The upcoming Texas summer may not be as heated as the current debate over electricity prices in the Texas Legislature.
The debate actually started last summer when electricity prices-quite naturally-increased due to high demand, high natural gas prices, and a past-its-prime Price to Beat. Prices eventually began to decline as conditions changed, but not in time to cool the debate at the state Capitol.
Critics of free markets have taken advantage of this to persuade many legislators that today's prices can be blamed on deregulation and greedy corporations. However the facts show a very different picture.
The Texas Public Policy Foundation just released a comprehensive study of the Texas electric market. Dr. Robert J. Michaels, professor of economics at Cal-State Fullerton, concluded that "Texas is competitive electricity's greatest success story in the United States, if not the world."
"Furthermore," wrote Michaels, "competition has brought substantial benefits to Texas in only a few years, both in absolute terms and relative to other states. Innovations planned for 2009 will further improve investment choices and power pricing, and institutions put in place by the Texas Public Utility Commission can sustain competitive markets into the future."
The Foundation determined that despite a more than 200 percent increase in the price of natural gas, the average price of electricity in Texas is only 27 percent higher than the regulated price of 2001. Some consumers can even buy electricity for roughly the same price as 2001.
Additionally, average prices in Texas are lower than in New England and the Mid-Atlantic coast. Rates in Houston and Dallas are comparable to almost every other major city.
These findings go to the heart of the debate over deregulation because many legislators who generally support free markets can't shake the feeling that prices are "just too high." Therefore, they conclude that something must be wrong with the market. The recent accusations of market power abuse by TXU reinforce this notion.
But in the most competitive electric market in the country, prices are not too high because of problems with the market or TXU. They have risen as a result of voluntary agreements between buyers and sellers in the face of significant increases in the price of natural gas, upon which Texas depends heavily for generating electricity.
Unfortunately, this message is not getting though, so the legislature is attempting to "fix" the market.
Most of these fixes run counter to the free market principles that have governed a decade of reforms in Texas. From tort, tax, and budget reforms to deregulation of the telecom and electric markets, Texans have decided that markets are often a better solution to our problems than government intervention. The results have proven this to be the right approach.
Texas' top-ranked tort system has doctors flocking to locales and specialties that not long ago were experiencing critical shortages. Our nationally acclaimed business climate has given us a job growth rate that is twice the national average. We may take all this for granted, but investors and executives looking to do business in Texas do not.
Much more is at stake in the current debate over deregulation than the price of electricity. Undue interference in our electric market would send the wrong message to investors and executives in all industries, putting our sterling reputation and the jobs that go with it in jeopardy.
Fortunately, there are measures compatible with free markets that can be taken to address legitimate concerns about electric competition. We can enhance enforcement and remedies for abuses in the market, press forward with changes scheduled for the market in 2009, and provide assistance for those who cannot afford to pay their bills.
Texans can continue down the road of markets, affordable electricity, and jobs. Or we can go off-road toward government intervention, California-style rolling blackouts and economic stagnation. The route we choose is up to us.
Bill Peacock is Director for the Center for Economic Freedom with the Texas Public Policy Foundation, a non-profit, free-market research institute based in Austin.