NYISO to Require Market Participants to Demonstrate $1 Million in Tangible Net Worth

July 5, 2011
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New York ISO's proposed capitalization requirement for market participants would require market participants to demonstrate, based on their most recent audited financial statements, either $10 million in assets or $1 million in tangible net worth.

This minimum participation criteria is part of NYISO's compliance with FERC's RTO credit market "reforms" order (Order 741).

"The NYISO recognizes that some of its existing market participants are not capable of meeting the proposed capitalization requirement," it said.

For this reason, the NYISO is also proposing to allow market participants to post $200,000 in security ($500,000 if participating in the TCC [Transmission Congestion Contracts] market) with the NYISO, in lieu of satisfying the capitalization requirement.

This security would be in addition to any collateral required to satisfy the market participant's credit requirements. "This alternative to the capitalization requirement will allow the NYISO to reduce overall market risk without creating undue barriers to market entry," NYISO said.

With limited exceptions, an additional $200,000 in collateral would have covered most NYISO historical bad debt losses.

NYISO proposed an October 1, 2011 effective date for the new capitalization requirements.

Additionally, NYISO is proposing to require market participants to certify that they have written risk management policies and procedures that address those risks that could materially and adversely affect the market participant's ability to pay its NYISO invoices when due.

The proposed tariff revisions also establish minimum training requirements for market participants that participate in the TCC market and/or engage in Virtual Transactions. Each employee and agent of a market participant with the right to bid on TCCs or Virtual Transactions would be required to complete a one-time training specific to those products.

The NYISO currently offers free training on-line and anticipates offering free, enhanced Virtual Transaction and TCC training online no later than September 1, 2011. The enhanced training will include a test to evaluate user understanding and successful completion of the training course.

The NYISO would also define a material change in financial status, which could trigger additional collateral requirements, as including among other things, "resignation or termination of a key officer; [or] initiation of a lawsuit that could materially and adversely impact current or future financial performance; or restatement of prior financial statements.
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