Pennsylvania Considering Reducing Financial Security Requirement For Electric Generation Suppliers
January 15, 2014
The Pennsylvania Public Utility Commission (“PaPUC”) currently requires electric generation suppliers (“EGS”) to submit an initial bond or letter of credit in the amount of $250,000. One year after licensure, the EGS is required to maintain security at a level equal to 10% of its reported annual gross receipts. The 10% requirement is significantly greater than the requirements of neighboring states (New Jersey, for example, maintains a flat $250,000 requirement) and requires EGSs to factor into their pricing/marketing decisions the cost of maintaining the financial requirement.
In December 2013, the PaPUC announced its tentative proposal to reduce the on-going security requirement to 5% of gross receipts and to expand the list of current security instruments. Interested parties were invited to file comments. Generally, the EGS commentators supported the direction of the PaPUC to lower the requirement with some arguing for a flat amount (i.e., $250,000) or a cap (i.e., 5% of gross receipts not to exceed a $1 million cap). The only concern expressed about the PaPUC’s proposal was offered by the Office of Consumer Advocate which cautioned the PaPUC to ensure that the security amount required is sufficient to protect consumers from an EGS failing to honor its contractual obligations with the consumer. However, as we noted in comments on behalf of the Retail Energy Supply Association (“RESA”), reducing the security requirements imposed on EGSs would “encourage the growth of the competitive retail market and lower costs borne by consumers.”
The next step is for the PaPUC to issue a final order which could adopt its tentative proposal, make other changes based on the comments or maintain the status quo. There is no specific time frame for the PaPUC to act although EGSs are required to report their annual gross receipts information by April 30, 2014 with the 2013 revenue reported forming the basis for the individual EGS’s on-going financial security requirement.
A copy of RESA’s comments are available at https://www.puc.state.pa.us/pcdocs/1264710.pdf