2. March 3, 2005 Success of the Texas Electric Retail Market Presentation to ERCOT Technical Advisory Committee

3. Success of the Texas Electric Retail Market 1 Wholesale Market… …Laid the Foundation Senate Bill 7… …Set the Stage Retail Market … …Seized the Opportunity Successful Progression

4. Success of the Texas Electric Retail Market 2 Senate Bill 7 Set the Stage for Success What Texas Did Right Customer Benefits Wholesale Retail Bilateral trading market Expedited permitting and interconnection Immediate competitive pricing for large customers PTB provided headroom and mechanism to pass on commodity changes Low barriers for entry The Texas Legislature designed the retail framework to: Ensure Texans have access to reliable electricity at competitive prices and improved customer service Foster competitive behavior and encourage entrepreneurship, while continuing to protect consumers Significant investment in efficient generation (CCGT) Improved operational performance Lower prices than under continued regulation Many competitive options New products (loyalty programs, “green power”

5. Success of the Texas Electric Retail Market 3 Generation Investment In ERCOT 26 GW of efficient CCGT generation capacity added between 1998-2004 $15 billion was invested in generation infrastructure – none of which was in the rate base Competition drove down market heat rate by 44% (from 14.0 to 7.8 MMBtu/MWh ) This would be like improving average automobile gas mileage from 20 MPG to 35 MPG

6. Success of the Texas Electric Retail Market 4 Customers Exercise Their Right to Choose… Large Business – 74% –Virtually 100% of Large Businesses are receiving competitive bids Small and Medium Business – 55% Residential – 20% –While 20% is currently served by a new REP, a larger percent have made a choice –This 20% compares with 4% for local telephone and 14% for long distance 3 years after restructuring

7. Success of the Texas Electric Retail Market 5 The Most Successful Retail Market In The U.S. Large Business Texas 74% Maine 56% New York 48% Washington DC 39% Maryland 38% Massachusetts 31% California 26% Ohio 21% Pennsylvania 13% Residential Texas 20% Washington DC 10% New York 7% Pennsylvania 6% Maryland 3% Ohio 2% Massachusetts 2% Connecticut 2% Maine 1% California 1%

8. Success of the Texas Electric Retail Market 6 The 3 rd Most Successful Retail Market in the World 1 Country, Province, State or TerritoryRED Index ScoreWorld Rank 2003 England, United Kingdom881 New Zealand752 Texas, USA693 Pennsylvania, USA674 Maine, USA645 Alberta, Canada616 New York, USA607 District of Columbia, USA548 Michigan, USA529 Maryland, USA529 Victoria, Australia5011 New Jersey, USA5011 Center for Advancements of Energy Markets 2004?

9. Success of the Texas Electric Retail Market 7 Additional Results of Retail Success The increase in Bad Debt levels immediately following Market opening was a concern; however, current data indicates bad debt levels are decreasing Market Participants Have Significantly Increased Commitments To Low-Income Assistance Programs –Customer contributions have stayed the same during this time period – $1.7 million –Company contributions have increased from $1.4 million to $5.9 million –This is a 321% increase in company contributions

10. Success of the Texas Electric Retail Market 8 Long term effects of Industry Restructuring The airline industry saw retail price reductions of 45% over a 15 year period. The US long distance restructuring has shown a continual reduction of rates over a 22 year period of 86% Trucking prices show a 37% reduction over a 30 year period

11. Success of the Texas Electric Retail Market 9 Remaining Concerns Gaps between Terms and Conditions, Customer protection, protocols and other market documentation Market created customer confusion due to timing differences, customer ownership issues, variations in service offerings communication Customer education is lacking in the market System outages to gateways and other systems Continue to experience occasional issues with transactions and processes Opt-in Coops reveal differences in rules and requirements

12. Success of the Texas Electric Retail Market 10 Success is not perfection…still working Standard Terms and Conditions –TDSPs - Governance issues, Substantive changes, Clarification –REPS and Consumers - Service offerings, Gaps in rules and protocols, Operational improvements Market created customer confusion –Timing differences, customer ownership issues, variations in service offerings –Customer education is lacking in the market System outages and transaction issues New market entrants

13. Success of the Texas Electric Retail Market 11 2004 was a successful year for the Texas Retail Market. A huge thank you goes to all of the Market Participants and ERCOT that have contributed to this success The following RMS accomplishments provided overall success to the Texas Retail Market RMS 2004 Accomplishments

14. Success of the Texas Electric Retail Market 12 Improvement in Performance Filing Worked with the PUCT staff to support Project No. 24462 Quarterly Performance Metrics and Project No. 29760 Disconnect/Reconnect report Reduced filing volume by 38,000 pages Improved reporting quality So What? This provides transparency in the Retail Market and encourages top performance

15. Success of the Texas Electric Retail Market 13 Improvements to Texas Market Link (Portal) Created a sustainable infrastructure Improved user interface and navigation Implemented system features to allow multiple requests So What? Improvements facilitated customer switching process and minimized the risk of switching errors

16. Success of the Texas Electric Retail Market 14 Market Growth Facilitation First Muni/Coop Pilot Project to enter the competitive Market Successfully handled 4 million enrollment/de-enrollment transactions Developed Standardized Historical Usage Process (LOA) So What? The elimination of barriers allows growth… and growth is good for the Retail Market

17. Success of the Texas Electric Retail Market 15 NAESB EDM V1.6 Implementation Updated to most current industry standard First electric Market to implement and influenced future upgrades Provides increased security and improves transactions tracking So What? The Retail Market generates and processes 70 million transactions each month…making sure they get to the right place at the right time with adequate security and traceability is vital to Market success

18. Success of the Texas Electric Retail Market 16 Load Research Project Identified sample meter locations Developed the communication and information system TDSPs installed 4400+ sample meters So What? Improved Load Profiles will result in more accurate Market settlements

19. Success of the Texas Electric Retail Market 17 Disconnect for Non Pay Functionality Implementation of §25.483 of Customer Protection Rule Making Development of the Disconnect/Reconnect Process Guide Supported development of Project No. 29760 for reporting requirements So What? This allows REPs to better manage their credit risk

20. Success of the Texas Electric Retail Market 18 Transaction Improvements  Refined market rules and timing of order processing  Revised protocols sections 15 and 19  Standardized and improved the safety net move in process So What? Providing documentation, definition, and standardization allows the Retail Market to operate more effectively… customers are better served

21. Success of the Texas Electric Retail Market 19 Successful Retail Market Testing 32 REPs newly certified and tested, 16 existing REPs tested in new areas 3 Successful test flights including Texas SET 2.0 MIMO release 54,312 test scripts were executed So What? Significant System Changes are required by all Retail Market participants. Everyone has to make the changes together for success to be achieved.

22. Success of the Texas Electric Retail Market 20 Market Cleanup Efforts Continued resolution of data variances to facilitate accurate market settlement Texas SET Change Controls 2.1 improvements to billing and invoicing ERCOT Proactive Reporting for early resolution of transaction issues So What? These efforts significantly reduced, and will continue to reduce, the number of Market disputes

23. Success of the Texas Electric Retail Market 21

24. Success of the Texas Electric Retail Market 22 TxSet V2.0 Solution to Stacking (MIMO) Business rules rewritten to accommodate customer changes in the move in/move out process Allowed non-sequential simultaneous transaction processing Market Coordination Team developed procedures, market rules and performed post review So What? This essentially resolved the number 1 Market gap! And, to a large extent, restored the customer’s confidence in deregulation.

25. Success of the Texas Electric Retail Market 23 Final Jeopardy “The Game, not the legal position”

26. Success of the Texas Electric Retail Market 24 CATEGORY: Electric Retail Markets

27. Success of the Texas Electric Retail Market 25 THE QUESTION IS: This was the key contributing factor to making the Texas Retail Market #1 in the U.S. & #3 in the world

28. Success of the Texas Electric Retail Market 26 THE ANSWER IS: What is the ERCOT Stakeholder Process

29. Success of the Texas Electric Retail Market 27 The Texas Retail Electric Market Rocks!