CEOs urge major moves to deal with US energy crisis

Jeremy Pelofsky

WHITE SULPHUR SPRINGS: In fear of the unpredictable power outages in

California, computer giant Sun Microsystems Inc. chief executive Scott McNealy,

has resorted to carrying a flashlight with him at all times. Plus, the network

computer maker will be $8 million to $9 million over the annual budget for its

facilities in California because of high-energy costs, he said Wednesday at the

chief executive summit known as the Business Council.

"I don't know about you but I carry a flashlight everywhere I go,"

McNealy said. "We've got third world power out there." California's

summer of blackouts could cost its economy almost $22 billion in lost

productivity and chop as many as 135,000 jobs in the state, according to an

industry association study released Wednesday.

With energy prices expected to soar as the year progresses, the executives

surveyed by the Business Council, an association of corporate executives, urged

further liberalization of the energy market and sought new incentives for

exploration.

"Consensus expectations are for higher petroleum and electricity costs

over the balance of this year," said J P Morgan Chase & Co. Inc.

executive William Harrison. The blackouts - the most visible result of an energy

crisis caused by California's disastrous 1996 experiment with power market

deregulation - are forecast to continue through the summer as warm temperatures

keep air conditioning demand high.

The industry groups that commissioned the study hope to use it to campaign

against a new, tiered power rate structure being considered by the California

Public Utilities Commission (CPUC), which they claim will pass too much of the

burden of paying for California's energy crisis on to industrial customers.

That rate proposal, officially put forward Wednesday, would slap residential

customers who use the most electricity with average rate hikes of between 35 and

40 per cent, while industrial users could face rate hikes of 50 per cent or

more. Kenneth Lay, chairman of Enron Corp. , the biggest buyer and seller of

electricity in North America, said California could pay from $50 billion to $80

billion this summer for electricity.

"The biggest impact will be the disruptions in that economy if in fact

we have a normally warm or even warmer than normal summer," Lay said.

"There's still a lot of things that have to be done." He said there

has to be a complete plan to solving the crisis and the longer the state waits,

the more money that will be paid out. Lay also urged for more steps to promote

energy conservation.

"I think it's a very solvable problem, it just cannot be solved without

some pain," Lay said. "Finally they're raising rates ... and at least

correcting some of the problems." Sun's McNealy said there must also be

another look at building nuclear power plants.

In the meantime, he quipped that while Palo Alto, Calif.-based Sun has a

dress code requiring employees to come to work in clothes, that may change.

"We're thinking of backing that off a bit or even encouraging people to

wear shorts because we're cranking up the thermostats," he said.

(C) Reuters Limited 2001.