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Taxing Text Messages & Electricity - One Way Texas Is Like California: Unelected Officials Can "Tax"

This article is more than 5 years old.

Texas Public Policy Foundation

As early as Dec. 20, the Public Utility Commission of Texas may vote to increase electricity costs on consumers by up to $4 billion. Meanwhile, in California, that state’s PUC is considering a “tax” on text messages to the tune of $45 million per year and may even apply the “Public Purpose Program” fee retroactively, raising an additional one-time amount for past text messages of $220 million.

Neither the California Public Utility Commission nor its Texas counterpart is run by elected officials; both consist of commissioners appointed by their respective governors: Jerry Brown (D-CA) and Greg Abbott (R-TX).

While the PUCs in America’s two most-populous states are considering moves that will add to consumer costs, voters in both places have little recourse—there’s no one to vote out. And some politicians appear to like this blame-shifting arrangement.

They can stand avoid blame as the PUCs levy fees and taxes, but you can be sure they’ll take credit for the programs.

In California’s case, a Public Goods Charge was applied to electricity and natural gas users in 1996 to fund various programs directed by the legislature. That taxing authority expired in January 2012. Because the legislature couldn’t muster the needed two-thirds vote to extend the tax, Gov. Brown asked the PUC to take administrative action to continue the program by other means. They did so, extending the taxing power of the redistributive welfare state without a vote of the people’s elected representatives.

As a result of this program and others, consumers are charged more for electricity, phone service and other utility services in California, and the government directs the utilities to provide those services at a subsidized rate to specific groups based on income, age, or disability.

In Texas, something similar may happen. Three PUC commissioners could vote to increase electric rates by up to $4 billion at the behest of electricity generators and the wind power industry.

The rationale for the charge—essentially a “tax” on electric rates—is to ensure grid reliability by encouraging the construction of more power plants.

Most of Texas is served by its own electric grid, though parts of the Panhandle, El Paso, and portions of East Texas served by either the Western or Eastern Interconnection. Within the Texas grid there’s a vibrant, competitive market for electricity, in which Texans can choose among dozens of suppliers (the exceptions are areas served by municipal utilities and electric cooperatives).

Of course, liberal consumer activists claimed that Texas residential ratepayers would be the losers when the electric market was largely deregulated in 2002. But they were proven wrong. Electric rates did rise in the first few years after the competitive market was launched, which led directly to investors creating more capacity. More supply then led to lower electric prices, with rates generally remaining well below the U.S. average ever since. Compared to Californians, Texas typically pay about half per kilowatt hour of electricity used.

But a competitive market has its downsides as well. When profit margins get slim, investors are reluctant to build new capacity. As a result, the reserve margin—the amount of spare electric generation capacity—gets thin, potentially resulting in electricity shortages on hot summer days or cold winter nights. The $4 billion is meant to address this reserve margin concern.

This isn’t the first time Texas’ PUC has looked at billions in higher rates to underwrite the construction of new electric generation. But year after year, low reserve margin fears fail to materialize as investors continue to add capacity in Texas—without the surcharges.

But we’re now told that things are different and more urgent. Texas may run short of electricity for real this summer. Why?

Over the years, Texas electric users spent $7 billion to build electric lines in remote areas. These power lines weren’t built to serve local consumers, they were built to bring power from tax-subsidized wind and solar farms to the urban areas. Texas now produces the most wind power in the nation—about five times what California produces. The problem with all of this wind power is that it is cheap, with the low prices (helped along by government subsidies), and it is unreliable.

These two factors, low prices propped up by government policies, and inherent unreliability, have eroded Texas’ grid reliability. The low-cost wind power acts to dissuade investors from putting money into traditional and reliable power plants that mostly use natural gas to spin turbines to make electricity. This suppresses the construction of new, reliable power plants needed to sustain Texas’ growth.

And, because wind power cannot be counted on to provide electricity when it’s needed, the problem is compounded, as Texas’ grid needs to overbuild to compensate for days of high electric demand with little wind.

There is a simple and elegant solution to this problem: We can make renewable generators guarantee dispatchable power as a condition of connecting to the grid.

Wind and solar advocates like to claim that the energy they produce is now less costly than traditional generators powered by natural gas, coal or nuclear. This may be true if we only look at market prices, but not if we include the billions of dollars of taxpayer-funded abatements and subsidies. And the fact that wind and solar are periodic and cannot be relied upon to send power to our homes, businesses, and factories 24/7/365.

Some 300 years ago, most power was from renewable sources. But fossil fuels displaced wind and water mills because of their reliability, scalability, and high energy density.

Rather than force Texas consumers to fix an electricity reliability problem created by cheap, subsidized, yet unreliable wind power with a hidden tax enacted by unelected appointees on the PUC, a better solution would be to ask wind generators foot the bill to fill the gap in reliable power supplies that they themselves created.