Anderson Suggests Requiring Pre-Approval Only if Acquiring REP is Not Licensed and Not in Good Standing

The PUCT yesterday deferred action on Staff's proposal for adoption concerning changes to the REP certification rules which would require Commission pre-approval of any changes in control (Project 37685).

However, Commissioner Kenneth Anderson, in a memo, recommended that acquisitions of an Option 1 REP by a certificated, load-serving REP in good standing with the Commission should be subject to Commission review and approval, but not necessarily pre-approval before the transaction occurs.

Anderson suggested that the final rule follow these principles:

• A transaction that results in the acquisition of a REP or REP certificate by a person that is not, or does not control, a licensed Texas Option 1 REP in good standing with the Commission (which has to be defined by the Commission) that is actually serving customers should be subject to Commission review and approval before the acquisition may occur
• Other acquisitions of REPs or REP certificates should be subject to Commission review and approval, which could take place before or after the acquisition
• The acquisition of an Option 2 REP should not be subject to prior approval
• The timeline for approving the acquisition of a REP or REP certificate should be shortened to 30 days, which may be extended for good cause
• The transfer of customers from one Texas certificated REP to another should not be subject to approval under the certification rules (but may require notice to the Commission under Subst. R. § 25.493, in certain circumstances).
• A person that intends to acquire a REP or REP certificate in circumstances that do not require prior approval should be required to file a request for an amendment of the REP certificate not later than the day following the earlier of (1) the date the proposed acquisition is publicly announced or (2) the date the acquisition occurs.

"Two important policy objectives are at issue in this rulemaking proceeding. First, in a competitive market, businesses should have the latitude to move capital to endeavors that provide them the best opportunities to maximize the value of their capital and other business strengths. This means that entry into and exit from the REP business should be subject to minimal regulation. It is clear, however, that a REP, in the normal course of business, becomes or may become indebted to (1) customers, from whom REPs may receive deposits or prepayments, (2) to transmission and distribution utilities (TDUs), which are required to provide delivery service in advance of payment, and (3) to ERCOT, which may provide energy and capacity services to REPs in advance of payment (although the ERCOT credit and collateral requirements now tends to minimize this risk). The technical and financial standards in Substantive Rule 25.107 provide a measure of assurance that REPs will be able to meet their obligations to customers, TDUs, and ERCOT," Anderson said.

"In the case of the acquisition of a REP or REP certificate by a company that already is an Option 1 REP that is in good standing and currently is serving customers (or by a person that controls such a REP), the Commission should have some level of confidence that the acquiring company has the financial strength and technical and managerial skills to manage the affairs of the REP, without subjecting customers, TDUs, and ERCOT to undue risks. However, where the acquiring company does not currently manage or control a REP, I believe that prior approval of the acquisition is needed to mitigate the risks to customers, TDUs, and ERCOT. I believe that this prior approval is supported by PURA § 39.352, which provides that 'a person ... may not provide retail electric service in this state unless the person is certified by the commission as a retail electric provider.' I also believe that requiring pre-approval of an acquisition of a REP by a person that is not a REP or does not control a REP is not more onerous (and in fact is considerably easier) than other regulatory regimes with which similar businesses must comply. Limiting the prior-approval requirement to these transactions would apply the more stringent requirements only to transactions that are of greatest concern and would allow the companies involved in other transactions to obtain approval either before or after the transaction occurs, as best suits their business objectives," Anderson added.