Under the Texas electric deregulation law, residential consumers consistently have paid more than the national average to light their homes. Texans also pay much more for electricity than residents in neighboring states.

Part of the problem is the cost of wholesale electricity. When big electric companies charge more to run their generators, mom and pop residential electric customers also end up paying more. That residents in Houston and Dallas pay some of the nation’s highest electric bills can be attributed — at least in part — to generation costs in Texas.

So why is a consultant hired by the Texas Public Utility Commission saying the state needs even higher wholesale electricity prices? Most Texans would consider high prices a problem. But the PUC consultant says Texas generation prices aren’t too high — but not high enough.

In the new “2009 State of the Market Report,” consultant Potomac Economics explains that big generation companies need to make even greater profits. As noted in a recent blog post on the Dallas Morning News website, the consultant argues that generators need more money so they have the financial incentive to construct new plants. The consultant concludes that generation revenues appeared to be adequate for this purpose in 2008, but fell short in 2009.

The findings parallel similar conclusions reached by Potomac Economics during previous years — even though big generation companies so far have continued to invest in Texas and even though Texas has faced no generation shortages.  Potomac Economics also has argued circularly in previous years that the reason certain wholesale prices aren’t high enough in Texas is because there already exists an abundance of generation in Texas. That is, the consultant has argued that the market needs to support the creation of more generation capacity — but has been unable to do so because it already has an abundance of generation capacity.

Potomac Economics has endorsed a decidedly non-competitive response to this problem that most Texans would not consider a problem at all. The consultant has said that artificial price supports could be used to ratchet-up wholesale prices during certain periods. If the free market won’t deliver higher prices for generators, then the consultant believes that regulators should do it for them.

Such findings from a company advising the PUC should alarm anyone who pays an electric bill. The cost of wholesale power eventually gets passed on to all residential consumers. Encouraging regulators to artificially inflate prices in order to benefit big generators is not just bad for consumers, but bad for competition.

— R.A. Dyer

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