Major job losses predicted; governor presses generators By Dale Kasler, Ed Fletcher and Emily Bazar

(Published May 10, 2001) As a private consultant predicted the state will lose 135,000 jobs from a summer of blackouts, Gov. Gray Davis on Wednesday pressed power generators to forgo 30 percent of their California earnings to help pull the state out of the energy crisis.

Summoning executives of the companies he has repeatedly accused of price gouging, Davis said the generators probably would have to forgive a portion of the debt they're owed by California's two destitute utilities to win the Legislature's approval for his controversial plan to repay the debts and rescue the utilities.

"I suggest that they should look to (accept) 70 percent of what they claim they were owed," Davis said after a four-hour meeting in the Capitol. "I felt the Legislature will insist on a reduction."

Although Davis said, "I believe they are willing to take some reduction," at least one generator, Reliant Energy Inc., immediately dismissed the governor's proposal.

The meeting capped a roller-coaster day in which anti-generator protesters brought a pig to the Capitol and the state narrowly averted a third straight day of rolling blackouts. But while enough megawatts were found to scrape by for a day, the state is surely facing a summer of severe shortages.

A study, commissioned by some of the state's most influential business lobbyists and partly funded by Intel Corp., predicted chronic blackouts will mean significant economic harm to California.

The study by John Urbanchuck of New Jersey-based AUS Consultants said the blackouts would erase 135,000 jobs and cause $26 billion in economic devastation.

Several California economists said the prediction was overblown, but none doubted the electricity crisis could significantly harm the state's business climate.

"It really depends on how severe the blackouts are," said UCLA economist Chris Thornberg. "If we have 30 straight days of blackouts in June ... you're going to end up with a mess."

Everything else being equal, the loss of 135,000 jobs would raise California's unemployment rate by 0.7 percent, to 5.4 percent, based on the latest numbers from the Employment Development Department.

Ted Gibson, chief economist with the state Department of Finance, said AUS' estimates seem high.

"It'd be hard for me to think those relatively limited, one-hour-at-a-time (blackouts) would have such an impact," Gibson said.

As it is, the blackouts have struck some of California's most important employers, such as Sun Microsystems Inc. and Advanced Micro Devices. Tuesday's blackout hit Apple Computer Inc.'s lone U.S. factory, in Elk Grove.

Economic development agencies from other states have stepped up recruiting efforts in California, hoping to capitalize on the state's misfortunes. A few glass manufacturers have moved production, said Jack Stewart, president of the California Manufacturers & Technology Association.

It could get worse. For example, a leading Silicon Valley electronics manufacturer, Solectron Corp. of Milpitas, said it is seriously considering pulling some of its operations out of California.

"The blackouts and the lack of reliable power are our biggest concerns," said Solectron spokesman Bob Kula. "We have the ability to move (production) quickly."

Solectron, whose factories were hit with blackouts in January and March, employs 4,000 workers in Northern California.

A top state official said business leaders around the country look at the electricity crisis as emblematic of a state that's becoming iffy as a place to do business.

"The whole question of how did the state allow it to get this far -- I keep hearing that from Wall Street, I keep hearing that from the business community," said the official, who asked to remain anonymous. "The last year has demonstrated that the risks of doing business in California are much higher than anywhere else in the United States."

The state was spared a third day of blackouts Wednesday when cooler, windier weather in the late afternoon produced a spurt of wind-generated electricity and a much-needed drop in demand. Throw in an unexpected power purchase from the Pacific Northwest, and the state's fragile power grid suddenly had 1,400 megawatts it wasn't expecting, more than enough to compensate for a breakdown of a major Bay Area power plant in early afternoon.

Another boost: Pacific Gas and Electric Co. said all but a handful of its alternative-energy suppliers have resumed production. These suppliers, responsible for a fourth of the state's energy supply, have been closed for weeks because of nonpayment by PG&E and Southern California Edison. The two stricken utilities are paying them again.

But while blackouts were unlikely today, there were no guarantees.

"We're not swimming in megawatts," said spokeswoman Stephanie McCorkle of the Independent System Operator, which runs the state's power grid.

Representatives from a dozen wholesale power generators -- 10 in person and two by phone -- attended the Capitol summit.

Despite months of verbal potshots between Davis and the generators, the meeting was described as cordial by John Stout, senior vice president of Houston-based Reliant.

But Davis also said he told the executives that unless they accept a reduction in payment for back debts, the Legislature is likely to reject his plan to buy the utilities' transmission lines -- a key element of his plan to pay back billions the utilities owe them.

If the plan goes through, the generators can get paid this year, Davis said. If it's killed, they'll probably have to wait three or four years to get their money in Bankruptcy Court.

So far only Edison has agreed to sell its lines to the state. Senate President Pro Tem John Burton, D-San Francisco, said Wednesday that the Edison deal will be rejected unless the generators forgive some debts.

"I'm going to insist that they take at least a 30 percent haircut on the monies that they're owed," Burton said earlier.

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The Bee's Dale Kasler can be reached at (916) 321-1066 or dkasler@sacbee.com. Bee Staff Writer Kevin Yamamura contributed to this report.

http://www.capitolalert.com/news/capalert03_20010510.html

-- Martin Thompson (mthom1927@aol.com), May 10, 2001

Answers

Now it appears that Davis is stepping into the fray, playing the role of bankruptcy judge.

What a laugh. The very companines he's already bashed as gougers are supposed to roll over, play dead, and drop their prices?

He has no leverage, and the generators know it. With such out-of-state reliance, over which he has no control, Davis is only making a circus of his meaningless, threatening noise. His admonishments are pathetic. He is only making a fool of himself.

-- Wellesley (wellesley@freeport.net), May 11, 2001.