LEGISLATIVE OUTLOOK TPPA Marketing and Customer Service Conference March, 2005 -Review of 03- 04 Legislative Interim -

1. LEGISLATIVE OUTLOOKTPPA Marketing andCustomer Service ConferenceMarch, 2005-Review of �03-�04 Legislative Interim-Outlook for 2005 Legislature

2. Attachment - Committee list. Key Legislative Committees Sunset Advisory Commission House Regulated Industries Committee Senate Business and Commerce Committee Legislative Oversight Committee (LOC) House Energy Resources Committee Senate Infrastructure & Security Committee

3. Key Interim Charges House Regulated Industries Committee ERCOT structure/authority, alternative energy, monitor PUC, economic dispatch/markets/pollution. Major interim charges on telecommunications. Senate Business & Commerce Committee Price to beat, IOU fuel factors, ERCOT management, cost of congestion management, outside ERCOT areas, system benefit fund, IOU stranded costs, reliability/blackout. Sunset Advisory Commission Focus on issues related to the structure and function of the PUC and associated agencies: ERCOT, OPUC, etc.

4. Attachments: "Nodal" Position, Memo on TPPF Study Outlook for the 2005 Legislature TPPA Legislative Priorities Maintain the basic SB-7 framework that currently governs the electric utility industry. Stability and continuity are priorities as new electric markets continue to mature. Maintain local control for municipal utilities and electric cooperatives. Local authorities should continue to set rates, set utility policies responsive to community priorities, and decide whether and when to opt-in to retail deregulation. Monitor ERCOT and market redesign costs. Continue deregulation delays outside ERCOT.

5. Security and Reliability Legislative Recommendations of Senate Business and Commerce Committee and PUC. PUC would have the authority over reliability, security, and emergency response rules, with penalties for non compliance. Would apply to all industry participants, including municipal utilities and coops, but would not extend to muni/coop local distribution service quality issues. PUC could suspend electric market rules in the event of an energy emergency.

6. �Sunset� Review of the PUC The Legislature�s Sunset Advisory Commission reviewed the PUC in 2003-04. Electric and telecommunications issues were examined, as well as associated agencies like ERCOT. In 2005, the Legislature must reauthorize (recommended) or abolish the PUC. It may also act on other more specific Sunset recommendations.

7. Sunset Legislative Recommendations CONTINUE THE PUC: Recommendation to reauthorize the Public Utility Commission with the next Sunset review in 6 years. Although the PUC has limited jurisdiction over municipally owned utilities, TPPA supports. PROTECT AGAINST MARKET MANIPULATION: Recommendations to institutionalize an �independent market monitor� to watch for market manipulation and report to the PUC. Market monitoring would be funded via the ERCOT fee. Recommendations would also increase penalties for the violation of market rules. (Related PUC legislative recommendations would make penalties for non-compliance more universal and would standardize the process for releasing market information.)

8. Sunset Legislative Recommendations: ERCOT To increase the accountability to the Electric Reliability Council of Texas (ERCOT). Former employees of the grid operator were accused of contracting improprieties in 2004. PUC SCRUTINY OF ERCOT COSTS: A recommendation long-sought by public power and supported by TPPA. ERCOT has already agreed to budget decreases for 2005. ERCOT BOARD OPEN MEETINGS: Supported by TPPA with exemptions including competitively sensitive matters. RECOMMENDED CHANGE TO ERCOT BOARD GOVERNANCE: The recommendation would add two independent board members unaffiliated with the industry and designate an independent member as board chair. This compromise, supported by TPPA, preserves industry representation under the current �blended� governance structure. Industry expertise adds value and is particularly important as electric markets continue to transition. Proposals for a fully independent ERCOT Board were opposed by industry, including TPPA.

9. Outside ERCOTDeregulation Delays The pre-conditions for retail deregulation do not exist outside ERCOT at this time (independent grid operator, sufficient transmission, absence of market dominance). Delays should continue. West Texas: Deregulation delayed by previous legislation until at least 2007. East Texas: Deregulation delayed by previous PUC action. Issues include PUC reconsideration of delay and the Entergy rate freeze.

10. Renewable Energy Public power leads in the deployment of wind power and other renewables. Municipal utilities and electric coops are not currently subject to SB-7 renewable standard until they opt-in to deregulation. Legislation in 2005 is likely to seek an expanded renewable portfolio standard (RPS), transmission for wind energy, mandates/goals for fuel cells, solar, smart metering, etc. Proposed mandates could apply to municipal utilities and coops before they opt-in. TPPA: seeks reasonable renewable goals that are compatible with local control.

11. Possible LegislationConcerning Transmission Potential legislation to provide incentives for transmission to import wind energy from west Texas. Possible legislation to generally encourage transmission via additional PUC authority and incentives, like progress payments to transmission line builders (construction work in progress � CWIP). Possible legislative issues concerning property owners rights, siting of transmission lines.

12. New Wholesale ElectricMarket: Nodal PUC-ordered market design changes seek to improve efficiency and reduce local congestion costs in 2006. Nodal appears to have different regional impacts, with higher costs possible in north Texas. PUC now studying costs and benefits. Public power regarding nodal: Public power systems have been skeptical but constructive participants in the market design process. Public power systems have different views of nodal which impacts them differently based on region and system configuration. TPPA has advocated only at a high level (more transmission infrastructure and grandfathered public power transmission rights) in recognition of the regional differences among its members.

13. Attachment: Memo on ERCOT fee. Other SelectLegislative Issues School Finance: The biggest issue for the 2005 Legislature. TPPA would be concerned about any new taxes or customer fees related to electricity. Investor Owned Utilities (IOUs) Legislation possible regarding IOU stranded costs, the �price to beat� to residential IOU customers, etc. TPPA has traditionally been neutral on IOU issues. Consumer Groups Consumer groups are likely to advocate legislation regarding IOUs, the state consumer advocate, IOU customer complaints, and cities served by IOUs. TPPA has traditionally been neutral on these issues which do not directly impact public power.

14. TelecommunicationsLegislation Part of PUC Sunset. Companies seek further deregulation. The Texas law that prohibits cities from providing telecommunications services was recently upheld by US Supreme Court, but remains subject to interpretation. Broadband Over Power Line (BPL): Emerging technology. 2 small municipal utility pilot projects. TPPA is urging its members to use caution and legislators to not pass restrictive laws or regulations.

15. Bills Related toCustomer Service Bills that have been introduced, that primarily apply to IOU areas, and whose chances of passage are uncertain. IOU credit scoring bill. Bill concerning IOU extreme weather disconnects, taking field payments, etc. Bill concerning �smart metering� in IOU areas. Bill tweaking do-not-call list. Bills concerning eligibility for low income discounts from state �system benefit fund�.

16. Additional information is available on the TPPA website: www.tppa.com. Legislative and regulatory information can be found in the �members only� section or among meeting presentations. Or call TPPA at 512-472-5965.

17. QUESTIONS?