PRINCIPLES

Texas’ Competitive Electric Market

• Customers of investor-owned utilities within the Electric Reliability Council of Texas (ERCOT) grid became eligible to choose their retail electric providers (REPs) on January 1, 2002.

• The following AECT member companies take part in Texas’ competitive electric market:
  • Retail Electric Providers: First Choice Power, Reliant Energy and TXU Energy
  • Transmission and Distribution Utilities: AEP Texas, CenterPoint Energy, Texas-New Mexico Power Company and TXU Electric Delivery
  • Generating Companies: Reliant Energy, TXU Power

• The competitive electric market in ERCOT is the most successful in the nation:
  • Residential and small-commercial customers have multiple REPs from which to choose.
  • The majority of the total electric load in the state is served by a non-incumbent REP.

Reliable Generation, Transmission and Distribution

• The wholesale electric market in Texas began with amendments to the Public Utility Regulatory Act in 1995, and led to the construction of over 26,000 MW of new, efficient generation capacity in ERCOT, and laid the groundwork for the subsequent successful introduction of retail competition.

• Future demand growth and potential retirements of existing capacity will continue to require construction of new units to maintain reliability. This fact, combined with projected prices in the wholesale electric market and the fundamentally sound nature of the ERCOT market structure, has provided the appropriate signals to investors that investment in ERCOT is attractive.
  • As a result, generating companies in Texas have announced plans to construct over 20,000 MW of new generation from coal and nuclear power plants, enhancing the state’s fuel diversity.

• Furthermore, to maintain reliability the PUC must ensure that transmission and distribution utilities and vertically integrated utilities in areas of the state outside ERCOT are able to recover all prudent costs of transmission and distribution infrastructure investment.

• The Texas Electric Choice Act required Texas to install 2,000 MW of new renewable capacity by 2009, bringing the state total to 2,880 MW. During the first called special session of 2005, legislators raised the renewable portfolio standard to 5,880 total megawatts by 2015. Today, Texas leads the nation in wind generation capacity.

Vertically Integrated Markets in Texas

• The AECT member companies located in these areas of the state remain vertically integrated, providing retail service, electric transmission and distribution, and electric power generation.

• About 15 percent of the Texas electric load is located in these areas, which are outside the ERCOT grid.

• The Panhandle and parts of Northeast Texas are part of the Southwest Power Pool, while Southeast Texas is included in the Southeastern Electric Reliability Council, and El Paso and surrounding areas are part of the Western Electricity Coordinating Council.

• Each of these larger, multi-state systems are governed by both state regulators and the Federal Energy Regulatory Commission.

• As a result, each of these other parts of the state faces its own issues regarding electric choice.

Strong Environmental Performance

• Texas power plants are among the most environmentally sound in the nation, producing less than half the nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions per unit of power generated than the national average.

• In addition, AECT member companies have made reductions of other emissions, such as carbon dioxide, mercury and sulfur hexafluoride.

• AECT believes that air quality in Texas can continue to improve through the use of market-based efforts, which allow reductions of emissions while maintaining or improving the efficiency of electric generation.

• AECT member companies represent the largest private builders, owners, and operators of reservoirs in Texas. Thus, ensuring continued water rights for electric generators is key to maintaining reliability in the state.

State Revenue Issues

• AECT member companies and their customers pay a significant portion of state and local taxes. In 2003, the taxes and fees totaled over $1.6 billion, which represents one of the highest tax burdens in the state relative to the contribution to the state economy.

• AECT member companies believe that any school finance/state revenue proposal should be based on:
  • Accountability to ensure prudent and responsible spending of tax dollars
  • Equity to ensure all sectors of the economy equally share the responsibility to fund our schools and no one group of taxpayers shoulders a disproportionate share of this obligation
  • Stability to provide businesses the confidence that their investments in Texas will not be at risk to increasing tax burdens that could put them at competitive disadvantages

• AECT would not support any taxes that would create a disproportionate tax burden on any one taxpayer group or industry, while other industries or taxpayers do not contribute to school finance or state revenue needs.