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Power crisis threatens economy

LOS ANGELES (AP) – Californians will pay higher taxes, out-of-state investments could dry up, and public projects will be scrapped because of the state’s power crisis, complicating an expected recession this year, forecasters said Wednesday.

”It is definitely a negative,” said Tom Lieser, who wrote part of the UCLA Anderson Forecast, an annual report, now in its 50th year, that is prepared by specialists at the university.

The worst threat to the state’s economy could come from state government itself and its scrutiny of private power suppliers, which along with blackouts and brownouts could scare new businesses away, the report said.



The state will spend $6 billion in surplus money and about $16 billion in bond issues to buy emergency power and purchase distribution systems this year, the forecast said.

As a result, taxes will go up. And public projects will be scrubbed for lack of money.



It is difficult to assign specific numbers to the power crunch and its immediate effect on the recession, Lieser said.

California Public Utilities Commission Chairwoman Loretta Lynch was the keynote speaker at the business conference that accompanied the forecast.

California is at war with power wholesalers, she said, whose soaring prices can only be stopped with a cap on what they can charge.

”What California is in is a war against sellers, who are taking so much value out of California’s economy,” she said.

When the state deregulated, ”We handed California’s ability to control prices to the federal government,” she said. ”California did not deregulate, it federalized.”

Lynch then called for more federal intervention.

During Lynch’s speech, her microphone lost power. A technician leaned over the balcony and said the problem was out of his control.

”I feel your pain on that,” Lynch said, referring to the criticism she has taken for championing consumer rate increases last week.

”At least it’s not a blackout,” she added.

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

Southern California Edison and Pacific Gas and Electric say that forced them to the brink of bankruptcy when energy prices spiraled upward over the past year. The two utilities owe billions to power wholesalers who shut off their credit, forcing the state to step in and buy electricity.

Some predict California will face a deficit of $7 billion within 18 months.

Power is only one component of a recession in California, the report said. Economists expect San Francisco area housing prices to fall; unemployment to increase from 4.9 percent last year to 5.7 percent next year; and business lending and venture capital infusions to drop.

The Los Angeles area will be spared from a full-on recession thanks in part to the stability of the Department of Water and Power, a utility unaffected by deregulation law and power outages.

The region also has a ”less exciting but better diversified economy,” Lieser said.

AP-WS-04-04-01 1805EDT


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