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Letter of Concern to Texas Legislature Regarding Bill to Eliminate New Competitive Entry into Texas' Electric Distribution System


April 12, 2019 

Members of the Legislature
State of Texas

Dear Legislator,

I’m writing to express our concerns about companion bills HB 3995 and SB 1938, which would make fundamental, dramatic, anti-market changes in Texas’ electrical infrastructure far beyond what you might have heard, and to urge you to carefully consider the problems with these bills. We appreciate the opportunity to share our thoughts on this important issue. 

The Institute for Policy Innovation (IPI) is a 32 year-old free market policy think tank, based in Irving. In our policy work we emphasize economic growth through free markets, limited government, competition, and technological innovation. IPI does not lobby and does not engage in political activity, but we do analyze legislation and make recommendations, and we hope you will consider our input in this letter. 

Filed very late in the process, HB 3995 and SB 1938 would literally make it illegal for new entrants to competitively bid on new transmission projects in Texas, because it would make new entrants illegal. Making new, competitive entrants illegal is breathtaking in its audacity. For policy makers in Texas who claim to believe in free-markets and competition to make it illegal for a new competitor to enter a market is about as bad as it gets. The bill literally reads: 

“a certificate for a new transmission facility that directly interconnects with an existing electric utility [they all do] may only be granted to the owner of the existing facility.” 

Language like that jumps off the page. This is an astonishing legislative protection for incumbent companies, legislatively shielding them from new competition. It is, frankly, inappropriate for the legislature to take such actions. 

Competition, of course is the key factor that keeps prices to consumers competitive. Even in a regulated market, the capital costs of building new electrical transmission must be recovered through rates paid by consumers. Competitive bidding and a competitive marketplace is crucial to keeping capital costs as low as possible and ensuring that we can continue to build out the growing Texas economy without the price of electricity growing any higher than necessary. 

The genesis of this legislation is, unfortunately, nefarious. It is designed to overturn a competitive bid for a project in East Texas that would save consumers millions of dollars over the lifetime of the project, but which went against the interests of the incumbent provider, who now seeks to not only overturn that competitive bid, but rule out any such inconveniences to their monopoly in the future. 

No legislator who claims to believe in free markets should be able to endorse such an approach.

We hope you’ll heed voices like ours urging you to slow down and carefully consider whether making it illegal for new entrants to enter a market and compete with entrenched incumbent monopolies is the right policy for Texas, a state that prides itself on a dynamic, competitive economy based on free market principles.

We think the effect of this legislation would be very harmful to Texas consumers, and at the very least, the Legislature should consider studying the matter much more carefully before moving legislation that would literally make it impossible for new competition to enter the marketplace. 

We would be happy to answer any questions you might have, and to work constructively with you on this issue. Please feel free to contact  me. 


Tom Giovanetti