130 FERC ¶ 61,055 

UNITED STATES OF AMERICA 

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. 

COMMENT DATE: Comments are due [insert date that is 60 days after publication in 

the FEDERAL REGISTER]. 

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. 
Docket No. RM10-13-000 - 2 - 

 

 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, N.E., 

Washington, D.C. 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, N.E. 

Washington, D.C. 20426 

(202) 502-6194

Lawrence Greenfield (Legal Information) 

Office of the General Counsel 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-6415

Scott Miller (Technical Information) 

Office of Energy Policy and Innovation 

Federal Energy Regulatory Commission 

888 First Street, N.E. 

Washington, D.C. 20426 

(202) 502-8456

SUPPLEMENTARY INFORMATION: 
130 FERC ¶ 61,055 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Credit Reforms in Organized Docket No. RM10-13-000 

Wholesale Electric Markets 

NOTICE OF PROPOSED RULEMAKING 

(Issued January 21, 2010) 

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 

 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. 
Docket No. RM10-13-000 - 2 -

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. 

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 

 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 (D.C. Cir. 2000), aff’d sub nom. New 

York v. FERC, 535 U.S. 1 (2002). 
Docket No. RM10-13-000 - 3 -

 

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. 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 Policy Statement on Electric Creditworthiness, 109 FERC ¶ 61,186 (2004) 

(Policy Statement). 
Docket No. RM10-13-000 - 4 -

 

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. 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. 

5

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

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. 
Docket No. RM10-13-000 - 5 -

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) websites 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. 

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 

 8 See supra note 4. 
Docket No. RM10-13-000 - 6 -

 

market.9

 Earlier, the Commission accepted a shortened period to cure defaults and other 

tariff revisions intended to improve credit practices.10

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 payment period” from more than 80 days to approximately 

25 days.13 

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 

9 PJM Interconnection, L.L.C., 127 FERC ¶ 61,017, at P 4 (2009). 

10 PJM Interconnection, L.L.C., 126 FERC ¶ 61,084 (2009). 

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). 
Docket No. RM10-13-000 - 7 -

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. 

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 

 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.”). 
Docket No. RM10-13-000 - 8 -

 

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). 
Docket No. RM10-13-000 - 9 -

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 

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 

 18 The views of management may be expressed through the ISO-RTO Council 

(IRC). 
Docket No. RM10-13-000 - 10 -

 

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

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 

19 Policy Statement, 109 FERC ¶ 61,186 at P 21. 

20 PJM Credit & Clearing Analysis Project: Findings & Recommendations 

(June 2008) (found on Dec. 31, 2009 at: http://www.pjm.com/~/media/committees-

 (continued...) 

 

 
Docket No. RM10-13-000 - 11 -

 

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. 

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 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 

groups/committees/mc/20080626-item-03d-crmsc-market-reform-creditrecommendations.ashx). 

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, L.L.C., 127 FERC ¶ 61,017 at P 4; New England Power Pool, 107 

FERC ¶ 61,201, at P 10-12 (2004). 

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). 
Docket No. RM10-13-000 - 12 -

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. 

 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 

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 

 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, L.L.C., 127 FERC ¶ 61,017 at P 5 (adopting limit of $50 million for a 

member company and $150 million for an affiliated group). 
Docket No. RM10-13-000 - 13 -

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 
Docket No. RM10-13-000 - 14 -

 

conditions.24 Moreover, financial transmission rights are relatively illiquid, adding to the 

inherent risk in their valuation.25 

22. For example, PJM suffered a significant default in December 2007 in its financial 

transmission rights market26 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. 

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 

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, L.L.C., 127 FERC ¶ 61,017 at P 36. 

26 PJM Interconnection, L.L.C., 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, L.L.C., 127 FERC ¶ 61,017 at P 8, 36. 
Docket No. RM10-13-000 - 15 -

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 no

paid by Mira

t 

nt. 

 

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 

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/committeesgroups/committees/crmsc/20080423/20080423-wachtell-netting-memo.ashx). 
Docket No. RM10-13-000 - 16 -

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 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. 
Docket No. RM10-13-000 - 17 -

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. 
Docket No. RM10-13-000 - 18 -

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. 

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 

 29 PJM Interconnection, L.L.C., 126 FERC ¶ 61,084 at P 12. 
Docket No. RM10-13-000 - 19 -

te 

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 ra

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. 

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 appr

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 i

oval of 

nformation unless the collections 

 

of information display a valid OMB control number. 

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). 
Docket No. RM10-13-000 - 20 -

ission 

s regulations. 

iew 

ods 

ng the respondent’s burden, including the use of automated information 

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 Comm

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’

The information provided for under Part 35 is identified as FERC-516. 

35. The Commission is submitting these reporting requirements to OMB for its rev

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 meth

for minimizi

techniques. 

Burden Estimate: The Public Reporting burden for the requirements contained in the 

OPR is as follow

n 

umber of 

spondents 

No. of 

sponses 

Hours Per 

ponse 

Total Annual 

N s: 

Data Collectio

N

Re Re Res Hours

FERC-516 

Transmission 

Organizatio

with Orga

ns 

nized 

lectricity 

 6 1 60 360 

E

Markets 

Information Collection Costs: The Commission seeks comments on the costs to comply 

with these requirements. The Commission has projected the average annualized 
Docket No. RM10-13-000 - 21 -

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 

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. 
Docket No. RM10-13-000 - 22 -

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, N.E., Washington, 

D.C. 20426 [Attention: Michael Miller, Office of the Executive Director, Phone: 

(202) 502-8415, fax: (202) 273-0873, e-mail: michael.miller@ferc.gov]. 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, D.C. 20503 

[Attention: Desk Officer for the Federal Energy Regulatory Commission], e-mail: 

oira_submission@omb.eop.gov. 
Docket No. RM10-13-000 - 23 -

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. 

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 

 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. 

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. 
Docket No. RM10-13-000 - 24 -

participants, by reducing the likelihood of defaults and minimizing the impact of any 

defaults. 

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, L.L.C. 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. 
Docket No. RM10-13-000 - 25 -

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 [insert date 60 days from 

publication in the FEDERAL REGISTER]. 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, N.E., Washington, D.C., 

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 
Docket No. RM10-13-000 - 26 -

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 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, N.E., Room 2A, 

Washington D.C. 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 website 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 ferconlinesupport@ferc.gov, or the 

Public Reference Room at (202) 502-8371, TTY (202) 502-8659. E-mail the Public 

Reference Room at public.referenceroom@ferc.gov. 
Docket No. RM10-13-000 - 27 -

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. 

( S E A L ) 

Kimberly D. Bose, 

Secretary. 

 
Docket No. RM10-13-000 - 28 -

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

§ 35.45 Applicability.

This part establishes credit practices for organized wholesale electric markets for the 

purpose of minimizing risk to market participants. 

§ 35.46 Definitions.

 (a) Market Participant means an entity that qualifies as a Market 

Participant under 18 CFR 35.34. 
Docket No. RM10-13-000 - 29 -

 (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. 

§ 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. 
Docket No. RM10-13-000 - 30 -

(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.