CC list suppressed...
WSJ:Cal impact on US economy...
Note:  The other article in the Journal hi-lights the
Governor's bail-out of the Utilities with new bonds,
however the following article spells out wider ranging
problems seen in the stock market last week.  Finally
MSNBC had a January 5, 2001 morning story that before the
end of Jan. 2001 FERC will force the sale of all
transmission assets in California to a third party. This
industry continues to get more interesting...

January 8, 2001

The Outlook

LOS ANGELES

Helmut Ackermann founded L.A. Dye & Print Works Inc. 18
years ago, when he took over a bankrupt dye house. Today,
thanks to California's worsening energy crisis, L.A. Dye &
Print is back on the brink of closure.

Mr. Ackermann depends on natural gas to operate the
massive boilers and heaters used to color and dry fabrics.
He expects his December gas bill to have jumped to
$600,000 from $132,000 last January. Hammered by the
soaring costs, he has already closed one plant and
dismissed 40 people. Now, he says the jobs of his
remaining 660 workers are in jeopardy. "If it stays the
way it is, we won't be around very long," Mr. Ackermann
says.

Stories like this are causing economists to worry that
California's economic troubles -- the energy crisis,
combined with a high-tech shakeout and growing labor
unrest in the entertainment industry -- could put more
drag on a U.S. economy that is already downshifting.
Chart: California and the World Economy

The World's largest economies by gross national product,
in trillions of US dollars:
US                      $8.4
Japan                   $4.1
Germany                 $2.1
France                  $1.4
UK                      $1.3
California              $1.2
Italy                   $1.1
China                   $1.0
Source: World Bank

The energy mess is "one more negative added to the mix,"
says Tom Lieser, a senior economist at the University of
California at Los Angeles's Anderson Business Forecast. He
expects California to navigate its way through the
immediate crisis but worries about its longer-term impact.
Questions about the reliability and cost of the state's
power supply, for example, could threaten continued growth
of vital industries such as technology.

Some Wall Street economists worry that California's
problems could spill over and hurt the broader U.S.
economy. In a report titled "California Unplugged -- A
Drag on Global Growth?" Morgan Stanley Dean Witter warns
that California's energy crisis threatens to push up
production costs and make U.S. exports from the state,
which totaled $102.9 billion in 1999, less competitive on
world markets.

"Negatives tend to snowball, so what is happening in
California has the potential to exacerbate the weakness we
already are seeing in the U.S. economy," says Joseph
Quinlan, a Morgan Stanley economist.

Other states facing economic and financial trouble
wouldn't warrant such attention. But California not only
is the nation's largest state in terms of both population
and economic heft, but the Golden State also seemed to
epitomize the New Economy. Job growth in the state has
been double that in the nation as a whole; of the 2.1
million jobs created in the U.S. during the first 11
months of last year, one of every five new hires was in
California. The state produced more than $1.2 trillion in
output in 1999, making it the sixth-largest economy in the
world, slightly smaller than the economy of the United
Kingdom and a little bigger than that of Italy. The
state's economic output contributed about 12% of total
U.S. gross domestic product. New York, in second place,
had an 8.1% share of GDP.

But soaring energy costs are beginning to take a toll on
the Golden State, and low-end manufacturers are among the
first to see the change. "It is forcing many of us to face
a shutdown," says Scott Edwards, president of the
Association of Textile Dyers, Printers and Finishers of
Southern California. His industry runs on gross profit
margins of 10% to 15%, hardly enough to handle the
fivefold increase in natural-gas costs that many operators
have witnessed.

Soaring energy prices also are hurting California's
agricultural industry. "We can't pass along the costs of
production" as some other industries do, says Heather
Flower, a spokeswoman for the Western Growers Association,
a group of 3,500 growers in California and Arizona. Some
are cutting back on plantings of broccoli, lettuce and
strawberries, among other crops, because of uncertainty
about costs.

Electricity prices already are on the march. The state's
largest utilities, Pacific Gas & Electric Co. and Southern
California Edison Co., received temporary rate increases
last week ranging from 9% for residential customers to 15%
for large companies. Some economists say the rises, if
they become permanent, could wipe out a large chunk of
per-capita-income gains and result in less consumer
spending.

On top of the energy problems, Hollywood is bracing for a
strike by the Writers Guild of America and the unions
representing film and television actors, whose contracts
are set to expire this year. The studios spent the end of
2000 jamming in production to cushion the impact of a
potential strike. The sector employs nearly 300,000 people
in the state.

While there seems little doubt that the troubles brewing
in California will prove painful, there are reasons to
believe the state can still avert an outright economic
contraction. Its economy is more diversified and resilient
than a decade ago, when national-defense cutbacks and an
overbuilt property market crippled the local economy. Back
then, jobs in the aerospace sector shrank by 70%, and
office-vacancy rates in major markets soared.

Also, despite all the attention being given to the state's
energy crisis, the fact is "we're not a very
energy-intensive economy," says Ted Gibson, chief state
economist with California's department of finance. He
notes that the state ranks 48th among the 50 states in
per-capita energy consumption. And he adds that the $11
billion in deficit spending racked up by the two big
utilities amounts to less than 1% of state output. "It's
not the kind of cost that will bring the state to its
knees," he says.

-- Jon Hilsenrath and Rhonda L. Rundle

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and
Rhonda L. Rundle at rhonda.rundle@wsj.com