It is the most advanced industrial park in the world, the very heart of America's technology boom of the 1990s. But this week dot.com employees in Silicon Valley have been turning off lights and cranking up diesel generators to keep the computer screens flickering.
Across the San Francisco Bay area, electricity blackouts have caused traffic lights to go out, closed petrol stations, stopped bank teller machines from working, stalled lifts and automatic garage doors, and blanked out television and PC screens. As power cuts of up to two hours rolled across populated areas, shoppers bought up generators, flashlights and candles.
The back-to-the-future situation in the richest and most populous state in the US results from botched deregulation of the state electricity supply.
The energy crisis dates back to 1996 when the California Assembly voted unanimously to deregulate the power industry and to dismantle the government regulated electricity monopoly. A surplus of power at the time made the utility companies eager for deregulation.
Under the old system, the utilities owned the generating plants and set prices regulated by the state. Upon deregulation, these companies were given incentives to sell their generating plants to unregulated private firms.
While they retained control and ownership of the distribution system, they had to cede operational control of transmission lines and power grids to a private non-profit organisation, Independent System Operator. Another private non-profit organisation, California Power Exchange, was established to set prices at auctions, and energy sellers and buyers were in effect prohibited from doing business with each other.
The result of this complex arrangement has been a mess. Since deregulation, all the parties involved have been following their own interests as the booming California economy put intolerable strain on generating capacity. In Silicon Valley, demand surged 5 per cent a year.
Many factors contributed to the debacle. The state froze low-cost electricity charges for the early years of deregulation, giving consumers no incentive to conserve power or shop around for better deals, even when wholesale prices rose more than 40-fold. Last year the big two California power suppliers, Southern California Edison and Pacific Gas and Electric, could only charge customers seven cents a kilowatt-hour for electricity, while paying $1 a kilowatt-hour wholesale, and, once at a peak, $14 an hour.
San Diego Gas and Electric, which sold off all its power plants, was last summer allowed to pass on wholesale increases, and electricity bills soared 300 per cent in the hot weather. The utility companies were also banned from signing long-term contracts with suppliers and required to buy in spot markets where prices always rise steeply when demand is intense.
Making matters worse, no major power plant has been built in California for 12 years despite the growing demand for electricity, partly because of environmental and community opposition, or the BANANA syndrome (Build Absolutely Nothing Anywhere Near Anything). Some were shut down because of anti-pollution laws and others had to buy expensive emission credits from "clean" plants.
THE cost of natural gas, which supplies half California's plants, soared and power generators outside the state steadily upped their wholesale prices, leading many Californians to accuse outside power generators of profiteering.
Southern California Edison and Pacific Gas and Electric have lost $12 billion since May and warned this week that they would go bankrupt within days because of a cash shortage. Southern California Edison has suspended $596 million in payments to creditors and power producers.
Deregulation has been made to look like a recipe for bankruptcy, higher electricity charges and economic ruin. Champions of the concept such as Paul Joskow, director of the Centre for Energy and Environment Policy Research at the Massachusetts Institute of Technology, argue that deregulation of energy is still the answer and that California has suffered from a botched effort combined with bad luck in the form of severe winter storms and unusual cold.
They point to the UK deregulation model of 1990, which led to reduced costs for production and distribution of electricity and substantial investment in clean, gas-fired plants.
Events in California are being watched closely in other parts of the world where deregulation is on the agenda and where demand for electricity is threatening to outstrip supply.
As reported in The Irish Times this week, power demand in Ireland reached a new high on Tuesday when, for the first time, customers used more than 4,000 megawatts from a system with a top capacity of 4,800 megawatts, and an EirGrid spokesman admitted to "concerns" that demand might exceed planned generation by 2004. Tuesday's consumption was more than 30 per cent higher than the day record for 1995.
Back in California, incredibly, only this week did all the players - federal and state officials, utility heads and power generation executives - get together to work out a solution, and then only when summoned to Washington by Treasury Secretary Lawrence Summers.
On Thursday evening, after the lights went out in 675,000 homes and businesses from the Bakersfield area of central California to the Oregon border, shutting down the state's main gas pipeline and forcing farmers to dump milk, the legislature passed a $400 million rescue stopgap plan proposed by California's Governor, Gray Davis, who conceded deregulation had been a "colossal and dangerous failure".
It might be too late for some power hungry companies in Silicon Valley. If they cannot anticipate a regular supply of the power which runs their computers, they may move elsewhere.
