Updated: Texas PUC Commissioners Highlight Concerns With Lockbox Guarantee Arrangements Permitted Under Current Retail Provider Certification Rules

Note: an earlier version of this story was first posted at 11:30 am on March 29, with an alert to our email alert subscribers

Discussing a case imposing a penalty on a retail electric provider which defaulted on TDU payment obligations, Texas PUC Commissioners yesterday expressed concerns with "lockbox" type arrangements under which the guarantor can assume the right to receive a REP's receivables, and use such receivables to settle the REP's obligations to the lockbox provider, rather than obligations the REP has to the market, such as to the TDU

Saying that it is not acceptable that TDUs are not paid in such situations, Chairman DeAnn Walker asked, "I'm wondering where we stand on that, and if it's not strong enough in the rules, if we need to make the rules stronger on this issue."

Walker instructed Staff to include this issue on a list of issues to be reviewed, and whether stricter REP financial certification rules are needed to ensure the market is protected as intended

Commissioner Arthur C. D'Andrea welcomed a review of the rule, stating that having a rule creating an expectation of a guarantee where none exists is almost worse than having no rule at all

In the instant case, involving TruSmart, TruSmart alleged its default to the TDUs resulted from its lockbox provider electing to keep the receivables, rather than using them to pay TDU obligations

Staff noted that, under the current rules for REPs to comply with the financial certification standards, one of the avenues is this type of "lockbox-esque" agreement, where the lender could take the funds at any time, and there isn't a "guarantee" as the term would suggest

Staff said that Staff does think this issue is a problem, but to date had not pushed the issue.