Energy Choice
                            

Matters

Texas ALJ Recommends $1.1 Million Penalty Be Imposed On REP Which Defaulted On TDU Obligations, Lower Amount Than Sought By PUCT Staff

February 15, 2018

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

A Texas ALJ has recommended that the Public Utility Commission of Texas impose a $1.1 million administrative penalty on TruSmart Energy LLC for what the ALJ would conclude, in a proposal for decision, were violations of PURA § 39.352 and 16 Texas Administrative Code § 25.107(j)(7), (j)(16) resulting from TruSmart's default on payments to the TDUs

As previously reported, beginning on February 26, 2016, TruSmart began to default on payments to TDUs. TruSmart eventually defaulted on payments to five separate TDUs. Based on these initial defaults, Commission Staff filed a petition to revoke TruSmart’s REP Certificate in Docket No. 45749, a separate proceeding. TruSmart’s REP Certificate was revoked by the Commission on June 13, 2016.

On June 22, 2016, Staff filed a Notice of Violation (NOV) against TruSmart alleging that TruSmart failed to timely pay five TDUs and asking for an administrative penalty of $1,750,000. TruSmart requested a hearing on the notice and proposed penalty.

"The ALJ finds that TruSmart violated PURA § 39.352 and 16 Texas Administrative Code §§ 25.107 and 25.214 by defaulting under the terms of its tariffs with five TDUs. Staff’s evidence and the admissions of TruSmart’s own principal establish these violations," the ALJ said in the proposal for decision

"Specifically, Staff’s evidence establishes that TruSmart defaulted on the following TDUs in the amounts shown and beginning on the dates indicated for a total amount in default of $1,135,674.93," the ALJ said in the proposal for decision

"Staff seeks an administrative penalty of $1,750,000. Staff calculates that the maximum penalty that could have been assessed against TruSmart was $14,500,000 as of the date of the NOV and $62,375,000 as of July 10, 2017 (the date of Staff’s witness’s direct testimony). TruSmart argues that it should not be subject to an administrative penalty at all because the Commission has already revoked its REP Certificate, which TruSmart argues is a serious consequence sufficient to deter future violations. TruSmart generally blames its lender, which halted approval of payments to TDUs from TruSmart’s line of credit beginning February 26, 2017 -- the date the defaults began. After this date, TruSmart argues that the lender 'assum[ed] full operations and financial control of TruSmart' and that the defaults occurred 'for events beyond its control.' Further, TruSmart is no longer an operating entity and has no revenue and no funds to pay the amount in default or an administrative penalty. TruSmart also argues that Staff failed to appropriately consider the factors in 16 Texas Administrative Code § 22.246(c)(3) in calculating the proposed administrative penalty. If any penalty is assessed, TruSmart requests that it be $29,750," the ALJ noted in the proposal for decision

"The ALJ concludes that an administrative penalty is appropriate. If no penalty were assessed, REPs could avoid financial consequences of defaulting on payments to TDUs through bankruptcy or, as happened in this case, simply by allowing their REP certificates to be revoked by the Commission. Further, the TDUs will be forced to recover the bad debt created by TruSmart’s failure to remit payment through future rate proceedings at the Commission," the ALJ said in the proposal for decision

"Ultimately, in considering the statutes and rules, the ALJ concludes that an appropriate penalty is $1,135,674.93 -- an amount equal to TruSmart’s defaults to the TDUs. This amount is slightly lower than the amount recommended by Staff, because the ALJ takes into account the fact that no TruSmart customer lost power after the defaults occurred and the fact that TruSmart has no previous violations," the ALJ said in the proposal for decision

"Although Staff presented overwhelming support for imposing an administrative penalty, the amount requested was not supported by the evidence. While the 16 Texas Administrative Code § 22.246(c)(3) factors were addressed, Staff did not articulate how the requested $1,750,000 penalty was calculated. The amount is certainly below the maximum penalty that could have been assessed, but no other explanation was presented beyond that observation," the ALJ said in the proposal for decision

"The ALJ also does not accept TruSmart’s argument that the lender is to blame for the defaults to the TDUs such that TruSmart should incur no administrative penalty. TruSmart entered into a loan agreement allowing the lender to have control of its cashflow and to approve the payment of expenditures. The lender swept the accounts to pay off TruSmart’s debt to the lender rather than to allow TruSmart to pay the TDUs. The lender had the right to do so and had no obligation to the TDUs. TruSmart should not be relieved of its responsibility to the TDUs for an action taken by the lender pursuant to an agreement TruSmart freely entered into," the ALJ said in the proposal for decision

"The failure to pay TDUs in the amount of $1,135,674.93 is a serious violation that impacts the economic welfare of the public, who must shoulder the burden of paying the debt through future rate proceedings at the Commission. The Commission has identified it as a Class A violation because it caused economic harm to the TDUs in excess of $5,000 and an economic benefit to TruSmart (because TruSmart avoided paying the amount in default) in excess of $5,000. Additionally, Staff showed that TruSmart had, on several occasions, requested and received funds from its lender to pay TDUs, but used the funds for other purposes. However, the ALJ notes that no TruSmart customer lost power after the defaults occurred. The ALJ concludes that this factor weighs in favor of a higher penalty," the ALJ said in the proposal for decision

"Given the seriousness of the violation and the over $1,000,000 amount in default, the ALJ concludes that a higher penalty is required to deter TruSmart (should it ever re-enter the market) and other REPs from defaulting on financial obligations to TDUs," the ALJ said in recommending the $1.1 million penalty in the proposal for decision

Docket 46093

ADVERTISEMENT
NEW Jobs on RetailEnergyJobs.com:
• NEW! -- Energy Broker
• NEW! -- Account Manager, Retail Energy -- DFW
• NEW! -- Sr. Energy Analyst -- Broker -- DFW
• NEW! -- Commercial Energy Advisor
• NEW! -- Operations Manager -- Retail Supplier
• NEW! -- Business Development Manager - Texas, Retail Provider
• NEW! -- Business Development Manager - Northeastern US, Retail Supplier
• NEW! -- Senior or Principal Quantitative Research Analyst, Energy Commodity/Risk
• NEW! -- Operations Manager -- Retail Supplier
• NEW! -- Business Development Manager -- Retail Supplier -- Philadelphia
• Commercial Energy Advisor -- Dallas