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Executive Summary Texas cities are in a unique position to provide meaningful feedback regarding the successes and failures of the Texas deregulated electric retail market. Many of the cities that prepared th~s repor~ are members of two of the largest electric aggregation groups, Cities Aggregation Power Project (CAPP) and South Texas Aggregation Project (STAP). Together these two political subdivision corporations have approximately 120 member cities whose total electric consumption is estimated at 1.2 billion kWh annually based on approximately 13,000 municipal accounts. The member cities, listed in Attachment A, have become active, eager customers in the electric retail market as well as continuing their traditional regulatory role in scrutinizing the rates to be charged their citizens. CAPP and STAP cities have met with obstacles, both cost related and non-cost related, that have significantly decreased projected benefits promised with the restructuring of the electric market.~ Amplifying some of the critical points raised by the 2003 Scope of Competition Report produced by the Public Ut'dity Commission, from Cities' perspective, competition thus far has been marked by less than auspicious beginnings. Confusion regarding service issues has reigned over the past year. Restructuring necessary to achieve deregulation has led to economic waste, created baffling reams of new roles to control complex relationships, and resulted in numerous inefficiencies. Customer complaints filed with the Public Utility Commission have increased by more than 300 percent over the past year. While CAPP and STAP cities have endeavored to make deregulation a success, they are not pleased with the result. Customer service has declined, and market participants are more interested in passing responsibility to others than in seeking solutions. Preparing requests for proposals is difficult because of inadequacies in the information supplied by T&D companies. Price volatility frustrates the ability to analyze and compare competing bids. Invoicing from providers has been problematic with delays, inaccuracies, and incomprehensible adjustments. Municipalities have had to spend substantial resources in comprehending and reconciling bills. Deregulation in Texas has severed all connection between prices and costs. Transmission and distribution rates set by the Public Utility Commission were based upon estimates rather than historic costs. Many of the anticipated generation plants which in large measure formed the basis of the current transmission rates have been cancelled or postponed. The competitive component of electric pricing has been turned over to traders who set electric prices largely on dally fluctuations of the natural gas and other energy markets. With few exceptions, retail competition is but a rivalry among a handful of entities that are a~iates of incumbent utilities. In short, prices to consumers exceed what they would have been had the electric regulation continued. The municipalities involved with CAPP and STAP aggregate only political subdivision electric accoums, not citizen electric accounts. Statutory constraints and Public Utility Commission interpretations make municipal aggregation of the electric load of citizens unattractive to local officials from both political and practical perspectives.