State, Dyers Fight for New Energy Contracts
As bankrupted energy giant Enron Corp. continues to be scrutinized by the federal government, local apparel and textile dyers are using Enron’s bankruptcy filing as a way to escape long-term and exorbitant natural gas contracts they signed with the Houston-based company, which is the dominant provider for apparel-related dyers, printers and finishers.
So far, several Southern California dyers have found relief from Enron through bankruptcy clauses in their contracts, while others are exploring the option of using a state Public Utilities Commission (PUC) rule to challenge their contracts. Others are simply walking away even though they stand to open themselves up to legal challenges.
Last week, the state joined in the efforts, as Gov. Gray Davis’ office gave the PUC the go-ahead to file complaints with the Federal Energy Regulatory Commission (FERC) seeking relief from $43 billion in electricity contracts it locked into with several firms at double the current rates. At the core of the issues are allegations that energy dealers manipulated the market to artificially inflate prices.
FERC has been criticized for taking a passive stance during the current energy crisis, but recently, it stepped up an investigation into the matter by ordering energy providers to disclose details of their transactions over the past two years.
In the meantime, local dyers are making headway in getting market prices for energy through various loopholes. Swisstex California, a Los Angeles knit-goods dyer, recently broke its $9.30-per-therm contract with Enron, citing its bankruptcy, and signed on to a six-month deal with another Texas-based supplier at about $3.30 per therm. The company will likely look to the Southern California Gas Co. in the future, said president Henry Bassett.
U.S. Dyeing and Finishing, based in Garden Grove, Calif., has been paying between $2 and $3 per therm since its contract expired with another supplier. But owner Charles Kim was forced to shut down his other dye house, U.S. Spectrum, as a result of last year’s energy crisis.
“I’m still paying a little bit more than I would like to, but it’s at a more comfortable level now,” he said.
The lower prices came last June when FERC ordered price caps on West Coast markets. However, those caps will be lifted Sept. 30. The prices dyers saw during the first quarter of 2001 probably won’t materialize this time, as regulators plan to phase in measures to guard against potential price spikes.
And now Southern California Gas is an option for industrial users following a recent ruling forged by the Los Angeles-based Association of Textile, Dyers, Printers and Finishers (ATDPF) that lobbied the utility to reverse an earlier decision channeling all industrial users to the open market.
“You pay a little more but it’s kind of like insurance since you’re not committed to a long-term contract,” said Scott Edwards, president of the ATDPF.
Edwards said dyers that don’t have a bankruptcy clause written into their contracts can challenge their agreements through a PUC rule that also cites bankruptcy as a reason for relief. That rule requires clients to file a writ and is time-consuming.
“Individual companies can’t afford to sue and take time in court. You’re better off putting political pressure on to get things done,” said Edwards.
The ATDPF is considering doing away with energy companies all together. The trade group is exploring sourcing its own natural gas through a co-op so it can avoid situations such as last year’s energy crunch, which pushed gas prices to $75 per therm at one point and electricity prices to more than $60 per megawatt hour. Several local textile dyers were forced out of business as a result while others had to operate under rolling blackouts as higher prices heavily taxed their bottom lines.
Swisstex’s Bennett thinks energy prices are only part of the problem for area dyers.
“Most dyers have been trying to compete with cheap labor, but you have to run your company on a whole to compete today,” he said.
Now with gas prices in check, dyers and other industrial energy users are worrying about potential electricity price increases, as the PUC was set to end a program on March 7 to allow companies to shop the open market for electricity.
