The economic rewards of this approach proved to be enormous, but they also came at a cost. This cost was paid most dearly in the state of California, where electricity deregulation ushered in a statewide economic disaster.
Darrell Antrich would end up getting engulfed by this disaster. Years later, he found himself being deposed by federal investigators and accused of orchestrating illegal market manipulation from Koch’s trading floor. This would have been surprising to the people who worked with Antrich every day. Everything about Antrich was straight-arrow. He graduated from Texas A&M in 1992, and he embodied the midwestern work ethic so prized at Koch. He was known as a conservative family man, a guy who might go out socially but wouldn’t close down the bar. He was quiet, reserved, and had the analytical mind of a well-trained accountant. He worked for the accounting firm Ernst & Young for a year before being hired by Koch in a midoffice support job helping traders, and was later promoted through the ranks.
To understand what went wrong, it is important to understand the political process, which Koch heavily influenced, to deregulate the energy markets of California. The giant state was a gold rush for electricity traders, and the ensuing calamity there was a microcosm of America’s political economy of the 2000s. The policy process to set the rules, while open to the public, was largely ignored and driven by lobbyists and special interest groups like ALEC. The mind-numbingly complex system that resulted was then gamed and manipulated by a tiny group of traders who understood the rules of the game better than anyone else. When the bottom fell out, these traders and the general public blamed the state of California, which scrambled to stanch the bleeding with taxpayer money and bailouts. All the lessons of the 2000s were there in California, early in the decade, and they were ignored.
One man who couldn’t ignore the lessons, because they destroyed his career, was the public official who was later credited with being the author of California’s deregulation plan. Oddly enough, he was a liberal Democrat, and a moviemaker, no less. His name was J. Stephen Peace, and he worked in the state capital of Sacramento.
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It is significant that the disaster began in Sacramento. One reason the chaos originated there is that almost nobody paid attention to what happened in Sacramento. The world’s attention was focused on other parts of California—Hollywood, the world’s entertainment capital, and Silicon Valley, the world’s technology capital. Sacramento, by contrast, wasn’t the capital of anything, other than California’s state government.
While the power outages and economic crisis in late 2000 would draw worldwide attention when they unfolded, very little attention was being paid in 1996, when the state dismantled and rebuilt its electricity industry.
That isn’t to say that Stephen Peace didn’t try. He did his best to draw a crowd, and had the flair of a natural showman. He was tall and slender and looked a lot like the actor Jack Nicholson, with a wide forehead and thick, sharp eyebrows that amplified his facial expressions. His parents were both schoolteachers, and Peace said his family’s motto was “It’s better to be a smartass than a dumbass,” a piece of wisdom that he employed in public hearings. When he disagreed with someone’s opinion, he was quick to call it out as “happy horseshit.”
Peace was put in charge of the effort because he was head of the State Senate’s energy committee. He was an unlikely champion of deregulation, being both a Democrat and a skeptic of free markets. But the momentum to deregulate California’s markets was unstoppable, and Peace thought he could shape the effort for the better. He was known in Sacramento as a lawmaker who relished in the challenge of dealing with profoundly complicated issues.
Steve Peace had the storyteller’s gift. Like a lot of kids who grew up in Southern California, Peace had fallen in love at a young age with the business of moviemaking. When he was in his twenties, Peace and two of his high school buddies came up with an idea for a campy humor film called Attack of the Killer Tomatoes! Peace produced the movie, cowrote it, and starred in it. He was only twenty-five years old when the film was released in 1978. It became a cult sensation and made him moderately wealthy. The success of Killer Tomatoes! was puzzling to almost everybody. The movie didn’t even have many killer tomatoes in it. But everything about it—from the clumsy jokes to the wooden acting—was painfully low-budget. Many people might have enjoyed it simply because it was so bad.
It only became apparent years later that Attack of the Killer Tomatoes! was prophetic in important ways. The movie captured the spirit of the age, and it documented the kind of political struggles that would eventually ruin Peace’s political career. At its core, the movie is about government incompetence and institutional decay. The tomatoes make only a few cameo appearances as they attack Californians enjoying the fruits of American middle-class life. What’s more important is the fact that the tomatoes were unleashed by incompetent government scientists working at a top-secret USDA test plot, who accidentally create a strain of lethal fruit.II
The tomatoes kill civilians and attack cities across the nation. But the president just sits at his desk and signs blank pieces of paper. The Senate holds hearings but does nothing. The army sends in soldiers, and they end up sitting in offices, arguing, and looking at maps on the wall as the country is destroyed state by state (“There goes Arkansas!” one soldier declares). The only effective institution in the movie was the public relations industry, which bombarded Americans with the idea that the tomato attack was a blessing.
Peace had a feature role in the film. He played a mentally unbalanced commando who doesn’t seem to realize that World War II is over. He runs around most of the time dragging a deployed parachute on the ground behind him. If Peace was cynical about American politics, he wasn’t without hope. His stepfather was heavily involved with local Democratic politics, and Peace became intrigued with the political process. He got a job as a legislative staffer and saw the process of lawmaking up close. When he was twenty-nine years old, he decided that he would run for a seat in the California State Assembly. He won the seat, and over the next decade, he won the confidence of his fellow legislators. One of the first things that anybody seemed to mention about Steve Peace was that he’d starred in the tomato movie. It was an invitation not to take him seriously. But his coworkers soon discovered that Peace had a real interest and aptitude in taking on the most intractable issues. There were whole continents of public policy where even the most hardened lawmakers didn’t dare to tread, areas that were so tedious and so complicated and so lacking in public exposure that they promised to swallow public-service careers whole. Regulating public utilities was one of these areas. Just the phrase “regulating public utilities” was enough to make a citizen change the channel or skip to the next news article. It was one of those ironic facts of America life: very few issues affected people more deeply than providing them with electricity, but very few issues drew less public interest.
For whatever reason, Steve Peace was profoundly interested in the topic. He learned the issue from top to bottom and from inside to out. If caught in the hallways of the state capitol, Peace could immediately be drawn into a heated and hours-long conversation about California’s utilities companies and regulatory structure. Because of this knowledge and interest, Peace was given more committee assignments and more responsibilities. He won a race to become a state senator, and became a leading authority on electricity and utilities.