Feature Articles

In Texas retail electric providers (REPs) frequently ask whether they can require a minimum credit score as a condition of eligibility in order to manage credit risk. The short answer is no — but the longer answer is where many compliance misunderstandings arise.

Credit score ≠ eligibility for service

Under Texas law, a REP may not deny residential electric service solely because an applicant has a low credit score or poor credit history. This restriction does not originate in the PUCT’s substantive rules alone; it comes directly from statute.

Section 17.008 of the Public Utility Regulatory Act — Protection of Residential Electric Service Applicants and Customers — expressly provides that:

“A retail electric provider may not deny an applicant’s request to become a residential electric service customer on the basis of the applicant’s credit history or credit score…”

This statutory prohibition exists independently of the nondiscrimination language in the substantive rules and applies regardless of whether a REP’s credit standards are applied uniformly. In other words, even a neutral, across-the-board minimum credit score requirement would still violate the statute if it is used to deny service outright.

Where REPs do have discretion: deposits and credit arrangements.

Although credit score cannot be used as a gatekeeper for service, it can be used to manage risk in other ways. Specifically, a REP may:

• Use credit history or credit score to require a deposit
• Establish objective credit criteria for deposit waivers
• Refuse service only if the applicant fails to satisfy a lawful enrollment condition (such as refusing to pay the required deposit)

This distinction is critical. If an applicant is required to pay a deposit based on creditworthiness and de-clines to do so, the REP is not denying service because of credit score. Instead, the applicant is failing to meet the REP’s lawful credit requirements.

Bottom line: Credit score is a deposit tool — not an eligibility tool.

Switch Holds and DPPs

Switch holds are often used in connection with Deferred Payment Plans (DPPs) to prevent customers from switching providers while carrying outstanding balances. But an important — and often over-looked — limitation is how payment allocation rules interact with DPP switch holds.

A switch hold associated with a DPP applies only to the amount covered by the DPP, not to all outstanding charges on the account. Once the DPP balance is satisfied, the switch hold must be lifted — even if other amounts remain unpaid.

This distinction becomes critical when combined with the payment allocation requirements in the PUCT rules. PUCT Substantive Rule §25.480(k) requires that a REP allocate any partial payment:

1. First, to the oldest balance due for electric service, and
2. Then, to the current amount due for electric service

This allocation is mandatory and applies regardless of how the customer intends or labels the pay-ment.

Because switch holds apply only to the DPP balance — and because payments must be allocated to the oldest charges first — a customer can, in some cases, legally maneuver around a switch hold.

For example:

• A customer is on a DPP and subject to a switch hold
• The customer makes a partial payment equal to the final DPP installment
• Under §25.480(k), that payment is applied to the oldest balance, satisfying the remain-ing DPP amount
• Once the DPP balance is paid, the switch hold must be removed
• The customer may then switch providers while still owing the most recent month’s in-voice

From a compliance standpoint, this outcome is permitted — even if it feels counterintuitive from a risk-management perspective.

Critical Care Applications and Disconnection Notices

A common scenario continues to raise questions for retail electric providers: A customer receives a disconnection notice and then calls to say they are applying for Critical Care status.

Must the REP immediately suppress the disconnect? The answer is not automatically — and the timing matters. An application alone does not stop a disconnection.

If a customer receives a disconnection notice before Critical Care status has been granted and documented, the REP is not required to cancel or suppress the existing disconnection notice solely because the customer has submitted (or plans to submit) an application. Simply put, applying for Critical Care status does not, by itself, trigger protections under the rules. The designation must be granted and communicated through the market before it has legal effect.

PUCT Substantive Rule §25.497(e)(6) requires the TDU to notify both the customer and the REP — via a standard market transaction — of the final status of the application, including whether the customer has been designated as a Critical Care Residential Customer or Chronic Condition Residential Customer. It is only once that designation is available to the REP that the required protections apply.

Until then, the REP may proceed with the disconnection process as it would for any other customer —with some important caveats.

When the REP becomes aware the process has started

Customers are instructed to submit the commission-approved Critical Care or Chronic Condi-tion form directly to the TDU. If a customer instead sends the form to the REP, the REP must forward it to the TDU within two business days. At that point, the REP has knowledge that the customer has initiated the process. If the REP receives notice that the TDU is actively reviewing a completed application, best practice is to begin treating the customer as temporarily protected while the designation is pending.

Temporary designations can apply quickly.

Once the TDU receives the form, it has two business days to review it for completeness. If the form is incomplete, the TDU must return it to the customer.

If the TDU does not complete the review within those two business days, the customer automatically assumes a temporary Critical Care or Chronic Condition designation. If the physician fails to select a designation, the customer defaults to Critical Care. The TDU should notify the REP, and the temporary designation remains in effect for 14 days.

In scenarios where the REP is aware that a Critical Care application is under review or temporarily effective, a conservative and Staff-favored approach is to:

• Pause the disconnection
• Document whether the customer accepts or refuses the DPPOffer a Deferred Payment Plan under 25.480 (there is nothing unique about DPPs for Critical Care customers)
• Clearly explain that failure to comply with the DPP may still result in disconnection
• Document whether the customer accepts or refuses the DPP

Offering a DPP is especially important because Staff often asks whether one was extended in these circumstances. As always, the customer does not “enter” a DPP unless they make the required initial pay-ment.

What happens after the designation decision?

If the customer is ultimately designated as Critical Care, the REP must issue written notice at least 21 days prior to disconnection to both the customer and the customer’s emergency contact.

If the customer is not designated Critical Care or Chronic Condition, the REP may proceed with disconnection under the original 10-day notice, assuming no other protections apply.

Reconnection timing: legal vs. practical?

Legally, reconnections for Critical Care customers follow the same timelines as any other reconnection. Practically — and as a matter of Commission expectation — REPs are encouraged to make every reasonable effort to reconnect Critical Care customers as quickly as possible.

A final note on service eligibility

REPs may not refuse to serve customers based on disability status, including Critical Care designation. However, a nuance remains:

• If a REP offers only prepay service, and Critical Care customers cannot enroll in prepay, the REP may refuse
• If a REP offers both prepay and post-pay service, the REP may not refuse to provide post-pay service based on the customer’s Critical Care designation.