When shopping for low commercial electricity rates, business owners have a wide array of retail electric providers and pricing plans from which to choose. It is often tempting to for the business owner to consider adding their residence to their commercial electricity agreement. While this may seem to be a reasonable request, it poses legal and regulatory problems for both the business owner and the retail electric provider.
Residential and Commercial Electricity
From a legal perspective, creating a corporate entity has a number of advantages. One of the advantages is that the corporate entity serves as a firewall between business liabilities and the owner’s personal assets. However, business owners who fail to keep their personal and business matters separate may lose this protection. Piercing or lifting the corporate veil refers to a legal decision to treat the liabilities of a corporation as the liabilities of the shareholders. Including a non-business related premise in a commercial electricity agreement might be construed as justification for piercing the corporate veil.
In addition, under the Texas Business and Commerce Code, the term “consumer” means an individual who enters into a transaction primarily for personal, family, or household purposes. This distinguishes commercial entities from consumers. Contracting for residential electric service under the name of a commercial entity name might make it difficult to assert that the residence owner qualifies for treatment as a consumer. In any event, this clouds the water and may limit either party’s ability to rely upon the agreement.
Electricity Consumer Protections
From a regulatory perspective, there are clearly issues associated with combining business and residential premises under a commercial electricity contract. The Public Utility Commission of Texas (PUCT) specifies consumer protections for residential and small commercial customers. Small commercial customers are non-residential premises with an annual peak demand of less than 50 kW. The rationale behind consumer protection rules is to place retail electric consumers on an even par with providers who regularly engage in the business. Commercial customers with annual peak demand of 50 kW or greater can waive these default protections and agree to alternative contract provisions.
The PUCT rules, particularly §25.475, prescribe requirements for electricity provider information disclosures to residential and small commercial customers. Combining a residential premise and a small commercial premise on the same agreement is not a significant regulatory issue because both premises are subject to the same consumer protections. However, combining a residential premise and a larger commercial premise on a single agreement may pose a regulatory problem.
Commercial electricity plans commonly require the customer to represent that all contracted premises are commercial and that the standard consumer protections are waived in lieu of the contract provisions. Including a residential premise on the contract could make this representation false. A residential premise is covered by the PUCT consumer protections and those protections cannot be waived. This makes regulatory compliance problematic for the electricity provider.
For legal and regulatory reasons, it is a good practice to limit commercial electric service agreements to commercial premises. Including personal residences or the residences of family and key employees poses significant legal risks to the business owner and regulatory risks to the retail electric provider.
Disclaimer: The author of this article is not an attorney and nothing therein should be construed as offering legal advice. Please consult an attorney for questions on contract terms and provisions before entering into a contract.