California power woes forcing up prices even before electricity rate hike

SAN FRANCISCO (AP) - Higher power costs zapped restaurateur Marino Sandoval and his customers even before California regulators decided how to allocate a $5.7 billion electricity rate hike, which is the highest in state history.

Faced with soaring natural gas rates that tripled his utility bill, Sandoval last month raised prices at his popular Mexican restaurant chain, El Balazo, by as much as 20 percent on some items. A giant burrito that cost $4.95 at the end of March costs $5.95 today.

"We had to do it because it seemed like the price of everything, from our beans to our tortillas, was going up almost every day. Our higher prices have everything to do with the higher energy prices," said Sandoval, who runs six restaurants in the San Francisco area.

From hotels to bagel shops, businesses throughout California have been raising prices or imposing special surcharges to offset rising power costs. Most of the increases so far have reflected higher natural gas costs, which utilities have been passing along to customers.

Now, businesses and households are bracing for electricity rate increases that could balloon the bills of the largest users of the state's two biggest utilities, Pacific Gas and Electric Co. and Southern California Edison Co.

The higher rates, which will begin appearing in June's utility bills, threaten to jolt the state's already-jittery economy.

"Pretty soon, we may see California staring down the barrel of a recession," said Dave Puglia, a vice president for APCO, a public affairs firm hired by California business interests to study the economic effect of the state's energy woes.

By itself, the $5.7 billion rate increase approved in late March by the California Public Utilities Commission probably isn't enough to topple the state's roughly $1 trillion economy, which is the sixth largest in the world.

After weeks of public hearings and intensive lobbying by various customer groups, the commission voted last week how to spread the pain of those rate hikes.

"It will cause some hardships, particularly for some small business owners, but from the macro point of view, these rate increases aren't going to have a major impact on California's output," predicted Sung Won Sohn, chief economist for Wells Fargo & Co., which runs the biggest bank headquartered in the state.

Some business leaders are worried the hike will represent the coup de grace for many companies already reeling from rising expenses for gasoline, natural gas, health care benefits and workers' compensation insurance. Against this backdrop, many employers also face pressure to raise their workers' wages to help pay for California's high housing costs.

"If this keeps up, at some point, we are going to reach a breaking point in the economy," said Allan Zaremberg, president of the California Chamber of Commerce.

The California Chamber is part of the California Alliance for Energy and Economic Stability, a coalition that sought to shift more of the electricity rate increase from businesses to households.

Under the plan approved by the PUC, businesses are expected to pay about $4.6 billion more for electricity and households will pay an additional $1.1 billion.

Even if they are spared on their utility bills, consumers still will be pinched by higher prices for goods and services as businesses pass along their electricity price increases.

The rate increases mean that utility bills will consume about 25 percent to 30 percent of a big manufacturer's budget, Puglia estimated, up from about 15 percent now.

"I wouldn't be surprised if we see some companies go out of business because of this," said Justin Bradley, director of energy programs for the Silicon Valley Manufacturing Association, a high-tech trade group.

Even if they don't shut down completely, many companies likely will lay off workers as they cut costs to pay for power. The California Manufacturers and Technology Association estimates the energy crisis will result in the loss of 135,755 jobs, or about 40,000 more than the entire dot-com industry has laid off nationwide during the past 16 months.

Painful though they may be, most economists say higher electricity rates and some resulting layoffs are a better alternative than the increased number of blackouts that probably would have occurred if retail prices hadn't been raised.

Even though the monthly utility bill at one of his restaurants rose from $1,500 last year to $4,500 this year, Sandoval said customers continue to pour into his El Balazo restaurants despite higher menu prices.

"Business is so good that I have been too busy to think about whether I am going to have to raise my prices again," he said. "If I have to, I will. I don't think people are going to stop eating because of this."

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-- Martin Thompson (mthom1927@aol.com), May 23, 2001

Answers

Yup, that's how the infrastructure works, forcing up prices in all sorts of unexpected areas when things go wrong, and shortages, leading to higher prices, occur.

-- Wellesley (welllesley@freeport.com), May 24, 2001.