Electric Cooperatives & Electric Choice Nueces Electric Cooperative, Inc.

1. Electric Cooperatives & Electric Choice Nueces Electric Cooperative, Inc. A White Paper from Nueces Electric Cooperative, Inc.February 2004Presented by Eloise Flores

2. Purpose • Review MOU/EC electric choice model • Review important topics that may require CRs to adapt their systems to accommodate the model differences • Minimize business impacts for both MCTDSP and CRs • Priority- to maximize customer service experience for Co-op members who exercise choice • Invite input for problem resolution

3. Intended Audience • Texas SET members • Customer service managers and IT professionals of market participants • improve employee and operational preparedness • enhance decision-making when an organization chooses to conduct business in an EC territory • enhance understanding of model differences that may require programming variations for customer information systems (CIS).

4. BackgroundPURA & the MOU/EC Electric Choice Model • The PURA (Public Utility Regulatory Act)- two choice models • IOU model • MOU/EC model • Today have a single model market –IOU model—no ECs or MOUs participate (ECs and MOUs can choose to opt-in) • Nueces Electric Cooperative (NEC) is first EC to enter competition • To effectively transition MOU/EC model into market, many issues need extra consideration by market participants • Actions impact: NEC + all ECs and MOUs that ultimately enter competition + other market participants • Texas ECs must also comply with Texas Electric Cooperative Corporation Act

5. BackgroundDefinition of Electric Cooperative • To understand issues must understand the definition of EC • A Cooperative is a business model • Central concepts • member ownership • member control • member benefit

6. BackgroundDefinition of Electric CooperativeCentral Co-op Concepts • Member Ownership: Shareholder-Oriented vs. Member-Oriented • EC owned by consumers- called “members” (one member may have multiple accounts with EC) • IOU owned by stockholders- ordinarily not much of business volume • Member Control • Members nominate and elect other members to EC board of directors • Directors represent entire membership on governance issues

7. BackgroundDefinition of Electric CooperativeCentral Concepts • Member Benefit: Capital Credits • At-cost operations, but there are margins (this is a non-profit term for profits) – rates can’t assure perfect breakeven every year • ECs return margins to members in proportion to their electricity use - patronage refunds or capital credits in ECs • Refunded as checks or bill credits (credits issued on EC’s portion of bill – no EDI) • Capital credit processes vary among ECs- each individual EC board decides • Directors may decide to reinvest monies in EC, but most issue capital credits to members on regular basis

8. BackgroundDefinition of Electric CooperativeThe Reason Electric Co-ops Exist • To meet basic need(s) not otherwise met • 900 ECs in the nation (76 in Texas) • Formed in 1930’s and 1940’s when IOUs determined it was not profitable to provide electric service in rural areas • Inability to access electricity created the “need” and rural people worked together to create ECs • Today, in Texas, over 1.5 million electric meters served by ECs

9. BackgroundThe Differences: MOU/EC Model vs. IOU Model • Model differences detailed in the PURA- Chapters 40 (MOUs) and 41 (ECs) • Key differences between the MOU/EC and IOU electric choice models • The Choice to Offer Competition • Customer Contact • Billing • Membership • Additional Issues for NEC • Disconnect for Non-Payment • Permitting • Continuing Service Agreements (CSAs)

10. BackgroundThe MOU/EC Texas Electric Choice Model Difference 1: The Choice to Offer Competition • IOUs required to unbundle and open distribution areas to choice in January 2002 • ECs and MOUs allowed to choose to opt-in • This is done through an “Opt-in” Resolution adopted by the consumer-elected, governing body

11. BackgroundThe MOU/EC Texas Electric Choice Model Difference 1: The Choice to Offer Competition • Reason for “special treatment” • ECs and MOUs governed by their Customers • customer accountability is “built-in” and assured within the organization structure • IOUs governed by their Stockholders • not usually a large volume of the IOU’s business • and by definition, the primary goal of for-profit corporations is to maximize stockholder investment • While a high-level of customer service generally enhances stockholder investment, there is really no built-in assurance that the best interests of customers will be a top priority for an IOU • Therefore, legislators allowed the “special treatment” for ECs and MOUs

12. BackgroundThe MOU/EC Texas Electric Choice Model Difference 2: Customer Contact • ECs and MOUs retain customer contact and relationships • Member contact is requirement of EC business model - ECs must respond to service needs of member-consumers • PURA Provisions Related to Customer Contact • ECs may speak to members about all service needs, except billing/rate issues for chosen CR (PURA § 41.055) • ECs allowed to be a CR • EC with a CR allowed to share officers, directors, and employees, and does not have to unbundle (PURA § 41.054(d)) • EC cannot engage in anti-competitive practices- ECs must equally promote all CR’s who choose to offer service to EC members (PURA § 41.056) • EC allowed to designate themselves as POLR (AREP) for members in their certificated territory (PURA § 41.053) • EC must serve as the default provider for their members (PURA § 41.053)

13. BackgroundThe MOU/EC Texas Electric Choice Model Difference 3: Billing • MOU/EC TDSPs allowed to bill consumer directly for MOU/EC services (PURA § 41.057) • MOU/EC TDSP consumers have TWO options for billing • 1- consumers can choose to receive two (2) bills – one from the MOU/EC TDSP and one from the CR • 2- consumers can choose to receive one (1) bill – SENT BY THE MOU/EC TDSP • If no preference expressed, or CR chooses to not inform consumer about option, “default” is single bill (option 2) • If one bill is sent, EC paid first for distribution services and remaining revenues assigned to the CR • Overpayments are held by the EC and credited to the distribution service portion of the member’s bill (unless directed otherwise by the member) • Consumption/ billing information must be retained by EC to allow the allocation and return of capital credits to members (determined in proportion to their use)

14. BackgroundThe MOU/EC Texas Electric Choice Model Difference 4: Membership • Key Membership Issues/Concepts for Choice Market • Remember… • One member may have multiple EC accounts • Capital credits determined based on revenue for each account number • One check mailed per capital credit number (membership number) -multiple accounts are combined into one check for the same customer • Member must talk to both EC TDSP and the CR/REP on move-in. Why? • CR/REP does not know if customer calling is already a EC member with another account or not • CR/REP cannot determine if a membership fee should be collected or not • CR/REP cannot ensure that member’s new account is assigned the correct capital credit number • On move-out no need to refer member to EC, but EDI transactions forwarded to EC must contain forwarding address so EC can submit final bill and allocate capital credits to member

15. BackgroundThe MOU/EC Texas Electric Choice Model Additional Issue #1:Disconnect for Non-Pay • MOU/EC can disconnect for non-payment (wires charges) • EC will notify the current CR/REP • If current CR/REP decides to drop member, CR must drop to AREP • AREP can then request a “disconnect for non-payment”

16. BackgroundThe MOU/EC Texas Electric Choice Model Additional Issue #2: Permitting • Since MOU/EC will have contact with all new consumers, the MOU/EC TDSP will communicate permit requirements to consumers for all new service • NEC- Permitting only required for new service construction • NEC will not assign ES IDs until premise is ready for meter set, at which time all permit requirements will have been met

17. BackgroundThe MOU/EC Texas Electric Choice Model Additional Issue #3: Continuing Service Agreements (CSA) • CSAs will most likely be initiated by CR/REP • EC will need to know if CSA exists- so meter’s not disconnected • This notification occurs through EDI transactions • If the EC initiates CSA with member, CR will be notified by e-mail

18. Problem Summary • Transition issues identification as we move to a two-model market will be on-going • Given the previous information, there are TWO immediate problems that need resolution • Process to establish/confirm EC membership on move-in’s • Process to track EC accounts in EDI to allow capital credit processing • Your input and assistance is needed to identify possible solutions

19. Problem SummaryIssue 1: Establishing/Confirming Membership Problem 1- NEC Ts&Cs require us to have the membership fee/ wires deposit before member receives electricity. Member contact with EC is needed on Move-In’s to ensure requirements are met. Problem 2- Swim lanes of Texas SET process diagrams show the first step as “customer contacting the EC before the CR/REP”. But, if contact between the consumer and the EC does not take place early, there is increased risk of EC not completing service connection on date reference in EDI transaction Suggested Solution- To make it easier, we suggest a soft-transfer from CR/REP to EC so EC can obtain membership information/fees required CONSIDERATION:NEED REJECTION CODE TO IDENTIFY THE LACK OF MEMBERSHIP INFORMATION-- POSSIBLY IN 814_28

20. Problem SummaryIssue 2: EC Account Tracking in EDI • All transactions must be member-based for the EC • ECs not premise-based, as is current market • NEC utilizes a member account number to track membership Problem 1- requiring the market to use this number suggests that CRs “store” an additional number for the life of the EC member’s service Problem 2- but without account identification in EDI transactions, NEC’s processing times will be beyond current market accepted durations or not completed at all CONSIDERATION 1: EC ACCOUNT NUMBER COULD BE INSERTED BY THE MOU/EC UPON RETURN OF THE 814_04 CONSIDERATION 2:TRACK ACCOUNT NUMBER IN DIFFERENT DATA ELEMENT OF BGN SEGMENT ON ALL 814’S, ALL 650’S, THE 810 AND 820

21. Questions & Discussion