Texas REPs Seek Additional Criteria to Measure Fixed Prepaid Rates' Compliance with POLR Rate Limit

Texas retail electric providers have asked the PUCT to modify a proposal to establish the criteria for determining whether prepaid electric service sold to residential customers is less than the price charged by the Provider of Last Resort, as required by the PURA §39.107(g), as REPs said that the proposed criteria still do not appropriately take into account fixed price prepaid contracts whose price may become above-market over time (Project 39969).

As only reported by Matters in March, the proposed rule would amend P.U.C. SUBST. R. 25.498(c)(15) to require that a REP's prepaid service price meet one of the following compliance standards, which generally provide that: 1) the price must be at or below the minimum POLR rate; 2) the price must be at or below the actual, formulaic POLR rate, which is based on real-time clearing prices; or 3) the price must be at or below the previous month's simple average POLR rate using real-time clearing prices for the load zone with the highest real-time clearing prices in the TDU area.

The REP Coalition supports these three criteria, but said that another criteria is needed to establish an appropriate standard under which prepaid service prices for fixed rate products can be compared to POLR prices.

The REP Coalition said that the current proposed changes to P.U.C. SUBST. R. 25.498, "would subject a fixed rate product for prepaid service to a new standard that effectively nullifies the REP's hedge in a declining price environment."

"None of the three proposed compliance standards for testing compliance with PURA § 39.107(g) is 'fixed' in a manner that is compatible with the definition of a fixed rate product in P.U.C. SUBST. R. 25.475. Only the first standard, the minimum POLR price, involves a POLR price that remains 'fixed' for more than a month. Furthermore, even though the minimum POLR rate under the first standard is in effect for a year, a REP cannot in every instance match or align a term contract for fixed rate prepaid service with the calendar year in which the minimum POLR rate is in effect," the REP Coalition said.

"Consider an example of an 18-month fixed price product offered at 10¢/kWh, and 15 months into the contract, the highest price under any of the three proposed standards is 9¢/kWh. In order to comply with §25.498(c)(15) as proposed, the REP would be forced to charge the customer a price lower than its hedged price. This nullification of a REP's hedge cannot be what the Commission intended in [previously] finding that REPs 'can also offer a longer term product with the same type of termination penalties that apply with postpaid service' in Project No. 38675."

The REP Coalition said that a fixed rate product that meets either the first or third proposed compliance standard at the time the fixed rate product offer is made should be deemed compliant with PURA § 39.107(g). "Testing a fixed rate product against contemporaneous POLR calculations is fair both to customers who want price certainty and to REPs that hedge against that price," REPs said.

REPs specifically offered the following language to be added to the rule:

"For a fixed rate product, the REP must show that the prepaid service prices calculated under §25 475(e)(2)(A) (D)-(E) of this title at the time the offer is made are equal to or lower than one of the tests described in paragraphs (A) and (C) of this subsection [e.g. the first and third compliance standard]."

The REPs also suggested that the Sharyland territory should be removed from the AEP Texas Central POLR territory. While a transition to retail competition is being contemplated for Sharyland's Stanton, Colorado City, Brady, and Celeste divisions, the REP Coalition said that, even if this transition is not approved, the Sharyland McAllen division, currently open to choice, "has been in operation long enough that the POLR selection process should transition to the same process used for other TDU service territories."

The Steering Committee of Cities Served by Oncor opposed a change in the calculation for the large service provider (LSP) POLR energy charge to include average real-time settlement point prices (RTSPPs) for the load zone partially or totally within a customer's transmission and distribution utility (TDU) service territory that had the highest simple average price.

"This language has the potential to artificially inflate the LSP energy charge and, in turn, artificially inflate the POLR rate ultimately paid by consumers ... The rate calculation formula ignores the lower energy costs associated with providing POLR service to customers in load zones with lower market prices," Cities said.

The Cities cited the example of a geographically expansive territory such as Texas-New Mexico Power, which includes the North Texas area near Dallas, areas near Houston, and areas in far West Texas.

"If the POLR rate calculation bases the LSP energy charge component on the load zone in TNMP's service territory with the highest simple average price as proposed, a POLR customer residing in West Texas (where prices are relatively low), might end up with a POLR rate that is more akin to the higher prices paid by Houston or North Texas customers," Cities said.

Based on data submitted by REPs, the Cities said that under the current proposal a 2,000 kWh per month customer in Oncor's west load zone would pay a POLR bill that is $16 higher than if the POLR rate were calculated on a basis consistent with the market prices in the customer's load zone.

The Cities proposed that the LSP POLR rate calculation should use the average of all load zone prices, rather than the highest average load zone price.

The Cities also said that REPs should be prohibited from toggling among different compliance methods to determine if their prepaid rate exceeds the POLR rate, to avoid gaming (e.g. switching to the method which produces the highest rate each month). Cities proposed that REPs be required to select, no more often than annually, which test presented in proposed P.U.C. SUBST. R. 25.498(c)(15) subsections (A)-(C) is applicable to the REP's prepaid services. The Texas Ratepayers' Organization to Save Energy and Texas Legal Services Center filed similar comments on this issue.

Texas ROSE and TLSC also urged that the rule be rejected because, among other things, the groups said that the rule fails to set a transparent standard or establish policies and procedures to enforce POLR price cap.

"The proposed standard for setting the price cap is the highest simple average over the prior month. Given that the legislative directive is to cap prepaid service prices at the POLR rate[,] an average rate is suspect. The difficulty in identifying the cap stems from the unworkable structure of the POLR process and the POLR rate calculation," Texas ROSE and TLSC said.