Credit risk

FERC tackles credit risk metrics with NOPR, show cause order

File numbers RM22-13-000, EL22-62-000
Articles E-1 and E-2 | Presentation

FERC today took steps to improve credit risk management in organized wholesale electricity markets. The Commission’s Notice of Proposed Rulemaking (NOPR) would allow electricity market operators to share credit information with each other so that they can more accurately assess the credit risks of market participants.

Today’s proposal explains that requiring market operators to adopt pricing provisions allowing the sharing of credit information between market operators could improve the accuracy of credit exposure and risk assessments. risks in several electricity markets. It could also allow market operators to react more quickly and efficiently to credit events, thereby minimizing the overall risks of unexpected defaults by market participants. The tariffs of market operators currently contain confidentiality clauses which may hinder this sharing of information.

In addition, FERC today issued a show cause order finding that the existing open access transmission tariffs of the California Independent System Operator Corporation, ISO New England Inc., New York Independent System Operator, Inc. and Southwest Power Pool Inc. appear to be unfair and unreasonable because they lack certain credit risk management practices. More specifically, these tariffs do not contain practices aimed at ensuring that participants in the financial transmission rights markets administered by these market operators maintain sufficient guarantees to reduce the risk of default and the potential pooling of the costs of any default that does not occur. is not backed by adequate guarantees.

Both the NOPR and the Show Cause Order emerged from the February 25-26, 2021 FERC Staff Technical Conference on Principles and Best Practices for Managing Credit Risk in Organized Wholesale Electricity Markets. Comments on the NOPR are due 60 days after publication in the Federal Register. Responses from market operators to the show cause order are expected 90 days from today.