Solutions to the nation's energy problems may be years in the making, but the impact of the crisis on plastics processors is immediate. The crisis, which hit California a year ago this month, has small and midsize companies in California routinely paying hundreds of thousands of dollars in higher energy bills this year. Companies in other parts of the country also say energy costs are up substantially.
The epicenter of the problem, California, is bracing for a difficult summer. Some analysts believe other parts of the country, particularly the Western states and the Northeast, could see significant, although less severe, problems.
Rate hikes pushed by California regulators would cost custom injection molder Jatco Inc. in Union City more than $500,000 this year. Pactiv Corp.'s plants in the state are spending several hundred thousand dollars a month to rent generators. And nationally, the energy crunch is busting energy budgets.
``The crisis has significantly impacted our ability to do business [in California],'' said Jim Wakeman, director of environmental plans and programs for the Lake Forest, Ill., firm. ``The cost is just staggering.''
For Jatco, the proposed energy price hikes are a bigger threat than power outages this summer.
If the rate increases are implemented as proposed, the changes would take more than $500,000 off the bottom line, said Paul Appelblom, president and chief executive officer. Jatco had sales approaching $20 million last year.
Shutdowns from the California electric system, which sometimes come with little or no warning, are the ``biggest disruptive influence'' in operations, he said.
Mike Lynch, director of public affairs at Illinois Tool Works Inc. in Glenview, Ill., wants utilities to pay a penalty when they shut off power without proper warning, as they have at an ITW molding and extrusion plant in California.
``In just one of our facilities, the warning systems failed about half a dozen times. ... If you have a 30-minute warning, you can finish the cycle, take the finished product out and begin the shutdown process,'' Lynch said.
Some processors are on power plans that give them discounted rates, in return for agreeing to shut down a limited number of times each year. In many cases in California, that limit already has been reached.
Pactiv's two polystyrene foam plants in Bakersfield and City of Industry each are paying $125,000 a month to rent generators that can be used only when the power goes out. A molded fiber plant in Red Bluff has seen its power costs shoot up 600 percent, about $500,000 a month, because it had to rent a natural-gas-fired boiler.
``We are in an economy where the margin we have on our products is not that high,'' Wakeman said. ``It doesn't take much to totally destroy your profits.''
Wakeman said relocating the factories to another state comes up ``continually'' in discussions about how to cope with the power crisis.
But they'd have to be careful about where exactly they go.
Western states that depend on hydroelectric power could see blackouts if it's a hot summer, said John Hughes, director of technical affairs with Electricity Consumers Resource Council, a Washington trade association representing industrial users of electricity. But it's more likely that other states simply will keep their power within their borders and not export it to California, he said.
Jatco's Appelblom noted that lower-than-normal winter precipitation has driven Washington state into buying energy on the open market and that prices in Montana have skyrocketed.
``The whole Western grid will be impacted,'' Appelblom said. ``We are sitting here at the tip of an iceberg. This thing will start spreading.''
Elcon's Hughes said the Northeast also faces risks because it may not have adequate power, but the problems are more likely to be high prices than actual blackouts.
``The type of competition in the wholesale market is immature - it is still rough at the edges,'' Hughes said. ``Because of that the suppliers bid their power into the market and have more market power than they should.''
Injection molder Nypro Inc.'s main plant in Clinton, Mass., will see the generation portion of its electric bill shoot up 26 percent in mid-June with a new contract that reflects much higher natural gas prices, said Adam Parker, a sourcing agent with the company. Nypro has saved $700,000 in energy costs in the three years since Massachusetts deregulated its electric supply, but the increase next month will push costs above what they were before deregulation, Parker said.
Nationally, companies are seeing rising costs.
An executive at a large national blow molder, who asked not to be identified, said, ``We are millions of dollars in the hole for our budget in energy. ... The energy is available, but it will cost you a lot to get it.''
Still, the company is not yet looking at expensive turbines for its plants, he said.
``For the last two years, there's been rolling brownout situations we've coped with.''
One California business official thinks some in his state may not be ready to cope with more problems, and will not be able to buy generating equipment.
``I have a bad feeling we have thousands of companies ill-equipped,'' said William LaMarr, executive director of the California Small Business Alliance in Anaheim, Calif.
His group includes the Newport Beach-based California Film Extruders and Converters Association as a member.
Companies can shift more energy consumption to off-peak hours, in part by doing maintenance during the day and production at night. But LaMarr said it will be a rough summer. Utilities routinely add summer demand charges at the end of June, and power outages are expected,
``I am hearing we could have 260-700 hours of interruptions this summer,'' he said. ``It is going to hit homeowners and businesses of all sizes.''