California Energy Crisis Takes Toll On Tank Cleaning Facilities
Mar 1, 2001 12:00 PM, Mary Davis
MANAGERS of wash racks in California are fearing blackouts due to the energy crisis and are seeing red as a result of skyrocketing utility bills. Natural gas and electricity rates have risen 40% to 50% almost overnight. Managers say bills have doubled in some areas of the state.
Cleaning facilities are locked into using natural gas to fire boilers and electricity to keep wash equipment operating such as spinners and pumps. Except for increasing charges, there are few ways to compensate for the added expense. There's been an aphorism in businesses conversation, referring to environmental regulations, that California sets the pace for the rest of the United States. Energy, or the lack thereof, may be another situation that makes for a similar adage.
“One of our locations in northern California has seen the fuel cost to run the boiler increase by 100%, compared to 25% to 30% increase in some parts of the Southwest,” says John Allen, Quality Distribution regional vice-president, Tampa, Florida. He also is chairman of the National Tank Truck Carriers Tank Cleaning Council.
“Clearly the inability for California utility companies to purchase more energy from suppliers, coupled with current laws that prevent passing the cost of energy to consumers, has caused major problems for most on the West Coast,” says Allen. “Rolling blackouts in the middle of a cleaning process cause delays, incomplete cleaning, re-work, delays to the drivers — and ultimately the driver's customer.
“I guess the sad part in all of this is that we don't see any major signs of relief in the near future.”
The increase in natural gas rates, as well as fuel oil prices, has affected both the tank cleaning and transportation businesses, Allen added.
“From a tank cleaning perspective, the Northeast has been hit hard with fuel costs. That has forced two QualaWash tank cleaning facilities in northern New Jersey to add an energy surcharge to the cost of each tank cleaned. I do not think that the customers feel it is inappropriate, given the facts.”
Quality Carriers, parent of Quala Systems and Quality Distribution, has seen energy surcharges as high as an additional $25 per tank cleaned, both in the Midwest and on the West Coast.
“We expect to see the same type of increases from tank cleaning facilities in Canada as well,” says Allen.
His company isn't alone in the crisis. All tank truck industry companies across the country are dreading to open the mail. If it's not sky-high utility bills, it's vacillating diesel prices and rising insurance rates. For the past two years, companies have been concerned about diesel fuel and insurance rates. Now, utility costs are clamoring for management attention.
“The price of gas has just gone through the roof,” says Charles Verna, vice-president and general manager of Brite-Sol Services, headquartered in Wilmington, Delaware. One of the few companies to perceive the impending crisis early on, Brite-Sol Services instituted a utility surcharge in October at 11 locations across the United States. The surcharge was applied only in locations where utility costs rose substantially.
“The West Coast was already the highest region for cleaning rates,” Verna says. “This situation can only add to it. We cannot absorb the costs. It's a reality we have to face. I don't see it going away. I don't see anything changing for a long time.”
Mike Mattes, group vice-president at Philip Services, Atlanta, Georgia, agrees. In a network of 22 locations, the company has experienced an average cost increase of 40% in natural gas. “There are pockets where it has doubled, and in other areas it hasn't gone up at all,” he says.
Utility costs are among the top four expenses for Philip Services, he adds. In an effort to conserve fuel, the company recently replaced old and inefficient boilers. However, the effort was neutralized because of the utility rate increases.
Philip Services announced a fuel surcharge in early February. “We just can't absorb the cost anymore,” he says.
The natural gas cost doubled in 60 days at Red's 99 Tank Wash in Fowler, California, says Rick Schroeder. A typical monthly utility bill at the facility south of Fresno would range between $1,500 and $2,000. The last bill came to almost $5,000.
Although the company had not increased its charge to customers by late January, a surcharge might have to be added if the situation doesn't improve, he says. So far, the tank wash hasn't had to contend with a blackout.
Herman Mosquera at L A Wash Rack in Los Angeles says the utility costs have risen about four times more than usual, increasing every month. Fortunately, the tank cleaning facility has not experienced a blackout because the electric supply comes from a nearby municipal entity that produces its own electricity and water. Some municipalities that owned their own utilities decided against participating in deregulation. As a result, they still have power plants running.
Tank cleaning facilities have few, if any, options for altering their operations. Environmental regulations prevent the use of diesel or heating oil as fuel for boilers. Propane has the same limitations as natural gas — supply and price, says John Aguilar of Stockton Sanitary Wash Rack, Stockton, California.
He considers himself lucky that the foodgrade facility is within a grid that is immune from electrical blackouts. At the same time, he isn't immune from the rising price of utilities.
“Our utility bill usually runs about $2,100 a month,” he says. “The last bill I got was for $6,000.”
He increased cleaning charges in January to try to counterbalance the utility costs. If the situation worsens, shippers may have to consider reducing some standards that are now required — such as a tank cleaning every 24 hours for liquid sugar trailers, he says.
The California energy crisis stems from a decision in 1996 by the state legislature to deregulate the electricity industry but put a cap on the rate power companies could charge. At the same time, power companies were discouraged from building new plants because of environmental concerns. Now, no one is sure how the situation will be alleviated. The legislature is trying to find a solution. Utility companies are in court trying to retrieve money they claim is owed them because the state's Public Utility Commission capped rate increases. And, bankruptcy is being bantered about, directed at California's major utilities, Pacific Gas & Electric and Southern California Edison. They are facing higher costs for their wholesale supply while being prevented from increasing rates to the consumer.
Oddly enough, some people think bankruptcy might be the best answer, according to a recent article in the Los Angeles Times. The Times quoted a bankruptcy specialist at UCLA Law School as saying bankruptcy would provide “a neutral forum and political cover for people to make the hard decisions that have to be made.”
Covering for the politicians might be better than giving them the authority to take over the production of electricity, which is being considered. The prospect is anathema to many of those in business. Whatever the eventual utility outcome, cleaning facilities today are trapped with threats of brownouts and blackouts, increased rates when electricity is available, and a rising cost for natural gas.
At the federal level, a special commission was appointed by President George W Bush to study the issue. The commission is chaired by Vice-President Dick Cheney. Congressional hearings also are underway.
Meanwhile, in Houston, Texas, Travis O'Banion, director of wash rack and environmental services at Trimac, isn't having to contend with California problems directly because the company doesn't have any commercial wash racks there. But, he's been keeping an eye on climbing gas prices in Texas and around the rest of the country. Recent rate increase approval in Texas is expected to bring hefty gas bills in the coming months, he says.
The significance of that is that energy costs don't appear to be sliding. The Texas increase approval is just one more indication the crisis isn't isolated on the West Coast. The outlook for the approaching months, particularly in summer when utility rates rise in the warmer areas of the United States, doesn't bode well for cleaning facilities and the costs their operations incur.