Texas PUC Staff Seek Interpretation Of Fixed Price Rule

Staff Notes Ongoing Investigations Of REPs Impacted By Controversy

January 31, 2024

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Texas PUC Staff have filed a petition for a declaratory order from the PUC seeking an interpretation of 16 TAC § 25.475(b)(5), the fixed price product rule

Staff's formal petition relates to an issue raised previously by Staff last year concerning Uri securitization charges incurred by REPs, and not the issue of new ancillary service costs (which REPs have raised separately as previously reported)

See background on Staff's concerns regarding the adjustment of fixed rate prices due to Uri securitization charges in our prior story here

Under PURA § 39.112(a), a "fixed rate product" is a retail electric product with a term of at least three months for which the price for each billing period, including recurring charges, does not change throughout the term of the contract, except that the price may vary to reflect actual changes in transmission and distribution utility (TDU) charges, changes to ERCOT or Texas Regional Entity (TRE) administrative fees charged to loads, or changes to federal, state, or local laws that result in new or modified fees or costs that are not within the retail electric provider’s control.

The Commission defined the term "fixed rate product" in 16 TAC § 25.475(b)(5) to be a retail electric product with a term of at least three months for which the price in each billing period does not change throughout the contract term, except to reflect actual changes in TDU charges, changes to ERCOT or TRE administrative fees charged to loads, or changes resulting from federal, state, or local laws that impose new or modified fees or costs on a REP that are beyond the REP’s control. The definition set forth under 16 TAC § 25.475(b)(5) also provides that the price of a fixed rate product may not vary from the disclosed amount to reflect changes in ancillary service charges unless the Commission expressly designates a specific type of ancillary service product as incurring charges beyond the REP’s control for a customer’s existing contract.

Specifically, Commission Staff requested that the Commission enter an order declaring that, under PURA § 39.112(a) and 16 TAC § 25.475(b)(5), retail electric providers may not increase the price charged under a fixed rate contract entered on or after August 1, 2022 to reflect fluctuations in the amount of Securitization Charges incurred by a REP over the life of a customer’s fixed rate contract.

Staff noted that the amount of Securitization Charges incurred by a REP will vary each month due to fluctuations in the REP’s load-share ratio or due to true-up adjustments

Staff stated, "Commission Staff is aware that, since Securitization Uplift Charges were implemented on August 1, 2022, several REPs have begun offering fixed rate products subject to EFLs that both affirmatively identify a Market Securitization (Debt) Financing charge as a component of the 'fixed' price and state that the rate applied to the Market Securitization (Debt) Financing charge 'may' change over the life of the contract. Commission Staff has reason to believe that at least some of these REPs do, in fact, vary the rate applied to Market Securitization (Debt) Financing charges throughout their customers’ contract terms in order to accommodate fluctuations in the amount of Securitization Charges incurred over time. As a recurring charge included in the price of a product, any adjustment of the Market Securitization (Debt) Financing charge during a customer’s contract term will inherently cause the price of the fixed rate product to change."

Staff said, "The controversy at the heart of this petition involves a suite of ongoing enforcement investigations conducted by Commission Staff into Just Energy Texas, LP and its affiliates, Fulcrum Retail Energy, LLC, and Tara Energy, LLC (collectively, the Just Energy affiliates) for the conduct described [herein]. Specifically, Commission Staff is aware that, since August 1, 2022, each of the Just Energy affiliates has entered into fixed rate customer contracts subject to EFLs that identify Market Securitization (Debt) Financing charges as a line-item component of the fixed price of the product and state that the rate of the Market Securitization (Debt) Financing charges may change during the fixed rate contract term. Commission Staff is also investigating whether the Just Energy affiliates have, in fact, increased the rate applied to Market Securitization (Debt) Financing charges during the term of fixed rate customer contracts entered on or after August 1, 2022."

Just Energy provided the following statement concerning the matter:

"The amount of Securitization Charges from ERCOT vary daily. Just Energy’s, Amigo Energy’s and Tara Energy’s ERCOT Securitization charges to customers are adjusted periodically to reflect these changes. We believe such adjustments are in the best interests of all customers and we have always been transparent with our customers regarding the ERCOT securitization charges. We will file a response to the Petition for a Declaratory Order and will, of course, follow any guidance offered by the Commission as a result of this proceeding."

--- Statement from Just Energy

Staff said, "It is Commission Staff’s position that, for customer contracts entered on or after August 1, 2022, fluctuations in the amount of Securitization Charges incurred by a REP are not changes for which a REP is authorized to adjust the price of a fixed rate contract under 16 TAC § 25.475(b)(5), and, therefore, the conduct at issue violates 16 TAC §§ 25.475(c)(1)(A)(i), (d)(1)(A), and (d)(2)(A)."

"However, Commission Staff recognizes that whether the conduct at issue violates the above-listed Commission rules turns on the question of whether fluctuations in Securitization Charges incurred by REPs are changes for which a REP may vary the price of a fixed rate product under 16 TAC § 25.475(b)(5)," Staff said

Staff said, "Commission Staff intends to prosecute the conduct at issue as violations of 16 TAC §§ 25.475(c)(1)(A)(i), (d)(1)(A), and (d)(2)(A), as applicable. Accordingly, a declaratory order interpreting PURA § 39.112(a) and 16 TAC § 25.475(b)(5) will allow for the preservation of limited state resources by resolving an active and likely litigious controversy."

"Alternatively, if the Commission disagrees with Commission Staff’s position and instead declares that the conduct at issue is consistent with the requirements under 16 TAC §§ 25.475(b)-(d), the declaration will render the investigations at issue moot, foreclose upon Commission Staff’s ability to prosecute the conduct, and result in the closure of all related enforcement investigations without further action or consequences," Staff said

Staff specifically sought a finding as follows: "Commission Staff respectfully requests that the Commission declare that, under PURA § 39.112(a) and 16 TAC § 25.475(b)(5), the Just Energy affiliates may not increase the price charged under a fixed rate contract entered on or after August 1, 2022 to reflect fluctuations in the amount of Securitization Charges the entities incur over the life of the fixed rate contract."

Staff said, "In relevant part, PURA § 39.112(a) and 16 TAC § 25.475(b)(5) provide that a REP may not increase the price charged for a fixed rate product during a customer’s contract term, except to reflect actual changes in TDU charges, changes to ERCOT or TRE administrative fees charged to loads, or changes to federal, state, or local laws that result in new or modified fees or costs that are not within the REP’s control."

Staff said, "It is indisputable that ERCOT’s Securitization Charges are neither TDU charges nor ERCOT or TRE administrative fees charged to load. Therefore, under PURA § 39.112(a) and 16 TAC § 25.475(b)(5), a REP may not increase the price charged under a fixed rate contract entered on or after August 1, 2022 to reflect fluctuations in the amount of Securitization Charges incurred during the life of the contract unless those fluctuations constitute changes to federal, state, or local laws that result in new or modified fees or costs that are not within the REP’s control."

Staff said that the Commission must determine the answers to the following questions:

1. Are fluctuations in the amount of Securitization Charges paid by a REP a result of changes to federal, state, or local laws, as contemplated under PURA § 39.112(a) and 16 TAC § 25.475(b)(5)?

2. Are fluctuations in the amount of Securitization Charges paid by a REP new or modified fees or costs, as contemplated under PURA § 39.112(a) and 16 TAC § 25.475(b)(5)?

3. Are fluctuations in the amount of Securitization Charges paid by a REP within the REP’s control for contracts entered on or after August 1, 2022, as contemplated under PURA § 39.112(a) and 16 TAC § 25.475(b)(5)?

Staff said, "In order to determine that a REP may increase the price of a fixed rate contract, the answer to all of the above-listed questions must be 'yes.' If the Commission determines that the answer to any of the above-listed questions is 'no,' then the requisite conditions for increasing a fixed rate price set forth under PURA § 39.112(a) and 16 TAC § 25.475(b)(5) have not been satisfied, and Commission Staff’s position must prevail."

Staff summarized its position by stating, "fluctuations in Securitization Charges paid by a REP occurring after August 1, 2022 are not the result of changes to federal, state, or local laws that result in new or modified fees or costs beyond the REP’s control."

"Therefore, REPs may not increase the rate applied to Market Securitization (Debt) Financing charges, or to any other component of a fixed price, to accommodate those fluctuations during a fixed rate contract term," Staff said

Staff said, "Commission Staff notes there are two methods by which REPs may be inappropriately increasing the rate applied to Market Securitization (Debt) Financing charges during a fixed rate customer’s contract term. First, because the amount of Securitization Charges incurred by a REP will vary each month due to fluctuations in the REP’s load-share ratio, REPs may be electing to treat the Market Securitization (Debt) Financing charge as a 'pass-through,' billing customers their exact share of the Securitization Charges incurred by the REP in each billing period. Alternatively, and as suggested by Texas Energy Association for Marketers (TEAM) in Docket No. 52710, REPs may be adjusting the rate applied to Market Securitization (Debt) Financing charges in response to true-up filings made by ERCOT, which adjust the periodic billing requirements used to allocate Securitization Charges across the wholesale market. Commission Staff’s analyses ... apply to fluctuations as a general principle, as well as fluctuations resulting from adjustments made to the periodic billing requirements during true-up proceedings."

In brief, Staff argued that the fluctuations in the securitization charges do not represent a "change" in law

Staff argued, "For contracts entered on or after August 1, 2022, Securitization Charges are not a 'new' component of product cost. Since August 1, 2022, the laws governing or affecting the implementation, calculation, or allocation of Securitization Charges among market participants have not changed. While true-ups may cause ERCOT’s periodic billing requirements to fluctuate over time, all laws governing the true-up process were expressly accounted for when establishing the design of the Securitization Charges within the Debt Obligation Orders, and have remained unchanged since the Orders were issued. Commission Staff does not dispute that the amount of Securitization Charges incurred by a REP will fluctuate over time due to factors such as changes in the REP’s load-ratio share or true-up adjustments made to ERCOT’s periodic billing requirements; indeed, any such fluctuation is consistent with the original design of the charge and the statutes under which they were imposed. Accordingly, fluctuations in the amount of Securitization Charges incurred by REPs -- whether due to fluctuations in the REP’s load-ratio share or the outcome of periodic true-up proceedings -- are not the result of subsequent changes in law, but instead are the known, intended, and anticipated consequence of the laws under which the charges were first imposed."

Staff further argued that fluctuations in the amount of Securitization Charges paid by a REP are not new or modified fees or costs within the context of PURA § 39.112(a) and 16 TAC § 25.475(b)(5)

Staff said, "the rule allows REPs to adjust the price charged under an existing fixed rate contract to recover entirely new costs or to accommodate costs that have been modified to such an extent that they are no longer reasonably recoverable under the contract’s existing price structure. The exceptions do not authorize a REP to change an existing customer’s fixed rate to accommodate expected fluctuations in costs that have been affirmatively considered as part of the price of the product."

Staff said, "fluctuations in Securitization Charges paid by a REP are not 'modified costs.' The word 'modified' implies that a basic or fundamental change has been made to a subject, typically for the purpose of serving a new end. Accordingly, a cost is considered 'modified' if the formula or methodology used to determine that cost has changed -- not simply because the amount of the cost has changed since the cost became known. If REPs could change their fixed rate price components for these kinds of variations, then REPs could, in theory, change the energy price component, which is the very cost risk consumers attempt to avoid by locking into a longer term, fixed price product."

Staff said, "Although an individual REP’s allocation of Securitization Charges may fluctuate over time, the formulas and methodologies by which the allocation is calculated have not changed since the charges were initially approved and implemented."

In addressing whether the Securitization costs are beyond a REP's control, Staff said, "in the same way REPs can reasonably predict, account for, and mitigate the risk of fluctuating ancillary services costs when setting the prices of fixed rate products, REPs have access to the data, tools, and financial resources necessary to reasonably predict, account for, and shoulder the risk of fluctuations in Securitization Charges when setting the rate applied to a Market Securitization (Debt) Financing charge."

"Because a REP has the tools available to reasonably predict, account for, and mitigate the risk of fluctuating Securitization Charges when establishing the price of a fixed rate product, fluctuations in the allocation of Securitization Charges paid by the REP over the life of a fixed rate contract are not 'beyond the REP’s control' within the meaning of 16 TAC § 25.475(b)(5). Accordingly, the Just Energy affiliates cannot increase any price component of a fixed rate contract entered on or after August 1, 2022 to reflect the true-ups of Securitization Charges," Staff said

Staff said, "Securitization Charges should be distinguished from TDU charges and administrative fees -- the two costs for which the Commission has expressly authorized REPs to increase the price charged during a fixed rate contract term -- which are reviewed by the Commission for fairness and necessity, then published online in an independently verifiable, dollars-per-megawatt hour format. Conversely, Securitization Charges are complex costs calculated using data that is not accessible to the public and cannot be independently verified by retail customers. This lack of data transparency means that, if REPs are authorized to unilaterally increase the price charged during a fixed rate contract term to accommodate fluctuations in Securitization Charges, customers will have no way of determining whether the mid-contract price increases are justified, fair, or accurately applied."

In summation, Staff said, "Commission Staff respectfully requests that the Commission declare that fluctuations in the amount of Securitization Charges incurred by a REP over the life of a fixed rate customer’s contract are not changes resulting from federal, state, or local laws that impose new or modified fees or costs on a REP that are beyond the REP’s control for which the Just Energy affiliates may increase the price of a contract entered after August 1, 2022."

Docket 56168

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