WHEN THE LIGHTS GO OUT.

California is facing what may be the worst energy crisis in its history. Will the crisis spread to other states?

Since January, the power has gone out in 13-year-old Jim Kolling's San Francisco neighborhood three times. "I'm getting used to it," he says. "One day, the power went out for eight hours. My grandparents came to visit, and they thought we weren't home."

Jill Costello, 13, also from San Francisco, came home one evening to find the power out in her neighborhood, too. "Luckily, my mother's a candle person," she says. "We just lit a bunch of candles." Her brother wasn't so lucky. "He lost all his homework on the computer when the power went out," Jill says.

Jim and Jill, like thousands of people in California, are struggling through what is perhaps the worst energy crisis in the state's history. Since January, a shortage of electricity has forced state officials to order rolling blackouts (temporary power outages) in parts of northern and central California.

The blackouts have forced schools to close early. Factories have come to a grinding halt. Darkened traffic lights choke city streets with traffic.

Businesses and farms have lost a lot of money. The crisis threatens not only California's economy-- the sixth largest in the world--but the entire U.S. economy.

A Huge Miscalculation 

Things weren't supposed to turn out this way. Until recently, the state government regulated California's public utilities (power companies). The state made sure that power companies charged reasonable rates and provided adequate service to their customers.

But many people argued that public utilities could charge customers lower prices if the state government did not control them so tightly. So in 1996, California became the first state to deregulate its public utilities.

Under the deregulation plan, California's public utilities sold their power-generating plants to private companies. Now the utilities buy the power they need from companies that offer the lowest wholesale (large-volume) price.

The old utility companies still deliver electricity to their customers, but private energy companies now produce it. "The idea behind the change was to get all these other companies who bought the power plants to compete against each other and offer customers electricity at a lower rate," says Ashoc Gupta of the Natural Resources Defense Council.

But deregulation did not reduce electricity costs as expected. Instead, the price of electricity skyrocketed. "I think the people that insisted that we get into deregulation in 1996 made a huge miscalculation," says California Governor Gray Davis.

What state officials didn't anticipate was an economic boom in areas like Silicon Valley, which pushed the state's energy resources to the breaking point. Since 1995, the demand for energy in California has grown 25 percent. But a new power plant hasn't been built in the last 10 years. And many aging power plants, unable to handle the increased demand for electricity, had to be shut down for repairs.

The Breaking Point

"This is virtually a crisis by design," says Daniel Yergin of the Cambridge Energy Research Associates. "At the heart of the problem in California is the lack of new construction [of power plants]." Five new power plants are under construction, but none will be completed by the start of summer.

To make matters worse, an unusually cold November and December 2000 drove up the price of natural gas, which fuels many of California's power plants. As a result of all these factors, the wholesale price of electricity in California jumped last year by more than 1,000 percent.

But none of the added costs could be passed onto consumers. That's because California's deregulation plan did not allow utility companies to raise consumer, or retail, rates until 2002. Utility companies had to cover the rising costs themselves. California's two biggest utilities, Pacific Gas and Electric and Southern California Edison, rare now billions of dollars in debt and on the verge of bankruptcy.

Because of that debt, private energy companies refused to sell more energy to the two utilities. "They were afraid that they wouldn't get paid," says Steve Weston, A lawyer who represents energy suppliers in California. Only an emergency order from the federal government forced them to keep the juice flowing.

Spreading Crisis?

The energy crisis could spread to nearby states. Already, energy prices have gone up in Oregon, Washington, Montana, Idaho, and Utah. Across the Northwest, companies are slashing production and laying off workers to cut energy costs. "When California catches a cold," says Colorado Governor Bill Owens, "the rest of the West sneezes."

Now, many states that had planned to deregulate their electricity are having second thoughts. "I cannot and will not support deregulation until I am assured that power supplies are secure," says Nevada Governor Kenny Guinn.

California officials may rethink their deregulation plan as well. Last month, the state legislature passed a $10-billion plan to let the state buy power through long-term contracts and sell it to cash-strapped utilities.

"It's like if you go into a store and buy sneakers," says S. David Freeman, general manager of the Los Angeles Department of Water and Power. "If you go in and say, 'I'll buy all the sneakers I need for the next 10 years,' they'd probably give you a discount."

Solving the Crisis

If the new plan doesn't work, California isn't likely to get much help from the federal government. President George W. Bush says that California will have to solve the crisis itself. "The situation is going to be best remedied in California, by Californians," he says.

How can the energy crisis be solved? Here are some ideas:

* Drill for more oil. President Bush wants to reduce our dependence on foreign oil by drilling, for more oil in the U.S. Bush wants to open part of Alaska's Arctic National Wildlife Refuge to drilling--a plan opposed by most environmental groups.

* Develop renewable energy. Another solution is to develop more renewable energy sources--such as water, wind, and solar energy. "They're a constant, efficient source of energy," says Diane Zipper of the Renewable Northwest Project. "They don't pollute our air or water, and they don't produce hazardous wastes."

* Conserve more energy. Everyone agrees that people need to conserve more energy. "The real problem is that too many people are wasting energy," says 12-year-old Jamal Pinkney of Oakland, California.

California Governor Gray Davis agrees. He plans to spend millions of dollars on a statewide conservation program he calls "the most aggressive in America." The program includes measures such as turning down store lighting and turning off lights in parking lots after stores close.

"We've been living in the Promised Land," Davis says. "We had record economic performance. And then something else comes across the horizon you didn't count on...and you're expected to deal with it. And we will deal with it."

                     U.S. Energy Consumption by Source
Renewable Energy  7%
Nuclear           8%
Natural Gas      23%
Coal             23%
Petroleum        39%
Source for map and graphs:
Energy Information Administration