CenterPoint Energy 2013 Annual Report Download - page 24

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Electric Distribution
In the Electric Reliability Council of Texas, Inc. (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 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. Within ERCOT, prices for wholesale generation and retail electric sales are
unregulated, but services provided by transmission and distribution companies, such as CenterPoint Houston, are regulated by the
Texas Utility Commission. ERCOT serves as the regional reliability coordinating council for member electric power systems in
most of Texas. ERCOT membership is open to consumer groups, investor and municipally-owned electric utilities, rural electric
cooperatives, independent generators, power marketers, river authorities 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 Arkansas and 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 included available generating capacity of over 74,000 megawatts (MW)
at December 31, 2013. Currently, 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 Corporation (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.
CenterPoint Houston’s electric transmission business, along with those of other owners of transmission facilities in Texas,
supports the operation of the ERCOT ISO. The transmission business has planning, design, construction, operation and maintenance
responsibility for the portion of the transmission grid and for the load-serving substations it owns, primarily within its certificated
area. CenterPoint Houston participates with the ERCOT ISO and other ERCOT utilities to plan, design, obtain regulatory approval
for and construct new transmission lines necessary to increase bulk power transfer capability and to remove existing constraints
on the ERCOT transmission grid.
Restructuring of the Texas Electric Market
In 1999, the Texas legislature adopted the Texas Electric Choice Plan (Texas electric restructuring law). Pursuant to that
legislation, integrated electric utilities operating within ERCOT were required to unbundle their integrated operations into separate
retail sales, power generation and transmission and distribution companies. The legislation provided for a transition period to
move to the new market structure and provided a mechanism for the formerly integrated electric utilities to recover stranded and
certain other costs resulting from the transition to competition. Those costs were recoverable after approval by the Texas Utility
Commission either through the issuance of securitization bonds or through the implementation of a competition transition charge
as a rider to the utility’s tariff. CenterPoint Houston’s integrated utility business was restructured in accordance with the Texas
electric restructuring law and its generating stations were sold to third parties. Ultimately CenterPoint Houston was authorized
to recover a total of approximately $5 billion in stranded costs, other charges and related interest. Most of that amount was
recovered through the issuance of transition bonds by special purpose subsidiaries of CenterPoint Houston. The transition bonds
are repaid through charges imposed on customers in CenterPoint Houston’s service territory. As of December 31, 2013,
approximately $2.9 billion aggregate principal amount of transition bonds were outstanding.