March 3, 2005 Success of the Texas Electric Retail Market Presentation to ERCOT Technical Advisory Committee

March 3, 2005

Success of the Texas Electric Retail

MarketPresentation to

ERCOT Technical Advisory Committee

2

Success of the Texas Electric Retail Market

•Wholesale Market… …Laid the Foundation

•Senate Bill 7……Set the Stage

•Retail Market ……Seized the Opportunity

Successful Progression

3


Senate Bill 7 Set the Stage for Success

What Texas Did Right Customer Benefits

WholesaleWholesale

RetailRetail

• Bilateral trading market

• Expedited permitting and interconnection

• Immediate competitive pricing for large customers

• PTB provided headroom and mechanism to pass on commodity changes

• Low barriers for entry

The Texas Legislature designed the retail framework to:• Ensure Texans have access to reliable electricity at competitive prices and

improved customer service• Foster competitive behavior and encourage entrepreneurship, while

continuing to protect consumers

• Significant investment in efficient generation (CCGT)

• Improved operational performance

• Lower prices than under continued regulation

• Many competitive options

• New products (loyalty programs, “green power”

4


Generation Investment In ERCOT

• 26 GW of efficient CCGT generation capacity added between 1998-2004

• $15 billion was invested in generation infrastructure – none of which was in the rate base

• Competition drove down market heat rate by 44% (from 14.0 to 7.8 MMBtu/MWh)

•This would be like improving average automobile gas mileage from 20 MPG to 35 MPG

5


Customers Exercise Their Right to Choose…

•Large Business – 74%– Virtually 100% of Large Businesses are receiving

competitive bids

•Small and Medium Business – 55%

•Residential – 20%– While 20% is currently served by a new REP, a

larger percent have made a choice – This 20% compares with 4% for local telephone and

14% for long distance 3 years after restructuring

6


The Most Successful Retail Market In The U.S.

Large Business

Texas 74% Maine 56% New York 48% Washington DC 39% Maryland 38% Massachusetts 31% California 26% Ohio 21% Pennsylvania 13%

Residential

Texas 20% Washington DC 10% New York 7% Pennsylvania 6% Maryland 3% Ohio 2% Massachusetts 2% Connecticut 2% Maine 1% California 1%

7


The 3rd Most Successful Retail Market in the World

1

Country, Province, State or Territory RED Index Score World Rank2003 2003

England, United Kingdom 88 1New Zealand 75 2Texas, USA 69 3

Pennsylvania, USA 67 4Maine, USA 64 5Alberta, Canada 61 6New York, USA 60 7District of Columbia, USA 54 8Michigan, USA 52 9Maryland, USA 52 9Victoria, Australia 50 11New Jersey, USA 50 11

Center for Advancements of Energy MarketsCenter for Advancements of Energy Markets

2004?

8


Additional Results of Retail Success

•The increase in Bad Debt levels immediately following Market opening was a concern; however, current data indicates bad debt levels are decreasing

•Market Participants Have Significantly Increased Commitments To Low-Income Assistance Programs

– Customer contributions have stayed the same during this time period – $1.7 million

– Company contributions have increased from $1.4 million to $5.9 million

– This is a 321% increase in company contributions

9


Long term effects of Industry Restructuring

•The airline industry saw retail price reductions of 45% over a 15 year period.

•The US long distance restructuring has shown a continual reduction of rates over a 22 year period of 86%

•Trucking prices show a 37% reduction over a 30 year period

10


Remaining Concerns

•Gaps between Terms and Conditions, Customer protection, protocols and other market documentation

•Market created customer confusion due to timing differences, customer ownership issues, variations in service offerings communication

•Customer education is lacking in the market

•System outages to gateways and other systems

•Continue to experience occasional issues with transactions and processes

•Opt-in Coops reveal differences in rules and requirements

11


Success is not perfection…still working

•Standard Terms and Conditions– TDSPs - Governance issues, Substantive changes,

Clarification – REPS and Consumers - Service offerings, Gaps in

rules and protocols, Operational improvements

•Market created customer confusion– Timing differences, customer ownership issues,

variations in service offerings – Customer education is lacking in the market

•System outages and transaction issues

•New market entrants

12


•2004 was a successful year for the Texas Retail Market.

•A huge thank you goes to all of the Market Participants and ERCOT that have contributed to this success

•The following RMS accomplishments provided overall success to the Texas Retail Market

RMS 2004 AccomplishmentsRMS 2004 Accomplishments

13


Improvement in Performance Filing

• Worked with the PUCT staff to support Project No. 24462 Quarterly Performance Metrics and Project No. 29760 Disconnect/Reconnect report

• Reduced filing volume by 38,000 pages

• Improved reporting quality

So What?So What?

This provides transparency in the Retail This provides transparency in the Retail Market and encourages top performanceMarket and encourages top performance

14


Improvements to Texas Market Link (Portal)

• Created a sustainable infrastructure

• Improved user interface and navigation

• Implemented system features to allow multiple requests

So What?So What?

Improvements facilitated customer Improvements facilitated customer switching process and minimized the risk of switching process and minimized the risk of

switching errorsswitching errors

15


Market Growth Facilitation

• First Muni/Coop Pilot Project to enter the competitive Market

• Successfully handled 4 million enrollment/de-enrollment transactions

• Developed Standardized Historical Usage Process (LOA)

So What?So What?

The elimination of barriers allows growth… The elimination of barriers allows growth… and growth is good for the Retail Marketand growth is good for the Retail Market

16


NAESB EDM V1.6 Implementation

• Updated to most current industry standard

• First electric Market to implement and influenced future upgrades

• Provides increased security and improves transactions tracking

So What?So What?

The Retail Market generates and processes The Retail Market generates and processes 70 million transactions each month…making 70 million transactions each month…making

sure they get to the right place at the right sure they get to the right place at the right time with adequate security and traceability time with adequate security and traceability

is vital to Market successis vital to Market success

17


Load Research Project

• Identified sample meter locations

• Developed the communication and information system

• TDSPs installed 4400+ sample meters

So What?So What?

Improved Load Profiles will result in more Improved Load Profiles will result in more accurate Market settlementsaccurate Market settlements

18


Disconnect for Non Pay Functionality

• Implementation of §25.483 of Customer Protection Rule Making

• Development of the Disconnect/Reconnect Process Guide

• Supported development of Project No. 29760 for reporting requirements

So What?So What?

This allows REPs to better manage their This allows REPs to better manage their credit riskcredit risk

19


Transaction Improvements Refined market rules and timing of order

processing

Revised protocols sections 15 and 19

Standardized and improved the safety net move in process

So What?So What?

Providing documentation, definition, and Providing documentation, definition, and standardization allows the Retail Market to standardization allows the Retail Market to operate more effectively… customers are operate more effectively… customers are

better servedbetter served

20


Successful Retail Market Testing

• 32 REPs newly certified and tested, 16 existing REPs tested in new areas

• 3 Successful test flights including Texas SET 2.0 MIMO release

• 54,312 test scripts were executed

So What?So What?

Significant System Changes are required by Significant System Changes are required by all Retail Market participants. Everyone has all Retail Market participants. Everyone has to make the changes together for success to to make the changes together for success to

be achieved.be achieved.

21


Market Cleanup Efforts

• Continued resolution of data variances to facilitate accurate market settlement

• Texas SET Change Controls 2.1 improvements to billing and invoicing

• ERCOT Proactive Reporting for early resolution of transaction issues

So What?So What?

These efforts significantly reduced, and will These efforts significantly reduced, and will continue to reduce, the number of Market continue to reduce, the number of Market

disputesdisputes

22


23


TxSet V2.0 Solution to Stacking (MIMO)

• Business rules rewritten to accommodate customer changes in the move in/move out process

• Allowed non-sequential simultaneous transaction processing

• Market Coordination Team developed procedures, market rules and performed post review

So What?So What?

This essentially resolved the number 1 This essentially resolved the number 1 Market gap! And, to a large extent, restored Market gap! And, to a large extent, restored the customer’s confidence in deregulation.the customer’s confidence in deregulation.

24


Final Jeopardy“The Game, not the legal position”

25


CATEGORY:

Electric Retail Markets

26


THE QUESTION IS:

This was the key contributing factor to

making the Texas Retail Market #1 in the U.S. &

#3 in the world

27


THE ANSWER IS:

What is the ERCOTStakeholder

Process

28


The TexasRetail Electric Market

Rocks!

Documents

March 3, 2005 Success of the Texas Electric Retail Market Presentation to ERCOT Technical Advisory Committee