California on brink of plunging into darkness

A searing heatwave, the collapse of Enron and months of acrimonious political battles have left the state of California facing a long hot summer of electricity chaos.

The power crisis that has dogged the Sunshine State for more than 18 months has now returned with a vengeance, and is threatening to produce a series of blackouts and electricity shortages in coming weeks.

The cost to businesses of a month of disrupted supplies runs into the hundreds of millions of dollars.

Last week, California's electric-grid operator issued emergency orders to some of the state's largest power users, forcing them to close their offices in an attempt to stave off system-wide blackouts. It was the first time the operator had moved to a "Stage 2" alert for more than a year. Electricity traders and power company insiders are now "almost certain" that this summer will see the state moving to "Stage 1" status – called when supplies drop to below 7 per cent of total grid demand.

Californians remember the last time they were on that footing. In July 2001, after nearly seven months of alerts and rolling blackouts, the lights finally went out.

The circumstances now are similar. Unlike in the UK, Californian summers represent the absolute peak of demand, as homes and businesses switch their air conditioners to maximum.

That is the case at the moment. "We're in a heat storm," said William Keese, chairman of the California Energy Commission. "We need conservation to get by without blackouts."

California's dire situation has come about because of a combination of problems. As well as the weather, which meteorologists say could hold for some time, the politics of power supply have been messy. For years, Californian power stations were neglected, and attempts to drum up investment by de-regulating the market failed horribly. That, combined with heavy regulation of what utility companies could charge, stripped away incentives to build more capacity.

All this would be bad enough but with the collapse of Enron, companies such as Pacific Gas and Electric, the state's largest producer, now have much less scope to buy supplies cheaply in what was once an active market.