aect electricity101

Electricity 101:

Operations and Recent Statistics

November 2009

Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc.1005 Congress, Suite 600 • Austin, TX 78701 • phone 512-474-6725 • fax 512-474-9670 • www.aect.net

2

AECT Principles

• AECT is an advocacy group composed of member companies committed to:

- Ensuring a modern, reliable infrastructure for the supply & delivery of electricity.

- Supporting efficient competitive markets that are fair to customers and market participants.

- Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas’ electric industry.

- Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources.

• AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity.

The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investor-owned electric companies in Texas. Organized in 1978, AECT provides a forum for membercompany representatives to exchange information about public policy, and to communicate withgovernment officials and the public. For more information, visit www.aect.net.

3

U.S. Divided into Eight

Reliability Regions

• Electric systems in Texas are located within four separate reliability regions: - Texas Regional Entity (TRE), which oversees participants in the Electric Reliability Council of Texas (ERCOT) (green shading); - SERC Reliability Corporation; - Southwest Power Pool (SPP); and - Western Electricity Coordinating Council (WECC).

• The eight reliability regions in thecontinental U.S. are subject to theoversight and enforcement authority ofthe North American Electric ReliabilityCorporation (NERC), which is subject tothe Federal Energy RegulatoryCommission’s (FERC) oversight. NERCis responsible for developing standardsto ensure and improve reliability fordelivery of electricity on the bulk powersystem.

FERC

NERC

(ERCOT)

4

AECT Member Companies

Within ERCOT

Generation Companies

Transmission and Distribution Utilities

Retail Electric Providers

5

AECT Companies

Outside of ERCOT

Western Electricity CoordinatingCouncil (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

6

Slide 7: AECT Member Companies

Slide 24: Electric Market Structures in Texas

Slide 37: Texas’ Wholesale Electric Markets

Slide 47: ERCOT Generation Mix

Slide 53: Types of Generation: Benefits andChallenges

Slide 64: Emissions and the Environment

Slide 76: Transmission and Distribution Utilities

Slide 84: Energy Efficiency

Slide 91: Competitive Retail Electric Market inERCOT

Contents

7

AECT Member Companies

8

AEP SWEPCOVertically Integrated Utility

Southwestern Electric Power Company,headquartered in Shreveport, LA,serves 460,000 customers in EastTexas and the Texas Panhandle,Northwest Louisiana, and the westernedge of Arkansas. SWEPCO has beenproviding low-cost, reliable electricity tocustomers since 1912. SWEPCO is avertically integrated company operatingas a member of the Southwest PowerPool.

9

AEP TexasTransmission & Distribution Utility

AEP Texas is connected to and servesmore than 900,000 electric consumersin the deregulated Texas marketplace.As an energy delivery company, AEPTexas delivers electricity safely andreliably to homes, businesses andindustry across its nearly 100,000square mile service territory in southand west Texas.

10

CenterPoint EnergyTransmission & Distribution Utility

CenterPoint Energy maintains the wires,poles and electric infrastructuredelivering service to more than 2 millionconsumers in its 5,000-square-mileelectric service territory in the Houstonmetropolitan area. While CenterPointEnergy employees ensure the reliabledelivery of electricity from power plantsto homes and businesses, the companyneither generates power nor sells it toretail customers.

11

Direct EnergyRetail Electric Provider

Direct Energy is part of the Centricagroup of companies, one of the largestmulti-state providers of retail energyservices in North America. The NorthAmerican operations have grown tomore than 5 million residential andcommercial customer relationships.Through its Direct Energy, CPL RetailEnergy and WTU Retail Energy brands,the company is the third largest retailenergy provider in Texas.

Competitive Areas of Texas

12

El Paso Electric CompanyVertically Integrated Utility

El Paso Electric is a vertically integratedutility serving approximately 357,000customers in the Rio Grande Valley inwest Texas and southern New Mexico.El Paso Electric is an operating memberof the Western Electricity CoordinatingCouncil.

13

Entergy TexasVertically Integrated Utility

The Entergy Texas service area startsat the southeast Texas/Louisiana borderand stretches up into the piney woodsof east Texas, down to the Gulf ofMexico and across to the lake countrynorth of Houston. Entergy Texas servesapproximately 385,000 customers in 26counties.

14

Exelon GenerationElectric Generation Company

Exelon Generation owns and controls about33,000 megawatts of electricity generationcapacity from a diverse portfolio that includesthe nation’s largest fleet of nuclear powerplants. The company maintains strongpositions in the Midwest and Mid-Atlanticregions. In Texas, it owns or controls about3,700 megawatts of natural gas-firedgeneration, with plants in Dallas, Fort Worthand LaPorte. Exelon has also announcedplans to submit a combined Construction andOperating License application for the possibleconstruction of a nuclear power plant inVictoria County.

15

First Choice PowerRetail Electric Provider

First Choice Power began servingcustomers as a retail electric provideracross Texas on Jan. 1, 2002, whenderegulation of the electric industry wasintroduced in Texas. First Choice Poweris one of the largest retail electricproviders in the state. It is led by amanagement team with experience inthe deregulated markets in Texas andthroughout the nation.


16

LuminantElectric Generation Company

Luminant is a competitive powergeneration business, including mining,wholesale marketing and trading,construction and development. It hasover 18,300 MW of generation in Texas,including 2,300 MW of nuclear and5,800 MW of coal-fueled generationcapacity, and is the largest purchaser ofwind-generated electricity in Texas andfifth largest in the U.S.

17

NRG EnergyElectric Generation Company

NRG Texas is the second largestelectrical generator in Texas with morethan 1,100 professional employeesoperating a diverse generation portfolioof almost 11,000 megawatts of power.NRG Texas also has an extensiverepowering program including a newcombined cycle gas plant at the CedarBayou plant east of Houston, a coal unitat Limestone; two wind projects in WestTexas and the first new nuclear unitsproposed for the United States in morethan 29 years.

18

OncorTransmission & Distribution Utility

Oncor is a regulated electric distributionand transmission business that deliversreliable electricity to consumers. Oncoroperates the largest distribution andtransmission system in Texas, providingpower to more than 3 million electricdelivery points over more than 115,000miles of transmission and distributionlines.

19

Optim EnergyElectric Generation Company

Optim Energy is a joint venture of PNMResources and Cascade Investment,L.L.C. It provides wholesale generationand marketing and trading services inthe ERCOT region. The company ownstwo generation assets, both in Texas,representing 920 megawatts. Inaddition, the company and NRG arejointly developing a 550-megwattcombined cycle natural gas unit nearHouston.

20

Reliant EnergyRetail Electric Provider

Reliant Energy, Inc., based in Houston,Texas, provides electricity and energy-related products to more than 1.8 millionretail and wholesale customers in Texasand in the Mid-Atlantic Region. As oneof the largest electricity providers inTexas, Reliant works hard to provide itscustomers with competitive electricprices, innovative products andunmatched customer service for theirhomes and businesses.


21

Texas-New Mexico Power Co.Transmission & Distribution Utility

Currently, TNMP provides electricservice to 76 cities and more than226,000 customers throughout Texas.TNMP is owned by PNM Resources, anenergy holding company based inAlbuquerque, New Mexico.

22

TXU EnergyRetail Electric Provider

TXU Energy is a market-leadingcompetitive retailer that provideselectricity and related services to morethan 2 million electricity customers inTexas. TXU Energy offers a variety ofinnovative products and solutions,including 24/7 customer service,competitively priced service plans,energy efficiency options and renewableenergy programs.


23

Xcel EnergyVertically Integrated Utility

Xcel Energy owns Southwestern PublicService Company, a regional electricutility that provides retail and wholesaleservice to about 1 million persons in a45,000 square-mile area comprised ofthe South Plains and Panhandle ofTexas, and eastern New Mexico.

24

Electric Market Structures in Texas

25

Pre-1975• Cities regulated electric utility service and rates.• Generally, a declining cost industry – rate applications most often filed to decrease rates.

1975• Inflation, construction costs and fuel costs drive electricity rates up.• 64th Texas Legislature enacts Public Utility Regulatory Act (PURA) to implement state regulation of

electric utility service and rates (Cities permitted to retain original jurisdiction).– Service area, transmission line and generating plant certification.– Rate regulation (based on cost of service plus reasonable return on investment).– Rates based on historical test year costs and original costs of infrastructure, less depreciation.– Service quality regulation.– Customer protection.

History of Electric Utility

Regulation in Texas

26

1976-1995

• 1978 U.S. Fuel Use Act required utilities to discontinue use of natural gas and encouraged the use ofcoal and nuclear for fuel.

• Inflation, volatile fuel costs and the need to add new generating capacity continue to increaseelectricity rates.

• Rate proceedings at PUC become increasingly adversarial.– Consumer groups concerned about frequency and amount of rate increases.– Utilities concerned about increasingly large PUC cost disallowances that are at odds with the

regulatory compact and erode rates of return.

• Large customers tire of subsidizing other ratepayers seek opportunities to by-pass regulated rates andobtain choice of suppliers.

– Cogeneration/self-generation.

– Advocate wholesale competition and transmission open access.

– Advocate “retail wheeling”.• Natural gas was favored again when the 1978 U.S. Fuel Use Act was repealed in the 1990s.

History of Electric Utility

Regulation in Texas

27

Wholesalecompetitionlegislationpassed (SB 373)

May1995

Jan.2002

RetailcompetitionlegislationPassed (SB 7)

June1999

Sept.1999

ERCOTElectricratesfrozen

Jan.2005

July2001

TexasChoicepilotprogrambegins

AffiliateREPsallowed tooffer non-price-to-beatprices

Steps to Electric Competition

In Texas

Retailchoicebegins inERCOT

Jan.2007

End ofprice-to-beat

28

Wholesale and Retail Electric

Competition Were Passed

With Broad, Bipartisan Support

• Senate Bill 373, which opened the wholesale electricity market in Texas,passed in 1995 when the Democrats were the majority party in theHouse and Senate.– The Speaker of the House and the Lieutenant Governor were both

Democrats, and the bill sponsors and authors were both Democrats.

• Senate Bill 7, which opened the competitive market, passed in 1999.– The Senate and the Lieutenant Governor were Republican, but the House

was still majority Democrat. The House sponsor and author of the bill and theHouse Speaker in 1999 were both Democrats.

– Senate Bill 7 passed the House with a vote of 144 Ayes and 4 Nays.

• It was a bipartisan measure: 74 of the Aye votes were from Democrats,while 68 were from Republicans.– The bill passed the Senate with a vote of 28 Ayes and 3 nays.

29

• 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-basedprices in ERCOT.

– Deregulated electric cooperative distribution rates.

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

Steps to Competition:

Wholesale Competition

30

• ERCOT market restructuring legislation, Senate Bill 7, passed in1999– 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 by50%, and sulfur dioxide emission from coal-fired facilities by 25%.

• Utilities required to fund energy efficiency programs equal to at least 10% of eachyear’s 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.


Retail Competition

31


Transition Period

• January 2002-2006 Transition Period– “Affiliated” generators

• Required to make 15% of their power available to non-affiliated retail providers• During first two years, limited to guaranteed market price for power as projected by

PUC• Given incentives to install environmental clean-up equipment

– Transmission and Distribution Utilities• Initial rates set using estimated/generic costs• Recovery of stranded and other transition costs authorized but delayed until 2004

True-up proceeding– Securitization bonds lower cost to customers

– “Affiliated” retail electric providers• Required to lower base rates by six percent (Price to Beat)

– Adjustable only for increases in natural gas prices– Price to Beat remains in place until 12-31-06

• No price competition allowed in former service area until 2005

32

• Incumbents required to separate business activities into the followingunits.– Power generation company.– Retail electric provider.– Transmission and distribution utility.

• Generation and retail businesses are not regulated utilities.– Power Generation Companies must be registered with PUC.– Retail Electric Providers must be certified by PUC.

• Transmission and distribution businesses remain regulated utilities.

• Methods for separation of business activities.– Creation of separate non-affiliated companies.– Creation of separate affiliated companies owned by a common holding

company.– Sale of assets to a third party.

• Each ERCOT utility chose different models.

• Code of conduct rules enforce separation requirements.

Structural Unbundling

33

ERCOT: Separate companies provide

retail, transmission & distribution and

generation services

• 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 thePUC sets transmission and distribution rates.

Power FlowFinancial Flow

Regulated

34

ERCOT: Separate companies provide

retail, transmission & distribution and

generation services

• Because wholesale electric prices are set by the competitive market, therisks associated with the cost of construction, operations and maintenanceof a generation plant are borne entirely by the generator and its investors,not by end-use customers.


Regulated

35

Outside ERCOT: A single company

provides retail, transmission & distribution

and generation services in each area

• In fully regulated markets, the PUC sets retail rates charged to end-usecustomers.

• Each of these service areas is part of multi-state electric grids, withdiffering regulations. In many cases, vertically integrated utilities purchasewholesale power from certain unregulated entities.


Regulated

36

• New power plants in these regions can be built by both regulated entitiesand certain unregulated entities or qualifying facilities.

• Regulated utility power plants, however, must be approved by the PUCafter a rigorous review of need and siting.

Outside ERCOT: A single company

provides retail, transmission & distribution

and generation services in each area


Regulated

37

Texas’ Wholesale

Electric Markets

38

The Competitive Wholesale Market: A

Success Story

Competition has brought greater efficiencyto 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.– New power plants include modern environmental emissions controls.

The competitive market is in the public interest– Operational efficiency of a competitive market helps push wholesale prices

downward.– No market structure is more effective at ensuring efficient operations than a

competitive one.

Policy decisions should be focused onmaintaining vibrant competition

– Texas leaders should support policies that maintain the competitive market.– The competitive market will bring forward the right mix of technology and fuel

type based on environmental choices by policymakers.

39

Permitted and Operating ElectricGenerating Units in Texas

40

ERCOT Wholesale

Market Management

• System Reliability– ERCOT oversees system reliability.– ERCOT is part of national reliability council.– ERCOT protocols, approved by PUC, mandate system reliability standards that all

market participants must follow.

• Statute and Rules Address “Market Power” and Generation Merger Issues– Independent Market Monitor oversees wholesale market operations.– Generating capacity owned and controlled by a Power Generation Company limited to

20% of installed generating capacity capable of delivering power to a power region.– Administrative penalties for market power abuse were reviewed and updated during the

79th Regular Session.– Mergers of Power Generation Companies subject to PUC review.

• Market Design– ERCOT will transition to a Nodal Market in 2009 as a result of PUC rulemaking.– The change is expected to bring cost-savings and additional efficiency to the market by

enhancing market transparency and allocating costs more accurately to marketparticipants.

41

Wholesale Market

Management Outside ERCOT

• System Reliability– Larger, multi-state Councils (SERC, SPP, WECC) oversee system reliability.– Each is part of national reliability council.– Protocols, approved by the Federal Energy Regulatory Commission (FERC), mandate

system reliability standards that all market participants must follow.

• Wholesale market operations overseen by FERC

42

Increased Population Drives

Future Electric Consumption

Source: Texas State Data Center

Texas’ Projected Population GrowthAssuming Net Migration Equal to 2000-2004

(median scenario)

30.3 million

25.1 million

43.6 million

2010 2020 2030 2040

•To meet increases in electricload created by Texas’ rapidpopulation and economicgrowth, Texas will requireadditional power, transmissionand distribution, customerdemand response and energyefficiency.

36.3 million

43

Electric Demand Continues to

Grow in ERCOT

Source: ERCOT, “Report on Existing and PotentialElectric System Constraints and Needs,” December2008

Note: The peak in electric consumption in 2000 wasdue to an exceptionally hot summer.

44

ERCOT Restructuring Spurred

Massive Generation Investment

Generation Investment in ERCOT: Before and After Wholesale Competition

45

Update on ERCOT Reserve Margins

Source: ERCOT, “Report on Existing and Potential Electric System Constraints and Needs,” December 2008

46

ERCOT Long-Term Projections ShowSubstantial Investment Still Needed

Source: ERCOT, “Report on the Capacity, Demand and Reserves in the ERCOT Region,” May 2008

47

ERCOT Generation Mix

48


• The generation technology mix is an outcome of a robust competitive wholesalemarket and environmental policy decisions.

• In addition to the price of fuels and the cost of technology, environmental and sitingissues impact choices made by generation developers.

• Coal, including lignite, is an important fuel in the ERCOT electric generation mix.

– Coal is the most abundant fossil fuel in the United States, with an estimated200 year supply remaining (per the Energy Information Administration (EIA)).

– Electricity produced from Texas lignite exceeds the entire generation of 28states individually.

• Texas lignite accounts for about 45% of the coal used in the state for electricity.• Texas’ lignite mining industry is a key part of the state economy, providing over

33,000 permanent jobs and contributing about $10.5 billion in annual TotalExpenditures.

• The existing framework of Texas’ competitive wholesale electric market has helpedlead generators to invest in and announce plans for over 27,000 MW of newgeneration, including natural gas, coal, nuclear and renewable power.

Sources: EIA, National Mining Association, The Perryman Group

49


In 2009

Source: Public Utility Commission of Texas (PUC) Chair Barry Smitherman Presentation to the Gulf Coast Power Association, Oct. 6, 2009

50


In 2013

Assuming 18,000 MW of wind, approximately 5,600 MW of new

coal, 4,300 MW of new natural gas

Source: Public Utility Commission of Texas (PUC) Chair Barry Smitherman Presentation to the Gulf Coast Power Association, Oct. 6, 2009

51

Gas on the Margin in ERCOTYear-Round

Examples are purely illustrative

• There are multiple types of power plants with different operations in ERCOT that are operatedon different schedules.

– Because of their lower marginal costs, nuclear and coal-fired power plants in ERCOT operateapproximately 90 percent of the time.

– In contrast, natural gas-fired power plants are ramped on and off, depending upon demand.– Wind-generated electricity is only intermittently available, depending on wind conditions.

• Some natural gas-fired generation is required to operate at all times in the ERCOT region tomeet demand.

– Natural gas-fired generation sets the market price of wholesale electricity in ERCOT.– Natural gas-fired units that are used to meet peak demand tend to be older units that cost more to

operate.

52

Business Climate for Generatorsin ERCOT

• In ERCOT, generation companies assume all of the financial risk included in a new generationprojects.

• The decision to build new generation thus depends upon whether the generator believes theelectricity can be sold at a price to recoup construction costs, cover operations andmaintenance costs and achieve a profit.

• Market forces have been effective in bringing new generation to the state, with over 37,063MW of generation constructed since the advent of wholesale competition in 1995. Another4,433 MW of new generation is under construction, according to the PUC.

• While not all is expected to the built, the PUC reports 25,756 MW of new generation has beenannounced:

– 6,389 MW of new coal-fired generation– 6,002 MW of new nuclear generation– 8,012 MW of new wind-powered generation– 5,253 MW of new natural gas-fired generation

• Though such news is positive, market forces and legislative and regulatory certainty willultimately dictate how much of the announced new generation is actually built.

Data source: PUC, “New Electric Generating Plants in Texas,” as of November 17, 2007

53

Types of Generation:

Benefits and Challenges

54

Three Key Factors Affecting Choicesfor New Generation

Environmental IssuesWholesale

Market

Cost of Construction and Fuels

Type

of G

ener

atio

n

55

Coal-Fired Generation

Type of Generation+ Coal-fired plants provide baseload generation, by running

approximately 90 percent of the time.

Environmental Issues- Greater air emissions than natural gas-fired plants,

including rate of about twice the CO2 per kWh generated.- Risk of higher costs due to future carbon-capture

requirements.

Cost of Construction and Fuels+ Currently, pulverized coal generation is economical to build based on current

natural gas prices.+ Long-term domestic supply of coal, including lignite.+ Fuel cost is relatively low- High initial capital costs relative to natural gas-fired plants.

56

Natural Gas-Fired Generation

Type of Generation- Natural gas plants, such as combined-cycle plants, can

provide baseload generation, but demand conditions inERCOT result in a lower capacity factor than for coal-firedor nuclear-powered generation.

+ Other simple-cycle natural gas plants have quick start-upand shut-down times to allow them to meet peak demand.

Environmental Issues+ Lowest air emissions among fossil fuels.+ Newest power plants operate more efficiently, burning less

fuel per MWh of generation.

Cost of Construction and Fuels+ Low initial capital costs.- When natural gas prices are high, gas-fired power plants are expensive to operate.

57

Nuclear-Powered Generation

Type of Generation+ Nuclear-powered plants provide baseload generation by

running approximately 90 percent of the time.

Environmental Issues+ No air emissions.- Long-term storage of waste needs to be implemented.- Historic concerns regarding public perception of safety of

nuclear power.

Cost of Construction and Fuels+ Lowest fuel cost of all large-scale generation.- High capital costs.- Longest permitting and construction times among generation types.

58

Wind-Powered Generation

Cost of Construction and Fuels+ No fuel cost.- Limited ability to replace other generation to satisfy reserve margins.- Imposes other costs on the system, such as increased ancillary service

requirements, backup capacity and the need for transmission lines to reach ruralwind farms.

Type of Generation+ Wind is plentiful in certain parts of Texas.- Wind blows intermittently, making it a less reliable power

source.

Environmental Issues+ No air emissions.- Can affect migratory birds.- Concerns about aesthetic impact.

59

Solar Generation

Type of Generation+ Solar power is generally reliable, but intermittent, as it

depends on certain levels of sunlight.- Plants are generally small in scale.

Environmental Issues+ No air emissions.- Large areas of land needed for effective solar arrays.

Cost of Construction and Fuels- Can have 15 to 20 times the capacity cost of natural gas-fired generation+ No fuel cost.- Cannot be used to replace other generation to satisfy reserve margins.- Imposes other costs on the system, such as the need for transmission lines, since

large-scale solar power plants would be located in areas far from populationcenters.

60

Biomass and Landfill GasGeneration

Type of Generation+ Biomass and landfill gas generation generally operates

reliably.- Plants are generally small in scale.

Environmental Issues- Plants burning biomass can have high CO2 emissions.+ Landfill gas facilities reduce methane greenhouse gas

emissions.- Generation is difficult to permit and site.

Cost of Construction and Fuels- Requires high capital and operating costs when compared with fossil fuel-fired

generation- Often located far from population centers, requiring high transmission costs

61

Hydroelectric Generation

Type of Generation+ Hydroelectric power is reliable to operate, except during

drought.- Texas has very little potential for new hydroelectric power

generation.

Environmental Issues+ No air emissions.- Can kill fish.

Cost of Construction and Fuels+ Once built, hydroelectric power is among the least expensive forms of power, as it

has no fuel costs.- High capital costs

62

Energy Efficiency andDemand-Side Management

Type of Technology+ Several cost effective solutions available.- Success requires broad implementation.

Environmental Issues+ Reduces emissions that would otherwise accompany fossil

fuel usage.

Cost of Construction and Fuels+ Can improve cost levels for residents and customers.+ Reduces need for building new power supply.

63

Estimated Cost of New Generation

Chart Source: EEI

64

Emissions and the Environment

65Source: EPA Clean Air Markets Division - 2007 Acid Rain Program Data

0.103Texas0.237National

2007 NOx Emission RateAverages (lbs/mmBtu)Area

Texas is Already Leading the Way

in Clean Power Plants

0.419NM

0.103TX

0.246OK 0.219

AR

0.170LA

66

– HGA SIP- 86% overall reduction from 1997

– DFW SIP- 88% overall reduction from 1997

– Beaumont SIP- 45% reduction from 1997

– East Texas SIP- 51% reduction from 1997

Electric Generator-NOx Reductions Achieved Under

TCEQ 1-hr Ozone SIP Rules

Between 2000 and 2005, electric generatingcompanies in Texas spent over $1 billion on NOx

emission reductions alone.

67

NOX RATE

0.000

0.100

0.200

0.300

0.400

0.500

0.600

0.700

Texas’ Electric Generating

Plants Among Lowest NOx

Emitters in the Nation

EPA Acid Rain Database, 2007 data

Texas has the 8th

lowest NOx emissionsrate and the lowest ofstates that use coal.

NO

x (

lb/

MM

Btu

)

U.S. Average

68

SO2_RATE

0.000

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

2.000

Texas’ Electric Generating

Plants Among Lowest SO2

Emitters in the Nation


Texas has the 16th

lowest SO2 emissionsrate and one of thelowest of states thatuse coal.

SO

2 (

lb/M

MB

tu)

U.S. Average

69

CO2 RATE

0

50

100

150

200

250

CO2 Emissions:

Texas vs. Other States


Texas has the 16th

lowest CO2 emissionsrate and one of thelowest of states thatuse coal.

CO

2 (

lb/

MM

Btu

)

U.S. Average

70

A common refrain is that CO2 emissions generated in Texas are higher than inother states. However, it is critical to view that in the context of other truths:

− Texas generates more electricity than any other state; in fact, Texas produces almost80% more electricity than the next most generating state.1

− Much of the CO2 emitted in Texas results from the generation of “products” that arevery significant to our state and nation. For example, Texas produces about:

− 60% of petrochemicals produced in the U.S.− 30% of gasoline and diesel refined in the U.S.− 10% of electricity generated in the U.S.

− The dollars of gross product produced in Texas per ton of CO2 emitted is high, and itincreased by more than 1000% between 1963 and 2001.

− The ratio of the amount of CO2 emitted per MWh of electricity generated in Texas islower than half of the states that have more than a nominal amount of coal-fired or oil-fired electricity generation (see previous slide).

CO2 Emissions in

Context of Texas’ Economy

1Source: EIA, 2006 State Electricity Profiles

71

Technical Feasibility of

CO2 Reductions

Technology EIA 2008 Reference Target

Efficiency Load Growth ~ +1.05%/yr Load Growth ~ +0.75%/yr

Renewables 55 GWe by 2030 100 GWe by 2030

NuclearGeneration 15 GWe by 2030 64 GWe by 2030

Advanced CoalGeneration

No Heat Rate Improvementfor Existing Plants

40% New Plant Efficiency by 2020–2030

1-3% Heat Rate Improvementfor 130 GWe Existing Plants

46% New Plant Efficiencyby 2020; 49% in 2030

CCS None Widely Deployed After 2020

PHEV None 10% of New Light-Duty VehicleSales by 2017; 33% by 2030

DER < 0.1% of Base Load in 2030 5% of Base Load in 2030

Chart Source: EEI and EIA

72

Federal Clean Air Interstate Rules (CAIR)− Requires additional NOx and SO2 emissions reductions from power plants in

2009, 2010, and again in 2015, with a cap and trade program.− The NOx and SO2 emissions from all new units must “fit” under the 2009, 2010,

and 2015 caps; such emissions are not in addition to those caps.− TCEQ has recently revised its rules to implement CAIR.

Regional Haze− Requires reductions in NOx, SO2, and Particulate Matter (PM) emissions based

on best available retrofit technology (BART) for different types of facilities,including electric generating units, industrial boilers, and refineries.

− EPA has decided that NOx and SO2 emissions reductions made for CAIR willsuffice for the NOx and SO2 emissions reduction requirements under RegionalHaze.

− The TCEQ is developing rules to implement BART.

Future AdditionalEmission Reductions

73

Future AdditionalEmission Reductions

Federal mercury (Hg) regulations (CAMR)− February 8th decision by DC Circuit Court to vacate rules− Would have marked the first time the any country has regulated

mercury emissions from power plants− Would have required a 70% reduction of mercury emissions from

power plants in all 50 states− If EPA has to set a Maximum Achievable Control Technology

(MACT) standard:− the new emissions standard for each existing and new facility needs to

be set according to fuel type− Different coals will require different controls and considerations.

74

Giving Back to theEnvironment

• AECT member companies help to improve our environment through stewardship,support for new technologies and partnership with other agencies.

Environmental Stewardship- Reducing releases of chlorofluorocarbons fromelectrical equipment- Recycling coal combustion products- Educating schools and communities aboutrenewable energy- Designating land and reservoirs for publicrecreational use- Preserving and restoring forests by plantingmillions of trees- Helping other industries adopt pollution-prevention plans- Launching education campaigns to helpcommunities save energy- Creating wetlands and wildlife habitats oncompany properties- Reclaimed water utilization- Offering renewable energy products to retailcustomers

Environmental Partnerships

- Climate Challenge Program- Energy Star- Energy Smart Schools- Environment Research Program

- EPA SF6 Partnership program

- Mickey Leland Internship Program-TCEQ Teaching Environmental Science- Green Lights- Habitat Protection- Learning From Light!- Millennium Council- Million Solar Roofs- National Energy Education Development(NEED) Project- Natural Gas Star

75

Selected EnvironmentalPrograms and Fees

• The electric industry is among the most heavily regulated in the nation, complyingwith hundreds of regulations and paying millions of dollars in fees annually.

Selected Current

Environmental Programs

- Compliance with National Ambient Air QualityStandards- State Implementation Plan- NOx reductions for electric generating units- Clean Air Interstate/Clean Air Mercury Rules- New Source Review (NSR)Prevention of Significant Deterioration- Non-attainment NSR, including offset- State Minor NSR- Title V and Acid rain permits- Compliance Assurance Monitoring- Continuous Emissions Monitoring Systems- Toxic Release Inventory- Monitoring cooling water- Mass Emission Cap and Trade Program

Selected Current

Environmental Fees

- Title V federal operating permit fees- Air inspection fees- Air quality permit fees- Air quality permit renewal fees- Wastewater inspection fees- Wastewater permit application fees- Water quality fees- Potable water fees- Water use permit application fees- Hazardous waste generation fees- Non-hazardous waste fees- Low level radioactive waste fee- Injection well fee

76

Transmission and Distribution Utilities

77

• Transmission and 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, natural 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 nuclearfacilities

TDUs’ Role in the Competitive ERCOT

Market

78

• ERCOT Transmission– 1995 amendments to the Public Utilities Regulatory Act (PURA) required PUC to

ensure open access to transmission grid, allowing new independent generators toutilize transmission network.

– TX76RSB 7 adopted “postage stamp” transmission pricing structure and eliminatedimpact of location on transmission rates.

– Transmission Cost of Service (TCOS) ratemaking structure implemented and billedto distribution service providers (DSP).

– DSPs recover TCOS through the TDSP delivery rate and transmission cost recovery factor(TCRF), approved by PUC.

– New transmission investment is coordinated through the ERCOT regionaltransmission planning process and requires PUC facility certification.

T&D Market Design:

ERCOT

79

Transmission Investment in Texas

• Since 2006, TDUs haveinvested about $2.5 billionin the ERCOT transmissiongrid.

• ERCOT estimates that theelectric grid will requireadding or improving 2,888circuit miles of transmissionlines at a cost of about $3billion from 2009 through2013.

• In addition, the integrationof Competitive RenewableEnergy Zones (CREZs) intothe competitive ERCOTmarket will requireadditional investment ofabout $4.9 billion.

Source: ERCOT, “Report on Existing and Potential ElectricalSystem Constraints and Needs,” December 2008

80

Continued Transmission and DistributionInvestment Needed Throughout Texas

• According to the Texas State DataCenter, 5 million new residents areexpected in Texas by 2020.

• New generation must be deliveredeffectively and efficiently topopulation centers of the state.

• Texas must provide regulatorycertainty and fair rates of return toensure appropriate capitalinvestment.

• Though not shown here, areas ofTexas located outside the ERCOTgrid are also growing, both in termsof population and economicdevelopment.

Source: ERCOT, “Report on Existing and PotentialElectric System Constraints and Needs,” December2008

81

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

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

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

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

Challenges of TransmissionLine Construction

Example of Transmission Construction Process in ERCOT

82

Distribution InvestmentAlso Needed

• The need to replace an aging distributioninfrastructure to meet population and demandgrowth will require continued investment.

• It is becoming more evident that rising constructionmaterial costs are an increasingly important drivercontributing to the higher actual and planned utilityindustry infrastructure investments.

• Nationwide, distribution investment is expected to be almost triple the size ofprojected transmission spending, according to the Edison Electric Institute.Distribution investment is likely to exceed generation and environmental capitalspending, as well.

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• Non-ERCOT Transmission– Wholesale open access transmission rights subject to Federal Energy

Regulatory Commission (FERC) jurisdiction.

– FERC transmission pricing reflects location of generation.

– FERC requires generators to bear higher cost relative to the ERCOTsystem of connecting with the transmission grid.

– Certification in Texas is with the PUC.

– Recently adopted PUC rules allows most non-ERCOT utilities to recovertransmission investments between rate cases through a transmission costrecovery factor (TCRF).

T&D Market Design:

Non-ERCOT

84

Renewable Generation in Texas

85

Texas Has the Most Installed

Wind Energy Capacity

Source: American Wind Energy Association, 1/09 (www.awea.org/projects)

Almost 35% of the nation’s installed wind generation capacityis located in Texas.

86

Competitive Renewable Energy Zones:

Legislative and Regulatory Steps

• The Texas Legislature mandated steady increases in renewable power inTX76RSB 7 (1999) and TX791RSB 20 (2005).

– Starting Line: 880 MW in 1999– Old Goal 1: 2,880 MW by 2009 (Achieved by 2007)– New Goal 1: 5,880 MW by 2015– New Target 1: 10,000 MW by 2025– New Target 2: 500 MW non-wind renewable generation

• TX791SB 20 (2005) also required PUC to:– designate Competitive Renewable Energy Zones (CREZs) in areas in which renewable

energy resources and suitable land areas are sufficient to develop generating capacityfrom renewable technologies;

– develop a plan to construct necessary transmission capacity in a manner that is mostbeneficial and cost effective to customers; and

– take into account transmission constraints, the need for generation and the level offinancial commitment by generators when defining CREZs.

• PUC adopted Substantive Rule 25.174 in December 2006, which createsframework for determining CREZs.

• Texas currently has 8,976 MW of installed renewable generation capacity (Oct2009).

87

Map of Adopted

Competitive Renewable Energy Zones

88

Energy Efficiency

89

Energy Efficiency in Texas:

Overview

• Texas continues to be an energy leader through policies designed to improve the state’s

energy efficiency programs and bring improved technologies to the electric market.

– Utility programs have reduced customer consumption that has allowed existing resources to meet

new customer load, reducing the need for new generation.

– Advanced metering can help customers better manage their electric usage by providing information

and opportunities that enable customer to take control of their energy consumption and bills.

• The Texas Electric Choice Act requires electric utilities to provide energy efficiency

programs and incentives, including low-income energy efficiency programs.

– TX80RHB 3693 raised the energy efficiency goal for electric utilities from 10% of annual demand

growth to 15% in 2008 and 20% in 2009.

• ERCOT competitive retailers are developing innovative plans and products that will help

customers use less energy (e.g., customer education programs, energy audits, Internet-

controllable thermostats, etc.)

90

Energy Efficiency Programs

Have Exceeded Goals

• In 2008, utilities in Texas exceeded their statewide legislative energy efficiency goals for thesixth straight year. Utilities achieved 202 MW of peak demand reduction in 2008, which was76% above their 115 MW goal.

• Energy savings from standard offer programs and market transformation programs resultedin an equivalent reduction of 882,519 pounds of nitrogen oxide emissions per year.

Total Energy Savings by Investor-Owned Utilities2003 - 2008

Source: Frontier Associates LLC, “Energy Efficiency Accomplishments of Texas Investor Owned Utilities, Calendar Year 2008”

91

TX80RHB 3693:

Enhancing Energy Efficiency

TX80RHB 3693 included a host of programs designedto help reduce electricity usage in Texas.

• Raises energy efficiency goal for electric utilities from 10% of annual demand growth to 15%

in 2008 and 20% in 2009.

• PUC will study energy efficiency programs by January 15, 2009, and submit a report to the

legislature.

– The study shall address whether utility energy efficiency programs should continue and whether

energy efficiency programs are best provided by the competitive market.

– The findings of the study will determine whether a goal increase to 30 percent is achievable by 2010

and 50 percent by 2015.

• PUC will work with ERCOT to develop a method to account for projected energy efficiency

impacts in ERCOT’s forecasts of future capacity, demand, and reserves.

92

TX80RHB 3693:

Enhancing Energy Efficiency

• The bill also includes:

– an energy efficiency cost recovery factor;

– a utility financial incentive for exceeding goals; and

– the ability for utilities under a rate freeze to defer recognition of these costs.

– Provisions aimed at reducing energy consumption by schools and government

buildings.

– Stronger, more energy-efficient building standards for low-income housing.

– Creates an annual sales tax holiday during Memorial Day weekend for energy efficient

products that bear the designation of the nationwide “Energy Star” program.

93

Benefits of Advanced Metering

• Customers can better manage their electricconsumption, better manage their bills andlessen their environmental impact.

• Advanced meters and other new technologiesand associated infrastructure will provide informationand opportunities that will enable customers to betterunderstand the impact of controlling their energyconsumption (e.g., shifting usage to off-peak times).

• Advanced meters will also allow for more automation of utility functionssuch as meter reading and connections/disconnections, helping toreduce costs.

94

The Smart Grid Transforms the Way

We Buy, Deliver and Use Electricity

Key Stakeholder

Consumers

ElectricUtility

Retailers

• Real time grid feedback allows for more effective loading of utility assets• Enables increased monitoring and diagnostics to enhance the life of utility assets• Improved line fault detection and diagnostics• Improved system reliability and greater ease/timeliness of power restoration• Automated meter reading

• Power quality and reliability improvements• Friendly access to detailed consumption information to make informed choices

and enable faster transactions• Enables and promotes energy conservation

• Expands retailer’s ability to offer new products• Facilitates time-of-use rates and critical peak pricing• Establishes platform to offer future home appliance monitoring and control• Allows retailers to offer pre-payment programs

Environment

• Enables demand-side management• Facilitates integration of solar and wind generation into grid• Promotes energy efficiency through immediate energy consumption awareness• Facilitates reduced electric consumption which leads to reduced power plant

emissions

Benefits

95

Advanced Metering Activities

in Texas

• CenterPoint Energy and Oncor have received approvals from the Public Utility Commissionof Texas (PUC) to deploy advanced metering systems (AMS) across their respectiveservice territories.

• The approved deployment plan for CenterPoint Energy calls for installation of advancedmeters over five years beginning in March 2009. Through mid-September, CenterPointEnergy has installed over 76,500 advanced meters and expects to install a total of 145,000meters by year-end.

• Oncor’s approved deployment plan initiated in late 2008 will have installation of advancedmeters completed by the end of 2012. To date, Oncor has installed 294,000 meters.

• The cost for the meters will be recovered through a monthly surcharge, which may beadjusted over time to reflect both the inclusion of AMS costs in future base rates andvariances between the estimated versus the actual cost of implementing the deploymentplan. The respective surcharges for both Oncor and CenterPoint Energy take into accountthe savings advanced meters are expected to bring each company.

• AEP Texas has filed its deployment plan with the PUC and anticipates approval by thefourth quarter of this year.

96

Competitive Retail Electric Market

in ERCOT

97

The ERCOT Competitive Retail Electric

Market is Providing Strong Customer

Benefits

Key Takeaways– Since the start of retail competition, more than four out of five eligible ERCOT customers

have chosen a new REP or a new product with their existing REP.– Costs and prices have risen in competitive areas, in areas served by municipally owned

utilities and in areas served by electric co-ops.– Natural gas influences wholesale electric prices in Texas, and, due to natural gas

increases over the past several years, wholesale electricity prices have increased -- butonly about half as much as natural gas prices.

– Retail electric prices have grown far less than other energy commodities, such asgasoline, crude oil, natural gas and coal.

– Available prices in the ERCOT competitive electric market are falling significantly, a starkcontrast to the national average which is rising and projected to keep rising. In fact, theaverage U.S. residential power price is expected to increase 9.4 percent in 2009,according to the federal government.

– Natural gas prices reached an all-time high in July, but they’ve subsequently fallen overthe past few months. Because of the robust competition among multiple viable retailelectric providers (REPs), residential electric price offers have fallen by over 28 percent.

– The System Benefit Fund (SBF) provided benefits for low-income Texans during thesummer. Several retailers, including AECT member companies, also offer additional low-income customer assistance programs, so customers should also contact their REP tolearn more about the options that might be available to them.

98

45

55

72

89

99

111

127133Year-end active retailers in ERCOT

2001-2008

ERCOT retail competition is fierce and continues to increase

2001 2002 2003 2004 2005 2006 2007 TODAY

Sources: PUC, www.powertochoose.org website.

Retail Investment In The TexasCompetitive Market Has GrownSignificantly And Continues To Grow

Avg. # ofResidential offersin each ElectricDelivery area:

1 14 na na 18 45 90 91

Residentialoffers

increasedsignificantlyfrom 2005 to

today

99

Customers Continue to Shop in the

Competitive Electric Market

100

Eligible Residential Customers Have More

Retail Electric Choices than Ever Before

Sources: PUC historical data, www.powertochoose.org (1/1/07 and 11/2/09)

AEP Texas NorthService Territory

Number of REPs: 25Change in number of

residential product choices:92% increase

Since January 2007, investment by REPs in ERCOT hasincreased available choices for residential customers.

Texas-New Mexico Power Co.Service Territory



AEP Texas CentralService Territory



OncorService Territory



CenterPoint EnergyService Territory



101

Competitive Residential Electric Prices

Have Fallen Since Full Competition Began

in January 2007

Source: http://www.powertochoose.org (1/1/07 & 11/2/09)

AEP Texas NorthService Territory

Lowest availableresidential price:6% decrease

Since January 2007, competitive prices for residentialcustomers have fallen in every service area.

Texas-New Mexico Power Co.Service Territory


AEP Texas CentralService Territory


OncorService Territory


CenterPoint EnergyService Territory


102

Better Prices Available Today

November 3, 2008 November 2, 2009 Percent Change

# of 1-Year Fixed-Price

Products

28 41 37% more offers

Average 1-Year Fixed-

Price Offer

14.36¢/kWh 11.74¢/kWh 18% decrease

Lowest 1-Year Fixed-

Price Offer


Lowest Offer Available

in the Market


Source: http://www.powertochoose.org; prices are a simple average among service territories.

103

Retail Electric Prices Have GrownFar Less Than Other EnergyCommodities

Sources: Public Utility Commission of Texas, U.S. Energy Information Association, NYMEX Commodity Exchange, Bureau of Labor Statistics.Notes: Coal and copper commodity prices as of March 2009; other commodity prices latest available as of November 2, 2009. Inflation covers period from 2001 to 2009

Percentage Change inCommodities

December 2001 - November 2009

104

Texas Continues to Perform Well Compared

With Other States Utilizing Natural Gas

Sources: Energy Information Administration (data as of July 2009); EIA natural gas-intensive states

Average Lowest AvailablePrice in ERCOT

Competitive MarketToday: 8.9¢/kWh

Note: Texas statewide average price includes prices from both competitive and regulated areas of the state.

105

Texas’ National Price Ranking Has Improved

With Competition Despite Input Fuel Cost

Increases AND Customers Can Choose

Plans To Meet Their Needs

Source: EIA average annual residential rates for 2001 and July 2009 monthly data (latest available). Lowest available price fromwww.powertochoose.org website as of 11/2/2009 for a residential customer using an average of 1,000 kWh per month.

TX

TX

¢/kW

h¢/

kWh

2001 State Ranking (Pre-Competition)

2009 State Ranking (Current)

Average lowest availableoffer in Texas competitive

areas: 8.9¢/kWh

106

Every Competitive Area in ERCOT HasVariable and 1-Year Lock Offers Availablethat are Lower than the National Average Price

Sources: powertochoose.org,U.S. Energy Information Administration

107

The ERCOT Competitive Market isResponding to Recent Drops in NaturalGas Prices

Note: Electric prices for residential customers using an average of 1,000 kWh per monthSources: NYMEX; www.powertochoose.org

NYMEX natural gas and residential electricity pricesJanuary 2006 – September 14, 2009

Lowest offer for new customers in ERCOTAverage offer for new customers in ERCOTNYMEX Average 12-Month Strip

NYMEX natural gas ($/MMBtu) Residential electric (¢/kWh)

108

Benefits for Qualified

Low-Income Customers:

The System Benefit Fund

• The System Benefit Fund (SBF) was enacted as part of the TexasElectric Choice Act in 1999. It is intended to provide funding specificallyfor:– assistance to low-income customers through reduced electric rates;– weatherization programs; and– administrative funding.

• The PUC approved the utilization of the $80 million of SBF fundsauthorized by the 80th legislature.– These funds will be used to provide a discount to low-income customers in

the competitive areas of the state.– During the months of May through September, eligible low-income customers

will receive an approximate 20 percent discount through the “LITE-UP Texas”electric discount program.

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Benefits for Qualified

Customers: REP Programs

• Several retail electric providers across the state also provide additional, voluntaryprograms to assist low-income customers. Examples of programs include:

– Since May 2003, the Neighbor-to-Neighbor program has helped tens-of-thousands of Direct Energy,CPL Retail Energy, and WTU Retail Energy customers with their home energy expenses. The programwas created to assist families experiencing financial emergencies with up to $200 in bill paymentassistance, as much as twice during a calendar year. The program is administered by more than 30community action agencies across the state.

– The Care to Share Fund provides bill payment assistance to eligible First Choice Power residentialcustomers in need of emergency funding. Customers can donate to the Care to Share Fund and assistresidential customers who need a little extra help by providing extra emergency assistance through theCare to Share Fund.

– The CARE Energy Assistance Program was created by Reliant Energy to help Reliant customersduring a difficult time. Customers who qualify may receive this one-time annual assistance through non-profit social service agencies in communities that are served by Reliant Energy. These agencies reviewcustomer cases and qualify them based upon the agency’s designated hardship criteria.

– TXU Energy has committed $25 million per year for 5 years to fund a 10% low-income discount, and anadditional $5 million per year for 5 years for low-income bill assistance through its TXU Energy Aidprogram. In addition, TXU Energy has established the Low Income Advisory Committee and workscollaboratively with over 400 agencies across the state to assist customers in need.

– Since September 2006, several REPs have participated in the low-income credit program resulting fromCenterPoint Energy’s 2006 rate case settlement. This program is currently providing a credit of $7.68per month to eligible customers.

• Texans can check their electric provider’s Web site or call their provider to seewhat other programs are available.

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Q&A

aect electricity101

Business

texas panhandle

electric consumersin

electric systems

aect companies

paso electric company

competitive areas of

deregulated texas marketplace

southand west texas