With deregulation, electricity is anything but static these days

To understand why newspaper managers responsible for energy consumption are tearing their hair out these days, take a look at the electric bill that landed on Gary Schuerfeld's desk the other day. The bill from the Pacific Gas & Electric Co. (PG&E), the giant Northern California utility, covered just a single month at the Union City plant, which is only one, though the biggest, of the San Francisco Chronicle's three production plants.

Two or three years ago, that bill for the Union City plant would have run about $45,000. The bill in Schuerfeld's hands demanded $89,900. An astonishing $35,000 of that amount had nothing to do

with electricity that was actually used by the Chronicle: It was a "peak season" surcharge slapped onto every bill from May through October. A newspaper sometimes can juggle production schedules to avoid the price spikes of peak hours or peak days. But how does a paper avoid a peak season? "You absolutely cannot escape it. Well, I guess you could shut down for six months," says Schuerfeld, the Chronicle's facilities manager.

As the Chronicle and other California papers are discovering, the energy deregulation that was supposed to force power prices down with free-market competition is instead ballooning costs. By the year's end, the Chronicle figures, its power bills will exceed the money budgeted for them by about 40%.

Worse, this expensive power is also unreliable. Until an unusually mild summer helped end a winter and spring of rolling blackouts, Chronicle production plants were blacked out four times, with a mere 20 minutes' notice from the utility. The paper spent "tens of thousands of dollars" scrambling to move production to plants that still had juice, Schuerfeld says.

Down the coast in Orange County, the situation is just as bad. The Los Angeles Times' Orange County plant was blacked out at least 18 times this year — and under its "interruptible" tariff contract, Southern California Edison could have shut down the presses seven more times. Like other businesses, the L.A. Times signed up for the interruptible rate because it was supposed to be cheaper. But this spring, it not only suffered the blackouts — the cost of its power in Orange County went up 45% over last year, according to "Among Ourselves," its in-house publication.

"When I came into this business, I used to spend five minutes a month thinking about electricity," says Tom Grochow, director of facilities and properties operations for The Orange County Register in Santa Ana. "That was when I reviewed the bill every month. Now I spend five hours a day thinking about it."

Unlike earthquakes and Medflies, however, the energy problems associated with deregulation are not solely California phenomena. How to fight or offset these energy ills? Some energy experts now say conservation is the newspaper industry's best policy during this energy-and-price crunch.



Utility players

As director of energy conservation for Cox Enterprises Inc., Keith Mask tracks the power requirements — and regulatory environments — for the conglomerate's nationwide holdings in newspapers, cable TV systems, interactive media, and even a chain of auto auctions.

His conclusion: "From my perspective, deregulation is a dismal failure. To me, it's a flawed business model. In the past, we bought from a wholesaler, and, yeah, they were inefficient, but what was their inefficiency [cost burden] — 10% or 15%? With deregulation, we've added another layer: a marketer, a broker who wants 20% on top of wholesale. And so we've seen prices soar. I haven't seen a successful utility deregulation yet."

Energy is a particularly knotty conundrum for newspaper managers because it doesn't allow them to make decisions the way they like to make practically all others — by imitating industry leaders.

Newspapers marched nearly lockstep to navigate successfully such important developments as switching from letterpress to offset printing and introducing computerized editing systems. But with each of the 50 states advancing toward, or retreating from, energy deregulation with a different approach and at a different pace, newspapers across the country are forced to improvise in the face of this energy crunch — and each answer they come up with is fraught with its own distinct advantages and dangers.

Add the confounding economic slump to the complexity of state deregulation, and the result is an energy environment so capricious that it can be impossible for newspapers to get any practical advantage from the theoretical virtues of free-market choice. The Orange County Register, for instance, already had contracted to buy cheap power from big — and now bankrupt — Enron Corp., when California's state government simply forbade companies from making their own energy deals.

The Register has, however, a 10-year contract with Enron to lease the HVAC [heating, ventilation, and air conditioning] system it designed and engineered for the paper. "They funded the whole thing," says Grochow, who so far has seen "no adverse effects" from the bankruptcy and expects to continue making monthly payments.

And consider how deregulation worked out for Philadelphia Newspapers Inc. (PNI), which publishes The Philadelphia Inquirer and the Philadelphia Daily News.

When Ed Puletti was manager of facilities there, he aggressively chased cheap deregulated power. First he signed a 12-month contract with Exelon Corp., the unregulated affiliate of PECO Energy, the regional regulated utility. When that contract expired, he signed an even better deal for 18-months with Connectiv Inc., the utility holding company. "Then California [energy prices] went crazy, and Connectiv actually paid us money to get out of the contract," says Puletti, now PNI's director of commercial printing. PNI has now gone full circle and gets its power from PECO.

Though PNI came out ahead in the end, the experience left Puletti deeply cynical about energy brokers: "They really try to baffle you with BS."

So much so that some newspaper companies, such as Belo and Cox, are taking a chainwide approach by appointing executives whose sole job is to keep an eye on energy prices, supplies, and conservation. Look for other big chains to follow that example. "We've gone through and done the basics: changing lights, putting digital controls on HVAC, and working with local utilities," says Mark S. Mikolajczyk, vice president for production at Gannett Co. Inc. "But, overall, as a company we realize we could do more. It's just been very difficult to get a hold on [energy] with deregulation."

With so much confusion, in fact, doing nothing at a chain level has its advantages. For most of this year, for instance, the Newhouse family's Advance Publications considered a number of energy options, from signing a long-term contract with Enron or another unregulated supplier to buying power through a press association to installing costly emergency generators at some locations. By fall, none of the possibilities looked like a good idea anymore.

"I've talked to people who signed contracts for what ended up to be much higher prices … because utilities panicked," says Mark Grunland, vice president and general manager of Advance's Median Supply Co. "Our inaction worked to our benefit."

Also sitting pretty are papers served by municipal utilities. While the L.A. Times suffered rolling blackouts and a huge price spike at its Orange County plant, its Los Angeles and San Fernando Valley facilities had no supply or pricing problems because they are served by the Los Angeles Department of Water and Power — which had so much cheap power it was selling it to other California utilities.

Not every newspaper has been burned by deregulation. The Fresno Bee, for instance, jumped on deregulation a couple of months after California permitted energy choice. The paper locked in an electricity rate that looks better now than it did even three years ago.

Janet Owen, who was The Fresno Bee's vice president of operations when deregulation was introduced, says she regrets only that the paper didn't move as quickly on natural gas. "We didn't do due diligence on natural gas. We were stuck with PG&E — and some really tough bills. Our gas bills quadrupled last year," says Owen, who is now senior vice president of operations at another McClatchy Co. paper, the Star Tribune in Minneapolis.



Generating cash

Perhaps the biggest newspaper winner of the energy lottery is the Asbury Park Press in Neptune, N.J. Four years ago, when most papers were enjoying steady supplies and predictable prices, the Gannett paper decided to install cogeneration generators at its 200,000-square-foot production facility in Freehold and at its 175,000-square-foot newsroom and offices in Neptune.

Cogeneration refers to the production of two energy forms from a single fuel. In the case of the Press, the generators are fueled by natural gas and produce electricity for lighting and machinery, plus steam for heating and air conditioning. The Press generators have a total capacity of three megawatts, and when natural-gas prices began crashing this year, the Press locked in an assured supply from the fuel company Amerada Hess Corp. through the end of 2003. The paper also installed a propane-fueled emergency generator for its presses.

"We have the ability to withstand any kind of outage," says Thomas F. Petersen, director of facilities for the Press. "If the electric goes down, we can use natural gas. If both electric and natural gas go out, we have enough propane to run the presses for a week. Now, we've never had an outage of more than a few hours, but, in the newspaper business, eight hours without power is a disaster."

The paper paid a little less than $4 million in capital costs to achieve this self-sufficiency, and always envisioned it as a break-even venture. The generators have been gradually paying for themselves in energy savings — but come next summer the Press plans to start making money from its cogeneration. The paper has made a deal to sell excess electric capacity to FirstEnergy on hot summer days when the area utility is willing to pay high prices for power. Off peak, the utility pays about 11 cents or so per kilowatt.

"But on those really hot days, when they are desperate for electricity, the price they pay can go as high as 40 or 50 cents a kilowatt. On those days, you can make a few bucks," Petersen says. The paper expects to clear about $10,000 selling power next summer.



Conserving cash

The Orange County Register doesn't expect to make money with its cogeneration project — it just wants to stop bleeding money. Fed up with the soaring price of deregulation, the paper is contracting with Carter & Burgess Inc. to design and engineer a cogeneration facility for its office-and-production campus. The cost should be about $4.7 million, says Grochow, its facilities and properties operations chief.

The paper has already done almost everything it can with conservation, Grochow says. Seven elevators serve the Register's main office building — but only three are turned on. Computers are routinely turned off when they're not in use. Harland Simon controls were installed to operate the presses more efficiently. Dan Guthrie, the paper's electrical maintenance supervisor, notes that the Register is replacing the energy-thirsty direct-current (DC) motors on its printing presses with ABB Inc. direct-torque alternating-current models that have twice the efficiency rating and do not require the expensive cooling of DC units.

"We've turned off all the lights we reasonably can, but obviously you've got to be able to see enough to work," Grochow says. All told, the Register's energy consumption was down 15% to 19% every month this summer compared with last year, he adds.

For big papers, the savings can be substantial. The L.A. Times, for instance, estimates that each 1% decrease in its own electricity use saves $80,000 annually.

Before he became Cox Enterprises' energy-conservation chief three years ago, Mask worked at the Southern Co., a huge electric utility, for 18 years. Yet he does not use that insider's expertise to devise sophisticated electric futures strategies.

"That's a zero-sum game. Someone's going to win, and someone's going to lose. Take Enron: It was winning, and now it's losing," Mask says. "Buying futures is essentially like buying insurance. There's a reason companies like ours are self- insured: The law of averages tells you that, over 10 years, you will be better off."

Instead, Cox uses conservation practices to minimize its dependence on utilities. In keeping with Cox's corporate culture of local decision-making, Mask gives suggestions, and not orders, to newspapers. "Because we don't mandate anything, they are willing to take our advice," he says. "We get involved whenever a new building is under construction, from the standpoint of suggesting lighting, HVAC, even what color to paint the roof."

Cox does exercise its market clout in a number of national purchasing agreements with vendors such as the Kohler Co. for generators and the Trane Co. for HVAC. Energy is an important factor in the purchase of all equipment, Mask says.

Increasingly, too, Cox is considering reliability. With emergency generators for presses running at upward of $1 million, Cox, like most chains, considered them prohibitively expensive. "Now we're looking at putting in a smaller generator, enough to operate, say, one press," Mask says.

When Cox was building the state-of-the-art Print Technology Center at the Dayton (Ohio) Daily News, it installed two power supplies to ensure redundancy. The software-driven system can sense if the voltage is dropping from the power supply in use. Before switching to the other supply, it verifies that the backup is working — a process it completes within four milliseconds.

But even the simplest conservation methods help, as Lee Enterprises Inc.'s Independent Record in Helena, Mont., learned. "This is real low-tech: We put plastic shrink-wrap on the windows of the north side of our building," says Publisher Brad Hurd. "It cost, maybe, $8 a window. I'm not sure about the savings over the year before, but the people who sit next to the window are much happier. The women in accounting don't have to wear their ski jackets during work."