Energy, Deregulation and Prosperity

California’s electricity deregulation experiment, which makes electricity fully subject to the free market, reverses a century of sound experience. The state’s crisis — power shortages, rising rates and threatened utility bankruptcies — should be a stern warning for the rest of America. Electric power deregulation is a result of exaggerated pride and faith in the free market that now threatens the very foundations of California’s prosperity and even that of the rest of the nation.

Waterpower and animal power sustained California during the 1800s. Because the state had no coal, the industrialization that swept the eastern half of the country never took off in the Golden State. Californians had to import coal from as far away as England simply to run steam engines. Like America’s dependence on foreign oil during the 1970s, California’s dependence on coal disadvantaged the economy.

Pacific Coast oil discoveries and the development of hydroelectric power around 1900 got California out of its energy dilemma and transformed its future. Waterpower once used for gold mining was harnessed to turn electric power generators, and Sierra Nevada hydroelectricity lighted California’s cities.

Electricity came early to the state’s homes. By 1930, ahead of almost every other region in America, California delivered electricity to 95 percent of its farms. Electricity helped to launch the movie, aircraft and electronics industries. Moreover, California’s electric utility regulatory system became a model of efficiency for the rest of the nation. With it, the state’s utilities kept abreast of electricity needs for 70 years.

Meanwhile, by the 1950s Californians grew dependent on the automobile, which became the primary user of oil. They built their cities around the automobile. Their lifestyles and campus-style industries, designed around the use of electric power, also used oil to fuel the ever longer commute to work at jobs that the electric power industry and the growing microwave electronics revolution made possible.

California became America’s postindustrial society, a world without smokestack industry and girded by high tech. Its power grid met every demand, dealing easily — it seemed — with power outages caused by natural disasters.

In the 1970s, the national energy crisis struck California. It most visibly hit drivers, who lined up for gas at what seemed astronomical prices. Electrical bills went up, too, but less significantly than gasoline prices.

Energy conservation became the watchword of the 1980s, as Americans worried more and more about pollution and preserving the environment. Faithful to its reputation for doing things differently, California created a new energy commission that followed the advice of energy guru Amory Lovins by pushing the “soft energy path” of solar, wind, geothermal and other renewable energy sources to generate electricity.

In the end, however, oil supplies were reestablished. Gas prices declined, though never back to pre-crisis levels; the regulated electrical grid kept right on flowing; and Americans everywhere got back to business as usual. Conservation and soft energy faded as the computer and Internet revolutions and the discovery of abundant, clean-burning natural gas supplies dimmed concerns about energy shortages.

But headiness over what seemed to be the free market’s victory over communist-style economies and its promise of high-tech prosperity captivated Americans during last decade of the 20th century. Faith in the market led to deregulation of airlines, telecommunications and eventually electric power.

Perhaps the most important factor that stands out in California’s energy history has been its citizens’ desire to build a prosperous life and economy, a goal shared by Americans everywhere. Therefore, when people weighed resources, costs, technologies and community values in calculating the advantages and disadvantages of their energy choices, they always emphasized the goal of achieving widespread prosperity.

But never had Californians elevated their faith in the free market as high in their decision-making process as it has been during this past decade. Rather, like most Americans, they understood that prosperity must reach the many, or it will not be long-lived for even the few.

California owes its prosperity to years of regulated electricity, which guaranteed delivery of reasonably priced energy. If ensuring prosperity is the goal of Californians and Americans in the 21st century, then deregulation of electric power — the life-blood of the economy — has been a terrible mistake.

James C. Williams, who teaches history at De Anza College in Silicon Valley, is the author of "Energy and the Making of Modern California" (1997) and a writer for the History News Service.

January, 2001