This document provides an update on the competitive electric market in Texas. It discusses how the market is structured, key factors influencing prices like natural gas volatility, and how prices have trended over time. It also reviews generation investment, renewable energy development, advanced metering activities, benefits for low-income customers, and other regulatory updates. The overall summary is that competition has generally helped to place downward pressure on prices while still ensuring reliable electricity supply.

1. Update on the Competitive
Electric Market in Texas
Legislative Staff Briefing
November 18, 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

2. 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 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.

3. 3
AECT Member Companies
Within ERCOT
Generation Companies
Transmission and Distribution Utilities
Retail Electric Providers

4. 4
AECT Companies
Outside of ERCOT
Western Electricity Coordinating
Council (WECC)
Southwest Power Pool (SPP)
SERC Reliability Corporation

5. 5
Prices in the Competitive Electric
Market in ERCOT

6. 6
Natural Gas:
Key Component of Electricity Prices
In ERCOT
• Retail prices are driven by wholesale power prices – no matter
how an electric market is structured.
• The ERCOT region is more dependent on natural gas-fired
generation than any other electric power region in the nation.
• Thus, changes in natural gas prices result in changes in
wholesale power prices, which result in changes in retail power
prices.
• With several dozen retail electric providers (REPs) competing for
business, the competitive retail electric market in ERCOT helps
place downward pressure on retail prices.

7. 7
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.

8. 8
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: PUC(2010 summer data, no wind adjustment), EIA (2008 data, latest available)
Energy(MW)
ERCOT U.S. Average
Natural Gas
Coal
Nuclear
Other
21%
48%
20%
10%
Coal
Natural Gas
Nuclear
Other
47%
35%
12%
6%
“ERCOT has the highest dependency on natural
gas of any other region”
- ERCOT

9. 9
Regions Outside ERCOT Part of
Larger, Multi-State Grids
(ERCOT)

10. 10
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

11. 11
Review: Timeline of the
Transition to Competition
• ERCOT market restructuring legislation, Senate Bill 7, passed in
1999
• Initiated competition in ERCOT retail markets beginning January 2002.
• Included environmental and energy efficiency provisions.
• Utilities required to fund energy efficiency programs equal to at least 10% of
each year’s annual growth in demand.
• 1999 - 2001 – Preparation for retail competition.
• ERCOT develops systems required to support competition.
• PUC promulgates competition rules.
• PUC determines rate unbundling cases.
• July 2001 – Retail competition pilot project begins.
• January 2002 – Market opens in ERCOT, providing a clear point
of comparison: regulated rates in 2001 and competitive price
offers in 2002.

12. 12
Natural gas prices have been volatile,
still substantially higher than before
the market opened
Source: Frontier Associates LLC, “Energy Efficiency Accomplishments of Texas Investor Owned Utilities, Calendar Year 2009”
‘02-08 Natural Gas Avg:
$7.14/MMBtu (+238%)
‘92-99 Natural Gas Avg:
$2.11/MMBtu
NYMEX Natural Gas, 12-month Strip
Annual Average ($/MMBtu)
With Electric
Competition
Before Electric
Competition
‘00-01 Natural Gas Avg:
$4.02/MMBtu (+90%)
’09-10 Natural Gas Avg:
$5.15/MMBtu (+144%)
Natural Gas Prices
1992 – 2010 YTD; $/MMBtu
Source: NYMEX (latest data as of 10/11/10)

13. 13
Competitive electricity prices still track
natural gas, but enable customer choice
and lower prices
13
¢
1 Average annual residential electric prices at 1000 kWh/month in the 5 TDU areas opened to competition in 2002; pre-competition prices based on filed tariffs; post-
competition prices based on Power to Choose offerings and PUC data. Sources: NYMEX, PUC, Power to Choose website (latest data as of 10/11/10)
Residential Electricity Price
Annual Average (¢/kWh)1
NYMEX Natural Gas, 12-month Strip
Annual Average ($/MMBtu)
¢
Average Competitive Offer
Average Lowest Offer
NYMEX Average 12-Month Strip
¢
¢
¢
¢
‘02-08 Natural Gas Avg:
$7.14/MMBtu (+238%)
‘92-99 Natural Gas Avg:
$2.11/MMBtu
With Electric
Competition
Before Electric
Competition
Natural Gas vs. Texas Residential Retail Electricity
Prices In Areas Now Open to Competition
1992 – 2010 YTD; $/MMBtu and ¢/kWh

14. 14
Price offers falling in recent years
Source: Offer prices averaged from the 5 TDU areas open to competition from www.powertochoose.org (10/22/10) for a residential
customer using an average of 1,000 kWh per month
Oct-07 Oct-08 Oct-09 Oct-10
# of 1-Year Fixed-Price
Price Products
33 32 39 69
Average 1-Year Fixed-
Price Offer
12.7¢/kWh 14.9¢/kWh 11.7¢/kWh 10.0¢/kWh
Lowest 1-Year Fixed-
Price Offer
11.0¢/kWh 12.8¢/kWh 10.4¢/kWh 8.8¢/kWh
Lowest Offer Available
in the Market
10.0¢/kWh 11.5¢/kWh 9.1¢/kWh 7.5¢/kWh
Offers and Prices – October 2007 – October 2010

15. 15
Recent news and updates on the
competitive electric market
Sources: EIA, www.powertochoose.org,
Shop Now for Cheaper Electric Rates
By Jack Z. Smith, October 7, 2010
Recent Stats
As of July 2010 (latest available),
statewide residential electric
prices in Texas are below the
national average.
Competition is fierce. For
example, there are 51 different
1-year fixed-price offers in North
Texas (Oncor) below 10 cents.
Competition is helping to push
prices down: the average 1-yr
fixed price offer in competitive
areas of Texas has fallen 33% in
the past two years.
"There are one-year fixed rates available that are
below what most North Texans were paying just
before the majority of the state's electricity
market was deregulated nearly nine years ago,
on Jan. 1, 2002.”
• "Nineteen one-year, fixed-rate plans below 9 cents
per kwh, including two at 8.4 cents, six at 8.5 cents,
three at 8.6 cents, four at 8.8 cents and four at 8.9
cents.”
• "Six two-year fixed-rate plans at 9 cents per kwh.”
• "Fourteen all-renewable energy, one-year fixed-rate
plans below 10 cents, ranging from 8.8 cents to 9.8
cents per kwh."

16. 16
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
0
2
4
6
8
10
12
14
16
18
20
LOWESTLEWISVILLEPRICE
WA
LOWESTDALLAS/FTWORTHPRICE
LOWESTABILENEPRICE
ID
KY
LOWESTHOUSTONPRICE
WV
AR
LA
LOWESTCORPUSCHRISTIPRICE
LOWESTDALLAS/FTWORTH-1YR
FIXEDOR
IN
LOWESTABILENE-1YRFIXED
LOWESTLEWISVILLE-1YRFIXED
WY
ND
UT
TN
OK
MT
SD
LOWESTCORPUSCHRISTI-1YRFIXED
LOWESTHOUSTON-1YRFIXED
MS
NE
NC
SC
MO
KS
VA
AL
GA
MN
IA
NM
FL
OH
CO
AZ
TX
IL
USAVERAGE
NV
WI
MI
PA
DE
DC
MA
MD
RI
VT
ME
CA
NH
AK
NJ
CT
NY
HI
Residential Retail Electric Prices
All Data as of July 2010
¢/kWh
U.S. Average

17. 17
Retail electric price offers have fallen while
energy commodity prices have risen
Sources: Public Utility Commission of Texas; www.powertochoose.org (1,000 kWh monthly usage); EIA (Cushing, OK Oil Future
Contract 1 Prices; US All Grades Conventional Retail Gasoline Prices); NYMEX (natural gas 12-month strip); all data as of
10/11/10
Percent change in price
December 2001 – October 2010

18. 18
Texas competitive electric prices compare
well to the rest of the nation
Sources: EIA average annual residential rates for 2001 and July 2010 monthly data (latest available information). Average of lowest
available prices in the 5 TDU areas open to competition from www.powertochoose.org (10/22/10) for a residential customer using an
average of 1,000 kWh per month
¢/kWh¢/kWh 2001 State Ranking (Pre-Competition)
July 2010
(Latest Available)Average lowest offer in
Texas competitive areas in
Oct. ‘10– 7.5¢/kWh
Average lowest offer
in July ‘10 - 8.5¢/kWh
State Price Rank
Improved by 6 Spots
with Competition

19. 19
Texas competitive offers compare favorably
with prices in neighboring states
Sources: EIA; PUCT; www.powertochoose.org
Then: December 2001 Now: July 2010
(latest available consistent data)
ResidentialElectricityPrices
(¢/kWh)
Texas
Competitive
OK LA NM AR OK LA NM ARTexas
Competitive
Average Lowest Offer

20. 20
Other Issues

21. 21
Electric Consumption Continues to
Grow in ERCOT
Source: ERCOT, “Report on Existing and Potential
Electric System Constraints and Needs,” December
2009
Note: The peak in electric consumption in 2000 was
due to an exceptionally hot summer.

22. 22
Generation investment in ERCOT
• The competitive
market has steadily
added new
generation and
greater efficiency
to the wholesale
market.
• Generators in the
competitive market
shoulder the risk of
building new power
plants, bringing
efficient, cost-
effective
generation to
consumers.

23. 23
Nodal Market Design in ERCOT
• The transition to a nodal market design required substantial investment and
upgrades to ERCOT’s information technology systems that will allow ERCOT to
better monitor and control the real-time information pertaining to each node of
the electric grid.
• The ERCOT nodal market will provide benefits to customers by allowing
ERCOT to dispatch generation units more efficiently, which will reduce delivered
energy costs.
• The nodal market will improve the economic efficiency of the wholesale electric
market in ERCOT by improving grid management and providing enhanced
system visibility and price signals for the market.
• The nodal market is scheduled to go live on December 1, 2010.

24. 24
Texas Has the Most Installed
Wind Energy Capacity
Source: American Wind Energy Association, 7/20/10 (www.awea.org/projects)
27% of the nation’s installed wind generation capacity
is located in Texas.

25. 25
Map of Adopted
Competitive Renewable Energy Zones
(CREZs)

26. 26
Status of CREZ Certificates of
Convenience and Necessity (CCNs)
Approved CCNs
LCRA
Tippet to North McCamey
Oncor
Bluff Creek to Brown
Scurry County South to
Tonkawa
Dermott to Scurry County
South
Central Bluff to Bluff Creek
Newton to Killeen
Sweetwater to Central Bluff
Tonkawa to Sweetwater
Riley-Bowman
Brown to Newton/Salado
Jacksboro-Willow Creek-Parker
Bowman to Jacksboro
Tonkawa Station Expansion
Jacksboro Station Expansion
Bowman Switch Upgrade
Carrollton NW Terminal
ETT
East Abilene to Putnam
Oklaunion Cap Bank
Clear Crossing to Dermott
Tesla to Riley
Riley to Edith Clarke
Edith Clarke to Cottonwood
LCRA
Kendall to Gillespie
Big Hill to Kendall
Lone Star
Scurry County South to West Shackelford
West Shackelford to Navarro/Sam Switch
Sam Switch to Navarro
West Shackelford Compensation
Navarro Station
Sam Switch Station
West Shackelford Substation
Additional Reactive Equipment
Sharyland
Hereford to White Deer
Silverton to Cottonwood
Hereford Compensation
Silverton Compensation
Cross Texas
Silverton to Tesla
Gray to Tesla
Silverton to Tesla Compensation
Gray Reactive Compensation
Gray Substation
Oncor
Clear Crossing to Willow Creek
Riley to West Krum
West Krum to Anna
Willow Creek to Hicks
Scurry County South Compensation
Dermott Compensation
Scurry County South Station
Dermott Station
Dermott to Willow Creek
Brown Station
Brown Compensation
Newton Station
Hicks Station
West Krum
Sweetwater East Switch
Killeen Station Upgrade
Willow Creek Station
Parker Switch Upgrade
Filed CCNs
Source: PUC, “CREZ Progress Report No. 1,” October 2010

27. 27
Advanced Metering Activities
in Texas
• The approved deployment plan for CenterPoint Energy calls for installation of
advanced meters over five years beginning in March 2009. In 2009, CenterPoint
Energy received a Federal Smart Grid Investment Grant that enables the
deployment to be completed by late 2012. Through October 2010, CenterPoint
Energy has installed 789,857 advanced meters.
• Oncor’s approved deployment plan initiated in late 2008 will have installation of
advanced meters completed by the end of 2012. To date, Oncor has installed
over 1.4 million meters.
• The AEP Texas deployment plan was approved in December 2009 and
installation of advanced meters will be completed by the end of 2013. To date,
nearly 5,000 meters have been installed in Portland, Texas, in order to conduct a
system acceptance test.

28. 28
Benefits for Qualified
Low-Income Customers:
The System Benefit Fund
• The System Benefit Fund (SBF) was enacted as part of the
Texas Electric Choice Act in 1999. It is intended to provide
funding specifically for:
– assistance to low-income customers through reduced electric rates;
– weatherization programs; and
– administrative funding.
• During the months of May through September, eligible low-
income customers received a discount of up to 20 percent
through the “LITE-UP Texas” electric discount program.

29. 29
Web: AECT.net
Blog: AECTnet.wordpress.com
Twitter: twitter.com/AECTnet
Facebook: Association of Electric Companies of
Texas, Inc.
Email: info@aect.net