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Texas PUC Commissioner Recommends Enforcement Staff Investigate Whether Principals Of REP, Which Has Unpaid TDU Obligations, Serve As Principals At Any Other REP
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The Texas PUC should direct its Enforcement Staff to investigate whether the principals of OnPoint Energy Texas, LLC serve as the principals of any other retail electric provider, given alleged disqualifying violations, Commissioners Courtney Hjaltman said in a memo in advance of the Feb. 20 open meeting
As previously reported, OnPoint Energy in early 2024 sold its customers to Good Charlie & Co., LLC, as OnPoint experienced what was termed, in a pending settlement agreement, a "liquidity crisis"
While OnPoint did not default at ERCOT, OnPoint owes in excess of $1.3 million in TDU charges. OnPoint is seeking to relinquish its REP certificate, and would exit the market without fully satisfying such TDU obligations. A $500,000 letter of credit from OnPoint on file with the PUC would not fully cover the TDU balance
As relevant here, 16 TAC § 25.107(g) provides that, "[i]n no instance" (as recently affirmed by the PUC), 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
OnPoint and PUC Staff have entered into a proposed settlement agreement under which OnPoint would relinquish its REP certificate, and under which OnPoint would not be subject to certificate revocation
Hjaltman, in a memo recommending that the PUC deny the settlement, said that principals "can" be prohibited from exercising control over a REP if they have exited an electricity or gas market with outstanding payment obligations
Hjaltman alleged that, "OnPoint has stated that it has three principals in common with Good Charlie, LLC [sic], the REP that its former customers were transferred to."
Hjaltman did not identify any of such principals. While certain information concerning employees or leadership at OnPoint and at Good Charlie may be public, whether such served as "principal" at OnPoint, and now (or previously) "control" Good Charlie, is unknown
Notably, Good Charlie is now owned by Calpine in some manner, though control of Good Charlie prior to its acquisition by Calpine late last year may be of concern to Hjaltman
Hjaltman wrote, "I ... recommend we direct enforcement Staff to investigate whether the principals of OnPoint are principals of any other REP in violation of our rules."
More broadly, Hjaltman opposed resolving alleged violations, which if pursued could result in a revocation, through relinquishment, due to, among other reasons, revocation triggering certain provisions applicable to the exiting REPs' principals, under the REP certification rules as noted above
"I am concerned that there could be potential unintended consequences associated with accepting OnPoint's relinquishment in this case," Hjaltman wrote
Hjaltman recommended that the PUC reject the settlement and direct Staff to pursue a revocation of the OnPoint certificate
Most notable to the retail market as a whole is Hjaltman's stance on the notice required for what Hjaltman terms, "the rules for relinquishment, specifically notice requirements." -- 16 TAC § 25.107(h)(3)
While Hjaltman references the rules for "relinquishment", the notice is actually required not for relinquishment per se but for cessation of operations, which is a distinct circumstance (a REP may cease operations without relinquishing its certificate, except that a REP which does not serve load for 24 months may no longer maintain its certificate) -- though cessation of operations is a prerequisite for relinquishment (e.g. by rule, a REP must no longer have customers in order to relinquish its certificate)
While Hjaltman uses the term relinquishment, a potential stricter enforcement of the rule as written could apply to any sought expedited sale or fire sale, even in cases where the selling REP may not seek relinquishment of its certificate (thus, a selling REP could not simply delay its formal relinquishment as a means to avoid the required notice period and to instead accomplish a quick fire sale and customer assignment)
Specifically, under the certification rules at §25.107, "A REP must not cease
operations as a REP without prior notice of at least 45 days to each of the REP’s customers to
whom the REP is providing service on the planned date of cessation of operations."
However, separate rule §25.493 applies when a REP acquires customers from
another REP due to acquisition, merger, bankruptcy, or other similar reason. §25.493 is not explicit that it overrides the 45-day customer notice requirement under §25.107, nor does §25.107 explicitly waive the 45-day period in cases where §25.493 applies (§25.493 is referenced by §25.107, but §25.107 does not explicitly defer to §25.493's alternative notice rule)
§25.493 requires a 30-day customer notice prior to the customer transfer, except that §25.493 does not require such 30-day notice in cases where, "legal
or regulatory constraints prevent the sending of advance notice," with the rule instead requiring notice to be provided as soon as practicable in such cases
In the memo, Hjaltman does not invoke §25.107's stated 45-day notice to customers.
However, ECM discusses §25.107's stated 45-day customer notice requirement because §25.107 only explicitly establishes a 45-day notice requirement for customer notices (or notice to the PUC in certain cases as discussed below). The other notices with which Hjaltman is concerned -- notice to ERCOT, etc. -- do not have an explicit deadline in §25.107, though in practice the ERCOT, etc. notice has been implemented as being the same 45 days as the customer notice
Specifically, §25.107 requires a REP ceasing operations to notify ERCOT, LIDA, the TDUs, and POLRs of such cessation of operations, which is what Hjaltman highlights with respect to OnPoint
However, §25.107 does not explicitly state a deadline for the notices to ERCOT et al.
Specifically, 16 TAC § 25.107(h)(3) states, "A REP must not cease
operations as a REP without prior notice of at least 45 days to each of the REP’s customers to
whom the REP is providing service on the planned date of cessation of operations. The REP
must also notify, [sic] the Low Income Discount Administrator, the applicable independent
organization, and all TDUs and the providers of last resort for service territories in which the
REP serves customers. As applicable, a REP must also notify all electric cooperatives and
municipally owned utilities in whose service territory the REP serves customers. If a REP
improperly transfers customers without providing adequate notice, under §25.493 of this title
(relating to Acquisition and Transfer of Customers from One Retail Electric Provider to
Another) then the REP may be subject to enforcement proceedings even after relinquishment
of its certificate."
Hjaltman writes, "OnPoint failed to follow the rules for relinquishment, specifically notice requirements," with Hjaltman citing a PUC Staff statement in a filing which states that, "OnPoint acknowledged it did not provided the 45-day notice prior to
transferring the customers to the Low Income Discount Administrator (LIDA), the Electric
Reliability Council of Texas, Inc. (ERCOT), all transmission and distribution utilities (TDUs) and
providers of last resort for service territories in which OnPoint serviced customers, and, as
applicable, all electric cooperatives and municipally owned utilities in whose service territory
OnPoint served customers."
OnPoint itself had stated, "Due to the financial distress experienced and the rapid decline of its liquidity position and
urgent need to transfer customers to an alternative REP to avoid a POLR event, OnPoint did not
provide the required 45-day notice prior to transferring the customers to the Low Income Discount
Administrator, the Electric Reliability Council of Texas, Inc. ('ERCOT'), all transmission and
distribution utilities (collectively the 'TDUs') and providers of last resort for service territories in
which OnPoint serviced customers, and, as applicable, all electric cooperatives and municipally
owned utilities in whose service territory OnPoint served customers."
As noted, while § 25.107 may routinely be interpreted as requiring 45 days' notice to all relevant parties, the rule only explicitly states that 45 days' notice is required with respect to customers, and not ERCOT et al. (§25.107 also explicitly requires a 45-day notice to the PUC for a REP which is ceasing operations but which is not relinquishing its certificate)
Stepping back from OnPoint, the PUC has previously been more focused on avoiding mass transitions onto POLRs, and allowing fire sales which prevent customers from paying POLR rates, rather than strictly enforcing the cessation of operation notice rules and the requisite advance notice (which, as noted above, are being interpreted as requiring 45 days advance notice to ERCOT et al. for a REP ceasing operations)
Hjaltman, however, would deny a good cause exception to the notice rules sought by OnPoint, as Hjaltman said, "I find no support for issuing a good cause exception to a rule that has already been violated."
"To do otherwise could tacitly condone this behavior for others," Hjaltman wrote
As such, the viability of fire sales of distressed REPs' books, as a means of keeping customers off of POLR, while also helping the selling REP avoid a default (with a default potentially hindering its principals' future participation in the market), could now be under pressure at the PUC, if 45 days notice will be required for any book sales in which the seller ceases operations, as the exiting REP may not have liquidity to survive 45 days, and the acquiring REP (or the selling REP's credit provider, etc), while amenable to assuming certain obligations to preserve the book and prevent POLR drops during a brief transition process, may not want to assume such obligations for 45 days
Docket 56201
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Commissioner Would Strictly Enforce 45-Days Notice Rule For REP Cessation Of Operations, May Hinder Future REP Book Fire Sales
February 19, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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