Utilities Propose New Creditworthiness Test, Security, & Collateral Requirements For Retail Suppliers

Proposals, "Create Barriers To Market Entry For All But The Established Market Incumbents," Coalition Says

"Favor[s] Established Large Competitive Suppliers," Coalition Says

June 19, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Several New Hampshire utilities, including Public Service Company of New Hampshire (Eversource) and Unitil, have proposed new requirements for a creditworthiness test, security, and potential collateral requirements for retail electric suppliers and community power aggregators (CPA), the Community Power Coalition of New Hampshire (CPCNH) said in testimony in the proceedings to implement purchase of receivables (POR) at Eversource and Unitil

Notably, the proposed changes in credit requirements were not included in the initial testimony and filings of the utilities. Rather, the proposed changes were filed in response to a discovery request from the state's Department of Energy. These discovery responses have not been posted to the online case filings for each proceeding, and specifics beyond what CPCNH included in its testimony are not immediately available

CPCNH says of the sought changes with respect to Eversource: "[T]he proposed text of changes to their tariff and supplier agreement were not proposed in their [Eversource] testimony but were provided in response to DOE 2-001, which was only in the second round of discovery, so there has been no opportunity to make data requests on the proposed edits or to discuss in a technical session."

CPCNH further objected to, "the inclusion of new requirements for a creditworthiness test, security, and potential collateral requirements, ostensibly due to increased financial risk to the utility from administering POR, but which create substantial barriers to new entry for CPA and CEPS [competitive electric power supplier] market participants, favoring established large competitive suppliers. There is no testimony in support of these proposals."

More specifically at Eversource, CPCNH said, "Eversource’s draft proposes amending their Competitive Electric Supplier Trading Partner Agreement to (i) impose utility-administered creditworthiness tests upon CPAs and CEPS that intend to elect consolidated billing, as a precondition for entering into the agreement, (ii) require CPAs and CEPS that are not 'creditworthy' thereunder to post additional collateral for the utility’s benefit, such as a letter of credit, parent guaranty from a creditworthy entity, et cetera, and (iii) require CPAs and CEPS to grant Eversource a 'first priority perfected security interest' in 'all Accounts Receivables purchased by the Company under this Master Agreement;' which seems a little odd because when a receivable is purchased by the Company, which is proposed to be when the retail customer is billed and is the first point in time when an account receivable can be quantified, it could not be used as collateral for a security interest granted by the supplier because at that point it would no longer be an asset owned by the supplier. The asset to be held by the supplier would be the POR purchase price, owed to them by the utility, which the proposed language concedes could be subject to a security interest by the supplier."

CPCNH alleged, "Eversource has acknowledged that there is no particular statutory basis for imposing these sweeping financial security obligations, which impose additional costs on the customers served by CPAs and CEPS and create barriers to market entry for all but the established market incumbents, and which are based on their Massachusetts tariff."

With respect to Unitil, CPCNH said, "Unitil has proposed amending their Competitive Electric Supplier Trading Partner Agreement to (i) impose utility-administered creditworthiness tests upon CPAs and CEPS that intend to elect consolidated billing, as a precondition for entering into the agreement, (ii) require CPAs and CEPS that are not 'creditworthy' thereunder to post additional collateral for the utility’s benefit, such as a letter of credit, parent guaranty from a creditworthy entity, et cetera, and (iii) require CPAs and CEPS to grant Unitil a 'first priority perfected security interest' over all of their billed and unbilled accounts receivables."

"CPCNH alternatively proposes that the utility's tariff be amended to require that the ownership of a CPA or CEPS receivables be transferred, irrevocably and entirely to Unitil at the moment the utility creates the invoice or bill to the customer, which then becomes their property and asset, and to which the supplier cannot offer a security interest because it, from the moment of quantifiable creation, is no longer an asset of supplier and thus cannot be used as collateral. This assumes that simultaneously Unitil would create a corresponding liability to the supplier of the AR Purchase Price reflecting the PUC approved discount. Then no additional creditworthiness testing or requirements need be imposed beyond the extant Financial Security Requirements for Competitive Suppliers set forth at Puc 2003.01 and 2003.03," CPCNH said

CPCNH also said some of the changes under both EDCs' tariffs aren't related to POR, and thus recommended that the tariff changes be addressed in a separate proceeding

"[S]ignificant aspects of these draft edits are beyond the noticed scope of this proceeding, including some draft revisions and updates that seem to be unrelated to POR but would be generally applicable to both CEPs and CPAs, so there are likely other parties that would have an interest in these issues," CPCNH said in the Eversource proceeding

See background on the proposed POR programs here

With regard to other aspects of the proposed POR programs, the state's Department of Energy (DOE) proposed that Eversource use a 12-month period when determining uncollectible expenses for the POR discount rate, "as it would be more reflective of any changes in economic conditions that may impact uncollectible expenses than would be captured by a longer period," DOE said.

Eversource had initially proposed to use a 24-month (2020-21, later expanded to 2020-22) look-back period for the uncollectible rate.

The use of a 12-month look-back period for the uncollectible rate has already been proposed by the other investor-owned utilities in the state, and is favored by retail suppliers

Additionally, DOE recommends that Eversource develop unique POR discount rates by customer class (specifically residential and non-residential), "to the extent possible and at reasonable cost," rather than having a single rate apply to all customers as proposed by Eversource. Retail suppliers also support POR discount rates specific to each customer class

The other investor-owned utilities have already proposed two classes of POR discount rates (generally, small customer versus large customer, see specific categories in our prior story here

DOE's technical statement also notes that Eversource has modified its proposed amortization period for start-up administrative costs (included in the POR discount) to be 5 years, rather than the originally proposed 3 years

DOE proposes an "all-in" requirement for the use of POR, though the reach of the program is unclear due to potentially conflicting statements

In a summation concerning the Eversource program, DOE recommends, "Adopting an all-in policy for a CPA or CEPS that elects consolidated billing whereby a CPA or CEPS that elects consolidated billing must have all of its customer accounts enrolled in the POR Program."

However, DOE's technical statement at one point suggests "stand-alone" billing (meaning dual billing) should not permitted if a supplier is using POR, though later in the same paragraph, DOE narrows this to apply only to UCB accounts, not dual billed accounts

DOE notes that, at Eversource, a CPA or CEPS may elect to have an account or group of accounts unenrolled from the POR Program and bill those accounts via stand-alone billing (dual billing also called "passthrough billing").

DOE said, "under Eversource’s proposed POR Program, a CPA or a CEPS that elects consolidated billing must also participate in the POR Program. As proposed, Eversource would permit a CPA or CEPS to remove an account or accounts from the POR Program, billing those customers via stand-alone billing, while leaving other accounts in the POR Program and billed via consolidated billing. See DOE 2-002 in Attachment-3. In the Department’s opinion, the option to remove an account or accounts from the POR Program while leaving other accounts enrolled in the POR Program creates an incentive for suppliers to leave only those accounts that are at higher risk for collection enrolled in the POR Program and increases potential exposure of Eversource’s other customers to higher uncollectible expenses. The Department recommends that Eversource adopt the same approach as was adopted by Unitil in its POR Program proposal whereby a CPA or CEPS that elects consolidated billing must have all of its customer accounts enrolled in the POR Program."

For further context, here is a data request from DOE to Eversource concerning the all-in issue

DOE 1-2

(DOE to Eversource): Please confirm that if a CEPS or CPA chooses to participate in the POR program, all of the CEPS or CPA customers for whom complete billing has been chosen must be included in the POR. Please also confirm that a CEPS and CPA can opt to have a group of customers on complete billing and included in the POR and individual customers or a group of customers on pass through billing and not included in the POR.

Eversource Response:

All customers served by a Supplier and/or as part of a community power aggregation who are billed through consolidated (i.e., 'complete') billing will automatically be covered by the proposed POR program. If a Supplier or CPA wants any customer account or accounts not to participate in POR, it can enroll or send a change transaction choosing passthrough billing as the applicable billing option.

Further confusing matters is that the Unitil program favored by DOE appears only to apply the all-in requirement to UCB accounts. As noted by DOE in comments in the Unitil proceeding, "under Unitil’s proposed POR Program, a CPA or a CEPS that elects consolidated billing must also participate in the POR Program," so it is unclear what distinction DOE is making versus the Eversource program which (from our understanding) would not allow non-POR accounts under UCB. We do note that the term "passthrough" billing does not appear to be in the Eversource NH billing service agreement that is currently online, but as used in other Eversource jurisdictions, passthrough billing means dual billing

As noted, Eversource would allow the "removal" of accounts from POR to dual billing. The only interpretation we can make from DOE's comments is that DOE objects to this process which allows the removal of accounts from POR, but DOE does not oppose dual billing if that election is made up-front (before the customer is revealed as a good-paying customer). However, we stress that DOE's language appears unclear.

Dockets DE 23-002, DE 23-004

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