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November 18, 2008 (512) 463-0300

TRANSITION TO NODAL POWER MARKET LAGS BEHIND SCHEDULE

(AUSTIN) -- Senators were dismayed by reports that a program to increase efficiency in power transmission and reduce energy costs is running behind schedule and over budget. Electric Reliability Council of Texas (ERCOT) CEO Bob Kahn testified before the Senate Business and Commerce Committee Tuesday, saying the project to convert from a zonal to a nodal model of distribution is spending $12 million a month with no determined end date. The program was intended to streamline delivery of utility services by January 1, 2009, but the actual end date could stretch into 2010.

When the project was approved in 2003, a cost-benefit analysis (CBA) of the project showed a $6 billion benefit to the utilities market, at a cost of about $260 million. As of today, the project has spent $295 million, according to Kahn, and ERCOT has ordered another CBA, this time due in February or March of next year, to gauge cost savings under the new timeline and budget. Public Utilities Commission Chairman Barry Smitherman testified that the project will save rate payers money if it opens in the near future, but at some point, it may not be worth the savings. "If we can get it open, I'm confident that it will be beneficial. Now, we're doing the CBA to reassure us that the benefits to the market over the next 10 to 12 yrs are overwhelmingly favorable. But the key is, we've got to get it open, we've got to complete the project," he said. "What I'm concerned about is we seem to be a long way away from completing, and at some point were spending too much money for a project that going to return a certain amount of benefit."

Kahn attributed the delays to software glitches, hardware defects, as well as the general complexity of the contract. He also said that the vendors working on this project have not made it a top priority. Because the contracts signed with the vendors at the inception on the project are open ended, with no concrete deadline, committee chairman Senator Troy Fraser wondered if that was a major contributor to the delay. " If there's an open ended contract, and I'm a vendor, and I know I can bleed this forever, what incentive do I have to complete the project," asked Fraser. "I'm a little concerned about the obligation of the vendor to complete the project knowing its an open ended contract." Kahn told the committee that many of the contracts do have milestone requirements, and that the contracts have been renegotiated to more favorable terms for the state.

Senator Leticia Van de Putte of San Antonio looked back to when this project was first proposed. She remembers that lawmakers were reticent to move forward, but utility and electricity industry officials assured the Legislature it was in the best interest of the state. "This committee was not friendly toward that at the beginning, nor was the legislature. We were very uncomfortable. It was at the repeated requests of our market participants and of our PUC chairmen and commissioners that convinced the legislature that this nodal market was very beneficial and was the way to go," she said. Now the future of the project likely rests on the outcome of the new cost benefit analysis, due early next year.

The Business and Commerce Committee is Chaired by Horseshoe Bay Senator Troy Fraser, and co-Chaired by Senator Chris Harris of Arlington. It consists of Senators Leticia Van de Putte, Kirk Watson, Kevin Eltife, Craig Estes, Eddie Lucio, Jr, and Kip Averitt.

Session video and all other webcast recordings can be accessed from the Senate website's audio and video archive pages.

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