ERCOT Submits New NPRR With Changes To Continued Participation Requirements For QSEs (& Market Entry Financial Qualifications)

Would Allow ERCOT To Suspend QSE If QSE Poses "Unreasonable Financial Risk"

April 25, 2023

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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ERCOT has submitted a new Nodal Protocol Revision Request -- NPRR 1175, Revisions to Market Entry Financial Qualifications and Continued Participation Requirements -- which would, as stated by ERCOT in the NPRR, "strengthen[] ERCOT’s market entry qualification and continued participation requirements for ERCOT Counter-Parties i.e., Qualified Scheduling Entities (QSEs) and Congestion Revenue Right (CRR) Account Holders," and which would, "authorize[] ERCOT to review current and prospective Counter-Parties to determine whether they pose an unreasonable financial risk to ERCOT based on their background check[.]"

As described more fully below, NPRR 1175 would authorize ERCOT to suspend a QSE or CRR Account Holder, "if it poses an unreasonable financial risk[.]"

NPRR 1175 would authorize ERCOT to terminate the registration of a Counter-Party if it is deemed an unreasonable financial risk that cannot be remedied

Among other things, NPRR 1175 provides that to remain, or become, a Qualified Scheduling Entity (QSE), an Entity must, "Demonstrate to ERCOT’s reasonable satisfaction that the Entity does not pose an Unreasonable Financial Risk," as defined in the NPRR

More specifically, under the NPRR, to become and remain a Qualified Scheduling Entity (QSE), an Entity must meet the following requirements: "A QSE must be able to demonstrate to ERCOT’s reasonable satisfaction that it does not pose an 'Unreasonable Financial Risk.'"

"Unreasonable Financial Risk as used in Section 16, Registration and Qualification of Market Participants, is a risk of financial default posed to ERCOT or its Market Participants by participation of an Entity or its Principals in the ERCOT market. Indicators of Unreasonable Financial Risk may include, but are not limited to: past market manipulation, trading violations, or other finance-related violations based upon a final adjudication in state or federal regulatory or legal proceedings; financial defaults in ERCOT or other energy markets resulting in loses or uplifts; or indications of imminent bankruptcy or insolvency," the NPRR states

Similar provisions would apply to CRR Account Holders

NPRR 1175 would also create a new background check process as a part of ERCOT’s review of current and prospective Counter-Parties

The NPRR provides that, "At any time, ERCOT may conduct a review to determine if a Counter-Party continues to satisfy all requirements set forth in Section 16, Registration and Qualification of Market Participants."

"As part of ERCOT’s review under this Section, ERCOT may conduct additional background checks," into the entity as well as each of the entity's Principals, the NPRR provides.

Among other things, a QSE, QSE applicants, and their Principals would be required to provide the following disclosures to complete a QSE background check:

(a) Any civil or criminal matters involving the applicant, its predecessors, Affiliates, or Principals within the last ten years that resulted in a conviction or finding of fraud, theft, larceny, deceit, deceptive trade practices, or a violation of securities or customer protection laws;

(b) Any complaint, investigation, or disciplinary action concerning financial matters initiated by or with the Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), Federal Energy Regulatory Commission (FERC), a self-regulatory organization, Independent System Operator or Regional Transmission Organization, or a state public utility commission or securities board involving the applicant, its predecessors, Affiliates, or Principals within the last ten years;

(c) Any default involving the applicant, its predecessors, Affiliates, or Principals, or revocation of the applicant’s, its predecessors’, Affiliates’, or Principals’ right to operate in any other energy market within the last ten years;

(d) Any bankruptcy by the applicant, its predecessors, Affiliates, or Principals within the last ten years; and

Notably, the NPRR provides that, "If ERCOT determines, in its sole discretion, that continued participation of the Counter-Party would pose a risk that could immediately compromise the integrity of the ERCOT market during the 14-day cure period described in Section (8)(A)(2) of the Standard Form Market Participant Agreement, ERCOT may suspend the Counter-Party’s rights as a Market Participant upon the notification of the material breach."

The NPRR would set the background check fee as $350 per Principal

ERCOT in the NPRR said, "Based on ERCOT’s review of various Know Your Customer (KYC) practices and proposals in financial markets and other independent System Operators, and following consultation with ERCOT stakeholders, this NPRR limits overall market exposure by potential bad actors, and help avoid uplifts to the ERCOT market by reducing risk of bad actors entering or re-entering the ERCOT market as new Entities; reducing risk of Entities/individuals with history of manipulating markets entering the ERCOT market; and reducing risk of Entities/individuals sanctioned in other markets entering the ERCOT market."

In order to take effect, NPRR 1175 must be go through the ERCOT approval process, and ultimately is subject to approval by the PUC

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