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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Location: Northwest Arkansas, United States

Wednesday, February 16, 2005

More Small-Government Conservatism: Deregulation, Texas-Style

From Mises.Org:

....in the mid-90s, regulators, consumers and energy producers began to rearrange the market for "deregulation" in Texas. Incumbent providers such as TXU and Reliant were restructured in the name of free markets, but when the dust cleared, the only winners were members of the political class and corporations that had been State-sanctioned monopolies prior to the "deregulation."

TXU was separated into two companies, Oncor and TXU Energy. Oncor was given the monopoly on all services including meter reading, energy delivery, etc. Additionally they own all of the poles and wires and are protected by law from competition. TXU Energy became a billing company (and owner of power plants), merely forwarding all of the customer service questions and problems to Oncor, and therefore providing no services themselves.

This is akin to the following: splitting AT&T into two separate companies, one (Nexis) that owns all of the cables, wires, PBXs, switching stations, call centers, etc. and provides all of the services, repairs, installations, etc.; and the other company (Willy) whom simply sends you a bill at the end of the month, providing no value-added service.

Not only is it not deregulation (the same players exist with State protection) but more overhead is created through the creation of another billing company. Instead of paying Nexis, you are now paying Willy who in turn pays Nexis—an unneeded layer of complexity that is inefficient in terms of capital allocation and time for all parties involved....

As of this writing, there are three separate pieces to the energy market in Texas: power plants, services and billing. Power plants are still heavily regulated... (note: both TXU and Reliant Energy own the majority of power plants). In most of Texas all services are provided through a monopoly called Oncor, which was previously named TXU (if they aren't provided by Oncor, services are provided by a municipality which has a monopoly on those services...). Billing is the only area in which competition is allowed, with about a dozen companies vying for an easy dollar—and as shown above, this is an unnecessary and inefficient layer.

As far as pricing goes, if the average market price of natural gas increases 4 percent over a 10-day period, incumbent utilities like TXU and Reliant can request a price increase, all of which have been granted (the commissioners at the Public Utilities Commission have to grant the price increase if this condition is met).

Not surprisingly, the incumbent utilities purchase all of their natural gas via long-term contracts, so short-term market fluctuations over a 10-day period do not affect their bottom line, yet this condition gives them an excuse to increase their prices twice a year (the maximum allowed).
In other words, typical of what passes for "deregulation" under neoliberalism: a nominal shifting of functions from state to corporate bureaucracies, within an overall framework that's more statist than ever. No wonder the ASI considers George W. Bush a hero of "free markets"!

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