"Commercial and industrial customers account for two-thirds of the power use in this state, and almost everything they do to reduce electrical loads are durable, long-term investments," said Robert Michaels, an energy consultant and professor of economics at Cal State Fullerton.
Freeman, the chief architect of the governor's energy policy, said locking in the power surplus was done by design and is a necessity. Reserves of up to 20% are what is required to ensure a reliable power system, he said.
"This is a very small cost compared to what a blackout does to the economy," he said.
Others argue that the state should have simply waited for the power surplus to build before signing the volume of contracts it has reached with generators.
Already, nearly 2,000 megawatts of generation capacity will have come on line in California by the end of this summer, an amount equivalent to about 5% of the current peak demand of about 40,000 megawatts in the territory served by the three big utilities. Facilities capable of producing more than 3,000 additional megawatts are under construction and slated to begin operation in the next year, according to the California Energy Commission. Another 2,500 megawatts is scheduled to come online in 2003. Meanwhile, the commission is reviewing requests by generators to build plants for an additional 5,000 megawatts.
In addition, neighboring states such as Arizona are building more plants. With transmission line upgrades, some of this added electricity could be available to California.
"A remarkable amount of plants are in the process of being built," said energy consultant Michaels.
However, not all the new plants will boost megawatt capacity, because some will replace dated or polluting facilities that will be shuttered.
Nonetheless, developments of the past 18 months have demonstrated that the often confounding and unpredictable nature of the energy market makes accurate forecasting exceedingly difficult.
In May, the North American Electric Reliability Council predicted that California would see 260 hours of blackouts this summer, yet none has developed. Cool weather--which took many meteorologists by surprise--along with conservation efforts, a slowing economy and new power plants upended many of the utility industry group's assumptions.
Just a couple of percentage points of error in either direction can make the difference between a price-spiking shortage and a depressed market of surplus power.
PG&E says it doesn't plan to cut back its operations because the Department of Water Resources might have guessed wrong. In a statement, PG&E said the state will have to bear the costs of its mistakes.
Officials at Rosemead-based Edison said it's too early to comment on what might happen.
But Gary Ackerman, executive director of the Western Power Trading Forum, a group of electricity sellers, said the state agency's best option is to get generators to agree to let the private utilities take over the contracts, "where they can be managed in a professional manner."
Because the utilities control an entire "portfolio" of power generation and sources, they are better equipped than the state to manage surplus power with limited financial losses, Ackerman said.
But before any of the utilities would accept the contracts, the state would have to guarantee that they could recover their costs.