American economy facing an electric shock

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

American economy facing an electric shock Jan 25 Bob Keefe, Cox Newspapers

Electricity shortages and rolling blackouts may be confined to California, but the problems they're causing are starting to ripple through the rest of the United States' economy.

If the California electricity crisis isn't remedied soon, it could result in as much as a full percentage point decline in GDP, economist Mr Mark Vitner of First Union predicted. "That could make the difference between having a recession or not," he said.

The concern by Mr Vitner and many other economists isn't hard to understand. California has the largest economy of any US State - and bigger than all but a handful of foreign nations - and when manufacturing plants there shut down or shift production schedules, the costs are staggering.

The Silicon Valley Manufacturing Group estimates its 200 members have lost tens of millions of dollars because of rolling blackouts in northern California on just two consecutive days last week.

"You learn quickly how much you're at the mercy of energy when you can't get access to computers," said Mr John Greenagel, spokesman for semiconductor maker Advanced Micro Devices, which lost power at its headquarters for two hours.

Countless more millions of dollars have been lost by "interruptible" commercial power users, who agreed to let power firms cut off their electricity at times of high demand. California Steel estimates it lost $US2.4 million ($4.3 million) in one day after its interruptible power was cut off twice for a total of 12 hours.

"We've got guys out there who are just getting killed because of this," said Mr Gino DiCaro, of the California Manufacturers and Technology Association.

Though electricity rates are rising nationally because of soaring prices for natural gas used to drive power plants, blackouts such as those in California aren't expected elsewhere. That's because with few exceptions, other regions have plenty of power generating capacity, unlike in California.

"The only place that really has anything to worry about is the west, and that's simply because they don't have enough capacity out there to meet demand," said Mr Robert Graniere, senior economist at the National Regulatory Research Institute at Ohio State University.

But that doesn't mean the rest of the country won't feel California's pain. The power crisis could lead to higher consumer prices on everything from citrus to computer circuit boards, continued declines in corporate earnings and worries among Wall Street investors.

"It's probably going to mean corporate profits stay under pressure; companies would likely cut expenses, either by laying off workers or not hiring as rapidly," Mr Vitner said. That, he added, translated into "potentially less income growth" for investors.

For some workers, the threat is more immediate, particularly those whose employers sell parts or materials to California companies, or rely on those firms to supply them with vital items.

California narrowly avoided blackouts again on Tuesday, and the outlook for improvement soon isn't good. Hydroelectric plants in the Pacific Northwest that supply California are still operating at partial capacity because of low rainfall, while at the same time the State's biggest utility reached the 100-hour limit that it can cut off interruptible customers.

On Tuesday, Energy Secretary Mr Spencer Abraham extended until February 6 emergency orders requiring power and natural gas suppliers to sell into California.

But California faces more problems in the coming week, when it's expected to run out of State funds set aside earlier this month to buy power and transfer it to cash-strapped utilities.

"We're hanging out there on a limb," said Mr Kellan Fluckiger of the California Independent System Operator, which manages the State's power grid.

http://afr.com/world/2001/01/25/FFXZL7PVBIC.html

-- Martin Thompson (mthom1927@aol.com), January 24, 2001

Answers

Because of the outdated Panama canal, goods destined for Europe and other destinations are brought to California by container ships from Asia, off-loaded onto rail cars, and then hauled to the East coast where they are loaded back onto container ships to be shipped to other lands. The truckers in LA haul the containers from the docks to a "pig lot" where they a loaded onto flat rail cars. This could cause a real bottleneck for commerce.

-- David Williams (DAVIDWILL@prodigy.net), January 25, 2001.

Moderation questions? read the FAQ