Save-power plan zaps bottom line DEALS: Some large companies may drop out of an electricity-shutoff program during crises because penalties for noncompliance are burning up savings on their bills.

August 5, 2000

By ANNE C. MULKERN The Orange County Register

Big businesses that cut their electricity three times this week to prevent widespread blackouts are evaluating whether they can afford to stay in the program that asks them to shut off power voluntarily in a crisis.

Until recent changes in the electricity market, the program offered an unbeatable deal. Companies paid 20 percent less, and until 1998, had only unplugged once in 13 years.

Those days are gone.

Seven times so far this summer, big businesses - like Ingram Micro, Boeing Co. and Knott's Berry Farm - have shut off power or faced large fines.

The state's power managers rely on big companies disconnecting to cut demand and keep the electricity grid from crashing.

Without those companies unplugging Monday, Tuesday and Wednesday, power authorities would likely have cut power to tens of thousands of customers in rolling blackouts.

Power managers called another alert Thursday but ultimately didn't ask companies to shut off when demand dropped. Temperatures cooled Friday, preventing a so-called Stage Two alert.

But some big businesses are questioning the program's cost-effectiveness. Those who can't completely shut off pay steep fines. Eight hours of those penalties gobble up a year of the plan's savings. And that doesn't even count losses from reduced productivity.

"It's probably the biggest issue on our radar screen," said Gino DiCaro, spokesman for the California Manufacturers and Technology Association, which represents 500 large companies.

"I can't think of a more serious problem.''

Energy experts are concerned that big businesses may decide to leave the so-called interruptibles program in November, when contracts expire. Southern California Edison Co. currently has 1,500 large businesses in the program.

"The level in which these programs are being used is probably well beyond the expectation of the participants when they signed up,'' said Daniel Nix,California Energy Commission's deputy director.

Gary Fabrizi, founder of Premiere Utility Consultants in Laguna Niguel, which works with companies in the program, predicts "there will be a mass exodus on Nov. 1.''

When many companies joined the interruptibles program, electricity service was not open to competition.

Power supplies were plentiful, especially in Southern California Edison's service area, which includes most of Orange County.

Lawmakers deregulated electricity in 1996, and changes in the system began in 1998. Electricity supplies are no longer controlled by the utilities. Growth in demand for electricity has outpaced supplies.

The interruptibles program is scheduled to end in 2002. Power managers believe that, by then, large companies will have contracted with new electricity sellers to buy power, instead of buying it from utilities. The new power sellers could then decide whether to offer discounts for unplugging when supplies run short.

But until 2002, the Independent System Operator - the agency that controls 75 percent of California's electricity grid - will continue to depend on interruptible customers.

No new power supplies are expected to come on line until at least 2003, and demand is expected to continue growing.

Dorothy Rothrock, energy policy director for the California Manufacturers and Technology Association, the big-business trade group, said it's too soon to know whether the interruptibles program will hurt company profits.

But it's clear it has been costly, she said.

Because the program was used so infrequently for so many years, few companies have prepared by investing in alternative generation sources, or adapting work schedules to nonpeak hours.

Companies in the program, such as Boeing Co., with facilities in Huntington Beach, Anaheim and Seal Beach, said they're re-evaluating their options to see what is most cost-efficient.

Ingram Micro said it will probably stay in the program, but is looking at whether it needs to generate more of its own power.

Paul La Plante, Ingram Micro's senior vice president of worldwide facilities, said his company has benefited significantly from the program for many years.

"We're going to have to accept the good with the bad," La Plante said.

Many companies in the plan don't actually shut off all their power when asked. Instead, they reduce electricity and pay any penalties they accrue.

Knott's Berry Farm turns off air conditioning and lowers lighting in employee-only areas, and turns off a water rapids ride that uses large amounts of electricity.

But the park isn't willing to turn off most rides in the middle of a hot summer day.

Fines for not dropping power below requested levels are steep.

For example, a large company with a yearly electric bill of about $1 million will save about $200,000 under the program if it complies with all shutdown orders. If the company doesn't shut off or reduce when asked, Fabrizi said, it will pay about $36,000 an hour in penalties.

The big-business trade group plans to lobby power managers to create new programs that give businesses more flexibility.

Such programs could offer rewards for shutting off or reducing power, without requiring a business to shut off or pay steep fines. Companies also want help increasing their ability to generate their own power, said Rothrock"We have to design the programs that people can actually use,'' Rothrock said.

http://www.ocregister.com/business/interrupt00805cci4.shtml

-- Martin Thompson (mthom1927@aol.com), August 05, 2000