A recent survey¹ of public-utility commissioners in the United States showed that nearly 75 percent intended to halt their deregulation efforts as a result of the ongoing energy debacle in California. Governments around the world are also rethinking their plans to deregulate. A reasonable reaction, given the severity of California’s crisis? Yes, except that California’s energy "deregulation" was anything but. In an Orwellian irony, it actually increased the amount of regulation and enlarged the regulatory complex. Since the passage of legislation that supposedly deregulated California’s energy markets in 1996, the crew of regulatory bodies that oversee the state’s energy markets and the state legislature have imposed an average of one regulatory change every three weeks. And these were no minor alterations; many involved adjustments to retail and wholesale pricing or to environmental requirements. Each one changed the return that power suppliers could expect on an investment in energy generation facilities. Small wonder that no new power plants have been built in the state in the past decade, even as demand was steadily rising.

California’s energy markets now actually have more than a dozen regulatory bodies watching over them, including the California Public Utilities Commission, the California Energy Commission (CEC),...