New York ISO to Lower Credit Requirements for ESCOs, Other LSEs in ICAP Spot Auction

The New York ISO has filed tariff revisions at FERC to reduce Market Participant credit requirements to participate in the ICAP Spot Market Auction, which is mandatory for load serving entities.

Earlier in 2012, some market participants expressed concern that the credit requirements for the ICAP Spot Market Auction were too high and requested that the NYISO revisit its methodology for establishing this credit requirement.

Presently, the NYISO calculates a Market Participant's maximum exposure using an estimate of the megawatts of UCAP the Market Participant will have to procure in the ICAP Spot Market Auction to satisfy its capacity obligation, and the ICAP Demand Curve reference price.

The NYISO's proposed revisions establish a methodology for determining the ICAP Spot Market Auction credit requirement that more closely aligns this requirement with the NYISO's actual risk, and add transparency to the NYISO's credit practices by describing the new methodology in the Services Tariff.

Specifically, the NYISO proposes that for each calendar month, it shall use the most recent ICAP Monthly Auction Market-Clearing Price plus a margin as a proxy for the ICAP Spot Market Auction Market-Clearing Price, rather than the current ICAP Demand Curve reference price.

The margin will vary based on the location of the LSE's Load, with a 25% margin added to the Monthly Auction Market-Clearing Price for NYC and a 100% margin added to the Monthly Auction Market-Clearing Price for LI and the NYCA. The NYISO will then calculate credit requirements by multiplying the proxy price by the Market Participant's estimated LSE UCAP Obligation, by location, for the Obligation Procurement Period. The Market Participant's ICAP Spot Market Auction credit requirement will equal the sum of its locational credit requirements.

In developing the new standard, the NYISO analyzed data from May 2006 through October 2011 to determine whether the most recent Monthly Auction price would be a more accurate proxy for the ICAP Spot Market Auction price than the ICAP Demand Curve reference price. This analysis revealed a positive correlation between the Market-Clearing Prices in the Monthly Auctions and the ICAP Spot Market Auctions but also showed that the NYISO would need to add a margin to the Monthly Auction price to cover the price variability between these two auctions.

Over the time period from May 2006 through October 2011, if NYISO had used the most recent Monthly Auction price plus a margin instead of the ICAP Demand Curve reference price to estimate a Market Participant's potential ICAP Spot Market Auction exposure, credit requirements would have been reduced by at least 40% while still providing credit support sufficient to cover approximately 99.5% of payments.