June 17, 2002

Is Electric Deregulation

A Texas Power Failure?

Heads Roll at ERCOT, Where �Gamers� Wield Too Much Clout

New Power Burns Out

S

Begging this question last week are the announcements that:

The chair and vice chair of the Electric Reliability Council of Texas (ERCOT)�which operates Texas� deregulated power grid�hastily resigned; and

Texas� leading new power marketer, Enron spin-off New Power Co., fled the state and went bankrupt.

Business control

The sudden decapitation of ERCOT�s Board also is significant. Amid allegations that power companies gouged consumers by �gaming� deregulated markets in California and Texas, Texans are questioning the wisdom of letting power companies dominate ERCOT�the nonprofit entity charged with developing a competitive electric market.



Business Interests Overload

ERCOT's Circuits ERCOT Board No. of

Members Percent of

Members Private Power Companies 12 48% City/Coop Power Co's 7 28% Business Consumers 2 8% Public Utility Commission 2 8% ERCOT CEO 1 4% Residential Consumers 1 4% 25 100%

�Almost everyone on the board has a business interest to protect,� says Carol Biedrzycki, director of Texas Ratepayers� Organization To Save Energy Director. �It�s not conducive to making a decision. They hold out until they can get their way.�

Federal and state officials are investigating allegations that many of the power companies that dominate ERCOT cheated investors or consumers by allegedly cooking their books or gaming deregulated markets in California or Texas.

It remains to be seen if elected officials will aggressively pursue these charges against powerful interests that underwrite so many political campaigns (www.tpj.org/Lobby_Watch/dereg.html). But investors�who no longer trust these corporations�are punishing them on Wall Street.

Rumor has it that the ERCOT Board heads that rolled (Chair John Hawks of PG&E and Vice Chair Milton Lee of San Antonio�s City Public Service Co.) succumbed to an axe wielded directly or indirectly by Texas Rep. Steve Wolens.

The chief House sponsor of the 1999 deregulation bill, Wolens is the politician most visibly associated with Texas� deregulation after then-Lieutenant Governor Rick Perry (Gov. Perry�s first pick to head the Public Utility Commission, Mario Max Yzaguirre, put a former Enron executive on ERCOT�s board).

Then-Governor George W. Bush has moved onto the White House, while Senate deregulation author David Sibley is now reporting a 2002 lobby income of up to $285,000. This money includes up to $25,000 each from the Association of Electric Companies of Texas and the Center for Energy and Economic Development�a group that promotes fueling power plants with dirty coal.

'Gamer' Seats On ERCOT's Board ERCOT Board

Representation Faces

PUC Gaming

Charges 'Round-Trip'

Power Trader Cooked

Books

Alleged Sued By

CA A.G Federal

Probe

Focus Count AES X 1 American Electric Power X 1 Calpine X X 2 Constellation Power X 1 Dynegy X X X X 4 Green Mountain 0 Mirant X X 2 New Power (Enron) (X) (X) (X) (X) (X) 5 Pacific Gas & Electric X 1 Reliant Energy X X X X 4 Tenaska 0 TXU X 1 COUNT: 6 4 5 4 3 22

Note: Data not comprehensive.

The Federal Energy Regulatory Commission is threatening to bar Enron�s Portland General Electric Company from wholesale power markets unless it starts cooperating with federal probes of power-market manipulation.

Amid allegations that Perot Systems tried to sell tips on how to exploit California�s power grid system, which it designed, it is worth mentioning that Texas� grid system bears major responsibility for Texas� deregulation failures.

In a confidential contract, ERCOT hired the consulting arm of Enron accountant Arthur Andersen to design its bug-ridden system (Andersen Consulting presciently changed its name to Accenture before Enron�s implosion). Last fall, Rep. Wolens said deregulation delays due to bugs in this computer system raised appearances of a conflict of interest since Accenture then consulted with Texas two leading electric monopolies: TXU and Reliant.

A fundamental flaw of Texas� electric deregulation system is that the power of consumers is dwarfed by that of the power companies. �

# # # Texans for Public Justice is a non-partisan, non-profit policy & research organization

which tracks the influence of money in politics.

CORRECTION: An earlier version of this Lobby Watch incorrectly characterized Tenaska as a subsidiary of Williams Companies.

A table in the June 17, 2002 Lobby Watch, "Is Electric Deregulation a Texas Power Failure?," wrongly listed Omaha-based Tenaska, Inc. as a subsidiary of Tulsa-based Williams Companies. Tenaska and Williams are independent energy companies. While Williams is the subject of a federal probe and has acknowledged engaging in "round-trip" power trades, Tenaska has not been accused of such "gaming" of deregulated markets. Texans for Public Justice deeply regrets the error.



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