[Federal Register Volume 69, Number 110 (Tuesday, June 8, 2004)]
[Notices]
[Pages 31990-31992]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-1269]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD04-8-000]


Electric Creditworthiness Standards; Notice of Technical 
Conference and Request for Written Comments on Credit-Related Issues 
for Electric Transmission Providers, Independent System Operators, and 
Regional Transmission Organizations

May 28, 2004.
    The Federal Energy Regulatory Commission (Commission) will hold a 
technical conference to consider, among other things, whether the 
Commission should institute a generic rulemaking to consider credit-
related issues for service provided by jurisdictional Transmission 
Providers,\1\ Independent System

[[Page 31991]]

Operators (ISO), and Regional Transmission Organizations (RTO). The 
conference will take place on July 13, 2004, at 9:30 a.m. (e.s.t.) in 
the Commission Meeting Room at the Commission's headquarters, 888 First 
Street, NE., Washington, DC. The conference will be conducted by the 
Commission's staff but may be attended by members of the Commission. In 
preparation for the technical conference, the Commission invites all 
interested parties to submit written comments, addressing the subjects 
and questions discussed below, on or before June 25, 2004.
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    \1\ For the purposes of this notice, a Transmission Provider is 
defined as an entity that provides electric transmission service 
that is neither an ISO nor an RTO.
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Background

    While credit policies of regulated utilities have always been a 
component of the Commission's regulatory agenda, changes in the 
industry (especially changes in the types of participants in the 
market) have caused credit-related issues to become increasingly 
significant. In particular, due to market conditions and price 
volatility experienced recently within the industry, many participants 
in competitive energy markets have been subject to downgrades (often 
below investment grade levels) by credit rating agencies. In fact, some 
of these market participants have been forced to seek bankruptcy 
protection from creditors. As a result, credit downgrades have raised 
the level of concern regarding credit-related risks to Transmission 
Providers and ISOs/RTOs.\2\ At the same time, certain market 
participants have alleged that Transmission Providers and ISOs/RTOs 
have sought excessive levels of credit support from customers and 
thereby have effectively foreclosed full market participation by 
competitive entities. In this regard, higher than necessary credit 
requirements may exacerbate the financial strain on market 
participants, reducing the amount of participation and liquidity in the 
market; lower liquidity, in turn, reduces choices for customers and 
reduces the transparency and competitiveness of the market.
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    \2\ Although the Commission recognizes that there is some 
overlap, credit concerns facing Transmission Providers and ISOs/RTOs 
differ in important ways. The Commission has noted that the 
differences between ISOs/RTOs and Transmission Providers warrants 
different approaches to creditworthiness requirements for these 
entities. See Duquesne Light Co., 103 FERC ] 61,227 P 17 (2003). 
Recognizing these unique differences and the disparate problems that 
these entities pose, in this notice, the Commission often treats 
separately credit concerns regarding Transmission Providers and 
ISOs/RTOs.
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    We note that the Commission issued recently the Gas Credit NOPR \3\ 
to standardize the creditworthiness provisions in the natural gas 
industry. In that NOPR, the Commission stated that standardized 
creditworthiness provisions in the gas industry will promote consistent 
practices across markets and utilities and provide customers with an 
objective and transparent creditworthiness evaluation.\4\
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    \3\ See Creditworthiness Standards for Interstate Natural Gas 
Pipelines, 69 FR 8587 (Feb. 25, 2004), FERC Stats, & Regs., Notice 
of Proposed Regulations ] 32,573 (2004) (Gas Credit NOPR).
    \4\ Id.
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    With respect to credit-related policy concerns for Transmission 
Providers in the electric industry, the Commission believes that there 
may be a lack of transparency in the creditworthiness requirements in 
the pro forma Open Access Transmission Tariff (OATT); \5\ that is, it 
does not provide specific credit standards and processes but instead 
only requires that Transmission Providers utilize ``reasonable credit 
review procedures'' and that such ``review shall be made in accordance 
with standard commercial practices.'' As a result, the Commission 
believes that the credit policies of Transmission Providers may contain 
differing or unclear credit requirements for customers. Therefore, we 
seek comment (as discussed further in the questions below) on whether 
the Commission should consider a similar course for the electric 
industry as the one it took in relation to the gas industry in the Gas 
Credit NOPR (i.e., implement standardized and comprehensive tariff-
based creditworthiness procedures).
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    \5\ Promoting Wholesale Competition Through Open Access Non-
discriminatory Transmission Services by Public Utilities and 
Recovery of Stranded Costs by Public Utilities and Transmitting 
Utilities, Order No. 888, 61 Fed. Reg. 21,540 (May 10, 1996), FERC 
Stats. & Regs. ] 31,036 (1996), order on reh'g, Order No. 888-A, 62 
Fed. Reg. 12,274 (March 14, 1997), FERC Stats. & Regs. ] 31,048 
(1997), order on reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), 
order on reh'g, Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in 
relevant part, remanded in part on other grounds sub nom. 
Transmission Access Policy Study Group, et al. v. FERC, 225 F.3d 667 
(D.C. Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 
(2002).
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    As for credit-related policy issues in the context of ISOs/RTOs, 
the Commission believes that there are ways to reduce credit/default 
exposure in those markets.\6\ We note that ISOs/RTOs are typically non-
profit entities that administer the market on behalf of market 
participants. As such, in ISO/RTO markets credit is collectively 
extended by market participants to each individual market participant. 
Therefore, if one market participant defaults, it falls upon the 
remaining participants to make up the shortfall (i.e., the default risk 
is mutualized). Although we recognize that some ISO/RTO markets use 
instruments such as insurance to reduce this risk, such instruments are 
expensive and the ultimate responsibility still lies with market 
participants. Accordingly, the Commission seeks comment on (as 
discussed further in the questions below) ways to reduce credit 
exposure and minimize mutualized default risk in ISO/RTO markets.
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    \6\ For example, the Commission recently approved a New England 
Power Pool (NEPOOL) filing that revises its existing financial 
assurance and billing policies to implement a weekly billing and 
payment system for charges in NEPOOL's hourly markets, which by 
significantly decreasing the billing and settlement period reduces 
the amount of collateral required from market participants and the 
exposure of NEPOOL to a default by market participants. See New 
England Power Pool, Docket No. ER04-697-000.
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    Although up to this point the Commission has treated various 
credit-related issues in this notice as only being applicable to either 
Transmission Providers or ISOs/RTOs, the Commission believes, as 
discussed further below, that there may be credit-related solutions 
that are potentially applicable to both Transmission Providers and 
ISOs/RTOs.
    To address the concerns discussed above, the Commission is holding 
a technical conference, and information gathered from that conference 
will be of material use to the Commission in understanding the range of 
issues regarding credit requirements in the electric industry. In 
addition, in order to assist the Commission in its preparation for that 
conference, the Commission invites all interested persons to submit 
written comments on any of the subjects discussed above, the specific 
questions posed below, or other issues related to credit requirements 
in the electric industry.

Questions for Comment

    The Commission seeks comments on the following questions:
    A. Questions Regarding Transmission Providers:
    1. Should credit requirements for wholesale electric transmission 
services be standardized?
    2. Do the existing OATTs and/or credit polices of Transmission 
Providers contain either unreasonable or unclear requirements for 
customers?
    3. Does the pro forma OATT provide sufficient transparency with 
regard to credit requirements? If not, what problems are caused from 
that lack of transparency? What changes to the pro forma OATT would be 
appropriate to consider as a remedy to better facilitate access to 
markets and therefore market participation?
    4. Should the Commission establish creditworthiness standards for 
the

[[Page 31992]]

electric industry similar to those that it proposed in the Gas Credit 
NOPR? What are the relevant differences between the gas and electric 
industries that need to be taken into account?
    5. For the purpose of credit standards, does it matter who the 
market participant is (e.g., are there different standards for 
financial institutions as opposed to municipal entities)?
    B. Questions Regarding ISOs/RTOs:
    6. Are credit requirements and costs related to creditworthiness 
negatively impacting market participation in ISO/RTO markets and 
liquidity levels?
    7. What cost-effective steps can be taken to minimize exposure to 
risk among market participants (e.g., shortening settlement periods, or 
evaluating credit on a net obligation basis)?
    8. Are there elements of existing market rules that can be improved 
to reduce unnecessary credit requirements?
    9. How can the mutualized default risk in ISOs/RTOs be reduced?
    10. How can barriers to entry, if there are any, be minimized, 
while preserving adequate collateral to protect markets?
    11. For the purpose of credit standards, does it matter who the 
market participant is (e.g., are there different credit standards for 
investor owned participants with physical assets, financial 
institutions, and municipal entities)?
    12. How should a load serving entity that is the provider of last 
resort be treated in the event of a default?
    13. Is there a need to allow for regional variations among RTOs/
ISOs with regard to credit policies? If so, what level of 
standardization may be achieved?
    C. Questions regarding credit-related solutions with potential 
applicability to Transmission Providers and/or ISO/RTO markets:
    14. Can clearing be applied to the electricity industry with 
respect to Transmission Providers and/or non-ISO/RTO markets, as it has 
been in other sectors (for instance, equity and fixed income clearing 
is performed by the Depository Trust Clearing Corporation for trading 
on the New York Stock Exchange, American Stock Exchange, and NASDAQ)? 
If so, what type of new or existing entity would provide the clearing 
services and does it need to be granted a franchise monopoly for any or 
all of its services?
    15. What options are available to either insure or otherwise 
outsource risks currently self-insured or mutualized by market 
participants (e.g., insurance, credit default swaps)?
    16. What are the benefits and costs of the preceding credit-related 
solutions (i.e., clearing and insurance) or other such solutions? Are 
they cost-effective? How would the benefits and costs of these 
solutions be allocated?

Public Comment Information

    As discussed, in preparation for the technical conference, the 
Commission invites interested persons to submit written comments on the 
matters and issues raised in this notice, including any related matters 
or alternative proposals that commenters may wish to discuss. All 
written comments should be submitted on or before June 25, 2004. We are 
hereby establishing a proceeding, Docket No. AD04-8-000, to provide an 
opportunity for all interested persons to submit comments, and all 
future actions with respect to the technical conference will also be 
taken under that docket.
    All comments should include an executive summary; the summary 
should not exceed two pages and the comments should not exceed 15 
pages. In addition, if answering a specific question in paragraph eight 
of this notice, please identify the number of that question. To 
conserve time and avoid unnecessary expense, persons with common 
interests or views are encouraged to submit joint comments. Comments 
related to this proceeding may be filed in paper format or 
electronically. However, the Commission strongly encourages electronic 
filings. Those filing electronically do not need to make a paper 
filing.
    Documents filed electronically via the Internet can be prepared in 
a variety of formats, including MS Word, Portable Document Format, Real 
Text Format, or ASCII format, as listed on the Commission's Web site at 
http://www.ferc.gov, under the e-Filing link. The e-Filing link 
provides instructions for how to Login and complete an electronic 
filing. First time users will have to establish a user name and 
password. The Commission will send an automatic acknowledgment to the 
sender's e-mail address upon receipt of comments.
    For paper filings, the original and 14 copies of such comments 
should be submitted to the Office of the Secretary, Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC 20426.
    All comments will be placed in the Commission's public files and 
will be available for inspection in the Commission's Public Reference 
Room at 888 First Street, NE., Washington, DC 20426, during regular 
business hours. In addition, all comments may be viewed, printed, or 
downloaded remotely via the Internet through FERC's home page using the 
eLibrary link.

Conference Information

    As noted, upon evaluation of the comments requested herein, the 
Commission will hold a technical conference open to all interested 
persons. The technical conference will be held on July 13, 2004 at 9:30 
a.m. (e.s.t.) in the Commission Meeting Room at the Federal Energy 
Regulatory Commission, 888 First Street, NE., Washington, DC.
    There is no charge to attend the conference and no requirement to 
register in advance for the conference. The conference will be 
transcribed. Those interested in acquiring the transcript should 
contact Ace Reporters at 202-347-3700 or 800-336-6646. Transcripts will 
be placed in the public record ten days after the Commission receives 
them.
    Capitol Connection offers the opportunity for remote listening and 
viewing of the conference. It is available for a fee, live over the 
Internet, by phone or via satellite. Persons interested in receiving 
the broadcast or who need information on making arrangements should 
contact David Reininger or Julia Morelli at Capitol Connection (703-
993-3100) as soon as possible or visit the Capitol Connection Web site 
at http://www.capitolconnection.org and click on ``FERC.''
    Interested parties are urged to watch for further notices providing 
more information on the conference. You may register online at http://www.ferc.gov/docs-filing/esubscription.asp to be notified via e-mail of 
new issuances and filings related to this docket. For additional 
information please contact Eugene Grace, 202-502-8543 or by e-mail at 
[email protected].

Magalie R. Salas,
Secretary.
 [FR Doc. E4-1269 Filed 6-7-04; 8:45 am]
BILLING CODE 6717-01-P