In electricity-short California, there was just enough juice this week for one startup electricity provider, Utility.com, to send a sad e-mail to its customers.
"Because of soaring wholesale electricity costs, we have found that it is not possible to continue to offer you our electricity service at a price that is competitive," the e-mail read. "Therefore, we plan to stop offering our electricity service in California."
The notice added that customers would be automatically switched back to the traditional power company.
Some people in the power industry were surprised to hear of a startup's decision to pull the plug in California. It's precisely the startups, they said, who should be making it big right now.
Calls to Utility.com went unanswered on Wednesday.
Though the overwhelming percentage of Californians use traditional power giants such as Pacific Gas & Electric and Southern California Edison, an online company such as Utility.com at least had the right to compete after deregulation in 1996.
Not only that, but the small companies even had something of a competitive advantage. Startups aren't burdened by the same regulations as large utility companies and enjoy a special status that allows them to buy cheaper energy.
It's unclear whether the company's decision to abort California is due strictly to the cost of electricity. Some in the industry suggested it had more to do with a shaky dot-com business model.
Nor is it clear that the current deregulation mess in California should be a boon for a small player such as Utility. Smartenergy.com, a startup utility company that currently services several Northeastern states, is poised to enter the California marketplace anytime. Whether it will have more success than Utility.com is yet to be seen.
"We're definitely looking positively on the situation in California," said Tony Lopez-Lopez, the chief energy operations officer at Smartenergy.
He couldn't give a firm date for when Smartenergy would be offering power in California, but he promised that it would be before the end of this year.
But what about the "soaring wholesale electricity costs" that Utility.com mentions? Lopez-Lopez said that his company planned to sidestep these, because startups are allowed to enter into long-term contracts with wholesale electricity suppliers, contracts that would likely result in fairly low wholesale rates.
Traditional utilities aren't allowed to make such deals and have to buy their power at fluctuating market prices, which is why they have lost billions of dollars in recent months, he said.
Almost everything about electric deregulation in California is complicated. Although blackouts only rolled across the state for the first time on Wednesday, many Californians have been in the dark about the power crisis for much longer.
But the cause of the current mess, said Lopez-Lopez, is easy to see. In California, the price that utilities can charge customers for electricity is currently fixed, but the price that electricity generators can charge utilities can fluctuate.
This "disconnect," as Lopez-Lopez calls it, is akin to your supermarket being forced to charge you a fixed $2 for a gallon of milk that it has to buy at some market price. Things wouldn't be so bad for the supermarket if that market price of milk was, say, $1.50 a gallon -- but in California, there isn't enough milk, so the price has skyrocketed to something like $10 a gallon.
This one flaw in the system leads to a whole host of other problems, Lopez-Lopez said: "The total risk of the fluctuation is incurred by the utility."
But the startups, he said, have a trick up their sleeve -- they can negotiate long-term contracts: akin to a local grocer contracting with a farm to buy its milk for ten years at a low per-gallon cost.
Meanwhile, traditional utilities have to buy the power at a high price and sell it dirt cheap, causing them to incur debt. The debt causes their credit rating to plummet, which makes generators wary of selling them more power. This leads to a shortage of power, which leads, of course, to blackouts.
On Wednesday afternoon, PG&E, the primary utility for Northern California, cut power to between 200,000 and 500,000 people in the state. The Associated Press reported that in San Francisco, ATMs were out in parts of the city, and two students at Hastings Law School were trapped in an elevator that stopped between floors.
