Electric Restructuring Becomes Law in Texas
Texas Gov, George W. Bush Friday signed into law a bill to
restructure the state's $19 billion electric industry.
Electric competition is to begin Jan. 1, 2002. Choice of
electric service providers will begin Jan. 1, 2002, for customers
of most investor-owned utilities. The affiliated retail electric
provider (REP) of the utility that serves the customer on Dec. 31,
2001 will continue to serve the customer unless the customer
chooses another REP. Municipally owned utilities and cooperatives
may elect to offer customer choice after Jan. 1, 2002. Each
electric utility will launch a pilot project beginning June 1, 2001
to offer choice to 5% of the utility's combined load.
The law calls for a statewide reduction of 50% in the generation
of nitrogen oxide (NOx) and a 25% reduction in sulfur dioxide (SO2)
from grandfathered power plants. Costs associated with the air
quality improvements are recoverable. The law also calls for
tripling the state's renewable power generation by 2009.
Customers will receive information to permit comparisons between
service and prices. They will also be protected from unfair
practices, such as slamming, and may elect to be put on a list to
prevent unwanted telephone solicitations from REPs. REPs must be
certified by the Public Utility Commission of Texas (PUC) and
electric generators and other parties must register with the PUC.
During the first three years of competition, any REP that serves
aggregated load in excess of 300 MW must serve residential
customers for at least 5% of the company's total load or pay a fee
into the system benefit fund -- a fund established for customer
education, low income assistance programs and to replace any state
and local school funding reductions that may result from
restructuring the electric industry.
The bill freezes rates of most investor-owned utilities until
competition begins Jan. 1, 2002 then provides a 6% reduction for
residential and small commercial customers. Rates will be capped at
this "price to beat" for five years. Affiliates of the
investor-owned utilities may compete for large business customers
immediately and for residential and small commercial customers
after three years or when 40% of the designated customer classes
have chosen new providers. The price to beat applies to the
utility's certified service area.
Each utility that has stranded costs may redirect depreciation
expenses relating to transmission and distribution assets to its
generation plant assets from 1998 through 2001. The utility may
also apply any earnings during the rate freeze period of 1999
through 2001 that are above the utility's most recently approved
cost of capital to generation depreciation.
Electric utilities are allowed to recover all net, verifiable,
non-mitigated stranded costs incurred in purchasing power and
providing electric generation service. Securitization, allowed as a
mechanism for recovery, permits utilities to refinance investments
and costs incurred under a regulated environment. For recovery, a
utility may securitize 100% of its regulatory assets and initially
up to 75% of its stranded costs as estimated using the Economic
Cost Over Market (ECOM) model of the PUC. Remaining stranded costs
can be securitized after a true-up proceeding in 2004.
Capacity owned and controlled by a power generation company is
limited to 20% of the installed generation capacity in a power
region. Most of Texas is in the Electric Reliability Council of
Texas, ERCOT, power region. The capacity limitation for certain
utilities is reduced if the company commits to meeting certain air
quality standards for grandfathered plants in non-attainment areas.
"We applaud the Texas Legislature and Governor George W. Bush
for enacting legislation that will directly benefit the state's 20
million residents by creating a competitive market place that will
give Texans greater flexibility to manage their energy costs," said
Robert D. Glynn Jr., CEO of PG&E Corp. whose energy trading and
gas transmission businesses are headquartered in Texas.
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