DWP FREE MARKET ONLY GOOD IF IT WORKS.

Byline: RICHARD NEMEC Local View

MORE Americans keep tabs on the stock market these days than ever before, noting the ever-changing winners and losers. Markets tend to work that way, and the U.S. economy overall has thrived over the past decade on all of this action.

The U.S. has embraced market-based approaches to basic societal problems. Profit motives have been thought to produce the best results.

Ironically, one of the latest poster children for deregulation, California's electricity industry, is headed in the opposite direction, looking for government to bring order to the chaotic power industry of this summer.

Political pressure and consumer unrest, two usual ingredients needed for government intervention, now permeate the state's electricity industry.

Gov. Gray Davis already has indicated that the issue will be at the top of his priority list in the coming weeks this fall as his administration tries to figure out how to head off longer, deeper problems in the utility sector. The well-being of millions of consumers and billions of dollars are at stake.

With public sector utilities in the state capital and here in Los Angeles serving as major success stories, there is increased appeal to return to cost-based, more closely regulated utilities.

Even neighboring Southern California Edison Co., a prime champion of the state's electricity deregulation law in 1996, thinks the experiment with competition is not working, and we should return to cost-based solutions for an interim period at least.

The advocates for more competition, and hence less regulation, would say be careful what you wish for. I tend to agree with them, but it is hard to ignore the city of L.A. Department of Water and Power's unbridled success in the face of the adversity enveloping the private sector utilities.

The Sacramento-based lobbying association for California's 26-odd local government-run electricity systems, accounting for 25 percent of the state's power, used the advent of national ``Public Power Week'' the first part of October to champion DWP and the Sacramento Municipal Utility District as examples to follow in regaining some control over private sector electricity prices.

The California Municipal Utility Association is advocating a public sector, nonprofit organization to operate the state's entire electrical transmission system, including principally high-voltage wires owned by the three private utilities and the rest by DWP. (A state-chartered nonprofit ``public benefits'' corporation, the California Independent System Operator, currently operates the private utilities' grid, and DWP's system remains separate.)

In San Diego County, where residents and small businesses were slapped with electricity bills that doubled and tripled this summer, the county government and several individual municipalities are looking seriously at the possibility of municipalizing all or parts of San Diego Gas and Electric Co.'s investor-owned distribution system.

Before we go back to the future that far, I would suggest we look at recent history and the economic-political environment leading to California's electric industry restructuring.

It began with electric utility rates that averaged about 50 percent above the national average, threatening to hurt large businesses the most, which in turn would make the state less competitive as a place to do business compared with other major manufacturing states.

Pushed by big business, utilities, state agencies and the state Legislature studied options for opening up retail electricity markets to competition in the wake of growing competitive wholesale power markets. Other states were also examining the possibility - mostly industrialized, high-growth states - but California, with an economy dwarfing most nations, was the first one to move ahead with offering all customers choice.

Over several years, Republican Gov. Pete Wilson's state public utilities commission outlined its vision for, in effect, deregulating the electric industry, but they failed to adequately consult with the Democrat-controlled state Legislature. Trying to bridge this gap were the investor-owned utilities, particularly Edison and its CEO, John Bryson, once the head of the PUC under former Democratic Gov. Jerry Brown.

Then Mother Nature intervened in July/August 1996 when two major power outages in less than a month struck the 12-state Western grid system, hitting particularly hard in parts of California. That was the pretext the state lawmakers needed (aided by Edison and a few other stakeholders).

As a result, what had been studied meticulously over several years was transformed into state law in less than a month. The Legislature, with strong backing from its Democratic leaders and Wilson, unanimously approved sweeping changes in the way we produce, transport and sell the single most important element next to water in our economy.

Billions of dollars have since changed hands. The role of utilities has been redefined. Added layers of regulation and oversight have been added. And this summer it didn't work for myriad reasons.

Investigations are ongoing and many fixes already have been identified and should be pursued. But the ultimate vision of free markets and customer choices for those who want them should be maintained.

I have nothing against DWP; I just don't think we need a statewide version of it.