacts after April 1998, when the commission ordered one-year contracts instead of five-year contracts.
As for customers’ complaints, commission spokeswoman Devine said they knew that the commission had the right to make changes when they signed the interruptible contracts and agreed to cut power in exchange for “sizable discounts.”
“Edison has not interrupted them the whole time of those contracts,” she said. “We now need them to be interrupted.”
By late last week, Edison hadn’t returned phone calls for comment on this story.
Not all large Orange County businesses are participating in Edison’s interruptible program. Those outside it include Beckman Coulter Inc., the Fullerton-based medical device maker, and Tenet Healthcare Corp. of Santa Barbara, which owns nine Orange County hospitals and is a priority for power.
But the extent of OC businesses impacted by the interruptible program cuts across OC’s economy.
Boeing Co., the county’s second-largest employer after Walt Disney Co., is an Edison interruptible customer. Spokeswoman Anne Eisele said the aerospace giant has been called to cut its power, but declined to speak in detail about the issue.
At Irvine heart-valve maker Edwards Lifesciences Corp., three of seven buildings on its Irvine campus are in the interruptible program, said Dennis Shoji, director of facilities. Shoji said Edwards has been interrupted 20 times in recent months.
“In the past, we’ve had maybe one, two interruptions at the max,” Shoji said. “This past year, we’ve had quite a few interruptions.”
Taking Care of Business
Shoji said the interruptions were “very inconvenient,” but indicated they weren’t something that threatens Edwards’ core business.
“We make sure that our manufacturing platform still operates,” Shoji said.
Edwards instituted a voluntary energy conservation program, he said, under which the company has been running air conditioning at 78 degrees, vs. the typical 70-degree range. Edwards also has asked employees to turn off their non-critical equipment, Shoji said.
Edwards also sought a way out of its Edison contract because the interruptions have hampered production, Shoji said.
“We were ready to get out, but the PUC passed the resolution saying those that were in the program could not get out,” he said.
Edwards hasn’t decided yet whether it will stay in the interruptible program “because the whole (power) environment is changing rapidly,” Shoji said. But he said he believes that interruptible electricity customers serve as a firewall of sorts for other users.
“The I-6 companies are the safety net because otherwise, they would be tapping residential customers,” Shoji said.
The interruptible program also is biting several community colleges and other schools. They include Cypress College and Huntington Beach’s Golden West College, as well as private Chapman University in Orange.
In the past few months, Cypress College has paid electricity penalties at a pace close to its entire yearly tutoring budget, according to Marc Posner, a spokesman for the 14,000-student college. That amount is close to $100,000, he said.
“We’re consolidating classes in two of our 12 buildings,” Posner said last week. “The remaining buildings are completely dark. No lights, no air conditioning.”
Golden West College President Ken Yglesias describes the interruptible situation as “nightmarish,” putting the average cost of electricity penalty fees to his 12,700-student college at $10,000 an hour. Electricity interruption is “a major issue for public institutions, businesses, hospitals and Boeing. When it comes to health and safety, it has to be a major impact,” Yglesias said.
The Orange County Business Council has received heavy feedback from member companies about the interruptible program and other energy issues, said Julie Puentes, senior vice president of public affairs. Puentes said the council wants to make sure that the Public Utilities Commission and elected officials understand the situation’s impact on its OC businesses.
“We’ve also filed to be an intervener. That means the Orange County Business Council is an official part of the record,” Puentes said.
Business Council Plans Action
The council plans to play a role at a commission hearing scheduled for Feb. 27 at Santa Ana City Hall, she said.
Some observers have said a possible solution is to get power generators. Across the county last week, companies from Irvine-based Allergan Inc. to Gateway Inc.’s Lake Forest facility fired up diesel generators as a source of auxiliary power. Trouble is, generators are costly sources of power and only can be run six weeks or so out of a year under air-quality rules.
The Waterfront Hilton’s Gilbert said the power crunch also is bringing an old notion back to the forefront: conservation. Businesses, whether they’re on the interruptible program or not, should seek to reduce non-essential power usage by 10%, he suggested.
“For years, we’ve not been cognizant” of conservation, Gilbert said. “Now, everybody should, whether they’re on the rate or not.” n
Stephine Michrina contributed to this article.
