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Texas ALJ Would Suspend, But Not Revoke, Clearview REP Certificate

August 3, 2011
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A Texas ALJ has recommended suspending, but not revoking, the REP certificate of Clearview Electric for failure to meet the financial requirements of Subst. R. 25.107 (38446 et. al.).

PUCT Staff is seeking revocation of the certificate, but Clearview argued that its small customer base justifies a waiver of the $500,000 letter of credit requirement under Subst. R. 25.107.

See 7/13/11 story for background on the proceeding

While the ALJ found that Clearview is not in danger of default and would be over-capitalized under a $500,000 letter of credit as required by Subst. R. 25.107, the ALJ found that a waiver had not been justified.

A small customer count and/or limited load were the only significant reasons offered by Clearview to support its request for a waiver, but the ALJ noted that the PUCT has specifically rejected each of these reasons as justifying lower security for a REP.

"Moreover, it presents a dangerous precedent to grant a waiver solely based upon customer count and load size. At some point, the Commission would basically be undercutting its reason for the financial security rules -- which were not to 'attempt to match financial requirements with the REP's exposure to the market,' but to ensure the market has more financially-stable utilities," the ALJ noted.

"Given this purpose behind the rules, and the Commission's prior determination that customer count and load size will not justify a waiver by themselves, the ALJ does not think that good cause has been shown for the waiver," the ALJ said in recommending that the waiver be denied.

However, while the ALJ agreed that Clearview's violation is "significant" under the Commission's Substantive Rules, the ALJ concluded that revocation is not the appropriate remedy.

Instead, the ALJ recommended suspension of the certificate, since, "Clearview is a financially stable company that is capable of providing continuous and adequate retail electric service in Texas."

Revocation would require Clearview to cease all retail market activities, and cease serving its 28 existing customers in ERCOT. Under suspension, however, Clearview would only be prohibited from engaging in, "activities associated with obtaining new customers," but could continue service to existing customers.

Specifically, Clearview would be prohibited from obtaining any new customers and undertaking any actions directed toward obtaining new customers.

"[A] suspension appears to strike the appropriate balance between protecting ERCOT and the customers from a financial standpoint and, on the other hand, ensuring continuous and adequate service with minimal burden to Clearview's existing customers," the ALJ said.

The ALJ said that Clearview's filed $30,000 letter of credit is adequate for such service to existing customers, with the remaining unprotected risk to ERCOT, customers, or any other utility being minimal.

The suspension would be indefinite, until such time as Clearview can comply with all requirements of the Commission's rules for REP certification.

Clearview has only 28 customers in Texas, but has about 37,000 customers in six other states. Clearview expects its customer count in these other states to grow to between 50,000 and 75,000 customers by the end of 2011, the ALJ said.

The average monthly total billing for Clearview's 28 customers in Texas is roughly $4,500 (i.e., approximately $162 per customer, per month). Annually, Clearview's total revenue from all of its Texas customers combined is approximately $55,000.

Based on financial documents under seal, the ALJ found Clearview to be a, "financially stable company that is adequately capitalized."

According to Clearview, in order to obtain an irrevocable letter of credit for $500,000 to deposit with the PUCT as required under the Substantive Rules, Clearview has been informed by its investment institutions that it would need to be able to have and deposit that full amount of $500,000 with the financial institution.

Clearview had argued that it does not make financial sense for it to pledge that amount of assets for only 28 customers at this time. Rather, it would make more financial sense for it to simply pull out of the Texas market.

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