Commentary: How Abbott could introduce regulatory agencies to reality

Seldom has a regulatory agency become so thoroughly discredited as the Texas Alcoholic Beverage Commission, with seven high-ranking officials resigning in the last few weeks. Not only were agency officials caught boozing it up with the very industry they were supposed to be regulating, they also got smacked down for the overzealous and baseless prosecution of the state’s largest liquor chain.

Unfortunately, abuse and overreach is to be expected of regulators like the TABC. What’s surprising is that Texas — a state that has embraced a limited-government, free-market approach — still delegates and defers so much power to outdated regulatory agencies.

Most of these agencies were created in the 1930s and still reflect Progressive Era distrust of markets — but maintain faith in the beneficence of technocrats. Though they were created to protect consumers, regulatory agencies are themselves prone to a number of temptations.

CONTINUING COVERAGE: TABC names executive director finalist after spending scandal fallout.

The first temptation is known as “capture,” when agencies become too close to the very industries they were set up to regulate. If you want an example of regulatory capture, you can do no better than the taxpayer dollars the TABC spent attending boozy industry conferences in California, Hawaii and other locales.

Regulators are also tempted to occasionally go trophy-hunting — or prosecuting a company to justify the agency’s existence and expanded budgets. Something like that must have motivated the TABC’s three-year investigation — and threat of a $713 million fine — of Houston-based Spec’s, a family-owned foods and spirits chain. But judges recently tossed out TABC’s entire case against Spec’s. It turned out that the case hinged on wrongly characterizing a single transaction that any accounting major should have understood.

While the TABC is the focus of unwanted attention for its profligacy, the most harmful temptation for regulators is omniscience — and for that we turn to the Public Utilities Commission, which has twice denied bids to purchase Oncor, Texas’ massive electric utility. In 2016, the commission rejected an $18 billion offer from Hunt Consolidated — two years after Oncor’s majority shareholder filed for Chapter 11 protection. This April, the commission rejected an $18.4 billion offer from NextEra Energy that had already been approved by the Obama administration.

When regulators come to believe themselves omniscient, they think they know how an industry or a transaction should work — and they insist that companies bend to their regulatory will. Because, after all, they are important government officials; they wouldn’t have these jobs if they didn’t know best.

But the reason markets work where government often doesn’t is that markets deal in the real world of what is possible, not in the sugar-plum-fairy imaginations of regulators.

The Public Utilities Commission thought Oncor’s new owner should not control Oncor’s board. That’s right: In their delusions, three appointed bureaucrats at the commission imagined that someone should be willing to pony up $18 billion for the company — but should not be able to control it.

The commission’s arrogance has invited chaos. Now, two other parties are bidding for Oncor, albeit at lower prices. What happens if a Berkshire Hathaway or Elliott Management offer is approved where the larger NextEra transaction was rejected? Won’t NextEra have a pretty compelling legal case against the Public Utilities Commission?

LIKE US ON FACEBOOK: Our Viewpoints page brings the latest commentaries to your feed.

All of this would have been avoided if Texas’ regulatory agencies operated consistent with Texas’ free market rhetoric. In a free market, regulators are limited and do not attempt to manage industries or pick winners and losers. Rather, they let markets work. They let transactions take place. They only get involved if there is clear evidence of consumer harm.

Both the TABC and the Public Utilities Commission have significant openings at the commissioner and staff levels, so Gov. Greg Abbott has an opportunity to begin remaking both institutions.

If Texas is to continue to serve as a free market example to the nation, the Texas Legislature needs to drag our regulatory agencies kicking and screaming into the reality of free markets and limited government.

Giovanetti is president of the Institute for Policy Innovation in Dallas.

Reader Comments ...

Next Up in Opinion

Moms are fighting for gun violence prevention in Texas – and winning
Moms are fighting for gun violence prevention in Texas – and winning

Five years ago, I watched news of the Sandy Hook school shooting unfold in horror. When the scope of the tragedy was confirmed, I got up to tell my husband, only to fall to the floor. Although I didn’t know the families impacted by this devastating shooting, as a mom of two young kids, it felt deeply personal to me. Immediately after Sandy Hook...
Facebook comments: Jan. 21, 2018
Facebook comments: Jan. 21, 2018

As reported by the American-Statesman’s Mark D. Wilson and Sebastian Herrera, Amazon announced that Austin made its short list of 20 cities that could become the site of its second headquarters. More than 238 cities in the U.S., Canada and Mexico submitted applications for Amazon’s HQ2. Dallas was the only other Texas city to make the cut...
Herman: Let’s eavesdrop on two Texas Repubs going at it on Twitter
Herman: Let’s eavesdrop on two Texas Repubs going at it on Twitter

Through the miracle (menace?) of Twitter, let’s eavesdrop on a conversation between two of our duly elected state officials. But first, let’s meet our players. State Rep. Jonathan Stickland (known to some as “Sticky”) is a Republican from the Dallas-Fort Worth suburb of Bedford. He’s a keep-government-out-of-our-lives...
Letters to the editor: Jan. 21, 2018
Letters to the editor: Jan. 21, 2018

Re: Jan. 16 commentary, “Herman: Sen. John Cornyn continues to tolerate President Trump.” Sen. Cornyn does more than “tolerate” President Trump. He voted for him, and by remaining silent when the president lies, bullies someone, insults our allies, makes a racist comment, or attacks America’s free press and all the millions...
‘Oliver Loving’ is a vividly rendered exploration of school shootings
‘Oliver Loving’ is a vividly rendered exploration of school shootings

Ten years later, a school shooting in West Texas is revisited from the perspective of a family it changed forever in Stefan Merrill Block’s “Oliver Loving.” What we know, what Eve Loving, her husband, Jed, and their son, Charlie, know, is this: a recent graduate named Hector Espina Jr. returned to the Bliss Township School campus...
More Stories