- The Washington Times - Wednesday, January 24, 2001

The Bush administration, in its first act addressing California's energy crisis, yesterday extended for two weeks emergency measures requiring businesses to keep supplying the state with electricity and natural gas.
Power companies have been reluctant to sell to the state's failing utilities, which already have missed payments on some power purchases as they veer toward bankruptcy.
The rapidly deteriorating situation threatens to further disrupt not only electrical service in the state, which is experiencing rolling blackouts, but supplies of home-heating fuel.
Without the emergency orders, put in place by the Clinton administration in the last month, analysts say California's power disruptions would have been much worse.
Energy Secretary Spencer Abraham said the administration is giving the state one last extension of the emergency measures to give California legislators "sufficient time to … restore the financial health of the utility companies and develop other sufficient sources of energy."
Mr. Abraham, who consulted with Treasury Secretary Paul O'Neill and White House economic advisers in making the decision, said California Gov. Gray Davis assured the administration that he would need no further extensions of the emergency orders. White House officials said the president has no plans to renew them.
The California Democrat and state legislators are rushing to enact bailout legislation empowering the state to finance $12 billion in debts that have been driving the utilities toward bankruptcy in exchange for taking over control of their hydroelectric facilities. The state started purchasing power on behalf of the utilities this week.
The crisis widened yesterday as one of the utilities, Pacific Gas & Electric, announced that it could no longer cut power to businesses that have interruptible supply contracts to avoid imposing blackouts on the rest of its customers. It said it already has exhausted its annual authority to interrupt supply, three weeks into the year.
The emergency orders have had the effect of spreading California's crisis to its neighbors, diverting power supplies intended for consumption in Oregon and Washington. Prices for wholesale power have skyrocketed in the region because of California's huge demands for imported power.
In making the decision, the administration had to strike a balance between acceding to the distressed state's calls for help in averting economic disruptions that could become national in scope and heeding President Bush's stated policy against federal intervention.
Mr. Bush said last week that California is largely responsible for the crisis because it failed to build the power facilities needed to meet the state's burgeoning demand for electricity. He ruled out any federal price controls on electricity, as demanded by the state's mostly Democratic lawmakers.
Mr. Bush on Monday designated a staunch Republican and deregulation advocate, Curtis Hebert, as chairman of the Federal Energy Regulatory Commission. Mr. Hebert strongly opposes price caps and has expressed outrage that the state has ignored the agency's advice and not corrected the flaws in California's deregulation law that are feeding the crisis.
Still, yesterday's decision showed the immense pressure the administration is under to help save the nation's most populous state from the potentially devastating impact that extensive blackouts could have on California and even the national economy.
California generates 10 percent of the nation's economic activity and is home to Silicon Valley, the heart of the "new economy."
"Many fear that California's burgeoning energy crisis will accelerate the already surprisingly rapid downturn of the national economy," said Clyde V. Prestowitz Jr., president of the Economic Strategy Institute.
"Such fears are not entirely without foundation," he said. The rolling blackouts already have forced the temporary shutdown of many small and energy-intensive businesses on the West Coast and resulted in thousands of layoffs.
Factories making aluminum, dye, beer, steel and even dehydrated potato flakes have shut down because of interruptions in their electricity service and skyrocketing energy costs.
California's important agriculture industry, which supplies the nation with fruit and vegetables in the winter, also has been hit hard. Some dairy farmers are dumping milk because they don't have the power to process it.
Consumers, increasingly confronted with nonfunctioning devices from automated teller machines to stoplights, also are feeling the pinch. Would-be lovers on Valentine's Day will have difficulty finding roses in Half Moon Bay, one of California's coastal communities, since electricity shortages there have forced the T&E; Pastorino Nursery to keep greenhouse heat below the level needed to grow roses.
These disruptions are occurring "at a moment of fragility" for the national economy, said Mr. Prestowitz, and any further "significant reductions" in business activity could adversely affect the whole economy.
Still, most of the impact is being concentrated in California, and even a major bankruptcy of one of the state's utilities, while hurtful to some banks, is "unlikely to have national consequences," he said.
Stephen D. Slifer, economist with Lehman Brothers in New York, agreed that the California crisis is "adding to risks" for the economy, but is unlikely to plunge it into recession or cause serious turmoil in the financial markets.
"The crisis in California is the result of a dangerous mix of environmental laws that restricted the construction of new power plants, surging demand for energy, and a partial deregulation of the pricing system," he said. The utilities have had to pay soaring wholesale prices for power while their rates for consumers have been frozen at low levels.
Still, the state's lawmakers "are aware that allowing the utilities to go bankrupt does not solve anything," Mr. Slifer said, and "the contagion effects of a bankruptcy are likely to be limited because few other companies in the U.S. face the same kind of problem."
Economists at Credit Suisse First Boston said yesterday that the turmoil in California could be causing a contraction in the economy right now.


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