Deregulation deja vu

California deregulated its electricity industry in 1998, and shortly afterward the lights went out. Apparently, regulators hadn't realized how easy it would be for unscrupulous traders such as Enron to manipulate the state's power market once it was open to competition; the results were rolling blackouts and skyrocketing electricity charges. Californians are still paying the price for all this -- in many areas, power bills are inflated with extra fees to cover bonds and other expenses incurred during the disastrous experiment.

We bring up this painful history because the state is about to embark on a new program that will radically impact utility regulation. This time, it's being driven by an environmental imperative: With the effects of global warming becoming more apparent daily, the state has committed to cut its greenhouse gases 25% by 2020, and electricity generation is the state's second-biggest source of greenhouse emissions after the transportation sector. To spur the needed changes, regulators are designing a cap-and-trade program, in which carbon emissions are capped and power generators can trade carbon credits -- permits to pollute -- among themselves. This is a staggeringly complex undertaking that will once again create opportunities for dishonest traders to manipulate the market.

In other words, unless the cap-and-trade program is designed extraordinarily well, we could be looking at deregulation deja vu. And the consequences won't just be higher power bills. If California, which leads the country in addressing the threat of global warming, gets this program wrong, it could discredit efforts to fight the problem nationwide, if not worldwide.

This page has addressed the many dangers inherent in cap-and-trade programs (see the "A Warming World" series at latimes.com/news/opinion). To sum up: Carbon-trading markets are easy to manipulate and produce volatile energy prices, and the political influence of business and other lobbies can skew the system to produce unfair outcomes. On top of all that, California faces a special complication that would make its program the riskiest ever undertaken.