Sep 19 - Knight Ridder/Tribune Business News - Matt Marshall San Jose Mercury News, Calif.

The nation's electrical power grid was aging badly even before Hurricane Katrina brought it to national attention.

Now, with regional energy bottlenecks and spikes in the cost of oil and natural gas, some Silicon Valley venture capitalists and technologists are saying the country needs to radically overhaul its energy infrastructure.

"Our culture is crisis driven," said Scott Mize, president of the Foresight Nanotech Institute, a Palo Alto technology think tank. "We go from event to event, waiting for something to push us over the tipping point."

Built on a technology and platform set in the 1950s, the current grid remains unable to store energy, is too centralized -- and thus prone to bottlenecks -- and cannot efficiently transport electricity without huge losses in power along the way, he and others say.

One solution: the "Intelligrid."

Proposed by Mize and others, this new decentralized grid would rely less on mega power plants. It would potentially allow millions of residents with solar panels on their roofs to easily feed excess power back to the grid. It would offer a more open system for buying and selling electricity. And it might use a cutting-edge "quantum wire," or fiber made of billions of carbon nano-tubes, which would be low-resistant and able to transport power much more efficiently.

This would, of course, mean significant investments in new technologies -- many of which would further the interests of Silicon Valley investors and of groups like Mize's, which promotes nanotechnology.

The non-profit Electric Power Research Institute in Palo Alto has been actively pushing the idea of the Intelligrid for four years, and it has gained some adherents. It's even being tested by the Long Island Power Authority. Part of the idea is to make utilities agree to standards of buying and selling electricity -- not in complicated, opaque long-term contracts but on an open-standards system with real-time pricing, and software that would monitor usage.

When electricity is more expensive to consume, say at midday, the prices on the grid would reflect that, and consumers would have incentives to turn off usage at those times.

Don Von Dollen, EPRI's program manager for the Intelligrid, says he's making progress on raising awareness among state regulators, and several state agencies expressed interest in the concept at a conference last week. "It's not that they're opposed to us. It's just that they don't know about it," he says.

Then there's the quantum wire, a project of Richard Smalley, a Rice University chemist. The lightweight, high-capacity wire would provide more efficient transport because it would not lose as much electricity in the form of heat.

But even adherents of the Intelligrid acknowledge that significant regulatory reform is required first. States and utilities would need to open up their fiefdoms and make their costs and pricing more transparent. And the powerful utility industry is resistant to change. A reformed grid would have to include utilities, letting them get paid for running the more transparent grid network.

And then there's the problem of money -- who would pay for the grid, and how expensive would it be? Government is always short on money, and private investors -- including those from Silicon Valley -- may not see potential returns until regulations are changed.

"We represent money, and money looks for a return," says Marty Lagod, a venture capitalist at Firelake Capital. "We're not investing in the electrical grid because we don't get returns."

Still, Lagod may be one of the best-placed to understand the potential for Silicon Valley companies if such regulatory reform is implemented. He helped draft a proposal to show regulators about how to structure such an Intelligrid. And for good reason: He toiled for four years to launch a micro-turbine company -- part of his vision for a more decentralized power system. But in 2001 it ran out of money and he was forced to throw in the towel, letting go about 22 employees.

"I cratered my own company," Lagod says. "I've got scars and blood all over me."

So far, on the energy front, venture capitalists have focused instead more on small-step, prudent investments in alternative energy sources.

For example, Erik Straser, a venture capitalist at Mohr, Davidow Ventures, recently invested in Jadoo, a company near Sacramento that makes fuel cells to power portable devices. The need for alternative energy became clear in the wake of Katrina, when the Superdome almost ran out of diesel gasoline, water threatened to overwhelm an energy generator and local police were running out of portable power for communications.

"They didn't run out of fuel," he said of the Superdome, "but you wouldn't want to try to guess what would have happened there if they had."

Other investors are looking for more, like Ray Rothrock, a venture capitalist with Venrock Associates in Menlo Park, who co-invested with Straser in Jadoo.

Rothrock was trained as a nuclear engineer. He bemoans how the existing grid loses about half of its power in transmission due to heat loss on the lines, and how failures disrupt entire portions of the grid.

"A simple failure turns into a catastrophe as it cascades through the network," he says.

EPRI estimates that the economic costs of failures across the United States total $100 billion a year.

A much more efficient system, Rothrock says, would be to have thousands, if not millions, more power sources -- such as solar-powered homes -- freely connected to the grid.

"The model is the Internet," he explains. "It would be like Cisco routers -- if one data line fails, you reroute it with switches."

Such a distributed system would also minimize exposure to security risks, he said. Three terrorist bomb detonations of the Bay Area's key switch-yards could take out the region's power for two or three days, he noted. And a more efficient grid would make it more feasible to plug hybrid cars into home power sockets.