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Group Of Texas REPs Propose Minimum Letter Of Credit Requirement Of $1 Million For Certification

ERCOT Tells PUC That System Not Currently Able To Implement Proposed Ability To Prevent A REP (Which Is Subject To PUC Suspension) From Adding Customers

November 14, 2022

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Copyright 2010-21
Reporting by Paul Ring •

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Stakeholders filed comments at the Texas PUC on proposed changes to the retail electric provider certification requirements and related rules

As exclusively first reported by, the proposed rules, among other things, would implement a tiered structure for the amount of the letter of credit (LOC) required from the REP for certification, for REPs which choose to meet the financial certification requirements through an LOC

As shown in the table below, the amount of the LOC required under the existing rules ($500,000) would now only allow a REP to serve 19,999 ESI IDs. Existing REPs would be subject to the new LOC amounts, as would new entrants.

The proposed required letter of credit for § 25.107(f)(1)(B) REPs would be as shown in the chart below:

See more details on the proposed rule changes here (our prior story discussed a draft proposal for publication that was later formally issued without modification)

With regards to the amount of the letter of credit required at each tier, the Alliance for Retail Markets said that, "there is no meaningful distinction between the PFP's [proposal for publication's] four tiers," and said that a two tiered structure for smaller and larger REPs would be more appropriate

Specifically, ARM proposed that a $1 million letter of credit be required for REPs serving under 50,000 ESI IDs, and a $1.5 million letter of credit for REPs serving 50,000 or more ESI IDs

"ARM supports reasonable capital requirements for REPs and their guarantors that reduce risk to consumers and other market participants and, accordingly does not oppose increasing the value of the letter of credit required for the first tier from $500,000 to $1,000,000 if the two-tiered approach is approved," ARM said

In contrast, the Texas Energy Association for Marketers recommended retaining the current requirements for the irrevocable stand-by letter of credit in existing 16 TAC § 25.107(f)(1)(B)(ii) -- a letter of credit in the amount of $500,000 -- "to minimize barriers to entry and promote robust competition in the Electric Reliability Council of Texas (ERCOT) retail market, while still ensuring adequate protection of customer funds and market obligations."

The Coalition of Competitive Retail Electric Providers also opposed changing the existing letter of credit requirements

As noted in our prior story, the proposed rules would provide a mechanism under which a REP could be suspended and prevented from acquiring new customers (while still serving existing customers)

ERCOT informed the PUC that its current system is not able to prevent a REP from adding new customers, which is a proposed new obligation for ERCOT in the proposed rules concerning the suspension of REPs

As exclusively first reported by, the proposed rule would provide that, "The commission or presiding officer may suspend a REP's ability to acquire new customers upon a showing of facts that reasonably support the occurrence of a significant violation of PURA, commission substantive rules, or protocols adopted by the applicable independent organization..."

The proposed rule further states, "staff will direct ERCOT to stop processing move-in [sic] requests for the REP." ERCOT noted that while the rule language in various places prohibits a suspended REP from "acquir[ing] new customers", the obligation on ERCOT is to prohibit "move-ins", with ERCOT questioning if the prohibition is also intended to apply to switches

ERCOT said that its current system is not built to allow ERCOT to be able to block individual REPs from adding customers within the system.

Moreover, "That functionality is technically infeasible with ERCOT's current system and not possible without a substantial system change," ERCOT said

ERCOT instead proposed that ERCOT be required to report, such as on a weekly basis, on if a suspended REP has acquired new customers, similar to ERCOT's tracking and reports of inadvertent gains

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