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[cdn-nucl-l] Fw: Texas vs. California dereg

It seems that Texans are less committed to solar energy, windmills and
conservation.
J
----- Original Message -----
From: Jim Muckerheide <jmuckerheide@delphi.com>
To: Multiple recipients of list ans-pie <ans-pie@nuke-ans.org>
Sent: Tuesday, August 29, 2000 5:01 PM
Subject: Texas vs. California dereg


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ConsultRCI.com/SCIENTECH IssueAlert, August 29, 2000
ERCOT Bulks Up As Texas Prepares for Competition
By: Will McNamara
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The Electric Reliability Council of Texas (ERCOT), which administers the
Lone Star State's power grid and serves approximately 85 percent of its
electric load, announced that construction has begun on its new 45,000
square foot facility at the Met Center in Austin. In addition, a separate
85,000 square foot facility in Taylor, Texas, is scheduled to break ground
this fall. ERCOT is in the midst of preparations for the start of electric
competition in Texas, which is scheduled to begin Jan. 1, 2002.

ANALYSIS: ERCOT, based in Austin, is one of the 10 Regional Reliability
Councils in the North American Electric Reliability Council (NERC)
Organization.
Monitoring a generation capacity of approximately 65,000 MW and serving
about 85 percent of the state's electrical load, ERCOT is unique within
NERC because it is located completely within Texas, as opposed to other
transmission administrators that typically oversee regions rather than
individual states. ERCOT's autonomy has been cited often as an example
of Texas' fierce independent streak and resistance to being governed by
NERC and the Federal Energy Regulatory Commission (FERC).

Presently, the ERCOT service area is administered by 10 control areas that
match power generation and electric demand. However, the Public Utility
Commission of Texas (PUCT)-the regulatory agency overseeing the electric
industry in the state-has given ERCOT authority to oversee purchases, sales
and the general flow of power within Texas once competition begins
(generally
serving as the information clearinghouse). Consequently, ERCOT must expand
in order to assume this most pivotal role in the state's restructuring
plan. The 85,000 square foot facility will actually house the ERCOT ISO,
which will serve as the "traffic cop" along the transmission lines in the
state, making sure that lines do not become congested and reliability is
not jeopardized.

The onset of competition in Texas is a major development for the energy
industry. With regard to population, Texas represents the second largest
energy market (behind California), offering a market value of about $20
billion. Residential customers and businesses in the vast majority of Texas
will have electric choice come January 2002.

Texas officials have been watching California closely all summer long,
and remain confident that the power supply problems faced there won't happen
in Texas. This is largely because Texas has avoided making some of the
critical mistakes made in California. One  important distinction between
the two states is that Texas regulators are allowing for power plants to
be built at less than half the time it has taken to build a new plant in
California. Since 1995, 22 new plants have started operations in Texas,
putting out 5,700 MW. By the time competition starts in little over a year,
15 more plants and 10,000 MW are scheduled to come online. As a result,
Texas officials say that-unlike California-their state has more than enough
generating capacity to meet peak demand and provide at least a 15-percent
reserve for the next few years.

In addition, there are significant differences between the market structures
in Texas and California. First, California's structure is based on an
auction
pool, which the state modeled on the United Kingdom. Integral to
California's
system is a Power Exchange, into which all power suppliers must submit
any power that they want to sell on the competitive market. California
restricted bilateral contracts, meaning that end-users could not establish
direct service contracts with suppliers. Texas, on the other hand, has
no Power Exchange and in fact has mandated bilateral contracts as the way
in which electric service contracts will take place. In Texas, customers
are encouraged to establish long-term bilateral contracts with suppliers
to secure the best rates, which won't put them at the mercy of wholesale
market prices as customers in San Diego discovered this summer.

Also, California incumbent utilities must provide electric service to
customers
who do not choose to switch. In Texas, incumbent utilities must establish
affiliated retail units that will serve customers who do not switch, but
it cannot be the T&D operation of the incumbent utility.

The market potential for Texas competition appears very strong, which
perhaps
more than anything else is due to good planning on the part of Texas
regulators.
However, there are still some lingering concerns about competition in the
Lone Star State. First, there is a shortage of transmission lines in Texas,
especially in the northern half of the state. Although PUCT officials say
that sufficient transmission lines will be put into place before competition
begins, without sufficient lines companies could exert monopoly control
over electric prices within certain regions.

Another concern is that Texas may be relying too much on natural gas. Almost
all of the new plants that have been built in Texas are powered by this
fuel source. While natural gas has its advantages (lower emissions than
coal, lower construction costs, etc.), presently the price of natural gas
is running high. If this trend continues, the anticipated lower cost of
natural gas may not be very reliable. Yet, ironically, customers may still
benefit because of the multitude of power plants within the state. Abundant
supply in Texas may keep the cost of power low for end-users, but less
profitable for suppliers.

There have also been concerns about ERCOT's ability to handle the additional
transmission load once competition begins. The fact that ERCOT is building
two new facilities, along with expanding its staff, is probably a direct
result of these concerns. More than anything else, Texas wants to avoid
the horrible press that California has received this summer and to reassure
its residents of the benefits of competition.
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Sincerely,

Will McNamara
Director, Electric Industry Analysis
wmcnamara@consultrci.com

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