Clueless in California

Remember Clueless? The film portrayed a bunch of Los Angeles high schoolers who lived such lavish, wasteful lives they gave new meaning to the term "conspicuous consumption".

These days California's bewilderment over its own energy crisis is making the whole state look clueless. The state's Energy Commission reported recently that California was the tenth-largest energy consumer in the world, ranking just behind France, which has close to double the population. So maybe Californians should unplug some of those blow dryers? Or, as Alicia Silverstone, the Clueless heroine would say, "Hel-LOOOO?"

Actually the problem is more complicated than that. California does use a lot of energy, but not more than other states, per capita. This is in part due to the advantage of its temperate climate. A federal report from 1996 by the Energy Information Administration shows California energy consumption per capita to be below the national average. Californians consume a fraction of what Alaskans, who keep the heat on high a good share of the year, do.

Still there is one way that Californians are clueless about energy. They don't have a clue what it really costs. This is not because they are spoiled brats with endlessly deep pockets. Nor is it, pace the conservation lobby, because they haven't seen the Green (environmentalist) Light. It is because the state has a regime of price controls. Authors Peter VanDoren and Jerry Taylor of the Cato Institute point out that, except for short periods, the crucial price signal has been missing or muffled in California for many decades.* Some form of government-set price has obtained since the 1920s, when a modern state-administered system first was put in place.

Californians' greatest power problem, therefore, is not, as most free-market pundits would posit, a shortage of supply, although that also exists. It is that they have never been given a reason to notice or care about their power bills. Small wonder, therefore, that when it comes to energy, half the time they do sound like mindless teenagers. A poll by the Los Angeles Times this winter showed for example that more than half of those Golden State citizens surveyed didn't believe that a power crisis really existed - they thought nasty companies and politicians were making the whole story up.

People holding such views are not likely to see any reason to moderate their demand. Since energy, like most goods, isn't endless and has to be rationed somehow, this means that future price controls, direct or indirect, are inevitable. The world always has a choice between rationing tools, Mr VanDoren reminds: "prices or legal orders". The saddest part of California's crisis, he notes, is that it suggests America has forgotten the damage the latter option - in the form of price controls - did to the economy the last time it was imposed on energy, in the 1970s.

Fixing California's problem, the Cato authors suggest, begins by lifting California's fixed retail price cap. A second step would be to adjust utility bills and household meters, so that consumers would receive more than the average monthly cost estimates they currently get. The goal would be to make the hourly cost of power - and crucially, its variations - accessible and plain to every billpayer. Such a precise, loud signal would give consumers an incentive to move their energy-intensive activities to off-peak periods. Instead of buying energy-saving stoves because it was politically correct, they would have a far more compelling motive: saving cash.

But California's governor Gray Davis shows no sign of backing such market-oriented ideas. In other words, he wants to keep California clueless.

* 'Electricity Deregulation Must Target Demand' (www.cato.org/dailys/01-23-01.html)

© Copyright 2001 Financial Times

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