Update on the Electric Industry in Texas

Legislative Staff Briefing!February 18, 2011!

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 member company representatives to exchange information about public policy, and to communicate with government officials and the public. For more information, visit www.aect.net.

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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 Coordinating Council (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

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February Outages!

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February 2:!Controlled Outages Throughout Texas!

•  On February 2, a day when each major city in Texas faced morning temperatures below 25 degrees, 82 generation units either went offline or were unable to start.

•  At the height of the outages, over 8,000 MW of generation was unavailable.

•  ERCOT, the electric grid operator that covers most of the state, and each utility have procedures governing emergencies like this, and as the problem rapidly worsened, Texans faced a series of controlled outages.

•  As designed, the controlled outages prevented much more widespread and long-lasting blackouts.

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More than 8,000 MW of Generation Dropped Off Overnight!

Source: ERCOT Presentation to Joint Senate Committees, February 15, 2011

February 2, 2011

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Learning from the Power Outages!

Severe Weather Was the Cause •  February 2-4 saw the coldest sustained temperatures in Texas in 20

years. •  From mechanical failures to pressure drops in natural gas supply lines to

inoperable equipment, each reported cause of a generation outage or reduction in output was related to the severe cold.

Different Types of Power Plants Were Affected •  Coal and natural gas power plants were among the units affected.

Plants Were Affected Throughout the State •  Power plants were affected throughout the state, and the power supply

was constrained to the Rio Grande Valley all the way to El Paso. •  Plants affected were operated by both competitive and regulated owners.

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The generation loss was system-wide and covered units of all ages and multiple types of fuel!

Source: ERCOT Presentation to Joint Senate Committees, February 15, 2011

0 – 99 MW

100 – 199 MW

200 – 399 MW

400 – 799 MW

≥ 800 MW

Generation Range

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Learning from the Power Outages!

Rolling Outage Protocols Successfully Protected the Grid •  The ERCOT and utility rolling outage protocols are designed to prevent

the entire grid from failing. –  ERCOT asks the utility to shed load; the utility then select customer areas (feeders) to

perform rolling outages.

•  The protocols attempt to minimize the impact on individual consumers while ensuring the electric grid remains stable, resulting in no further harm.

There Are Lessons to Be Learned •  Winterization procedures, communications protocol and regulatory

oversight of natural gas for power generation have all been discussed at recent hearings.

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Prices in the Competitive Electric Market in ERCOT!

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Potentially High Winter !Electric Bills!

•  Typically, the largest portion of customers’ electric bills are calculated based on the price of electricity and the amount consumed.

•  So even though electric prices have declined substantially in recent years, residents may still see increased electric bills due to higher consumption.

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Lower Bills Through!Choice and Energy Efficiency!

•  Customers in the competitive retail electric market can visit www.powertochoose.org to learn more about available options.

•  All customers can contact their electric utility to find out what programs are available, or to find a contractor or vendor who participates in the state energy efficiency programs.

•  Customers can also call 2-1-1, the Texas Health and Human Service Commission's information and referral network to learn about programs available in the area.

•  Additional resources –  Texas Department of Housing and Community Affairs:

www.tdhca.state.tx.us/assist_repair.htm –  Texas Is Hot: www.texasishot.org –  U.S. Department of Energy: www.energy.gov/energyefficiency –  Get Energy Active: www.getenergyactive.org

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Natural Gas Prices Have Been Volatile Since 2000!

•  Through 1999, natural gas prices were relatively stable, but the cost of this key commodity has fluctuated greatly since 2000, with three exceptionally large peaks during the past decade.’

•  While prices have fallen over the past 18 months, natural gas prices today are still double the price of gas in 1999.

•  Despite this volatility, consumers have offers available in the market lower than before competition began.

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ERCOT Generation Mix More Gas-Heavy than U.S. Average!

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 (2010 data), EIA (2009 data, latest available)

Cap

acity

(MW

) En

ergy

(MW

h) ERCOT U.S. Average

Natural Gas

Coal

Nuclear

Renewable (Mostly Hydro)

Oil

39%

31%

10%

14%

6%

Nuclear

Natural Gas

Coal

Renewable (Mostly Hydro)

Petroleum

21%

48%

20%

9% 1%

Coal

Nuclear

Natural Gas

Other

38%

40%

13%

1%

Coal

Natural Gas

Nuclear

Wind

59%

22%

6%

11% 2%

Other

Wind 8%

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Regions Outside ERCOT Part of !Larger, Multi-State Grids!

(ERCOT)

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ERCOT far More Dependent !On Gas Than Neighboring Power!Regions!

% MWh from Natural Gas

% MWh from Coal

% MWh from Other

% MWh from Hydro

% MWh from Nuclear

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Competitive electricity prices still track natural gas, but enable customer choice and lower prices

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Natural Gas vs. Texas Residential Retail Electricity Prices In Areas Now Open to Competition 1992 – 2010 YTD; $/MMBtu and ¢/kWh

NYMEX Natural Gas, 12-month Strip Annual Average ($/MMBtu)

With Electric Competition

Before Electric Competition

Residential Electricity Price Annual Average (¢/kWh)1

Average Competitive Offer

Average Lowest Offer

NYMEX Average 12-Month Strip

‘02-11 Natural Gas Avg: $6.65/MMBtu (+215%)

‘92-99 Natural Gas Avg: $2.11/MMBtu

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5

7

9

11

13

15

17

19 LO

WEST  DALLAS/FT  W

ORT

H  PRICE

 LO

WEST  HOUSTON  PRICE

 LO

WEST  LEWISVILLE  PR

ICE  

LOWEST  ABILENE  -­‐  1

 YR  FIXED  

LOWEST  ABILENE  PR

ICE  

Idaho  

LOWEST  CO

RPUS  CH

RISTI  PRICE

 North  Dakota  

Utah  

Washington  

LOWEST  DALLAS/FT  W

ORT

H  -­‐  1  YR

 FIXED  

LOWEST  LEWISVILLE  -­‐  1

 YR  FIXED  

Louisiana  

Neb

raska  

Arkansas  

LOWEST  HOUSTON  -­‐  1  YR

 FIXED

 Wyoming  

Oregon  

LOWEST  CO

RPUS  CH

RISTI  -­‐  1  YR  

FIXED  

Missouri  

South  Dakota  

West  V

irginia  

Kentucky  

Oklahom

a  Mon

tana  

Geo

rgia  

New

 Mexico  

Kansas  

Arizona  

North  Carolina  

Tenn

essee  

Indiana  

Virginia  

Colorado

 Mississippi  

Iowa  

Minne

sota  

Alabama  

South  Carolina  

Ohio  

US  AV

ERAG

E  Florida  

Illinois  

Michigan  

Nevada  

Penn

sylvania  

Wisconsin  

District  o

f  Colum

bia  

Maryland  

Delaw

are  

MassachuseT

s  California  

Maine

 Ve

rmon

t  Rh

ode  Island

 New

 Jersey  

Alaska  

New

 Ham

pshire  

New

 York  

Conn

ecVcut  

Haw

aii  

CE

NT

S PE

R K

WH

RESIDENTIAL  RETAIL  ELECTRICITY  PRICES  All  Data  from  November  2010  

Na;onal  Average  

Every Competitive Area in ERCOT Has Variable and 1-Year Lock Offers Available that are Lower than the National Average Price

Sources: Energy Information Administration, www.powertochoose.org

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Texas competitive electric prices compare well to the rest of the nation

¢/kW

h ¢/

kWh

2001 State Ranking (Pre-Competition)

November 2010 (Latest Available) Average lowest offer in

Texas competitive areas in February ‘11 – 6.7¢/kWh

Average lowest offer November‘10 – 7.3¢/kWh

Sources: EIA average annual residential rates for 2001 & Nov. 2010 monthly data (latest available information). Average of lowest available prices in the 5 competitive TDU areas from www.powertochoose.org (11/16/10 and 2/14/11) for residential customers using an average of 1,000 kWh per month

State Price Rank Improved by 8 Spots

with Competition

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Web: AECT.net

Blog: AECTnet.wordpress.com

Twitter: twitter.com/AECTnet

Facebook: Association of Electric Companies of Texas, Inc.

Email: info@aect.net