Includes updates on electricity prices in the competitive market, utility ratemaking, eminent domain proceedings and protecting the electric grid

1. Legislative Advertising Paid For by: JuliaRathgeber, Association ofElectric Companies ofTexas
1005Congress, Suite 600,Austin,TX 78701 • 512-474-6725• www.aect.net
January26, 2017
LegislativeStaff Briefing:
Updateon the ElectricMarket

2. Generation Companies
Transmission & Distribution Utilities
AECT CompanieswithinERCOT
www.aect.net (512) 474-6725
2
Retail Electric Providers
Total ERCOT
Capacity:
>77,000 MW

3. Western Electricity Coordinating
Council (WECC)
Midcontinent Independent System
Operator (MISO)
Southwest Power Pool (SPP)
AECT CompaniesOutside of ERCOT
www.aect.net (512) 474-6725
3
Total ERCOT
Capacity:
>77,000 MW

4. Overview of ERCOT
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ERCOT: By the Numbers
• 90% of the electric load in Texas is in ERCOT
• 75% of ERCOT’s load is in the competitive
market, including 24 million customers
• Over 550 generating units, providing 77,000
MW of generating capacity during peak
demand
• 46,500 miles of high-voltage transmission
ERCOT Responsibilities
• System reliability – planning and operations
• Wholesale market settlement for electricity
production and delivery
• Retail switching process for customer choice
• Open access to transmission
ERCOT region

5. The ERCOT CompetitiveRetailElectric Market is Providing
Customer Benefits
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5
Key Facts on the Competitive Retail Market in ERCOT
– Price offers are substantially lower than prices available just before
competition began
– Texas’ national electric price ranking has improved since the market
opened in 2002
– Every competitive area in ERCOT has variable and 1-year lock offers
available that are far lower than the national average price and nearly all
state averages
– Among states like Texas that depend heavily on natural gas for power
generation, Texas prices compare favorably, with even lower prices
available to those in the competitive market

6. Lower Prices AvailableToday than
BeforeCompetition Began
www.aect.net (512) 474-6725
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Service Area
Average Fixed-Price
Offer
(12-month term, no
usage fees/credits)
Lowest Fixed-Price
Offer
(12-month term, no
usage fees/credits)
Lowest
Variable Price
Offer
Available
Dec. 2001 prices,
not adjusted for
inflation
Dec. 2001 prices,
adjusted for inflation
AEP Texas Central 9.4¢/kWh 5.0¢/kWh 7.9¢/kWh 9.6¢/kWh 12.8¢/kWh
AEP Texas North 9.4¢/kWh 5.6¢/kWh 7.9¢/kWh 10.0¢/kWh 13.3¢/kWh
CenterPoint
Energy
8.8¢/kWh 4.8¢/kWh 7.8¢/kWh 10.4¢/kWh 13.8¢/kWh
Oncor 8.2¢/kWh 4.4¢/kWh 7.0¢/kWh 9.7¢/kWh 12.9¢/kWh
TNMP 8.6¢/kWh 5.0¢/kWh 7.8¢/kWh 10.6¢/kWh 14.1¢/kWh
Sources: PUC Historical Data, Bureau of Labor Statistics Inflation Calculator (33.0% inflation since December 2001);
www.powertochoose.org offers as of January 2, 2017
January 2017 December 2001

7. Large Customers in the Market HaveAmong The
LowestElectricity Prices in the Nation
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Large industrial customers in the
ERCOT market pay 23% less than
the national average for electricity
Source: Energy Information Administration data

8. Large Customers in the Market HaveAmong The
LowestElectricity Prices in the Nation
www.aect.net (512) 474-6725
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Large commercial customers in the
ERCOT market pay 28% less than
the national average for electricity
Source: Energy Information Administration data

9. Hot topics
9
Ratemaking, Routingand Respondingto Threats

10. Ratemaking: Two BasicComponents of theRate case
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Determination of Revenue Requirements
The amount of gross revenues needed by a utility to cover its
operating expenses, depreciation, taxes and other expenses
Determination of Rate Structure
The rates paid by each customer class to provide the necessary
revenue as determined in the revenue requirements
1.
2.

11. Ratemaking: Statutory Timelineof a Rate Case
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Day 1 Day 185Day 35 Day 135
Utility files a statement of intent to file a rate case with Original Jurisdiction authorities (either its cities or
the PUC). Original Jurisdiction authorities also have the authority to demand the utility file a rate case.
After the rate case is filed, the PUC may suspend the effective date of
proposed rates by an additional 150 days beyond the notification period
After filing the rate case, PUC Staff, cities, affected ratepayer groups and
OPUC may intervene and begin sending discovery requests to the utility.
• Rate cases are almost always referred to SOAH, where an ALJ establishes a
procedural schedule to allow the PUC to decide the case before the deadline.
• Intervenors then file written testimony on the rate application.
• The utility may then file testimony rebutting intervenor testimony.
• About 70% of rate cases are settled without a hearing. If a hearing occurs, it’s
normally around 100 days after filing.
• The ALJ will issue a proposed order (if no hearing) or a proposal for decision (if
contested) and refer the case back to the PUC.
The PUC must approve or deny the case by day 185, or the case is
deemed approved. The utility may voluntarily extend the timeline.

12. Ratemaking: Concerns RegardingRegulatory Lag
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• By statute, a rate case is supposed to be
processed in 185 days
• The average time to process an electric
rate case in Texas is one year
• Since 1989:
– 30 out of 33 electric rate cases in
Texas have exceeded the 185-day
statutory deadline.
– One-third of those took longer than
16 months to process.
Examples of Recent Rate Costs and
Duration
– Oncor Electric Delivery, Dockets
35717 & 36530 - $8.6 million (13
months)
– Entergy Gulf States, Docket 34800 -
$9.5 million (17 months)
– AEP Texas, Dockets 33309, 33310 &
34301 - $6.4 million (13 months)
– Southwestern Public Service Co.,
Docket 32766 - $5.6 million (14
months)
– AEP Texas Central Co., Dockets
28840 & 31433 - $4.3 million (21
months)

13. Routing: Transmission Line Routing Process
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1. The utility files an application with the PUC to obtain a Certificate of Convenience and
Necessity (CCN), which is assessed by the PUC
• Consideration include: the need for service; whether the route uses existing rights-
of-way; parallels other rights-of-way; follows property lines; and conforms with
the policy of prudent avoidance to limit overall impact of the line
2. Landowners who would be affected by a new line receive notice; landowners can
informally file a protest or formally participate in the case as an intervenor
3. An administrative law judge (ALJ) holds a prehearing conference to set a schedule for the
case
4. Parties to the case conduct discovery to gather facts on the case
5. An ALJ hearing is held, with cross-examination of witnesses. The ALJ and the PUC will rely
on factual information submitted as evidence filed in the docket and presented during
discovery
6. The ALJ makes a recommendation to the PUC, which is called a proposal for decision
7. The PUC Commissioners rule on the case and may approve it, modify it, request further
action by the ALJ or deny the case. After the PUC’s ruling, parties may appeal the decision
Brochure provided to landowners
affected by a proposed transmission
line

14. Routing: Timelineof Transmission Line Construction
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• While certain types of generation can be constructed quickly -- often as short as 12-18 months --
transmission lines typically take between three and five years. Generation can be brought into the
market more rapidly if the siting takes advantage of the existing transmission infrastructure.
• Building long transmission lines can affect many landowners, often requiring a lengthy and extensive
easement acquisition effort.
• The transmission line siting process must take into account the impact of those lines on
environmentally sensitive and historically significant lands.
• Utility is not typically allowed to begin recovering costs until year 5 or 6.

15. Routing: Eminent DomainProcess
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LEGEND
LO = Land Owner
ED = Eminent Domain
SC = Special Commissioner

16. www.aect.net (512) 474-6725
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Threats: Resistance vs. Response
o Each of the varied facilities that
comprise the electric grid face many
threats to their reliable operation
o Utilities must weigh the risk and the
likelihood of each threat and the most
effective, appropriate response to limit
outages
o The complexity of the electric grid is
part of its strength, allowing for greater
reliability and more effective recovery
o The focus of utilities is to quickly
respond to each threat, by having
protocols and replacement parts in
place to recover critical systems

17. www.aect.net (512) 474-6725
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Threats: Cyber Attacksand MagneticDisturbances
Avoidance and Preparation
o Good Cyber Hygiene: Maintain best practices, share information with other
utilities and hold regular briefings to avoid human error, such as clicking on a
malicious email or installing Trojan horse software
o Ongoing briefing and Communications: Communicate with federal agencies
regarding grid hacking activities and potential EMP attacks
o Investment: Major hardware and software investment specifically aimed at
identifying activity by hackers or rogue states, plus investment in cyber security
divisions staffed by employees with financial industry and military backgrounds
Response in case of Major outage
o Mitigation: Ensure systems can be segmented from one another to limit the
impact of a cyber attack, and determine best practices for hardening against
magnetic disturbances
o Recovery: Ensure critical facilities are primed for backup and quick recovery
o Restoration, Cooperation and Recovery of Systems: As with other types of
outage, utilities are designed to be restored through robust systems,
cooperation with government entities and able to be rebuilt

18. www.aect.net (512) 474-6725
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Threats: Recent Activities
ResponsetoMajor OutageThreats
o ERCOT Grid Resilience Working Group is currently assessing major threats and response strategies
o GridEx is an industry-wide exercise assessing grid readiness in case of physical or cyber attack
o DOE developed a draft National Transformer Strategy in 2015, which is under review by the Department
ProtectionagainstTechnologyThreats
o PUC has opened a rulemaking specific to identifying technology and magnetic threats to the grid
o DHS Electric Sector Information Sharing and Analysis Center gathers industry information on cyber threats to
promote best practices
o DHS National Cyber and Communications Integration Center works with utilities; federal, state and local
governments; and law enforcement to assess and prepare for cyber threats
o Utilities must comply with Presidential Policy Directive 21 on “Critical Infrastructure Security and Resilience”
o EEI Electricity Subsector Coordinating Council works with federal agencies to assess current activities and develop strategies to
reflect current threats
Mitigationof MagneticThreats
o PUC has opened a rulemaking specific to identifying technology and magnetic threats to the grid
o DOE and EPRI Joint Electromagnetic Pulse Resilience Strategy is ongoing
o DHS EMP Protection Guidelines developed in 2014
o FERC GMD Reliability Standards Rulemaking Process is ongoing
o DHS Solar Storm Mitigation forecasting, to be completed in coordination with NASA and NOAA in 2016
o NOAA, DHS and the White House Office of Science and Technology Policy report on improving response to geomagnetic
disturbances was released in 2015
Utilities,working
withfederaland
stateenergyagencies,
Constantlyseek
opportunitiesto
improvecoordination
and preparationfor
alltypesof threat
thatcouldresultina
major outage

19. key takeaways
www.aect.net (512) 474-6725
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• Competitive electricity price offers remain low, and
customers have a wide array of choices
• Ensuring utilities can recover their costs promotes
investment in the grid and reliable electric delivery
• Power line routing is determined through an effective
stakeholder process at the PUC
• Utilities, federal agencies and stakeholders continue to
take significant steps to protect the grid from cyber
attacks and acts of terrorism

20. How To Reach Us
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