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CNN Today

Power Crisis: Shortages Mean Bad Business

Aired January 24, 2001 - 1:07 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

NATALIE ALLEN, CNN ANCHOR: The Bush administration has extended an order requiring suppliers to sell electricity to California. But the order only runs for two weeks. The government says it will be the last extension, and there's no end in sight to California's energy crisis.

For people like you and me, that would mean no alarm clock in the morning, no heat, perhaps, no hot coffee. But it's also hurting businesses in some parts of California, and our national correspondent Martin Savidge is checking out one business, the Miller brewing plant outside L.A., where less electricity means less work for people there.

Martin, hello.

MARTIN SAVIDGE, CNN NATIONAL CORRESPONDENT: Hello to you, Natalie.

It's been a lot less productivity. Normally, they are producing about 250,000 cases of beer every day out of this facility located 30 miles east of Los Angeles. That production, though, has been cut nearly in half over the past week as a result of the power outages.

Southern California not suffering from the rolling blackouts but what are called interruptible service contracts. These are contracts that many businesses signed on to a number of years ago, pledging that they would cut back their use of electricity in times of a crisis, like the one they're seeing now in the state of California. In return, they would get greatly reduced electricity bills.

Well, for the first five years, for this particular facility, it worked out well. They had only one shutdown to a power problem. Now, though, in the last two weeks, they've been shut down 13 times, As a result, the power predicament is very unpredictable. they've been forced to lay off 160 workers, almost the entire second shift. It has cost the company millions of dollars, and that's is just one company here in southern California.

Victor Franco is the spokesperson for Miller Brewing here.

You volunteered the company, though, the company did, to sign onto this agreement.

VICTOR FRANCO, SPOKESPERSON, MILLER BREWING COMPANY: That's right, we volunteered about five years ago. We felt that it was a good business decision for us at that time. However, we had not experienced any interruptions. To give you an example, there was one interruption over the first five-year period that we were under the contract. In the past six months, however, we've had up to 24 interruptions.

The unfortunate thing is that we've never had an opportunity to opt out of the program in this last go around. Every year, we have an opportunity to get out during the month of November. October, we received notice from the California Public Utilities Commission that they had disallowed anyone who was currently on the program to opt out of the program.

Victor Franco, thank you very much. To give you an idea of how extreme they have been forced to go, they have brought in six generators now that will supply the energy to the plant. Basically, they will take themselves off the grid, as they try to bring some sense of normally back to their operations here, and it's -- as I say -- just one company.

Reporting live, Martin Savidge, in Irwindale, California -- Natalie.

ALLEN: Martin, thank you. Again, as you point out, one company that's lost a lot of money.

For the bigger picture now, let's go over to Lou.

LOU WATERS: Yes, California, Natalie, is scrambling for long- term solutions to this power crisis. Today it's taking Internet bids for long-term electricity contracts. Now, the governor hopes the competition will drive down prices.

Casey Wian of CNN Financial News brings us more now from L.A. -- Casey.

CASEY WIAN, CNN REPORTER: Lou, that auction is wrapping up in just about two hours. Meanwhile business leaders throughout California are worried that the electricity crisis could derail the state's five year economic expansion. Yesterday, the heads of several companies, including Walt Disney, Boeing, and Northrop Grummond (ph) took out an ad in the "Los Angeles Times" urging the state's governor and legislature to find a quick solution. They said California's economy faces a serious reversal, especially if its two big investor- owned utilities file for bankruptcy, which has been a possibility for weeks.

Already Silicon Valley companies have put in-state expansion plans on hold because of the state's power shortages. And now there are proposals being floated by some lawmakers to raise the electricity rates of big business users; making business pay the bill is considered more politically palatable than raising consumer rates. In the mid-'90s, it was big electricity users who pushed for deregulation in California, hoping it would lead to more supply and lower prices.

Also, California Governor Gray Davis has publicly proclaimed he won't allow higher consumer rates. But if businesses are forced to pay the bill, expect many of them to take jobs to other states.

As for how al this affects the national economy, it's clear that the Federal Reserve and the White House are watching this situation closely. But so far, they've indicated it remains mostly a California problem -- Lou.

WATERS: All right, Casey Wian, out in Los Angeles.

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