Texas electricity consumers are poised to be hit with a new $4 Billion electricity tax and almost no one even knows it is coming.

Since deregulation of the industry in 2002, electricity in Texas has been sold on the competitive market. This has led to consumer choice and lower rates for most consumers than they would have otherwise paid had the old status quo remained. Rather than being locked into one power provider in their area, most Texans now have an array of providers to choose from. Many choose based on bottom line cost while others consider such factors as length of contract, source of electricity, and a host of other variables. Choice in electricity has been an undeniably good thing for Texas. Our power grid is strong, there is competition in the marketplace, and electric companies are incentivized to provide service at the lowest possible cost.

The Public Utility Commission (PUC) is the state agency charged with regulating utilities in Texas, including power generators. Unfortunately, a majority of the commissioners at the PUC are actively pushing a plan to reregulate the industry by transforming our competitive market into a capacity market. The net effect of this change will be to pay power generators to build new generation capacity in order to have the ability to produce whatever topline amount of electricity the central planners think is necessary regardless of whether that amount will ever be needed or used. So, rather than the market determining whether generators build new facilities, a few regulators in Austin will make that determination

The funding mechanism for this will be a pass-through tax that electricity consumers will pay in the form of higher rates, to the tune of $4 Billion a year. And let me be clear, by $4 Billion I mean $4,000,000,000 paid by people whose household budgets are already marginal at best and simply can’t afford another tax hike. Oh, and that’s $4,000,000,000 annually, not over a ten year period or even a biennium. If I understand correctly, that’s more than the margins tax.

Here at The Arena we are going to focus heavily on this issue over the coming days, weeks, and months to expose the PUC’s sneak attack against Texas taxpayers who have no idea what is coming. There are many angles and layers to this story and we plan to tackle them one at a time for as long as it takes to turn the tide in favor of taxpayers and against the regulatory state. This is a classic story of big government liberals thinking they know what’s best for everyone else but knowing they can only advance their agenda as long as everyone else doesn’t know what they’re up to. Our goal in writing and talking about this issue is to make sure everyone in Texas knows what the regulators are up to and gets an opportunity to speak up in their own defense.

Bill Peacock at the Texas Public Policy Foundation is the state’s leading expert on this issue. Over the past several months he and a few others have written a series of meticulously researched commentaries, blogs, and reports that explain in great detail how electricity markets work, why competitive markets are superior to capacity markets, and what the economic impact of the PUC’s plan will be for our friends and neighbors across Texas. Peacock’s publicly available research is the primary source for much of what we will be discussing in this series. If you want to go deeper in the weeds on this story, I highly recommend you visit the TPPF website and start reading the voluminous body of scholarly work Mr. Peacock has put together on this issue.

Or, if you want to keep it on a level that us regular folk can understand, stay tuned to The Arena and stand by for more as we break down the research into bite size chunks one blog post at a time.

Posted January 22, 2014 by Nathanael Ferguson