Legislative Advertising Paid For by: Julia Rathgeber, Association of Electric Companies of Texas

1005 Congress, Suite 600, Austin, TX 78701 512-474-6725 www.aect.net

2017

Electricity 101

Regional Transmission Operators in North America

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Generation Companies

Transmission & Distribution Utilities

AECT Companies within ERCOT

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Retail Electric Providers

Total ERCOT Capacity:

>77,000 MW

Western Electricity Coordinating Council (WECC)

Midcontinent Independent System Operator (MISO)

Southwest Power Pool (SPP)

AECT COmpanies Outside of ERCOT

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Total ERCOT Capacity:

>77,000 MW

AECT Is Comprised of Investor-Owned Utilities

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AECT does not include Municipally-Owned Utilities or Electric Cooperatives

Service Territories of Utilities Represented by AECT

El Paso Electric Co.

Xcel Energy

AEP SWEPCO

Entergy Texas

CenterPoint Energy

AEP Texas Central Company

AEP Texas North Company

Oncor

Texas-New Mexico Power Co.

Legend

Overview of ERCOT

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ERCOT: By the Numbers

90% of the electric load in Texas is in ERCOT 75% of ERCOTs load is in the competitive

market, including 24 million customers Over 550 generating units, providing 77,000

MW of generating capacity during peak demand

46,500 miles of high-voltage transmission

ERCOT Responsibilities

System reliability planning and operations Wholesale market settlement for electricity

production and delivery Retail switching process for customer choice Open access to transmission

ERCOT region

Steps to Electric Competition in Texas

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Wholesale competition legislation passed (SB 373)

May1995

Jan.2002

Retailcompetition legislationPassed (SB 7)

June 1999

Sept. 1999

ERCOT Electric rates frozen

Jan. 2005

July 2001

Texas Choice pilot program begins

Affiliate REPs allowed to offer non-price-to-beat prices

Retail choice begins in ERCOT

Jan. 2007

End of price-to-beat

Steps to Competition: Wholesale Market

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Senate Bill No. 373 enacted in May 1995

Required utilities to provide non-discriminatory open access transmission to support wholesale competition in ERCOT.

Recognized new, unregulated participants in ERCOT wholesale market.

Exempt wholesale generators

Power marketers

Allowed non-utility wholesale market participants to offer market-based prices in ERCOT.

Deregulated electric cooperative distribution rates.

Note: Non-ERCOT areas are subject to FERC jurisdiction for wholesale services, including transmission services.

Steps to Competition: Retail Market

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ERCOT market restructuring legislation, Senate Bill 7, passed in 1999 Initiated competition in ERCOT retail markets beginning January 2002. Municipally-owned utilities and electric cooperatives allowed to opt-in. Included environmental and energy efficiency provisions.

Required reduction of nitrogen oxide (NOx) emissions from older power plants by 50%, and sulfur dioxide emission from coal-fired facilities by 25%.

Utilities required to fund energy efficiency programs equal to at least 10% of each years annual growth in demand.

1999 - 2001 Preparation for retail competition. Electricity rates frozen. ERCOT develops systems required to support competition. PUC promulgates competition rules. PUC determines rate unbundling cases.

July 2001 Retail competition pilot project begins.

ERCOT: Separate Companies Provide Retail, Transmission & Distribution and Generation Services

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In competitive markets, consumers have multiple retail electric providers (REPs) and service plans to choose from.

Wholesale and retail prices are set by competitive market forces, while the PUC sets transmission and distribution rates.

Power FlowFinancial Flow

Regulated

Outside ERCOT: A Single Utility Provides Retail, Transmission & Distribution and Generation Services In Each Area

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In fully regulated markets, the PUC sets retail rates charged to end-use customers. Each of service area is part of a multi-state electric grid, with differing regulations. In

many cases, vertically integrated utilities purchase wholesale power from certain unregulated entities.

Power FlowFinancial Flow

Regulated

The ERCOT Competitive Retail Electric Market is Providing Customer Benefits

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Key Facts on the Competitive Retail Market in ERCOT

Price offers are substantially lower than prices available just before competition began

Texas national electric price ranking has improved since the market opened in 2002

Every competitive area in ERCOT has variable and 1-year lock offers available that are far lower than the national average price and nearly all state averages

Among states like Texas that depend heavily on natural gas for power generation, Texas prices compare favorably, with even lower prices available to those in the competitive market

Lower Prices Available Today thanBefore Competition Began

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Service Area

Average Fixed-Price Offer

(12-month term, no usage fees/credits)

Lowest Fixed-Price Offer

(12-month term, no usage fees/credits)

Lowest Variable Price

Offer Available

Dec. 2001 prices, not adjusted for

inflation

Dec. 2001 prices, adjusted for inflation

AEP Texas Central

9.4/kWh 5.0/kWh 7.9/kWh 9.6/kWh 12.8/kWh

AEP Texas North

9.4/kWh 5.6/kWh 7.9/kWh 10.0/kWh 13.3/kWh

CenterPoint Energy

8.8/kWh 4.8/kWh 7.8/kWh 10.4/kWh 13.8/kWh

Oncor

8.2/kWh 4.4/kWh 7.0/kWh 9.7/kWh 12.9/kWh

TNMP

8.6/kWh 5.0/kWh 7.8/kWh 10.6/kWh 14.1/kWh

Sources: PUC Historical Data, Bureau of Labor Statistics Inflation Calculator (33.0% inflation since December 2001); www.powertochoose.org offers as of January 2, 2017

January 2017 December 2001

Service Area

Average Fixed-Price Offer

(12-month term, no usage fees/credits)

Lowest Fixed-Price Offer

(12-month term, no usage fees/credits)

Lowest Variable Price Offer Available

Dec. 2001 prices, not adjusted for inflation

Dec. 2001 prices, adjusted for inflation

AEP Texas Central

9.4/kWh

5.0/kWh

7.9/kWh

9.6/kWh

12.8/kWh

AEP Texas North

9.4/kWh

5.6/kWh

7.9/kWh

10.0/kWh

13.3/kWh

CenterPoint Energy

8.8/kWh

4.8/kWh

7.8/kWh

10.4/kWh

13.8/kWh

Oncor

8.2/kWh

4.4/kWh

7.0/kWh

9.7/kWh

12.9/kWh

TNMP

8.6/kWh

5.0/kWh

7.8/kWh

10.6/kWh

14.1/kWh

Texas National Price Ranking HasImproved Since 2001

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0

5

10

15

20

25

30

LA WA AR ID MO TN MS

UT

NE KY ND OR TX OK

GA FL

VA MT

WY

NC

WV CO NV AZ SD IN IA OH SC IL AL N

M KS MN DC CA PA WI

MD NJ

DE MI

ME VT NY

MA RI NH CT AK HI

Sources: EIA average annual residential rates for 2001 and March 2016 monthly data (latest available information); Power to Choose data as of October 3, 2016Note: Average lowest available price is for a residential customer using an average of 1,000 kWh per month; product has no minimum usage fees or usage credits

/kW

h/

kWh

2001 State Ranking (Pre-Competition)

October 2016 State Ranking (Latest Available)

Average lowest 12-month fixed price offer (no fees) in competitive market in October 2016:

5.1/kWh

0

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10

15

20

KY WA ID WV OR TN ND NE

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MS SD CO MN KS MD SC AR GA DC VA WI

LA NC MI

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NM TX NV PA NJ

CT CA AK RI

MA

NH VT ME

NY HI

Electric Price Offers Compared With Other Retail Products

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Sources: Dec 2001 electric rates: Public Utility Commission of Texas; October 2016 electric rates: Power to Choose for 1,000 kWh/usage with no usage fees or credits; Average Residential Electricity: EIA (Dec 2001 and October 2016); All other data: U.S. Bureau of Labor Statistics

Ground Beef 115%

Gallon of Gas 98%

Hourly Legal Services 66%

Dozen Eggs 50%

U.S. Average Residential Electricity 49%

Houston-Galveston Rent 49%

Ground Coffee 48%

Loaf of White Bread 34%

Dallas-Fort Worth Rent 28%

Gallon of Milk 14%

ERCOT Average Lowest Variable Offer -27%

ERCOT Average Lowest 1-Year Fixed Price Offer -49%

Price Change: December 2001 to October 2016

Average 1-Year Fixed Price Offers in ERCOT Are Significantly Lower than the National Average Price

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Sources: PowerToChoose.org offers as of October 3, 2016U.S. Energy Information Administration, latest available data

U.S. Average

RESIDENTIAL RETAIL ELECTRICITY PRICESAll Data from October 2016

Texas Market Compares Favorably to Other States Utilizing Natural Gas as the Primary Generation Source

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0

5

10

15

20

25

AK RI MA NY ME CA NV FL TX MS LA

Sources: EIA average annual residential rates for March 2016 monthly data (latest available information); Power to Choose data as of October 3, 2016

Note: Average lowest available price is for a residential customer using an average of 1,000 kWh per month; product has no minimum usage fees or usage credits

Average Lowest Available 12-Month Fixed Price Offer in ERCOT

Competitive Market (October 2016): 5.1/kWh

RESIDENTIAL PRICE AMONG NAUTRAL-GAS INTENSIVE STATES All data from October 2016

Protections in the Market for Retail Customers

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Make Spanish-language support available to customers Place customer deposits in interest-bearing accounts

and return that interest to customers when the deposit is returned

Follow a mandated timeline for disconnection of customers

Provide notice in case of disconnection Investigate any customer complaint within 21 days Provide a Terms of Service Statement detailing contract

terms, cancellation penalties, deposit requirements, fees, payment arrangement options, how to cancel service, and other obligations of the REP

Allow a customer to cancel a service agreement within three federal business days after receiving the terms of service

Allow a customer to cancel the switch upon receiving notification that the switch will occur

Register with the PUC and meet financial requirements set by the Commission

Communicate clearly with consumers regarding notice of contract expiration

Demonstrate creditworthiness to purchase power to serve its customers

Demonstrate the technical ability to supply electricity Maintain privacy of customer information Not discriminate among customers Not add charges to a customers electric bill for

services not requested by the customer Provide a Your Rights as a Customer disclosure Provide an Electricity Facts Label to allow for an

apples-to-apples comparison among REPs Make deferred payment plans available for those

expressing an inability to pay Provide the LITE-UP discount for low-income Texans

during summer months

Among other requirements, REPs serving residential customers must:

Transmission & Distribution Utilities Provide Reliable Delivery of Electricity

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Role of Transmission & Distribution Utilities

Provide reliable delivery of electricity on a 24-7 basis. Invest in and build infrastructure (e.g., transmission lines, Smart Grid) to support the

needs of Texas growing economy. Manage their transmission networks under the direction of ERCOT; coordinating with

ERCOT on transmission planning activities. Respond to outages (e.g., storms and disasters) that affect the grid and restore service as

quickly as safely possible. Provide key market information, such as premise information and metering services to

facilitate successful operation of the ERCOT deregulated market. Provide regulated transmission and distribution services to facilitate operations of

wholesale and retail business entities.

Charge regulated delivery rates to REPs Rates based on a historical cost of service including a PUC-established return on capital

investment

Allocation of ERCOT-wide transmission costs

Non-bypassable charges include the cost to deliver electricity, System Benefit Fund, recovery of true-up costs and nuclear decommissioning expenses for existing nuclear facilities

Timeline of Transmission Line Construction

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While certain types of generation can be constructed quickly -- often as short as 12-18 months --transmission lines typically take between three and five years. Generation can be brought into the market more rapidly if the siting takes advantage of the existing transmission infrastructure.

Building long transmission lines can affect many landowners, often requiring a lengthy and extensive easement acquisition effort.

The transmission line siting process must take into account the impact of those lines on environmentally sensitive and historically significant lands.

Utility is not typically allowed to begin recovering costs until year 5 or 6.

Transmission Line Routing Process

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1. The utility files an application with the PUC to obtain a Certificate of Convenience and Necessity (CCN), which is assessed by the PUC

Consideration include: the need for service; whether the route uses existing rights-of-way; parallels other rights-of-way; follows property lines; and conforms with the policy of prudent avoidance to limit overall impact of the line

2. Landowners who would be affected by a new line receive notice; landowners can informally file a protest or formally participate in the case as an intervenor

3. An administrative law judge (ALJ) holds a prehearing conference to set a schedule for the case

4. Parties to the case conduct discovery to gather facts on the case

5. An ALJ hearing is held, with cross-examination of witnesses. The ALJ and the PUC will rely on factual information submitted as evidence filed in the docket and presented during discovery

6. The ALJ makes a recommendation to the PUC, which is called a proposal for decision

7. The PUC Commissioners rule on the case and may approve it, modify it, request further action by the ALJ or deny the case. After the PUCs ruling, parties may appeal the decision

Brochure provided to landowners affected by a proposed transmission

line

Continued Transmission & Distribution and Generation Investment Needed Long-Term

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According to the Texas State Data Center, 5 million new residents are expected in Texas by 2020.

New generation must be delivered effectively and efficiently to population centers of the state.

Though not shown here, areas of Texas located outside the ERCOT grid are also growing, both in terms of population and economic development.

Source: ERCOT, Report on Existing and Potential Electric System Constraints and Needs, January 2012 (most recent update)

The Competitive Wholesale Market in ERCOT

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Competition Has Brought Greater Efficiency to the Wholesale Market

Generators shoulder the risk of building new power plants, bringing efficient, cost-effective generation to consumers.

New power plants produce more electricity per unit of fuel.

Operational efficiency of a competitive market helps push wholesale prices downward.

The competitive market will continue to bring forward the right mix of technology and fuel type based on environmental choices by policymakers.

Increased Population Drives Future Electric Consumption

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1980 1990 2000 2010 2020 2030 2040

Sources: U.S. Census, Texas State Data Center 0.5 scenario

Texas Projected Population Growth (millions)1980-2040

28.9 million

25.1 million

37.0 million

32.9 million

20.9 million

17.0 million14.2 million

To meet increases in electric load created

by Texas rapid population and

economic growth, Texas will require additional power,

transmission and distribution,

customer demand response and energy

efficiency.

ERCOT Generation Mix: more natural Gas than U.S. Average

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Note: Oil-fired generation is negligible in ERCOT, accounting for less than 0.1% of ERCOT capacity and load; numbers may not add up to 100% due to rounding.

Sources: ERCOT (2015 data); EIA (2015 data)

Capa

city

(MW

)En

ergy

(MW

h)

ERCOT U.S. Average

Nuclear

Natural Gas

Coal

Non-Hydro Renewables (Mostly Wind)

Hydro

33%

33%

20%

6%1%

Coal

Nuclear

Natural Gas

Other

48%

28%

11%

1%

CoalNatural Gas

Nuclear

Wind

53%

22%

6%

18%1%

Other

Wind

12%

Other (Mostly Petroleum)

7%

Nuclear Natural Gas

Coal

Non-Hydro Renewables (Mostly Wind)

43%

26%

9%

7%6%

Other (Mostly Petroleum)

9%

Hydro

Gas on the Margin in ERCOT Nearly Year-Round

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Nuclear and coal-fired power plants in ERCOT operate approximately 90 percent of the time Some natural gas-fired generation operates at nearly all times to meet demand Peaking natural gas-fired power plants are ramped on and off, depending upon demand Wind-generated electricity is only intermittently available, depending on wind conditions

Typical August Generation

Output in ERCOT

Source: ERCOT

Long-Term Outlook for ERCOT Generation Resources

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Source: ERCOT, Report on the Capacity, Demand and Reserves in the ERCOT Region, December 2016

60000

65000

70000

75000

80000

85000

90000

2017 2018 2019 2020 2021

ERCOT Summer Resources and Firm Load Forecast: 2017-2021

Total Resources

Peak Load ForecastReserve Margin

16.9%

20.2%19.6%

19.5%19.0%

This report does not include retirements of any coal-fired generation in its calculation of reserve

margin

Strong Environmental Performance by Electric Generators in Texas

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Electric Generators in Texas Use Fuel Efficiently and Effectively Capture Emissions

Texas is one of a minority of states with NOx, SO2 and CO2 emissions rates below the national average for electric generation

Texas electric generators have the lowest rate of NOx emissions when compared with neighboring states

New power plants include modern environmental emissions controls.

Maintaining Access to Cooling Water is Important to Continued Generation Reliability

Dependable water supplies are essential to the reliable generation of electricity because most electric generation units require the use of water for system cooling.

AECT member companies represent the largest private owners, builders, and operators of private reservoirs in Texas.

Texas is Among Nationwide Leaders in Low Emissions Rates

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States With NOx, SO2 and CO2 Emissions Rates Below the National Average for Electric Generation

Source: EPA Air Markets Program Data (2014)

How Texas Steam Power Plants Use Water

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The graphic above is a simplified example of a power plants use of water for steam generation.

Most power plants heat water in a closed system until it becomes steam, then pressurize that steam to turn a generating turbine.

The steam is then routed to a condenser, where the water is condensed and reused in the steam cycle.

Turbine Generator TransformerPump

Combustion

Water

Steam

Cooling Water

Condenser

Fuel

ControlsStack

ElectricityFlow of Power

Flow of H2O

Flow of H2O

Tax Impact of AECT Member Companies

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AECT member companies pay and collect significant taxes to

bolster state revenue

The electric industry is a major source of state and local tax revenue in Texas.

In 2015, members of AECT paid $1.8 billion in state and local levies. On average, this cost is over $59,000 per employee.

AECT companies also collected $339 million in sales taxes from end-use customers.

State and Local Taxes Paid or Collected by AECT Member Companies in 2015

TAXES IMPOSED ON AECT COMPANIESState Taxes

Gas, Electric & Water Utility TaxPublic Utilities Gross Receipts AssessmentState Sales & Use Tax (Paid on Company purchases)State Franchise Tax

Local TaxesProperty TaxesLocal Sales & Use Taxes (Paid on Company Purchases)Municipal Franchise Fees

Subtotal, Company Taxes

SALES TAXES ON AECT ELECTRIC SALESState Sales & Use Tax (Collected from Customers)Local Sales & Use Taxes (Collected from Customers)

Subtotal, Customers Taxes

TOTAL, STATE & LOCAL TAXES

Source: Association of Electric Companies of Texas

Millions of Dollars

$203.924.3

163.1148.3

670.736.0

550.6

$1,796.9

233.6105.5

$339.1

$2,136.0

How To Reach Us

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For background on electric markets, environmental data and Electricity 101

Regular updates from AECT and its member companies

Keep up with pictures and links to latest documents released by AECT

AECT.net

@aectnet

AECT Advocacy on Facebook

Electricity 101Regional Transmission Operators in North AmericaAECT Companies within ERCOTAECT COmpanies Outside of ERCOTAECT Is Comprised of Investor-Owned UtilitiesOverview of ERCOTSteps to Electric Competition in TexasSteps to Competition: Wholesale MarketSteps to Competition: Retail MarketERCOT: Separate Companies Provide Retail, Transmission & Distribution and Generation ServicesOutside ERCOT: A Single Utility Provides Retail, Transmission & Distribution and Generation Services In Each AreaThe ERCOT Competitive Retail Electric Market is Providing Customer BenefitsLower Prices Available Today thanBefore Competition BeganTexas National Price Ranking HasImproved Since 2001Electric Price Offers Compared With Other Retail ProductsAverage 1-Year Fixed Price Offers in ERCOT Are Significantly Lower than the National Average Price Texas Market Compares Favorably to Other States Utilizing Natural Gas as the Primary Generation SourceProtections in the Market for Retail CustomersTransmission & Distribution Utilities Provide Reliable Delivery of ElectricityTimeline of Transmission Line ConstructionTransmission Line Routing ProcessContinued Transmission & Distribution and Generation Investment Needed Long-TermThe Competitive Wholesale Market in ERCOTIncreased Population Drives Future Electric ConsumptionERCOT Generation Mix: more natural Gas than U.S. AverageGas on the Margin in ERCOT Nearly Year-RoundLong-Term Outlook for ERCOT Generation ResourcesStrong Environmental Performance by Electric Generators in TexasTexas is Among Nationwide Leaders in Low Emissions RatesHow Texas Steam Power Plants Use WaterTax Impact of AECT Member CompaniesHow To Reach Us