California power-supply woes threaten economy and high-tech businesses

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Tuesday, January 02, 2001, 12:00 a.m. Pacific

California power-supply woes threaten economy and high-tech businesses

by The Associated Press SAN FRANCISCO - California businesses are cutting corners, contemplating price increases and bracing for more budget-breaking anguish as the state's energy woes crackle through the economy.

With natural-gas bills more than doubling in the past year, the financial pain already is being felt from Central Valley dairy farms to Silicon Valley computer-chip plants.

"It is frightening," said Lee Murphy, president of the California Cut Flower Commission, whose members are absorbing huge losses to keep their roses warm.

Another financial shock may come Thursday when state regulators are expected to approve an electricity-rate increase of up to 20 percent to help utilities recoup more than $9 billion in losses.

Spending more money on energy will mean consumers have less disposable income to spend on other goods and services, a shift that could take some of the spark out of California's high-voltage economy, which is larger than all but five countries in the world.

A slower California economy could have a big impact on Washington state. Any number of companies here, from fish brokers to apple growers, depend on California for sales and business. In addition, the state already has its own power supply and pricing problems.

"Energy is becoming a huge wild card in our economy," said Ted Gibson, chief economist for the state Department of Finance.

Rising energy prices could reduce the state's economic output - estimated at $1.35 trillion this year - by 1 percent, or about $13.5 billion during the next year or two, estimated Richard Gilbert, a University of California economics professor specializing in energy issues.

"It could become a significant drag on economic growth," Gilbert said.

Hoping to hold the line on room rates, many upscale California hotels are scrimping on the holiday frills and stepping up conservation. The San Francisco Hilton recently replaced its incandescent lights with more energy-efficient fluorescent bulbs.

In Hollywood, Sony Pictures is urging its film crews to turn out the lights during breaks and make sure all the stage doors are closed.

Other businesses are trimming payrolls to make ends meet, and in the worst cases, shutting down until prices ease.

Hit with a 14-fold increase in its natural-gas bill, McKoen and Associates laid off 100 workers at a potato-flake plant in Tulelake, near the Oregon border. The company decided to temporarily close the plant shortly after converting it to natural gas from diesel fuel and used oil.

"Obviously, no one saw this coming, or we would have situated ourselves for it," said plant owner Mike McKoen said.

Many other businesses are being blind-sided by the dramatic price spike in natural gas, which had been a relatively cheap source of energy throughout the 1990s.

Uncertainty about the cost and availability of California's electricity looms as an even more daunting problem, according to business leaders and economists.

Possible interruptions in California's electricity supply are equally troubling to the state's high-tech businesses, which say they lose as much as $1 million during each minute of a blackout.

The twin threats of high prices and periodic blackouts might discourage businesses from expanding or locating operations in California, said Sung Won Sohn, Wells Fargo Bank's chief economist.

"It's something else to worry about, like an earthquake," Sohn said.

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-- Martin Thompson (mthom1927@aol.com), January 02, 2001


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