Retail energy marketers in Maryland said they favor current licensing rules and oppose erecting additional financial reporting requirements on retail energy marketers who want licenses to operate in the state. The Maryland Public Service Commission’s (PUC) recently requested comments on whether its current policy of requiring proof of financial integrity for all natural gas and electric suppliers in the state is adequate and does not restrict market entry.

Proof of financial integrity has become more of a hot button issue in the energy industry in the wake of Enron’s bankruptcy and subsequent rapidly declining credit quality of many other energy merchants and power producers.

Currently, applicants for an electric or gas supplier license in the state of Maryland are required to file audited balance sheets and income statements for the most recent 12-month period or for the most current fiscal year. A new start-up company must file year-to-date information if a full year is not available. If applicants are relying on a parent company to establish financial integrity, the parent company must submit a notarized letter of guarantee signed by an officer of the company as well as the guarantor’s financial statements.

PUC staff then analyzes the applicant’s current financial viability by examining assets, liabilities, stockholders equity, revenues, expenses and other operating data. The commission noted that important attributes examined include whether the applicant is generating positive net income and if it is generating positive working capital. Many applicants have failed this traditional analysis of financial integrity.

Likewise, the commission said applicants that are applying for broker/aggregator licenses are not required to demonstrate financial viability to the same extent as suppliers who take title to the power they deliver. It has become standard practice of the commission to require that a surety bond in the amount of $10,000 be submitted with a license application, limited to broker/aggregate services in lieu of being subjected to the financial viability test.

Earlier this month, the commission asked for comments on the appropriate process for establishing and periodically reviewing the financial integrity of electric and gas suppliers. Initial comments were due to the commission by Aug. 23, with reply comments due Sept. 20.

Washington Gas Energy Services (WGES) said that it’s “critical that bona fide competitors be given a chance to compete and that unduly strident financial compliance conditions not be imposed so as to discourage market entry.” As a supplier in Maryland for more than five years, WGES said the commission has maintained a proper balance between the showings of financial integrity and minimizing unnecessary barriers to entry.

“In the marketplace, if one supplier fails, unless market rules and procedures are in place to [ensure] that customers victimized by supplier failures have quick and economic competitive alternatives, the entire marketplace is set back,” WGES said. “Suppliers in Maryland now file annual updates of financial data that should be sufficient for the commission to monitor the financial integrity of licensees.”

BGE Home agreed that the proof of financial integrity should be required on an ongoing basis. “This proof should be equal for all gas and electric suppliers, and the quantitative methodology for financial proof should be uniform and published,” the company said. “Defined credit enhancement tools, i.e., bonds, must be allowable for parties unable or unwilling to demonstrate proof of financial integrity.”

Another licensed supplier in Maryland, UGI Energy Services Inc., doing business as Gasmark, said it believes for the most part that the financial integrity standards currently utilized by the commission strike an appropriate balance between encouraging the availability of competitive gas supplies to customers within the state, while protecting consumers and the public from the financial consequences of supplier defaults.

Gasmark noted that even in the commission’s request for comments, the PUC itself noted that the current financial requirements delay the processing of applications and “seem to discourage start-up companies from being licensed in Maryland.” Gasmark said it “cautions the commission against adopting more heavy-handed guidelines that impose administrative burdens and unnecessary expenses on energy suppliers that will serve as barriers to full participation in customer choice and ultimately deprive consumers of the benefits of a fully competitive gas market.”

Pepco Energy Services Inc. said that current creditworthiness regulations and procedures at the wholesale and retail levels “protect consumers” from financially unstable suppliers without imposing unreasonable creditworthiness requirements on the suppliers. Pepco suggested that the PUC continue to rely upon its current policies regarding suppliers’ financial integrity standards. “These standards have served Maryland well to date and are not in need of revision,” the company added.

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