PowerFacts

COMPETITION, TEXAS-SIZED

"Competition has brought substantial benefits to Texas in only a few years, both in absolute terms and relative to other states. The ERCOT markets function well, innovations planned for 2009 will further improve investment choices and power pricing, and institutions put in place by the PUCT can sustain competitive markets into the future."

"Competition in Texas Electric Markets: What Texas Did Right & What's Left to Do"
Robert J. Michaels, Texas Public Policy Foundation, March 2007 (p. 4)

"The Greatest Success Story in the United States, If Not the World"

* "...Texas - or more specifically, the Electric Reliability Council of Texas (ERCOT) region - stands out among the states for the competitive performance of both its retail and wholesale markets. Although it appears redundant, the success was largely due to the willingness to let markets work and not manipulate prices or access policies. While the transformation of American electricity has been dominated by a largely political competition to 'design' markets for it, Texas did not 'design' a retail market in any meaningful sense - it instead set general rules for retail electric providers (REPs - both competitive providers, or CREPs, and affiliated providers, or AREPs) and allowed them to compete as they wished within those rules." (p. 3, emphasis added)

* "In both the retail and wholesale markets, Texas (ERCOT) is the greatest success story in the United States, if not the world. Competition has brought substantial benefits to Texas in only a few years, both in absolute terms and relative to other states. Many observers agree that the ERCOT area has enjoyed the most successful transition in the U.S., and that institutions put in place by the PUCT can sustain competitive markets into the future.

"In making this determination, there are three essential characteristics to look for in markets:

>Efficient, competitive wholesale markets
>Benefits of retail markets available to all users
>Long term predictability of investment climate, freedom to contract

"The results of this study indicate that the Texas electric market has all of these characteristics to a degree not seen in other states." (p. 19, emphasis added)

* "It is far harder to cope with the uncertainty of capricious regulatory policies made for political reasons that confound investor expectations. The predictability of Texas policy may explain why the ERCOT territory has seen investment in volumes and announcements of new projects that will probably maintain adequate reserve margins." (pp. 22-23, emphasis added)

* "The same institutional choices that succeeded in Texas could have been made elsewhere." (p. 23)

* "Texas did not 'design' a retail market in any meaningful sense - it instead set general rules for CREPs and AREPs and allowed them to compete. The details of what would be sold and how it would be priced were left to the ingenuity of buyers and sellers." (p. 23)

* "Competition has brought substantial benefits to Texas in only a few years, both in absolute terms and relative to other states. The ERCOT markets function well, innovations planned for 2009 will further improve investment choices and power pricing, and institutions put in place by the PUCT can sustain competitive markets into the future." (p. 4)

Customers Are Making the Switch and Recognizing the Benefits

* "Industrial customers with loads above 1 MW were the quickest to switch. They had large power bills and either understood their new opportunities or soon learned about them from marketers and aggregators.... Today approximately 68 percent of both commercial and industrial loads have switched." (pp. 4-5)

* "In the residential market, many small customers are served by AREPs yet still have made observable choices. As of December 2006, 76.7 percent of residential customers had made such a choice. This includes 36 percent that switched to a CREP and 40.6 percent that are still served by AREPs but have chosen a different price plan, moved into an area and chose the AREP, or switched back to an AREP." (p. 5)

* "As of February 2007, each territory contained 17 or 18 REPs, offering from 52 to 55 different plans. Each territory currently has at least five plans that offer power from environmentally favored resources.19 ERCOT-wide, 20 REPs are selling to residential users and 42 (some also selling to residences) are available to industrial and commercial customers." (p. 11)

* "[J]udged by the numbers of customers switched (both toward and away from AREP service), we can already say that Texas has the nation's most successful retail choice program. Based on the current and planned investment in generation capacity, the same thing can probably be said about the Texas wholesale market." (p. 19)

* "By a standard of consumer savings, retail competition has already provided substantial benefits." (p. 19)

* "Texas' proliferation of rate plans tells us that consumers value more than just low prices, depending on their risk aversion, environmental awareness, desire for electricity-related services, and economic expectations." (p. 19)

Diversity in Plans Yields Environmental Benefits; "Rigorous" Competition Ahead

* "Every territory offers several plans (Houston has six) that supply power from sources approved by environmental organizations. Different plans require different commitments from customers. Of the 39 plans available in Houston in September 2006, 21 had a term of one month, 16 had a one-year signup requirement, and two had 36-month requirements. Some sell power at fixed prices and others allow it to vary with market conditions." (p. 12, emphasis added)

* "The diversity of offerings available at the close of 2006 suggested that most REPs expected competition to become even more rigorous after the end of the PTB [price to beat]." (p. 12)

* "...[A]t most times 95 percent of the energy in ERCOT is bilaterally contracted." (p. 13)

Competition Is Spurring New Generation Projects With a Diverse Fuel Mix

* "As of May 2006, 2,627 MW are under construction (860 are coal, 410 wind and the rest gas). There have been public announcements of 16,223 MW in new fossil and wind units, only 2,330 MW of which are gas-fired." (p. 16)

CONTACT: JOHN SHELK
(202) 349-0154or 703-472-8660

EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for nearly 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.