Update on the Texas Electric Industry:

Questions & Answers

April 22, 2010

Legislative advertising paid for by: John W. Fainter, Jr. • President and CEO Association of Electric Companies of Texas, Inc.1005 Congress, Suite 600 • Austin, TX 78701 • phone 512-474-6725 • fax 512-474-9670 • www.aect.net

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AECT Principles

• AECT is an advocacy group composed of member companies committed to:

- Ensuring a modern, reliable infrastructure for the supply & delivery of electricity.

- Supporting efficient competitive markets that are fair to customers and market participants.

- Supporting consistent and predictable oversight and regulation that will promote investment and ensure the stability of Texas’ electric industry.

- Promoting an economically strong and environmentally healthy future for Texas, including conservation and efficient use of available resources.

• AECT member companies remain dedicated to providing Texas customers with reliable service and are committed to the highest standards of integrity.

The Association of Electric Companies of Texas, Inc. (AECT) is a trade organization of investor-owned electric companies in Texas. Organized in 1978, AECT provides a forum for membercompany representatives to exchange information about public policy, and to communicate withgovernment officials and the public. For more information, visit www.aect.net.

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U.S. Divided into Eight

Reliability Regions

• Electric systems in Texas are located within four separate reliability regions: - Texas Regional Entity (TRE), which oversees participants in the Electric Reliability Council of Texas (ERCOT); - SERC Reliability Corporation; - Southwest Power Pool (SPP); and - Western Electricity Coordinating Council (WECC).

• The eight reliability regions in thecontinental U.S. are subject to theoversight and enforcement authority ofthe North American Electric ReliabilityCorporation (NERC), which is subject tothe Federal Energy RegulatoryCommission’s (FERC) oversight. NERCis responsible for developing standardsto ensure and improve reliability fordelivery of electricity on the bulk powersystem.

FERC

NERC

(ERCOT)

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AECT Member Companies

Within ERCOT

Generation Companies

Transmission and Distribution Utilities

Retail Electric Providers

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AECT Companies

Outside of ERCOT

Western Electricity CoordinatingCouncil (WECC)

Southwest Power Pool (SPP)

SERC Reliability Corporation

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Key Takeaways on the Competitive

Electric Market in ERCOT

• Electric market consumers in competitive areas have many plans to choose from.• Natural gas prices influence electric prices in Texas.• Natural gas prices fell during much of 2009; because of the robust competition

among multiple REPs, residential electric price offers have fallen as well.

• Even as other energy commodities rose since 2001 (gasoline, crude oil, naturalgas and coal), robust competition has helped push retail electric prices down.

• Available prices in the ERCOT competitive electric market are falling significantly,a stark contrast to the national average which is rising.

• The competitive market includes many safeguards and protections and oversightfor both retail and wholesale customers.

• Competition has brought greater efficiency to the wholesale market, spurringconstruction of generation needed to meet Texas’ growing economy andpopulation.

• Advanced metering systems, which will provide new tools for consumers to lowerconsumption while enhancing grid reliability, are undergoing independent tests todemonstrate their accuracy.

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Q: What offers are available in the

competitive market today?

• Customers have over 100 plans to choose from overall, includingvariable, fixed and indexed pricing. In addition to month-to-monthoptions, plans include 6, 12, 18, 24, 36 and 60-month terms.

Service Area

Number of 12-Month Fixed

Price Offers

(including renewable offers )

Average 12-Month Fixed

Price Offer

(including renewable offers )

Lowest 12-

Month Fixed

Price Offer

Lowest 6-

Month Fixed

Price Offer

Lowest

Variable Price

Offer

AEP Texas

Central

52 11.6¢/kWh 10.0¢/kWh 10.4¢/kWh 8.8¢/kWh

AEP Texas

North

51 10.5¢/kWh 9.3¢/kWh 9.5¢/kWh 8.4¢/kWh

CenterPoint

Energy

53 11.1¢/kWh 10.0¢/kWh 9.8¢/kWh 8.4¢/kWh

Oncor

53 10.3¢/kWh 9.2¢/kWh 9.5¢/kWh 7.8¢/kWh

TNMP

51 10.6¢/kWh 9.3¢/kWh 9.5¢/kWh 8.0¢/kWh

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Q: Why did average prices rise during

certain years over the past decade?

1 Electric price offers for residential customers using an average of 1,000 kWh per monthSources: NYMEX; www.powertochoose.org

• Electricity price offers tend to show the effect of natural gas prices.

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Q: How have energy industry prices

changed since 2001?

Sources: Public Utility Commission of Texas, U.S. Energy Information Association, NYMEX Commodity Exchange, Bureau of Labor Statistics.Notes: Commodity prices latest available as of April 19, 2010; coal percentage increase is approximate. Inflation covers period from 2001 to 2009

Percentage Change inCommodities

December 2001 - April 2010

• Despite large increases in other energy commodities -- as well as inflation --electric prices have decreased in ERCOT since December 2001.

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Q: How do competitive price offers compare

with rates in other states?

• Texas’ electric priceoffers comparefavorably to the stateswith which we competeto attract and retainbusiness.

• In fact, Texasresidential price offersin the competitiveelectric market arelower than those of theaverage price in otherlarge states, as well asstates that, like Texas,rely heavily on naturalgas to generateelectricity.

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Q: How do competitive price offers compare

with rates in other states?

Customers in eachcompetitive region haveprices available that are

below the national average.

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Q: Are electricity prices in Texas outpacing

those in the rest of the nation?

• With the expirationof the price-to-beat, allcustomers couldreceivecompetitive offersin January 2007.

• Over that period,competitive priceoffers in Texashave fallen 20%.

• Other states withrestructuredmarkets andstates usingnatural gas astheir primary fuelhave seenincreases.

Source: EIA average annual residential rates for December 2006 and December2009 monthly data (latest available information that includes usage)

Texas-1%

Gas-Dependent States (excl. TX)

6%

US Average (excl. TX)

12%

Restructured States

(excl. TX)16%

Competitive Offers in Texas

-20%

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Q: How do competitive prices compare with

other electric market structures in Texas?

• Prices in competitive areas have decreased since the market opened, whileother structures have seen increases.

1 For residential customer using 1,000 kWh; depicts latest available consistent data for end points (4/10 for competitive areas and 3/10 for other areas)Sources: Public Utility Commission of Texas (4/16/10); powertochoose.org (4/12/10)

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Q: What can customers do to lower

their electric bills?

• Many REPs offer innovative programs to help customers manage their electricusage. Customers may want to contact their REP to see what’s available.

• Customers interested in lowering their price can contact their REPs or otherREPs in their region. To see what offers are available, customers can visitwww.powertochoose.org.

• Customers have many opportunities to lower their electric bills by usingavailable technology to help conserve energy.

– All customers can contact their electric utility to find out what programs are available,or to find a contractor or vendor who participates in the state energy efficiencyprograms.

– Customers can also call 2-1-1, the Texas Health and Human Service Commission'sinformation and referral network to learn about programs available in the area.

• Below are some resources to help customers learn more.– Texas Department of Housing and Community Affairs:

www.tdhca.state.tx.us/assist_repair.htm– Texas Is Hot: www.texasishot.org– U.S. Department of Energy: www.energy.gov/energyefficiency– Get Energy Active: www.getenergyactive.org

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Q: What protections are in the market

for retail customers?

• Make Spanish-language support available tocustomers

• Place customer deposits in interest-bearingaccounts and return that interest to customers whenthe deposit is returned

• Follow a mandated timeline for disconnection ofcustomers

• Provide notice in case of disconnection• Investigate any customer complaint within 21 days• Provide a Terms of Service Statement detailing

contract terms, cancellation penalties, depositrequirements, fees, payment arrangement options,how to cancel service, and other obligations of theREP

• Allow a customer to cancel a service agreementwithin three federal business days after receivingthe terms of service

• Allow a customer to cancel the switch uponreceiving notification that the switch will occur

• Register with the PUC and meet financialrequirements set by the Commission

• Communicate clearly with consumers regardingnotice of contract expiration

• Demonstrate creditworthiness to purchase powerto serve its customers

• Demonstrate the technical ability to supplyelectricity

• Maintain privacy of customer information• Not discriminate among customers• Not add charges to a customer’s electric bill for

services not requested by the customer• Provide a “Your Rights as a Customer” disclosure• Provide an Electricity Facts Label to allow for an

“apples-to-apples” comparison among REPs• Make deferred payment plans available for those

expressing an inability to pay• Provide the LITE-UP discount for low-income

Texans during summer months

Among other requirements, REPs serving residential customers must:

Even this brief sampling of regulationshighlights that customers are protected

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Q: Are there protections in the wholesale

market to ensure generators are operating

fairly?

• The law limits generation ownership and control to 20 percent within ERCOT.– If a power generation company owns and controls more than 20 percent of the generation

capacity in a power region, it must submit a market power mitigation plan to the PUC.

• PUC has the authority to monitor the market for the presence of market power; thePUC has established the market oversight division to address market power issues.

– Legislation passed in 2005 created a new Independent Market Monitor (IMM) positionhoused within ERCOT and reporting to the PUC which polices activities in the wholesalemarket.

– Since 2007, the IMM has assumed the role of ensuring the competitiveness of the ERCOTwholesale market through investigations and proposals for market rule changes.

– The PUC requires quarterly reports of electric wholesale transactions, to increase markettransparency and help identify market power abuse.

• The PUC may seek injunctions, impose penalties and revoke certificates to remedythe existence of market power.

– During the 2005 legislative session, the Legislature reviewed the PUC’s penalty authorityand increased the penalty authority fivefold.

– The PUC has been active in exercising its increased penalty authority.

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Q: Do we have enough generation to meet

growing demand?

• The competitivemarket has steadilyadded newgeneration andgreater efficiencyto the wholesalemarket.

• Generators in thecompetitive marketshoulder the risk ofbuilding new powerplants, bringingefficient, cost-effectivegeneration toconsumers.

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Q: Do we have enough generation to meet

growing demand?

• However, ERCOTwill need additionalgeneration by2014.

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Q: Are there any plans to open

areas outside ERCOT to competition?

• Not in the near future. The Legislature has enacted statutes to delaycompetition in the Entergy, SWEPCO, and Xcel service territories. El PasoElectric’s transition to competition is also delayed in accordance with a PUCorder.

• Each of these service areas is part ofmulti-state electric grids, with differingregulations. In many cases, verticallyintegrated utilities purchase wholesalepower from certain competitiveentities.

• Given the complexities of multiplelayers of regulation, combined with thelack of competitive market activity instates adjacent to Texas, none of thenon-ERCOT regions have immediateplans to implement retail competition.

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Q: Are the new advanced metering

systems accurate?

• Upon customer request, Oncor tested more than 4,500 smart meters on-site, all confirmingaccuracy.

– In the Oncor region, 34 independent tests were conducted by a customer-selected testing company,all confirming accuracy.

– Oncor has conducted 40 side-by-side demonstrations of traditional and smart meters over a 4 weekperiod. A majority of the cumulative weekly readings have shown a 0 –3 kWh difference, with thehighest cumulative difference over four weeks being 12 kWh, which translates to just over a dollar.

• A key component of CenterPoint Energy’s commitment to meter testing isperforming side-by-side advanced meter and traditional meter tests.

– There are currently 21 side-by-side tests, showing a cumulative difference of between 0 and 11 kWhover the four week testing period.

– The average cumulative difference found is 3.2 kWh.

• AEP Texas has recently begun installation of its advanced meters, whichundergo rigorous testing prior to deployment.

– The company will also be conducting side-by-side tests to confirm accuracy as well as working withan independent testing firm designated by the PUC.

• Oncor, CenterPoint Energy, and AEP are working with the PUC to finalize a planfor independent testing of smart meters requested by customers, as well assystem-wide samples of smart meters identified by the independent company. Inaddition, an independent company is conducting reviews of the companies’smart meter systems and processes.

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Questions?