ISO New England Seeks Changes to Market Participant Financial Requirements to Protect Against "Thinly Capitalized" Retail Suppliers

ISO New England has filed at FERC proposed changes to its minimum capitalization requirements, claiming that the changes are needed to protect market participants against, "thinly capitalized," load serving entities which do not own physical assets.

The ISO said that the changes are sought due to, "the changing power industry landscape where an increasing number of small load serving entities with little or no physical assets are participating in the New England Markets."

"Several of these thinly capitalized entities participating in the New England Markets have entered into bankruptcy proceedings in recent months," the ISO said.

Under ISO-NE rules, to meet the capitalization requirements, a customer or applicant must either (i) be rated and have a governing rating that is an Investment Grade Rating of BBB-/Baa3 or higher; (ii) maintain a minimum tangible net worth of one million dollars; or (iii) maintain a minimum of ten million dollars in total assets, provided that to meet this requirement, a customer or applicant may supplement total assets of less than ten million dollars with additional financial assurance in an amount equal to the difference between ten million dollars and the customer’s or applicant’s total assets.

Under current rules, market participants not meeting these requirements must post additional financial assurance according to a sliding scale formula, capped at 500,000.

Currently, for markets other than the FTR market, the minimum capitalization requirements do not apply to a customer or applicant with a total financial assurance requirement (excluding FTR financial assurance requirements) of lower than $100,000.

The ISO proposes to remove this exemption.

Additionally, the ISO would replace the current sliding scale formula to determine the additional financial assurance requirement

Instead, where a non-FTR market participant fails to meet the minimum capitalization requirements, the ISO proposes that the market participant will be required to provide an additional amount of financial assurance in an amount equal to 25% of the participant's total financial assurance requirement (excluding FTR financial assurance requirements) instead of the current sliding scale structure.

This additional amount of financial assurance will no longer be capped at $500,000.