Texas policymakers aren't getting much sleep these days.
What's keeping them up late at night is deregulation in the electric industry. Since Texas began to deregulate the retail electric market in 1999, control over the industry has gradually slipped out of their hands-hard for many to handle when government oversight of the industry has been the norm for decades.
High electricity prices may be the chief cause of their insomnia at the moment. Deregulation promised greater efficiencies and therefore lower electricity prices, everything else being equal. But as we all know, natural gas prices are not equal to what they were in 1999. And prices for electricity have naturally followed them upward.
Now, every time legislators go to the grocery store or to a high school football game, they are besieged by their constituents who want to know what they are going to do lower their electric bills. Of course, legislators turn to regulators back in Austin for the answers.
However, the regulators have concerns of their own. Recent projections show a possible shortfall of electric generation capacity as early as 2008. Since maintaining the reliability of the system is one of their primary responsibilities, this is another situation not conducive to sound sleep.
Ten years ago, this wouldn't have been a problem. Regulators would have simply ordered new generating capacity to be built, and raised electric rates to pay for it.
Today, the system is very different. Retail electric rates will be completely deregulated as of January, and decisions about new generation capacity are now made by private businesses. Thus policymakers lose sleep knowing they must answer their constituents' questions by saying, "I can't do anything. But the market will take care of the problem."
Despite how unsatisfactory this answer may be for some, it is clearly the solution that is in the best interest of Texans.
There is no better illustration of this than the recent experience of California. The centralized planning process that California initiated in the 1970s produced such an inefficient mix of resources and bureaucratized procedures that by 1993 even the staff of its Public Utilities Commission had called for an end to centralized planning and the introduction of competition. Unfortunately, lawmakers couldn't bring themselves to let competition work, resulting in astronomically high prices, rolling blackouts and massive taxpayer subsidies.
Unlike California, the Texas marketplace is free to competitively respond to the recent high prices. Deregulation has resulted in consumers being able to choose from up to 41 different plans offered by as many 18 retail electric providers. And choose they have-over 60 percent of residential electric customers have obviously exercised choice in their electric providers.
The potential for profit from competition has led to proposals for new generation that will raise the reserve margin (the safety margin above peak capacity) from around 17 percent today to over 22 percent in 2011. Competition, and the new supplies it will provide, will lead to the best possible prices and ample capacity, if it is allowed to work.
Unfortunately, there is growing pressure on policymakers to turn back the clock to some form of rate regulation. Additionally, some big city mayors and environmental extremists want to halt or vastly increase the costs of newly proposed coal-fired electric plants.
As we hear these cries for increased regulation, we must remember that the sky is not falling. Neither is it getting dirtier-in fact, it is getting cleaner every year. We must also remember that economic growth and job creation are dependent on reliable supplies of electricity.
Year-to-date employment growth in Texas is 2.7 percent-more than twice the national average, accounting for an increase of 177,300 jobs. Site Selection Magazine, which has recognized Texas for the most business relocations the last two years, points out that fast growth-job markets and innovative strategies by electric providers are key components to these relocations.
Increased regulation will threaten innovation, investment and the reliability of our electric supplies, harming our ability to bring new employers to Texas and maintain our strong job creation rate.
While being a public official is a difficult job, Texas consumers are the ones who should be having a hard time getting to sleep at night as they think about an Austin-led meltdown of electricity generation and the economy, California-style.
Some things are just too important to be entrusted to government.
Bill Peacock is the director for the Center for Economic Freedom with the Texas Public Policy Foundation, an Austin-based research institute.