Shrugging off the rising cost of energy: push toward conservation cushions impact of hikes.

When the OPEC oil embargo caused shortages and skyrocketing gasoline prices in 1973, it sent shocks through the U.S. and California economies, giving rise to "stagflation"--a stagnant economy beset by rising prices.

Businesses suffered, and many failed. But this time around, with pump prices topping $2.50 a gallon, the economy is taking it more in stride, despite a series of energy shocks over the last several years.

What happened?

Somewhere between Jimmy Carter's cardigan sweaters and the electricity blackouts that hit California in 2000, businesses have embraced energy efficiency with programs that reduce companies' reliance on electricity, gasoline and natural gas--and in the process, keep operating costs down.

How long that can be sustained with oil prices stubbornly stuck around $40 a barrel is another story. Last week, the Organization of Petroleum Exporting Countries agreed to the biggest increase in oil quotas since 1997 but somewhat less than some OPEC oil ministers had sought. And since many members are already pumping above their quotas, it was unclear what effect the move would have on prices.

At home, the cost of gasoline continued edging up, with an average gallon of self-serve regular in the Los Angeles area reaching $2.184 last week, according to the weekly survey by the Automobile Club of Southern California. But the group noted that wholesale prices rose sharply last week, pointing to a further jump in pump prices.

There was also talk of a strike by independent truckers at the ports because shipping companies have refused to compensate them for high diesel fuel prices. An estimated 5,000 to 8,000 independent truck operators serve the ports of Los Angeles and Long Beach.

But for all the concerns about fuel prices, energy-saving measures in an array of industries--from packaging materials to bakeries to office buildings--have generally deflected higher costs. As a result, many companies are not feeling as squeezed.

Toyota Motor Sales U.S.A., the U.S. arm of the Japanese automaker, illustrates just how far companies have progressed.

Last year, Toyota built a 624,000-square-foot headquarters in Torrance for $87 million that was certified as the largest "green" building in the nation by an industry trade group.

A solar rooftop generates 20 percent of the building's energy needs and returns electricity back to Southern California Edison, which uses it to supply power to more than 500 homes a day. Half the materials used in the building came from recycled Toyota cars. Water recycled through a pipeline between the plant and the local water district is used for cooling and landscaping.

"We were spurred on by the electricity crisis," said Cindy Knight, a spokeswoman for Toyota, the maker of the first hybrid car. "The design is saving us 42 percent in energy costs alone."

Broad measures

Government buildings have been retrofitted as well.

Daniel Kammen, a professor at UC Berkeley's Renewable and Appropriate Energy Laboratory, estimates that the federal government saves 35 percent on energy costs due to efficiency measures instituted over the past 30 years. Washington is expected to spend roughly $650 billion this year on energy, compared with $950 billion if nothing had been done.

"Energy efficiency is one of the biggest successes of the U.S. government over the past 20 years," said Kammen. "It's hard to identify but you can actually see a lot of the savings at individual businesses, though you have to hunt for them."

Energy efficiency programs first gained traction in the late 1980s and early 1990s, when conservation groups such as the Alliance to Save Energy promoted legislation that allowed governors to shift $2.5 billion to low-income consumers for energy-efficiency upgrades to their homes.

The Environmental Protection Agency got into the act in 1992 with its Energy Star program, designed to reduce greenhouse emissions. That program alone, which has 8,000 corporate partners, is estimated to have saved businesses and consumers more than $9 billion a year over the past decade.

The Energy Star program puts labels on a wide range of products that use less energy and protect the environment. More than 125 structures in Los Angeles have qualified to receive the Energy Star label because they use about 40 percent less energy than the average building, without compromising comfort or service.

Howard Choy, manager of the energy management division for Los Angeles County, the second-largest local energy user behind Southern California Edison, said many efficiency measures were adopted by the county in the early 1990s, "back when rates were stable and it wasn't trendy.

"There's been significant change. Just going in and changing lights can result in a 15 percent reduction in energy use for an office building," said Choy.

Last year, the county installed a new energy management system that collects data on the 100 largest buildings and determines whether they are operating at peak efficiency.

The county has spent roughly $40 million on energy projects since the mid-1990s. Its annual energy budget of $200 million a year includes operating three co-generation plants, which supply natural gas and electricity to five area hospitals.

Choy said the county can now monitor how equipment is operating and diagnose problems through the Internet in real time.

"We can compare last summer versus this summer and see what the differences are," he said. "We have people interested in looking at the data and figuring it out and doing something about it."

Cost cutting efforts

An informal survey of local manufacturers showed that this current round of energy cost surges has not forced dramatic changes in behavior. Instead, manufacturers are continuing the steps they began taking in response to the power crisis three years ago.

Many local manufacturers have installed energy-efficient lighting, converted forklifts and fleet vehicles to propane fuel, and made incremental improvements to their manufacturing processes to reduce waste.

"Most manufacturers are looking at energy efficiency opportunities that have less than a two-year payback," said Dina Lane, a consultant on the energy team at the California Manufacturing Technology Center in Gardena. "They're not going out and investing a whole lot of money up front and risk not getting a quick payback."

Also, manufacturers have not been hit as hard by the recent run-up in fuel prices as they were by the power crisis in 2001. Electricity is a critical component of almost every manufacturing process, and while prices are higher now than they were four years ago, they have remained fairly stable over the past couple of years. That has given companies time to install new lighting and take other steps.

"Two years ago, we put a new roof on with skylights," said Jim Ball, president of SureGrip International, a South Gate-based maker of roller skates. By allowing natural daylight to filter through, fewer electric light bulbs are needed.

"It cost us about $40,000, but when combined with our installing energy efficient light bulbs, our power costs have been halved," Ball said.

On the fuel side, Ball has not made any recent adjustments. Back in the early 1980s, just after the last major gas crisis, Sure-Grip installed a propane tank and converted its two trucks and three forklifts to propane fuel.

Propane-fueled forklifts are also the norm at many of Boeing Co.'s Southern California facilities, according to spokeswoman Dianna Ramirez. The conversion process took place over the last several years, she said.

Similarly, the effort to install energy-efficient light fixtures at all Boeing facilities began in 1990 and is now about 90 percent complete, Ramirez said. The company has also installed thermostat-type controls for heating, air conditioning and ventilation systems at many of its facilities.

Going out of state

Such steps have not proven enough to minimize the hit at Simi Valley-based Poly-Tainer Corp., which makes plastic containers.

"We've installed energy efficient lighting and gone over our manufacturing process from top to bottom," said Poly-Tainer president Paul Strong. "We've also taken advantage of every discount that Southern California Edison has to offer us, such as their interruptible power service."

That program allows major power users to get extremely low rates. But the companies must be prepared to shut down with just 30 minutes' notice at times of peak power demand. Poly-Tainer was hit hard with several service interruptions during the 2001 electricity crisis.

"Customer demand is up and we're looking at expanding our capacity," Strong said. "But because of the high power costs, we have decided that we will open up a new facility out-of-state to handle this extra work."

While a site has not yet been chosen, Arizona and Nevada are prime candidates. About 50 of the company's 300 employees will be given the option of being transferred or laid off.

Product delivery costs are also hitting Van Nuys-based cabinetmaker Woodworking by Degree. Rising fuel prices have also increased the cost for drivers to get to various work sites to install the cabinets.

"There really isn't a whole lot we can do about this except to be more selective in the jobs we accept," said Woodworking's vice president, Gary Pietruszka. "We need to make sure that we're getting high enough prices for our products that we can absorb these energy costs."

Pietruszka said that switching over to alternative fuels for company vehicles is not feasible. "We've looked into it, but for us, there really isn't much else except gasoline or diesel, so we're sort of stuck there," he said.

Lane said most companies with fleets are not switching fuels.

"There has been some fleet management, like combining trips or making sure that vehicles are properly maintained so that they get the maximum mileage," she said. "But these steps have been taken in response to the recession of the last three years. The run-up in gas prices in the last four months is too short a time frame to see major decisions being made."

Because up-front expenditures are frequently involved in conversions of fleets, such decisions are usually not made on the spot; they must be incorporated into the annual budgeting process, she added.

Transit costs

Meanwhile, many independent trucking operators have picked up their rigs and moved to Houston, where diesel prices average $1.40 a gallon, compared with $2 a gallon in Los Angeles, said Gene Fagin, general manager of Cal Cartage Co., a warehouse and freight operator in Long Beach.

With 270 trucks going into and out of the ports, Fagin has purchased diesel fuel in bulk from an independent Florida supplier that ships directly to his company. That saves between 3 cents and 7 cents per gallon, a significant reduction on thousands of gallons of diesel each week.

"The price we get fluctuates every day, which is better than at a gas station that has already paid for the gas and put it into the ground," Fagin said.

Like many truck operators, Cal Cartage imposes a fuel surcharge to recoup costs from shipping operators. When shippers refuse to pay the surcharge, currently 8 percent of total freight, Fagin will go directly to the client, such as retailer Target Stores Inc., and negotiate to have them pay.

Frank Visvikis, president of Jacmar Foodservice Distribution in Alhambra, a distributor of cheese and tomato sauces to pizza chains and Italian restaurants, added a fuel surcharge to each delivery when diesel prices hit $2 a gallon. The company also offered customers the chance to reduce their deliveries to once a week instead of twice a week, for example, to defray higher diesel costs.

The cost of fueling Jacmar's 23 trucks has more than doubled in the past year to $34,000 a month, up from $13,000 in the same period a year ago.

Visvikis even purchased global positioning software to find the shortest routes for its truck deliveries. "We are trying to reduce our fuel costs as much as we can," he said.