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Brattle: Increase Credit, Qualification Requirements on Texas Retail Electric Providers

June 1, 2012

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Copyright 2010-12 Energy Choice Matters

In its report on ERCOT resource adequacy (see related story), The Brattle Group urged the Public Utility Commission of Texas to, "revisit provisions to ensure that retail electric providers (REPs) can cover their positions as reserve margins tighten and price caps increase."

"[W]e are concerned that as reserve margins tighten and offer caps increase, some unscrupulous REPs with little to lose may be tempted to exploit asymmetric risk exposures, if such exist. They could under-hedge in order to make money in the likely event that realized spot prices are lower than forward prices, while taking a risk that spot prices spike to levels they cannot pay in the unlikely event of 2011-like weather. They would simply default and exit the retail electric business, but ERCOT’s other customers would have to pay. Given risks such as these, we recommend that the PUC revisits its credit and qualification provisions," Brattle said.

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