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Texas ALJ Says That Retail Provider May Not Meet Option 2 Certification By Being Its Own Customer ("Third Party" Customer Needed For Option 2 REP Certification)
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A Texas PUC ALJ has concluded that a retail electric provider seeking an Option 2 REP certificate may not rely on a self-supply retail electric contract to meet the certification requirement that the REP applicant must file with the PUC a, "signed, notarized affidavit from each customer with
which it has contracted to provide one megawatt or more of energy."
Generally, Option 2 REPs are limited to serving customers 1 MW and larger which provide an affidavit agreeing to such service
The ALJ was addressing the application of Luxor Technology Corporation for an Option 2 REP certificate
Citing a PUC Staff memo, the ALJ said that Luxor Technology’s application identifies Luxor Technology Corporation itself, the exact same entity (not an affiliate), as Luxor's customer for purposes of meeting the affidavit requirement
Notably, Texas PUC Staff had recommended approval of Luxor Technology’s REP application, and Staff did not raise any issue with respect to the customer affidavit being from the same entity as the Option 2 REP applicant
The ALJ said that the PUC's rules do not "contemplate" that an Option 2 REP may rely on itself for purposes of meeting the customer affidavit requirement for certification
Specifically, TAC § 25.107(b)(10) defines an Option 2 REP as, "A REP that limits its service offerings to specifically identified customers,
each of whom contracts for one megawatt or more of capacity."
16 TAC § 25.107(d)(2)(I) provides that, "An applicant for an Option 2 REP certificate must include a signed, notarized
affidavit stating that it will only contract with customers to provide one megawatt or
more of energy."
16 TAC § 25.107(d)(2)(I) further provides that, "Each customer affidavit must state that the customer
understands and accepts the REP’s ability to provide continuous and reliable electric
service based on the applicant’s financial, managerial, and technical resources."
The rules under § 25.107 do not explicitly state that the customer affidavit required from an applicant for an Option 2 REP certificate must be from a third party in order for the applicant to be certified as a REP
The ALJ said that Luxor Technology’s application for an option 2
REP certificate identifies itself as its sole customer that it has contracted with to provide one
megawatt or more of energy.
"In other words, Luxor Technology states that it has contracted with
itself to provide energy," the ALJ said
"The ALJ concludes that an applicant for option 2 REP certification
cannot offer itself as its customer to meet the requirements of 16 TAC § 25.107(d)(2)(I)," the ALJ said
The ALJ said that the
"plain language" of 16 TAC § 25.107(b)(10) and (d)(2)(I) "contemplates" that an applicant for option 2 REP certification, "must contract with a third-party customer who, independently, accepts the prospective REP’s ability to provide service after review of the factors described in 16 TAC § 25.107(d)(2)(I)." [italics reflect emphasis by the ALJ, underline reflects emphasis added by ECM]
"Nothing in the relevant rules suggest that a REP can simultaneously be the
provider and consumer of electric service for the purposes of obtaining option 2 REP certification," the ALJ said
As Option 2 customer affidavits are typically filed under seal, it is unclear whether any prior Option 2 REP certificate has been granted by the PUC when the customer affidavit was from the same entity as the applicant. ECM understands that many of the most well-known Option 2 REPs which limit themselves to supplying affiliated companies (essentially self-supply) are distinct legal entities from their retail customers ("third parties"), but, again, because Option 2 customer affidavits are not public, it is unknown if all self-supply Option 2 REPs certified to date have such an arrangement in which the retail customer is technically not the same entity as the Option 2 REP
ECM does observe that at least two distinct Option 2 REPs have (or historically had prior to a market exit) limited their retail service under the Option 2 certificate to affiliated companies or properties. Although such affiliates may have legally been "third parties" since they were not the same legal entity as the Option 2 REP, it cannot reasonably be argued that an existing Option 2 REP whose service is limited to properties owned by a parent entity has obtained an affidavit from a customer who "independently" accepts the prospective REP's ability to provide service (indeed, several existing Option 2 REPs were created for the express and sole purpose of serving affiliated properties owned by the REP's parent, and thus any argument that such "third party" customers "independently" accepted the Option 2 REP's ability to provide service rings hollow)
Note that the ALJ's findings appear to be limited to the question of Option 2 REP certification, and the concern that an independent third-party customer should be the standard for determining whether an Option 2 REP is able to provide service, rather than relying on the applicant itself to swear in what amounts to a self-supply affidavit that the applicant is able to provide service. As the ALJ states that, "Nothing in the relevant rules suggest that a REP can simultaneously be the provider and consumer of electric service for the purposes of obtaining option 2 REP certification," [emphasis added] such language suggests that the ALJ's view is that an Option 2 REP serving its own load is not prohibited, only that such self-service is insufficient for purposes of obtaining an Option 2 certificate, and that a third-party customer is needed for certification (and that once certification is granted, self-supply service would not be prohibited, provided that such service complies with the Option 2 rules, e.g. at least 1 MW, customer affidavit, and amending the REP certificate to reflect the customer addition)
Putting aside the language of § 25.107, from a policy perspective, the rules already address any concerns that the ALJ may have, absent a bona fide third-party customer, about certifying a REP applicant that lacks the ability to provide service, with such applicant receiving a certificate solely due to providing a self-supply affidavit in the certification process
§ 25.107 requires that each new customer of an Option 2 REP must sign a notarized affidavit which must state that the customer
understands and accepts the REP’s ability to provide continuous and reliable electric
service based on the applicant’s financial, managerial, and technical resources
Furthermore, before an Option 2 REP begins serving a new customer, an Option 2 REP must file for an amended certificate to add such a new customer to its certificate
As such, even an Option 2 REP originally certified on a self-supply basis must provide the same affidavits cited by the ALJ before the REP may begin serving a third party. Thus, granting an Option 2 certificate to a self-supply REP does not create a situation where the REP is then able to freely serve customers without the customers first making the same independent determination about the REP's ability to provide service that would be required under the ALJ's standard for certification
Although the ALJ memorialized the ALJ's conclusions described above in an order, the ALJ did not yet deny the REP application of Luxor Technology, but rather issued a notice of intent to do so
The ALJ noted that Luxor may appeal the ALJ's order, and the ALJ set a deadline of May 5, 2025 for any appeal
Additionally, the ALJ said Luxor Technology may by May 5 amend Luxor's application to identify a third-party customer and provide the required customer affidavit. Based on existing Option 2 REPs in the market, the most expeditious solution would appear to be for Luxor to create a distinct "shell" LLC whose sole purpose would be to obtain an Option 2 REP certificate to serve the third party Luxor Technology Corporation (however, as Luxor Technology Corporation is the current REP applicant, this solution would appear to require a new REP application)
Among other things, Luxor offers bitcoin miners and investors a derivative contract listed on a CFTC-approved exchange
Luxor on its website also states that Luxor Commodities LLC has obtained regulatory approval from the CFTC to operate as an Introducing Broker (IB), which the company says enables it to assist miners in hedging various risk exposures, including energy costs (power, natural gas, etc.) as well as revenue (hashprice), and treasury (bitcoin)
Luxor also provides various other software and financial services for bitcoin mining, including various energy market insights and data
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April 24, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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