If you go to any company and say we're going to double your electric bill, it has to have some effect on price,” said Tom Smith, an analyst at Standard and Poor's Equity Group in New York. “But I don't think prices will go up enough to curb demand. Now, they really must be concerned with possible rolling blackouts.”

Chip manufacturers will likely buy their way out of that problem, Smith added, beefing up private power supplies even as they adopt conservation measures. Indeed, most suppliers with fabs in California have already spent years complying with tightening energy policies governing electrical use.

Intel Corp. has a small fab at its headquarters in Santa Clara, Calif. Unlike many customers in Silicon Valley who rely on PG&E for service, however, the company has a contract with Silicon Valley Power, which is owned by the city of Santa Clara.

“Intel has a longstanding agreement with the power company,” said Chuck Mulloy, an Intel spokesman. “To avoid rolling blackouts, Intel signed agreements with Silicon Valley Power about five years ago to voluntarily curtail usage during peak periods and when the state goes into various-stage power alerts.”

In exchange, Mulloy said, Intel has been moved down the list for sites that would be included in rolling blackouts.

Conservation efforts are paying off in other ways, too. STMicroelectronics Inc. operates a fab in Rancho Bernardo, Calif. The facility draws just 4 megawatts of electricity at any given moment, allowing ST to maintain average power consumption of about 90 kilowatts per silicon wafer-down from 627 kW in 1994. ST's ability to slash its electrical use has led it to build a second fab near the site that is expected to come on line this year, according to the company.

ST is also considering the use of alternative energy sources, like the 20-kW rooftop solar plant that was installed at the company's Phoenix fab last October.

Still, California's energy reserves are in a precarious enough state to keep Joe Hess, safety and environmental manager for ST's Rancho Bernardo fab, standing vigil on the ISO's Web site. The non-profit organization, which was created following the utilities deregulation, issues alerts each morning warning customers if a blackout is coming their way.

The three-stage alert is triggered when consumption comes to within 7% of energy capacity, according to the state energy commission. A Stage 2 alert is issued if consumption breaks the 5% threshold, and a Stage 1 blackout alert is issued if consumption comes to within 1.5% of capacity.

Such warnings conjure up images of the energy problems that for years have plagued Taiwan's semiconductor manufacturers. Some suppliers, such as United Microelectronics Corp. in Hsinchu, have built their own power plants alongside their fabs, while others have backup generators that allow them to power down production lines in an emergency.

Like many of its rivals, Taiwan Semiconductor Manufacturing Co. Ltd., also of Hsinchu, has experienced several power outages in the last few years. The chip foundry has developed various methods for handling such emergencies, ranging from short-term power supplies that enable it to bring the fab down without losing product, to full-scale generators that allow it to operate at capacity for up to two days.

TSMC had the opportunity to put its backup plan into play as recently as last week, when a transformer operated by Macronix International Co. Ltd. overheated, causing a fire that cut power to parts of the Hsinchu Science-based Industrial Park.

“We have emergency backup systems in all of our fabs,” said Dan Holden, a spokesperson for TSMC North America in San Jose. “We've had discussions with the Taiwanese government and Taiwan Power Co. to ensure the power grid in Taiwan continues to support our infrastructure, even during outages.”

Planned outages may become a reality in California, which is served by five aging power plants. The state declared a low-level emergency Dec. 7, putting residents on alert that rolling blackouts could follow. On Dec. 13, the shortage became so severe that U.S. Energy Secretary Bill Richardson threatened to apply federal price controls to out-of-state power producers if they didn't increase the flow of energy to the state.

While those companies with fabs in the state are looking for ways to fill their energy needs, an unchecked shortage is likely to force new growth into other states and overseas, according to Jim Savage, an analyst at Thomas Weisel Partners LLC, New York.

“It's a very dangerous situation,” Savage said. “You have rolling blackouts that hit San Jose, and if a fab goes down and doesn't have adequate backup power, then clearly that's a real issue in terms of lost wafers.”

Savage anticipates other states are unlikely to follow California's lead in deregulating their utilities, based on the fact that the cost-cutting strategy has backfired on legislators. Between January and August of last year, wholesale electricity prices in the state rose from an average of 3 cents/kW hr.-approximately enough to run a modem and computer for seven hours-to 18 cents.

What's more, companies cannot assess the extent of an energy shortfall the way they might gauge water levels in a reservoir, according to Patrick Dorinson, director of communications for the ISO.

“People don't think it's a crisis yet,” Dorinson said. “Californians can burn their lights and think the ISO is just crying wolf, because it's not reflected in their electricity bill. Edison is talking about going bankrupt and the customer hasn't had to pay the cost. Once the rate freeze ends, the utility companies can pass that cost on to the consumer.”

Additional reporting by Jeanne Graham

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