Mitchell S from Amarillo, TX. ERCOT territory. One of my clients — a meat processing plant — had a 3-year fixed rate supply contract with a small REP at a great rate of $0.054/kWh. The REP went bankrupt last January during the winter storm-related financial fallout. My client was automatically switched to the Provider of Last Resort (POLR) rate which in ERCOT is tied to the wholesale market price plus a premium. During the 6 months it took the client to find and sign with a new REP, they were paying POLR rates that averaged $0.098/kWh. On 800,000 kWh/month, the difference between their contract rate and the POLR rate was about $35,200/month. Six months: $211,200 in excess costs.
REP went bankrupt — client stuck on expensive default service for 6 months
Mitchell, REP bankruptcies in Texas have been a recurring problem since the 2021 winter storm. The POLR rate is intentionally set high to encourage customers to find a new supplier quickly. But for large industrial customers, switching takes time — new REPs want to do credit checks, the enrollment process takes 1-2 billing cycles, and the customer is bleeding money the entire time. Is any of that $211,200 recoverable?
Randy, the POLR charges themselves are not recoverable — they are the correct rate for customers without a supplier. But I am looking at two angles. First, the bankrupt REP had a surety bond with the PUC of Texas. Customers who suffered losses from the REP bankruptcy can file claims against the bond. Second, the 6-month transition should not have taken that long. The client management dragged their feet on signing a new contract because they were in shock over the prices and kept hoping the POLR rate would come down. It did not.
Mitchell, in ERCOT the REP bankruptcy notice should have been sent to all affected customers within 48 hours. Did your client receive it? And the Texas PUC has a streamlined switching process for customers displaced by REP failures — the enrollment timeline is supposed to be 5 business days, not 2 billing cycles. If the client acted promptly they could have been on a new REP within 2 weeks.
Felix, the client did receive the notice but the operations manager put it in a pile and did not act on it for 3 weeks. Then they spent another 5 weeks getting quotes and negotiating terms. Then the enrollment took another 3 weeks. Total elapsed time from REP failure to new supply: about 11 weeks. If they had acted immediately they could have been switched in 3-4 weeks, saving approximately $140,000.
The lessons here are more about client advisory than billing errors. First, every client with a competitive supply contract should have a contingency plan for REP failure — a list of alternative suppliers and pre-negotiated fallback terms. Second, when the client receives a REP failure notice, they need to act within 48 hours, not 3 weeks. Third, the POLR rate in ERCOT is essentially a penalty rate. Every day on POLR costs money.
Mitchell, do you now include REP creditworthiness assessment in your audit services? After the 2021 storm, several REPs in Texas failed and the smaller ones are still financially fragile. Checking whether your client REP has adequate financial backing and a good track record should be part of the annual review.
Angela, I did not before this experience but I do now. I check the REP financial filings with the PUC, look at their credit ratings if available, and verify their surety bond is current. For clients with large supply contracts, I also recommend they negotiate a contract provision requiring the REP to notify them of any material financial changes. Early warning could mean the difference between a smooth transition and a 6-month POLR nightmare.
Update on the surety bond claim: filed with the Texas PUC against the bankrupt REP bond. The bond was $250,000 and there are about 40 commercial customers filing claims totaling over $2 million. My client will get a pro-rata share — probably about $25,000-30,000 of the $211,200 loss. Better than nothing but a painful lesson.
$25-30K recovery on a $211K loss. The real value Mitchell provided here is ensuring this never happens again — the contingency planning, the REP creditworthiness screening, and the rapid-response protocol for future supply disruptions. That is advisory value beyond the traditional audit.