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Electric Restructuring Becomes Law in Texas

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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