May 01, 2001, 2:03 PM — IN A FERTILE VALLEY in the heart of the country's most populous state, visionaries and entrepreneurs replaced the apricot, plum and olive trees with semiconductor plants, supercomputers and data centers, driving the country to record levels of prosperity.
Then the lights went out.
That's the short version of how California and Silicon Valley -- the nation's economic engine during 10 years of record growth -- were broadsided by an energy crunch that has shaken the state and sent ripples all the way to Washington, D.C. For many of Silicon Valley's high-tech giants, the rolling blackouts have provided a shrill wake-up call: Local governments and utilities can't reliably provide the energy needed to keep critical IT systems and data centers up and running all day, every day.
Even for businesses miles from California's energy crisis, with energy needs considerably smaller than those of the power-hungry Internet server farms that dot Silicon Valley, the West Coast-style woes could be looming on the horizon.
Energy experts say increasing demand and an aging electrical transmission grid mean that power shortages could soon affect neighboring Western states, and even certain parts of the East and Midwest. "Other parts of the country, such as New York City and Long Island, are saying they are short of capacity and getting shorter," says Steve Taub, director of distributed resources at Cambridge Energy Research Associates, an energy consultancy in Cambridge, Mass. The simple problem, Taub says, is that prices for natural gas (on which utilities rely) soared as the economy and demand for electricity took off.
Although most regions are not facing a California-type power crisis, experts have advice for IT leaders dependent on local utilities and legislatures: Better think outside the grid by dusting off Y2K contingency plans and investing in backup systems that will cover you in case someone pulls the plug on your power supply. And better look closely at what some companies have been doing for years to guard against power failures.
"Most of us took it for granted that power was always going to be there," says David Cooper, CIO at the Lawrence Livermore National Lab in Livermore, Calif. "From now on, power will always be a concern. As CIOs, we need to focus on risk planning and backup scenarios."
Less than two years ago, energy lagged far behind the staffing crunch, housing prices and gridlocked traffic as major concerns for high-tech companies trying to lure talent to Silicon Valley. Unemployment rates hovered just over 1 percent in the cities and towns between San Jose and San Francisco, and modest bungalows sold for more than $1 million. Slowly but surely, however, the state's flawed electricity deregulation plan combined with rising natural gas prices to put a squeeze on power supplies, eventually leaving the state teetering on the brink of disaster.
In January and again in March, the unthinkable happened. Blackouts similar to those that occur regularly in some developing nations hit the nerve center of modern technology. Two days of rolling blackouts, in which power was cut in progressive waves across parts of the state, cost California businesses about $1.7 billion in lost productivity, according to the Electric Power Research Institute (EPRI) in Palo Alto, Calif. High-tech and low-tech companies alike had to shut down. Now, as summer approaches, many warn of further energy problems as state reserves continue to hover at dangerously low levels.
"There is a very good chance of increased rolling blackouts this summer," says Frank Wolak, a professor of economics at Stanford University and chairman of the California Independent System Operator's market surveillance committee. "The problem is becoming so dire that lost economic output could have long lasting effects on the national economy." (The Independent System Operator was established after deregulation to run the transmission network in California.)
The Big "On" Switch for Dotcom America
Even before California's energy crisis hit late last year, some high-tech leaders invested in elaborate backup systems to keep the juice flowing in case of catastrophe. One of those companies, Exodus Communications in Santa Clara, Calif., which runs Internet data centers around the world, serves as a prime example for those who can't afford even a flicker of downtime.
Exodus, which has 10 Internet data centers (IDCs) in the immediate area and 42 in the world, helps power websites for more than 4,000 corporate customers, including General Electric, McDonald's, Merrill Lynch, Microsoft and Yahoo. Forty percent of the Internet traffic on the world's top 100 websites zaps through an Exodus facility.
