When Texas debuts electricity deregulation in 2002, the statewon’t have the power shortages or high electricity rates likeCalifornia has experienced in the past few months, but some partsof the state may be effectively locked out of competition becauseof an aging transmission and distribution system.

This week, the chairman of the Texas Public Utility Commission(PUC) offered an upbeat forecast on what PUC expects when the state— second in population to California — opens its markets in 16months to competition. Pat Wood told a panel of state lawmakers andlobbyists in Houston that the state’s “ample” and growing supply ofpower transmission lines under construction, as well as theproposed market structure, will not allow price gouging.

Admitting that some things still could go wrong, Wood insistedthat the “critical things” already are in place to minimize theimpact of change, hoping to assure lawmakers who draftedderegulation legislation that was signed into law last year. Withnearly two years to go before deregulation takes effect, manythings still can be fixed, he said.

Still, the state’s aging transmission and distribution system isone area of major concern for the PUC. Some older areas of thestate’s grid, notably north Dallas and deep East Texas, may beeffectively locked out of retail competition in the short termsimply because of the constraints on the amount of power that canbe moved in and out of those areas.

However, Wood noted that four transmissions systems, worth $300million, are already under way to expand the state’s currentsystem, and eight more are at the design stage. The expansions willrange from 20 miles to 100 miles of new wires, and should addressany problems.

To alleviate concern about Texas rates skyrocketing oncederegulation takes effect, Wood noted that the state’s prices willbe set by a mechanism known as the “price to beat,” which givesresidential and small business customers a 6% rate reduction bytheir current electric supplier at the beginning of competition.The cap, which will be in effect for five years, then will be the”price to beat” for other power suppliers entering the market. Henoted that in California, electricity must be bought from amandatory power pool that removes the incentive for buyers to findthe best deal.

He also discounted worries about Texas not having enoughgeneration to support the state’s growing demand. Texas, said Wood,has one of the most “attractive economic climates” for new powerplant construction in the country, with 23 power plants now underconstruction. Those new plants will add 13,384 MW of capacity.

Since 1995, when the state first approved competition forwholesale customers, the state has added 5,721 MW of powergeneration. By 2002, another 9,655 MW will be in place. The newgeneration coming on line has enabled Texas to keep capacity at 10%to 15% above peak summer demand. By contrast, California has added672 MW since 1996, and has had few power plants built in the pastfew years because of the lengthy regulatory process.

“Keeping that cushion there is real important to keep the marketliquid and working well,” said Wood.

Texas State Sen. David Sibley, who co-chairs the Legislature’selectric utility restructuring committee, said he is confident thatTexas will fare well by the time deregulation is reality. However,he still expressed concern that Texas could be too dependent onnatural gas to power the new generation facilities.

Wood said that if natural gas prices remain high, that wouldencourage more coal-fired electricity generation. The firm gasprices, he noted, have led to more movement in liquefied naturalgas import terminals, which allows gas to be shipped from abroad.

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