Citing Recent Defaults, New York ISO Files For Credit Requirement Changes At FERC

Includes New Certification, Material Change Example, Reporting Requirements; NYISO Ability To Reject Applicants

November 27, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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The New York ISO has filed at FERC for changes in its credit policy and requirements

Specifically, the NYISO proposes to revise its tariffs to: (1) include an additional minimum participation criterion requiring Market Participants to have sufficient experience and resources to satisfy their obligations to NYISO as they become due; (2) allow the NYISO to reject a new applicant that presents an unreasonable credit risk to the ISO Administered Markets; (3) include an event or circumstance indicating that the Customer may present an unreasonable credit risk to the ISO Administered Markets as a specific example of a material adverse change in financial condition; and (4) clarify the requirement for Market Participants to report on certain regulatory investigations.

"In 2018, certain NYISO Market Participants defaulted on their payment and credit obligations to the NYISO market. Some of these Market Participants filed for Chapter 11 bankruptcy protection. Such defaults ultimately resulted in the NYISO terminating some of the entities from ongoing participation in its markets. In response to these events, and those observed by the NYISO in other wholesale electricity markets, the NYISO proposes revisions to its tariffs to enhance its ability to prevent or mitigate the risk of credit defaults in the NYISO-administered markets," the NYISO said

More specifically, the NYISO proposes to include an additional minimum participation criterion requiring a Market Participant to certify that it has the appropriate experience and resources to satisfy its obligations to the NYISO as they become due.

The changes would include a revised list of examples that are considered a "material change", which trigger certain credit changes

Section 26.14 of the Services Tariff protects the ISO Administered Markets by allowing the NYISO to change the amount of Unsecured Credit granted to a Market Participant and the amount of a Market Participant’s Operating Requirement in the event there is a material adverse change affecting the risk of nonpayment by the Market Participant. Section 26.14 includes several illustrative examples of events that constitute a 'material adverse change.'

The NYISO proposes to add to the list of examples of material adverse changes, "an event or circumstance indicating that the Customer may present an unreasonable credit risk to the ISO Administered Markets."

The Services Tariff requires Market Participants to inform the NYISO of certain ongoing investigations that could have a material impact on the Market Participant’s financial condition.

The NYISO proposes to clarify this requirement to recognize that some investigations may be confidential, and the Market Participant may therefore be prohibited from disclosing the existence thereof to the NYISO. The proposed language clarifies that a Market Participant is required to inform the NYISO of an investigation unless prohibited by law. The clarifying revisions also require that a Market Participant take reasonable measures to obtain permission to disclose information related to a non-public investigation to the NYISO.

"To bolster the NYISO’s ability to protect the ISO Administered Markets from potential defaults, the NYISO proposes adding a new section to the Services Tariff providing the NYISO express authority to reject an application from an entity seeking to become a Customer if the NYISO determines that the applicant’s participation in the ISO Administered Markets presents an unreasonable credit risk. This section will also include a requirement for the applicant to submit information or documentation reasonably required for the NYISO to evaluate its experience and resources. If the NYISO determines, based on the information required under Services Tariff Section 26.1.4 or other relevant information, that the applicant’s participation in the ISO Administered Markets presents an unreasonable credit risk, the NYISO may reject the application. The NYISO will provide the applicant with a written explanation of the reasons why the NYISO rejected its application. Adding these requirements allows the NYISO to take appropriate, proactive measures to help protect its markets from the risk of credit defaults that could arise from an applicant that presents unreasonable credit risks," the ISO said

NYISO also proposes to add language to OATT Section 27.4 to explain that it will evaluate relevant factors to determine if an applicant should be treated as the same Transmission Customer that had caused a previous default, in order to prevent the purpose of the provision from being circumvented by the use of separate entities. Such factors "include but are not limited to, the interconnectedness of the business relationships, overlap in relevant personnel, similarity of business activities, overlap of customer base, if any, and the business engaged in prior to the attempted re-entry."

This provision is in response to a previously reported complaint, ultimately denied by FERC from an ESCO whose NYISO membership application was rejected as NYISO alleged that the new ESCO was common law successor by 'mere continuation' to an ESCO which previously defaulted and had debts at NYISO (see background here)

Docket ER20-483-000

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