California declares emergency as further power cuts loom

With no immediate end to California's energy crisis in sight, the state declared its second high-alert emergency in a week yesterday, triggering another frantic search for out-of-state electricity supplies and the risk of rolling blackouts as reserves dipped below 1.5 per cent of capacity.

With no immediate end to California's energy crisis in sight, the state declared its second high-alert emergency in a week yesterday, triggering another frantic search for out-of-state electricity supplies and the risk of rolling blackouts as reserves dipped below 1.5 per cent of capacity.

The overt reason for the latest crunch was a sudden shortage of natural gas, forcing generating companies to find sources of oil to keep going. But the more disquieting reality is that California's energy supplies can barely keep up with normal demand, and any hitch could be enough to plunge the Golden State and its humming economy into darkness.

California's governor, Gray Davis, has spent the past week shuttling between Washington and Sacramento in search of a solution that would end a disastrous four-year-old deregulation programme and put energy buying back in government hands. The big unanswered question, however, is how far the state should go in entering the energy business, and who will end up footing the bill.

With California's two biggest electricity distributors, Southern California Edison and Pacific Gas & Electric,on the brink of bankruptcy, time is short. Yesterday, one out-of-state supplier, Dynegy Inc of Texas, said it was calling in its debts this week and would take the distributors to bankruptcy court if payment was not forthcoming.

Companies like Dynegy have been able to profit from the crisis and increase wholesale electricity prices tenfold over the past year. Since the rates charged to customers have remained largely stable, it is the distributors who have carried the cost. Governor Davis is hoping to work out a deal whereby the state buys electricity from the generating companies at fixed prices and then allows the distributors to sell it on at a modest profit.