The Last Bad Idea

For better and worse, things happen here — in California — first. Three years before Ronald Reagan’s 1981 landmark tax cut, Howard Jarvis began the right’s revolt against government with our own tax-cutting Proposition 13. Two years before the 1996 welfare-reform act cut off legal immigrants from federal food and medical programs, Pete Wilson launched our war on immigrants with Proposition 187. California dreamin’, it must be said, has given rise to some genuinely God-awful ideas.

The last big idea of conservative California was the deregulation of our power industry. In the great Gingrich GOP landslide of 1994, Californians not only re-elected Wilson but handed the state Assembly to the Republicans as well. As Bill Bradley’s article in this issue makes clear, various Wilson administration officials, inspired by the example of Maggie Thatcher’s Britain, had already been working on a plan to deregulate the state’s electric-power industry; now there were more than enough Republicans in the Legislature to turn that plan into law. Not that Democrats were adverse to dismantling the state’s regulated market, either: Deregulation fit neatly into New Democratic theory as well. As recently as last month, after all, Bill Clinton’s Democratic appointees on the Federal Energy Regulatory Commission blocked all efforts to put a price cap on energy prices.

John Keynes once remarked that most political leaders are simply recycling the ideas of dead economists, and for the past 30 years, the Cliffs Notes version of Adam Smith has dominated public policy in California, the nation and much of the world. Markets were superior to government planning, as one look at Silicon Valley on its way up and the Soviet Union on its way out made abundantly clear. Liberals and social democrats pointed out that markets had their place, but they had never yet produced universal health care or affordable housing, two social goods that flourished under state sponsorship in other lands. But liberals and social democrats were yesterday’s news, fighting at best a rear-guard action.

The case for markets was so self-evident that no one in Sacramento blinked when, five years ago, the Legislature scrapped a system of regulated monopolies and put in its place an electricity bazaar. The case for markets was so self-evident that no one apparently realized that in an electric-power bazaar, the buyer would be at a terrible disadvantage, since he was ultimately in no position to haggle: Electricity cannot be stored for a rainy day, nor can purchases be deferred if prices are too high. But by 1996, with the era of big government pronounced dead by a Democratic president, it was hard to hear a discouraging word about deregulation. Marketizing was narcotizing.

While the campaign to marketize power in California rose and fell, an alternative system of public power has quietly thrived. California is home to 30 municipal power companies, of which the largest is L.A.’s own Department of Water and Power, which maintains its own generating facilities and is able to provide stable and affordable power to its customers. Like Medicare and Social Security, public power companies are ideologically out of fashion. Only the inconvenient fact that they work — that they provide a service the private sector cannot perform so well — has kept them alive.

Now, with the free market threatening the state’s economy and its ratepayers, that dirty little secret is getting some overdue acknowledgement. As Sara Catania explains, DWP don David Freeman has been tapped by the governor to manage the state’s entry into the power market, there to bail out the utilities from a fate that caught them unawares. And in the Legislature, two liberal leaders — state Treasurer Phil Angelides and state Senate President John Burton — have actually put forth the idea of a state public-power authority.

No one in Sacramento had talked like that in decades — not since the Pat Brown ’60s, perhaps not since the Hiram Johnson Progressives way back in the 1910s. Franklin Roosevelt had championed public power; John Kennedy had used the bully pulpit of the presidency to force price reductions in steel — but that was the stuff of history, not current events. Burton and Angelides are almost speaking a forgotten tongue, incomprehensible save in one nagging particular — public power works. California’s municipal companies are the only part of the state system still perking along, while public power companies from Nebraska to New York to the Tennessee Valley still produce cheaper and cleaner power than their investor-owned counterparts. For this reason, Burton and Angelides this week may well persuade their Democratic colleagues, including the preternaturally cautious Gray Davis, to establish a public authority and have the state take over the private utilities’ transmission lines in return for the state’s assumption of their debt. The odds-on candidate to run this new agency? L.A.’s own David Freeman.

Against this idea, Republicans spin their ideological prayer wheels, undaunted by the actual weight of the evidence. “If this crisis teaches us anything, it teaches us that government has no experience in the power business and even less expertise,” Republican Assembly leader Bill Campbell said last week in opposing a state takeover of the grid. As the DWP thrives while Edison plummets, it’s hard to say who exactly Campbell is talking about, unless he’s referring to himself and his fellow GOP legislators who’ve remained impervious to the experience of the past year.

At all events, deregulation is no longer sweeping out of the West to transform America’s electric-power markets into one big national bazaar. In the past month, one state after another has announced that it is pulling back from its commitment to marketize its electricity. The new-model California — a liberal California, of all things — has started talking to the rest of the nation, and it’s talking public power. Who knows what dreams the Left Coast will send east, to an America that doesn’t yet understand just how much California has changed?


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