California’s Energy Crisis Zaps Mailers

Imagine a typical day at work. Your warehouse employees are unloading the most recent shipment of widgets. In the call center, headset-bedecked phone reps are feverishly inputting orders. At the same time, your art director is designing the next issue of your catalog on his Mac.

Then the lights flicker off. Computer screens go black. Machines whirr to a halt. The scenario is a not-so-distant reality, especially for catalogers in California.

As if rising postal costs and an economic slowdown weren’t enough of a challenge, California catalogers have had an additional hurdle to clear this year: an energy crisis. The demand for electricity and gas is simply more than the state’s available supply. Making matters worse, power sources in neighboring states, such as Nevada, Oregon, and Washington, which had been supplying energy to California, have been pushed to capacity themselves.

The situation has forced the California Independent System Operator (CAISO), which oversees the scheduling and delivery of electricity in the state, to curtail consumption among businesses as well as consumers. As a result, residents and corporations alike have had to deal with rolling blackouts, which means that some catalogers have had to temporarily shut down operations.

Auburn, CA-based books-on-tape mailer Audio Partners experienced rolling blackouts in May. “We couldn’t generate enough power to process the pick tickets needed to ship products,” says Marvin Goff, vice president of catalog operations. “So we’d have to stop shipping.”

The blackouts, which normally last from 30 minutes to a few hours, come with little warning. In June, California governor Gray Davis mandated that the three main power sources in the state — Southern California Edison, Pacific Gas & Electric (PG&E), and San Diego Gas & Electric — give one hour’s notice to businesses located where the blackouts will occur. So far this year, rolling blackouts have taken place six days, including two in May, according to Staci Homrig, a spokeswoman for San Francisco-based PG&E. But based on the forecast issued released by CAISO, the rolling blackouts will increase in frequency and duration throughout the summer.

The energy crisis has forced Audio Partners, which has annual sales of less than $10 million, to become extremely creative. “Everyone’s got a flashlight at their desk,” Goff jokes of the company’s staff of 27.

California’s energy crisis began in earnest after the 1998 decision to deregulate the power industry. The state’s rapid population growth and the paucity of new power plants built over the past decade exacerbated the problem. According to PG&E, electricity demand in its region has grown 5%-6% a year during the past five years. A typical increase in demand, Homrig says, is 2%-3% a year.

Even if catalogers have some physical operations outside the state of California, they are not immune from its energy woes. Say your company is headquartered in San Francisco but has its fulfillment center in Tennessee. “The information that’s exchanged between headquarters and the distribution center, such as batch-loaded customer orders from your Website, could be affected if your business is forced to conserve energy,” says Jerry E. Owens, managing partner of Memphis, TN-based Ansley Consulting Group and the former senior vice president of distribution for multititle cataloger/retailer Williams-Sonoma.

Be prepared

Locales outside of California have been known to suffer from periodic blackouts or brownouts, due to storms or especially heavy usage spurred by heatwaves. But California’s energy crisis underscores the importance of contingency plans, says Bill Kuipers, a partner in Haskell, NJ-based operations consultancy Spaide, Kuipers & Co. “This is one of the reasons we tell our clients about the importance of having a presence in other states, so that you have a backup plan able to handle an emergency,” he says.

San Jose, CA-based telephony products cataloger Hello Direct has a backup electricity generator system that can supply the company with enough power for 30 days. “Since California is notorious for intermittent brownouts in the summertime,” says Dennis Waldera, vice president of direct marketing, the generator automatically kicks in during brief power interruptions.

Like Hello Direct, Audio Partners also has a backup plan, albeit on a smaller scale: Its phone system has enough capacity to run for a few hours via a battery-powered system. And Doug Mockett and Co., a business-to-business cataloger of furniture hardware and components, has contracted with a third-party provider to handle calls in the event of a power outage. The Manhattan Beach, CA-based Mockett also made sure that its computer and phone systems had power backup to hold the company for about an hour.

Can it happen elsewhere?

Catalogers without a physical presence in California are no doubt wondering if that state’s energy shortage could spread to their states. Phil Musser, executive editor of Overland Park, KS-based Energy Manager (a sister publication of Catalog Age), estimates that about a third of the states have some sort of deregulation plans, but California’s crisis is causing them to proceed very slowly.

“There will probably be some ripple effect in states taking a closer look at the way they choose to deregulate,” Musser says. “I don’t think that the midwest and eastern states will be affected by their ability to get power. California was very aggressive in the way it went about deregulation, and now it’s paying the piper.”

Pay Attention or Pay the Price

Now that gas, oil, and power prices are rising fast and furious, you may need to rethink the way you do business. Below, a few tips for dealing with soaring energy costs from Lindsay Audin, president of New York-based consulting firm Energywiz.

  • PUT SOMEBODY IN CHARGE

    Don’t expect a manager already burdened with other duties to be able to handle energy cost control as well. Someone must have energy management as his or her first priority and responsibility. If your total energy bill is more than $2 million a year, you need a full-time energy manager. If it’s less, consider hiring a part-time consultant.

  • INSTALL A GOOD ENERGY COST ACCOUNTING SYSTEM

    Use software that accepts all the data that one gets from energy bills and meters, not just total kilowatt hours and total dollars. Simple spreadsheets are not enough: Software designed to capture and manipulate energy data (such as FASER, Metrix, or Utility Manager) is faster and more cost-effective.

  • PLAN YOUR WAY TO LOWER ENERGY COSTS

    An energy master plan can originate inhouse through a committee of appropriate parties such as facilities, construction, accounting, and legal, or be developed by a consultant working with such parties. The result should guide your company toward decisions that integrate energy cost savings into any new construction, renovation, or procurement.

  • SPECIFY AN EFFICIENT FUTURE

    Many institutions continue to use specifications written 20 years ago. Upgrade your specs for lighting, motors, building controls, windows, and HVAC so that every renovation or new building helps control your energy bill, rather than add to it.

Insult to Injury

David Nesbit, vice president of operations for Doug Mockett and Co., a business-to-business cataloger of furniture hardware and components, says the energy crisis hasn’t yet affected his business in terms of shutdowns. But its energy bills have doubled since the beginning of the year. “We’re trying to do what we can and turn out the lights and air-conditioning when it isn’t necessary,” Nesbit says.

Manhattan Beach, CA-based Doug Mockett isn’t alone in seeing an increase in electric bills. Energy costs have risen throughout the country. But on June 1, the California Public Utilities Commission implemented a series of surcharges on both businesses and consumers to raise revenue to help the state pay for power. Small businesses were hit with $0.06-per-kilowatt-hour surcharge in the summer. Larger commercial and industrial customers, such as factories, got whacked with a $0.092 increase per kilowatt hour for usage between noon and 6 p.m. — MDF

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