So what's the holdup? California's electricity-generating industry is paralyzed over the question of whether lawmakers will give deregulation another try in 2011. The uncertainty leaves consumers strapped to the policy train tracks. As impossible as it sounds, state lawmakers must choose between completely abandoning deregulation or committing the state to wisely exploiting market forces to solve our energy problems.

The cost of indecision is growing: A recent forecast by the California Energy Commission warns that reserves would shrink even in an optimistic scenario. Unusually hot weather may cause state grid managers to order rolling blackouts in Southern California by next summer, a last-resort conservation measure that will get increasingly likely each year.

Because of the interconnected nature of the power grid, regional shortages could produce blackouts in San Diego County, even though San Diego Gas & Electric Co. has been the most aggressive in securing new power supplies. “We have been very concerned about this as far back as 2003,” says Jim Avery, the utility's chief of electricity operations. “We made a corporate decision that in a power crisis the last thing we wanted was people pointing fingers at us.”

SDG&E recently fired up a new power plant in Escondido, agreed to buy the output of a similar plant in Otay Mesa, and proposed a $1.3 billion high-voltage line to increase imports.

San Diego, however, faces the closure of ancient plants in Chula Vista and Carlsbad that would wipe out recent gains. Owners say they won't upgrade generators without long-term contracts with SDG&E or another state utility. And utilities, abetted by pokey regulators at the Public Utilities Commission, have been slow to sign such deals.

It's the same story all over the state. We are losing ground. Yet nobody is doing much about it.

Various elements of the power industry are hobbled by regulatory inertia, political gridlock and a dysfunctional market structure. Sound familiar? California is stuck in some of the same policy quicksand that caused the $50 billion fiasco of five years ago.

After the market meltdown in 2001, lawmakers suspended parts of deregulation. In legislation that expires in 2011, they ordered the PUC and the state's regulated utilities back into the business of making sure consumers would have enough electricity. The laws have critical flaws; chief among them is their temporary nature, which makes both private generators and regulated utilities afraid that shifting political winds would leave them without customers for their power plants, which cost $500 million apiece to build.

During the recall campaign Schwarzenegger, a pro-business Republican, promised to fix such lingering market problems. To spur investment by private energy firms, he floated a plan in 2004 to allow large commercial customers to shop for power from non-utility suppliers, thus restoring a signature element of deregulation.

But the governor was soundly rejected by Democrats. Assembly Speaker Fabian NÚñez countered with a pro-utility bill that Schwarzenegger promptly vetoed.

The resulting standoff left in place a patchwork of central planning and market forces that give consumers the worst of both worlds – high costs without reliability: Californians pay the nation's highest utility rates, but each summer brings desperate calls for conservation to avert blackouts.

“You have to decide whether you want a market or you don't want a market,” says Frank Wolak, a Stanford economist with a front-row seat to the power crisis as chief of market surveillance for the state's independent manager of the power grid. “Taking this kind of hybrid approach is only hurting consumers.”

Presented with political gridlock, Schwarzenegger sought to enact his policies through the Public Utilities Commission. But the regulators, accustomed to the deliberate, quasi-judicial proceedings of central planning, are doing little better than the lawmakers.

The fatal flaw of California's deregulation was its insistence that utilities buy power on volatile daily or hourly markets. That's like buying an airline ticket on the day you want to travel; tickets are expensive or, if the plane is full, unavailable at any price.

Energy economists warned utilities to lock up supplies years ahead of time. But the PUC refused to give up authority to second-guess contracts long after they were signed. If spot prices fell, consumers got rebates. If prices rose, regulators saddled utility shareholders with paper losses.

The result was predictable. The state's three investor-owned utilities refused to sign contracts, choosing instead to gamble on the volatile spot markets. By the summer of 2000, suppliers learned to strategically turn off their generators, forcing buyers to pay high federal price caps. The power crisis had begun.

By March 2001, a desperate Legislature gave Davis authority to secure vast amounts of power under long-term contracts at fabulously inflated prices. Consumers were left paying $50 billion in higher utility rates. But the contracts sparked a private-industry construction boom that added enough supply for 10 million homes. We've been coasting on that surge of generating capacity since – it's how the state withstood the July heat wave.

But now we're rapidly using up that spare capacity. And given policy uncertainty in Sacramento, no private company will build a plant unless bankers see new long-term contracts from a state utility. Meanwhile, utility executives resist building generators or signing purchase deals until regulators assure them that their customers won't desert them for private suppliers in 2011, when the power crisis-era laws expire.

“Unless the PUC has its boot on your windpipe saying, 'Sign these contracts and modernize your system,' why sign any contracts?” says John Geeseman, an Energy Commission member who has been a vocal critic of lethargy among regulators and utilities. “Five years after the crisis, we really should be in the procurement business instead of continuing to debate abstract market structure.”

Last month there was some movement: Led by PUC President Michael Peevey, regulators ordered Southern California Edison to buy an emergency 250 megawatts (one megawatt will power 750 homes) by next summer, and secure an additional 1,500 megawatts by 2011.

Geeseman says it's not nearly enough: Energy Commission analysts say Edison needs a staggering 7,000 megawatts by 2009. Peevey and Edison executives question the forecast, but agree more power will be needed. Under current rules, utilities must ensure adequate supplies for just one year in advance. Peevey says the PUC will soon begin a long-term procurement proceeding. Analysts say that could take up to two years.