Posted on: Sunday, April 8, 2001

California fallout feared here

By Frank Cho Advertiser Staff Writer

California's growing energy crisis has been a shock to that state's economy and, in a smaller way, to some well-known Hawai'i companies as well.

San Francisco's Bank of the West, a subsidiary of Honolulu-based BancWest Corp., has suffered short blackouts at some of its California branches.

For the past few months, Honolulu's Pacific Century Financial Corp's. bank subsidiary in Long Beach, Calif. has been under its own self-imposed energy conservation program.

And carpenters at Schuler Homes' construction sites in Northern California have been idle while rolling blackouts pass through area neighborhoods.

"If this thing carries on into the summer, that is going to be a problem," said Michael McKissick, president of Schuler Homes of California, a unit of Hawai'i's biggest home builder.

Although it sounds like a flashback to the oil-embargo days of the 1970s, the energy crisis of the 21st century is a different phenomenon.

In one of the first formal predictions of an outright recession for the San Francisco Bay area, a highly regarded forecasting group said in a report last week that the region's economy will contract this year, dragged down by slumping high-technology and a continuing energy crunch.

The UCLA Anderson Forecast predicts that California's economy as a whole will grow in 2001, although at a very slow pace, as Southern California's large business base shields the state from some of the pain of the tech downturn.

California had been one of the fastest-growing markets for many Hawai'i companies seeking to escape the state's slow-growth economy of the 1990s.

Last week, the California Public Utilities Commission approved a rate increase that would average 40 percent.

That includes making permanent a temporary 10 percent average increase adopted by the commission in January.

McKissick said higher electricity costs related to air-conditioning homes during the summer could run business costs higher for Schuler Homes, cutting into the company's profits.

But, McKissick said, "I don't think it will force an increase in the cost of homes here, which are already very high."

The power crisis is the product of a long-regulated utility industry trying to adapt to a deregulated environment. California was the first to deregulate its electricity market in 1996.

Power producers said it would lower the bills of consumers by preventing most utilities from passing rising costs on to their customers until at least March 2002.

Under deregulation, the state's investor-owned utilities sold most of their power-generating plants. Now they must buy back that power at market prices.

The result has been blackouts throughout California while utility rates have skyrocketed, jumping from an average of $30 per mega-

watt hour last year to $330 in January.

Pacific Gas & Electric Co., California's largest utility, filed for bankruptcy protection from creditors yesterday because of unre-

imbursed power costs that are now running at more than $300 million a month.

"We said earlier this year that the only direct impact we anticipate is through increased utility bills at the Bank of the West," said Gerry Keir, a bank spokesman. "We originally estimated that amount at less than half a million (dollars) in 2001. However, it's not a material figure for a company that made $217 million last year."

But recent approval to increase electricity rates by the California Public Utilities Commission could push that figure higher.

Making the energy problem in California worse is the rapid growth of the power-hungry technology industry.

Digital Island, which was founded in Hawai'i and still has a major data center here, has been a part of a major boom in building new data centers there, sometimes called server farms.

This is raising the stakes in the tug of war between business and electricity providers in power-short California.

The data centers, which house rows and rows of computers in climate-controlled rooms, are just one kind of large power user, and are dwarfed in their electricity needs by such things as auto plants.

But technology and telecommunications companies still want to build a lot more of them, despite the general downturn in the Internet industry.

In response to this and other needs, both houses of the California Legislature last week approved a $1.1 billion package of energy conservation measures designed to cut electricity use as quickly as possible.

Much of the money goes to existing state programs offering loans, grants and cash to business, agricultural, residential and low-income ratepayers. California Gov. Gray Davis is expected to sign the bills.

Programs include rebates on new refrigerators and air conditioners, as well as grants to place reflective surfaces on roofs and weatherize homes.

"All that said, however, if the California economy goes in the tank because this drags out for a long time, no bank operating in the state, including ours, is immune from feeling the impact," Keir saidhttp://the.honoluluadvertiser.com/article/2001/Apr/08/bz/bz01a.html

-- Carl Jenkins (somewherepress@aol.com), April 08, 2001