California Energy Crisis Has Wineries Worried About 2001 Harvest

Posted: Monday, May 7, 2001

By Daniel Sogg

Imagine a winemaker's nightmare scenario: truckloads of grapes lined up near inoperative presses, baking in the Indian-summer heat, while fermentation temperatures soar out of control in unrefrigerated tanks. Sound far-fetched? Maybe. But that doesn't comfort California wine producers who fear the worst for this harvest as a result of the state's ongoing energy crisis.

Most California residents learned of the looming problems in May 2000, when energy alerts signaled dangerously low power reserves. Then, in June, utility companies had to avert widespread power outages by instituting "rolling blackouts," controlled outages affecting specific areas. A cold winter exacerbated the situation, leading to further rolling blackouts in January and March.

Politicians and utilities warn that this summer could be even worse, and some wineries are now taking steps to protect themselves. Electricity powers nearly all of their vital equipment, from the computer-operated presses that crush grapes to the bottling lines.

"The biggest concern is a lack of power at the critical times when we pick grapes," said Jerry Lohr, owner of J. Lohr Winery, which makes about 750,000 cases per year, in Santa Clara County. Cool evenings require Lohr to pick red grapes in the late morning and afternoon so that the fruit is warm enough for a timely fermentation. That means the presses are operating just as blackouts become most likely during hours of peak usage.

Harvested grapes need to be crushed as soon as possible to prevent uncontrolled fermentation and to maintain orderly logistics at larger wineries dealing with multiple vineyard blocks. Harvested but unpressed white grapes are also susceptible to oxidation.

"We'll need the power most at the times when we don't have it," said Lohr. "We also do three pump-overs [during fermentation] per day, so if we lose power for six or eight hours we could have some real problems."

Lohr's solution is an $80,000 backup generator that can supply the winery's essential power needs during harvest. Generators could also help wineries that lose power when bottling at other times of the year.

Smaller producers share the same concerns. "If you can't crush your fruit [during a blackout or brownout], it could wipe you out," said Clark Swanson Jr., owner of Swanson Vineyards, which makes about 25,000 cases per year, in Napa. Napa has already been hit by rolling blackouts, and Swanson is considering spending $10,000 to $15,000 for a backup generator.

The California energy crisis began to take shape five years ago, when the state deregulated wholesale electricity prices. Many plants also run on natural gas, which has tripled in price over the last year. Those operating expenses, along with growing energy demands, have pushed the state's energy companies to the edge of -- and sometimes into -- bankruptcy. In April, Pacific Gas & Electric filed for bankruptcy protection from 10,000 creditors owed nearly $9 billion, the third largest bankruptcy in U.S. history.

While power outages during the 2001 harvest are the most serious and immediate threat, California's ongoing energy problems could also subtly impact winery profit margins over the next few years. Electricity costs for estates and their suppliers, such as bottle makers, are expected to increase by at least one-third, which could translate to a 3 percent or 4 percent reduction in profits.

None of the winemakers interviewed suggested that they currently plan to raise prices to offset the increase in energy costs.

Large producers should be able to absorb the utility increases, according to Bob Philipps, vice president of investor relations at Robert Mondavi. "The way accounting works, we'll have a lot of time to deal with that and find ways to offset a 3 or 4 percent [profit] decrease," he said.

Wine industry professionals like Philipps seem most concerned that the energy crunch could further undermine consumer confidence in the economy, already shaken by stock market volatility and widespread dot-com collapses. Inflation could follow a rise in utility prices, and consumers might have to cut back on wine.

Some producers have already noted intermittent slowdowns in their tasting room sales. "In February, for the first time in seven years, we had a 10 percent decrease," said Gary Eberle, owner of Eberle Vineyards in Paso Robles. "In this business, we are absolutely held captive by what the economy is doing."

http://www.winespectator.com/Wine/Spectator/_daily|news1221

-- Martin Thompson (mthom1927@aol.com), May 08, 2001