Editor's Note.

For months now, the big story coming out of California, that great American bellwether, has been the state's massively failed utility-restructuring scheme. For all the rolling blackouts and power outages so far, it seems likely that the worst is yet to come. "The real crunch," Gov. Gray Davis admitted recently, "will be in May and June and late April." As can be gleaned from the Golden State chief executive's inability to order the months correctly, the situation has discombobulated just about everybody involved.

REASON Washington Editor Michael W. Lynch and Reason Public Policy Institute Executive Director Adrian Moore explain in "Power Tripped" (see page 32) how early accounts of the electricity "deregulation" cast the situation as yet one more example of the folly of laissez-faire economics. "Capitalism is falling apart," crowed left-wing Los Angeles Times columnist Robert Scheer late last year, barely suppressing his glee. Somehow, goes this line of thinking, the same market forces that manage to pack grocery stores with all manner of food just can't get the job done when it comes to keeping the lights on.

Such critics have gotten it almost completely backward: California's electricity market hasn't been deregulated at all, but re-regulated in a particularly pernicious way. When the state restructured things in the mid-1990s, it fixed retail prices while allowing wholesale prices to approach something like true...