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Energy rate hike could hit bottom lines

California's technology companies face even higher energy bills amid their battle with a sluggish economy after the biggest rate hike in the state's history is approved.

California's technology companies face skyrocketing energy bills amid their battle with a sluggish economy.

On Tuesday, California's Public Utilities Commission approved the biggest rate hike in state history, an increase that could raise nearly $6 billion. Small-business bills will climb about 37 percent, while large corporations could see hikes as high as 49 percent. The increase affects customers of Pacific Gas & Electric and Southern California Edison.

In January, many California companies predicted the rate hikes would not have a significant effect on their bottom lines, but after months of prolonged shortages and so-called rolling blackouts, they are singing a different tune.

Most companies say it is too soon to determine exactly how much their bills will rise. However, several companies based in the San Francisco Bay Area, including eBay, Ask Jeeves and software maker Siebel Systems, have already warned in federal financial filings that increased electricity costs could have an adverse effect on their businesses.

Although the filings often portray worst-case scenarios that are unlikely to occur, many companies are warning that their businesses could be disrupted by power failures, costs could rise as a result of increased electricity bills, and partners and suppliers could be hamstrung by rising rates.

"If energy prices continue to increase, our operating expenses will likely increase, which could have a negative effect on our operating results," according to a quarterly SEC filing by Emeryville, Calif.-based Ask Jeeves. The company is in the process of expanding its facilities in Natick, Mass., a suburb of Boston, and said it may put some facilities there that it had planned to build in California.

A hike in energy rates could have a ripple effect, as "server farm" companies pass on their increased costs to their dot-com customers. Server farm companies maintain entire floors or buildings crammed with computer servers.

"The rate hikes will hit them the hardest, and those rates are going to have to be passed on to customers," said Dayne Sampson, vice president of information technology at Ask Jeeves.

In an SEC filing this week, San Jose, Calif.-based eBay warned that depletions in backup power at its headquarters and at Web-hosting partners could harm its business.

Good riddance?
Soaring energy bills could also force some California-based companies to move out of the state to places where prices for light, air-conditioning and manufacturing are not nearly as high.

In a dire report outlining the potential gravity of the power shortage, the California Manufacturers and Technology Association said the power crisis could cost the state's manufacturers $1.2 billion and translate into a loss of 135,755 jobs across all sectors. The organization was one of the business lobbying groups that succeeded in shifting some of the financial burden from companies to consumers, convincing the Public Utilities Commission to adopt a rate hike that moved about $106 million from corporations to residential customers.

Yahoo, like many companies in California's Silicon Valley, has dimmed its lights and is asking employees to shut down unnecessary equipment and turn off their computers overnight. The company has not disclosed any material effect from the power crisis in its regulatory filings.

Some California businesses are taking the events in stride. Intel, for example, has its major facilities in Santa Clara and Folsom, Calif., two areas served by municipal power providers, meaning their rates will remain steady despite the hike.

"We have not been subjected to fluctuations in rates to date and don't expect to for at least a year," Intel spokesman Chuck Mulloy said.

However, after the terms of those agreements are up, the big chipmaker faces the same constraints as other companies dealing with the energy crisis. "The concern that we have is the overall impact this will have on the California economy," Mulloy said.

Intel CEO Craig Barrett already told reporters that rising energy prices could put a crimp in any prospects for expansion in California, although Mulloy said the company has no immediate plans to build in the state. California is home to 14,000 Intel employees, the second-largest contingent after Oregon.

The biggest threat facing Intel is a blackout, which could damage some chips as they are being manufactured--although the company has a sort of co-op arrangement with its energy supplier to help it control where power outages take place.

Meanwhile, the rate hikes could give even more ammunition to those states and regions hoping to lure California companies out of the Golden State.