Feeling Powerless

Energy crises are doing more than making news and fueling fears of impending eco-doom; they're also really, really bad for business.
Magazine Contributor
5 min read

This story appears in the April 2001 issue of Entrepreneurs Start-Ups magazine. Subscribe »

From higher prices at the gas pump and the electricity crisis in California to the soaring cost of natural gas in the cold-weather states, many entrepreneurs face a severe crisis of their own: whether their businesses can survive the unexpected, drastic increase in energy costs.

A few years ago, many thought deregulation would be an entrepreneurial opportunity rather than a hindrance, and California seemed proud to lead the way. But the natural gas shortage, combined with the failures of deregulation, resulted in an electricity crunch in California that stands as a warning to entrepreneurs in other states on the verge of deregulation. Besides California and Pennsylvania, which have fully enacted deregulation, more than 20 states have passed legislation or regulatory orders to allow for retail competition, according to Robert Schnapp, director of the electric power division of the Energy Information Administration.

California has seen the energy crisis become a clear and present danger, as businesses in that state found themselves in the dark thanks to unannounced rolling electricity blackouts earlier this year. For Harold M. Hoogasian, owner of three San Francisco-based florist shops, the cost was high: Phones didn't ring, and a contracting crew went home after only a few hours on the job.

"We were obligated to virtually close the business because we didn't have a backup power system, and 95 percent of our business is done on the phone," says Hoogasian, 50, who suffered through an hour-and-a-half outage. Although his operations are totally computerized, it was serendipity that kept the entrepreneur and his employees from total inactivity during the shutdown.

"Three minutes before the blackout, I had done a printout of orders we had to deliver," Hoogasian says. "Otherwise, we would have been operating blindly."

Victor Critchfield, owner of BPM Records, watched $300 worth of potential sales walk out the door of his 10-year-old San Francisco shop when the outage shut down his listening stations. "My customers are professional DJs, and they have to listen to records before they buy," says Critchfield, 37. But most irksome to the entrepreneur wasn't that he lost the money, but that the six customers who were in the store at the time merely went to establishments that had power.

The effects don't have to be as drastic to hurt. Linda Webster, who runs El Cajon, California-based Bath Co Shower Door, wasn't required to shut down power at her mirror company-but her aluminum and glass suppliers were. When the utility company asked the suppliers to halt glass fabrication for a day last year to conserve electricity, Bath Co ended up two days behind schedule.

And when the cost of electricity increased for her suppliers, they tacked on 6 cents per square foot of glass, increasing her costs by 3 percent. Webster says these are costs she can't recoup. "We've already signed contracts with builders at a certain rate. We have to eat that cost," explains Webster, adding that the jump in gasoline prices has also hurt her business, driving her fuel bill from approximately $450 to $700 per month.

"The higher cost of fuel is a situation we have to deal with daily," says Phyllis Apelbaum, owner of Chicago-based Aero Messenger Service Inc. and president of the Messenger Courier Association of the Americas (MCAA), which represents about 500 courier companies. The industry's concern about gasoline prices drove the entrepreneur to appear before a hearing of the Senate Government Affairs Committee.

Apelbaum says her company, like most couriers, has instituted price increases and fuel surcharges to offset higher gas prices. But that hasn't helped with the employee situation. "As a rule, messenger services hire couriers who use their own vehicles," Apelbaum explains. Higher fuel costs mean it's more difficult to find employees, which, in turn, restricts the ability to take on new clients.

While much attention is being paid to firms negatively impacted, a segment of the entrepreneurial community is basking in the silver lining of this dark cloud. Warner Harris, founder of Coval H2 Partners, is preparing his Desert Hot Springs, California, business to take advantage of a new opportunity the energy crisis offers.

Coval manufactures a supplemental power supply for use in an outage or brownout. Inquiries about his power systems have increased 200 percent since the energy crisis hit, and Harris is confident he can garner 15 to 20 sales from those calls.

While high energy costs have entrepreneurs-especially those in California-biting the proverbial bullet, one Georgia State University economist thinks slower economic growth will be the answer. The demand and supply forces will bring the issue into sync-decreasing demand will lead to increased supply, predicts Rajeev Dhawan, director of the university's economic forecasting center.

And if you don't want to sit back and wait for the downturn to take effect, find relevant advocacy organizations and support them. In California, The Utility Reform Network has a small-business task force, and Public Citizen tracks legislation and activities nationally.

It Takes Electricity to Start a Business?!

California's energy crisis isn't just affecting existing entrepreneurs. The hidden casualties in areas like San Diego County? Prospective entrepreneurs.

"San Diego is fairly good at entrepreneurial startups; that's been our history. And it's always expensive to do business [here], but you take that as part of the scenario," explains Kelly Cunningham, research director with the San Diego Regional Chamber of Commerce.

But the economist says the escalating energy prices have had a chilling effect on startups. After electricity costs spiked in June and July, the number of new business licenses issued dropped 15 percent in August 2000, 25 percent in September and 25.6 percent in October, according to Cunningham. That slide follows a steady upward trend.

Where the States Stand

Deregulation legislation or order enacted: Arizona, Arkansas, California, Connecticut, Delaware, District of Columbia, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Virginia, West Virginia

Ongoing commission or legislative investigation: Alaska, Colorado, Florida, Indiana, Iowa, Kentucky, Louisiana, Minnesota, Mississippi, Missouri, North Carolina, North Dakota, South Carolina, Utah, Vermont, Washington, Wisconsin, Wyoming

Source: Energy Information Administration

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