PUCT Defers Action on Milagro Power Certificate Revocation, Sets April 6 Deadline for Definitive Agreement

The PUCT further deferred final action on a pending proposal for decision which would revoke the REP certificate of Milagro Power (TexRep3 LLC) until the April 6 open meeting, to provide additional time for a sale of the customer book, and provide an opportunity for Staff to investigate whether the potential purchaser is a suitable acquirer of the customers.

See our 3/14 story for background on the pending revocation order, and our 3/18 story for background on the potential customer book sale.

It was revealed at today's open meeting that the potential purchaser of the Milagro book (which remains confidential) is not, itself, a certified REP. That prompted Commissioner Kenneth Anderson to say that the contemplated transaction may not be completed under PURA. Specifically, the pro forma transaction would only reflect a sale of specific assets of Milagro Power, and not its equity (and thus not its complete liabilities).

Anderson argued that PURA 39.352 does not allow an entity not previously certified by the Commission to serve retail customers simply by attempting to acquire a REP certificate.

PURA 39.352 provides that, "a person, including an affiliate of an electric utility, may not provide retail electric service in this state unless the person is certified by the commission as a retail electric provider, in accordance with this section."

In the case of an equity sale of a REP, or a merger into a new company, Anderson noted that the certificate could be transferred because the "person" originally certified by the Commission would still exist after the transaction, and the certificate would remain valid. The REP would still need to notify the Commission of a material change.

However, under an asset sale, such as the proposed Milagro transaction, Anderson noted that the acquiring party would not be the same person as previously certified by the Commission, and thus could not serve retail customers, unless the acquiring party had already been certified by the Commission and held its own REP certificate.

Chairman Barry Smitherman, however, said that the Substantive Rules only require a REP to notify the Commission of any material change, and that such filing could prompt the Commission to investigate whether the materially changed certificate holder still meets the certification requirements.

Although Anderson's objection was broadly applicable to any asset sale to a non-certified entity, it would appear in this specific case that the transfer of a REP certificate is even more questionable since, but for the Commission withholding action on a final order, Milagro's REP certificate would be revoked, and thus non-transferable. In other words, although not yet voting on a final order, the Commission has so much as said at prior a open meeting that Milagro fails to meet the certification standards for a certificate. Thus, absent a new finding by the Commission that the purchaser independently meets the certification requirements (as Anderson would require), it would not appear that holding the Milagro certificate would imbue the purchaser with any favorable standing.

Counsel for Milagro reported that while the potential purchasing entity is not itself certified as a REP, it would be owned by two entities with REP certificates.

The Commission directed Staff to assess the suitability of the acquiring party, and to report back at the April 6 open meeting, where the Commission expects to adjudicate the matter.

A definitive agreement between Milagro and the potential purchaser has not yet been signed. The Commission informed Milagro that it would have until April 6 to sign a definitive agreement (though the agreement need not be consummated at that time). Otherwise, the Commission will likely begin the POLR process.

Depending on whether a definitive agreement is ultimately signed, the Commission will address specific timing for the effective date of any revocation order at the April 6 open meeting.