Texas is not California!!!

As ERCOT continues its steady progress toward implementing a full retail market for electric power within Texas, many questions have arisen about how we will avoid the problems experienced in California. The shortest (and perhaps most important) response to these questions is: Texas has encouraged construction of new generating plants to meet its current and projected needs; California has not! To build a new power plant in Texas requires only an air permit and construction is expected to take about three years from concept to completion. In California, many more permits are required and the process may take three or four times as long. In fact, no new generating plants have been built in California over the last ten years. In Texas, however, 22 new plants have come on-line since 1995, with another 15 under construction and expected to be commissioned before 2002. Thirty-three additional plants are in the development stage. Even so, generation will still need to be built and capacity added each year in order to keep pace with load growth. In addition, access to reliable natural gas supplies that are preferred for fueling new, environmentally safe generating facilities, is a major benefit of constructing in Texas.

Other key factors that differentiate Texas from California are our standardized commercial rules. For example, most transactions between suppliers and users of power in Texas will be bilateral. This approach gives retail electric suppliers the opportunity to hedge their future costs by negotiating long term agreements with wholesale suppliers and will avoid the problems associated with mandatory use of a power exchange, as in California. Texas also provides new plants with easy access to transmission lines, retaining regulatory authority over the electrical grid for this purpose. A well-defined procedure for market participants to recover their stranded costs has also made it easier to operate within Texas, as have various other market mechanisms.

Beyond the capacity issue, Texas has moved slowly and carefully to redesign its power infrastructure to prepare for retail competition. ERCOT was created in 1979 to conform to NERC guidelines. In 1981, the Texas Interconnected System (TIS) merged with ERCOT. Following the full establishment of ERCOT more than 15 years ago, the Texas Legislature and the Public Utility Commission (PUC) have encouraged market participants to make the internal and external changes needed to transition to a full retail market on January 1st, 2002. Among these critical steps was the establishment of a wholesale market for electricity in 1996. In June of this year, ERCOT begins operating a single control area for the ERCOT system (approximately 85% of the state). The facilities needed for this system to operate have been designed and portions are already under construction. The software and hardware that will be needed have been built and will be tested throughout the year. Hiring and training of staff is continuing. In short, Texas has learned from the experiences of others in designing a system that will operate effectively within this state.

Finally, Texas has made every effort to protect the customer from the kinds of "sticker shock" that have occurred in California where market pricing was tied to stranded cost recovery rather than the emergence of competition. Residential customers currently served by the investor-owned utilities in Texas, for example, will not need to do anything once retail competition begins in order to be guaranteed a six percent reduction in the base rates of electric bills. New suppliers that are considering entering the market know that they will be protected against the unfair use of market power by larger, established suppliers. This condition will continue for up to five years or until the market power of these entities has been significantly reduced.

Adding it all up, legislators, regulators, consumers, the power industry, and the ERCOT staff, have worked together over the last 15 years to avoid the widely publicized problems experienced by others who have transitioned to retail competition. We continue to proceed carefully and thoughtfully to ensure that customers in Texas are protected from the turmoil and financial pain that has occurred in California.

Top Ten List

Texas vs. California

1. Texas has encouraged the construction of new generating plants to meet its current and projected needs; California has not.
2. California's environmental and regulatory processes have made it very difficult for new power plants to be built. A new plant would take approximately seven years to complete.
3. California miscalculated the increased demand for electricity. A resurgent economy and the huge influx of high-tech companies account for much of the skyrocketing demand.
4. There was fervent public hostility to new power plants being constructed in California.
5. Texas learned from the experiences of others and moved slowly and carefully in adopting an electric deregulation bill. After studying California's system, Texas made a concerted effort to construct theirs differently.
6. California is dependent upon other states to provide it with power. The state imports 20% of its electricity.
7. California's transmission grid is consistently being overtaxed. Several of its plants are currently out of operation and awaiting repairs.
8. Texas allows its utilities to own their own generating plants and supports them entering into long-term contracts for power. This helps to protect against dramatic price swings. California restricts power companies from entering into such long-term contracts and thus forces them into paying outlandish prices for electricity at peak times.
9. Texas provides new plants with easy access to transmission lines, retaining regulatory authority over the electrical grid for that purpose.
10. Texas has made every effort to protect the customer from the kinds of "sticker shock" that have occurred in California. Residential customers will not need to do anything to be guaranteed a six percent reduction in the base rates of electric bills. Conversely, new suppliers entering the market know that they will be protected against the unfair use of market power by larger, established suppliers.