Taxes & Spending

Texas Legislature Shouldn’t Stifle Economic Freedom

Created by a need to preserve freedom through maintaining private control of economic power, America’s free enterprise/market-based economy has endured for over 200 years as our greatest societal asset. It has become the model upon which the world’s strongest economies are based. And, while it has come under attack from time to time by government’s thirst for control, capitalism remains the key component for the future growth and vitality of our economy.

Here in Texas, the legislature is taking steps to that run counter to the principles of economic freedom by interjecting itself into the private purchase of a public utility. TXU, the energy company, has been steadily losing customers in part due to an inability to successfully market its services to customers across the state. Now, with an offer on the table from Kohlberg Kravis Roberts & Company and Texas Pacific Group to buy TXU and divide it into three separate companies, it has the chance to recapture a greater market share by offering lower prices to consumers. The “new TXU” as it’s being called, would not be subject to the whim of Wall Street investors because its owners are private equity investors. As a result, the company can plot a course focused on meeting the needs of its Texas customers and contributing the long term growth economic growth of the state.

What does that mean for Texas? For one, consumers would enjoy lower prices. TXU would cut rates for residential customers by 10% and guarantee no rate increases for one year. Second, TXU would have the flexibility, through private ownership, to make major investments in alternative energy, conservation and efficiency. That is good news for the environment. Finally, a multi-billion dollar private equity investment in a Texas utility would send an unambiguous message to the nation that this is a state committed to the principles of economic freedom.

Today, there is a rush of private equity investment cascading across America. In the past, Texas has been able to benefit from venture capital investors. Between 1970 and 2005, private investment in Texas industries created one million jobs and added $250 billion to the state’s economy. That was even before private equity firms ramped up their level of investment. In 2006, private equity firms bought 654 U.S. companies for a record $375 billion. With all those private money managers looking for places to invest, it is vitally important to the people of Texas that the state maintain its posture of encouraging job creation through economic freedom. If we don’t, if we let the tight reins of government regulators interfere to serve their own agendas, we run the risk of losing out on the economic boom provided by private equity investment..

In his recent remarks to the Texas House Committee on Regulated Industries, KKR co-founder Henry Kravis said, “There will be no new borrowing, not one dollar, at the regulated utility, TXU Electric Delivery, to finance this acquisition.” He went on to say, “There is no basis for utility rates at TXU Electric Delivery to increase as a result of this investment. The PUC will maintain regulatory oversight over TXU Electric Delivery, including complete authority over its rates and service.”

Clearly the investors have thought about how a purchase as large as this one would be viewed in Austin and how it would concern the regulators whose job it is to make sure rates and service are maintained to the benefit of consumers.

What is left to determine? If the TXU transaction is blocked by burdensome legislation it will only be because some lawmakers are afraid of how private investors can run a utility company. But, if they would look back into the recent past they would see that public investment in the utility has failed to live up to the public’s expectations for quality and cost.

The TXU deal offers Texans a wonderful opportunity to benefit from private investment and to show other investors that doing business in Texas makes sense for all — in the ways the framers of the Constitution had planned — to guarantee the free exercise of the inherent rights of the individual through strictly limiting the power of government.


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