http://www.usnews.com/usnews/issue/010528/biztech/lure.htm

Like a moth to a flame: Luring California firms out of state by promising cheap power

By Betsy Streisand

It was a nearly perfect evening: beautiful weather, great food, country music star Chely Wright at the microphone, and a healthy turnout of Los Angeles's manufacturing and real-estate executives. Only one thing could have made the Tennessee Department of Economic and Community Development's party at Spago in Beverly Hills any better. A blackout.

With out-of-state marketers swarming California these days in hopes of enticing local businesses to relocate, nothing adds wattage to a sales event like a power failure. The party circuit should be sizzling this summer. A warning that the state would have to endure 34 days of blackouts may prove overly optimistic, according to a report last week by the North American Electric Reliability Council, a national organization of utilities.

Even the White House doesn't pretend that the president's energy plan, unveiled last week, will help the state this summer. For example, Bush's proposal to upgrade the power grid–to fix a bottleneck that limits the flow of power to Northern California–could take years to come online.

In the meantime, out-of-staters are ready to take advantage. "The California energy crisis is not a natural disaster; it's a business-policy disaster," says Alex Fischer, head of the Tennessee group that held the Spago party. "And it is giving us another opportunity to tell the Tennessee Story."

The Tennessee Story, as it's typically told, begins with cheap and plentiful power, courtesy of the Tennessee Valley Authority, and works its way through lower costs of living, central location, business-friendly tax environment, good weather, Southern hospitality, and lifetime access to catfish and Jack Daniel's.

With a few variations, it's the same yarn being spun by Pennsylvania, Arizona, New Mexico, Texas, and umpteen other states. Silicon Valley, home of the choicest corporate prey, is peppered with billboards purchased by the state of Minnesota that read: "White Outs–Occasional. Black Outs–Never."

Michigan recently sent 4,500 glow-in-the-dark mousepads to California businesses emblazoned with the message: "Michigan. We never leave you in the dark." Tennessee distributed flashlights to 1,000 executives at large auto, tech, and steel fabrication companies to spread the word that "the lights are always on in Tennessee."

South Dakota and Arizona, among others, are waging multimedia campaigns with slogans like "More Power to You." Gimmicks and ads are just the start. Then come calls, personal visits, and lavish receptions including mayors, governors, and other officials.

Targeting California companies is nothing new. The state, which ranked second last year in terms of new manufacturing facilities, has always been a prime picking ground. Chambers of commerce and economic development offices from around the world routinely dispatch representatives to schmooze with manufacturers and corporate real-estate executives and remind them how expensive and disaster prone the West Coast can be.

What has changed since the lights started going out is that a practice that once operated under the radar has suddenly gone very public. Exodus. So far, the pitches have met with limited success. Corporate relocations are always complicated and cumbersome. And when the economy is down, a move is the last thing many companies want to think about.

But state officials fear that if the power crisis drags on much longer, companies will stop expanding in California and workers could begin to leave. Intel, which hasn't built a new chip plant in California since 1988, has so many suitors from afar that it has created a team of people to do nothing but evaluate options for future expansion. (And California need not apply.)

San Antonio, which is spending $100,000 on a publicity campaign in California, recently snared two refugees from Silicon Valley: a Menlo Park insurance company looking to relocate its back-office operations to a more affordable area and a Santa Clara manufacturer of components for semiconductors. San Antonio will typically seal two or three deals a year with California companies looking to expand. "But with the power crisis, the interest is snowballing," says Mario Hernandez, president of the San Antonio Economic Development Foundation.

Yet Hernandez admits that while California companies may now make up a bigger share of his prospects, the softer economy is making the company-stealing business–as opposed to nabbing an outpost of a company based in California–tougher than it was a few years back. And for many companies, the price of being in California, or at least maintaining headquarters there, simply must be paid. Tennessee may be flush with power, but it has no port, and it's a little far from the Pacific Rim, which was worth $110 billion in exports to California companies last year.

When it comes to educational institutions and a highly skilled tech labor force, California is unequaled. And then there is the unique atmosphere of Silicon Valley itself, to say nothing of the beauty of Northern California, and the cachet of working where the tech revolution began. Still, the price of staying can no longer be ignored. "The paradise of the world has its perils," says Glen Fowler, president of Applied Solutions, a document-management company that relies on energy-guzzling equipment. "Utilities used to be a footnote; now they're a factor."

To Fowler and others who plan to stay in Silicon Valley despite the power crisis, things could be a lot worse. To those trying to lure them away, though, the future looks pretty bright–for more sales pitches by candlelight.

-- Swissrose (cellier3@mindspring.com), May 19, 2001

Answers

During California's "Aerospace Bust" of 1991-1993, moving vans out of California became extremely expensive, while moving vans in were all but free. This market situation is about to repeat itself, but with even greater intensity. The time to get out is NOW. Actually, it may already be too late, because it almost always takes time to get a suitable out of state job offer. And, moving without a job awaiting is not a good idea, even if you can afford it, unless retired or otherwise financially independent.

-- Robert Riggs (rxr.999@worldnet.att.net), May 19, 2001.

Re: The Tennessee Story, as it's typically told, begins with cheap and plentiful power, courtesy of the Tennessee Valley Authority,

This is so ironic. California is the evil Socialist state, but we are supposed to look at the example of Tennessee, which gets "cheap and plentiful power" from a Federal power system, one of the remnants of Roosevelt's New Deal. Hm. What happens if Tennessee deregulates power, too? Hopefully they won't mess it up as badly as CA did. Hopefully Tennessee power will stay cheap.

-- Margaret J (mjans01@yahoo.com), May 19, 2001.