Electricity Sticker-Shock

To all appearances, Gray Davis delivered two speeches in his State of the State address Monday night. The second -- the latter half of his address, in which he called for lengthening the middle-school year and expanding health coverage for the working poor -- was the plodding, straightforward Davis: no flourishes, no verbal disasters. But the first -- Davis' long-awaited response to the state's deregulated-energy crisis -- was plainly a harrowing experience for the gov. Throughout the first 20 minutes of his speech, he stammered and shook, flubbed phrase after phrase, stepped on applause lines and buried his one major proposal -- to establish a state authority with power plants and lines owned by the people of California -- as a kind of afterthought.

California's deregulation debacle is forcing Gray Davis to do the unthinkable: choose between a proven donor base (the energy industry, which has given him hundreds of thousands of dollars) and an irate public. This is a choice Davis devoutly wishes he did not have to make; he is in politics, so far as anyone can discern, specifically to raise money and offend nobody. For months, he resisted making this choice, even as energy executives, consumer activists, business lobbyists, editorialists and ratepayers all demanded action. Davis' dilemma recalled nothing so much as the old Jack Benny radio routine, where Benny, whose character was famously a tightwad, is accosted by a burglar who demands, "Your money or your life!" A ludicrously long silence then follows until the burglar, exasperated, repeats his demand. "I'm thinking it over!" Benny replies. And so was Gray.

On Monday night, Davis finally announced his decision -- at least, part of it. On the toughest question of all, what to do with the $11 billion or $12 billion in debt that California's three privately owned utilities have incurred, the governor is still thinking it over. Davis ducked completely the issue of whether the state should issue bonds -- for which taxpayers would ultimately have to pay -- to rescue the companies from their own folly. On the other aspects of the crisis, however, he emerged, however improbably, as Gray the Bold: threatening to take over the power plants of miscreant companies, vowing to have the state, by itself or with the state's 30 municipally owned power companies, build an alternative system of its own. Dizzied and breathless from his own display of decisiveness, Davis barely stayed erect as he promised to seize and condemn; I can't recall a more timorous display of courage. But he got through it -- and the state got a badly needed assurance that it will return to a rational energy policy.

The deregulation of the California energy industry that Pete Wilson signed into law in 1996 was a solution in search of a problem. For decades, California's three major privately owned utilities, and several dozen municipally owned companies, had distributed power across the state -- not flawlessly, and with the ratepayers of the private companies having to pay more than those of their public counterparts. But the system, however imperfectly, worked: Californians were not subjected to bottlenecks, brownouts or huge rate increases.

The deregulation of 1996, however, prompted the big three private utilities to sell their power plants to other energy companies, most of them based out of state, which sold them back the power at market rates -- often on the very day the power was needed. If plants were down and demand was up and prices were soaring, the energy companies had absolutely no incentive to bring more plants online. The system was a prescription for disaster, and disaster soon followed.

America may be the most capitalist nation on the planet, but Americans' commitment to market economics is a sometime thing -- and when the market causes havoc, they usually rein it in. An L.A. Times poll released last weekend shows that by a 2-to-1 margin, Californians support re-regulating the power industry. Even California business lobbies pronounced themselves pleased with Davis' speech: Power outages and mega--rate increases play no better in Silicon Valley than they do in Watts.