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RESA Petitions Pa. PUC To Simplify Process For Retail Suppliers To Renew Reduced Security Level, Says Current Process Costly, Burdensome

June 8, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Retail Energy Supply Association has petitioned the Pennsylvania PUC to simplify the process for electric generation suppliers to renew previously approved reductions, from 10% to 5% of gross receipts, in the EGS's security required by the PUC.

As previously reported, the PUC several years ago instituted a process to allow EGSs to petition the Commission for approval to maintain financial security in an amount equal to 5% of their reported gross receipts in lieu of the historically required 10%

Currently, EGSs who have already received Commission approval to maintain security at a 5% level must submit a new petition every year to the Commission 90 days prior to the security's expiration and await Commission approval prior to being able to continue to maintain the 5% level, RESA said

"[C]apping a supplier's initial 5% reduction approval to one year that must be reapproved each year combined with a lack of coordination regarding the expiration of the security instrument creates unnecessary complications for suppliers who need to both ensure compliance with the Commission requirements and to most cost-effectively acquire the appropriately dated financial instrument from other third parties," RESA said

"RESA believes that the challenges with the current process could be reasonably addressed with a more simplified process which permits EGSs who have already been approved for the 5% level to submit a compliance template (with appropriate supporting documents) to continue the 5% level unless the Commission takes action to the contrary. This refinement would streamline the process and lead to administrative efficiencies for both suppliers and Commission staff," RESA said

RESA noted that an April 2016 Secretarial Letter concerning implementation of the ability for EGSs to reduce their security requirement informed EGSs that, in order to be eligible to continue to avail themselves of the previously approved security level reduction, an EGS must provide annual documentation of its eligibility for a security reduction at least 90 days prior to its current security's expiration date. EGSs were instructed that annual documentation is required to include at least: (1) a petition for renewal of the security reduction; (2) a $350 filing fee; (3) proof of service of the petition on statutory advocates and affected electric distribution companies; (4) a Tax Letter of Good Standing from the Pennsylvania Department of Revenue; and, (5) the company's gross receipts for the most recent four quarters.

In such April 2016 letter, EGSs were cautioned that if the requested documentation was not provided to the Commission, their reduction approval would cease and return to the 10% level of gross receipts, RESA noted

RESA reported that, "RESA members have found that the process requiring annual petitions and renewed Commission approval to maintain a previously approved reduction in security level can be cumbersome and present unnecessary challenges that could be addressed through a more simplified process which would improve administrative efficiencies for both Commission staff and EGSs."

"A significant challenge has been coordinating the dates to renew an expiring financial instrument, receive approval to maintain the previously approved 5% security level, and submit an appropriately dated new financial security instrument. The April 2016 Secretarial Letter contemplates that the petition to continue the 5% reduction will be filed 90 days prior to the security instrument's expiration and that- once granted- the approval is only effective for one year. This timing, however, has led to a number of difficulties for suppliers that have been a challenge to manage and which have required suppliers to seek costly modifications and changes to their financial instruments as required by the third party issuer," RESA said

"Examples of how these timing variances occur include receiving approval for the 5% reduction effective prior to the date of the security's expiration or not receiving the Commission's approval of the request to renew the 5% level until after the security's expiration date. In either scenario, the supplier could be required to renew its security instrument at the 10% level (because the 5% level has not been re-approved) only to adjust it again after the 5% level is approved. The only way EGSs can effectively manage these situations is to 'arrange 'short term' [sic] financial security which can be costly and time consuming for several reasons," RESA said

For example, suppliers utilizing a letter of credit to satisfy their security requirements may have the option to renew their security at certain intervals after an initial period but bonds may expire and need to be reissued for a longer period of time. For surety bonds used as security, the bonding agencies typically charge a fee for making modifications or issuing new bonding instruments that can result from timing disconnects. Thus, to the extent EGSs can arrange "short term" financial security to the extent there is a timing variance, doing so is time consuming and potentially costly for suppliers, RESA said

Additionally, RESA said that the current 90 day timing difference from the due date of the renewal petition and the security's expiration can also create uncertainty about the appropriate amount for the security. Because the amount of security is based on the EGS's most recent four quarters of gross receipts, there is a potential for approval of the 5% reduction in one quarter and the due date for the security to be in the following quarter. Depending on the supplier's revenue for that quarter, this could result in a significantly different level of security required than what was contemplated with the renewal petition, RESA said

RESA proposes the following compliance filing procedures in lieu of a formal petition for EGSs to maintain a previously approved reduced security level:

(1) The Commission authorize EGSs that have been approved for a 5% financial security reduction to submit a compliance filing template (and supporting documents) to renew their reduced security level.

(2) The information to be included with the compliance filing would require EGSs to provide their most recent 12 months of gross receipts and the 5% calculation on this total.

(3) EGSs would also be required to enclose an original financial security instrument in the amount listed in the 5% calculation or evidence that the original financial security instrument is being or has been sent to the Commission. If an EGS has a security instrument on file with the Commission that contains an evergreen, auto-renewal provision and the amount is still enough to cover the 5% calculation, the EGS shall note that in its filing.

(4) In addition, EGSs would include an attestation signed by an officer that the EGS will pay all taxes that it is subject to in Pennsylvania.

(5) RESA proposes the compliance filing be due 30 days prior to the expiration of an EGS's security to give Commission staff ample opportunity to review filings and communicate any deficiencies. The current 60-day Security Letter sent by TUS [Bureau of Technical Utility Services] to the EGS to notify the EGS about its upcoming expiration date could also serve the purpose of providing notice to EGSs with already-approved security level reductions of the due date to submit a compliance filing template.

(6) Upon filing of the compliance template, an EGS's 5% financial security reduction would be continued unless the Commission issues a disapproval requiring the supplier to renew its security at the 10% level.

"Importantly, RESA's proposal does not remove the Commission's current ability to increase the security requirements for a particular EGS if the Commission finds that such an increase is necessary to ensure the financial responsibility of the EGS and the supply of electricity at retail in accordance with 66 Pa.C.S.A. § 2809(c)(1)(i)," RESA said

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