The California power crisis is neither friend nor foe to the Golden State's electrical distributors. On one hand, customers show increased interest in energy-saving products, and some distributors are seeing sales from major utility construction projects. On the other hand, distributors must cut back on their own energy use, and they expect an economic downturn ahead.
Although the California energy conundrum and an economic slowdown threaten, Electrical Distributors Co., San Jose, Calif., is thriving — at least for now.
“I know it'll affect us this summer with brownouts,” said Chet Lehmann, president. “(But) our own business and (that of) many of our contractors has been very good — 2000 was the best year we ever had.”
Indeed, although Lehmann pointed to some dot-coms that cancelled jobs this year, distributors supplying electrical contractors are still enjoying the fruits of a strong California economy. But distributors around the Silicon Valley say some of these projects have been planned for years.
Finding rays of sunshine amid California's electrical storm may be difficult, but upcoming power plant construction is one obvious way for distributors to profit from the crisis. After all, as Lehmann noted, with or without deregulation, a lack of power supply is California's major problem.
San Jose-based Calpine, which manufactures and runs power plants throughout the United States, is banking on the need for power. As part of the largest development program in the state, Calpine will open doors on two power plants totaling 1,000 megawatts this summer. By 2005, the company plans to have brought 8,000 megawatts to the market.
“They really need it; the state's been so hard-hit by the lack of supply,” said Katharine Potter, Calpine public relations manager. The lack of supply could draw more business to local distributors. “For the most part, we try to work with local contractors and companies. It makes sense because they're servicing our project in the same location,” Potter said.
Although other larger power companies are initiating new power plant construction, in order for that to happen on a large scale the state government needs to loosen the red tape surrounding plant construction. According to Potter, it takes five years to site, permit and finish constructing a new plant — if things go well. In Calpine's case, this doesn't include meeting environmental standards because Calpine builds only natural gas-fired and geothermal plants. Other companies must deal with much more hassle involved with other types of energy.
“For the last five years, it's been extremely difficult to get permitted plants in California,” said Paul Pasoli, senior vice president of Calpine energy services. “In places like Texas, the barriers to entry are a lot lower,” Pasoli said. “And you've seen that supply has increased dramatically over the last several years.”
Although Pasoli called conservation a “Band-Aid” compared to the need for consumer demand elasticity, conservation still has value to individuals or companies looking to save money.
For instance, Electrical Distributors Co. operates T-8 fluorescent lights in its office. The T-8s require fewer bulbs than conventional fixtures and employ electronic ballasts to save energy. The electronic ballasts are cooler, save energy and start immediately, so the air conditioner doesn't work as hard and general consumption is lower.
Because of the power crisis, Electrical Distributors Co. also has a battery backup for its phone system and is currently implementing one for the computer system. The uninterruptible power system (UPS) lasts several hours — longer than the typical rolling blackout. But, because UPSs don't keep the whole company running, Electrical Distributors is implementing another battery backup system that will operate for four hours. Although it will operate only two or three computers, rather than the normal 60, Lehmanm says it insures that company can continue with business.
For companies that want more independence from the grid (and more security from outages) than a battery system supplies, generator systems (and other types of distributed generation, such as wind turbines, photovoltaic cells and fuel cells) can take companies completely off of utility lines.
CEI Energy Group, a subsidiary of San Jose's Cupertino Electric Inc., Silicon Valley's largest electrical contractor, speaks to these issues. CEI builds and maintains onsite power generation facilities for companies. “(We) can buffer the customer from the market volatility, some of which is due to deregulation … it offers the customer price stability,” said Will Klopp, vice president of marketing for Cupertino. “You'll know what the price to create electricity is for a longer period.”
Although Electrical Distributors had recently sold one generator, Lehmann said that most distributors don't sell many because of the difficulty with installation. With primarily contractor customers, Electrical Distributors is selling many power-management products like Square D's Powerlink system. Products such as Powerlink allow businesses to automatically shut off lighting during periods of nonoccupancy.
“You don't want to run a whole building of lights when you have just a janitor in there,” said Brett Schuster, vice president of sales for Electrical Distributors Co. “You can program it to keep a few lights on where he's working and to go off when he leaves.” Some of these systems have occupancy sensors so companies can run lighting when and where it is needed. These sensors can be controlled via the Internet.
Buckles-Smith Electric Co., another San Jose distributor, is selling conservation as well. Unlike Electrical Distributors, Buckles-Smith's customers are mostly industrial clients.
Art Cook, president of Buckles-Smith, identified three possible effects the power crisis has on his customers: rolling blackouts, brown outs and high rates. Some of his customers have found an overt way of dealing with high rates: “Our customers — if they can get away with it — schedule shorter work weeks,” said Cook.
Energy-efficiency is another key to surviving these tough times for the distributor's manufacturer customers. That's where Buckles-Smith says they become valuable.
“We have, for quite some time, done power-quality audits,” Cook said. “We as a company have tried to offer a consultative approach to selling products for our customers.”
In these audits, Cook's people go through a client's facility and look for opportunities to save energy. Then they put together a package of products and calculate how much money it will save over time.
Utility rebates for customers using energy-efficient products also bolster Buckles-Smith's sales. Cook said the now-bankrupt Pacific Gas and Electric, San Francisco, has been offering an aggressive, attractive plan to many of the industrial customers Buckles-Smith shares with the utility.
“All of the major manufacturers that we deal with in these categories have energy-efficient products,” Cook said. “The trick is to couple with our manufacturers of these devices and try to promote those particular products in conjunction with some of the rebates.” In addition to the audits, Buckles-Smith often does the rebate paperwork for the industrial customer, making the deal even sweeter.
But the energy problems facing Buckles-Smith are a mere nuisance when compared with other issues in the area, Cook said. “There's a slowdown in high-tech, and there's skyrocketing land values in Silicon Valley, so manufacturers are less inclined to build and more inclined to actually take existing facilities and move that work to lower-cost areas.”
As a local distributor, Cook said that Buckles-Smith couldn't stretch its reach to follow clients, so the distributor has had to cope with more competition for fewer clients. That competition has forced Buckles-Smith to become more of a full-service distributor.
“The way we do it is to make ourselves more valuable to our customers,” said Cook. “We have to sell more products and services to the people who decide to stay here. There's a tremendous trend to do outsourcing, so we obviously have to step up and be able to offer outsourcing services, supply chain management, storeroom management … value-added services for OEM.”
Even if deregulation was not the only factor that brought on the necessity for these changes at Buckles-Smith, Cook pointed out that the energy crisis created opportunities for California distributors and will probably continue to do so — perhaps in ways that are not yet clear.
If the problems continue through the summer, Cook said there may be a surge in the kind of power production facilities that CEI is selling. “There's probably an opportunity for our customers to move more into their own cogeneration. The larger customers are already doing some kind of cogeneration for the most part,” he said.
Despite residual benefits coming from customers' energy-conservation needs, Calpine's Band-Aid view of conservation may prove to be painful reality. Cook is hoping that power shortages will continue to have a negligible effect on the economy, but the end result seems inevitable.
“I think deregulation has been proven to work in other parts of the country. The experiment (in California) has been a disaster. It's really going to hit the consumer market,” Cook said.
Lehmann, though grateful for the current boom, expressed a realistic pessimism about the power crunch's impact on the economy. “Once they get some of these plants online, that's going to help a little bit. It's just a matter of time.”
Here are some energy-saving products for distributors in power-strapped areas:
T-8 fluorescent lighting
Double throw switches
Power management products
Variable speed drives
Uninterruptible Power Systems