Rate Hikes Are Better Than Blackouts, Expert Tells Ontario, Calif., Area

March 30, 2001

Rate Hikes Are Better Than Blackouts, Expert Tells Ontario, Calif., Area

By Leslie Berkman

Electric rate increases will cause far less havoc to the Inland Empire's economy than the threat of continuing blackouts, economist John Husing said Monday at a meeting of Inland Empire business leaders.

Husing said higher electricity rates adopted this week by the state Public Utilities Commission are likely to put marginally profitable companies out of business and chase away some business sectors.

Nonetheless, he said he expects the great majority of firms planning to move to California will still come as long as they can be protected from unpredictable outages. Husing said the higher rates will bring demand in alignment with supply so electricity won't have to be rationed by means of rolling blackouts.

Husing told a gathering of the National Association of Industrial and Office Properties that high electric rates simply will be added to the list of higher costs of doing business in California -- costs that he said are outweighed by the benefit of access to a huge West Coast market and to seaports that trade with the Pacific Rim.

But Husing warned that the momentum for a ballot initiative to cap electric rates may gain momentum in California, especially if the government doesn't thoroughly investigate whether generators manipulated the market.

Barry Sedlik, manager of economic and business development at Southern California Edison Co., said the latest rate increase still leaves a large gap between what the state must pay for electricity and the price consumers will pay. Therefore, he said, the state still will be subsidizing the system.

Sedlik said the real reason for the rate increase was "to send the signal" that electricity users, particularly residential customers, need to conserve.

Forecasting electricity shortages is extremely difficult, Sedlick said. "The reality is nobody knows." He said nobody anticipated that the state would have outages in the middle of the winter or in early spring. He said the recent outages occurred when electricity demand was only 65 percent of last summer's peak.