|
|
Enron Mail |
CC list suppressed...
WSJ:Cal impact on US economy... Note: The other article in the Journal hi-lights the Governor's bail-out of the Utilities with new bonds, however the following article spells out wider ranging problems seen in the stock market last week. Finally MSNBC had a January 5, 2001 morning story that before the end of Jan. 2001 FERC will force the sale of all transmission assets in California to a third party. This industry continues to get more interesting... January 8, 2001 The Outlook LOS ANGELES Helmut Ackermann founded L.A. Dye & Print Works Inc. 18 years ago, when he took over a bankrupt dye house. Today, thanks to California's worsening energy crisis, L.A. Dye & Print is back on the brink of closure. Mr. Ackermann depends on natural gas to operate the massive boilers and heaters used to color and dry fabrics. He expects his December gas bill to have jumped to $600,000 from $132,000 last January. Hammered by the soaring costs, he has already closed one plant and dismissed 40 people. Now, he says the jobs of his remaining 660 workers are in jeopardy. "If it stays the way it is, we won't be around very long," Mr. Ackermann says. Stories like this are causing economists to worry that California's economic troubles -- the energy crisis, combined with a high-tech shakeout and growing labor unrest in the entertainment industry -- could put more drag on a U.S. economy that is already downshifting. Chart: California and the World Economy The World's largest economies by gross national product, in trillions of US dollars: US $8.4 Japan $4.1 Germany $2.1 France $1.4 UK $1.3 California $1.2 Italy $1.1 China $1.0 Source: World Bank The energy mess is "one more negative added to the mix," says Tom Lieser, a senior economist at the University of California at Los Angeles's Anderson Business Forecast. He expects California to navigate its way through the immediate crisis but worries about its longer-term impact. Questions about the reliability and cost of the state's power supply, for example, could threaten continued growth of vital industries such as technology. Some Wall Street economists worry that California's problems could spill over and hurt the broader U.S. economy. In a report titled "California Unplugged -- A Drag on Global Growth?" Morgan Stanley Dean Witter warns that California's energy crisis threatens to push up production costs and make U.S. exports from the state, which totaled $102.9 billion in 1999, less competitive on world markets. "Negatives tend to snowball, so what is happening in California has the potential to exacerbate the weakness we already are seeing in the U.S. economy," says Joseph Quinlan, a Morgan Stanley economist. Other states facing economic and financial trouble wouldn't warrant such attention. But California not only is the nation's largest state in terms of both population and economic heft, but the Golden State also seemed to epitomize the New Economy. Job growth in the state has been double that in the nation as a whole; of the 2.1 million jobs created in the U.S. during the first 11 months of last year, one of every five new hires was in California. The state produced more than $1.2 trillion in output in 1999, making it the sixth-largest economy in the world, slightly smaller than the economy of the United Kingdom and a little bigger than that of Italy. The state's economic output contributed about 12% of total U.S. gross domestic product. New York, in second place, had an 8.1% share of GDP. But soaring energy costs are beginning to take a toll on the Golden State, and low-end manufacturers are among the first to see the change. "It is forcing many of us to face a shutdown," says Scott Edwards, president of the Association of Textile Dyers, Printers and Finishers of Southern California. His industry runs on gross profit margins of 10% to 15%, hardly enough to handle the fivefold increase in natural-gas costs that many operators have witnessed. Soaring energy prices also are hurting California's agricultural industry. "We can't pass along the costs of production" as some other industries do, says Heather Flower, a spokeswoman for the Western Growers Association, a group of 3,500 growers in California and Arizona. Some are cutting back on plantings of broccoli, lettuce and strawberries, among other crops, because of uncertainty about costs. Electricity prices already are on the march. The state's largest utilities, Pacific Gas & Electric Co. and Southern California Edison Co., received temporary rate increases last week ranging from 9% for residential customers to 15% for large companies. Some economists say the rises, if they become permanent, could wipe out a large chunk of per-capita-income gains and result in less consumer spending. On top of the energy problems, Hollywood is bracing for a strike by the Writers Guild of America and the unions representing film and television actors, whose contracts are set to expire this year. The studios spent the end of 2000 jamming in production to cushion the impact of a potential strike. The sector employs nearly 300,000 people in the state. While there seems little doubt that the troubles brewing in California will prove painful, there are reasons to believe the state can still avert an outright economic contraction. Its economy is more diversified and resilient than a decade ago, when national-defense cutbacks and an overbuilt property market crippled the local economy. Back then, jobs in the aerospace sector shrank by 70%, and office-vacancy rates in major markets soared. Also, despite all the attention being given to the state's energy crisis, the fact is "we're not a very energy-intensive economy," says Ted Gibson, chief state economist with California's department of finance. He notes that the state ranks 48th among the 50 states in per-capita energy consumption. And he adds that the $11 billion in deficit spending racked up by the two big utilities amounts to less than 1% of state output. "It's not the kind of cost that will bring the state to its knees," he says. -- Jon Hilsenrath and Rhonda L. Rundle Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Rhonda L. Rundle at rhonda.rundle@wsj.com
|