Note: This article originally appeared at the Houston Chronicle on July 6, 2012.

Texas' growing population and economy combined with high temperatures produced new June records for peak demand on consecutive days. The 66,000-plus megawatt load strained the Texas electricity grid.

The Public Utility Commission of Texas (PUC) increased wholesale price caps to address concerns that Texas may not have enough generation capacity in reserve to meet peak summer demand.

Investment in new generation has slowed as low prices have caused companies to shy away from Texas. Critics blame the lack of new generation on the market. However, the market is not the problem.

Today's low prices are the result of many factors, such as the low price of natural gas. But there are also many instances where prices are artificially lowered through government interference.

Renewable energy is one example. Between the Texas renewable portfolio standard (RPS) and the federal production tax credit (PTC), wind generators receive more than $20 per megawatt in government subsidies, enabling generators to make a profit even if they give away their electricity for free.

This doesn't make the electricity any cheaper for consumers, who pay for wind energy through higher taxes instead of their electricity bills.

The subsidies also distort the market by pushing overall electricity prices lower. This in turn reduces the revenues that generators need to make investments in new supply. Wind-generated electricity also does little to make up for the reduction in conventional generation.

Renewable energy subsidies help no one beyond investors and workers in that industry. The federal PTC is scheduled to end this year. Though the renewable energy industry is making a strong push to renew it, the PTC should end. Combining this with repeal of the Texas RPS next year would solve a significant part of Texas' resource adequacy problem.

Another external source leading to reduced investment has been various forms of price regulation. As Texas moved into full-scale competition, electricity prices were not directly regulated. But fear of consumer angst over high prices has led regulators to gradually increase regulation of wholesale prices.

This began with claims of market power abuse, based on the theory that there is something wrong with selling electricity at a profit. When this didn't work as planned, a "shame cap" on wholesale prices was introduced, using publicity to shame companies into selling electricity at a loss. This didn't work either, so it eventually morphed into the hard price cap we have today.

The problem with the cap is that it reduces prices at times of peak demand, when electricity is the most expensive to produce. If generators can't sell electricity at a profit at times of peak demand, they won't build generation plants that will supply electricity when we need it most.

The PUC took a good first step in raising the price cap, but should take the next step and eliminate it.

We must also reduce the ability of the PUC to regulate prices through other means, such as spurious claims of market power abuse, its recently enacted power to disgorge revenues, and current proposals to increase its fines and issue emergency cease-and-desist orders.

These regulatory actions are all based on questionable theories about prices in perfect markets that don't exist. Regulators apply them haphazardly in real life and introduce a high level of regulatory risk in Texas markets. It makes perfect sense that investors move billions of dollars in capital from Texas to other states where they can get more predictable returns because of less regulatory uncertainty.

About the turn of the century, California pretended to have a deregulated electricity market, but it was really a poorly designed, government-controlled system that eventually collapsed under its own weight.

Texas' economy is outperforming the rest of the country because we put fewer burdens on markets. This is why Texas has the most competitive and successful electricity market in the United States, if not the world.

If we let it work, the world-class Texas electricity market will power Texas' future.

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