On January 21, 2010, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) released a Notice of Proposed Rulemaking (“NOPR”) to allow for credit reforms in the organized wholesale electric markets.  Previously, most wholesale electric markets developed credit practices on a case-by-case basis, depending on individual needs.  Due to the current financial situation, some groups have become concerned that these varying credit practices would not be sufficient to protect the markets, and subsequently the consumers, from the high costs associated with credit risks and credit defaults.

In proposing these new credit practices, FERC seeks to balance the need for market liquidity against any corresponding risk.  FERC asks Regional Transmission Organizations (“RTOs”) and independent system operators (“ISOs”) to adopt the following reforms into their Open Access Transmission Tariffs:

  • Limit the settlement (i.e., billing) period to seven calendar days while making final payment due in no more than an additional seven calendar days in order to reduce default exposures.
  • Cap unsecured credit at $50 million per market participant in energy markets.
  • Eliminate unsecured credit in Financial Transmission Rights markets, due to their unique characteristics and inherent risks.
  • Clarify the status of each RTO and ISO as a party in each transaction in order to manage defaults and offset market obligations.
  • Establish minimum participation criteria to ensure participants have adequate risk management capabilities and adequate capital.  
  • Clarify when a market administrator may require additional collateral because of a “material adverse change.”
  • Limit the amount of time participants can “cure” their financial position by posting additional collateral.

Comments regarding the NOPR are due within sixty days of publication in the Federal Register.  The NOPR is available on FERC’s website at http://www.ferc.gov/whats-new/comm-meet/2010/012110/E-2.pdf.