[Federal Register Volume 75, Number 17 (Wednesday, January 27, 2010)]
[Proposed Rules]
[Pages 4310-4316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-1537]


-----------------------------------------------------------------------

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM10-13-000]


Credit Reforms in Organized Wholesale Electric Markets

Issued January 21, 2010.
AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Energy Regulatory Commission (Commission) is 
proposing, pursuant to section 206 of the Federal Power Act, to amend 
its regulations to reform credit practices in organized wholesale 
electric markets to ensure that credit practices result in 
jurisdictional rates that are just and reasonable. The Commission seeks 
public comment on the proposed regulations.

DATES: Comments are due March 29, 2010.

ADDRESSES: You may submit comments identified in Docket No. RM10-13-
000, by one of the following methods:
    Agency Web Site: http://www.ferc.gov. Follow the instructions for 
submitting comments via the eFiling link found in the Comment 
Procedures section of the preamble.
    Mail: Commenters unable to file comments electronically must mail 
or hand deliver an original and 14 copies of their comments to the 
Federal Energy Regulatory Commission, Secretary of the Commission, 888 
First Street, NE., Washington, DC 20426. Please refer to the Comment 
Procedures section of the preamble for additional information on how to 
file paper comments.

FOR FURTHER INFORMATION CONTACT: Christina Hayes (Legal Information), 
Office of the General Counsel, Federal Energy Regulatory Commission, 
888 First Street, NE., Washington, DC 20426, (202) 502-6194.

Lawrence Greenfield (Legal Information), Office of the General Counsel, 
Federal Energy Regulatory Commission, 888 First Street, NE., 
Washington, DC 20426, (202) 502-6415.
Scott Miller (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street, 
NE., Washington, DC 20426, (202) 502-8456.

SUPPLEMENTARY INFORMATION:

[[Page 4311]]

I. Introduction

    1. Pursuant to section 206 of the Federal Power Act (FPA),\1\ the 
Commission is proposing to revise Part 35 of Title 18 of the Code of 
Federal Regulations (CFR) to reform credit practices in organized 
wholesale electric markets.\2\ While this matter has been one of 
ongoing Commission interest, the recent turmoil in financial markets 
has emphasized the importance of sound credit practices that provide 
competitive markets with adequate access to capital without excessive 
risk and without excessive cost. Credit policies are particularly 
important in the organized energy markets, in which regional 
transmission organizations (RTOs) and independent system operators 
(ISOs) must balance the need for market liquidity against corresponding 
risk. In order to ensure that credit policies result in jurisdictional 
rates that are just and reasonable, the Commission proposes to require 
RTOs and ISOs to adopt tariff revisions reflecting these proposed 
credit reforms. The Commission seeks public comment on these proposed 
reforms.
---------------------------------------------------------------------------

    \1\ 16 U.S.C. 824e. Accord 16 U.S.C. 824d (providing that rates 
must be just and reasonable).
    \2\ For purposes of this Notice of Proposed Rulemaking, 
organized wholesale electric markets include energy, transmission 
and ancillary service markets operated by independent system 
operators and regional transmission organizations. These entities 
are responsible for administering electric energy and financial 
transmission rights markets. As public utilities, they have on file 
as jurisdictional tariffs the rules governing such markets.
---------------------------------------------------------------------------

II. Background

    2. The Commission has long been interested in credit policies in 
wholesale electric markets. The Commission considered issues related to 
credit practices in 1996 in crafting the pro forma Open Access 
Transmission Tariff (OATT) in Order No. 888,\3\ where it directed that 
each transmission provider's tariff include reasonable creditworthiness 
provisions, and again in 2004 in a subsequent policy statement that 
provided additional guidance regarding creditworthiness.\4\ Since then, 
the individual organized wholesale electric markets have developed 
credit practices on a case-by-case basis, in response to individual 
concerns and issues and with varying levels of stakeholder support. 
More recently, some in the industry have expressed concern that these 
credit practices may no longer be adequate to protect the integrity of 
these markets and, in turn, to protect consumers from the high costs 
that would flow from excessive defaults and associated risks in the 
markets.
---------------------------------------------------------------------------

    \3\ Promoting Wholesale Competition Through Open Access Non-
Discriminatory Transmission Services by Public Utilities; Recovery 
of Stranded Costs by Public Utilities and Transmitting Utilities, 
Order No. 888, 61 FR 21540 (May 10, 1996), FERC Stats. & Regs. ] 
31,036, at 31,937 (1996) (pro forma OATT, section 11 
(Creditworthiness)), order on reh'g, Order No. 888-A, 62 FR 12,274 
(Mar. 14, 1997), FERC Stats. & Regs. ] 31,048, 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 sub nom. 
Transmission Access Policy Study Group v. FERC, 225 F.3d 667 (DC 
Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002).
    \4\ Policy Statement on Electric Creditworthiness, 109 FERC ] 
61,186 (2004) (Policy Statement).
---------------------------------------------------------------------------

    3. Credit practices and related risk management tools within 
organized wholesale electric markets have developed incrementally. 
Until the 1980s, electricity was generally produced and consumed within 
a single utility system, or bought from neighboring traditional utility 
suppliers. Because the risk of non-performance was deemed minimal, 
collateral requirements and other credit practices were not rigidly 
managed. Credit practices began to evolve with the development of 
independent generators and then with increased bulk trading between 
traditional utilities and independent generators and marketers in the 
1990s. Credit practices further progressed in this decade, as power 
trading with multiple counterparties became a recognized multi-billion 
dollar industry.
    4. Today, parties operating outside the organized wholesale 
electricity markets typically use bilateral contracts such as the 
Western Systems Power Pool (WSPP) standard contract and the Edison 
Electric Institute (EEI) standard contract to sell power, managing 
credit risk within the terms of those agreements. However, the majority 
of transactions based on quantity and volume is in the organized 
wholesale electric markets.\5\ Individual RTOs and ISOs developed their 
own individual processes for assessing risk, extending unsecured 
credit, and settling accounts.
---------------------------------------------------------------------------

    \5\ FERC Staff, 2008 State of the Markets Report, 51 (Sept. 
2009).
---------------------------------------------------------------------------

    5. To a large degree, early credit policies in the organized 
wholesale electric markets were based on the practices of their 
transmission owning members. In Order No. 888, the Commission required 
each transmission provider to have ``reasonable credit review 
procedures * * * in accordance with standard commercial practices,'' 
\6\ but otherwise allowed the transmission provider to develop its own 
individual credit practices.\7\ As the organized markets were being 
formed, they tended to use practices based on those of their 
transmission-owning members.
---------------------------------------------------------------------------

    \6\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,937.
    \7\ While the OATT applies to transmission providers, since 1996 
a number of transmission providers have developed RTOs and ISOs.
---------------------------------------------------------------------------

    6. Over time, the credit policies in each RTO and ISO have evolved 
and, in November 2004, the Commission issued its Policy Statement on 
Electric Creditworthiness to encourage consideration of specific 
reforms.\8\ In particular, the Commission recommended that transmission 
providers establish qualitative and quantitative measures to assess 
credit risk and post those measures on their Open Access Same-Time 
Information System (OASIS) Web sites or in their tariffs. Further, the 
Commission recommended that organized wholesale electric markets seek 
to minimize the risk of default by shortening the settlement period, 
netting obligations owed by and to market participants wherever 
possible, and adopting other measures.
---------------------------------------------------------------------------

    \8\ See supra note 4.
---------------------------------------------------------------------------

    7. Subsequent to the Policy Statement, various proposals to amend 
credit policies have been filed by RTOs and ISOs and accepted by the 
Commission. PJM Interconnection, LLC (PJM), for example, has made 
several filings revising its tariff to modify its credit practices. The 
Commission recently accepted PJM's proposal to revise its tariff to 
reduce its settlement cycle from 30 days to seven days, reduce the 
amount of unsecured credit allowed to $50 million for a member company 
and $150 million for an affiliated group, and eliminate unsecured 
credit in the financial transmission rights market.\9\ Earlier, the 
Commission accepted a shortened period to cure defaults and other 
tariff revisions intended to improve credit practices.\10\
---------------------------------------------------------------------------

    \9\ PJM Interconnection, LLC, 127 FERC ] 61,017, at P 4 (2009).
    \10\ PJM Interconnection, LLC, 126 FERC ] 61,084 (2009).
---------------------------------------------------------------------------

    8. Likewise, the Commission has accepted recent tariff revisions 
filed by California Independent System Operator Corporation (CAISO), 
reducing the level of unsecured credit that may be obtained by a market 
participant from $250 million to $150 million,\11\ and eventually to 
$50 million.\12\ The Commission has also accepted CAISO's proposal to 
shorten its ``settlement and

[[Page 4312]]

payment period'' from more than 80 days to approximately 25 days.\13\
---------------------------------------------------------------------------

    \11\ California Independent System Operator Corp., 126 FERC ] 
61,285 (2009).
    \12\ California Independent System Operator Corp., 129 FERC ] 
61,142 (2009).
    \13\ California Independent System Operator Corp., 128 FERC ] 
61,265, at P 4 (2009).
---------------------------------------------------------------------------

    9. Notwithstanding the progress that has been made in some of the 
organized wholesale electric markets in reforming credit practices, the 
Commission is concerned that more needs to be done to ensure that rates 
for service in those markets are just and reasonable. Past experience 
in the markets has highlighted aspects of the credit management tools 
that require modification,\14\ as was emphasized at a technical 
conference on credit and capital issues held by the Commission in 
January 2009.\15\ Concerns of default, especially large defaults that 
have not been minimized by market safeguards, are troubling in the 
organized wholesale electric markets, in which losses due to default 
are borne among all market participants.\16\ As part of our continuing 
oversight and assessment of these markets, the Commission is acting 
today to ensure that the credit policies in place in those markets are 
sufficient to reasonably protect consumers against the adverse effects 
of default.
---------------------------------------------------------------------------

    \14\ See New England Power Pool, 97 FERC ] 61,387 (2001) 
(accepting alternative payment and financial assurance arrangements 
filed by NEPOOL in response to defaults associated with the 
bankruptcy of Enron).
    \15\ Testimony in Technical Conference on Credit and Capital 
Issues, Docket No. AD09-2-000, Tr. 91:23-25 (Mr. Robert Ludlow, Vice 
President and Chief Financial Officer, ISO-NE) (Jan. 13, 2009); 
Testimony in Technical Conference on Credit and Capital Issues, 
Docket No. AD09-2-000, Tr. 101:3-5 (Mr. Philip Leiber, Chief 
Financial Officer and Treasurer, CAISO) (Jan. 13, 2009).
    \16\ Policy Statement, 109 FERC ] 61,186 at P 17 (``If 
collateral posted by a defaulting party is not sufficient to cover 
the amount of its default, the remaining credit risk exposure and 
costs are socialized across an ISO's/RTO's members.'').
---------------------------------------------------------------------------

III. Discussion

    10. Given a decade or more of experience and evolution by the 
markets with credit practices, the Commission believes that it is 
appropriate to now consider adoption of specific requirements regarding 
credit practices for organized wholesale electric markets, to be set 
forth in the Commission's regulations. To promote confidence in the 
markets, the Commission proposes reforming credit practices of the 
organized wholesale electric markets to limit potential future market 
disruptions and to dampen the possible ripple effect of such 
disruptions. These reforms include shortening settlement periods and 
reducing the amount of unsecured credit, as described below. The 
Commission believes that these reforms, if adopted, will enhance 
certainty and stability in the markets and, in turn, ensure that costs 
associated with market participant defaults do not result in unjust or 
unreasonable rates.
    11. The Commission also notes that some market participants may 
pose different credit risks than others. For instance, Mr. Robert Levin 
stated that, in his experience, ``[in] discussing it with a number of 
the ISOs and RTOs, and it was certainly brought to our attention, that 
[municipalities] are pretty good credit risks.'' \17\ Thus, the 
Commission requests comment on whether the credit practices discussed 
below should be applied in the same way to all market participants or 
whether they should be applied differently to certain market 
participants depending on their characteristics.
---------------------------------------------------------------------------

    \17\ Testimony in Technical Conference on Credit and Capital 
Issues, Docket No. AD09-2-000, Tr. 133:12-14 (Mr. Robert Levin, 
Managing Director, Energy Research, Chicago Mercantile Exchange) 
(Jan. 13, 2009).
---------------------------------------------------------------------------

    12. While the Commission proposes that the tariff changes be 
submitted no later than June 30, 2011, to go into effect no later than 
60 days after filing, the Commission also requests comment on whether 
the changes proposed should be put in place earlier. In proposing this 
deadline, the Commission seeks to balance the needs of the organized 
wholesale electric markets to modify their practices to comply with the 
proposed reforms against the benefits to the markets and consumers of 
having the reforms in place before the winter peak season in 2011-2012. 
In addition, the Commission specifically requests the views of the 
ISO's and RTO's managements, as the entities responsible for 
administering these markets, on each of the proposals set forth 
below.\18\
---------------------------------------------------------------------------

    \18\ The views of management may be expressed through the ISO-
RTO Council (IRC).
---------------------------------------------------------------------------

A. Shortening the Settlement Cycle

    13. The length of the settlement (i.e., billing) period raises both 
cash management and risk issues. As discussed in our Policy Statement, 
the size of credit risk exposure is, in large part, a function of the 
length of time between completion of the various parts of electricity 
transactions, i.e., the provision of service, the billing for service, 
and the payment for service. Since the risk of default begins at the 
time the product or service is committed for delivery and continues 
until the account payable is ultimately extinguished, reductions in 
settlement periods would serve to: (1) lower the level of financial 
assurances required (i.e., collateral requirement provided by 
individual participants); (2) reduce the quantity of the aggregate 
level of payables outstanding at any point in time, thereby reducing 
the potential exposure of a defaulting entity; (3) enable updated 
transaction prices and charges to be utilized in a timely manner in 
determining credit risk exposure; and (4) provide earlier 
identification of default situations by lessening the opportunity for 
an unrecognized default and its severity. Accordingly, the Commission 
believes that ISOs/RTOs can minimize the exposure period and 
significantly reduce the credit risk to all market participants by 
reducing the time between when a cost is incurred and when payment is 
ultimately received by an ISO/RTO (i.e., shortening the settlement 
period).\19\
---------------------------------------------------------------------------

    \19\ Policy Statement, 109 FERC ] 61,186 at P 21.
---------------------------------------------------------------------------

    14. PJM has since commissioned a study that concluded, among other 
things, that shorter settlement periods would reduce default exposures. 
Based on this analysis, PJM estimated when it filed for weekly billing 
that the total credit risk exposure would be reduced by $2.1 billion 
(68 percent) and the necessary financial security provided by members 
would be reduced by $700 million (73 percent).\20\
---------------------------------------------------------------------------

    \20\ PJM Credit & Clearing Analysis Project: Findings & 
Recommendations (June 2008) (found on Dec. 31, 2009 at: http://
www.pjm.com/~/media/committees-groups/committees/mc/20080626-item-
03d-crmsc-market-reform-credit-recommendations.ashx).
---------------------------------------------------------------------------

    15. The Commission proposes to revise its regulations to require 
that each RTO and ISO include in the credit provisions of its tariff 
revisions to implement a settlement cycle of no more than seven 
calendar days with no more than an additional seven calendar days for 
final payment. The Commission recognizes that software system 
adjustments may be necessary and is also aware that similar system 
changes have resulted in significant delays of other market 
changes.\21\ The Commission further requests comment on the 
practicality of organized wholesale electric markets implementing daily 
settlement periods within one year of implementation of weekly 
settlement periods.
---------------------------------------------------------------------------

    \21\ To the extent possible, the Commission encourages use of 
software already used in markets that are currently operating on a 
seven-day settlement timeframe. For example, PJM and ISO-NE already 
use a seven day settlement timeframe. PJM Interconnection, LLC, 127 
FERC ] 61,017 at P 4; New England Power Pool, 107 FERC ] 61,201, at 
P 10-12 (2004).
---------------------------------------------------------------------------

    16. We recognize that net wholesale buyers in organized wholesale 
electric markets may incur cash management costs by paying within the 
shortened timeframe, given that they receive

[[Page 4313]]

revenues from their own retail buyers on a 30-day basis.\22\ To 
reconcile the discrepancy in cash flow, a market participant may need 
to arrange cash management facilities to manage the more frequent 
payments. The Commission invites comments on this proposal, and whether 
it would involve a one-time cost to establish such a facility or 
ongoing costs that could significantly affect liquidity and rates.
---------------------------------------------------------------------------

    \22\ See Testimony in Technical Conference on Credit and Capital 
Issues, Docket No. AD09-2-000, Tr. 146:3-9 (Mr. Daniel Sarti, Credit 
Risk Manager, Arizona Public Service Company) (Jan. 13, 2009).
---------------------------------------------------------------------------

B. Use of Unsecured Credit

    17. As suggested above, as the timeframe of settlement shrinks, so 
does the amount of unsecured credit that a participant may need. This 
is because the number of outstanding transactions and the size of the 
amounts outstanding become smaller, thus minimizing the credit exposure 
to any market participant.\23\
---------------------------------------------------------------------------

    \23\ See California Independent System Operator Corp., 129 FERC 
] 61,142 at P 14 (adopting limit of $50 million of unsecured credit 
per market participant); PJM Interconnection, LLC, 127 FERC ] 61,017 
at P 5 (adopting limit of $50 million for a member company and $150 
million for an affiliated group).
---------------------------------------------------------------------------

    18. While RTOs and ISOs have tightened risk and credit standards 
over the years, the vestiges of the practices historically used for 
unsecured credit are still substantial in some markets. Following those 
practices, RTOs and ISOs, after credit analysis, generally allow 
significant amounts of unsecured credit. The Commission understands 
that the level of unsecured credit allowed has also varied widely among 
the organized wholesale electric markets (during the financial crisis 
in fall 2008, ranging from 50 to 80 percent).
    19. The Commission proposes to revise its regulations to require 
that each RTO and ISO include in the credit provisions of its tariff 
revisions to reduce the extension of unsecured credit to no more than 
$50 million per market participant. The Commission seeks comment on 
whether there should be a further aggregate cap to cover an entire 
corporate family (e.g., holding company, subsidiaries, associates, and 
affiliates) and also whether the cap should be different for markets of 
different sizes. Reducing the level of unsecured credit combined with 
shortening the settlement timeframe should reduce the risk of default 
and consequently reduce the cost of default that is shared among market 
participants.
    20. The Commission further requests comment on the practicality of 
eliminating unsecured credit in connection with adopting daily 
settlement within one year of implementation of weekly settlement 
periods.

C. Financial Transmission Rights Markets

    21. The above-proposed reforms are not directly applicable to 
markets for financial transmission rights, because financial 
transmission rights have a longer-dated obligation to perform which can 
run from a month to a year or more. The Commission has also noted that 
financial transmission rights markets have unique risks that 
distinguish them from other wholesale electric markets, and that the 
value of a financial transmission right depends on unforeseeable 
events, including unplanned outages and unanticipated weather 
conditions.\24\ Moreover, financial transmission rights are relatively 
illiquid, adding to the inherent risk in their valuation.\25\
---------------------------------------------------------------------------

    \24\ For a financial transmission right, an unexpected outage 
can cause unforeseen congestion or movement in flows and the 
resulting charges or credits can swing very substantially either 
way.
    \25\ PJM Interconnection, LLC, 127 FERC ] 61,017 at P 36.
---------------------------------------------------------------------------

    22. For example, PJM suffered a significant default in December 
2007 in its financial transmission rights market \26\ and moved to 
eliminate the use of unsecured credit in that market due to its 
risk.\27\ That default illustrates the unique risk of financial 
transmission rights. Given a change in market conditions, a set of 
financial transmission rights positions became highly unprofitable. 
Because financial transmission rights obligations cannot be terminated 
prior to the expiration of the contract, from one month to several 
years, losses can mount to the point that the financial transmission 
right holder goes bankrupt.
---------------------------------------------------------------------------

    \26\ PJM Interconnection, LLC, 122 FERC ] 61,279, at P 26 n.10 
(2008) (citing defaults by Exel and Power Edge in PJM's financial 
transmission rights market).
    \27\ PJM Interconnection, LLC, 127 FERC ] 61,017 at P 8, 36.
---------------------------------------------------------------------------

    23. Given the unique characteristics of and risks inherent in 
financial transmission rights markets, the Commission therefore 
proposes to revise its regulations to require that each RTO and ISO 
include in the credit provisions of its tariff provisions that 
eliminate unsecured credit in financial transmission rights markets.

D. Ability To Offset Market Obligations

    24. Organized wholesale electric markets typically arrange for 
settlement and netting of transactions entered into between market 
participants and the market administrator, but do not take title to the 
underlying contract position of a participant at the time of 
settlement. This practice became an issue during the Mirant bankruptcy 
and its resulting default in the CAISO market. Because CAISO had not 
``taken title'' of the transactions, CAISO could not net payments owed 
to Mirant against payments owed by Mirant.\28\ As a result, all of 
Mirant's creditors had a claim to revenues owed to Mirant by CAISO 
market participants, but CAISO market participants bore the loss for 
money owed and not paid by Mirant.
---------------------------------------------------------------------------

    \28\ Memorandum by Wachtell, Lipton, Rosen & Katz to PJM 
regarding Setoffs and Credit Risk of PJM in Member Bankruptcies at 
7, 10-11 (Mar. 17, 2008) (found on Dec. 31, 2009 at http://
www.pjm.com/~/media/committees-groups/committees/crmsc/20080423/
20080423-wachtell-netting-memo.ashx).
---------------------------------------------------------------------------

    25. The Commission therefore proposes to revise its regulations to 
require that each RTO and ISO include in the credit provisions of its 
tariff revisions to clarify their status as a party to each transaction 
so as to eliminate any ambiguity or question as to their ability to 
manage defaults and to offset market obligations. The Commission seeks 
comment on whether this clarification of status would have 
ramifications beyond addressing the risk highlighted here.

E. Minimum Criteria for Market Participation

    26. The Commission recognizes that trading helps provide market 
liquidity, but trading by undercapitalized entities without adequate 
risk management procedures in place poses an unwarranted risk to 
organized wholesale electric markets and to their market participants. 
Minimum criteria for market participation, such as the capability to 
engage in risk management or hedging or to out-source this capability 
with periodic compliance verification, are intended to make sure that 
each market participant has at its disposal adequate risk management 
capabilities and adequate capital to engage in trading with minimal 
risk, and related costs, to the market as a whole. Minimum criteria 
should not be onerous, however, and should allow most traditional 
market participants--including small load-serving entities, 
municipalities, cooperatives, and other similar participants in 
organized wholesale electric markets--to participate.
    27. The Commission therefore proposes to revise its regulations to 
require that each RTO and ISO include in the credit provisions of its 
tariff language to specify minimum participation criteria for all 
market

[[Page 4314]]

participants. The Commission requests comment on what the minimum 
criteria should be, as well as the process by which the organized 
wholesale electric markets adopt such criteria.

F. ``Material Adverse Change''

    28. Many wholesale market tariffs allow a market administrator to 
require additional collateral if there is a ``material adverse change'' 
in the market participant's credit status. However, this phrase is 
ambiguous and could lead to uncertainty as to when a market 
administrator can require the posting of additional collateral, at 
potentially great cost to the market participant. Additionally, this 
ambiguity may have the practical effect of delaying a market 
administrator's request for additional collateral until the last 
minute, by which time the market participant may find it difficult or 
impossible to obtain and provide such collateral. The mere request for 
collateral at such a late date could even lead to reactions from other 
market participants that result in defaults.
    29. The Commission therefore proposes to revise its regulations to 
require that each RTO and ISO include in the credit provisions of its 
tariff language to specify under what circumstances a market 
administrator may invoke a ``material adverse change'' as a 
justification for requiring additional collateral. The Commission 
requests comment as to specific language regarding the circumstances 
under which a market administrator may invoke the ``material adverse 
change'' provision and the process by which the organized wholesale 
electric markets would adopt such language.

G. Grace Period to ``Cure'' Collateral Posting

    30. RTOs and ISOs have also adopted timeframes in which a party may 
``cure'' its changed credit position by posting additional collateral. 
The standardized timeframe helps eliminate uncertainty for other market 
participants during periods of credit stress. PJM, for example, has 
adopted a period of two business days to cure.\29\ The Commission 
understands that demanding additional collateral from a participant can 
complicate that participant's financial position and that the 
participant may need time to ``cure,'' including consulting with 
potential lenders and others. On the other hand, the Commission is also 
aware that the time period to ``cure'' the position of the participant 
must be short enough to minimize uncertainty for other market 
participants and to stem accumulation of debt and potentially erratic 
market behavior.
---------------------------------------------------------------------------

    \29\ PJM Interconnection, LLC, 126 FERC ] 61,084 at P 12.
---------------------------------------------------------------------------

    31. For these reasons, the Commission proposes to revise its 
regulations to require that each RTO and ISO include in the credit 
provisions of its tariff language to limit the time period allowed to 
post additional collateral when additional collateral is requested by 
the organized wholesale electric market. The Commission requests 
comment on the appropriate time period to post additional collateral, 
e.g., two business days, as PJM has adopted, and whether the time 
period should be standardized among organized wholesale electric 
markets.

IV. Environmental Analysis

    32. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\30\ The 
Commission has categorically excluded certain actions from this 
requirement as not having a significant effect on the human 
environment.\31\ The proposed regulations are categorically excluded as 
they address rate filings submitted under section 206 of the FPA and 
the establishment of just and reasonable rates, terms and conditions of 
jurisdictional service under this section of the FPA.\32\ Accordingly, 
no environmental assessment is necessary and none has been prepared for 
this NOPR.
---------------------------------------------------------------------------

    \30\ Regulations Implementing the National Environmental Policy 
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & 
Regs., Regulations Preambles 1986-1990, ] 30,783 (1987).
    \31\ 18 CFR 380.4.
    \32\ See 18 CFR 380.4(a)(15).
---------------------------------------------------------------------------

V. Information Collection Statement

    33. The Office of Management and Budget's (OMB) regulations require 
approval of certain information collection requirements imposed by 
agency rules. Upon approval of a collection(s) of information, OMB will 
assign an OMB control number and an expiration date. Respondents 
subject to the filing requirements of a rule will not be penalized for 
failing to respond to these collections of information unless the 
collections of information display a valid OMB control number.
    34. This NOPR proposes to amend the Commission's regulations 
pursuant to section 206 of the Federal Power Act, to reform credit 
practices of organized wholesale electric markets to limit potential 
future market disruptions. To accomplish this, the Commission proposes 
to require RTOs and ISOs to adopt tariff revisions reflecting these 
credit reforms. Such filings would be made under Part 35 of the 
Commission's regulations. The information provided for under Part 35 is 
identified as FERC-516.
    35. The Commission is submitting these reporting requirements to 
OMB for its review and approval under section 3507(d) of the Paperwork 
Reduction Act. Comments are solicited on the Commission's need for this 
information, whether the information will have practical utility, the 
accuracy of provided burden estimates, ways to enhance the quality, 
utility, and clarity of the information to be collected, and any 
suggested methods for minimizing the respondent's burden, including the 
use of automated information techniques.
    Burden Estimate: The Public Reporting burden for the requirements 
contained in the NOPR is as follows:

----------------------------------------------------------------------------------------------------------------
                                                     Number of        No. of         Hours per     Total annual
                 Data collection                    respondents      responses       response          hours
----------------------------------------------------------------------------------------------------------------
FERC-516:
    Transmission Organizations with Organized                  6               1              60             360
     Electricity Markets........................
----------------------------------------------------------------------------------------------------------------

    Information Collection Costs: The Commission seeks comments on the 
costs to comply with these requirements. The Commission has projected 
the average annualized cost of all respondents to be the following: 360 
hours @ $300 per hour = $108,000 for respondents. No capital costs are 
estimated to be incurred by respondents.
    Title: FERC-516 ``Electric Rate Schedule Tariff Filings''
    Action: Proposed Collections
    OMB Control No: 1902-0096

[[Page 4315]]

    Respondents: Business or other for profit, and/or not for profit 
institutions.
    Frequency of Responses: One time to initially comply with the rule, 
and then on occasion as needed to revise or modify.
    36. Necessity of the Information: The information from FERC-516 
enables the Commission to exercise its wholesale electric power and 
transmission oversight responsibilities in accordance with the Federal 
Power Act. The Commission needs sufficient detail to make an informed 
and reasonable decision concerning the appropriate level of rates, and 
the appropriateness of non-rate terms and conditions, and to aid 
customers and other parties who may wish to challenge the rates, terms, 
and conditions proposed by the utility.
    37. This proposed rule, if adopted, would amend the Commission's 
regulations to ensure that credit practices currently in place in 
markets reasonably protect consumers against the adverse effects of 
default. To promote confidence in the markets, the Commission believes 
it is appropriate to consider adoption of specific requirements 
regarding credit practices for organized wholesale electric markets. 
These requirements include shortening of settlement periods and 
reducing the amount of unsecured credit. The Commission believes these 
actions, if they are adopted, will enhance certainty and stability in 
the markets, and in turn, ensure that costs associated with market 
participant defaults do not result in unjust or unreasonable rates.
    38. Internal review: The Commission has reviewed the requirements 
pertaining to organized wholesale electric markets and determined the 
proposed requirements are necessary to its responsibilities under 
section 206 of the Federal Power Act.
    39. These requirements conform to the Commission's plan for 
efficient information collection, communication and management within 
the energy industry. The Commission has assured itself, by means of 
internal review, that there is specific, objective support for the 
burden estimates associated with the information requirements.
    40. Interested persons may obtain information on the reporting 
requirements by contacting: Federal Energy Regulatory Commission, 888 
First Street, NE., Washington, DC 20426 [Attention: Michael Miller, 
Office of the Executive Director, Phone: (202) 502-8415, fax: (202) 
273-0873, e-mail: [email protected]]. Comments on the 
requirements of the proposed rule may also be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Washington, DC 20503 [Attention: Desk Officer for the Federal Energy 
Regulatory Commission], e-mail: [email protected].

VI. Regulatory Flexibility Act Certification

    41. The Regulatory Flexibility Act of 1980 (RFA) \33\ requires 
agencies to prepare certain statements, descriptions, and analyses of 
proposed rules that will have significant economic impact on a 
substantial number of small entities.\34\ Agencies are not required to 
make such an analysis if a rule would not have such an effect.
---------------------------------------------------------------------------

    \33\ 5 U.S.C. 601-12.
    \34\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. 15 
U.S.C. 632. The Small Business Size Standards component of the North 
American Industry Classification System defines a small electric 
utility as one that, including its affiliates, is primarily engaged 
in the generation, transmission, and/or distribution of electric 
energy for sale and whose total electric output for the preceding 
fiscal year did not exceed 4 million MWh. 13 CFR 121.201.
---------------------------------------------------------------------------

    42. The RTOs and ISOs regulated by the Commission do not fall 
within the RFA's definition of small entity.\35\ In addition, the vast 
majority of market participants in RTOs and ISOs are, either alone or 
as part of larger corporate families, not small entities. And the 
protections proposed here will protect all market participants, 
including small market participants, by reducing the likelihood of 
defaults and minimizing the impact of any defaults.
---------------------------------------------------------------------------

    \35\ 5 U.S.C. 601(3), citing to section 3 of the Small Business 
Act, 15 U.S.C. 632. Section 3 of the Small Business Act defines a 
``small-business concern'' as a business which is independently 
owned and operated and which is not dominant in its field of 
operation.
---------------------------------------------------------------------------

    43. California Independent Service Operator Corp. is a nonprofit 
organization comprised of more than 90 electric transmission companies 
and generators operating in its markets and serving more than 30 
million customers.
    44. New York Independent System Operator, Inc. (NYISO) is a 
nonprofit organization that oversees wholesale electricity markets 
serving 19.2 million customers. NYISO manages a 10,775-mile network of 
high-voltage lines.
    45. PJM Interconnection, LLC is comprised of more than 450 members 
including power generators, transmission owners, electricity 
distributors, power marketers and large industrial customers and 
serving 13 states and the District of Columbia.
    46. Southwest Power Pool, Inc. is comprised of 50 members serving 
4.5 million customers in eight states and has 52,301 miles of 
transmission lines.
    47. Midwest Independent Transmission System Operator, Inc. (Midwest 
ISO) is a non-profit organization with over 131,000 megawatts of 
installed generation. Midwest ISO has 93,600 miles of transmission 
lines and serves 15 states and one Canadian province.
    48. ISO New England Inc. (ISO-NE) is a regional transmission 
organization serving six states in New England. The system is comprised 
of more than 8,000 miles of high voltage transmission lines and several 
hundred generating facilities of which more than 350 are under ISO-NE's 
direct control.
    49. Therefore, the Commission certifies the proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. As a result, no regulatory flexibility analysis is required.

VII. Comment Procedures

    50. The Commission invites interested persons to submit comments on 
the matters and issues proposed in this notice, including any related 
matters or alternative proposals that commenters may wish to discuss. 
Comments are due March 29, 2010. Comments must refer to Docket No. 
RM10-13-000, and must include the commenter's name, the organization 
they represent, if applicable, and their address in their comments. 
Comments may be filed either in electronic or paper format.
    51. Comments may be filed electronically via the eFiling link on 
the Commission's web site at http://www.ferc.gov. The Commission 
accepts most standard word processing formats, but requests commenters 
to submit comments in a text-searchable format rather than a scanned 
image format. Commenters filing electronically do not need to make a 
paper filing. Commenters that are not able to file comments 
electronically must send an original and 14 copies of their comments 
to: Federal Energy Regulatory Commission, Secretary of the Commission, 
888 First Street, NE., Washington, DC, 20426.
    52. All comments will be placed in the Commission's public files 
and may be viewed, printed, or downloaded remotely as described in the 
Document Availability section below. Commenters on this proposal are 
not required to serve copies of their comments on other commenters.

VIII. Document Availability

    53. In addition to publishing the full text of this document in the 
Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this

[[Page 4316]]

document via the Internet through the Commission's Home Page (http://www.ferc.gov) and in the Commission's Public Reference Room during 
normal business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 
First Street, NE., Room 2A, Washington DC 20426.
    54. From the Commission's Home Page on the Internet, this 
information is available in the Commission's document management 
system, eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number (excluding the last three digits of the docket number), in the 
docket number field.
    55. User assistance is available for eLibrary and the Commission's 
Web site during normal business hours. For assistance, please contact 
FERC Online Support at (202) 502-6652 (toll-free at 1-866-208-3676) or 
e-mail at [email protected], or the Public Reference Room at 
(202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 
[email protected].

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

    By direction of the Commission. Commissioner Norris voting 
present.
Kimberly D. Bose,
Secretary.
    In consideration of the foregoing, the Commission proposes to amend 
part 35, Chapter J, Title 18, Code of Federal Regulations, as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS.

    1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.

    2. Subpart J is added to read as follows:
Subpart J--Credit Practices In Organized Wholesale Electric Markets
Sec.
35.45 Applicability.
35.46 Definitions.
35.47 Tariff provisions governing credit practices in organized 
wholesale electric markets.

Subpart J--Credit Practices In Organized Wholesale Electric Markets


Sec.  35.45  Applicability.

    This part establishes credit practices for organized wholesale 
electric markets for the purpose of minimizing risk to market 
participants.


Sec.  35.46  Definitions.

    (a) Market Participant means an entity that qualifies as a Market 
Participant under 18 CFR 35.34.
    (b) Organized Wholesale Electric Market includes an independent 
system operator and a regional transmission organization.
    (c) Regional Transmission Organization means an entity that 
qualifies as a Regional Transmission Organization under 18 CFR 35.34.
    (d) Independent System Operator means an entity operating a 
transmission system and found by the Commission to be an Independent 
System Operator.


Sec.  35.47  Tariff provisions regarding credit practices in organized 
wholesale electric markets.

    Each organized wholesale electric market must have tariff 
provisions that:
    (a) Limit the amount of unsecured credit extended to any market 
participant to no more than $50 million.
    (b) Adopt a settlement period of no more than seven days and allow 
no more than an additional seven days to receive payment.
    (c) Eliminate unsecured credit in the financial transmission rights 
market.
    (d) Allow it to offset market obligations owed to market 
participants against market obligations owed by market participants.
    (e) Limit to no more than two days the time period provided to post 
additional collateral when additional collateral is requested by the 
organized wholesale electric market.
    (f) Provide minimum participation criteria required of market 
participants to be eligible to receive credit from the organized 
wholesale electric market.
    (g) Specify when a market administrator may invoke the ``material 
adverse change'' as a justification for requiring additional 
collateral.

[FR Doc. 2010-1537 Filed 1-26-10; 8:45 am]
BILLING CODE 6717-01-P