STATE POWER WOES GROW BUSINESSES LOSE $1.7 BILLION DUE TO WEEK'S BLACKOUTS.

Byline: Dana Bartholomew Staff Writer

California's energy crisis deepened Friday, costing millions in lost wages, lost production and lost confidence in the state's sterling credit.

Deterioration in the situation occurred even as the state avoided blackouts for the first time in three days by using a portion of the nearly $1 billion in taxpayer money set aside to buy energy from generators who refuse to sell to the struggling private utilities.

Southern California Edison and Pacific Gas & Electric officials clashed angrily with Gov. Gray Davis over his decision to direct the state Public Utilities Commission to issue a restraining order requiring the utilities to provide service to all customers even if they are forced into bankruptcy.

Jack Kyser, chief economist for the Los Angeles Economic Development Corp., described the power crisis as a clash of titanic egos dangerous for business.

``The rate we are going, this is going to be a bigger challenge than the economic restructuring of the early 1990s: Lines have been drawn in the sand,'' an agitated Kyser said after talking with state officials Friday afternoon.

He estimated the economic cost from lost wages, sales and productivity from this week's energy debacle at $1.7 billion.

Sen. Dianne Feinstein, D-Calif., a close ally of Davis who has been conferring with him through the crisis, said major rate increases and issuing of state bonds - policies that Davis has strongly opposed - would be necessary to solve the crisis.

``That's the fact, and you have to prepare people for the facts,'' Feinstein told The New York Times. ``There is no politically painless solution. The more you get into this, the more clearly you see it.''

In Fontana, the West's largest steel plant told 1,000 workers to stay home. In Santa Ana, an aerospace industry supplier shut its doors. In Visalia, food plants closed the fridges. And the Miller Brewing Co., a supplier of beer to five Western states, shut down the suds at its Irwindale brewery.

``Everything is down. It's a ghost town,'' Victor Franco, Miller's spokesman, told The Associated Press. Workers at the brewery 20 miles east of Los Angeles could choose whether to go home without pay, take a paid vacation day, or a training day with pay.

State power managers continued to warn of possible weekend blackouts despite an $850 million infusion of state cash for power purchases, and utilities teetered on the brink of bankruptcy.

As the state's two largest utilities threatened service cuts Friday, the PUC issued a temporary restraining order blocking Pacific Gas and Electric Co. and Southern California Edison from killing the lights on 25 million customers.

``We have no intention of seeking to withdraw from our obligation to serve,'' Edison's Tom Higgins said. ``We have 13,000 people who work under very difficult conditions to serve our customers. And for the CPUC to take an action like this is a slap in the face to them, and it's an abuse of the powers that the PUC has.''

To make the situation more unsettling, California's main gasoline pipeline shut down, idling supplies to service stations and spurring speculation of higher prices at the pump.

And across the state, efforts to conserve energy - such as 4,000 grocers dimming their lights and Circuit City shutting off television displays at its 84 California stores - saved hundreds of megawatts throughout the power grid.

Gov. Gray Davis, whose emergency proclamation freed hundreds of millions in state funds to plug the shortage in megawatts, on Friday urged more conservation efforts.

``Just like we would respond to a forest fire, or victims of a flood, we are responding to this electricity emergency,'' Davis said. ``I'm grateful to every Californian, but we can do even more - please, if you leave the room, turn off the lights.''

Davis also admonished residents to unplug appliances, televisions, computers - and any unnecessary draw on the state's power grid.

The crisis that precipitated rolling energy blackouts across Northern California on Wednesday and Thursday stem from unplanned power plant outages, depleted hydro-electric reservoirs, a cold snap in the energy-rich Pacific Northwest, high energy prices and the rock-bottom credit of the state's two largest utilities as a result of energy deregulation.

In recent weeks, market prices have hit $1,300 per megawatt and this week were in the $200-$800 range. The normal price is between $30 and $40 a megawatt.

U.S. Energy Secretary Bill Richardson, who had already ordered suppliers to continue selling power to California, on Friday called the state's power supply ``precarious'' and ordered natural gas companies to do the same.

As the governor signed a bill Friday freeing up an additional $400 million to buy power on the open market for sale to residents via the utility companies, a Senate energy committee pondered a plan to let the state sign long-term contracts with electricity wholesalers to buy power for 5 1/2 cents a kilowatt hour - about one-sixth the going rate.

Insiders in Sacramento, however, said Friday that few suppliers - described as predators by the governor - had lined up for the deal.

Especially troubling to economists was action Friday by Standard & Poors, the big credit rating agency, which gave a chilly reception to the state's proposed long-term solution to its energy problem and hinted that it favors rate hikes.

S&P placed California's general fund appropriation-backed credit rating on a credit watch with ``negative implications.''

These voter-based bonds finance capital projects like road and building construction.

``The possible necessity of continuing to purchase power on a long-term basis to avoid blackouts could substantially affect the state's current ample general fund balance,'' the rating agency said in a statement.

The state's action Wednesday to appropriate $400 million from the general fund to buy power would not, by itself, affect the AA general obligation credit rating, but S&P said it's concerned about the long-term potential for problems.

``Standard & Poors believes there is currently no adequate funding source, absent rate hikes, other than the state to purchase enough power to avoid . . . blackouts,'' the company said.

Kyser said continued blackouts and rising prices could force businesses out of state.

``A lot of this problem is of our own making,'' he said. ``We had early warning last summer and it's time for the posturing to stop and for (someone) to come up with a short-term and long-term solution to this before it does great damage to the economy.''

As Sacramento attempted to come to grips with the faltering power grid Friday, Los Angeles leaders and consumer advocates questioned the burden being shouldered by local taxpayers.

When the San Fernando Valley was shaken by the Northridge Earthquake in 1994, Sacramento politicians refused to come to the rescue - despite generous aid to Northern California's Loma Prieta Earthquake victims four years earlier.

When Los Angeles Department of Water and Power faced a $7.3 billion debt - and possible bankruptcy - four years ago, no cavalry charge rumbled from Sacramento to save ratepayers. The debt is now $1.5 billion.

So why, people ask, are Angelenos and others who live in municipal-power cities such as Burbank, Glendale and Sacramento being asked to ante up for their private-utility counterparts?

``The DWP has not turned out a single light bulb, has not increased anybody's rates, but the taxpayers of Los Angeles are getting their pockets picked by the state to bail out Edison,'' said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, in Sacramento on Friday to monitor the proceedings.

``Taxpayers in Los Angeles are being put on the hook for the (benefit) of the private utilities and (energy) suppliers,'' he said. ``Where were the state taxpayers when the DWP needed help?''

POWER CRISIS STATUS

Friday developments in California's electricity crisis:

--Financially stricken Pacific Gas and Electric Co. and Southern California Edison, the state's two biggest utilities, threaten drastic service cuts.

--The state Public Utilities Commission issues a temporary restraining order blocking PG&E and SoCal Edison from deciding on their own whether to cut off electricity to the 25 million people they serve.

--Gov. Gray Davis signed a bill freeing $400 million for a stopgap rescue effort that will have the state buy power on the open market and sell it to the utility companies, but even supporters say it won't be enough.

--The state power system remains on a Stage 3 alert, its highest level, and officials with the California Independent System Operator say blackouts are possible through the weekend.

--Effects of the escalating crisis spread through the state economy, threatening to push up prices for commodities from gasoline to milk and forcing layoffs at manufacturers idled for lack of electricity.

--Miller Brewing Co. halts operations at its brewery in Irwindale; California Steel Industries Inc. in Fontana shuts down its plant and idles most of its 1,000 workers; and Textron Aerospace Fasteners in Santa Ana sends 400 employees home with half-pay.

--The state's main gasoline pipeline runs only a fraction of the day, threatening supplies to service stations and prompting warnings that gasoline prices will start to climb.

--Standard & Poors put California's general obligation bonds on ``credit watch with negative implications.'' The move doesn't affect the state's ability to borrow money but likely will add to the atmosphere of crisis. S&P said it issued the watch because of the possibility the state would end up buying power on a long-term basis, which would deplete the currently ample general fund balance.

--The Senate Energy Committee considers legislation that would let the state sign long-term contracts with electricity wholesalers to buy power at 5 1/2 cents per kilowatt hour - about one-fifth the current market rate. The power would be resold to consumers, through the utilities, at the state's cost, plus a modest administrative charge.

--U.S. Energy Secretary Bill Richardson, calling California's power supply ``precarious,'' orders companies to continue shipping natural gas into California to ensure adequate supplies. He takes the action to ensure the state's cash-strapped utilities will not be cut off by natural gas suppliers.

--State schools superintendent Delaine Eastin asks the PUC to intervene with utilities to ensure schools aren't disrupted during rolling blackouts. If schools had to have power cut, Eastin asked that it be in late afternoon or the evening.

--In a parting shot, the former chairman of the Federal Energy Regulatory Commission urged adversaries in the power crisis to ``put down the guns'' and negotiate a remedy to California's problems. James Hoecker, who left his seat Thursday so President-elect Bush could appoint a successor, criticizes the state's tentative steps toward market pricing that the FERC contends will eventually benefit customers.

--California's entire U.S. House delegation signs a letter to the FERC, advocating a Western price cap on wholesale electricity to rein in costs, which are driving utilities to the brink of bankruptcy. Regulators resist setting a cap because limiting prices could discourage construction of new power plants.

--At a U.S. Conference of Mayors meeting in Washington, D.C., city officials from across the country urge development of a national energy policy and a 10 percent voluntary reduction in power consumption because of the California crisis.

--California Attorney General Bill Lockyer asks the FERC to set aside an order allowing PG&E Corp. to change its corporate structure, effectively insulating the bulk of its assets from the credit problems of its utility, PG&E Co.

Staff Writer Gregory J. Wilcox contributed to this report.

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