1. The Texas Renewable Energy Program National Governors Association Scottsdale, Arizona April 29, 2004

2. Overview of Renewable Energy Program  Comprehensive retail competition legislation enacted in 1999  Fixed goal for renewable energy  Market-based mechanism to support efficient deployment  Transmission policies support renewable energy  Results: emission reductions and economic development

3. 1999 Retail Customer Choice Legislation  Customer choice for investor-owned utilities begins January 1, 2002  Neutral organization responsible for reliability, transmission access, and settlement of wholesale market  Recovery of stranded costs  Price protections for residential and small commercial customers

4. Other Legislative Issues  Cleaner air –Renewable resources –Energy efficiency –Retrofit older power plants  Broad customer protection rules –Slamming –Cramming –Single bill –Clear information for comparison of offers

5. Texas Electric Competition Generation Transmission and Distribution Competitive Production Regulated Open Access End User PGCs REP Competitive Sales REP Retailer

6. Renewable Energy  Additional 2,000 MW of generating capacity from renewable energy technologies by 2009  Renewable energy credit (REC) trading program  Solar, wind, hydro, geothermal, wave, tidal, biomass, landfill gas

7. Renewable Energy Credits Generation Earn RECs for Production End User Required to Retire RECs REP Retailer Purchase Price of Power and RECs Power and RECs

8. Transmission Policies  Regional postage-stamp rate –Distance not a factor in rate –Multiple utilities do not charge multiple rates  Standard interconnection agreement  Transmission upgrades rolled into regional rates  Neutral planning organization

9. Results  1350 Mw of new capacity –Wind1300 –Landfill gas 30 –Hydro 10  3 million Mwh of electric energy  RECs retired in 2002 : – 1.2 million for compliance –240,000 for renewable energy sales  300,000 Mwh of energy saved through energy efficiency programs

10. Customer Impact  Residential default rates have been about 10 cents/kwh  Annual electric bill for residential customer about $1500  Mandatory REC ratio of about 1.5%  Annual cost of required RECs about $3.00

11. Environmental Impact Based on emissions profile for gas generating facilities in 2000, renewable resources reduced emissions: –5.7 million pounds of NOx –147,000 pounds of SO 2 –3.4 billion pounds of CO 2

12. Environmental Impact of All Measures Generating fleet in Texas got cleaner from 1998 to 2002:  14% reduction in NOx rate  22% reduction in SO 2 rate Additional improvement after 2000:  State Implementation Plans  Statutory mandate to reduce NOx and SO 2 emissions  New, cleaner generating plants

13. Economic Impact  $12 M in taxes for 10 rural school districts  14% increase in Pecos County tax base  1200 construction jobs in 2001  1200 jobs in service, manufacturing, transportation  $2.5 M in royalties to landowners

15. Consequences of REC Approach  Competitive producers decide what and where to build  Projects typically have been located where resource has an advantage  Producers have emphasized large wind projects and landfill gas  Insufficient incentive for high-cost technologies, such as solar  RECs support competitive offers of renewable energy products

16. Consequences of Transmission Policy  Easy to interconnect new generation  Distance not a factor in competitiveness of generators  Projects typically located where resource has an advantage  Over-building of wind generation in favorable areas led to congestion  Meeting statutory goal will require significant transmission investment

17. 11 13 21 16 22 23 49 38 42 31 54 27 26 25 18 24 19 17 41 52 48 39 20 40 32 35 68 projects completed 29,375 MW New Electric Generating Plants in Texas Since 1995 6 projects under construction 2,483 MW 34 43 33 46 37 86 30 103 112 45 55 53 50 59 113 57 51 105 108 89 88 100 101 110 72 82 60 44 47 Harris County 2 3 4 5 7 8 9 12 14 15 6 10 28 29 62 96 93 99 61 68 98 102 91 Ellis County 04-15-04 56 36 90 81 SPP WECC ERCOT SPP SERC 1 64 80 69 92 84 109 63 97 104 111 106 107 15 projects delayed 8,212 MW 11 projects cancelled 7,349 MW 94 114 65 77 75 87 58 Kiowa, OK 73 71 66 67 70 74 76 78 95 Wind site Undetermined (ERCOT) 83 Brazoria County Jefferson County M1 116 115 117 118 119 120 121 122 123 124 125 126 127 128129 130 131 132 133 134 135136 137 138 79 24 facilities: 7,296 MW mothballed; 1,211 MW retired Travis County Tarrant and Dallas Counties 85 14 projects announced 7,108 MW

18. For More Information  REC administrator--ERCOT –www.texasrenewables.com  PUC –Statute—PURA 2003 §39.904  www.puc.state.tx.us/rules/statutes/ index.cfm –Regulations—Subst. Rule 25.173  www.puc.state.tx.us/rules/index.cfm