Silicon Valley trips, plunges into darkness!

There has never been a day like Wednesday in Silicon Valley. Suddenly, at a

few minutes before noon Wednesday, literally with the flick of a switch, Silicon

Valley was shut down by the State of California. In the Valley that created the

electronic industrial revolution, not a single electron was running through its

power grid. Workers strolled out into the streets, sat around reading papers or

helped others get out of elevators. Some companies managed to keep vital servers

running on UPS back-up power systems, and a few had their own generators to keep

vital systems up.

For nearly two hours the Valley and its 500,000 high-tech workers were

completely disconnected from all outside power sources, causing massive losses

in productivity both during the state-ordered black-out and afterwards. In an

effort to minimize the impact on industry, state officials deliberately chose

the lunch hour to shut power down in Silicon Valley. But not only were workers

unable to get any work done during the black-out, afterwards, hungry workers

flooded restaurants and cafeteria which had not been able to serve food either.

When they finally returned to work, most spent considerable time rebooting

computers and networks and recreating work lost when the power went out.

The state-ordered black-out, the first in California since World War II,

resulted from a Stage 3 Power Emergency during which the State fell 800 megawatt

short of power demand and out-of-state power companies refused to sell. State

power authorities ordered rolling blackouts, which hit different areas with 90

to 120 minute power blackouts, in order to provide power to other parts of the

state.

In all, Silicon Valley companies lost an estimated $150 million in lost

productivity. Although the blackout came without warning, California has been

teetering on the brink of a power disaster for two months, operating in a Stage

2 Power Emergency mode on virtually every business day since November.

The Wednesday power outage is likely to be only the first of many to come

this year as the state braces for the hot summer season when even more power is

required than during the relatively mild winter days.

Already, high-tech companies are scrambling to move certain operations out of

the Valley. State Legislators are considering a variety of solutions to deal

with the crisis, including a take-over of power-generating plants and entering

into power supply contracts with suppliers that would guarantee the state

sufficient supply of power.

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The current crisis has its roots in an ill-advised move by the State

Legislature four years ago to de-regulate the state’s energy industry.

Previously, Pacific Gas & Electric and Southern California Edison, the state’s

dominant utilities, controlled the plants that generated the power to supply

their residential and business customers throughout the state.

De-regulation forced them to sell the plants and purchase energy on the open

market. The state anticipated that power companies would end up competing for

the business in California, which will be the world’s sixth largest economic

power if it were independent.

But the glut of power didn’t materialize and combined with a booming

economy and population, a power shortage was created that forced the two

utilities to purchase power from other states. Energy prices quickly skyrocketed

to the point where the cost of a megawatt of power increased from $30 in

December 1999 to $1,500 today.

Under state regulation, PGE and Edison cannot pass on the extra cost of power

to customers. Having lost more than $10 billion in the past two months, both

companies are now on the verge of bankruptcy, casting an even darker cloud over

the state’s energy and economic future.

As a measure of the desperate financial condition of the state’s two major

utility companies, SoCal Edison, which serves 11 million people, said it cannot

pay $596 million in bills due now and will run out of cash February 2. PG&E,

which serves 14 million people, has less than $500 million in cash left and

faces bills of $1 billion due next month.

California’s power problem is the first crisis that will confront President

Bush as he takes power next week, and many are already billing it as a

potentially defining moment for his political future. Bush can ill afford to let

the California economy falter as it would drag the overall US and global economy

with it.

Meanwhile, high-tech companies are bracing for more blackouts with some

employers advising workers to bring lunch as they will not tolerate them taking

a lunch break after a two-hour power outage as was the case throughout the

Valley during this first outage.