Part 2.
PUBLIC UTILITY COMMISSION OF TEXAS
Chapter 25.
SUBSTANTIVE RULES APPLICABLE TO ELECTRIC SERVICE PROVIDERS
The Public Utility Commission of Texas (commission) adopts amendments
to P.U.C. Substantive Rules §25.454, relating to Rate Reduction Program, §25.475,
relating to Information Disclosures to Residential and Small Commercial Customers,
and §25.478, relating to Credit Requirements and Deposits, with changes
to the proposed text as published in the December 30, 2005, issue of the
The commission received comments on the proposed amendments from Texas
Legal Services Center and Texas Ratepayers' Organization to Save Energy (Consumers);
Mutual Energy SWEPCO d/b/a "ME SPP"; and the REP Coalition, comprised of CPL
Retail Energy, Direct Energy, First Choice Power, Gexa Energy, Green Mountain
Energy Company, Reliant Energy, Stream Energy, TXU Energy Retail Company LP,
WTU Retail Energy, the Alliance for Retail Marketers (comprised of APS Energy
Services, Constellation New Energy, Inc., Direct Energy, Entergy Solutions
Limited, Green Mountain Energy Company, Strategic Energy, and Stream Energy),
and the Texas Energy Association for Marketers (comprised of Accent Energy,
Cirro Energy, Entergy Solutions Ltd, Star Tex Power, Stream Energy, and Tara
Energy), and Competitive Assets (on behalf of its REP clients, and specifically
including: Spark Energy, Stream Energy, Alliance Power Company, LLC, Bridgepoint
Power & Light, LLC, Econnergy Energy Company, Freedom Power, Hino Electric,
Tara Energy and TriEagle Energy). The commission received reply comments from
the REP Coalition.
§25.454, Rate Reduction Program
The REP Coalition commented that they were uncertain of the meaning of
the word "actual" in the proposed phrase "actual rate reductions" in new §25.454(i).
The REP Coalition recommended that the word "actual" be deleted, and that
clarifying language be added to the sentence to specify that the rate reductions
described are those for "low-income customers that can be reimbursed from
the system benefit fund…"
Commission response
The commission agrees with the REP Coalition and has made the recommended
changes.
The REP Coalition commented that §25.454(i), as proposed, uses the
phrases "late fee" and "late penalty" interchangeably, and recommended use
of the term "late penalty" for consistency with §25.480(c)(1).
ME SPP commented that they are not allowed to impose late fees or penalties
on residential customers' bill, and therefore the provisions of new §25.454(i)
would not apply to ME SPP.
Commission response
The commission agrees with the REP Coalition and has made the recommended
changes.
The REP Coalition commented that §25.454(i)(1)(E), as proposed, contains
a requirement that REPs notify customers twice a year on the subject of late
penalty waivers. The REP Coalition inferred that the commission intended to
parallel proposed §25.454(g)(3)(E), which requires that when the Low-Income
Telephone and Electric Utility Program (LITE-UP) has sufficient funding, REPs
will notify customers twice a year about the availability of the rate reduction
program. The REP Coalition commented that the provision is appropriate in
proposed §25.454(g)(3)(E) because customers that are not automatically
enrolled are notified that they can self-enroll for the benefits. However,
the REP Coalition stated that including a similar requirement in proposed §25.454(i)(1)(E)
is inappropriate because self-enrollment is not available under the scenario
contemplated by proposed §25.454(i)(1), and because eligible customers
will automatically receive the waivers. The REP Coalition recommended that §25.454(i)(1)(E)
be deleted.
Commission response
The commission agrees with the REP Coalition and has made the recommended
changes.
The REP Coalition commented that §25.454(i)(3) provides explicit authorization
for a REP to use the Low-Income Discount Administrator (LIDA) list for voluntary
low-income programs. The REP Coalition commented that the provision would
be clearer if it were moved to subsection (j), which provides guidance on
other aspects of voluntary low-income programs. The REP Coalition proposed
clarifying language indicating that other non-discriminatory criteria may
be used to qualify customers, in order to make it clear that the LIDA list
is not the only criterion that a REP may use. The REP Coalition also proposed
a clarification in subsection (j).
The REP Coalition commented that proposed §25.454(i)(3) and (j) contain
similar phrasing, with (i)(3) making reference to a "voluntary rate reduction
program" and (j) describing a "voluntary low-income program." The REP Coalition
recommends that the term "voluntary low-income program" be used.
Commission response
The commission agrees with the REP Coalition and has made the recommended
relocation of the language in §25.454(i)(3) to (j). The commission notes
that this subsection (j) is now proposed as subsection (k). Further, the commission
agrees with the clarifications proposed by the REP Coalition. The REP Coalition
stated that the distinction between the requirements in subsections (i)(4)(A)
and (i)(4)(B) is unclear. The REP Coalition recommended that (A) be stricken,
and that the requirements of (B) and (4) be combined into one provision.
Commission response
The commission agrees with the REP Coalition and has made the recommended
changes.
§25.475, Information Disclosures to Residential
and Small Commercial Customers
The REP Coalition strongly opposed the requirement in §25.475(d)(5)(E)(v),
as proposed, that would require all residential customers to be offered the
option to pay a security deposit in two installments. The REP Coalition therefore
recommended that the commission retain the existing language for this subsection,
without the amendments shown in the commission's proposal for publication.
Commission response
Consistent with the REP Coalition's comments, and the commission discussion
of §25.478, the commission retains the existing language for this subsection.
However, the commission replaces the word "customer" with the words "customer
or applicant" for consistency with §25.478.
The REP Coalition recommended that the commission amend §25.475(g)(4)(L),
which requires that the Your Rights as a Customer disclosure inform the customer
of the "availability of discounts for qualified low-income customers." The
REP Coalition commented that the commission should eliminate the requirement
because requiring its inclusion can only serve to create confusion for customers
who believe the discount is available when in fact it may not be.
Commission response
The commission notes that under §25.454(c)(2)(C) as proposed, the
disclosure requirement in §25.475(g)(4)(L) and various other provisions
would be suspended when funding and authorization to expend funds are not
sufficient to administer the rate reduction program or fund rate reductions
for customers. This treatment of the provisions was proposed rather than amending
a number of rules to address their possible suspension. This provision should
provide adequate notice to REPs, because they should refer to the rate reduction
rule when taking any required actions regarding electric rate reductions or
discounts. Several other provisions in proposed §25.454(c)(2)(C) would
also result in suspensions of other rules, and the REP Coalition did not propose
that the suspension of those provisions be addressed in the other rules. Therefore,
the commission declines to amend this provision.
§25.478, Credit Requirements and Deposits
The REP Coalition strongly opposed §25.478(e)(3), as proposed, which
would extend to all residential customers and applicants the benefit previously
reserved for rate reduction customers that deposits over $50 may be paid two
installments. This provision would also add the requirement that customers
be notified of this option when a REP requests a deposit. The REP Coalition
stated three main arguments against the proposal that deposits be paid in
installments: it will be detrimental to the competitive market; it is unfairly
burdensome to REPs; and it conflicts with other rule provisions. Additionally,
the REP Coalition requested that if the installment option for all residential
customers is required, that the additional notice requirement be stricken.
The REP Coalition commented that the provision would be detrimental to
the competitive market because: the REPs' current product offerings are structured
around the opportunity to collect a security deposit from customers who present
a credit risk in advance of providing several weeks of electric service on
credit; it would represent a major change in the market structure, which could
notably change the way that REPs serve residential customers and have serious
unintended consequences for customers; the commission would alter the balance
of a long-studied issue and vacate its 2004 ruling that such an option is
inappropriate, unreasonable and burdensome; and most customer defaults occur
within the first few months of service, the majority of which occur within
the first month alone. The REP Coalition stated that currently, a REP collects
approximately 80 days of deposit, which is approximately equal to the length
of customer service if the customer does not pay its first bill. As proposed,
half of the deposit would be due in 10 days and the other half on day 40 of
receiving service. The first likely date of disconnection would be day 65,
which would leave the REP with 25 days of service unpaid. The REP Coalition
further added that unintended consequences may result, which may affect all
customers a REP serves. REPs may restructure the residential segment of their
business; reduce the amount of time that they provide service on credit; delay
serving a customer for 40 days until the full security deposit has been paid;
rely on a more stringent definition of what constitutes satisfactory credit;
or cease customer accommodation practices such as built-in grace periods,
customer-requested extensions or lower deposits.
The REP Coalition commented that the provision would be detrimental to
the competitive market because the proposal is unfairly burdensome to REPs.
They stated that it is not supportable to assume that late payment penalties
are sufficient to off-set bad debt. When a customer does not pay, the REP
is saddled with the bad debt and has incurred and continues to incur other
costs associated with the debt owed, including overhead associated with collection
efforts. The REP Coalition commented that late penalty payments and deposit
requirements are distinct tools that assist REPs with different bad debt issues.
Late penalties generally address slow pay situations in which the REP carries
bad debt for a short period of time, while deposits generally address no-pay
situations. The REP Coalition stated that REPs need all available tools to
effectively manage bad debt and late fees, and the right to disconnect for
non-payment and the ability to require an upfront deposit as a condition of
service are distinct, integral and necessary components of a REP's collections
and bad debt management efforts.
The REP Coalition commented that the proposal creates an internal conflict
with the provisions of §25.478 that address timing, which cannot be reconciled
with the proposed amendments. The REP Coalition cited §25.478(c)(3),
relating to initial deposits for applicants and existing customers which states
that a customer "may be required to pay this initial deposit within ten days
after issuance of a written disconnection notice that requests such deposit,"
and §25.478(d), which has a similar provision regarding existing customers.
Subsection (c)(1) was not cited by the REP Coalition, but states that if satisfactory
credit is not demonstrated "a REP may require the applicant to pay a deposit
prior to receiving service."
ME SPP did not oppose the proposal, but submitted that the expense involved
in programming modifications and the revisions to existing publications may
exceed the benefits of the proposed new requirement.
Consumers supported the proposal, and gave numerous reasons for that support.
It would produce results and meet the intent of making sure all customers
have some flexibility in meeting security deposit requirements. It would help
customers who may not have sufficient funds to pay a deposit in full including:
lower wage workers paid on a weekly basis; elderly customers on fixed incomes
paid once a month; and many customers who are not low-income who still have
problems paying a large deposit. Consumers stated that based on higher deposits
now allowed by the customer protection rules (73 days average use) applicants
for competitive service who cannot establish adequate credit and are required
to pay the maximum amount allowed for a deposit can expect to pay a deposit
ranging from $309.60 to $475.92 for 1000 kWh average monthly use, based on
calculations from the December 2005 Monthly Bill Comparison. Consumers added
that the provision would: give customers some leeway and measure of control
to be able to budget; help customers who might otherwise have bill payment
problems from the outset, having overextended themselves to pay a high deposit;
and increase competition by allowing more customers options to shop for electric
service.
In reply comments, the REP Coalition disagreed with Consumers that the
changes in the deposit payment rule are appropriate. The REP Coalition recommended
that this provision not be adopted because the commission's proposed amendments
severely limit the ability of competitors to recover payment for services
rendered, and would unnecessarily harm the competitive market.
Commission response
It is the commission's intent that the option for low-income customers
to pay deposits over $50 in two installments be available regardless of the
availability of a list of customers eligible for the rate reduction program.
The commission agrees with Consumers' comments that the option to pay deposits
over $50 in two installments is beneficial for customers, enhancing their
ability to shop for electric service. However, the commission also recognizes
that the proposed language that all residential customers have the option
to pay deposits over $50 in two installments may have negative ramifications
for REPs and the market. Therefore, the commission retains the existing language
for this subsection. The commission notes that in restoring the existing language
of this subsection in this proposal, the commission replaces the word "customer"
with the words "customer or applicant" in the second and third sentences for
consistency with the first sentence.
To fulfill the commission's intent to give low-income customers the option
to pay deposits over $50 in two installments regardless of the availability
of a list of customers eligible for the rate reduction program, the commission
adds new subsection (j) to §25.454, and changes the proposed subsection
(j) to subsection (k).
New subsection (j) will provide that if a list of eligible customers exists,
REPs shall provide to low-income customers the option to pay deposits over
$50 in two installments. Because applicants for electricity will not appear
on the list of a REP's customers eligible for the rate reduction program,
this subsection will describe what documents a REP may request the customer
or applicant to provide to prove eligibility for the rate reduction program
during times when there is an eligibility list, but no discount, and when
there is an eligibility list and a discount. These documents include: a letter
from the customer's or applicant's current or prior REP stating that the customer
is on the list of customers who would be eligible for the rate reduction if
funds were available; a bill from the customer's current or prior REP that
demonstrates that the customer is enrolled in the rate reduction program;
or other documentation that the REP determines to be appropriate and requests
on a non-discriminatory basis. New subsection (j) will further require that
upon customer request, a REP shall provide a letter stating that the customer
is on the list of customers who would be eligible for the rate reduction if
funds were available. This letter can be combined with a letter issued to
a customer regarding bill payment history. If no eligibility list exists,
effective June 1, 2006, a REP will be required to extend the option to pay
deposits over $50 in two installments to any residential customers and applicants
who qualify for the rate reduction program and a REP shall provide notice
of this option in any written notice to a customer requesting a deposit. Under
this provision, a REP may require the customer or applicant to provide documentation
of eligibility that the REP determines to be appropriate and that the REP
requests on a non-discriminatory basis. The commission believes that this
language will help to ensure that the deposit installment option remains available
to all low-income customers, while minimizing the administrative and economic
burden on REPs.
The REP Coalition commented that should the proposal that all residential
customers have the option to pay deposits over $50 in two installments be
adopted, the notice provision should not be adopted. The REP Coalition stated
that the notice provision would be unprecedented with regard to customer security
options; would exceed the previous requirement for low-income customers, which
simply required it be included in any written notice; and would be unnecessary
because customers who are interested will inquire about it without prompting,
or will make note of it in the written notice.
Commission response
The commission amends this provision consistent with the comments of the
REP Coalition.
In adopting §25.478 the commission also modifies subsection (j) to
delete an outdated reference indicating that REPs should comply with the provision
no later than August 31, 2004. This subsection was not opened in the proposal,
but the REP Coalition requested this amendment in Project Number 31538,
General Comments
The REP Coalition commented that the absence of funding in the current
biennium for the LITE-UP Texas discount, as it relates to compliance with
the commission's rules, is a significant issue that needs to be addressed
promptly by the commission and market participants. The REP Coalition stated
that both REPs and low-income customers will benefit from the certainty provided
by revisions to the commission's low-income rules to address the availability
of funds for the program. The REP Coalition urged the commission to focus
on refining its current proposal to amend §25.454, and associated provisions
in §25.475. The REP Coalition stated that it would support adoption of
amendments to these rules, as modified by the REP Coalition in its comments.
However, the REP Coalition commented that it was "troubled" by the gradual
expansion of the rulemaking to include a re-examination of security deposits
for all residential customers, which has been thoroughly analyzed by the commission
in two prior rulemakings.
Consumers commented that because of the dramatic effect of fuel price increases
on the Price to Beat (PTB), low-income customers, most of whom are PTB customers,
have shouldered more than their share of the cost increases without the benefit
of those programs promised by the Legislature to help make rates more affordable.
Consumers commented that most PTB customers have seen their bills increase
by at least 80% over the past three years with a 50% increase the last three
to six months. The Consumers stated that it was incomprehensible that the
low-income customers may now lose the last few protections that exist to mitigate
the effects of these unprecedented rate increases.
Consumers stated that they were hopeful that the proposed rule amendments
would provide for a mechanism to require the identification of low-income
customers in the absence of funding for the low-income rate discount from
the system benefit fund. Consumers proposed a number of options as to how
the automatic enrollment process might be maintained to continue identifying
eligible customers. These options included: working with the Legislative Budget
Board to change the commission's budget to cover the costs; requiring REPs
to subscribe to the LIDA to identify eligible customers; requiring the Electric
Reliability Council of Texas (ERCOT) to perform the automatic enrollment
function; requiring Transmission Distribution Utilities (TDUs) to subscribe
to the LIDA and provide the information to REPs; and providing REPs with the
list of customers eligible for Lifeline telephone service for which they would
be required to develop a process to match the results with their customer
records. Consumers noted that the last proposal would add some customers who
were not previously eligible for the rate discount, given that the income
eligibility for Lifeline service is 150% of the federal poverty level as opposed
to 125% for the rate discount, but stated that the savings in LIDA costs involved
with utilizing the Lifeline eligibility list should more than offset any losses
attributable to that population for late fees. Consumers stated that if the
commission cannot accept these options or some other option that would preserve
the current prohibition on charging late fees to low-income customer, all
late fees should be prohibited.
In reply comments, the REP Coalition responded that Consumers have taken
a different approach with their comments by offering a list of recommendations
unrelated to the language of the published rule that are well outside the
scope of this rulemaking, and responded to select concepts. The REP Coalition
disagreed with the suggestion that REPs or TDSPs subscribe to LIDA to receive
a list of eligible customers and commented that it was not backed with any
explanation of why it would be beneficial, or under what statutory or other
legal authority the commission could require such payment. The REP Coalition
commented that this would reduce the total amount of REPs' budgets for providing
low-income assistance, and implies that REP assistance funds are better directed
to administrative expenses than to individual customers. The REP Coalition
disagreed with the suggestion that ERCOT perform automatic enrollment, and
stated that any market or consumer benefit was unclear. The REP Coalition
commented that this would require ERCOT to take on the job of LIDA without
a budget, personnel or related experience. Though ERCOT has the technical
capability and expertise to do this, there is no justification for requiring
ERCOT to create a function that is handled aptly by the current LIDA. The
REP Coalition commented that such a requirement would inappropriately redirect
ERCOT funds away from planned market enhancements or cause an increase in
ERCOT's administrative fee. The REP Coalition commented that under the proposal
to use the eligibility list for Lifeline telephone service, even the consumers
noted that an electric customer list resulting from this method would not
comply with PURA §39.903. Additionally, the result would be that only
households who have established telephone and electric service under identical
names would be on the eligibility list, eliminating households where services
are enrolled by different family members and even those where the customer
uses different variations of their name with different providers.
In reply comments the REP Coalition stated that their members would continue
to urge the Legislature to restore funding and resume the prior benefits to
low income customers, and stated its belief that the funding will ultimately
be restored by the Legislature. Therefore, the commission should avoid any
changes in this proceeding that would dismantle the eligibility determination
process used prior to September 1, 2005, which worked well and should be reinstated
when funding is restored.
Consumers commented that the proposed rule fails to resolve the issue of
REPs being in violation of the customer protection rules for charging late
fees to low-income customers. In reply comments, the REP Coalition took exception
to the Consumers' assertions that REPs are currently in violation of the commission's
rules by charging late fees to low-income customers. Any requirement to not
charge late fees under the existing rules ended with the last LITE-UP discount
because the rule only applies to customers receiving the discount. The REP
Coalition added that REPs have continued to waive late fees for the customers
whom the REP believes would receive the discount if it were available.
Consumers stated that the proposed provisions on identifying low-income
consumers for the purpose of establishing eligibility for the late fee exemption
or qualification for REP sponsored rate discounts could be labeled "The Do-Nothing
Rule" and only better define the commission's authority to do something, but
mean nothing without a firm plan for implementing the solution. Consumers
commented that the draft rule proposes no solution or alternate proposal.
Consumers commented that if the commission and industry are unable to resolve
the customer enrollment problem, then steps should be taken to alter the late
fee provisions to assure that low-income customers are not harmed. Consumers
commented that a safety net provision for late fees is still necessary and
suggested that late fees be prohibited for all customers. Consumers stated
that they are not convinced that late fee payments are essential to a REP's
operations, that in previous rulemakings regarding the customer protection
rules, the REPs as a whole argued that late fees in and of themselves are
often ineffective in getting customers to pay on time. The REP Coalition responded
that they have not been able to confirm whether the Consumers' statement is
a correct quote because no citation was provided. However, it was either taken
out of context or it is an isolated statement that does not represent the
current opinion of any of the REP Coalition signatories. The REP Coalition
added that late fees are effective in encouraging customers to pay bills on
time, and it is an important tool REPs have available to reduce bad debt,
and that this is why late fees are common in most industries as well as for
municipal electric and water systems. The REP Coalition provided examples
of late fees including, but not limited, to Austin Energy which imposes a
5% late payment fee for electric service, and Fannin Electric Cooperative,
which charges $10 on all past due accounts.
Consumers commented that since late fees are assessed automatically and
without any apparent connection to a cost center such as collection activities,
Consumers are concerned that the payments are simply used to generate additional
profits.
Consumers commented that all revenue received by REPs comes from only one
source--its customers--and they have a right to know how the money they pay
is being spent. They added that up to January 1, 2002, the industry successfully
managed its bad debt without late fees. Consumers recommended that the commission
consider amending the late fee provisions so that customers are only charged
on amounts more than 30 days past due, or if the late fee provisions remain
the same, they recommended that the commission require REPs to contribute
a percentage of the late fees they collect on a monthly basis to support a
fund to pay the costs of automatic enrollment in lieu of system benefit funds.
The REP Coalition replied that these comments are unrelated to the rule that
the commission has published for comment, and that this suggestion "completely
guts" the function of late fees as an interim, less intrusive incentive prior
to disconnection for non-payment. It would also "further erode" the ability
of late penalties to offset the carrying costs to REPs for nonpayment. The
REP Coalition stated that without the ability for REPs to apply this cost-recovery
mechanism to late-payments, all customers would be subject to increased prices.
Additionally, to apply a late penalty on a date other than the past due date,
some REPs may be required to perform significant, expensive systems changes.
Commission response
The Consumers' comments are beyond the scope of this rule. The late payment
penalty is set out in §25.480 of this title, relating to Bill Payments
and Adjustments, and no amendment to this rule was proposed in this rulemaking
proceeding. The comments of the REP Coalition and Consumers relating to late
payment penalties did not address the proposed amendments, and, therefore
the commission makes no changes to the proposed rules based on those comments.
How the commission might fund an eligibility list to identify low-income customers
and modifications to the late penalty provisions is also outside the scope
of this rulemaking.
In adopting these sections, the commission makes other minor modifications
for the purpose of clarifying its intent.
Subchapter Q. SYSTEM BENEFIT FUND