The

Texas Electric Industry:

How Electricity Works

Legisla)ve Sta Brieng
January 29. 2015

Legisla)ve adver)sing paid for by: John W. Fainter, Jr. President and CEO Associa)on of Electric Companies of Texas, Inc.
1005 Congress, Suite 600 Aus)n, TX 78701 phone 512-474-6725 fax 512-474-9670 www.aect.net

AECT Principles

AECT is an advocacy group composed of member companies commiWed to:

- Ensuring a modern, reliable infrastructure for the supply & delivery of
electricity.

- Suppor)ng ecient compe))ve markets that are fair to customers and
market par)cipants.

- Suppor)ng consistent and predictable oversight and regula)on that will
promote investment and ensure the stability of Texas electric industry.

- Promo)ng an economically strong and environmentally healthy future for
Texas, including conserva)on and ecient use of available resources.

AECT member companies remain dedicated to providing Texas customers with
reliable service and are commiWed to the highest standards of integrity.

The Associa+on of Electric Companies of Texas, Inc. (AECT) is a trade organiza+on of investor-owned
electric companies in Texas. Organized in 1978, AECT provides a forum for member company
representa+ves to exchange informa+on about public policy, and to communicate with government
ocials and the public. For more informa+on, visit www.aect.net.

Electricity:
From Genera)on to Customer

Electricity: Key Terms

Electrons: The nega)vely charged part of the atom. Electrons may ow from one atom
to another through a reac)on from nega)vely charged to posi)vely charged terminals.
This creates the ow of electricity across power lines.

Electric Current: The amount of electricity on the power line, measured in amperes.

Electric Voltage: The force or speed of the electric current. Think of it as similar to higher
and lower levels of water pressure.

Conductor: A substance that allows electricity to ow. In the power industry, copper and
aluminum are used.

Wa<: A unit of power, measured based on the current and voltage. A kilowa< is 1,000
waWs, while a Megawa< is 1,000 kilowaWs or 1 million WaWs.

Kilowa<-Hour (kWh): The amount of power consumed that is equivalent to 1,000 waWs
used in an hour. This is the most common measure of power usage on electric bills. The
typical house in Texas uses between 1,000 and 1,500 kWh per month.

Genera)on:
As Simple as Boiling Water

The technologies for genera)ng electricity eciently, while limi)ng emissions from
power plants, are advanced, with new innova)ons in constant development.

However, the concept is simple:

A fossil fuel power plant burns coal or natural gas to create heat. In nuclear power
plants, ssion produces a reac)on that creates heat.
The heat produced is used to boil water un)l it creates steam.
The steam is used to turn a turbine, which creates electricity through a high degree
of fric)on.
That electricity charges conduc)ve metals, which are forced outward through
power lines.

Wind turbines simply depend on the force of the wind to turn a turbine to create current
and voltage.
Photovoltaic solar panels capture photons directly to create current and voltage.

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Genera)on:
Schema)c of a Fossil-Fuel Power Plant

Transmission:
High-Voltage Across Long Distances

Transmission lines are the high-voltage lines that carry power across long distances,
connec)ng power genera)on to ci)es, large industrial customers and other areas of high
power demand.

The power carried by transmission lines may be as high as 765,000 volts, or 765kV. The
most common levels of transmission voltage lines in ERCOT are 345kV, 138kV and 115
kV.

The lines used depend on how much power can be generated to that line and how
much is needed.

Substa)on:
Lowering the Voltage for Customer Use

A substa)on includes transformers and other equipment to reduce the voltage from a
transmission line to a level that can be used by homes and businesses. It connects
transmission lines to distribu)on lines.

Substa)ons are typically located near popula)on centers.

Distribu)on:
Your Neighborhood Power Line

Distribu)on systems carry anywhere from 7,200

to 34,500 volts; 12,000 volts is the most
common.

Essen)ally, the higher the voltage, the further

the power can be carried without losing too
much of its current.

The can you see on the distribu)on line is a

transformer, stepping the power down to the
120 volts used in a typical home.

When distribu)on
lines are placed
underground, the
transformer is
housed in a green
box, such as the one
shown here.
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Electricity Meter: The Final Access Point to

the Home or Business

The electricity meter, which is owned by the electric

u)lity, provides the nal point of distribu)on, connec)ng
the electric u)lity to the customer.

The meter measures the number of kilowaW-hours

used, allowing for the calcula)on of customers electric
bills.

With 6.7 million installed, much of Texas now uses

advanced metering systems, which provide addi)onal
benets, such as improved restora)on of power
following a storm, and the ability to begin service for new customers more quickly.

Advanced metering systems also allow for retail products, such as )me-of-use rates, as
well as greater ability for customers to track their electric usage throughout the month.

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The ERCOT Electric System

Major Transmission Lines in Texas

For an electric system to be

reliable, the electricity generated
must be transmiWed,
transformed and distributed to
customers in essen)ally the
same moment in )me.

With 550 power plants and 10

million access points, ERCOT
coordinates with generators,
u)li)es and other market
par)cipants to ensure reliable
distribu)on.

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Regional Transmission Operators

in North America

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AECT Companies
Within ERCOT

Retail Electric Providers

Transmission and Distribu)on U)li)es

Genera)on Companies

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AECT Companies
Outside of ERCOT

Midcon)nent Independent
System Operator (MISO)

Southwest Power Pool (SPP)

Western Electricity Coordina)ng

Council (WECC)

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Need for Ongoing Electric System

Investment:
Focus on Non-ERCOT Areas

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Non-ERCOT: Overview of Region

Investor-owned electric u)li)es located outside the ERCOT

grid serve over 1 million customers in Texas.
These u)li)es serve several key industries, including
petrochemicals, fuel reneries, military bases and oil & gas
produc)on.
Known as non-ERCOT u)li)es, these u)li)es outside
ERCOT are closely overseen by the PUC and not part of the
compe))ve market.

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Non-ERCOT Load Growth

Panhandle:
Oil & Gas Produc)on
Popula)on Growth

El Paso:
Fort Bliss Expansion
Popula)on Growth

Northeast Texas:
Regional Popula)on
Growth

East Texas:
Petrochemical Expansion
Renery Expansion
Popula)on Growth
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The Regulatory Compact in Non-ERCOT

Areas of Texas
The basic purpose of uJlity rate regulaJon is to balance the needs of
the consumer and the uJlity.
The Regulatory Compact is a covenant - essen)ally a contract -
between the authority of state governments, represented by public
u)lity commissions, the FERC and in some cases local government and
investor owned u)lity companies.
In exchange for the obliga)on to provide service to all customers in
that territory, investor owned electric u)li)es are given a territorial
monopoly on service and allowed the opportunity to earn a limited
prot.
State regulators have historically set prices at rates that reect the cost
of building power plants and punng up the wires. Prots necessary to
aWract investment have reected the cost of capital.

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Regulatory Lag: The Timeline Problem

The u)lity must serve growing load as residents, businesses and industries
move to non-ERCOT parts of the state.

Under current rules, it typically takes more than 12 months for the u)lity to
even begin recovering the costs of those investments.

Rate changes to reect future investment are based on previous years load
growth. This creates subsequent regulatory lag in cases where load is growing
quickly.

Historical Test Year

Year 1

Rate Case
Prep Period

NoJce
Period

Suspension
Period

Year 2

New Rates:
New Case May Be
Needed Immediately
Given Con)nued Load
Growth

Year 3
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More Timely Recovery of Costs

Promotes Healthier Investment

Legisla)ve changes are needed to improve the ability of non-ERCOT

u)li)es to secure and invest the capital needed to meet growth in
electric demand.
Ul)mately, non-ERCOT u)li)es must be able to provide )mely
investment to meet demand.
This benets the economic development in non-ERCOT regions by
ensuring customers have the transmission & distribu)on facili)es and
genera)on needed for growth to occur.
The goal: be<er synchronizaJon of the Jming and cost-recovery of
investments.

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Visit the New

AECT.net

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 Web: AECT.net

Twi<er: twi<er.com/AECTnet

Facebook: AECT Advocacy

Email: info@aect.net

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