Silicon Valley avoids doomsday … for now

Following two days of statewide black-outs last week, California’s state

government jumped in to prevent a "doomsday" power scenario from

materializing this week. The crisis would have left the state’s two main

utilities with only enough power for half their customers, assuring an immediate

meltdown of Silicon Valley’s high-tech industry.

Last Friday, the state’s two main utility companies, Pacific Gas &

Electric and Southern California Edison said they had no money left to purchase

power from outside the state. The two companies have a combined production

capacity of some 13,000 megawatts. California needs about 35,000 megawatts

during peak hours.

The announcement means the state is now facing the prospect of 12-hour power

outages every day! Even hospitals, police and fire station would be shut out for

a period of up to three hours. California’s state government agreed to

purchase about $400 million to $1 billion worth of power from

out-of-state-sources, enough to avert the doomsday scenario from becoming an

immediate reality. The state remains in a Stage 3 power emergency, meaning

utilities have just 1 per cent in power reserves. Any demand spike will trigger

rolling black-outs.

The investment is giving the State, which is trying to take back control of

the energy industry in the face of its failed de-regulation program, time to

negotiate new long-term supply contracts with out-of-state suppliers. Still,

California’s consumers and businesses face a nightmare rate increases.

Currently, the utilities can charge consumers no more than 6.5 cents per

kilowatt. It costs the utilities 75 cents for the kilowatts they buy from

outside sources. During the past three months, the two utilities have lost more

than $10 billion as a result of having to absorb the huge cost of outside

energy.

One thing is sure, if California is to get out of the current crisis, it will

have to do it on its own. Already, President Bush has made it clear that

California should not count on any support from his administration.

Bush, who strongly favors deregulation of the energy industries, said

California’s current problems with deregulation are the result of a

"faulty" deregulation program. Bush received more than $27 million

from the energy industry in campaign donations for his presidential campaign.

Both he and vice president Dick Cheney spent much of their careers in the oil

business. And both have strong personal ties to the head of Enron, one of the

companies being sued by California for allegedly gauging the state’s

deregulated energy utilities.