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Brief From Texas PUC Staff Muddles Position On Applicability Of Rule Barring Certain Individuals From Controlling Retail Providers, As New REP's Application Held Up
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In a response filed today at the Texas PUC, PUC Staff appear to take a muddled position on the applicability of the PUC's retail electric provider certification rules which, as more fully discussed below, generally prohibit individuals who were a principal at a defaulting REP, within a certain timeframe of the default, from controlling another REP
Staff's filing was made in the proceeding addressing the REP certification application of NextVolt Texas, LLC (Docket 56729). NextVolt's application has been abated pending a ruling on whether the application should continue to be processed, or whether an abatement should continue due Staff's concerns about the interaction of the certification rules and another REP which has a pending market exit.
As first reported by EnergyChoiceMatters.com, NextVolt is a subsidiary of The Power One Energy Company, whose retail suppliers previously used the ResCom brand. See background on NextVolt Texas, LLC here.
Staff alleged that confidential filings in NextVolt's REP application, "indicated that multiple of NextVolt’s principals exercised direct or indirect control of OnPoint Energy Texas, LLC (OnPoint) at the time of OnPoint filing for relinquishment," of OnPoint's REP certificate
As previously reported, OnPoint has unpaid obligations to the TDUs. OnPoint has filed to relinquish its REP certificate, and a settlement with Staff to resolve the matter is pending
At issue in NextVolt's REP certification docket is the applicability of 16 TAC § 25.107(g) and, as cited by Staff, 16 TAC § 25.107(e)(2)(E)(iv)(1)(c)
16 TAC § 25.107(g) provides that, "[i]n no instance" (as recently affirmed by the PUC, (see story here), shall a REP be controlled by an individual who was a principal of a market participant, "at any time within the six
months prior to the market participant," experiencing: (1) an involuntary mass transition, (2) termination of its ERCOT SFA market agreement, or (3) an exit from an electricity or gas market with outstanding payment obligations that have not been cured
16 TAC § 25.107(g) provides that such individuals who are disqualified from controlling a REP also may not be used to meet the managerial and technical standards which REPs by rule are required to meet
Staff's cited 16 TAC § 25.107(e)(2)(E)(iv)(1)(c) requires a REP applicant to identify any principals, executive officers, or
employees, that, "exercised direct or indirect control of a market participant
within the prior six months of a market participant having
exited an electricity or gas market with outstanding
payment obligations that remain outstanding[.]"
Staff's interpretation and application of these rules is unclear
What is clear from Staff's brief is that Staff takes the position that, "it was the intention of the legislature to prevent principals of Option 1 market participants from entering the market unless it is made certain that they have the ability, financial integrity, and managerial resources to provide continuous and reliable retail electric service to customers."
It is also clear from Staff's brief that Staff disagrees with NextVolt's position on the matter and NextVolt's interpretation of § 25.107
It is further clear from Staff's brief that Staff believes that consideration of the NextVolt REP application should not proceed until the relinquishment proceeding of OnPoint Energy is resolved, as Staff noted that, if relinquishment is not granted, "Commission Staff may pursue revocation of OnPoint's REP certificate under 16 TAC § 25.107(k)(6)[.]" [relating to lack of financial resources]
Certain language from Staff's brief, however, has muddled Staff's specific position on the applicability of the prohibition enumerated in 16 TAC § 25.107(g) and, more specifically, the timing of such
ECM observes that, generally, 16 TAC § 25.107(g) applies on a backwards-looking basis to 6 months prior to the event which triggers 16 TAC § 25.107(g).
This 6-month look-back was added after Uri because, under the prior rule, the prohibition only applied to a principal of a REP at the time that the relevant event occurred (the mass transition, default, etc). However, the concern of the PUC was that the individual(s) responsible for putting the REP in the position where it defaulted (e.g. poor risk management, etc.) may have departed the REP prior to the actual default event, thus escaping disqualification under the prior version of 16 TAC § 25.107 (story here)
Although not specifically articulated by Staff (or if this is Staff's position, it was not articulated well), ECM observes that some policymakers could raise a potential issue with application of the 6-month look-back, and that the current rule language may not reflect the general intent of the look-back. ECM stresses that it raises the following to frame potential concerns, and that the following may not necessarily reflect the views of ECM. The following discussion is not about any specific REP or principals, and is wholly hypothetical.
Specifically, the intent of 16 TAC § 25.107(g) appears to be that principals who were at a REP 6 months prior to the REP experiencing one of the stated events should be disqualified from control of another REP
While an involuntary mass transition and an ERCOT SFA revocation have specific dates, the third event, the "exiting" from an electric market by a REP with outstanding payment obligations, is not defined. Does "exit" mean the date on which license relinquishment is effective, or the date on which an application for license relinquishment was filed? Does exit mean something else, such as the cessation of service to customers or a voluntary withdrawal from the ERCOT SFA?
The nebulous nature of a REP's "exit" has implications on the application of the prohibition in 16 TAC § 25.107(g) because a REP's exit may not immediately follow the behavior prompting concern (e.g. outstanding payments which remain unpaid)
As an example, a distressed REP could sell all of its customers, avoid an involuntary POLR drop, avoid revocation of its ERCOT SFA, cease service to customers, voluntarily withdraw from its ERCOT SFA, but still owe past due amounts to the TDUs. Such REP could file to relinquish its certificate, or the TDUs could seek revocation. In either case, the relinquishment or revocation proceeding may drag on beyond six months of the date of filing. In such case, while the proceedings are pending, certain principals of the distressed REP could leave the REP, as the distressed REP's going forward operations consist only of holding a certificate and de minimis activities to wind down operations.
If the date that such distressed REP exits the market is defined as the date certificate relinquishment is granted, and the grant of relinquishment is more than 6 months from the date that the REP first had past due TDU balances, then the principals of the REP at the time that the TDU balances first went unpaid would nevertheless not be disqualified from controlling a REP in the future, because such individuals were not principals at any point during the 6 months prior to the REP's actual "exit" from the market with outstanding payment obligations
In brief, the current § 25.107 does not account for "zombie" REPs -- distressed REPs which continue to survive, as a certificate holder only, for more than 6 months after the activities, with which § 25.107 is concerned, occurred, due to the potentially prolonged nature of a relinquishment proceeding. The prolonged nature of a zombie REP's exit from the market could result in the former principals of the zombie REP not being constrained by § 25.107's prohibitions, if the REP's exit is defined as the REP's relinquishment grant date, and such principals left the REP six months prior to this date. ECM again stresses that the foregoing is a hypothetical discussion for policy cogitatation, and ECM stresses that it makes no characterization with respect to any REPs cited in this story
ECM also stresses that the above discussion does not reflect ECM's view, nor is it clear if such a scenario is the ultimate concern of Staff.
As to Staff's brief, the brief includes ambiguous language such as, "It is Staff’s opinion that 16 TAC § 25.107(e)(2)(E)(iv)(1)(c) requires a market participant to completely exit the market before the six-month timeframe begins. That is, a market participant (REP), must have a finalized relinquishment order to be considered 'exited' from the electricity or gas markets." [emphasis added]
However, defining the 6 months as beginning as when the "complete" market exit occurs does not seem that it would solve any of Staff's potential concerns with NextVolt’s principals who may have previously controlled OnPoint, as the date of complete market exit would be even later than the date of a relinquishment application, and the relevant NextVolt principals would not have been at OnPoint six months prior to the complete exit
Staff also says that, to the extent OnPoint's REP certificate is revoked, "The conclusion of such a proceeding would prohibit OnPoint’s principals from market participation for a statutorily set timeframe."
It is unclear to what "statutorily set timeframe" Staff is referring. Staff did not include a citation for this language (as it did for most others). A cursory review of PURA Sec. 39.352 & 39.356 did not indicate any such set timeframe for any prohibitions. ECM does note that Staff refers to "market participation" rather than REP certification, so the relevant statute may address ERCOT or other market participation, generally, but this is unclear
As an aside, the revocation of a REP's certificate is actually not one of the disqualifying events under the 16 TAC § 25.107(g) prohibition (though any of the rule's three events would typically lead to a revocation absent a settlement to avoid a revocation order, and, barring payment of outstanding TDU charges, any revocation of OnPoint REP certificate would constitute a market exit with outstanding payment obligations)
16 TAC § 25.107(g) also prohibits, "a person who, by commission order, is prohibited from serving as a principal for any commission-regulated entity," from controlling a REP, though REP revocation orders do not necessarily include such prohibitions on the REP's principals (though some, via settlement, have)
ECM also notes that, regardless of whether any NextVolt principals do or do not fit the disqualification criteria under § 25.107(g), Staff of course may, outside of this specific rule provision, see fit to raise more general concerns about specific individuals' technical or managerial competence given their prior positions at other REPs. However, Staff's brief does not generally argue that any of the of the NextVolt principals or employees are unqualified or lack technical or managerial competence, aside from invoking the prohibitions under § 25.107(g)
NextVolt Texas, LLC in a brief said that the PUC should continue to process its REP application, arguing that the various prohibition factors under § 25.107 are not applicable given the circumstances at hand
NextVolt Texas said that no person identified in NextVolt’s application was
associated with OnPoint within the six-month period that was
prior to the date on which any of the events listed in § 25.107 could occur.
NextVolt specifically said that OnPoint has not exited the electricity market
NextVolt stated, "none of the triggering events in 16 TAC
§ 25.107(g)(1)(A)(i)-(iii) have occurred with respect to the REP involved in Docket No. 56201 [OnPoint].
At this point in time, for anyone to be associated with the other REP in the six-months prior to
any of those events occurring, they would have to have been with the other REP after May 22,
2024 (six months from today was May 22, 2024).
Specifically, the REP involved in Docket 56201 has not:
(1) experienced a mass transition of the REP’s customers;
(2) had ERCOT terminate their SFA, or
(3) exited the electricity market[.]
None of these events has occurred and no person identified in NextVolt’s application was
associated with the REP involved in Docket No. 56201 within the six-month period that was
prior to the date on which any of those events could occur."
NextVolt stated, "The timing provisions in 16 TAC §§ 25.107(e)(2)(E)(iv)(I) and 25.107(g)(1)(A) must be
interpreted in a manner that gives meaning to each word and must be read to harmonize with one
another. Reading these provisions to establish the six-month period as the period before the date
a market participant experiences one of three triggering events in subsection (g)(1)(A)(i –(iii)
gives meaning to the phrase 'prior to.' Any other interpretation is contrary to the plain language
of the rule, would result in an untenable lack of regulatory certainty, and would unduly delay the
processing of REP applications. Accordingly, the administrative law judge does not need to wait
for a determination in Docket No. 56201 because the six-month period has expired."
In a prior filing, NextVolt had also stated, "As established in the factual record in this case, in no instance is any person who may be in a
position of control, or who is relied upon to meet the requirements of 16 Texas Administrative
Code (TAC) § 25.107(d) or (e), 'a person who was a principal of a market participant, at any
time within the six months of any prior market participant' falling within the criteria listed in
16 TAC § 25.107(g)(1)."
Neither party specifically addressed the date on which any principals of NextVolt ceased to be principals at OnPoint.
NextVolt applied for a REP certificate on June 14, 2024.
OnPoint filed to relinquish its REP certificate on Feb. 9, 2024, and such application for relinquishment remains pending. ECM cites this date to provide context only and without reporting whether this date does or does not constitute the date of market exit.
As noted, the relevant NextVolt principals that Staff says exercised direct or indirect control of OnPoint are confidential. Although certain executives or other employees who held roles at both REPs (at different time periods, not concurrently) are known based on public filings, the extent of control over each REP by such individuals, if any, is not known
In 2022, Cullen Hay had previously been identified as OnPoint's Chief Executive Officer at the time of OnPoint's launch in 2022. Hay has been publicly identified as President of NextVolt Texas, LLC in its REP application
NextVolt Texas, LLC's REP application has identified David Draper as CFO. An individual named David Draper had been identified as VP, Finance in OnPoint's 2022 REP application
NextVolt Texas, LLC's REP application had originally listed Ryan Park as a principal (to be technical, Park was actually listed as among the REP's "prinicipals" [sic]) with the title Vice President of Portfolio Management & Pricing. However, as previously reported, Park recently joined Chariot Energy as Head of Energy Analytics. Park had previously been identified by OnPoint as Senior Director, Pricing
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November 22, 2024
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Reporting by Paul Ring • ring@energychoicematters.com
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