CenterPoint Energy 2008 Annual Report Download - page 24

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2
continue to be regulated by the Public Utility Commission of Texas (Texas Utility Commission). The legislation
provided for a transition period to move to the new market structure and provided a true-up mechanism for the
formerly integrated electric utilities to recover stranded and certain other costs resulting from the transition to
competition. Those costs are recoverable after approval by the Texas Utility Commission either through the issuance
of securitization bonds or through the implementation of a competition transition charge (CTC) as a rider to the
utility’s tariff.
CenterPoint Houston is the only business of CenterPoint Energy that continues to engage in electric utility
operations. It is a transmission and distribution electric utility that operates wholly within the state of Texas. Neither
CenterPoint Houston nor any other subsidiary of CenterPoint Energy makes sales of electric energy at retail or
wholesale, or owns or operates any electric generating facilities.
Electric Transmission
On behalf of retail electric providers (REPs), CenterPoint Houston delivers electricity from power plants to
substations, from one substation to another and to retail electric customers taking power at or above 69 kilovolts
(kV) in locations throughout CenterPoint Houston’s certificated service territory. CenterPoint Houston provides
transmission services under tariffs approved by the Texas Utility Commission.
Electric Distribution
In ERCOT, end users purchase their electricity directly from certificated REPs. CenterPoint Houston delivers
electricity for REPs in its certificated service area by carrying lower-voltage power from the substation to the retail
electric customer. CenterPoint Houston’s distribution network receives electricity from the transmission grid
through power distribution substations and delivers electricity to end users through distribution feeders. CenterPoint
Houston’s operations include construction and maintenance of electric transmission and distribution facilities,
metering services, outage response services and call center operations. CenterPoint Houston provides distribution
services under tariffs approved by the Texas Utility Commission. Texas Utility Commission rules and market
protocols govern the commercial operations of distribution companies and other market participants. Rates for these
existing services are established pursuant to rate proceedings conducted before municipalities that have original
jurisdiction and the Texas Utility Commission.
ERCOT Market Framework
CenterPoint Houston is a member of ERCOT. ERCOT serves as the regional reliability coordinating council for
member electric power systems in Texas. ERCOT membership is open to consumer groups, investor and
municipally-owned electric utilities, rural electric cooperatives, independent generators, power marketers and REPs.
The ERCOT market includes most of the State of Texas, other than a portion of the panhandle, portions of the
eastern part of the state bordering Louisiana and the area in and around El Paso. The ERCOT market represents
approximately 85% of the demand for power in Texas and is one of the nation’s largest power markets. The ERCOT
market includes an aggregate net generating capacity of approximately 73,000 megawatts (MW). There are only
limited direct current interconnections between the ERCOT market and other power markets in the United States
and Mexico.
The ERCOT market operates under the reliability standards set by the North American Electric Reliability
Council (NERC) and approved by the Federal Energy Regulatory Commission (FERC). These reliability standards
are administered by the Texas Regional Entity (TRE), a functionally independent division of ERCOT. The Texas
Utility Commission has primary jurisdiction over the ERCOT market to ensure the adequacy and reliability of
electricity supply across the state’s main interconnected power transmission grid. The ERCOT independent system
operator (ERCOT ISO) is responsible for operating the bulk electric power supply system in the ERCOT market. Its
responsibilities include ensuring that electricity production and delivery are accurately accounted for among the
generation resources and wholesale buyers and sellers. Unlike certain other regional power markets, the ERCOT
market is not a centrally dispatched power pool, and the ERCOT ISO does not procure energy on behalf of its
members other than to maintain the reliable operations of the transmission system. Members who sell and purchase
power are responsible for contracting sales and purchases of power bilaterally. The ERCOT ISO also serves as agent
for procuring ancillary services for those members who elect not to provide their own ancillary services.