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Utility Suggests Bankrupt Retail Suppliers Should Have Conditions Placed on Licenses

July 30, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Ohio retail suppliers which are engaged in bankruptcy proceedings which have their supplier licenses expire and due for renewal during the pendency of the bankruptcy protection should have conditions placed on any license renewal, AEP Ohio suggested to PUCO.

AEP Ohio's comments were prompted by Glacial Energy of Ohio, Inc.'s application for renewal of its CRES certificate, which is occurring as the supplier works through a bankruptcy proceeding.

AEP Ohio said that, "during a bankruptcy proceeding, collateral associated with serving existing customers may be at risk of being clawed back by the debtor or the bankruptcy trustee. It is unclear the extent to which an EDU's open access tariffs adequately protect and maintain the first priority lien security status of collateral posted by a bankrupt CRES or protect against a claw back by the debtor or the trustee in bankruptcy attempting to redistribute these proceeds to other creditors."

"With respect to the enrollment of new customers, it is also unclear whether a CRES provider operating under the protection of bankruptcy laws can provide adequate collateral to meet its additional financial obligations," AEP Ohio said.

Additionally, AEP Ohio said that, " It is unclear whether an issuing bank will automatically extend the expiration date of a letter of credit that expires immediately after the date of the bankruptcy filing or is set to expire within months of the bankruptcy filing. If a letter of credit is not considered an asset of the bankruptcy estate, it may not be renewed by a CRES provider facing bankruptcy in an adequate amount of time prior to the date of expiration. Under that scenario, the ability of an EDU to receive alternate conforming collateral from the bankrupt CRES provider may be compromised."

AEP Ohio said that PUCO, "should carefully consider the uncertainty surrounding the treatment of EDUs and their collateral through the bankruptcy process and the seeming lack of any protection or relief available to the EDU."

"Some of the concerns raised above could be addressed by granting conditional or limited approval of renewal applications submitted by CRES providers that have filed for bankruptcy," AEP Ohio said.

"For example, if a CRES provider seeks to sell all or part of its CRES business as part of the bankruptcy proceeding, the Commission should consider whether the CRES provider should be authorized to continue operations for its own account after the disposition and transfer of its existing agreements. Moreover, the Commission should consider whether it would be appropriate to grant a renewal application for a CRES provider operating in bankruptcy only on a limited basis (e.g., month-to-month) under the condition that the CRES provider provide the Commission with a monthly update on the status of its bankruptcy proceedings and demonstrate its continued compliance with EDU's open access tariff and registration obligations," AEP Ohio said.

"The Commission may also consider conditioning a renewal certificate on the CRES provider obtaining a bankruptcy court order that confirms that EDUs have a first priority security lien interest in all collateral previously posted and any additional collateral to be provided to the EDU, that such collateral is not subject to any claw back within the bankruptcy proceeding, and that an EDU may exercise its rights with respect to such collateral without seeking any order or relief from the bankruptcy court," AEP Ohio said.

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