On March 9, 2009, Texas Representative Jim Keffer (R) and Senator Wendy Davis (D) filed several bills that would drastically alter the electricity market in Texas. Both lawmakers say the bills aim to cut wholesale electricity prices, but the bills met instantaneous opposition from state power companies, specifically NRG Energy Inc. (“NRG”) and Energy Future Holding’s Luminant (“Luminant”).

The bills would not undo the electricity market deregulation that began in 1999, but the bills contain several measures that would alter the current market. The proposed legislation is supported by the Cities Aggregation Power Project (“CAPP”). CAPP is an organization that some Texas cities have hired to negotiate electricity rates, and they have argued that Texas generators have too much power in several regions for effective negotiations.

One proposal (HB 2780 by Keffer and companion SB 1481 by Davis) would strengthen the ability of cities to negotiate on behalf of all citizens. Currently cities can acquire power on behalf of their citizens, but the individuals must first sign up or “opt-in” to receive the negotiated rate. The proposed legislation would reverse this process and allow individuals to receive the negotiated electricity price automatically, unless they opt-out and choose an alternative supplier.

A second bill (HB 2782 by Keffer and companion SB 1480 by Davis) would ban any company from controlling more than 20 percent of generation in any congestion management zone (“CMZ”) in the Electric Reliability Council of Texas (“ERCOT”). This would likely only affect NRG and Luminant. Although neither company owns more that 20 percent generation in ERCOT as a whole, NRG controls more than 20 percent in the Houston CMZ, and Luminant controls over 20 percent in the North CMZ. This bill would presumably require both companies to sell some of their plants.

Sen. Davis also includes two additional provisions regarding market power. The first provision would allow victims of market power abuses to have a larger role in the Public Utilities Commission of Texas’s (“PUCT”) enforcement hearings. The second provision would lift the small generator exemption from market power investigations.

A third proposal (HB 2781 by Keffer and companion SB 1482 by Davis) would kill ERCOT’s transition to a “nodal market.” Under the current plan approved by the PUCT, ERCOT is transitioning from CMZs to nodal markets in an effort to eliminate congestion. Under the nodal market, ERCOT would allocate energy to about 4,000 “nodes” where electricity is put onto the grid. The cost of implementing the nodal system is currently at $660 million, which is more than four times the original estimated costs (see December 5, 2008 edition of the WER). However, supporters of the nodal system argue that Texas consumers could save $1 billion annually once the new system is implemented. Instead of the nodal market, the bill would allocate the costs of much needed new transmission through a simple postage stamp rate for all consumers.

The bills are expected to meet strong opposition from the energy lobby. The full text of the bills can be viewed at: www.capitol.state.tx.us.