Consumer Advocate: Supplier Bonding Levels Should Cover Contractual Guarantees, Incentives If Supplier Defaults

The bonding required of electric generation suppliers must reflect contractual guarantees and incentives provided to customers, in case the supplier defaults and cannot perform on such obligations, the Pennsylvania Office of Consumer Advocate said in comments to the PUC.

The PUC is currently reviewing reductions to the EGS security requirements, and in a tentative order, the Commission proposed to reduce the current requirement that an EGS post a bond for $250,000 during its first year of operation and 10% of annual gross receipts during all subsequent years, to $250,000 during its first year of operation and 5% of annual gross receipts during all subsequent years

"The OCA submits that bonding requirements should provide protections for customers should the benefits that they signed up for are not provided by an EGS in the case of a default or a failure to comply with their contractual terms and disclosure promises."

"These benefits could range from rebates that were promised but not provided, either in the form of credits or credit card style gift cards, to providing the supply of electricity in accordance with the contract, including any promised savings. The OCA submits that there are many types of offers and incentive arrangements between an EGS and customer, dictated by their contract terms, that could possibly be due to a consumer in the event of an EGS default or determination of violation. In addition, it is likely that in an instance of default or violation, there may be outstanding billing disputes where the customer is owed a refund, or even amounts unlawfully obtained from a customer in the form of prices that conflict with disclosure or contractual terms," the OCA said.

"In addition, security may be needed to provide the Commission with payment for penalties or any other sanction ordered by the Commission. The OCA submits that the level of EGS bonding requirements should reflect the need for consumer protections, not just the protection of tax revenue," the OCA said.

While the OCA did argue that the 5% security level may need to be adjusted to account for all risks, it did not explicitly endorse a specific alternative.

Retail suppliers generally supported the PUC's tentative order, including the proposed reduction in security requirements and expansion of acceptable forms of security. Several suppliers asked that corporate guarantees made by a supplier's contractually obligated wholesale and credit providers be included as acceptable security, in addition to parental guarantees.

Docket No. M-2013-2393141