Texas Regulatory Updates

Overview
Retail competition in Texas began on January 1, 2002, and the market has continued to develop and mature. In fact, the Center for Advancement of Energy Markets' Retail Energy Deregulation Index ranks Texas as the number one retail electric market in North America. Direct Energy Business has served commercial and industrial customers in Texas since market opening and continues to serve customers in all utility territories that are open to competition.

As of January 1, 2002, all customers located in the territories of investor-owned utilities in the Electric Reliability Council of Texas region of Texas are eligible to select a Retail Electric Provider. The utility territories open to competition include AEP Texas Central, AEP Texas North, Centerpoint, Texas-New Mexico Power and TXU Electric Delivery. The governing boards of Cooperatives and Municipally Owned Utilities were granted the authority to decide if and when to open their service areas to retail competition. Retail competition for utilities in non-ERCOT regions of Texas has been delayed, either by the legislature (Panhandle and El Paso), or the Commission (in the case of East Texas, including Entergy).

The distribution of electricity is still regulated by the Public Utility Commission, but there are multiple retail electric providers, including Direct Energy Business, offering service to all customer classes in utility territories open to competition. "Price to Beat" expired in January 2007, and the Texas market has transitioned to full competition. The Commission is required to designate "Providers of Last Resort" to ensure that all customers have access to electricity in areas open to competition. The Electric Reliability Council of Texas provides equal and non-discriminatory access to the Texas transmission grid to all retail electric providers and facilitates all customer switches.

A substantial number of customers in Texas have selected a competitive retail electric provider. As of June 2008, approximately 43 percent of residential customers, 46 percent of commercial customers and 73 percent of industrial customers have switched to a competitive retail electric provider. Moreover, customers in Texas have experienced substantial savings compared to what rates would have been under regulation. The Perryman Group estimates that all customer classes in Texas saved approximately 3.6 billion in total in 2005.

If you compare, on the basis of how much load (not ESI IDs), what percentage of customers have switched to a competitive REP, the numbers as of June 30, 2008 are:

• Residential: 48%
• Small Non-Res: 63%
• Large Non-Res: 71%

Regulatory Updates
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