Energy Crisis Spawns Business Feeding Frenzy
One man’s energy crisis is another’s opportunity. Which is why Jim Zauher was in Southern California earlier this month looking to lure companies north to Shasta County. The pitch: Land is cheap, the traffic is light--and the power is plentiful, thanks to a municipally owned utility.
“There’s no question we’re highlighting the electricity situation” in recruiting efforts, said Zauher, head of economic development in Shasta County, 200 miles north of San Francisco. “It’s a great time to get our message out.”
Call them kilowatt carpetbaggers. Less than a decade after recession, civil unrest and natural disaster had some California companies looking for a new address, business recruiters are getting recharged by the state’s electrical meltdown.
What began as a pro-business move--the deregulation of California’s electricity market--has become a potentially powerful weapon for economic rivals to pick off firms worried by rolling blackouts and soaring power prices. And it could undo years of progress in buffing up the state’s image.
Nevada and Utah, which have always found the Golden State a rich hunting ground, see California companies nervous about energy as a prime new target market.
“Your crisis gives us an opportunity,” said Rick Mayfield, Utah’s director of economic development.
This time around, however, the competition isn’t just from other states. Parts of California served by those municipal power systems with comparatively secure supplies--including Los Angeles--are hitting on businesses in communities served by the investor-owned utilities crippled by deregulation.
That violates a gentlemen’s agreement among the state’s economic development officials not to poach on each other’s turf. But the temptation apparently has become too much for some business recruiters to resist.
“We’ve got the power!” crowed an ebullient Rocky Delgadillo, Los Angeles’ deputy mayor for economic development, whose business team has run ads in California business publications touting the city’s reliable electricity supply.
California probably won’t see a major migration of companies any time soon, even from the areas served by the struggling Southern California Edison or Pacific Gas & Electric. Such decisions typically take months or years, and some would-be destinations in the West have energy problems of their own. But the damage to California’s economic climate could be costly, business leaders say.
Indeed, headlines about the Golden State going dark threaten to undo much of the state’s progress in rehabilitating its anti-business image. In the early 1990s, California was best known for earthquakes, fires, riots, defense layoffs and a Bronco chase.
Business owners said they were fed up with high taxes and onerous regulations. Between 1987 and 1992, nearly 900 plants and about 118,000 jobs were lost to other locales, according to a study commissioned by the state’s utilities.
Though that sounds pretty ominous, the job losses amounted to less than 1% of the work force. Skeptics point out that many of the so-called lost plants were never even in California; they represented expansions that in many cases were always intended to go elsewhere.
Nevertheless, public officials got the message. They overhauled the workers’ compensation system, cut taxes and encouraged the high-technology players that would lead the state’s economic recovery.
In a further attempt to placate businesses, the state in 1996 approved deregulation of its electricity market, hoping to bring down rates that were 50% higher than the national average.
Instead, the changes have delivered two nearly bankrupt utilities, rolling blackouts and the specter of significantly higher rates.
Bob Shriver, executive director of the Nevada Commission on Economic Development, acknowledged that his recruiting team may refine its strategy to capitalize on California’s power woes.
“We’re probably going to target specific industries that are focused on energy costs,” Shriver said.
His agency began stepping up its efforts in July by taking out ads in newspapers in Southern California and Silicon Valley. Though he acknowledged that California has done a better job of retaining companies in recent years, he said the electricity crunch has emerged as a huge new liability for competitors to exploit.
Enter Las Vegas. A southern Nevada group is preparing an aggressive advertising campaign to entice businesses from the flickering Golden State to the bright lights of the Las Vegas Valley.
A. Somer Hollingsworth, president of the private Nevada Development Authority, said not even Las Vegas is brazen enough to try to profit from calamities such as earthquakes, fires and floods. But California’s latest man-made disaster is simply too good to pass up.
“We’d be neglectful if we didn’t take advantage of this,” Hollingsworth said. “It’s absolutely a golden opportunity.”
The power play is finding an audience among California business owners such as Scott Keller, an “interruptible” electricity user who must shut down or face hefty fines when supplies get dangerously low.
He has been collecting recruiting materials from states such as Texas and Arizona, whose utilities have provided him with cost comparisons. Georgia has been particularly aggressive. Keller said a representative from Georgia Power calls him about once a month.
“Most of the pitches involve energy,” said Keller, owner of Chino-based STC Plastics Inc.
Keller said he’ll wait a few months to see if California’s power situation stabilizes. But with summer electricity bills topping $35,000 a month, he said he’ll probably move his 70-employee firm rather than accept dramatic price increases or continued interruptions.
Scarce electricity isn’t just a California concern. All or parts of 13 other Western states share the same power grid and therefore are vulnerable to tight supplies and price increases when the market heats up.
But neighboring states say they have enough energy for now and are taking steps to avoid a long-term shortage. Nevada, for example, hopes to cut deals with generators to ensure that a healthy supply remains within state lines.
Determined to prevent a California-style debacle, Utah recently put together a task force to examine its own electricity concerns. But that hasn’t stopped Gov. Mike Leavitt from making monthly visits to Silicon Valley as part of the state’s newly formed Utah-Silicon Valley Alliance.
Competing states aren’t the only ones dangling power as a carrot.
Unlike their investor-owned counterparts, California’s municipal utilities weren’t required to deregulate or sell off their power plants as part of the state’s transition to an open market. Some municipalities are having problems of their own. But those with ample electricity now find themselves with an important new marketing tool.
A case in point: the Los Angeles Department of Water and Power. Media have flocked to quote folksy DWP chief David Freeman, who never misses a chance to tout the city’s 7,000 megawatts of reliable power. Los Angeles’ business team is capitalizing on its prize asset, inviting business prospects to “plug into Los Angeles.”
Shasta County is another California community aggressively marketing its power advantage.
A former lumber area that fell along with the timber industry, the county is working to transform itself into a center for light manufacturing. Power is critical to that effort.
So in the mid-1990s, officials in Redding, the largest city with 80,000 residents, embarked on a $300-million program to boost the generating capacity of their city-owned utility as well as to secure low-cost long-term contracts with outside sources.
Users were slapped with a 23% rate increase to pay for the expansion. But the utility has been so successful in selling its excess power to feed the rest of the state that the surcharge is now scheduled to come off next year instead of 2004 as originally planned.
That would make Redding’s electricity rates--already low by California standards--a downright bargain. And development officials are eager to spread the word.
Zauher, president of the Economic Development Corp. of Shasta County, was recently in Anaheim talking power at a trade show of medical device manufacturers. Next stop, Silicon Valley, where his agency is hiring a consultant to lure high-tech manufacturers north.
Zauher reasons that he’s not a vulture but rather a guard dog keeping out-of-state foxes from California’s coop.
“It’s a sensitive issue,” he admitted. “But I feel passionately about the fact that we’re not trying to steal companies. We’re trying to keep companies in California.”
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Times staff writer Tom Gorman in Las Vegas contributed to this story.
