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ERCOT Submits Protocol Revision Request for New Minimum Capitalization Requirements
January 24, 2012
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Copyright 2010-
ERCOT has submitted Nodal Protocol Revision Request (NPRR) 438, which would institute new minimum capitalization requirements applicable to market participants.
For a Counter-Party seeking authorization to participate or participating in all ERCOT markets except for the Congestion Revenue Rights (CRR) market, the Counter-Party, or an acceptable guarantor, shall maintain minimum capital as follows:
(A) $5 million in total assets; or
(B) $500,000 in:
(1) Unencumbered assets for unrated Electric Cooperative (EC) and Municipal systems; or
(2) Tangible net worth for all other Entities, each as defined in the ERCOT Creditworthiness Standards.
For a Counter-Party seeking authorization to participate or participating in all ERCOT markets, the Counter-Party, or an acceptable guarantor, shall maintain minimum capital as follows:
(A) $10 million in total assets; or
(B) $1 million in:
(1) Unencumbered assets for unrated Electric Cooperative (EC) and Municipal systems; or
(2) Tangible net worth for all other Entities, each as defined in the ERCOT Creditworthiness Standards.
Among other things, to fulfill the capitalization requirements above, a Counter-Party must provide audited financial statements of the Counter-Party or its guarantor.
Regardless of whether the Counter-Party or an acceptable guarantor meets the capitalization criteria above, ERCOT may nevertheless require the Counter-Party to meet the capitalization criteria by posting an Independent Amount in the event that the Counter-Party or a guarantor has a material adverse change in conjunction with or subsequent to the most recent audited annual or unaudited quarterly financial statements. The determination of a material adverse change is solely within ERCOT’s discretion. Changes that may be considered materially adverse include, but are not limited to:
(A) A qualified audit opinion;
(B) Material criminal or civil litigation;
(C) Being placed on credit watch with negative implications by any ratings agency;
(D) Bankruptcy, dissolution, merger or acquisition of the Counter-Party; or
(E) Any other material change in financial status that could adversely affect Counter-Party’s compliance with the capitalization criteria.
The Independent Amount would be $200,000 for a Counter-Party seeking authorization to participate or participating in all ERCOT markets except for the CRR market, and $500,000 for a Counter-Party seeking authorization to participate or participating in all ERCOT markets.
Also, each Counter-Party shall maintain appropriate, comprehensive risk management capabilities with respect to the ERCOT markets in which the Counter-Party transacts or wishes to transact. ERCOT may review documentation supporting a Counter-Party’s risk management framework as part of its processes for verifying the implementation of a Counter-Party’s risk management framework.
ERCOT said that the reason for the revision is to reduce risk in the ERCOT market and to satisfy expected Commodities Exchange Act exemption requirements. These requirements will also make the ERCOT market more consistent with other Independent System Operator requirements, ERCOT said.
Email This StoryCopyright 2010-
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