Texas Gov, George W. Bush Friday signed into law a bill torestructure the state’s $19 billion electric industry.

Electric competition is to begin Jan. 1, 2002. Choice ofelectric service providers will begin Jan. 1, 2002, for customersof most investor-owned utilities. The affiliated retail electricprovider (REP) of the utility that serves the customer on Dec. 31,2001 will continue to serve the customer unless the customerchooses another REP. Municipally owned utilities and cooperativesmay elect to offer customer choice after Jan. 1, 2002. Eachelectric utility will launch a pilot project beginning June 1, 2001to offer choice to 5% of the utility’s combined load.

The law calls for a statewide reduction of 50% in the generationof nitrogen oxide (NOx) and a 25% reduction in sulfur dioxide (SO2)from grandfathered power plants. Costs associated with the airquality improvements are recoverable. The law also calls fortripling the state’s renewable power generation by 2009.

Customers will receive information to permit comparisons betweenservice and prices. They will also be protected from unfairpractices, such as slamming, and may elect to be put on a list toprevent unwanted telephone solicitations from REPs. REPs must becertified by the Public Utility Commission of Texas (PUC) andelectric generators and other parties must register with the PUC.During the first three years of competition, any REP that servesaggregated load in excess of 300 MW must serve residentialcustomers for at least 5% of the company’s total load or pay a feeinto the system benefit fund — a fund established for customereducation, low income assistance programs and to replace any stateand local school funding reductions that may result fromrestructuring the electric industry.

The bill freezes rates of most investor-owned utilities untilcompetition begins Jan. 1, 2002 then provides a 6% reduction forresidential and small commercial customers. Rates will be capped atthis “price to beat” for five years. Affiliates of theinvestor-owned utilities may compete for large business customersimmediately and for residential and small commercial customersafter three years or when 40% of the designated customer classeshave chosen new providers. The price to beat applies to theutility’s certified service area.

Each utility that has stranded costs may redirect depreciationexpenses relating to transmission and distribution assets to itsgeneration plant assets from 1998 through 2001. The utility mayalso apply any earnings during the rate freeze period of 1999through 2001 that are above the utility’s most recently approvedcost of capital to generation depreciation.

Electric utilities are allowed to recover all net, verifiable,non-mitigated stranded costs incurred in purchasing power andproviding electric generation service. Securitization, allowed as amechanism for recovery, permits utilities to refinance investmentsand costs incurred under a regulated environment. For recovery, autility may securitize 100% of its regulatory assets and initiallyup to 75% of its stranded costs as estimated using the EconomicCost Over Market (ECOM) model of the PUC. Remaining stranded costscan be securitized after a true-up proceeding in 2004.

Capacity owned and controlled by a power generation company islimited to 20% of the installed generation capacity in a powerregion. Most of Texas is in the Electric Reliability Council ofTexas, ERCOT, power region. The capacity limitation for certainutilities is reduced if the company commits to meeting certain airquality standards for grandfathered plants in non-attainment areas.

“We applaud the Texas Legislature and Governor George W. Bushfor enacting legislation that will directly benefit the state’s 20million residents by creating a competitive market place that willgive Texans greater flexibility to manage their energy costs,” saidRobert D. Glynn Jr., CEO of PG&E Corp. whose energy trading andgas transmission businesses are headquartered in Texas.

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