RESA: NY PSC Should Adopt Purchase Of Receivables (POR) "Clawback" Provision To Prevent "Distasteful" Practices

As part of a series of proposed market reforms contained in its testimony in the New York PSC's evidentiary review of the retail energy mass markets, a witness for the Retail Energy Supply Association proposed that New York implement a purchase of receivables (POR) "clawback" to prevent against, " distasteful business practices."

Frank Lacey, former senior leader at several retail energy suppliers, testified on behalf of RESA that, "The current Purchase of Receivables ('POR') mechanism should be modified."

"Under the current model, it is possible for an ESCO to implement some distasteful business practices. POR provides ESCOs with full payment (less a discount rate) whether a customer pays its bill or not. Therefore, an undisciplined ESCO might have little incentive through the POR mechanism to engage in disciplined pricing behavior. ESCOs do, however, have numerous other incentives to engage in disciplined behavior. For example, an ESCO risks losing its customer if it does not offer attractive rates. Nevertheless, I recommend that the Commission remove the incentive for undisciplined pricing that may occur under the current POR mechanism, such as implementing POR controls like a claw back provision exercisable under certain conditions," Lacey testified

Lacey testified that, in Pennsylvania, the FirstEnergy EDCs have implemented a clawback rule which would impose a penalty if 1) the ESCO’s actual bad debt rate exceeds 150% of the residential class average bad debt, and 2) the ESCO charges rates that are above a pre-determined pricing threshold.

In Pennsylvania, the pricing threshold which is applied is the utility default rate, which Lacey said, "is not a valid threshold in New York."

"In New York, it [the threshold] could instead be determined by the utility and stakeholders, and be based on a metric such as the class average ESCO price over a certain period. If New York moved to a new default service model, it could be tied to the price that emerged from that new model," Lacey said

Lacey testified that any funds collected from the imposition of clawback penalties should be used to reduce the overall ESCO-related uncollectible amounts that are used to derive the POR discount rates.

"In other words, the actions (and payments) of the 'bad actor' will result in a positive market improvement (lower POR discount rate) for the other suppliers in the market," Lacey said

Lacey called the POR changes a short-term solution, and said that the PSC should require certain changes to the billing approach in the market aimed at encouraging more direct engagement between ESCOs and their customers, via supplier-consolidated billing