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Energy Shortage Won't Chase Off State's Tech Sector

LOS ANGELES-A new report from Grubb & Ellis that looks at the impact of the state's energy crisis on the telecom real estate market suggests that the problem will be resolved before a tech exodus could take place.

By Patricia L. Kirk | Updated on April 11, 2001

LOS ANGELES-The threat of outsiders using the energy crisis to steal away the state’s tech sector may be short lived, according to a new report from Grubb & Ellis that looks at the impact of California’s energy woes on the telecom real estate market. The report suggests that by the time companies would have time to make the decision to move and actually pull up stakes–a process that takes two to three years–the energy problem will be resolved.

That’s because the state is taking steps now that should balance supply with demand by 2002 and create an energy surplus by 2003. Governor Gray Davis has signed long-term contracts with energy generators, which guarantee a supply of power to the state’s utility companies, despite their poor credit status. Additionally, he cleared the way in February to expedite construction of new power plants. Currently, nine power plants are under construction and 15 are in the permitting process.

It is true that the state’s two largest utilities, Pacific Gas & Electric and Southern California Edison, are in grave financial trouble. And, at least for now, electric rates are likely to escalate as much as 37% to 40%. Both utilities are facing billions of dollars of debt stemming from issues related to deregulation of the energy industry. PG&E, filed bankruptcy last Friday, and yesterday the state offered SCE $2.76 billion for its transmission grid–a move intended to keep the state’s second largest utility solvent. Additionally, the state’s contracts with private power producers only cover about one-third of the state’s energy requirements during peak-use periods. Therefore, up to two-thirds of needed electricity is still subject to spot market pricing.

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