(ghi^markets.com - Nov. 4, 2005)
 

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Marketers argue that greater credit curbs -- now being debated by the PUC -- would harm competition by discouraging entry or even forcing out existing retailers.

The Office of Public Utility Counsel agreed. The PUC is weighing risk. It has a draft of a new pro-forma retail delivery tariff that would raise credit curbs 500% for marketers to protect grid owners (RT, 8/15).

Added credit curbs would transfer all financial risk of service to marketers, the Texas Energy Assn for Marketers (TEAM) wrote the PUC.

That kind of credit boost imbalance contradicts the risk assignment set in Senate Bill 7 that opened up the retail market, TEAM added.

But a coalition of grid owners defended higher credit curbs in similar filings. The coalition included AEP Texas Central and Texas North, CenterPoint Energy, Houston Electric, TXU Electric Delivery and Texas-New Mexico Power.

Marketers often collect deposits from customers to mitigate risk, grid owners noted. Retailers can refuse service or charge higher prices to risky customers, the grid coalition wrote.

But these options aren't available to grid owners even though their risk is more concentrated, the coalition added.

The default of a marketer on a grid contract is a bigger financial burden than the non-payment of bills to a marketer from a single customer, grid owners argued.

Marketers haven't failed in Texas, in the grid owners' view, because of deadbeats. But retailers have failed due to under-capitalization, risky business practices and unforeseen financial events -- and grid owners must be protected against these risks, the coalition replied.

Deposits to grid owners are no more of a windfall than deposits from customers are a windfall to marketers, the coalition wrote.

A retail coalition argued that credit ratings should be permitted in lieu of deposits if the PUC feels it must go ahead with the curbs.

This group included Constellation NewEnergy, CPL Retail Energy, Direct Energy, Entergy Solutions, Gexa Energy, TXU Energy and WTU Retail Energy.

Using credit ratings to mitigate risk is appropriate since the PUC, ERCOT and wholesale power sellers recognize ratings as a form of security.

They're fair and an unbiased way to predict the ability to repay debt, that coalition added. Some marketers had opposed using credit ratings because they thought it would give incumbents a competitive advantage.

Originally published in Restructuring Today on August 24, 2005

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