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Texas Regulator Calls for More Baseload, Non-Gas-Fired Generation

Both the U.S. and, in particular, Texas must start constructing more power generation that is baseload and fueled by sources other than natural gas, Barry Smitherman, a commissioner with the Public Utility Commission of Texas (PUCT) told Texas lawmakers last week.

"To me the most important mechanism for keeping [power] prices low is increased generation sources," Smitherman said in an appearance before the Texas House of Representatives' Committee on Regulated Industries. "We have not built a plant that generates electricity in this market in 30 years, except for natural gas-fired plants."

Smitherman said that nuclear plant projects in the state didn't come online until the late 1980s. A coal-fired plant "that San Antonio has, I think was built in the early 70s or late 60s." San Antonio's CPS Energy and a number of organizations and individuals recently announced a settlement in principle of their disputes regarding the new CPS Energy Spruce 2 coal-fired power plant.

"We've got to begin to build more generation in this country and particularly in this state that's baseload and not just driven by natural gas," Smitherman said.

Along with the CPS Energy coal-fired project, Smitherman noted that TXU has announced plans to build a coal-fired power plant in the state, adding that "there may be one or two more" projects announced.

He noted that "most of our plants in Texas burn natural gas now to make electricity. In fact, we're at the point where there's no hour of any day of the year that we're not deploying some natural gas-fired plants. That's with all the coal plants and all the nuclear plants running 24, seven. So the price of natural gas is setting the price of electricity." Since Texas moved to deregulate its power market in early 2002, "we've had a 500% increase in the price of natural gas."

Meanwhile, Smitherman used his appearance before the legislative panel to toot the horn for Texas' power competition efforts.

The regulator noted that the state has at least 55 active retail electric providers (REPs). Also, "there's no shortage of companies that want to come into the Texas market and begin to aggregate customers and then deliver power to them. By one organization's claim, we're the most competitive market in the United States, the third most competitive in the world."

In addition, Smitherman said that switch rates "continue to grow. We all know that the industrial and commercial customers switched in large numbers shortly after deregulation. But what you will see....is that the residential market continues to switch."

Texas House Rep. Sylvester Turner asked the PUCT to provide "a model comparison of where we would be, for example, under the old system as compared to" the current competitive environment.

Turner called for "an apples-to-apples comparison, so to speak, of where the market would have trended under old system -- looking at that model -- and then looking at where we are under this system, and then I think people can draw their own conclusions from it."

In recent news out of the Lone Star State, TXU Energy, the largest REP in Texas, recently announced it is laying off about 20% of its workforce, or 65 employees, in an effort to trim costs. TXU, headquartered in Dallas, provides electricity to about 2.4 million residential and commercial customers, mostly in North Texas. Long-term, TXU has set a growth goal of 3-5%, but the business has continued to report losses, including in 3Q2005. Some of the losses have been related to higher fuel costs -- natural gas prices have more than doubled in the past year, and under pressure from Texas regulators, have only incrementally been passing the costs down to consumers.

Elsewhere, Jim Robb, who had run the retail marketing arm for Houston-based Reliant Energy, resigned Nov. 23. On an interim basis, CEO Joel V. Staff has assumed Robb's responsibilities. Robb, who had been with Reliant since 2003, will continue to work as a consultant, according to the company.

Reliant spokeswoman Pat Hammond said Robb had made a "significant" contribution in helping the company expand into the Texas retail marketplace. Reliant currently has about 1.9 million residential and commercial customers, with most in the Houston area.

Houston-based retailer Utility Choice Electric (UCE) in November informed its customers it would no longer serve them after it defaulted on payments to its wholesale power provider. More recently, UCE received some good news when a Texas state court agreed with its allegation that Calpine had taken some unlawful actions of late. Among the objectionable behavior by Calpine, UCE alleged the merchant power plant operator purported that the energy service provider owed it $16 million, and it told local news media several untrue statements about the company and its operations, according to UCE.

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