Energy crisis could cost billions, says California's controller

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Posted at 6:42 a.m. PST Thursday, March 29, 2001

BY STEVE LAWRENCE, Associated Press Writer

SACRAMENTO, Calif. (AP) -- Even with customers paying up to 46 percent more for electricity, California's financial controller says the state faces a $7.4 billion shortfall over the next 18 months if it keeps buying power.

But a state Department of Finance spokesman dismisses Kathleen Connell's dire financial projection, saying it doesn't take into account the governor's efforts to reduce electricity costs by signing long-term purchasing contracts with power wholesalers.

Connell estimated California will spend $26.8 billion buying electricity the next 18 months for the state's two largest utilities, which are on the brink of bankruptcy.

Despite the rate increase approved this week and the $12.4 billion the state is authorized to sell in bonds, she said Wednesday that California would find itself billions of dollars in debt by October 2002.

Connell said the problem is that Gov. Gray Davis and lawmakers failed to examine the state's ledgers before buying power for Southern California Edison and Pacific Gas and Electric Co.

``We must all work together so the left hand knows what the right hand is doing. You have to look at the books before attempting to solve the energy crisis,'' she said.

Department of Finance spokesman Sandy Harrison said California normally has cash flow problems in October because most of the state's revenue comes in April.

Just how much California's energy crisis will cost the state has been hotly debated by state officials, financial experts and business people. Some predict the power crisis and rolling blackouts will have a ripple effect through all segments of the state's economy and even into neighboring states.

``Remember that trends start in California,'' said Jack Kyser, chief economist for the Los Angeles Economic Development Corporation. ``I think this is definitely going to create inflationary pressures, and that is something the Federal Reserve Bank can't do anything about.''

California's $1.3 trillion economy accounts for 13 percent of the nation's gross domestic product and 16 percent of U.S. consumer demand.

The energy crisis has been blamed mainly on California's 1996 deregulation law, which forced the state's investor-owned utilities to shed their power plants and buy electricity from wholesalers while capping the rates they could charge consumers.

SoCal Edison and PG&E say that forced them to the brink of bankruptcy when energy prices spiraled upward over the past year. The two utilities say they owe nearly $13 billion to power wholesalers who have shut off their credit, forcing the state to step in and buy electricity.

-- Swissrose (cellier3@mindspring.com), March 29, 2001