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CENTERS WEATHER CALIFORNIA POWER CRISIS

By Maura K. Ammenheuser

Despite California’s electric power crisis, retail sales at shopping centers such as San Francisco’s Embarcadero Center remain strong, say center officials.

Madeleine Ludlow, president of a Cincinnati consulting firm that helps retailers manage utility costs, got an urgent call from a California client recently.

“Their Western region person said, ‘Help me. I have to turn off the electricity in all stores north of Fresno between 2 and 8 o’clock,’” Ludlow recalled. Never mind ensuring the power outage went smoothly. The retailer wasn’t even sure which stores were north of Fresno.

Such are the challenges these days in California, where the ongoing energy crisis serves as a crash course in electric consumption — and sometimes geography — for retail and shopping center managers. Though few centers are reporting major difficulties, most have had to take immediate steps to cut power usage. They realize the power shortage, which plunged 2 million Californians into periodic darkness in January, isn’t going away anytime soon. And now they have to answer to the governor as well as to shoppers, investors and electric suppliers.

Gov. Gray Davis signed an executive order Feb. 1 demanding that shopping centers and retailers “substantially reduce” outdoor lighting after business hours, except as necessary for public safety, by March 15. Violators face fines of up to $1,000. At press time, Davis hadn’t signed another order detailing what centers must do to comply, said Rex Hime, ICSC’s legislative affairs chairman for California and president and CEO of the California Business Properties Association.

The public safety clause provides “huge protection for our malls,” Hime said. “... You’d have to be either very, very stupid or very, very bad” to get socked with a fine.

Shopping centers have generally taken commonsense steps to reduce power consumption, and most hadn’t experienced major problems by early March.

New Park Mall, for example, a 1.1 million-square-foot General Growth Properties center in Silicon Valley’s Newark had an hour-long outage in January. It affected just one anchor; the center’s power comes from two grid systems, so it can have partial blackouts. Stanford Shopping Center, a 1.3 million-square-foot center run by Stanford University, suffered one hour-long blackout, with 15 minutes’ notice from the city of Palo Alto, its electricity supplier. Like other centers, Stanford was warned that scheduled outages could occur.

Best Buy’s 46 California stores experienced no blackouts by press time, said Dustin Mirick, manager of utilities and energy management. The Eden Prairie, Minn.-based consumer electronics chain can conserve about 100 kilowatts per store when necessary and by March was slashing consumption by 5 megawatts throughout California, Mirick said. One megawatt powers 1,000 homes for a year. Best Buy saves energy by shutting off a third of the ceiling lights and two-thirds of its product displays.

“The stores are a little dimmer. I believe customers are willing to accept that,” Mirick said.

Shopping centers are taking similar steps, shutting nonessential lights, signage and fountains and setting thermostats slightly warmer than usual. Tenants keep shop doors closed to retain warmed or cooled air, and managers train staff to deal with outages. New Park Mall, for example, taught merchants to close gates manually, said Veronica Curley, assistant manager. She said the bigger challenge will be keeping order if the power fails at night, when shoppers would have to get to their cars in the dark.

Switching to high-efficiency lightbulbs, such as metal halides and compact fluorescents, can also immediately lower electrical consumption, several experts said; so can inspecting ductwork and sealing any air leaks, said Jim Ackles, vice president of energy management for The Macerich Co., a Santa Monica-based mall REIT.

Some companies have longer-term strategies.

Macerich created Ackles’ position in late 1999 to oversee a 10-year portfolio-wide energy efficiency plan, something that was in the works before California’s problems developed. Macerich spends $14 million on power just in California, Ackles said. But efficient lighting can dramatically lower consumption. Macerich will invest $300,000 retrofitting lighting at an undisclosed Northern California property, expecting a 60% drop in electrical use there, Ackles said. He also expects multimillion dollar air-conditioning improvements, achieved through a partnership with power supplier Enron Energy Services.

Ludlow’s company, Cadence Network, encourages such retrofitting. Before this year, it took 18 to 24 months for retailers to recoup lighting improvement costs in California, she said. With electricity rates rising rapidly, she now tells clients it would take about seven months to recoup the costs.

California’s energy crisis developed after electricity deregulation. The state freed wholesale power suppliers from price controls, forcing utilities to buy at market price. But California retained caps on what utilities could charge their customers.

Demand rose but supply stagnated because no new plants were built. By late 2000 there was a shortage, and utilities, buying electricity for more than they could sell it for, were heading for bankruptcy. The state government is spending millions to maintain its power supply, Hime noted, and consumer electric bills are soaring as the state seeks financial relief for utilities and imports power. In Newark, for example, residential electric bills have doubled, Curley said.

Yet the public remains blasé, apparently skeptical of the severity of the shortage, said Steve Colvin, vice president of property management for Boston Properties, which operates Embarcadero Center, a mixed-use center with 360,000 square feet of retail in San Francisco. He and others said retail sales remain strong. But the energy situation will almost certainly deteriorate when summer’s heat arrives and everyone cranks up the air-conditioning.

In winter, the state requires 32,000 megawatts of juice daily, Colvin said, but this summer, “if the state doesn’t have 45 [thousand] to 55,000 megawatts available, which it probably will not, you’ll see rolling outages,” he said. And those don’t carry advance warning.

Nobody knows how long the shortage will last; most observers predict several years. “It’s a real crisis,” Ackles said. “Costs are going to be huge.”

Perhaps it will prompt retail and real estate companies to adopt long-term, energy-efficient practices nationwide, as other states deregulate utilities.

Hime said more companies may follow Macerich and Best Buy’s example, creating energy management positions. Several sources expect more financial incentives from utilities and governments to encourage investment in energy-efficient equipment, maybe including generators.

Not all centers have them, and those that do rely on them only for critical items such as phone systems and emergency lighting; they’re not powerful enough to handle a center’s entire electrical demand.

“This is not going to be isolated to California,” Ackles said. Like the aftermath of the 1970s oil crisis, he said, “everybody in the country is going to be more conscious of energy efficiency.”

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