Those of us who live in Texas (and many other states) have repeatedly been told that the electricity market has been deregulated. While there is an element of truth in this claim, it fails to tell the whole story—the industry remains heavily regulated.
As one example, this past week the Texas Public Utility Commission (PUC) voted to raise the price limits for wholesale electricity. In other words, companies that generate electricity have a legal limit on what they can charge for their product.
In Texas, deregulation consisted primarily of allowing competition in the retail sale of electricity. This has given consumers more choices. But generators of electricity remain shackled. By limiting the profit potential for electricity generators, price caps have discouraged investment to increase production.
In today’s Houston Chronicle, business writer Loren Steffy warns that electricity rates in Texas are going to greatly increase. He also warns that demand within the state is nearing production capacity, which could create shortages and further increase prices. If/when that occurs, we will likely hear new cries that deregulation failed. And it is just as likely that nobody will point out that what we really need to do is unregulate electricity production.
Today, there is little competition in the production of electricity. Removing regulations on producers would attract investment, increase production, and ultimately, drive down prices.