California Governor Declares Power Emergency

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January 17, 2001 (4:47 PM EST)

California Governor Declares Power Emergency

By Mark Hachman,

California Governor Gray Davis declared a state of emergency Wednesday night in an eleventh-hour attempt to keep the state's electricity flowing, as outages continued to hit the San Francisco and San Jose areas where many of the world's main high-tech companies are headquartered.

The governor said he authorized the state's Department of Water Resources to use an unspecified amount of money in its budget to buy additional power for as long as possible, and will ask the state legislature on Thursday to authorize additional funds to provide power for between seven to ten days.

"I know the legislature shares my desire to do what's right, to act promptly, and keep the lights on," Davis said in a televised press conference. "It's our obligation to provide power to the homes and businesses that drive California. I'm disappointed the utilities can't do it. We have no choice but to step in and we will do it."

Davis said he held a teleconference Wednesday with the chief executives of each of the four principal generators of California: Duke Energy, Southern Co., Reliant Energy Inc., and Dynegy Corp. Each funnel some amount of energy through California's major utilities, Pacific Gas & Electric Co. and Southern California Edison.

The crisis has arisen from a background of debt trouble for California's big power companies.

PG&E Co.'s parent company, PG&E Corp., warned Wednesday that it would not pay commercial debts due this week or in the coming weeks, beyond the revenue it itself receives from customers. PG&E Corp. is not a utility, so cannot be regulated by the state. Moody's Financial Services and Standard and Poor's downgraded the credit rating of both companies, causing the PG&E Co. utility to default on an $850 million line of credit.

Tuesday, Southern California Edison said it would suspend payment of $230 million due on a series of notes to the California Power Exchange (PX).

The meetings were necessary, Davis said, because the four generators originally threatened to pull down the utilities into bankruptcy at noon Thursday. "They have agreed, if legislation passes tomorrow, they will not do that," Davis said. "They will provide us the power necessary to keep the lights on."

Scattered power outages were reported earlier Wednesday in sections of San Jose, San Francisco, Oakland, Orinda, the Peninsula, and parts of Napa and Sonoma counties.

But Thursday, Davis warned, could be even more difficult when consumers wake up and start using power yet again. As of Wednesday night, the PX was short an unprecedented 14,000 megawatts of power-enough to power 14 million homes, or nearly 45 percent of the power necessary for all of California, Davis said.

Currently, California buys power at about 60 cents per megawatt-hour, Davis said. The state is currently working with the generators to secure long-term contracts at an average rate of about 5 to 5.5 cents per megawatt-hour through a blind auction.

"Now, I know the generators and the utilities think that's impossible, but we've already got four offers in that range and I am confident if we have a blind auction, where nobody knows what anyone else bid, that we can get a lot of power in that range," Davis said.

Parts of Silicon Valley already faced rolling blackouts Wednesday, the first time rotating customer outages were required since the Independent System Operator, a deregulated independent entity, assumed control of the state's electrical grid in April 1998. Before that, state energy usage was regulated by the California Public Utilities Commission.

Davis is already on record criticizing the state's deregulation policy, although previously he has tried to support the policy, according to reports. In his "State of the State" speech on Jan. 8, Davis called California's deregulation scheme "a colossal and dangerous failure".

A Stage 3 emergency was declared earlier Wednesday, meaning California power reserves had dropped below 1.5 percent. This signaled "rolling blackouts," in which areas of the power grid are taken offline for periods of one to two hours. A total of 500 megawatts were taken offline in order to prevent a collapse of the state's power system.

The state canceled the order for rotating power outages at 2:00 p.m. when additional power supplies from Canada became available. All power was restored at that time, a state power authority spokesman said.

According to radio and Internet reports, PG&E said that about 250,000 customers were without power from the blackouts that began at 11:41 a.m. The Willow Glen section of San Jose lost its electricity at about 11:50 a.m. Pacific Time, and power wasn't restored until about 1:30 p.m.

A Stage 2 alert was in effect until midnight, the ISO said.

Officials at the Silicon Valley Manufacturing Group, a trade organization that represents 190 technology companies, said they learned from radio reports the blackouts had been suspended by about 2:30 p.m. Pacific Time, but that state officials would reevaluate later in the day whether to continue selectively shutting off power.

Top officials at Silicon Valley companies said they were ready to handle power outages. Many of the larger companies, such as San Jose's Cisco Systems Inc. (stock: CSCO), were prepared to use alternate sources of power.

"We don't expect any business interruptions," said Fred Anderson, chief financial officer of Apple Computer Inc. (stock: AAPL), during an earnings conference call from its headquarters in Cupertino. "As you know, we have plants throughout the world, so we have normal contingency plans as most companies. Knocking on wood, we're well prepared."

Some, like 3Com Corp. (stock: COMS), had been asked by state officials to use voluntary conservation measures.

Other companies weren't so lucky. PeopleSoft, a vendor of supply-chain software based in Pleasanton, lost power for about an hour beginning around 1 p.m., according to an employee there. Pleasanton is located about 40 miles north of downtown San Jose.

"We got hit today and we had no notice," said Monica Lippis, director of administration at contract electronics manufacturer Flash Electronics Inc., in Fremont. "The utility companies are telling us that we need to call on a regular basis to find out if we will be affected."

At 3Com in Santa Clara, employees were switching off lights and computer monitors when they left the office, and the company was dimming lighting in hallways, meeting rooms, and parking lots, and reducing decorative lighting in fountains.

"We've put every employee on alert and asked them to do voluntary reductions," said Bob Ingots, 3Com spokesman. "We've turned off non-critical equipment."

There were also reports of outages in San Francisco's Lower Haight district; Oakland's Rockridge area and the Oakland Hills; the Peninsula from South San Francisco to San Mateo; downtown San Jose; Cupertino's De Anza College; San Ramon; Santa Cruz; Benicia; and other parts of the San Francisco Bay Area.

TechWeb's Meg Walker and Barbara Darrow and EBN's Robert Ristelhueber and Jennifer Baljko Shah contributed to this report.