(FORTUNE Magazine) – DEEP IN THEIR HEARTS, utility men love to build generating plants. Big boilers, broad dams, tall stacks. Power for the nation. And this is the time when utilities would normally be starting a new round of construction. Some regions of the country are running low on generating capacity, and not just because a few brand-new nuclear reactors have been idled by local opposition. Since it takes at least four years to build big generating units, power men should be breaking a lot of ground right now. Instead they are on a kind of builders' strike. Some utilities, in fact, are diversifying into other businesses, such as real estate and venture capital. But demand for electricity is rising strongly, boosted by the revival of American industry and encouraged by state regulators, who have been keeping rates artificially low. While the thirst for electricity is growing, the supply of new generating capacity is slowing to a trickle. Some states got a taste of power shortages during last summer's heat waves. By the early 1990s whole regions may be begging for more juice. They can count on little help from electricity shunted, or ''wheeled,'' from areas of surplus. True, some transmission lines have room for more power or can be upgraded to move more kilowatts. But significant bottlenecks remain, and stringing new power lines across the landscape can be unpopular. Potomac Electric Power has been fighting local opposition to complete a transmission loop around the District of Columbia. Construction of the missing piece, only ten miles long, has been stalled for 13 years. With oil prices heating up and dependence on imports rising, the last thing the U.S. needs is too little of its most secure form of energy. Almost 90% of the nation's electricity is generated from abundant domestic resources, mainly coal and uranium. Oil accounts for about 4%. The effects of kilowatt famines would range from barely noticeable to intolerable. During minor and short-lived power deficits, voltage on the lines can be cut as much as 5% with few serious consequences. In this case, customers with ''interruptible'' power contracts, such as businesses with backup generators, are usually asked to make their own current for a while. Utilities appeal to consumers to turn off lights in unoccupied rooms. Similar measures were imposed in New England, Long Island, the Middle Atlantic states, and parts of the Midwest last summer. They can be a sweaty nuisance. Boston's City Hall and Harvard University were closed for a day. Most people, however, noticed only a faint dimming of the lights. IT'S ANOTHER STORY when a region is, say, 20% or 30% short of power for days or weeks at a time. Then the electric companies ration power in ''rolling blackouts'' by cutting off service for a few hours each day in successive neighborhoods. The people of Buenos Aires have been living with rolling blackouts lasting as long as six hours a day since December, the result of generator failures and a drought that has cut hydroelectric production. The blackouts produced a commercial bust for fish and dairy products, and a boon for candles, convenience stores, and portable gasoline generators made by Honda, Yamaha, and Toshiba. They can also make a lot of people pretty sore. In one of the few cases of rolling blackouts in this country, the municipal utility in Key West, Florida, imposed them for 26 days in the summer of 1978 while repairing run-down equipment. Output never fell more than 15% below demand, but angry citizens protested the inconvenience by hurling spoiled meat and other foods through the tiny utility's plate-glass window. There is always some danger of serious disruption when a power system is stretched to capacity. New England recently experienced a near miss. Most people never knew because it happened in the wee morning hours of March 13, when a flare on the sun sent a storm of magnetically charged particles into the earth's atmosphere. The storm shorted out the high-voltage lines connecting the vast hydroelectric plant at James Bay in Quebec with eastern Canada and the northeastern U.S. All Quebec was plunged into darkness. The sudden loss of so much electricity could have set off a chain reaction of failures such as the one that darkened New York City and much of the Northeast for one night in 1965. New England, which was importing 10% of its power from Canada when the lines went down, was at greatest risk. But the nation's network of interconnected regional power grids, extended after the New York blackout, worked as an automatic safety net. Utilities as far away as the Rockies noticed their electricity being tugged in the direction of New England. Within minutes the utilities on the New England grid were able to restore the balance of power by firing up spare generating capacity. Thank heavens for grids and spare capacity -- this time. Next time might be different. In a decade that many people regard as an era of energy conservation, demand for kilowatts has risen 20%. Meanwhile oil consumption has declined and is still below that of the late 1970s. In the past two years electricity usage has surged about 4.8% annually. Peak demand, typically on torrid days when air conditioners are running full blast, has been rising as much as 10% from one year to the next in some regions. Consumers Power of Jackson, Michigan, estimates that the baby-boom generation is consuming 16% more electricity per capita than the previous generation. And why not? After discounting for inflation, electricity prices in most places have fallen in recent years. There are many more gadgets that plug into sockets: personal computers, videotape recorders, and microwave ovens. While demand is robust, construction of new power plants is anemic. In the late 1960s and early 1970s, when power usage was doubling every ten years, utilities went on a building binge. Then rising energy prices and a sluggish economy cut the growth rate nearly in half and left utilities with oodles of spare capacity for the early 1980s. Many state utility commissions accused the companies of gross mismanagement for overbuilding and for allowing huge cost overruns at nuclear projects. NO LONGER COULD utilities count on getting approval to recoup their outlays for new capacity through rate increases. The Edison Electric Institute, the power companies' trade association, estimates that in the 1980s regulators have ''disallowed'' about $10 billion of their capital investment as wasteful. These rulings have curbed increases in the price of electricity. So utilities are in no hurry to spend billions more. Says Elizabeth Hannon, president of the Utility Data Institute in Washington, D.C.: ''For the first time in 100 years they're not starting to build new central power stations.'' She calculates that in 1993 the industry will bring less than 3,000 megawatts of generating capacity on line, compared with 25,000 megawatts annually in the 1970s. Concludes John Siegel, vice president of the U.S. Council for Energy Awareness, a pronuclear organization whose members include construction firms and utilities: ''Supply and demand curves in this business are approaching each other like a couple of express trains.'' Not to worry, say the regulators. It'll be tight, but we can handle it. Declares Michael Foley of the National Association of Regulatory Utility Commissioners: ''There may be some brownouts in the Northeast, but I don't see the national crisis that a few boisterous alarmists are talking about.'' A consensus has developed among regulators that the nation's growing demand for electricity can be met with conservation programs and the construction of hundreds of small power plants, many built by a new breed of independent power producer that sells to the utilities. The industry's own antiexpansion bias contributes to a rose-colored view. ''We've all been keeping our forecasts down,'' says Adam Madsen, vice president for corporate planning at Long Island Lighting Co., ''because we don't want to build.'' Nor does industry want to engage in public debate with the regulators. The difference between those who are worried and those who aren't boils down to an assumption about growth rates, where a mere percentage point may mean the difference between light and dark. Experts differ on whether electricity demand in the 1990s will grow by a safe annual rate of 2% -- or a dangerously higher rate. Marie Corio, founder of Applied Economic Research Co., a consulting firm in New York City, sees growth in the 2.5% range and predicts that by 1993, at the rate the industry is now planning to add to generating capacity, about one- third of the country's land area will have insufficient power (see map). These regions' generating capacity will exceed peak demand by less than 20%, the safety margin most experts consider necessary for reliable service. About 14% of capacity is usually down for maintenance, and a small amount must be held for emergencies. In booming New England, electricity growth in the past five years has been about 5% annually. Last summer the region had ten voltage reductions, including the one that closed Harvard. Recently, for the first time in years, utilities asked industrial customers to shed load in the winter. OPERATION OF New Hampshire's Seabrook nuclear plant, completed in 1986, has been stalled by antinuclear activists. Says Phillip Otness of the New England Power Pool, which coordinates electricity production and transmission on the region's power grid: ''If growth cools off to below 2.5% and the Seabrook nuclear plant comes on line, we think we can manage to get by until 1993. But at 5% growth, there's just nothing in the plans to handle that.'' Many of the region's plans are of questionable merit. At the insistence of regulators, New England utilities are counting heavily on conservation and ''load management'' programs, and on independent power producers to build new plants and sell their electricity to the utilities. Conservation and load management include putting radio-controlled on/off switches on home air conditioners enabling utilities to turn them off when necessary, or installing air conditioners that cool buildings with ice. The ice is made in a chiller at night, when demand for electricity is lower than during the day. These measures are supposed to take care of about 10% of the region's needs by the year 2000. But Henry Lee, former head of the Massachusetts office of energy resources, warns, ''It will take years for a conservation industry to develop.'' Further, he says, it may be self-defeating for planners to expect consumers to save electricity when the price has been declining in real terms. Lee is also skeptical that independent power makers, which the New England Power Pool is counting on to increase their share of electricity generation from about 3% to 10%, will all come through. Capable bidders, Lee says, often drop out of projects when they find environmental delays pushing up their costs or when they can't get site permits. Many utility executives think they will be able to pull through shortages by installing banks of cheap combustion turbines. That might work. Turbines cost only about $300 per kilowatt, compared with $1,200 or so for a big coal-fired power station. Turbines can be set up and turned on in only two or three years, even less if there's no red tape. Many burn clean natural gas. And they don't take up much room. Turbines have been pressed into service in previous crises. New York's Con Edison floated some on barges in the East River during one shortage in the early 1970s. But turbines have drawbacks. Their fuel, oil or gas, is costlier than coal or uranium. Both fuels contribute to global warming by creating carbon dioxide, which nuclear plants don't. Both could become more expensive in the years ahead. If so, consumers won't have their regulators' skirts to hide under. Increases in fuel costs are not easily disallowed by regulators and are usually passed along automatically in the monthly electric bill. Turbines could run into local opposition in neighborhoods that don't want even a small, clean-burning facility in their backyard. Recently a proposal by Pepco to put two turbines in Washington, D.C., ran into a storm of opposition. If shortages become widespread, a rush of orders for turbines might create bottlenecks at manufacturers such as General Electric and Westinghouse. A GE executive reports that his company's orders from utilities tripled last year. Stewart & Stevenson Services, a Houston company, buys turbines from aircraft engine makers and modifies them to produce electricity, a possible way around the bottleneck if one develops. Vice president C. Jim Stewart III says demand for conversions is ''incredible.'' What's a manager to do to keep the lights on? If your company is particularly sensitive to even a momentary loss of power -- say, a financial firm with a huge database on computers or a high-tech manufacturer of such delicate products as integrated circuits -- consider acquiring your own power plant. On Long Island, where nuclear foes have blocked the opening of the Shoreham reactor, Grumman Corp. has contracted with a consortium including GE and Brooklyn Union Gas to build a co-generation power plant next to one of its factories. The facility will produce both electricity and steam, and Grumman will use the latter to heat some of its buildings.

Says Grumman vice president Dean Cassell: ''I get a call when it's time to shed load, and I have to turn out lights marked with a green tape on the switch. This is the first year we have been asked to shed load in the winter, and now Lilco is warning us of possible brownouts and rolling blackouts this summer. We're planning drills to get our handicapped workers down from the fourth floor in the dark. God willing and the creek don't rise, our power plant will come on line in July.'' Some companies are lobbying regulators, politicians, and the public to drop their adversarial positions and make a more realistic assessment of electricity needs. Says George Sarney, director of energy for Raytheon in Massachusetts: ''We have been networking like mad to get all parties to think of 'win-win' strategies in which everyone benefits. The hardest thing is to get the old-timers just to drop the rhetoric of the past.'' Another active campaigner is William McCormick Jr., chairman of Michigan's Consumers Power. The utility had completed four-fifths of a nuclear plant in Midland in 1984 when cost overruns exhausted its funds and the state utility commission refused to grant rate increases to complete the job. Last summer Consumers had to import electricity from as far away as Georgia. ''There were some days,'' says McCormick, ''when we couldn't get power at any price because * the power lines were full or there just wasn't any to buy.'' So he has been stumping the state talking to legislators, the media, and other companies. He's also converting the Midland nuclear plant by installing a battery of 12 huge turbines. What if all the stopgap efforts fail? You might want to have in your portfolio a few hedges against the day the lights go out and the meat flies in your town. How about buying stock in combustion turbine manufacturers? General Electric, say, or Stewart & Stevenson. And don't overlook flashlight batteries, convenience stores, or better yet, deodorant.

CHART: NOT AVAILABLE CREDIT: NINA WALLACE CAPTION: WHERE WE'LL BE WANTING FOR WATTS Since electricity can't be stored, a utility's generating capacity should be a comfortable 17.5% to 20% above the highest anticipated demand. In 1993, according to Applied Economic Research of New York, large parts of the country will lack the required margin.