Silicon Valley Powers Ahead During Power Shortages -- for Now

Updated from 3:34 p.m. ET

Mr. Politician, meet the laws of supply and demand.

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California Tech Firms Struggle With Energy Crisis

Eyes are rolling in the offices of technology executives as the California government grapples with a failed attempt at power industry deregulation. (Funny, usually government agencies are so good at deregulation.) A quick look at Silicon Valley companies shows that while the problem is aggravating from a cost and Economics 101 perspective, it's not crippling to those companies fueling the state's boom.

Wednesday, the California Independent System Operator initiated rolling blackouts in northern California, shutting off power to different areas in rotating one hour shifts. According to Terry Winter, CEO of the state's power authority, about 500,000 customers are going without power at any one time. But later in the afternoon the outages were halted.

"Are we going to be doing this for three weeks, eight weeks or one week?" Winter asked. (Broken power generators, maintenance and cool weather tipped the scales Wednesday.) "I don't know. I don't know how many units are going to continue to break. Each day we've gotten so close, minutes away from doing what we've had to do today. I'm afraid we have to play this day by day."

For the past several weeks,

Intel (INTC) employees have been sitting in dimmed cubicles with the temperature three to six degrees less comfortable than usual, doing their part to avoid a California power meltdown. Cisco(CSCO) has installed expensive, energy-saving windows and lights, to create workspaces with conservation in mind. Oracle (ORCL) and Intuit (INTU), just to name a few, have diesel-fueled generators to power their data centers and keep critical servers running in case power providers pull the plug. (Server farms take up 20 to 50 times the electricity of a typical office.)

Sun Microsystems (SUNW) and Intuit send out company-wide email requests that employees voluntarily conserve power when California enters into the dreaded Stage Two -- when the state's power reserves dip perilously low. California's facility managers are mobilized to tackle the task, and the 15 biggest companies in Silicon Valley's Santa Clara County plan to reduce their power use and keep their vital circuits humming during Stage Two (under 5% power reserves) and Stage Three (less than 1.5% power reserves, with the potential for rolling blackouts) dilemmas.

Other Worries

These actions leave them free to worry about other catastrophes, like PC-buyer fickleness.

Of course, generators, idle workers and the downed servers of the generator-less cut into corporate coffers. On June 14, 2000, Silicon Valley was hit with rolling blackouts as temperatures in the 100s scorched the area. According to the Silicon Valley Manufacturing Group, the blackouts cost Valley companies $100 million. The corporate group brings together Valley business leaders from member companies to work out public policy issues with local governments.

Unfortunately, the state government has yet to select a course of action to clean up the state's half-hearted deregulation mess. California Gov. Gray Davis has widely lamented his state's power problems, taking the case to the federal government for help, only to be denied. Davis' lack of a definite course has frustrated go-go technology types. Infoseek founder Steve Kirsch composed a few options for Davis, which include fixing the current hybrid system, a return to regulation or of deregulation in a sustainable fashion.

"This is another crisis that could be forgotten like the drought of several years ago was," says Ruben Barrales, CEO of Joint Venture Silicon Valley, a nonprofit organization that researches many facets of Silicon Valley's economy and community. "Or, if it's not handled correctly, it will be with us for years to come."

Deliverables, my good man. It's time for a deliverable.

Looking Elsewhere

Last week at the Consumer Electronics Show, Intel CEO Craig Barrett commented that the power crisis logically makes California a less attractive state in which to develop. Intel employs 12,000 in the Golden State, and operates its second-smallest chip-manufacturing fabrication plant in California.

Nonetheless, Cisco has planned a 20,000-person campus on the outskirts of San Jose -- in Coyote Valley, which is grappling with the rejection of a planned power plant -- and the real estate market remains red-hot.

"The biggest thing we can do is plan for curtailment of power usage, whether voluntarily or mandatory, to follow suit with what a lot of other companies are doing," says Randy Smith, Oracle's vice president of U.S. real estate and facilities.

Nothing to do now but turn down the lights.

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