Vernon Electric Rates Go Up

While electricity rates have historically been lower in Vernon than in surrounding areas, its business community fears continued rate increases could erode the benefit.

By Elizabeth Hsing-Huei Chou, EGP Staff Writer

A new year will bring a new set of challenges to businesses in Vernon, among them higher electricity bills. The new 4.7 percent rate increase approved by city council on Monday has made it that much harder for businesses to weather the economic downturn.

“It was a tough pill to swallow because we have so many things slamming us right now,” said Bill Fraser, Manufacturing Manager for Pabco Paper, one of the few paper mills still operating in Los Angeles, and the last one in Vernon.

Pabco Paper makes gypsum boards used in construction, and with the depressed housing market, they were forced to cut its operations by 40-50 percent, operating during only half of each month, Fraser said.

“We’re already running as lean as we can. We are just trying to hold on and survive, more than anything. For us the timing was just bad,” he said.

The rate increase was based on a rate design study that the city conducted with a consultant during the last six months.

“We completed a rate design study and came up with an increase of 4.7 percent in the coming year which I announced at the meeting with the chamber and our businesses,” City Administrator Donal O’Callaghan said.

The 4.7 percent increase will be an across the board increase, but the city wants to use the rate design study to create a more fine-tuned rate schedule next year based on the user’s category of service.

This year’s increase would allow the city to match projected revenues to projected expenses in the coming year, as well as to maintain the “required coverage levels” on its Electric Revenue Bonds.

“We in Light and Power in this city have the same challenges as the other businesses in this community,” O’Callaghan said.

He also said that the city’s rates are still lower than that of surrounding areas. Southern California Edison rates are 65 percent higher than Vernon rates, while Los Angeles DWP rates are 10 percent higher, according to an article in the city’s Dec. 2009 newsletter.

“We don’t argue with that. We know the rates are lower… That certainly helps,” said Peter Corselli, Engineer for U.S. Growers Cold Storage, Inc, “But a lot of the companies in Vernon built new buildings and expansions based on rates [from] before. If they continue to raise rates, it makes it less and less of a profitable expansion… granted of course the costs are going to go up.”

The rates began going up steadily during the past ten years, “which is very difficult to handle,” he said.

Some business community representatives wished the city could have found some way to soften the blow for businesses. “I was hoping they would – understanding the costs – phase it in… maybe not be so severe,” said John Maniatakis, a Vernon Chamber of Commerce board member and past president.

Vernon Chamber of Commerce Executive Director Marisa Olguin, speaking on behalf of her business members, said the rate increase would “narrow the gap” between the competitive rates of Vernon and that of surrounding areas.

Some of the top electricity users in the city are considering moving to the Inland Empire, the Midwest, or even overseas, while others would no longer be able to implement expansion plans to help them stay competitive, she said.

With the rate increase, U.S. Growers Cold storage would pay an additional $100,000 a year, which could have gone to hire two additional warehouse workers, or two to three more clerical staff.  “When times are tough, those are positions that we won’t be able to fill,” Corselli said.

While both the chamber representatives and some of the business people that spoke to EGP credited the city for conducting an outreach meeting prior to the rate increase, as well as the city’s efforts in the last year and a half to reach out to businesses, some feel more information could have been shared by the city.

Olguin said there was “not enough information in order for the Chamber to propose a solid recommendation for an alternative,” and information about “revenue shortfalls and goals” could have helped the business community “discern that such an increase is justified.”

Fraser said he sympathizes with the city, which is dealing with the “same cost factors” as the businesses, but the more information the business community receives, the better. “Just throwing a number out there doesn’t mean much. At least give some background. That’s what’s important,” he said.

Mayor Hilario Gonzales said the city has tried to be open in explaining its position to the business community and will continue to do so. “The businesses in the community don’t come to our council chambers most of the time and listen to what we’re trying to do for the city and how we are mandated by outside forces, the government raising the cost to the city, raising the cost of surrounding areas. We explain this in our council meetings so that the public can hear and understand. There are always questions. You can always contact the city to provide you with knowledge of what’s happening, why we have to do these things.”

Corselli said he is not a “finance person” and was not convinced by the city’s explanation for the rate increase, especially with the city administrator’s explanation that the increase had to do with “rate swaps,” “interest rates,” and “maintaining the city’s credit rating.”

These explanations seemed to have more to do with how the city manages its money than with how much it costs to produce electricity, he said.

He added most businesses could not afford to relocate. “With a captive audience, it’s very easy to pass it on to the customer,” he said.

If rates continue to increase, even with continued communication between the city and the business community, simple economics will determine what happens to the businesses, he said.

“I know the Chamber of Commerce has strived for the city to be more open about what they do, but if the end result is it still costs us more to do business here, I don’t see what difference it makes,” he said.

But the issue is more complex, says Vernon’s city administrator. The difficulties faced by many of the businesses are not caused by the electricity rates going up, O’Callaghan told EGP on Wednesday. “It’s more serious, and of a higher level than we can deal with here in Vernon,” and has to do with the broader economic direction of the country, he said.

O’Callaghan says there needs to be a discussion answering the question, “Are we going to have a manufacturing country, or are we going to turn into a service organization?”

“I know we are going to have people who are in difficulties and are upset. If there’s anything I can do for them, the doors are always open for them – to express ideas, to move forward,” O’Callaghan said.

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December 28, 2009  Copyright © 2012 Eastern Group Publications, Inc.

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