Greg LaMotte: national concern about the power crisis

Greg LaMotte

Greg LaMotte is a CNN corespondent based in the network's Los Angeles bureau.

CNN Host: Welcome to CNN.com, Greg LaMotte.

Greg LaMotte: Hello and it's a pleasure to be here today.

CNN Host: Why should the rest of the country be concerned about California's energy problems?

Greg LaMotte: There are many reasons why the rest of the country should be concerned. First and foremost, California represents the sixth-largest economy on the planet. Economists here say if California catches a cold, the rest of the country will sneeze, simply meaning that so many products that are being impacted by higher energy prices, including agriculture, which represents food on many people's tables across the country.

The textile industry is here, which represents clothes that can wind up in your closet. Dairy products, specifically cheese, sold not only from California in this country, but around the world, those prices are expected to rise. The manufacturing industry in California is getting hammered by higher energy costs, and consequently, all of these industries will eventually pass those costs on to consumers, whether in California or across the country.

Additionally, 25 states in this country are in the process of deciding whether to deregulate their utility industries. Some of those states have put their plans on hold, waiting to see what's going to happen in California. If those 25 ultimately decide to deregulate their utilities, unless it's done differently from California, those states could face the same dire circumstances as California.

Question from Knewt: Is the route that California is on with their power crises a map of what will happen with other states as they privatize their power suppliers?

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VIDEO CNN's Greg LaMotte hosted a live Webcast from a California power plant Thursday morning. Watch his tour and interview Play video (QuickTime, Real or Windows Media) CNN's Greg Lefevre reports Californians are facing stiff electric utility price hikes due to deregulation Play video (QuickTime, Real or Windows Media)

Greg LaMotte: That's hard to say, because each state is considering deregulation under whatever rules they want to come up with. Clearly, California right now is the only model that exists. But, those who created this model in California, including the heads of utilities and consumer groups, along with the help of the state legislature, readily agree that today deregulation has brought on an economic crisis in the state. The people involved in the process of writing the deregulation legislation in California agree that the biggest mistake was not phasing in deregulation more slowly.

The idea behind deregulation is to provide for an open market, in which competition can occur. In California, at this particular time, there aren't enough players in the energy industry to create the kind of competition it takes to force prices down. Keep in mind, the reason the state went to deregulation was because of increasing costs for energy. The idea was competition would force prices down.

One of the things that those who wrote the legislation here couldn't anticipate were skyrocketing natural gas prices. Most of the utilities in the state of California, and indeed around the country, use natural gas to power their electric plants. The cost of natural gas is five times higher today than it was just a year ago. That price spike is what is spurring, at least for now, higher utility prices.

CNN Host: Could this energy crunch cause some businesses to leave California in search of locations with more plentiful and less expensive energy?

Greg LaMotte: Economists that we've interviewed seem to agree that some businesses will look elsewhere, because of the high cost of doing business in California. It's already expensive to live in this state, and certainly expensive to run and operate your own business. So, consequently, when you get hammered by something like a five-fold increase in your utility bills, that may be indeed be enough to run some businesses out of California and keep other businesses from wanting to come into the state.

CNN Host: One of our audience members, electrified, says that Pacific Gas and Electric and Southern California Edison kept the competition out of California. Do the people you have spoken with agree that the lack of competition contributed to this situation?

Greg LaMotte: The one thing we hear very consistently is that there are two main reasons why competition hasn't grown like the Legislature had intended. One is the rules and regulations that must be met in order to build a power plant in California are extraordinarily stringent. The average time it takes to build a power plant here, from the time of application to build the plant to its completion, is about five years.

Another reason for the lack of competition, is that natural gas prices have traditionally been so low in this country that it has been a deterrent for people to pay the huge costs involved with searching for natural gas, and then ultimately paying the millions more required to actually drill for it.

In terms of Pacific Gas and Electric and Southern California Edison, no one has ever publicly stated that those two giant utilities have conspired in any way to keep competition out of the state. But, there are six state and federal investigations currently underway, some of which are focused on why the free market hasn't flourished like it was believed it would.

CNN Host: Several of our audience members have asked about the cost of environmental regulation and federal energy policies. What have you been hearing about the role of these policies on California's energy crisis?

Greg LaMotte: Two things. One, from an environmental standpoint, California has always been extraordinarily environmentally minded. In fact, anytime there is an application for a power plant to be built attorneys representing various environmental groups always make their voice heard in the process.

In regards to the federal energy policies, the one thing we have heard repeatedly, both from environmental groups and those in the energy industry, is that there has been a lack of a coherent federal energy policy. Whether that lack of a policy, or alleged lack of a policy, is playing a role in California's energy crisis, remains to be seen.

CNN Host: Is there any move toward giving economic incentives to both individual and commercial consumers who use energy more efficiently?

Greg LaMotte: In California, depending on which municipality you live in, there may or may not be an incentive for you to conserve energy. In the city of Los Angeles, for instance, there are economic incentives for those who purchase, for instance, energy-efficient appliances, such as air conditioners and refrigerators. That comes in the form of rebates. But, under the deregulation laws in California, the Legislature decided to leave it up to the municipalities to decide on their own if they wanted to deregulate their utilities.

In Los Angeles, it was decided to wait and see how deregulation was going to shake out elsewhere. Consequently, the city ultimately decided not to deregulate its utilities, and interestingly, the residents who use electricity in the city of Los Angeles are enjoying, albeit somewhat higher rates, but still stable, and residents here are not seeing huge spikes in their utility bills.

CNN Host: When can California consumers expect any relief in energy prices?

Greg LaMotte: Everyone involved in the energy crisis agrees that part of the problem is the fact that no new power plants have been built in the state in ten years. At the same time, the state's economy has been booming over the last decade, and consequently, the energy needs have risen quite dramatically. There are six new power plants scheduled to be built in the state over the next three years; that should help ease some of the problem.

However, those in the industry say that in order to meet future needs, the state will need about 30 new power plants. That may be many years down the road. So, to answer the question, no relief is expected for at least the next year or so, and beginning in 2002, utilities will be able to pass on any costs they incur to the consumers. One can only expect that that will bring on higher utility prices.

CNN Host: Thank you for joining us today, Greg LaMotte.

Greg LaMotte: Goodbye, everybody! It was fun being here.

Greg LaMotte joined the chat room via telephone from Long Beach, California and CNN.com provided a typist. The above is an edited transcript of the interview on Thursday, January 4, 2001.

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