Wooing California companies by candlelight

Tech companies turned on to Utah power Utah Governor Mike Leavitt

The state's well-publicized energy crisis, marked by rolling blackouts during peak demand periods throughout the past year, has been blood in the water for states and counties angling to snatch California's tech companies. From Minnesota to Tennessee, eager politicians and leaders of chambers of commerce are circling Silicon Valley executives, enticing them with offers of cheap electricity, land grants and tax moratoriums if they ditch the Golden State.

Out-of-state recruiters may have gotten a boost Friday, when Pacific Gas & Electric, California's largest utility, voluntarily filed for Chapter 11 federal bankruptcy protection. The move came several months after state politicians and PG&E executives started a feverish but unsuccessful campaign to bail out the cash-starved company.

Although the filing itself did not hamper the flow of electricity or immediately alter utility bills to corporate clients, experts say the move cast a shadow even darker than a rolling blackout.

"The bankruptcy filing is unsettling and causes a lot of uncertainties, and uncertainties are never good for business," said John Hansen, a lawyer and partner at Nossaman, Guthner, Knox & Elliott in San Francisco who specializes in bankruptcy law. "Companies in the Silicon Valley have established backup plans when the power goes out, but I'm sure those are only short term and don't provide a long-term answer to their energy needs."

Hansen said the bankruptcy filing puts the plight of the utility company--and the energy needs of Northern California--into the hands of a federal bankruptcy judge. A judge may decide that PG&E's best course of action to stay afloat may be to hike corporate and consumer rates far more dramatically than it has been able to in the past. That could cause costs in the Bay Area, already one of the most expensive places to live, to spike.

"I'm sure that's what PG&E would like--to raise rates," Hansen said. "Whether the court can do that or not is an open question and I'm sure will be a major battle in the case. It's a possibility. There's no clear law on that."

Plenty of plugs
Despite uncertainties in the courtroom, out-of-state recruiters see a very clear opportunity in the blackouts. Since January, they have been waging a public relations battle to woo companies away from the Silicon Valley--particularly e-commerce companies that require consistently operating Web sites.

E-commerce companies that rely on smoothly functioning Web sites, often powered by servers and workers in the San Francisco Bay Area, lose anywhere from $1 million per hour to $1 million per minute when the power goes off. That's because customers can't place orders online, and the region's highly paid work force can't be productive.

Although it was not caused by a blackout, a November blowout at Seattle-based e-tailer Amazon.com showed how costly even a brief outage is. During the Thanksgiving holiday weekend, Amazon suffered a 20-minute outage that investment firm Thomas Weisel Partners estimated deleted roughly 20,000 product orders and $500,000 in revenue.

California's blackouts could cost local technology companies vastly more than that, as out-of-state recruiters and politicians are quick to point out.

Full-page ads inviting businesses to locate in Duluth, Minn.--one of the snowiest cities in the Midwest, perched on Lake Superior--are slated to appear soon in the San Jose Mercury News. The daily newspaper, which has contemplated layoffs as the local economy withers, bills itself as the paper of record in the Silicon Valley.

Duluth Mayor Gary Doty last week contacted Tony Ridder, a Duluth native who now presides over San Jose, Calif.-based media company Knight Ridder, which also owns The Duluth News Tribune. When Doty asked the chairman and CEO for advice on how to approach individual Silicon Valley companies interested in relocating because of the blackouts, Ridder offered complimentary ads in his company's flagship newspaper. A full-page ad in the 300,000-circulation Mercury News can cost $24,000 to $27,000 per day.

A Mercury News representative would not comment on whether the free ads were logical, possibly helping to shrink the number of advertisers in the Mercury News' coverage area and increase the number in the News Tribune. A Knight Ridder corporate representative did not immediately return calls.

Duluth is not the only Minnesota burg vying for Silicon Valley businesses. Spearheaded by Gov. Jesse Ventura, the Minnesota Department of Trade and Economic Development paid $50,000 for billboard space on California's Highway 101, prime advertising real estate for Silicon Valley's gridlocked commuters, to publicize the state's newest slogan: "White Outs--Occasional. Black Outs--Never."

Switched cheese
On the other side of Lake Superior, Michigan sent Silicon Valley executives at 4,500 businesses glow-in-the-dark mouse pads that promise to "never leave you in the dark." In Anchorage, Alaska, city officials have purchased advertising in Silicon Valley publications with a grizzly bear and the frontier state's newest motto, "We've got the power."

Utah Gov. Mike Leavitt visits California at least every month to persuade space-constrained companies they can "grow out in Utah." The Chamber of Commerce in Raleigh, N.C., mailed several hundred promotional packages containing 9-volt batteries to California companies in hopes they would expand in the emerging tech hub, asking, "Are you in the dark about where to grow your business?"

In one of the first and most high-profile overtures toward Silicon Valley businesses, the Tennessee Department of Economic & Community Development announced in January it would send 1,000 California-based executives a gift-wrapped flashlight and a message: "The next time the lights go out, use this to find your way to Tennessee."

Although the power crisis has turned on mental lightbulbs for legions of economic-development officials, many states are refraining from California bashing.

Arizona, which has California's mild winters but an abundance of cheap land, has been conspicuously absent from the courting game. The Greater Phoenix Economic Council has even temporarily stopped calling California executives, and one Arizona official was quoted in the Arizona Republic as calling the flashlight gimmick "cheesy."

Justin Bradley, director of energy programs for the Silicon Valley Manufacturers Group, which represents local businesses, agreed that such overtures are rather tasteless--and not particularly unique.

"We've been through this same scenario I don't know how many times--whenever there's an earthquake or a fire. Every time something bad happens, we get other states trying to steal our companies and workers," Bradley said defensively. "And you know why? Because they're the most productive in the nation. And it's because of the way we do things here...Silicon Valley has the highest worker productivity in the nation--it's double the national average. There's a reason companies are here, and it's difficult to leave when your customers and supply network are here."

Bradley didn't shirk the serious nature of the energy crisis.

"Does it hurt the reputation? I can tell you this: It doesn't help," he said. "We don't pooh-pooh this energy crisis, but we're not worried that the Silicon Valley's going to fold up anytime soon."