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Impact of crisis shocks businesses

Skyrocketing electric bills force officials to reassess their daily and future operations.


ONTARIO -- When James Western and his wife, Brenda, opened their sandwich and yogurt shop this year, they expected to pay about $650 to $700 a month for electricity.

When he received three bills from Southern California Edison at $70 each for January, February and March, Western said he knew the statements were either estimates because the building was vacant or there was a meter reading problem. When he received his bill Monday, he expected to pay $2,000 for the electricity he had used since January. Instead, the bill was for $4,583.61. It was a crushing blow for the Chino couple, who used a second mortgage to invest $140,000 for the Hogi Yogi sandwich and yogurt shop at Philadelphia Street and Mountain Avenue.

Many other businesses in the area are starting to feel the aftershocks from the state's approach to the energy crisis. The $5.7-billion increase in power prices approved in May by the Public Utilities Commission is now showing up in bills. Unless business grows or power costs are reduced, the Westerns will be forced to sell or close within six months.

"We are doing just enough to pay the bills, and there is not much left," James Western said. "We are eating lunch and dinner here because there is not a lot of extra money. We are in kind of a crisis here. I am upset with the rate hikes. You can't do business with costs that high." The Westerns are not alone. Some area manufacturers have trimmed their staffs, cut back production during daytime hours and canceled expansion plans. "I think small- to medium-size businesses are the most at risk, because they are not flush with cash and their borrowing capacity is limited," said Teri Ooms, president and chief executive officer of the Inland Empire Economic Partnership. "There are a lot of small businesses that are hurting and will continue to hurt, even restaurants and dry cleaners and places like that who use a lot of energy."

Ooms said the high energy bills are having a ripple effect on service companies who work for manufacturers. A consultant who works in human relations could have his contract canceled, for example, because the industry is trying to save money for its increased electric bill. The PUC-approved rate hikes, retroactive to March 27, were expected to result in average increases of 49% for industrial customers and 35% for small business customers. Average residential rates have risen 47%, however. "The Inland Empire and, in particular, the manufacturing sector is in very significant economic jeopardy for the next 24 months while California puts new power generation on line," Inland Valley economist John Husing said. "Our economy is inordinately made up of manufacturing firms. I think that is one of the reasons our growth has fallen behind Orange County and San Diego this year." Husing said he expects manufacturers looking to relocate to the Inland Empire, where land is cheaper, to delay those plans because of the energy crisis. Firms in the region are also likely to push back expansion plans, he said.

The exception is distribution, trucking and warehousing companies that are not heavy power users. Executives in those fields want to be close to the Southern California market and are willing to wait out the crisis, Husing said. Husing and Jack Kyser, chief economist for the Los Angeles Economic Development Corp., said they don't expect many firms to leave the area because of the power crisis. The cost to relocate, find new suppliers and train employees is expensive, Kyser said. Some companies might choose to close before relocating, he said. "There is a touch of hysteria out there and business recruiters are using it to their advantage," Kyser said. \

Ontario furniture manufacturer Oakwood Interiors is one of those firms being recruited by other states. Oakwood, which has agreed to shut down power when necessary in exchange for discounted rates, has been forced to do so 16 times this year for six hours at a time when energy supplies were tight. Oakwood's Chief Executive Officer Nick Lanphier said he has received letters from Virginia, North Carolina, Arizona, Nevada, Idaho, Washington and other states touting low energy costs and a better business environment. The latest letter came Monday from Iowa, he said. "It is tempting," Lanphier said. "At times, you like to move, but you have a lot invested here." After paying more than $300,000 last year for power, Lanphier said he expects his company's bill to increase at least $250,000 this year. With jumps in health insurance, workers compensation and other costs, it's difficult to pass on the expense to customers because of Chinese competition and a slow economy, he said. Ontario officials, meanwhile, aren't taking any chances of losing firms and jobs to other states. The city this week sent out 7,000 letters to business executives letting them know about the programs the PUC, California Energy Commission and other state agencies offer to help with energy conservation and rising costs. Mary Jane Olhasso, Ontario's economic development director, said visits will be made to 100 of the largest businesses vulnerable to higher energy rates to make executives aware of the programs and to hear their concerns. "Those companies hold our jobs and our livelihoods in their hands," Olhasso said. "We want to do anything we can to assist them. In Fontana, economic development manager Patti Hoff said a western Inland Empire company planned to move to Fontana but decided not to. She declined to name the firm. Walt Chenowith, first vice president for broker CB Richard Ellis in Ontario, said a Rancho Cucamonga manufacturer, which he also declined to name, decided to expand operations in another state. Another Rancho Cucamonga manufacturer is struggling with high energy bills. Tamco Steel paid $1 million a month for power and Brad Wilkins, chief finance officer, said he expects the bill to surpass $2 million a month. Tamco, which has 350 employees, has reduced workers' overtime hours and decided not to hire 15 temporary employees as it scales back its normal 24-hour production. Starting last week and going through September, the company won't operate between noon and 6 p.m., when energy costs are at their highest.

Raising prices for rebar produced for buildings and freeway construction is difficult because of competition, he said. "We either pass it along eventually or we deal with smaller profit margins. The steel industry deals on thin margins as it is," Wilkins said.

-- Martin Thompson (, June 15, 2001

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