After cutting off power to its largest industrial customers 10 days ago, Entergy, the utility serving southeast Texas, Louisiana and Arkansas, resorted to rolling blackouts in a desperate bid to prevent the entire system from crashing. With demand for power breaking records around the country for the third time this summer, utilities in the Midwest and mid-Atlantic states warned a few days later that they might have to take similar measures. All this came less than a month after blackouts in the Northeast left half a million people sweltering in the dark. The cause, in each case, is an increasingly overtaxed electric utility system, ill-equipped to cope with the sort of short-duration peak demand we've seen in recent weeks.

The problem is reaching a boil this summer after simmering unnoticed for the past several years, in part because businesses have quietly borne the brunt of it, sparing us the drama of widespread outages. In early June, when record demand for power nearly brought down the New England grid, crisis was averted only when companies closed their production lines at power companies' requests, sending hundreds of workers home. In the heat wave two weeks ago, utilities cut off corporate and institutional customers in at least seven states.

More troubles are likely as this summer continues. The reason for the crunch is straightforward: America's capacity to generate and transmit electricity hasn't kept pace with the growing demands of a strong economy and a string of hot summers. Residential and commercial electricity use rose by 3 percent in 1998, and greater use of air conditioning certainly accounts for much of that increase.

There's an irony here. The very plants that are working overtime to keep us cool also add to the pollution that many experts believe is contributing to global warming. It's a vicious circle. While we can't blame this summer's heat exclusively on global warming, many scientists agree that our increasing production of greenhouse gases makes it ever more likely that the summers we face will be hot ones.

The solution is not simply to increase supply. That stopgap approach--which has utilities stoking up inefficient, highly polluting fossil fuel power plants in a rush to boost capacity--is precisely the wrong reaction, both economically and environmentally. Instead, we need to decrease demand, by looking toward the vast opportunities already discovered by dozens of smart companies that are using modern, highly efficient technology throughout their operations.

The fact is that efforts to tackle the growing utility crunch via traditional, supply-side solutions often lead to new, more vexing problems. Last month, the Environmental Protection Agency revealed that dozens of utilities have increased the capacity of coal-fired plants in violation of health-based air quality rules, with the worst offender illegally emitting pollution over a year equal to the exhaust of 1.5 million cars. EPA investigators suspect more than 100 power plants of generating such illicit power. A study published the same week by two environmental nonprofit agencies reports electricity produced by aging coal-fired power plants grew 16 percent from 1992 to 1997.

On top of that, utilities are trying to bring an even more motley assortment of old, inefficient plants back from retirement. Detroit Edison fought for two years to restart a 50-year-old coal-fired smoker mothballed more than a decade ago, until a federal judge ordered the boilers upgraded to cleaner-burning natural gas. Illinois Power has already reactivated five oil-fired units. In Louisiana and Arkansas, Entergy is trying to revive a collection of decrepit plants closed for a dozen years, while in the Southwest, there is even talk of importing power from truly filthy plants in Mexico.

By contrast, reducing demand using proven, profitable technology is a cinch. What's more, savings on the energy bill are frequently accompanied by measurable gains in productivity among employees of companies that turn to such technologies. These technologies also cut pollution, including the emissions that are the likely cause of global warming.

Successful examples include Boeing, which improved lighting technology in its factories, saving 270 million kilowatt-hours of electricity a year. These upgrades paid for themselves in two years and cut more than 100,000 tons of greenhouse gas pollution. The new lighting also improved the ability of Boeing's workers to spot defects in its products. Toyota Auto Body of California cut its energy bill by one-third even as it doubled production. New systems to control air flow into its paint booths cut energy use in half and reduced defective paint jobs from three in every hundred to one-tenth of 1 percent. A Wal-Mart in Southern California uses half the energy of a typical store in part because it makes extensive use of skylights.

Until recently, utilities promoted this kind of energy efficiency. Some even had sophisticated programs to cool their customers in the summer through the use of light-colored roofs and shade trees, which can cut the need for air conditioning by 20 to 30 percent. The deregulation of the utility industry, however, has driven it toward a short-term focus that has largely eliminated such foresightedness.

The second powerful strategy for cool companies is on-site generation. This not only reduces the demand on central power plants, it also insulates companies against costly utility outages. Chicago's giant McCormick Place convention center uses a system that combines a gas turbine, heat recovery, and absorption chillers that run on steam and natural gas. While the average coal plant loses almost two thirds of its energy in waste heat, these on-site plants are immensely efficient. McCormick Place's efficiency in simultaneously generating electricity, heating and cooling can exceed 90 percent. The system saves the company a total of a million dollars a year in energy and operating costs, and avoids as much as 24,000 tons a year of greenhouse gas pollution.

An increasingly popular option is the fuel cell--a small electrochemical device that generates electricity and heat by combining oxygen and hydrogen (converted from natural gas) in a combustionless process that creates almost no pollution. Fuel cells are being used everywhere from a Central Park police station to the new 48-story Manhattan office tower at Four Times Square. One developer, recognizing the long-term benefits, wants to use fuel cells in a proposed Texas subdivision.

The big companies held hostage by increasingly unreliable electric supplies stand to gain the most by reducing demand, as a few already understand. For many years, IBM and Johnson & Johnson have surpassed their respective goals of cutting energy use 4 percent and 3 percent per year.

And a few companies have started a very new trend: Outsourcing their power needs altogether. In March, Ocean Spray announced a deal with the energy services division of Enron, a major natural gas and utility company based in Houston. Enron will use its own capital to improve lighting, heating, cooling and motors and to invest in cogeneration. Ocean Spray will save millions of dollars in energy costs, have more reliable power and cut pollution, without putting up any of its own money.

Despite what the best companies have shown is possible, Department of Energy data suggest that fewer than one-third of American manufacturers are seriously examining their energy usage. The proportion is even lower among commercial and institutional users. That's because most companies simply don't understand the extent of the savings they could realize. Costly power shortages may change that.

The First National Bank of Omaha installed a highly reliable fuel cell system because it is one of the largest credit card processors in the country and a power outage of even an hour would cost the company millions of dollars. American Home Products installed a cogeneration system at a biotechnology facility because it calculated that the cost of unreliable power from the electric utility could be more than $10 million.

The costs of outages can be substantial. The daily payroll alone for the 2,700 Ohio Honda workers sent home during power cuts last year was $250,000, and Louisiana cutoffs cost Bayou Steel as much as $1 million in downtime. In New York, medical researchers at Columbia University are still trying to put a price tag on the damage done to millions of dollars worth of experiments that were disrupted by the recent blackout.

Companies that want to stay cool in the summer have two choices. They can rely on an electric utility system that is increasingly chaotic and that focuses on short-term solutions that actually billow out more and more of the gases linked to global warming. Or they can pursue a strategy of efficiency and on-site generation, cut pollution and remain in charge of their own destiny.

Joseph Romm, who served as assistant secretary of the Office of Energy Efficiency and Renewable Energy at the U.S. Department of Energy in 1997, is author of the book "Cool Companies: How the Best Businesses Boost Profits and Productivity by Cutting Greenhouse Gas Emissions" (Island Press).