How California's Power Crisis Works

By: Kevin Bonsor
California's power woes are worsening as power demands in the high-tech state continue to outpace supplies. Anton Petrus / Getty Images
California's power woes are worsening as power demands in the high-tech state continue to outpace supplies. Anton Petrus / Getty Images

California's power woes are worsening as power demands in the high-tech state continue to outpace supplies. Even with the help from out-of-state sources, millions are facing the possiblity of power outages. In the first few months of 2001, residents of California have already suffered through a series of stage 3 alerts, which almost always precede rolling blackouts across various areas of the state.

The scene on the streets and in buildings in California is becoming a very familiar scene on the nightly news. The lack of power paralyzes normal activity, with dead traffic lights creating traffic jumbles, and schools and businesses grinding to a halt. This crisis has been gripping the state for months, but has been building for years.


With the hottest months of the year ahead, the power crisis in California is far from over, the state expects rolling blackouts to continue until utilities can increase the power supply or buy more power from outside sources. In this edition of HowStuffWorks, we will take a look at one of the worst energy crises in American history, what caused it and how it might spill over into other states and spread across the country.

The Roots of the Crisis

As you can imagine, there is a lot of finger-pointing going on in California as to who is responsible for this most recent energy shortage. This crisis isn't something that developed overnight. It is a problem that has been building for years. Here are a few of the factors that have contributed to the current situation:

  • Deregulation of California utilities - Many are pointing to the deregulation plan that former Governor Pete Wilson signed into law in 1996. The plan was designed to open up the state's electricity industry to competition. At the time, Wilson and many in the legislature viewed the electricity industry as a monopoly taking advantage of consumers. Nearly five years later, that deregulation plan is being blamed for the current energy problems that the state is faced with. When deregulation occurred in 1996, California's major utilities sold many of their power plants to a handful of electricity wholesalers. The problem here is that deregulation has given power suppliers little incentive to increase their capacity to meet the state's growing demand for electricity. Gov. Davis is among the critics who are suggesting that these suppliers have even withheld supply to gouge electricity prices, a claim that the suppliers have vehemently denied.
  • Growing power consumption - Demand for electricity in California has grown by 6 percent per year for the past five years, according to Pacific Gas and Electric, one of state's biggest utilities. Part of this growing consumption is due to the large number of digital and Internet companies headquartered in cities such as San Jose and San Francisco. A 1998 study reported that the Internet is responsible for 8 percent of all of national electricity consumption. Critics of that study say that number is inflated.
  • Regulated consumer prices - Because of the high demand, unregulated wholesale energy prices have risen dramatically in the last year. But the rates charged to customers are still under a freeze. So the utilities buy energy at a deregulated rate from the wholesale suppliers, but have to charge customers a much lower regulated rate. This situation is leading to more serious problems for two of California's major utilities -- PG&E and SoCal Edison. The deficit caused by paying more to the wholesalers than what they can charge customers is causing an increasing amount of debt. Together, these two companies have accumulated billions of dollars of debt. Each have suggested that they might have to file for bankruptcy within the next two months. If that were to happen, blackouts could become more frequent unless the state or federal government intervene. On Friday, Jan. 19, Davis provided a short-term solution to the crisis by signing legislation that approved the spending $400 million of state funds to buy power and sell it to the state's struggling utilities.
  • No new power plants - There have been no major power plants built in California in the past 10 years. There are currently four new plants under construction, and plans for another plant have been approved, but none of these new plants will be up and running in time to help California meet the state's needs during the peak consumption months of this coming summer. Davis said that none of these plants will be opened for at least another two years.
  • Outside companies cut supply - California relies on many out-of-state companies to provide them with electricity. California imports 25 percent of its electricity to meet daily demand, according to the California Energy Commission. Recently, these companies have become reluctant to sell power to the state's utilities because of concerns over the utilities' ability to pay for that power. On Jan. 11, U.S. Energy Secretary Bill Richardson extended an emergency order that required these out-of-state companies to sell power to California.
  • Lack of snow/rain - One of the areas that California depends on for energy is the Northwest, where states are dependent on hydroelectric power generation. A lack of snow and rain in that region has caused a decrease in power production by hydroelectric power plants; therefore, there's not as much electricity to sell to California.

Officials in California face some tough decisions over the next several weeks and months; but in the meantime, they are putting a Band-Aid on the situation by imposing rolling blackouts across the state. In the next section, we will examine how these rolling blackouts work.


Rolling Blackouts

When California's power supply dips, the California Independent System Operator (Cal-ISO), who manages the state's power grid, notifies the California utilities that there must be a load reduction on the statewide power system. The individual utilities than determine how the load reduction will be accomplished. Usually, it's done by blacking out certain blocks in their area for hours at a time.

California ISO is an independent agency charged with managing the flow of electricity along the long-distance, high-voltage power lines that make up the bulk of California's transmissions systems. It also has the task of safeguarding the reliable delivery of electricity. The Cal-ISO does not, as some reports have stated, order black outs. Only local electric suppliers have the ability to do that.


Rolling blackouts are typically used only in severe cases, and are designed to prevent a complete collapse of the state's power system. It signals that the state's operating reserves have fallen below 1.5 percent.

Here's how California's rolling blackouts work:

  • The state is divided into large blocks by the various utility companies. For example, PG&E divides their service area into a number of blocks.
  • When an energy crisis reaches a Stage 3 emergency, California ISO notifies local electric suppliers that there will be a load reduction on the statewide system. These local suppliers than implement a system of rotating power outages.
  • These outages proceed in numerical order, beginning with block number one. If the crisis continues, number two will be the next block affected by the rolling blackouts. PG&E customers can find their block number on their service bill.
  • Hospitals, police stations, fire departments and some residents located near these emergency agencies are unaffected by the rolling blackouts.

Not Just a California Problem

California represents about 12 percent of the total U.S. population, with a statewide population of more than 33 million people. It's also home to a disproportionate number of high-tech companies who soak up more energy than most traditional (low-tech) companies. A huge amount of electricity has to be generated to meet the state's power demands.

The impact of the crisis in California is already being felt across the western part of the United States. When prices in California rise -- and they have tripled in since November 1999 -- it has an effect on electricity costs of nearby states, because California is buying electricity from these states. So with California buying more electricity, the amount of electricity available within the state exporting it decreases. The rapid growth of cities like Las Vegas and Phoenix has also contributed to the mushrooming energy crisis.


If you live on the eastern side of the United States, you may think you'll be spared from this most recent energy crisis on the West Coast. However, if the situation continues to worsen, the California crisis could be merely the first domino to fall in a nationwide energy crunch.

At least 25 other states have begun efforts to deregulate their electric utilities; and eventually, each could be faced with the same situation that California finds itself in now. Two states, Nevada and Arkansas, have suspended or are delaying efforts to deregulate their electric utilities for the time being. In the meantime, they will watch and take notes on how California has dealt with the deregulation issue and the effects it has spawned.