Pennsylvania Lowers Security Required from Retail Suppliers

The Pennsylvania PUC has lowered the security required from electric generation suppliers after their initial year of service.

Specifically, the PUC maintained the current requirement for an initial security amount of $250,000 for the first year of an EGS’s operation for an EGS that intends to take title to electricity.

However, the PUC found that requiring an EGS to post a bond or security in the amount of 10% of reported gross receipts after the first year of EGS operation may be excessive in relation to the risk intended to be secured, unnecessarily burdening EGSs, and presenting a potential barrier to entry into Pennsylvania’s retail electric market.

"Therefore, we find that, after the first year of EGS operation, a security level of 5% of an EGS’s most recent 12 months of revenue or $250,000, whichever is higher, is adequate to meet the intended risks in most circumstances. Therefore, we announce our new policy that the bond or security for an EGS after the first year of operation should be in the amount of 5% of the EGS’s most recent 12 months of revenue or $250,000, whichever is higher, as we find that this bonding/security amount is commensurate with the nature and scope of a typical EGS’s operations," the PUC said.

An EGS must formally file with the PUC a petition to amend its license to revise or reduce its bond/security, so that the most updated and approved bond/security is documented on the record.

"To expedite the process for approving these petitions, the Commission is delegating its authority to review uncontested petitions to the Bureau of Technical Utility Services through issuance of a Secretarial Letter approving or denying the reduction in the bonding request," the PUC said.

Consistent with other amendments to an EGS’s license, "we will require a $350 fee for a request by a Commission-licensed electric generation supplier to reduce its level of bonding following the first year of operation from 10% to 5% of the electric generation supplier’s last 12 months of revenue," the PUC said.

The PUC also expanded the instruments acceptable as security.

Specifically, aside from surety bonds and letters of credit, the PUC will also accept the following forms of security:

• Parental or corporate guarantee, in a form acceptable to the Commission, where the parent or corporate relation maintains an investment-grade long-term bond rating from at least two of the four following rating agencies:

Standard & Poors              BBB- or higher
Moody’s Investors’ Services   Baa3 or higher
Fitch IBCA                    BBB- or higher
Duff and Phelps               BBB- or higher

• Segregated cash accounts, held by federally insured financial institutions, specific to Pennsylvania customers and callable only by the Commission.

• A mix of security instruments through the use of bonds, LOCs, parental/corporate guarantees, and/or segregated cash accounts as set forth above which sufficiently meets the required security amount.

The PUC said that within approximately nine months, "we plan to initiate a rulemaking to effectuate and codify these policy changes in our regulations."

"In that rulemaking, we will invite comments from stakeholders and the regulated community concerning any potential revisions to Section 54.40 of our regulations to ensure that the amount of the bonds and securities we approve is proportionate to the risk the security obligation is intended to cover and accounts for all identifiable risks to the Commonwealth and the consumers of Pennsylvania," the PUC said.

Docket M-2013-2393141