Electrical Storm Hits New Economy Faced with energy shortfalls and an aging power grid, Internet Economy companies search for solutions. By Mark Boslet
It was a long, hot summer in the United States. Not only did record heat waves parch much of the nation, but a mini-energy crisis struck both coasts.
In San Diego, utility bills doubled as electricity supplies tightened and the cost of power skyrocketed. During a mid-June heat wave, rolling blackouts hit San Francisco and Silicon Valley. Politicians felt the heat, too, as public anger boiled over. Finally, in early September, California Gov. Gray Davis stepped in to cut San Diegans' electricity rates.
Meanwhile, hot weather in the Northeast pushed New England and New Jersey to the brink of brownouts. Many New Yorkers' summer electricity bills jumped 40 percent; for a few days in early August, New York's Con Edison even cut back service to business customers such as Chase Manhattan.
In the Northwest, where cheap hydropower has historically kept utility bills low, anemic river flows this summer have pushed up rates. Many sawmill and mine workers lost their jobs when companies chose to shut down rather than pay rising electric costs.
Now, with natural-gas prices high and heating oil for homes in short supply in the East, energy prices could also soar this winter.
It wasn't supposed to be like this. Energy deregulation promised to lead smoothly to market-driven prices and investments in new plants and technology. Instead, it's resulted in price hikes, blackouts and dwindling reserves. It has also spurred a frantic push for new plants in states that for the past decade have added little new generating capacity.
The Internet Economy is peculiarly vulnerable to shrinking power surpluses. Digital businesses require not only massive quantities of power, but also reliable systems: An interruption in power as instantaneous as one-sixtieth of a second won't cause the lights to flicker - but it will crash a computer.
Already, U.S. companies lose $50 billion in productivity each year due to power interruptions, according to the Electric Power Research Institute, an industry-financed research organization based in Palo Alto, Calif. To ensure power supplies, some companies are considering building their own generating capacity, bypassing regional power grids altogether and evading the chaos that will likely persist for several more years.
The climate for many companies, in short, has grown "very fearful," says California state Sen. Byron Sher, who represents part of Silicon Valley. "This is a new issue for them."
The new-millennium energy crisis in the U.S. can be traced to the effects of deregulation, a lack of new generating capacity in recent years, and an antiquated distribution system - not to mention the unanticipated demands of the Internet Economy. An average office building with a computer on every desk but no significant network facility uses between 4 and 5 watts of electricity per square foot, according to Ed Quiroz, a regulatory analyst at California's Public Utilities Commission. If that building has a server farm and a network operations center, it sucks from 90 watts to 100 watts of energy a square foot or more. Or consider this: According to Mark Mills, an energy researcher with ties to the utilty industry, a Palm handheld device connected wirelessly to the Internet has the appetite of a refrigerator, consuming 1,000 kilowatt hours a year.
But estimates of the Net economy's power requirements vary. The fact is, no one knows for sure how much demand for energy will climb in coming years. Mills and colleague Peter Huber estimate that businesses that rely on digital equipment - personal computers, networking equipment, plants that produce high-tech gear and telecommunications networks - consume 13 percent of U.S. electric power. That figure will rise to between 30 percent and 50 percent of the nation's energy needs by 2020.
Lawrence Berkeley National Laboratory scientist Jonathan Koomey says those numbers are too high. According to his calculations, the Internet Economy accounts for about 3 percent of total electricity consumption in the United States.
Whatever the actual number, demand "is clearly going up faster than most people predicted several years ago," says Mark Bernstein, director at Santa Monica, Calif.-based think tank, Rand Corp. "I think we're still underestimating it. We can expect the unexpected."
Also unexpected were the aftershocks of deregulation, which gathered steam in the mid 1990s as legislatures moved to equalize broad electric pricing disparities across the country. In the last five years, 26 states have opened or taken steps to open some of their markets to competition.
Unfortunately, deregulation has helped create an atmosphere of uncertainty in the energy industry. New plant construction has slowed as investors doubted whether they could get favorable returns on new facilities.
What's more, the U.S. power grid, built in the 1950s and 1960s, was not designed with the kind of reliability that the new silicon-based economy requires.
Over the past decade, electricity-generating capacity rose 30 percent, but transmission capacity grew only 15 percent, according to figures from the Electric Power Research Institute. A typical business customer can depend on 99.9 percent reliability. That translates to nine hours a year of electricity interruptions - far too high a risk for companies that depend on the Internet or internal networks. Internet Economy companies, the rule goes, need "six 9s": 99.9999 percent reliability.
It could get worse. Projections for the next 10 years show power generation growing between 20 percent and 25 percent, but the transmission grid expanding only 4 percent. It doesn't matter how many megawatts you pump out if electricity can't flow to where it's needed.
Some high-tech companies have taken heed. At software giant Oracle, energy director Jeff Byron has installed a diesel generator to run the company's worldwide data center during blackouts and to power emergency lights, elevators and fire equipment. Oracle also has a private transmission system with a separate power substation to improve reliability. Byron says the company is even considering developing its own power plant.
Web site host Exodus Communications has five facilities loaded with high-end, energy-sucking servers in Silicon Valley and 23 around the world. Each facility has dual lines to utility substations, backup diesel generators and batteries to prevent power disruptions. Exodus also is "looking very closely'' at generating its own power, according to Jim Stoddart, senior VP of operations.
Energy shortfalls are focusing more attention on new power technologies, such as smarter power meters that alert users to the times of the day when power is less expensive, and "micro turbines" - small natural- gas-fueled engines designed for individual buildings. Also under development are hockey-puck-size silicon chips that increase the capacity of transmission lines by as much as 40 percent. Online exchanges could also ease power burdens by freely shifting resources to areas of greatest demand.
Ultimately, however, the economy is growing faster than the nation's ability to produce electricity. That means the long, hot summer of 2000 could be only a foretaste.