That's because the state is taking steps now that should balance supply with demand by 2002 and create an energy surplus by 2003. Governor Gray Davis has signed long-term contracts with energy generators, which guarantee a supply of power to the state's utility companies, despite their poor credit status. Additionally, he cleared the way in February to expedite construction of new power plants. Currently, nine power plants are under construction and 15 are in the permitting process.

It is true that the state's two largest utilities, Pacific Gas & Electric and Southern California Edison, are in grave financial trouble. And, at least for now, electric rates are likely to escalate as much as 37% to 40%. Both utilities are facing billions of dollars of debt stemming from issues related to deregulation of the energy industry. PG&E, filed bankruptcy last Friday, and yesterday the state offered SCE $2.76 billion for its transmission grid--a move intended to keep the state's second largest utility solvent. Additionally, the state's contracts with private power producers only cover about one-third of the state's energy requirements during peak-use periods. Therefore, up to two-thirds of needed electricity is still subject to spot market pricing.

Spot markets were supposed to rely on competition and provide consumers the most favorable energy rates. However, that theory fell apart because part of the state's total generation capacity of 53,743 megawatts is currently unavailable to support system-wide demand. The report suggests, however, that as more power plants come online and energy production meets or exceeds demand, deregulation will then lead to lower energy costs.