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Texas REPs: PUC Staff Strawman Changes For Increasing REP Qualification, Financial Requirements Are "Anti-competitive"; Would "Chill Entry" Into Retail Market

One REP Proposes To Apply Limit Of Five Trade Names For a REP Across All Affiliates Of A REP

April 29, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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In comments filed with the Texas PUC concerning a PUC Staff discussion draft (strawman) which would generally increase the financial and other market entry requirements for retail electric providers, the Coalition of Competitive Retail Electric Providers (CCR) alleged that the proposed changes, "are unneeded and anti-competitive," and would, "chill entry into the marketplace."

The Staff discussion draft had been first reported by< (see details here)

Among other things, the discussion draft would transition the letter of credit (LOC) requirement (if a REP elects to meet financial requirement through such means) to include tiered levels of required security, based on ESI IDs served, rather than the current flat amount of $500,000. As noted in our prior story, the proposed tiers would require a $1.5 million LOC for REPs with between 50,000 and 300,000 ESI IDs was also first to report that the discussion draft would empower Commission Staff, rather than the Commission itself through an order, to take action to suspend a REPs' certificate in case of bankruptcy or entering a payment plan with ERCOT

The Coalition of Competitive Retail Electric Providers (CCR) alleged, "The proposed strawman rule changes are unneeded and anti-competitive. They would replace certainty with vagueness, subject affiants to verification of the existence or absence of events at unrelated entities, and chill entry into the marketplace. Some proposals would allow Staff -- not Commissioners -- to suspend a REP's operations without due process. The present rules allow Staff to thoroughly evaluate applications for REP certification through discovery and hearing processes. The present rules have well served the competitive marketplace, and Staff have not identified a single reason for any of its proposed changes. The CCR respectfully requests that this project be closed and that no formal rulemaking processes be implemented."

CCR members participating in the comments are 3000 Energy Corp., Pogo Energy LLC, Young Energy LLC, Summer Energy LLC, and Brooklet Energy Distribution LLC

CCR said, " As proposed by Staff, REPs who currently meet the financial criteria that relies on Shareholder's Equity and a Letter of Credit (current §25.107(f)(1)(B)) would potentially be required to increase the amount of the irrevocable stand-by letter of credit (ILOC) depending on the volume of ESI IDs they currently serve. Under existing rules, all REPs, irrespective of how many customers they serve, who are certified under this financial qualification must post a $500,000 ILOC to maintain their certification. Under Staff's proposal, this amount would only allow a REP to serve up to 19,999 ESI IDs. If a REP wishes to serve more customers, it would be required to increase its ILOC. Staff have not provided any justification or data to support this proposed change or even stated what purpose this change seeks to serve. As a result, the CCR does not support this change. The CCR would request that Staff make available any data it possesses that supports the tiered ILOC structure it has proposed."

CCR further said, "The CCR is greatly troubled by the expansion of triggers to draw on an ILOC."

Beyond the current trigger of a POLR mass transition, CCR noted that the discussion draft would add triggers such as ERCOT terminates a REP's SFA and if Commission Staff finds that a REP has failed to satisfy its financial obligations under PURA, the commission's substantive rules, or the applicable independent organization's protocols.

CCR said, "ERCOT terminating a REPs SFA negates the REPs ability to dispute ERCOT's action in a legal proceeding in front of the Commission, prior to having their financial resources used by Staff. This does not provide for adequate due process to a REP, and as such, CCR finds it objectionable."

CCR further said it has concerns with the discussion draft provision that Commission Staff can cause a "suspension" of REP activities (i.e. the processing of switch and move-in requests) on Staff's own motion, "without affording the affected REP any due process rights that would be at play in a contested case proceeding."

CCR noted that the current rule defines "suspension" as the cessation of all REP activities associated with obtaining new customers in the state of Texas, but the discussion draft goes much further than existing rule language in that it could effectively hinder a REP's ability to serve its existing customers

"Additionally, the rule allows the Staff to take action in a number of scenarios (entering into a payment agreement with ERCOT, initiating bankruptcy proceedings, being in default to a TDU or ERCOT, or being out of compliance with respect to the financial, technical, or managerial requirements of 25.107) that may violate the legal rights such REP may have under other laws not within the purview of the Commission, like bankruptcy law," CCR said

"The CCR would also point out that simply being in default to another market participant should not allow the Commission Staff to take action. Both TDUs and ERCOT have processes for dispute resolution and such processes should be allowed to run to completion before Commission Staff are allowed to take actions that could further jeopardize the REPs ability to stay in business. Commission Staff appears to want to punish a REP who avails itself of the existing marketing processes for both disputes and payments both with TDUs and ERCOT, in that even the mere entry into a payment plan with ERCOT can result in Staff seeking to suspend a REP's activities. Again, all this occurs without the REP being afforded any measure of due process," CCR said

In separately filed comments, the Texas Energy Association for Marketers (TEAM) said that the discussion draft's authority delegated to Staff appears to violate the U.S. bankruptcy code

"TEAM also has specific concerns with 16 TAC § 25.107(l)(1)(B), which appears to violate the U.S. Bankruptcy Code by allowing Commission Staff to suspend a REP's certificate merely due to its status as a debtor. Under section 525 of the Bankruptcy Code, a governmental unit is prohibited from discriminating against parties who are or have been debtors. Discrimination includes revoking, suspending, or refusing to renew any license solely because the party is a debtor or insolvent," TEAM said

The discussion draft would also require separate security for deposits and prepayments (currently, the same security may be used for both. Various REP groups questioned why such a change is needed, and said it would add additional costs and administrative burdens

On this issue, TEAM said, "As proposed, 16 TAC § 25.107(f)(2) and (3) would require a REP certified to collect both customer deposits and customer prepayments to provide two separate letters of credit if the REP elects to provide an irrevocable standby letter of credit rather than use an escrow or segregated account. If the REP also satisfies the access to capital requirements using 16 TAC § 25.107(f)(1)(B), then the REP would need to provide a total of three letters of credit. This is one more letter of credit than is required currently, which seems overly burdensome and adds cost and banking fees without a commensurate benefit. Accordingly, TEAM recommends that the current wording and structure for this requirement remain as they are in the current rule. With that said, TEAM would like to gain a better understanding of the reason for this change and to see if there are other ways to address the underlying concern without requiring more than two letters of credit."

In separately filed comments, Octopus Energy sought to revise the rules concerning REP names

Specifically, Octopus proposed that the limit of five trade names for a REP be applied across all REP affiliates

Octopus proposed language stating that a REP shall, "Not use more than five assumed names in the REP's regular course of business, including names of affiliated REPs."

Octopus also proposed that language currently providing that a REP name may not be duplicative be extended to include names of electricity brokers, "to further avoid the potential for, at a minimum, customer confusion, and at worst deceptive practices."

Octopus proposed language stating that a REP business name, "must not be deceptive, misleading, vague, otherwise contrary to §25.272 of this title (relating to Code of Conduct for Electric Utilities and Their Affiliates), or duplicative of a name previously approved for use by a REP certificate holder or used by a broker registered with the commission pursuant to 625.112 of this title (relating to Registration of Brokers)."

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