DJ POWER CUTS: Blackouts Lead Firms To Examine Power Supply

---------------------- Forwarded by Carla Hoffman/PDX/ECT on 08/14/2000 02:14
PM ---------------------------

Enron Capital & Trade Resources Corp.

From: "Pergher, Gunther" <Gunther.Pergher@dowjones.com<
08/14/2000 12:53 PM

To: "Golden, Mark" <Mark.Golden@dowjones.com<, "Leopold, Jason"
<Jason.Leopold@dowjones.com<
cc: (bcc: Carla Hoffman/PDX/ECT)
Subject: DJ POWER CUTS: Blackouts Lead Firms To Examine Power Supply

18:34 GMT 14 August 2000
=DJ POWER CUTS: Blackouts Lead Firms To Examine Power Supply By Christina
Cheddar Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--For several hours on
June 14, around 97,000 power customers in San Francisco's Bay Area lost
electricity, as Pacific Gas & Electric Co. struggled to reduce its
overburdened network by taking accounts off line. Apple Computer Inc.
(AAPL) was one of the businesses left in the dark, along with other firms
and consumers in a five-county area, as the utility, a unit of PG&E Corp.
(PCG), rotated off blocks of 35,000 customers for 60 to 90 minutes at a time
after other attempts to reduce demand failed. Apple considers itself
relatively lucky because it was able to keep doing business that day thanks
to a contingency plan, according to spokeswoman Lynn Fox. Whether that
back-up plan includes buying in alternative electricity or some other means
Apple wouldn't say. What is sure is that as Silicon Valley expands through
the nation's most populous state - and California shows no sign of quickly
resolving its power problem - technology firms large and small are among
those businesses that stand to suffer financially from lost production time.
These big power consumers are spending a lot of money to back up their
regular electricity sources, industry observers said, and in some cases that
spending may be as much of a bottom-line factor as the power outages
themselves. Unreliable power costs the U.S. economy about $50 billion a
year, said Bernie Ziemianek, of EPRI, a Palo Alto, Calif., think-tank
focused on power issues and technology. Ziemianek thinks that figure - which
considers lost productivity and the cost of equipment and products damaged
during a power interruption - could double in the next three to five years
because of the growth of Internet-related activity and electronic commerce.
Mark Mills, co-author of the Digital Power Report, a trade newsletter,
believes that cost is already higher because the economy is increasingly
dependent on reliable power. It is no longer just hospitals and military
bases that can't do without uninterruptible power; semiconductor makers,
telecommunications providers and a host of other industries cannot do
without full-time electricity. By the end of the decade, Internet-related
activity and e-commerce could account for about 25% to 35% of the total U.S.
electric demand, said Raymond James analyst Frederick Schultz, compared with
about 8% in 1998. "The new U.S. economy can scarcely survive the annual
power outages and interrupted service problems that have plagued the power
grid over the past few years," Schultz said. Hot Days, Hot Economy -
And Hot Debate Although the California power outage made headlines across
the country, rolling blackouts in the state are about as rare as a
traffic-free Los Angeles freeway. Indeed, the state has never declared a
so-called Stage 3 emergency, which occurs when the statewide power reserve
falls below 1.5% and involuntary power interruptions may begin on a wide
scale. Rolling blackouts have been more common in the East Coast and the
Midwest, which are two areas that also are susceptible to storm-related
outages. While some industry watchers have faulted deregulation for the
struggle to meet power demand in California, others argue that hot weather
and robust economic growth are to blame. The truth probably lies somewhere
in the middle. A year ago, California's weather was cooler than usual, but
this year the state has had a hot summer. On June 14, the day of the Bay
Area blackout, the temperature in San Francisco reached 103 degrees, a level
not seen for 135 years. That spike, coupled with overall growth in
electricity usage, pushed the power grid to its limits. "Over a 10-year
period, this state will need 10,000 megawatts of additional energy to keep
up with the growth we are seeing now," said PG&E spokesman Greg Pruett.
Indeed, with hot summer weather, and new capacity still a long way off, the
number of Stage 2 emergencies California has declared is on the rise. In a
Stage 2 emergency, power reserves are below 5%, and many utilities begin to
contact accounts that have identified themselves as "interruptible
customers" and ask them to reduce their usage by set amounts. Those
so-called interruptible customers are typically commercial and industrial
accounts. By early August, the California Independent System Operator had
declared nine Stage 2 alerts, said Patrick Dorinson, a spokesman for the
nonprofit agency that manages most of the electricity flow around the state,
compared with one in 1999 and four in 1998. During a Stage 2 alert,
interruptible customers agree to cut their consumption, when asked, in
return for lower electricity rates, and often help to stave off the need to
resort to more serious measures such as rolling blackouts. However, it can
be a double-edged sword for the commercial customer, which can face steep
fines if it fails to comply with the order. Penalties can offset the savings
the company stands to gain from the program, and that's even before
accounting for the cost of lost productivity. Aerospace and defense giant
Boeing Co. (BA) and technology distributor Ingram Micro Inc. (IM) are two
companies operating facilities in California under the interruptible
customer program. During the first week of August, each was called upon to
reduce its power consumption. Both companies see the program as a way to act
as good members of the community while saving money. "The manufacturing of
a rocket takes two to three years," said Walt Rice, a spokesman at Boeing's
Huntington Beach, Calif., facility. "The impact (of a Stage 2 power
reduction) is fairly outweighed by the cost savings," he said. "We live in
a state where there is a high demand for electricity, we are doing things to
shed even a small amount of that demand," said Paul La Plante, senior vice
president of worldwide facilities for Ingram Micro. Still, company
officials admitted compliance isn't without inconvenience. Companies need to
work closely with utilities to determine the number of power interruptions
they can tolerate, Ziemianek said, but that determination can be difficult
to make. For example, while a semiconductor plant operator knows a mere
brownout can destroy a day's production and prepares for this event, the
operator of a commercial bakery may be unprepared for the disruption a
brownout can have on the microchips embedded in its machinery, Digital Power
Report's Mills said. Companies such as Silicon Graphics Inc. (SGI) and
Qwest Communications International Inc. (QWST) are spending more money on
systems either to back up, replace or supplement the electricity supplied
from the power grid than the entire electric industry is spending by a
factor of at least five, possibly 10, said Mills. "The stakes are too high,
if you are Nasdaq, a dotcom or a fab maker," he said. Other Power
Options For that reason, companies are trying to be savvier about their
power usage. Earlier this year, Oracle Corp. (ORCL) considered going off the
power grid entirely by building its own power generation facility. A
spokeswoman for the Redwood Shores, Calif., software company wouldn't
provide further details of the plan's progress. This option may seem
severe, but it's one reason why the makers of power turbines are faced with
extensive order backlogs, and it's also driving demand for uninterruptible
power supplies, such as those manufactured by companies like Emerson
Electric Co. (EMR), and for new power technologies such as fuel cells,
flywheels and microturbines - some of which are still years away from
commercial viability. Others, like Silicon Energy Co., are developing
products to allow utilities and their customers to better manage their
electric consumption. Silicon's software allow its users to track their
real-time electricity consumption. With this in mind, Mills suggests that
the real financial impact of power interruptions isn't the money companies
lose on these events, but the value of what companies are willing to spend
to cushion the blow of blackouts when they occur. -By Christina Cheddar,
Dow Jones Newswires; 201-938-5166; christina.cheddar@dowjones.com Copyright
© 2000, Dow Jones & Company Inc

G_nther A. Pergher
Senior Analyst
Dow Jones & Company Inc.
Tel. 609.520.7067
Fax. 609.452.3531

The information transmitted is intended only for the person or entity to
which it is addressed and may contain confidential and/or privileged
material. Any review, retransmission, dissemination or other use of, or
taking of any action in reliance upon, this information by persons or
entities other than the intended recipient is prohibited. If you received
this in error, please contact the sender and delete the material from any
computer.

<<Gunther Pergher (E-mail).vcf<<
- Gunther Pergher (E-mail).vcf