1. 2012 ERCOT Competitive Market Assessment
Business consumers located in competitive areas of Texas are
enjoying some of the lowest electricity rates in the country
A 30+% drop in natural gas prices has translated into much lower
energy costs
Texas continues to increase its peak demand, with 2011 setting an
all time record
New Peak Demand Levels and environmental regulations create
considerable threat to generation inventory levels
Generation capacity utilization is poor at portfolio average below
45%
Volatility in energy markets, increased competitive pressure and lack
of knowledge combine to drive a $80+ million annual intermediary
market
Regulated charges as a percentage of total energy spend is
approaching 40%

2. Major Influence on Power Prices
• Tug of War on Natural Gas Prices
– Upward Pressure
• Economic Rebound
• Changes in Regulatory Stance on Fracking and Nuclear
• Strong Dollar
• Natural Gas (LNG), Coal Exports, Curtailed Production
– Downward Pressure
• Increased Supply from Shale Basins
• Protracted weak economy
• Inventory level
• Tighter Capacity Levels
– 3-5% growth in peak demand
– Environmental Regulations affect generation unit viability
• EPA announcement in 2011 increased capacity values
• 2014-2017 generation market increased equivalent of $1 billion per year
– Tenuous Future for Nuclear Generation

3. Changes to ERCOT Driving Higher
Ancillary Service Costs
• Larger wind generation portfolio increases requirements for
fossil based peaking sources
• Nodal Congestion Management System operational December 2010
– Improve Transparency and Price Signaling to drive efficient utilization,
development and investment of generation, transmission/distribution
and loads as a resource
– Increase options for scheduling entities to more efficiently manage
congestion to drive lower overall congestion costs
– Directly assign congestion management costs to sources of the issue
• Nodal should reduce congestion management costs,
however greater price dislocation across certain areas of
Texas likely

4. Regulated Transmission/Distribution Charges
(Tariff) Require Attention
• TDSP rates equate to 30-40% of overall energy spend
• Effective Procurement and Energy Management Programs
must take into account TDSP cost components
– Power Factor Correction
– 4 CP Management of Interval Metered Locations
– Focus on Demand Ratchets
– Need for effective policy influence
– Ensure accuracy of street lighting accounts/procedures
• Transmission projects will relieve/reduce regional price
disparities, but will increase overall TDSP costs
• Programs to reduce peak requirements and improve load
factor will yield lasting cost improvements