California Faces Costly Power Glut

The surplus, projected to peak in 2004, could pose a costly burden to ratepayers unless electricity demand rises substantially.

The state last month racked up $46 million in losses after selling surplus power for one-fifth the price it paid. If that rate is sustained, the deficit could reach as much $500 million in the next year alone, the report said.

If the surplus grows, the state could even find itself in the paradoxical position of encouraging Californians to use more electricity to help the state avoid selling large amounts of unused power at a loss.

S. David Freeman, chief architect of Gov. Gray Davis's energy policy, defended the state's efforts, saying the purchase of a "healthy surplus" was necessary and will guard against future blackouts.

"This is a very small cost compared to what a blackout does to the economy," he said.

In documents filed with the California Public Utilities Commission last week, San Diego Gas & Electric said the state might have overestimated what it needs to purchase for the San Diego service area by more than 25 percent.

Gov. Gray Davis and his energy officials will face uncomfortable policy choices if the state has guessed wrong and purchased too much power without escape clauses in the contracts, as nearly every energy economist, consultant and power company official who talked to The Times believes.