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National Energy Marketers Association Proposes Principles Of ESCO Financial Assurance, Files With New York PSC

February 18, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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The National Energy Marketers Association has filed with the New York PSC "NEM’s Principles of ESCO Financial Assurance" for consideration at a February 26, 2020, stakeholder meeting concerning ESCO financial assurance

As previously reported by, the PSC in its retail market reset order had directed a further process to evaluate the financial surety required of ESCOs and the appropriate amounts and types of surety. A Staff report is due within 120 days of the December reset order

NEM’s Principles of ESCO Financial Assurance are below

A. Flexibility in Form of Financial Assurance – Forms of ESCO proof of financial assurance should include all of the following: surety bonds, collateral, letters of credit, cash, proof of demonstrable financial security (i.e., credit rating).

B. Fairness to ESCOs of Varying Sizes and New Market Entrants – The financial assurance requirement should not be an unreasonable barrier to entry to new market participants, and it should be calibrated to reflect the risks posed by ESCOs of varying sizes.

C. Focus on Variable Price Product Savings Guarantee – Financial assurance requirements should be targeted to an ESCO’s ability to provide the variable price product savings guarantee only.

         a. Compliant fixed price product limited to a price no greater than the trailing 12-month average utility supply rate plus 5% - low risk of ESCO non-compliance; ESCO definitively knows at time of product offering that they have locked in supply to offer a compliant product.

         b. Renewable energy product – not subject to explicit limit or term implicating a potential for future customer refund.

D. Fairness in Calculation of Overcharge Risk – Risk components for a mass market variable price product customer include: 1) annual energy use in kWhs and/or therms (or CCFs); 2) the resultant monthly utility price per unit of energy use; and 3) the ESCO’s price charged per unit of energy use. In addition, assuming each ESCO’s variable priced customer is reconciled at 12-month intervals, security requirements will differ based on the tenure of each customer on an unreconciled variable price.

         For example, at any point in time it should be expected that 1/12th of customers will be reconciled 12 months from the present time, 1/12th 11 months from the present time, etc. The result would be that the security requirement should be based on 50% of any calculated estimate of amounts that may be subject to annual reconciliation refunds (the average customer refund amount due being for 6 months of usage at any point in time).

E. Ease of Computation of Financial Assurance - Such security determination can be based on the utility reported annual usage for all of an ESCO’s variable priced product customers by utility, the 12-month historic utility rate now provided quarterly by all utilities (a somewhat reasonable proxy for the PTC), a risk factor based on a reasonably anticipated ESCO overcharge during a 12 month period and the 50% factor explained above in Paragraph D.

         Linking a financial assurance requirements to the number of customers served by an ESCO, the load served by an ESCO or to an ESCO’s historic revenue would create an unfair mismatch to any risk that is related only to potential amounts owed to variable priced product customers since each ESCO will have a different portion of their customers, load served or revenue related to the variable priced product.

         The POR discount should not be considered in establishing a fund to be used in a similar fashion that a performance bond or security instrument would be used. Such a proposal introduces complexity related to regulatory approval and monitoring, tax reporting, interest on amounts held, etc. Additionally, monitoring would be required as to when the discount has collected sufficient funds for the purposes of financial assurance, at which point the mechanism should stop.

F. Opportunity for ESCO Application for Reduction in Financial Assurance – ESCOs that demonstrate that they have properly reconciled customers should be eligible to apply for a reduction in the financial assurance requirement.

G. Clarity that PSC Receives the Financial Assurance – Since the financial assurance requirement is intended to ensure ESCO compliance with the UBP, the Commission should receive the financial security, not the utilities.

H. Due Process – Only after an ESCO has been afforded requisite due process (including notice of the alleged wrongdoing and an opportunity to respond and cure the problem) and a subsequent Commission finding that wrongdoing occurred and that the ESCO failed to pay, should the Commission draw on the financial instrument.

Case 15-M-0127 et al.

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