New Bottom Line Volume 9.1 – What Silicon Valley Should Learn From San Diego About Our Electricity Future

August 21, 2000

Consumers in San Diego are burning their power bills at the urging of the State Senator Steve Peace, claiming that “market competition doesn’t protect consumers.” Flanked by consumer advocates who tried to overturn his 100-page law with Proposition 9 in 1998, Senator Steve Peace of San Diego now wants to repeal the law that he authored, even though he admits this will cause blackouts.

Silicon Valley CEOs, take heed.

This dramatic about face has been prompted by high power prices on the West Coast—prices that are being blamed on deregulation, but which have been created by some basic rules about supply and demand: when there is a power shortage, power prices go up. That is the way a market has, and always will, work.

Regardless of whom or what we can blame, the prospect of rolling blackouts this (and next) summer is quite real. Many of us have already felt the bite of the June 13 outages–estimated to cost $100 million in lost Silicon valley business. Some Silicon Valley firms are bracing for this possibility by installing their own on-site electricity generation systems because they can’t afford even a millisecond interruption to critical processes. Millions of dollars in potential profits hang in the balance.

There is a silver lining in the unfolding drama in San Diego, which will soon spill over into Sacramento as Peace hopes to persuade Gov. Gray Davis and the Legislature to intervene on behalf of his angry constituents. This new energy crisis offers the opportunity to stand up and be counted. After all, we in Silicon Valley helped create this power shortage in the first place. The solution to this dilemma lies in a competitive power market that offers Silicon Valley better choices, choices that can ensure the reliability in electricity supply that is vital to our financial health – plus help clean up the air.

The e-economy has been touted as a plus for the environment because the manufacture of most computer hardware doesn’t involve the environmental insults of traditional heavy industry. That is why Intel is in virtually all of “socially-responsible” mutual fund portfolios. In addition, the computer and telecommunications industries have been labeled “green” by many observers, since our products encourage telecommuting, which can also cut down on air pollution linked to our fossil fuel-based transportation system.

While the internet may save energy, thanks to telecommuting, just-in-time e-commerce, and e-assisted manufacturing controls, smart buildings and appliances, there is one powerful fact that anyone who has become an Internet junkie and who cares about clean air in California should know. The rapidly expanding Internet economy is totally dependent upon a continuous source of “information-age,” highly-reliable electricity. The process of generating electricity is the world’s largest industrial source of pollution – air, water and land.

Since deregulation of California’s electricity market in 1997, few new generators have come on-line to meet growth in power demand. Much of California’s increasing demand for power is being served by electricity imports from power plants in other states, many of which do not need to abide by our tougher state air pollution standards.

The silver lining in all of this uproar over rising power prices is that we have real options. These prices and options should prompt Silicon Valley to investigate both dramatic improvements in energy efficiency and cleaner, smarter, smaller and more available on-site power systems – and not turn our backs on a market that offers new ways to reduce costs, boost profits and improve the environment. Why purchase power from dirty out-of-state fossil fuel power plants at 50 cents/kWh when many energy efficiency options reduce electricity consumption requirements at a cost of 2 cents/kWh or less?

Case in point: ST Microelectronics has recently learned how to cut energy consumption in their fabs (including their San Diego facility) by 50%, earning a 95% return on investment in doing so—not counting the value of improved product yields, better production line up-times, and shorter time to market. All electronics manufacturers have similar opportunities in their facilities.

And, as the power grid becomes less reliable, the business case for innovative supply technologies suddenly becomes irresistible—including high-availability (8 “9s”) power supplies using non-polluting, environmentally friendly fuel-cells. More kilowatts isn’t enough, if they’re just plain “vanilla” kilowatts; they have to be reliable kilowatts, to meet Silicon Valley’s critical 24×7 needs. The First National Bank of Omaha is the trendsetter in this important area; their fuel-cell power supply provides a strategic competitive business edge.

If Peace is successful in derailing California’s competitive power market, Silicon Valley firms face the prospect of mass rebellion from power suppliers who are under no obligation to sell into California’s power market. The end result will be more blackouts – not fewer. As business people, we recognize the value of predictable contracts and a stable regulatory environment. Tampering with California’s competitive electricity market to save face in the political arena will hurt – not help – Silicon Valley, and consumers in San Diego and everywhere else. It is time to stand up and be counted, and to tell the politicians that we want choice and the opportunity to build a more sustainable energy future.

An edited version of this article appeared in the San Jose Business Times, August 21, 2000. Thank you to Peter Asmus and Chris Robertson for their contributions to this NBL.

(c) 2000 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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