February 09, 2001

Dark Days Ahead

California's power crisis is crossing state borders. Your company better get ready. By Mark Boslet and Scott Harris

When a blackout struck Silicon Valley in January, Sreekanth Ravi thought his company was prepared. It wasn't. The backup battery that the SonicWall CEO considered "pretty hefty" failed, taking the Internet security company's Web site with it, along with a bank of 500 computers. All told, the company was offline for three vital hours.

The disruption taught Ravi a lesson. He now plans to spend $150,000 on a diesel generator and new batteries. Good thing; the worst of the Golden State's chronic power shortage may be yet to come.

Get ready for a summer perfumed by diesel smoke in California and dead salmon in the Pacific Northwest. Man and nature are conspiring in a debacle that could idle factories and short- circuit e-commerce as daily blackouts become a real threat. With a dry winter in the hydroelectricity-producing Northwest, power plants well past their prime and a spike in natural-gas prices, electricity supplies could run perilously low as millions of Californians flip on their air conditioners come June. Add to the mix a wholesale power market made dysfunctional by mishandled deregulation, and the electrons are aligned for a summer of misery that could reach up the West Coast to the Canadian border and beyond.

But many California companies remain in denial. The same appears true elsewhere in the United States: New York and some New England states teeter only a power surge away from summer shortages and higher prices. Across the country, a scarcity of natural gas has sent prices skyward, hurting credit-strapped utilities in California and prompting New York Sen. Charles Schumer to draft legislation seeking relief from spiraling heating costs.

Meanwhile, 11 Western states linked to California's power grid wait in limbo, wondering just how much more of the crisis will spill over to them. Already, the Pacific Northwest has had to drain precious hydropower reservoirs to help California cope with four weeks of near blackout conditions this winter, threatening the viability of its salmon runs. Dick Watson, an analyst for the Northwest Power Planning Council, summed up the summer outlook in two words: "It sucks."

California's Independent System Operator, the agency that manages three-quarters of California's electricity market, estimates the 2001 summertime power shortfall could reach 4,100 megawatts – enough to power 4.1 million homes – should temperatures be hotter than normal. But that forecast hasn't been updated since Nov. 30 – before the dry winter. Doug Larson, executive director of the Western Interstate Power Board, says an ISO staffer recently told him that the projected deficit could be as high as 6,800 megawatts. An ISO spokeswoman declined to comment.

California Gov. Gray Davis has embraced the state energy commission's more optimistic view that an aggressive campaign of power-plant construction, conservation and a relaxation of pollution standards will achieve a cushion of more than 3,000 megawatts by July 1. At a press conference staged at a power-plant construction site near Sacramento last week, Davis declared, "The time has come to take control of our own energy destiny."

That may be California dreaming. The Golden State desperately needs electricity from out-of-state generators to survive the summer. Projections from Pacific Northwest power producers aren't encouraging. The Bonneville Power Administration , which manages 29 hydroelectric dams in Idaho, Montana, Oregon and Washington, typically ships more than 1,000 megawatts of power to California on hot days. But with dramatically lower rainfall and snowpack this year, reservoirs are so depleted that the Northwest Power Planning Council projects a one-third drop in hydroelectric production in the spring and summer. If that happens, the Northwest may have to compete with California for power from gas-fired plants, further driving up the price of natural gas nationwide. "It's hard to imagine we'll have much to sell," says Bonneville spokesman Ed Mosey.

Recognizing the mounting crisis, the governors of Idaho, Montana, Oregon and Washington are trying to keep power generated in the Northwest from being sent to California. Utah also plans to curtail its exports to the state. "Obviously, this is a problem that has not matured yet," says Utah Gov. Mike Leavitt. "We're only dealing with the early stages of the dilemma."

The economic fallout of continual blackouts in the world's sixth-largest economy could be devastating. Federal Reserve Chairman Alan Greenspan last month warned that prolonged energy troubles could jeopardize the nation's economic health. Two days of blackouts in January alone cost California businesses $1.9 billion in lost productivity, according to the Electric Power Research Institute, an energy industry group. Washington Gov. Gary Locke complains that soaring energy prices have forced businesses and schools in Washington to lay off workers while transferring $1.5 billion in wealth to power generators.

Even minor outages will hobble production, and catastrophic blackouts would ripple throughout the nation's economy. Sunnyvale, Calif.-based SonicWall, for example, provides Internet security to more than 117,000 computer systems that serve businesses, doctors, lawyers, schools and libraries nationwide. Engineers patch the system against a daily assault of viruses, hacks and other attacks. "If our site can't be modified because our systems are down, it's only as good as yesterday's hacks," says CEO Ravi.

Hundreds of companies would find themselves in similar straits. "It is entirely possible to drive the economy off a cliff by not dealing with this problem," warns Severin Borenstein, director of the University of California at Berkeley Energy Institute. "Right now, the summer is looking very, very bad."

Despite that prognosis, many executives are taking a "what, me worry?" stance, at least publicly. Some California companies appear to be shrugging off the dire forecasts, suggesting backup generators will suffice. "It's not material for us, as far as our results are concerned," says a Hewlett-Packard spokesman, echoing a view held by others.

That may be so much whistling in the dark. Execs relying on diesel generators to get them through extended blackouts may be in for a rude surprise. In the San Francisco Bay Area, for instance, regulators limit the operation of larger diesel generators to 200 hours or less a year, depending on the amount of pollution produced. The specter of the Bay Area's 3,000 diesel generators blanketing the region in a sooty, carcinogenic haze already has environmental officials "extremely concerned" about the energy crisis' toll on human health. "High temperatures in the summer will put a drain on the power grid at precisely the time we have high smog levels," says Will Taylor, a spokesman for the Bay Area Air Quality Management District.

Carl Guardino, president of the Silicon Valley Manufacturing Group, thinks CEOs are loath to alarm investors and shareholders, but privately see a major crisis. They have good reason to be worried. Fifty-five percent of California's power plants are more than 30 years old. As plants age, unexpected breakdowns occur, especially when the facilities are pushed to keep up with demand, as many have been lately.

What's to be done? Some experts say extensive blackouts could be averted this summer through a program of aggressive conservation and higher electric prices to dampen consumption. Most of that hardship will fall on businesses, which account for 57 percent of the demand for electricity. Davis has threatened to fine companies $1,000 a day if they fail to curb outdoor lighting. Even so, the ambitious conservation programs called for by Davis may be difficult to achieve by the start of the summer.

Behind the state's power imbalance is a decade in which California built no new power plants. During that time, summer electrical demand grew 2.3 percent annually, spurred by a high-tech boom. Summertime electricity usage in Silicon Valley soared 32 percent from 1994 to 2000 and will grow another 5 percent this year. Although new power plants are due to come online, the additions could prove too little too late.

That's because companies such as ONI Systems need the power now. The Silicon Valley optical networking firm is planning its next expansion in North Carolina in part because of the energy crisis. "It's definitely the proverbial straw that broke the camel's back," CEO Hugh Martin says.

Ravi, meanwhile, is grateful that SonicWall recently acquired a Salt Lake City company. "We'll be regionalizing at a much faster pace."

It still seems a little surreal, Ravi says, that Silicon Valley, of all places, would find itself in such a predicament. Back in his hometown of Hyderabad, India, Ravi notes, the power is shut down for two hours each day, like clockwork. Given all the uncertainty in California, he says, Hyderabad's underpowered grid seems oddly reliable.

http://www.thestandard.com/article/article_print/0,1153,22098,00.html

-- Martin Thompson (mthom1927@aol.com), February 12, 2001

Answers

Apparently, they're going to use high grade energy to produce those kilowatts. They should be using low grade fuel such gas, coal, grass, hay, or wood to produce those kilowatts. This is probably going to make matters worse by causing diesel to be in short supply.

-- David Williams (DAVIDWILL@prodigy.net), February 12, 2001.