There are probably places in the world where competition benefits consumers, leading to improved service and lower prices. Unfortunately, that place ain't Texas, where the only innovation going on is when politicians think up new ways of robbing ordinary folks to prop up corporations.
There was a time when Rick Perry was not governor here, and Texans got their electricity from regulated government utilities. Our bills were lower than the national average, mostly because we generated our power locally under what could charitably be called "minimal oversight." But at least we could afford to keep our houses air-conditioned during the long, pizza-oven summers.
When Perry deregulated electric utilities in 2002, he promised "market forces" and "competition" would lower prices. But it made no sense to require new companies to build new transmission lines, so while the backbone of the grid remained a monopoly, the politicians merely deregulated the reselling of electricity to consumers, in effect adding innumerable useless middlemen.
"We have a system where we have numerous, hundreds maybe, of retail electrical providers who really add no value to this system. By law they can't own wires. They don't own the distribution system, they don't own the meter. By law they can't own any distribution sources. So they are truly an unnecessary intermediary," said Geoffrey Gay, lead counsel to the Texas Coalition for Affordable Power.
As a result of Rick Perry's version of "competition," the invisible hand gave consumers the middle finger. Texas consumers have paid $11 billion more than they would have under the old, regulated monopolies, or $3,000 per Texan over the last decade.
All that money changing hands from consumers to private companies means someone has to pay Uncle Sam, at least theoretically. The companies that own the transmission lines were privatized but remained monopolies. The utilities that owned the lines collected taxes with your bill and sent that money to the U.S. Treasury. Seems fair, right?
Oh, you'd think so. To say that the Texas legislature left a bit of a loophole in the law is like saying Perry's presidential campaign fell a little short of awesome. Ratepayers have to pay the taxes, but if the company that owns the transmission lines doesn't end up owing taxes that year, then they can pocket the money.
And we're talking about a metric ton of money. Oncor is a utility that serves more than three million ratepayers in north, central and west Texas. And since 2008, Oncor has collected $500 million in federal taxes from its ratepayers -- all legally -- and sent it on to its parent company called Energy Future Holdings.
Funny thing is that EFH has hit a rough patch and hasn't paid a dime of federal taxes since at least 2007. In fact, EFH got a tax refund in 2009 and in 2008. What happened with the money they got from Oncor that was supposed to go to the IRS? EFH kept it, and since analysts expect EFH to restructure or to declare bankruptcy soon, that money will never go to the IRS. Again, this is all legal.
This isn't new, and it's not just in Texas. A 2006 New York Times investigation found instances of utilities collected and pocketing phantom taxes in 19 other states and the District of Columbia. In most cases, the utilities also got tax refunds while they were keeping the money they collected from you in taxes, so in effect you paid them twice -- for nothing. They're called "phantom taxes" because they're usually not itemized on your utility bill as taxes and not because that ol' invisible hand is picking your pocket.
The loophole isn't perfect. The Texas Public Utility Commission can force the EFH or any other company in a similar situation to refund some of the money to the ratepayers. But fans of the free market should fear not. The Texas Senate passed a bill on Tuesday (Apr. 24, 2013) that would take that power away from the PUC. I'm sure this has nothing to do with the millions of dollars utilities give to lawmakers' campaigns. That would be cynical.
God bless Texas, and hurry.
This post originally appears on Jason Stanford's blog "Behind Frenemy Lines."