Musings on Economic Freedom from the Texas Public Policy Foundation?s
Center for Economic Freedom
If It Ain't Broke, Don't Fix It
Some people like to tinker with things. And they can be quite handy around the house taking care of all those odd jobs that keep popping up.
However, too many of those tinkerers become government regulators and start trying to fix markets that are already working pretty well. Along the lines of that friend who dismantles your lawn mower trying to fix a little rattle but when he?s done can?t put it back together again.
That?s what is happening with the Texas electricity market. Despite the fact that competition has provided us with more than enough electricity for more than a decade, the tinkerers are insisting that the free market won?t supply enough electricity to keep the lights on and we?ll soon be subject to rolling blackouts.
Their solution to this problem? More government. They want to take apart the competitive electricity market and re-regulate it, turning it into a capacity market that would impose an electricity tax on Texas consumers of about $4 billion a year; the tax would fund subsidies for electricity generators and their bankers.
The truth, however, is that Texas is not running low on electricity. Competition produced enough electricity to withstand the record heat and drought conditions of 2011 and the deep winter weather of this week. It has also produced enough electricity to make prices lower today than when the old regulated market still operated in 2001. This being the case, why would these groups want to re-regulate the Texas electricity market?
Many of the regulators never liked competition in the first place. Others may be more receptive to competition, but the fear of being held responsible for potential blackouts is pushing them back toward what they know best?regulation.
Generators, on the other hand, fully embraced competition when they were making big profits a few years back. But now that the market is more efficient and profits are harder to come by, many of them have chosen to take the easy path to increased profits through government subsidies.
Likewise, a lot of bankers and Wall Street investment firms want to profit by loaning money to generators. With Texas being about the only state in the country where new generation is being built, they like the idea of a capacity market to decrease the risks of their investments.
Finally, back in 2007 a lot of firms invested money in the Texas electricity market betting that high natural gas prices would keep electricity prices and profits high. Of course, natural gas prices went south, taking prices and profits with them. With losses from those 2007 investments piling up, investors would love a new revenue stream from a capacity market to help bail out them out of their poor investments.
Proponents of a capacity market don?t seem to care that capacity markets haven?t increased reliability anywhere else. Nor do they care about the burden that the $4 billion electricity tax will impose on hard working Texas families. Nor do they care that a capacity market would do to the Texas electricity market what the federal government is currently doing to the healthcare market.
But Texans should care. And so should the members of the Texas Legislature, who in 1999 told the Public Utility Commission (PUC) that it should ?authorize or order competitive rather than regulatory methods to achieve the goals ??of the Legislature?s shift to competitive markets.
The Texas electricity market ain?t broke. Texans should join with the Texas Legislature to tell the PUC to stop trying to fix it.
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Vice President of Research
Director, Center for Economic Freedom
Texas Public Policy Foundation