Officials criticize energy report

FYI. Can we get a copy?

Best,
Jeff

Officials criticize energy report
Posted at 8:06 p.m. PDT Thursday, June 28, 2001
BY CHRIS O'BRIEN

Mercury News

California's energy crisis is expected to increase unemployment, reduce
production and aggravate an already weakening economy, according to
researchers at the University of California-Los Angeles.
The impact, however, will likely depend on how state officials choose to deal
with the failed deregulation scheme. The authors of the report released
Thursday come down heavily in favor of lifting price controls and
dramatically increasing the price consumers pay as a way to reduce the
economic fallout.
``California's economy is sufficiently large and dynamic that it will weather
the current power crisis without being derailed,'' the report says.
``However, our analysis reveals that this impact can be moderated by an
approach that does not shift today's problems to tomorrow.''
The study, ``Short Circuit: Will the California Energy Crisis Derail the
State's Economy,'' came under fierce criticism from Gov. Gray Davis' office.
Steven Maviglio, Davis' spokesman, said many of the assumptions used to
produce the report are either outdated or flat wrong.
``It deserves its rightful place sitting on the shelf gathering dust,''
Maviglio said. ``Like any crystal-ball report, it's essentially irrelevant.''
Edward Lamer, a UCLA professor, and Christopher Thornberg, a visiting
professor at UCLA, collaborated on the report with a team of researchers from
the Cambridge Energy Research Associates.
The study concludes that California's gross state product will be cut by
anywhere from .7 percent to 1.5 percent in 2001 as a result of the energy
crisis. In addition, energy problems will increase unemployment by .5 percent
in 2001 and 1.1 percent in 2002. The report predicts consumers can expect 112
hours of rolling blackouts this year.
However, the report argues that the impact could be dramatically reduced if
the state would raise the price consumers pay for energy to match the
wholesale costs. This could reduce blackouts to 12 hours, lower the debt and
interest the state will have to pay for electricity and encourage investment
in the state to increase energy supplies.
But Peter Navarro, a management professor at the University of
California-Irvine, was skeptical of the report's findings. He said it was
almost impossible to build models complex enough to take into account all the
factors that affect energy prices in the state.
In addition, he said the report seems to assume that there is no manipulation
of the current market, which Navarro argues could be distorting prices as
well.
``How do you justify raising retail rates to 45 cents for power that costs a
nickel to generate when there is some evidence that the market is flawed?''
Navarro said. ``This report seems to have an industry point of view and an
industry agenda.''