Sam Houston Electric Cooperative

THE STATUS OF DEREGULATION IN TEXAS AND BEYOND

Electric cooperatives worked tirelessly to protect our members as Senate Bill 7 was developed and implemented in 1999, thus ushering in deregulation of the Texas electric market. Legislators responded to our concerns and gave cooperatives and municipalities the option to choose whether or not to participate in deregulation. Almost all cooperatives and municipalities have chosen not to participate in deregulation. And given the extreme price increases that have plagued electric customers in the deregulated market, our decision has proven to be a wise one. The following is a report that reflects the status of the deregulated Texas electricity market, eight years after it was introduced.

2007 was a year of change in the electric utility industry in Texas.

Needless to say, there was plenty to discuss during the 2007 Texas Legislative session.

THE STATUS OF DEREGULATION IN EAST TEXAS
The vast majority of Sam Houston EC is not in ERCOT, and unless circumstances change dramatically we will work to keep it that way.

After Entergy Texas submitted its proposal to the PUCT, Sam Houston Electric Cooperative and the nine other East Texas cooperatives, cities served by Entergy, cities in ERCOT and numerous consumer advocacy groups worked with state representatives and senators to produce House Bill 2818, which would keep Entergy a regulated utility. It passed in the Texas House on April 24, 2007 but died in Texas Senate committee before the end of the legislative session.

The case moved before the PUCT in the summer. After testimony from Entergy Texas and all those who opposed the move, the PUCT ruled that Entergy’s plan was not acceptable and that the company needs to look at alternative, more cost effective means to meet the growing needs of East Texas.

It was a win for East Texas cooperative members and the state. East Texas cooperative members will save at least $15 million each year in increased rates. The Texas economy is spared a $1 billion infrastructure charge to build facilities mainly located in Louisiana.

Deregulation is once again on hiatus in East Texas. However, the issue may be picked up again during the 2009 Texas Legislative session. Sam Houston EC will be there to protect the rights of its members.

THE EFFECTS OF DEREGULATION IN ERCOT
The lofty goals the Texas legislature set with Senate Bill 7 in 1999 have yet to be met. At the time, natural gas was trading just above $2 per 1,000 cubic feet, making that fuel source a cheap way to produce electricity. Since then, rapid world wide economic growth, long cold snaps and destructive hurricane seasons have quadrupled the price of this commodity.

This proved to be disastrous for consumers in ERCOT. Following Hurricane Rita in 2005 and through most of 2006, residents were paying an average of 15 cents per kWh, with rates as high as 18 cents per kWh. Residents, whose pocketbooks are feeling the strain of rising costs at the gas pump and grocery stores, told their state representatives to make good on their promise to reduce the price of electricity.

Legislators worked on several bills to address this issue, but none gained the traction needed to bring relief to consumers. Although deregulated rates fell in 2007 due to lower natural gas prices, Texans in the ERCOT region continue to pay some of the highest electricity prices in the nation. Residents in Dallas, Houston, Lufkin, McAllen, Tyler and Waco are paying an average of $118-$123 per 1,000 kWh (Powertochoose.org) as of Nov. 1, 2007, which is above:

Sam Houston Electric Cooperative members currently pay $110.55 per 1,000 kWh, well below the average residents of neighboring Houston and Lufkin pay.

*Entergy Texas, which serves Beaumont, Conroe, Huntsville, Orange, Port Arthur, The Woodlands and surrounding areas is a regulated utility.

The cap set by the price-to-beat was removed Jan. 1, 2007. No longer are prices set to cover the cost to produce and deliver electricity. Any retail electric provider can sell power at any price, high or low, to generate as much profit as possible. Although consumers have their choice of 40 to 50 offers, none of the offers are close to the price ratepayers paid prior to deregulation.

While the high fuel prices have been a great asset to the Texas economy as a whole, this growth has placed additional strain on a system nearly at capacity. Since 2002, major generation companies have mothballed older plants and shelved plans for new ones. The legislative and public pressure that forced TXU to reduce its plan to build 11 coal plants down to three does not help the predicted generation shortfall the state will face in the coming years.

THE NATIONWIDE STATUS OF DEREGULATION
Following the energy crisis in California, many states that were considering deregulation put their plans on hold.

States that moved forward with deregulation have experienced consumer backlash and anger. California has quasi re-regulated itself. Virginia repealed most of its statues regarding deregulation and several other states, including Maryland and Illinois, are considering taking similar action. Pennsylvania and Ohio have keep price controls in place to slow the upward creep in costs. The status of deregulation in the 16 states that offer consumer choice remains in flux.

Regionally, Arkansas, Louisiana, New Mexico and Oklahoma have shown no inclination of opening their borders to a retail electric market.

A May 2007 study commissioned by Public Citizen, a national non-profit consumer advocacy group, showed the level of annual growth in electric rates in deregulated states was double (2.3 percent vs. 5.5 percent) than those whose utilities were still regulated (PublicCitizen.org), according to data gathered by the Energy Information Administration. The report also stated consumers in regulated states are paying an average of 8.6 cents per kWh compared to an average of 13 cents per kWh in deregulated states as of January 2007.

DOING OUR PART AT SAM HOUSTON ELECTRIC COOPERATIVE
As your member-owned and operated electric Cooperative, we’re doing our part to keep our rates affordable while still providing you the service you deserve. Sam Houston EC, which is among the lowest cost providers in East Texas, held its rate steady in 2007, resulting in a savings of $1 million for its members. The Co-op also returned $2 million in capital credit rebates to members in September 2007.

The Cooperative is working with ETEC to build two 168 MW peaking plants near Kountze and Shepherd, which will help stabilize costs during peak periods of demand. Sam Houston EC and ETEC are also developing a 24 MW hydroelectric generating facility to be located at Lake Livingston Dam. This cost-effective plant will be able to serve 12,000 homes.

Although the energy market continues its roller coaster ride, you can be sure Sam Houston EC’s Board of Directors and management team are working hard to secure the electric needs of present members and future members. We believe the Cooperative way of doing business – where members own the business and pay rates based on the cost of doing business; not to generate profits for far off investors – is the best way to go.

LOOKING TO SAVE MONEY ON YOUR MONTHLY ELECTRIC BILL?
Check out Sam Houston EC Conservation section and Do Watts Right.