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Musings on Economic Freedom from the Texas Public Policy Foundation’s
| by Bill Peacock |
| A newly released study suggests that policymakers’ fears of being held responsible for power outages lead to higher costs for consumers.
The study found that policymakers usually desire a higher level of reliability than is “economically optimal,” so they set capacity reliability standards for electricity markets above the level that best balances the costs of outages with consumer prices.
The higher standard means higher prices.
Although the study’s author, the Brattle Group, doesn’t explicitly blame higher prices on the fears of policymakers, this is clearly the phenomenon at work in the Texas debate over shifting to what’s called a “capacity market.”
Back in 2012, two reports projecting future supplies of electricity below Texas’ reliability standard (a smaller reserve margin) triggered a panic among Texas policymakers.
Ignoring the obvious flaws in the reports, Texas’ Public Utility Commission began a push for a $3.2 billion electricity tax on Texas consumers to subsidize generators and, at least in theory, increase capacity (a higher reserve margin).
Perhaps the panic stemmed from policymakers’ fears of not wanting to be in charge when the lights went out. In any case, the fear of blackouts led to support for a system that actually makes outages more likely to occur.
As we know from experiences outside Texas, capacity markets are less efficient and less reliable than competitive markets. So while blackouts become more likely, the centralized nature of capacity markets may give policymakers the illusion of control.
The result is that while policymakers feel more confidant, consumers wind up paying more for a less-reliable system.
This commentary originally appeared in this weekend’s Ft. Worth Star-Telegram.
Texas prides itself on being the living model of American entrepreneurship. Our commitment to economic freedom and low taxes—to say nothing of our rugged individualism—all work to ensure that Texas remains a place where job creators are forged.
Yet, despite the high value Texans see in free enterprise, too often we join the rest of the country in using a parade of ill-conceived regulations to penalize children who experiment with opening a business.
For example, a couple of years ago officials ticketed the grandmother of a brother and sister in McAllen, Texas, who were selling lemonade without a permit. Both kids had planned on using the money to buy food for their pet crab.
This commentary originally appeared in Austin America-Statesman.
Conservative talk show host Sean Hannity is considering moving to Texas in order to escape the big government, high-tax mentality of New York policymakers.
Before he makes a decision, however, he ought to look a little closer at the effort to re-regulate Texas’ world class, competitive electricity market and impose a $3.2 billion electricity tax on Texas consumers.
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Bill
Bill Peacock
Vice President of Research
Director, Center for Economic Freedom
Texas Public Policy Foundation
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