Update on the

Texas Electric Industry

February 23, 2010

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

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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.

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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); - 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)

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AECT Member Companies

Within ERCOT

Generation Companies

Transmission and Distribution Utilities

Retail Electric Providers

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AECT Companies

Outside of ERCOT

Western Electricity CoordinatingCouncil (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

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2009-2010 Winter

Electric Usage Up

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Background

• Heating Degree Days (HDDs) are an indicator of how cold it is,

and how much energy is required to heat one’s home

• HDDs are calculated each day as follows: 65° – (Avg. Temp)

• A higher number of HDDs indicates colder conditions

• In Dec 09 and Jan 10, areas in Texas experienced more HDDs

than normal – as a result, energy usage increased

• Parts of Texas are in the midst of one of the coldest winters on

record

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Inclement Winter Weather Bringing

Increased Energy Usage

• Using Killeen as an example, heating degree days are far higher than last year,making increased electric consumption and bringing higher bills.

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Normal

2008/2009

2009/2010

60% Increase

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Inclement Winter Weather Bringing

Increased Energy Usage

Electricity usage in Texas rose Friday as arctic air covered most of the state, hittinganother winter power record after setting one just the night before, according to initial datafrom the state grid operator.

The Electric Reliability Council of Texas (ERCOT) said power use as of 8 a.m. CST (9a.m. EST) reached 55,856 megawatts, surpassing the winter peak set Thursday evening of52,001 MW and the previous record of 50,408 MW in February 2007.

ERCOT reported no major power problems.

Temperatures across Texas are running about 15 to 20 degrees Fahrenheit below normal,according to DTN Meteorlogix.

Texas power usage setsanother winter record

January 8, 2010

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Key Factors Affecting Electricity

Consumption in Winter

• Age of home

• Size of home

• Insulation

• Efficiency of heating equipment

• Thermostat setting

• Seasonal lighting

• Longer use of lighting

• Increased use of electronics

• Increased run times for pool equipment

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Lowering Bills With

Energy Efficiency Programs

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Energy Efficiency Tips

• Check insulation

• Install a programmable thermostat

• Check your air filter

• Change light bulbs to compact fluorescents

• Avoid lighting empty rooms

• Caulk and weather-strip all doors and windows

• Keep shades and curtains open during the day on the south

side of your home

• Make sure radiators and vents aren’t blocked

• Make sure fireplace damper is closed when not in use

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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-run programs have reduced customer consumption, thereby reducing the need

for the construction of new generation.

– Advanced metering provides information and opportunities that enable customers to

take better control of their energy consumption and bills.

– Houston and Dallas-Fort Worth ranked 1 and 2 nationally in number of homes that

qualified for EPA’s “Energy Star” designation.

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

efficiency programs and incentives, including efficiency programs for low-income

customers.

• ERCOT competitive retailers are developing innovative plans and products

designed to help customers use less energy (e.g., customer education

programs, energy audits, programs to benefit from use of Internet-controllable

thermostats, etc.)

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Energy Efficiency Programs

Have Exceeded Goals

• In 2008, utilities in Texas achieved 202 MW of peak demand reduction in 2008, which was76% above their 115 MW goal.

• Utility programs implemented for the years 1999 through 2008 have put measures in placethat produced 1,125 MW of peak demand reduction and 3,014 GWh of energy savings.

Total Energy Savings by Investor-Owned Utilities2003 - 2008

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

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Energy Efficiency Resources

• Customers can contact their electric utility to find out what programsare available, or to find a contractor or vendor who participates in thestate energy efficiency programs.

• Customers can call 2-1-1, the Texas Health and Human ServiceCommission's information and referral network to learn about programsavailable in the area.

• Additional resources:

– Texas Department of Housing and CommunityAffairs: www.tdhca.state.tx.us/assist_repair.htm

– U.S. Department of Energy:www.energy.gov/energyefficiency

– Get Energy Active: www.getenergyactive.org

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Benefits of Advanced Metering

• Advanced meters and other new technologiesand associated infrastructure will provide informationand opportunities that will enable customers to betterunderstand the impact of controlling their energyconsumption.

• By controlling their energy consumption, customerscan better manage their bills and lessen theirenvironmental impact.

• Advanced meters will allow for more automation of utility functions suchas meter reading and connections/disconnections, which help to reducecosts.

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The Smart Grid Transforms the Way

We Buy, Deliver and Use Electricity

Key Stakeholder

Consumers

ElectricUtility

Retailers

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

• Electric reliability improvements• Friendly access to detailed consumption information to make informed choices

and enable faster transactions• Enables and promotes energy conservation• Efficient switching and connections/disconnections

• Expands retailer’s ability to offer new products• Establishes platform to offer future home appliance monitoring and control• Allows retailers to offer pre-payment programs• Efficient switching and connections/disconnections

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

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Advanced Metering Activities

in Texas

• The approved deployment plan for CenterPoint Energy calls for installation of advancedmeters over five years beginning in March 2009. In 2009, CenterPoint Energy was namedas a recipient of a Federal Smart Grid Investment Grant that should enable installation of allmeters by late 2012. Through year-end 2009, CenterPoint Energy installed 152,275advanced meters, and another 42,815 were installed in January 2010.

• 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 709,435 meters.

• The AEP Texas deployment plan was approved in December 2009 and installation ofadvanced meters will be completed by the end of 2013. To date, nearly 5,000 meters havebeen installed in Portland, Texas, in order to conduct a system acceptance test. Full-scaledeployment will begin in the second quarter of 2010.

• The cost for the meters and associated communications and computer equipment will berecovered through a monthly surcharge, which can be adjusted over time to reflect both theinclusion of AMS costs in future base rates and variances between the estimated versus theactual cost of implementing the deployment plan. The respective surcharges for both Oncorand CenterPoint Energy take into account the savings advanced meters are expected tobring each company.

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Lowering Bills in the

Competitive Retail Market

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Better Prices Available TodayThan One Year Ago

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

February 23, 2009 February 22, 2010 Percent Change

# of 1-Year Fixed-Price

Products

30 50 67% more offers

Average 1-Year Fixed-

Price Offer

12.72¢/kWh 11.33¢/kWh 11% decrease

Lowest 1-Year Fixed-

Price Offer

11.6¢/kWh 10.4¢/kWh 10% decrease

Lowest Offer Available

in the Market

9.7¢/kWh 8.6¢/kWh 11% decrease

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Service Area

Lowest Fixed-Price

Offer

(>12-month term)

Lowest

Variable Price

Offer

Dec. 2001

prices, not

adjusted for

inflation

Dec. 2001

prices, adjusted

for inflation

AEP Texas Central

10.8¢/kWh 9.1¢/kWh 9.6¢/kWh 11.7¢/kWh

AEP Texas North

9.9¢/kWh 8.8¢/kWh 10.0¢/kWh 12.2¢/kWh

CenterPoint

Energy

10.7¢/kWh 8.8¢/kWh 10.4¢/kWh 12.7¢/kWh

Oncor

10.1¢/kWh 8.2¢/kWh 9.7¢/kWh 11.8¢/kWh

TNMP

10.4¢/kWh 8.1¢/kWh 10.6¢/kWh 12.9¢/kWh

Lower inflation-adjusted prices availabletoday than before competition began

Sources: PUC Historical Data, Bureau of Labor and Statistics, www.powertochoose.org offers as of February 22, 2010

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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: Commodity prices latest available as of February 22, 2010; coal percentage increase is approximate. Inflation covers period from 2001 to 2009

Percentage Change inCommodities

December 2001 - February 2010

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ERCOT Generation Mix

In 2009

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

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Texas Market Compares Favorably to Other

States Utilizing Natural Gas as the Primary

Generation Source

Sources: Energy Information Administration (data as of October 2009); EIA natural gas-intensive states;powertochoose.org as of 10/15/09 and 2/22/10

Average Lowest AvailablePrice in ERCOT CompetitiveMarket In October 2009:

9.1¢/kWh

February 2010: 8.6¢/kWh

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

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AECT Online

AECT.net @aectnet