Let There Be Light

Why California's electricity problem may leave you in the dark.

The good news for most companies is that the risk of rolling blackouts or voltage reductions is largely confined to three areas of the country. “One thing CFOs should understand is that our markets are regional in nature,” says Nstar’s May, who is quick to note that New England has plenty of generation capacity. “New England is in pretty good shape for the next five years. We don’t have to worry about the lights going out or being interrupted. Most of the Northeast is like that.”

An assessment of summer conditions released by NERC in May cautiously agrees. “We expect to see tight capacity in the Pacific Northwest, New England, and New York City,” says NERC’s Gallagher. “But in none of those areas do we expect to see rolling blackouts.”

There’s plenty of power in the region around New York City, but the Big Apple imports 20 percent of its demand, maxing out the transmission lines that feed the city. “If they are importing as much as they can,” explains NERC spokesman Gene Gorzelnik, “then they need to start generating power [inside the city].” Despite resistance from businesses and residents, local utility Consolidated Edison was expected to complete installation of special generators within the city by June. “If any of those are delayed, there may be shortages in New York City,” says Gallagher.

The Pacific Northwest, usually awash in cheap power from its many hydroelectric plants, has suffered a drought for almost a year that has left reservoirs at 53 percent of traditional levels. “We need rainfall of biblical proportions to bring us back to normal,” says Jerry Rust, president of the Northwest Power Pool. “We will potentially see blackouts this winter.”

Right now, that’s primarily a problem for California, which can’t rely on its neighbors for extra juice this summer. But California’s problems pose a risk to the rest of the country. “It is the single largest economy within the U.S., and the sixth largest in the world, so there are definitely spillover effects,” says DRI-WEFA’s Shawn Intorcio. “We just have to wait to see how big the impact is going to be.” In short, although energy markets are regional in nature, even companies located far from California should be worried about how well it manages its energy needs.

CROSSED WIRES

What also bears watching is how the first major state to deregulate its electricity market fixes the mess it made. So far, no other deregulated state has had such a spectacular failure, but there hasn’t been much in the way of success, either.

Utility restructuring was supposed to encourage companies to shop for the lowest price among alternative electricity suppliers by making it easier for these suppliers to compete. For the most part, it hasn’t worked that way. According to a recent survey by Booz-Allen Hamilton, only about 20 percent of business customers nationwide have switched electricity providers, and “a significant number of those either saved nothing or were exposed to higher prices.”

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