10 Krey Boulevard Rensselaer, NY 12144
April 29, 2015
By Electronic Delivery
Honorable Kimberly D. Bose, Secretary Federal Energy Regulatory Commission 888 First Street, NE
Washington, DC 20426
Re: New York Independent System Operator, Inc.’s Proposed Tariff Revisions to
Enhance Market Participant Credit Policies; Docket No. ER15 - ___-000
Dear Ms. Bose:
Pursuant to Section 205 of the Federal Power Act,1 the New York Independent System Operator, Inc. (“NYISO”) hereby submits revisions to Attachment K of its Market
Administration and Control Area Services Tariff (“Services Tariff”) to make two enhancements to the NYISO’s credit policies. First, the NYISO is proposing to modify its financial reporting rules to require all Market Participants to submit updated financial information annually.
Updated information will allow the NYISO to more accurately assess the ongoing financial
condition of each Market Participant and mitigate potential financial risk to the NYISO-
administered markets. Second, the NYISO is proposing to add additional examples of events
that may invoke a material adverse change to its material adverse change tariff provision to
improve transparency to Market Participants.
I.List of Documents Submitted
The NYISO submits the following documents:
1. This filing letter;
2. A clean version of the proposed revisions to the Services Tariff (Attachment I); and
3. A blacklined version of the proposed revisions to the Services Tariff (Attachment II).
II.Copies of Correspondence
Copies of correspondence concerning this filing should be served on: Robert E. Fernandez, General Counsel
1 16 U.S.C. § 824d.
1
Kimberly D. Bose, Secretary April 29, 2015
Page 2
Raymond Stalter, Director of Regulatory Affairs *Nathan D. Markey, Attorney
New York Independent System Operator, Inc.
10 Krey Boulevard
Rensselaer, NY 12144
Tel: (518) 356-6000
Fax: (518) 356-4702
rfernandez@nyiso.com
rstalter@nyiso.com
nmarkey@nyiso.com
*Person designated to receive service
III.Service
The NYISO will send an electronic link to this filing to the official representative of each
of its Market Participants, to each participant on its stakeholder committees, to the New York
Public Service Commission, and to the New Jersey Board of Public Utilities. In addition, the
complete filing will be posted on the NYISO’s website at www.nyiso.com.
IV.Background
The NYISO has limited financial information on many of its Market Participants, in
particular, those entities that do not have publicly available financial information. Currently,
Market Participants are only required to regularly submit financial statements to the NYISO if
they are utilizing unsecured credit or using financial statements to meet the capitalization
requirement under the Services Tariff. As a result, the NYISO has limited visibility to the
collective financial health of its Market Participants, which hinders its ability to conduct
comprehensive risk of default assessments and to proactively manage such risk.
V.Description of Proposed Revisions
The NYISO is proposing to add a new Section 26.2.1.6 to the Services Tariff to require
Market Participants to keep on file with the NYISO their most recent annual financial statements
or financial statement information.2 The statements or statement information shall be submitted
to the NYISO on an annual basis, within ninety (90) days of the end of the fiscal year for that
Market Participant and, for a Market Participant submitting financial statements, not later than
ten (10) days of such statements becoming available. If the financial statements are not audited,
the Market Participant shall also submit documentation from an officer of that organization,
which certifies to the accuracy of the submitted financial statements. Under the proposed
2 The proposed revisions are similar to ISO New England’s reporting requirements under its Financial Assurance
Policy. See ISO-NE Transmission, Markets, and Services Tariff, Exhibit IA: ISO New England Financial
Assurance Policy, Section II B, Proof of Financial Viability for Applicants, available at: http://www.iso-
ne.com/static-assets/documents/regulatory/tariff/sect_1/sect_i.pdf.
Kimberly D. Bose, Secretary April 29, 2015
Page 3
revisions the NYISO may grant an extension for the provision of financial statements or financial information upon showing of good cause.
For those Market Participants that do not regularly prepare financial statements, the
NYISO is proposing that those Market Participants provide the financial statement information in a form acceptable to the ISO, with an officer certification.3 This will allow Market
Participants to submit specific income statement and balance sheet dollar amounts, and certify to the accuracy of those amounts, in lieu of a full set of financial statements.
The NYISO is also proposing to revise Services Tariff Section 26.14 (i.e., the material
adverse change provision). This provision allows the NYISO to reduce the amount of unsecured
credit granted to a Market Participant or request additional collateral from a Market Participant
in the event there is a “material adverse change” affecting the risk of nonpayment by the Market
Participant. The proposed changes provide notice of additional events that may constitute a
material adverse change, including: (i) failure to cure a default under another ISO/RTO tariff;
and (ii) the issuance of a notice of alleged violation or imposition of a sanction by a regulatory
body or an independent system operator.4 The proposed changes also clarify that all Market
Participants, not only those with unsecured credit, could be subject to this provision in the event
of a significant variation in the NYISO’s credit evaluation of the Market Participant. Consistent
with the Commission’s directives in Order 741, the proposed revisions expand on the NYISO’s
illustrative, but not exhaustive, list of circumstances that would entitle the NYISO to invoke this
provision.5
VI.Effective Date
The NYISO respectfully requests Commission action within sixty days from the date of
this filing (i.e. June 29, 2015), and an effective date of July 15, 2015, to provide Market
Participants with timely notice that the changes proposed herein have been accepted. Such
timely action by the Commission will allow Market Participants to prepare for providing the
NYISO with the information required under the proposed revisions on or before the effective
date.
3 The NYISO presented Market Participants with an approved financial information template in the stakeholder
process. See e.g. March 31, 2015 NYISO Management Committee, Meeting Materials, available at,
http://www.nyiso.com/public/markets_operations/committees/meeting_materials/index.jsp?com=mc.
4 The NYISO surveyed the material adverse change provisions in other ISO/RTO tariffs and is proposing revisions similar to those in effect under the Midcontinent Independent System Operator (MISO) Tariff. Midcontinent ISO, FERC Electric Tariff, Attachment L, Material Change, available at:
https://www.misoenergy.org/Library/Tariff/Pages/Tariff.aspx.
5 Credit Reforms in Organized Wholesale Electric Markets, Order No. 741, FERC Stats. & Regs. ¶ 31,317 (2010) at P 149, order on reh’g, Order No. 741-A, FERC Stats. & Regs. ¶ 31,320 (2011), reh’g denied, Order No. 741-B, 135 FERC ¶ 61,242 (2011).
Kimberly D. Bose, Secretary April 29, 2015
Page 4
VII. Requisite Stakeholder Approval
At the November 2014, and the January and February 2015 meetings of the Credit Policy Working Group, the NYISO proposed to Market Participants the revised reporting requirements and made several revisions based on Market Participant feedback. The NYISO’s revised
reporting requirements were approved unanimously, with abstentions, at the March 11, 2015
Business Issues Committee meeting and unanimously, with abstentions, at the March 31, 2015 Management Committee meeting.
On April 21, 2015 the NYISO’s Board of Directors approved a motion directing the NYISO to file the proposed tariff revisions approved by the Management Committee.
VIII. Conclusion
WHEREFORE, for the foregoing reasons, the New York Independent System Operator,
Inc. respectfully requests that the Commission accept the proposed tariff changes identified in
this filing.
Respectfully submitted,
/s/ Nathan D. Markey
Nathan D. Markey Attorney
New York Independent System Operator, Inc.
cc:Michael A. Bardee
Gregory Berson
Anna Cochrane
Morris Margolis
David Morenoff
Daniel Nowak
Kathleen Schnorf
Jamie Simler
Kevin Siqveland
26.2Reporting Requirements
26.2.1All Customers shall be required to comply with the reporting
requirements in this Section 26.2.1
26.2.1.1 References
The ISO may require a Customer to provide references from one (1) bank and up to three
(3) utilities. A Customer that does not have utility references, may substitute trade payable vendor references.
26.2.1.2 Prior Bankruptcy or Default
A Customer shall inform the ISO of any prior bankruptcy declarations or material defaults by the Customer or its predecessors, subsidiaries, or Affiliates occurring within the previous five (5) years.
26.2.1.3 Investigations
A Customer shall inform the ISO of the existence of any ongoing investigations of which the Customer is aware by the Securities and Exchange Commission, the Department of Justice, the Federal Energy Regulatory Commission, or the New York Public Service Commission which could have a material impact on the Customer’s financial condition.
26.2.1.4 Material Change in Financial Status
A Customer shall inform the ISO of any material change in its financial status within five
(5) business days, including but not limited to: (a) a downgrade of a long- or short-term debt
rating by any ISO-approved rating agency; (b) placement on a negative credit watch by any ISO-
approved rating agency; (c) a bankruptcy filing, insolvency, or a default under any financing
agreement; (d) resignation or termination of a key officer; (e) initiation of a lawsuit that could
materially and adversely impact current or future financial performance; or (f) restatement of
prior financial statements.
26.2.1.5 Change in Peak Load
A Load Serving Entity shall inform the ISO as soon as practicable if it expects its peak Load to increase by fifteen percent (15%) or more above its peak Load during the Prior
Equivalent Capability Period.
26.2.1.6 Financial Statements
Customer shall keep on file with the ISO its most recent annual financial statements
(including, but not limited to, balance sheet and income statement), which shall be submitted to
the ISO annually within ten (10) days of such statements becoming available and within ninety
(90) days of the end of the fiscal year of such Customer. If such financial statements are not
audited, Customer shall submit with the financial statements a certification from an officer of the Customer, in a form acceptable to the ISO, certifying the accuracy of the financial statements.
If a Customer does not routinely prepare financial statements, Customer shall submit equivalent financial information annually, as required in the paragraph above, with a certification from an officer of the Customer certifying the accuracy of the financial information submitted, in forms acceptable to the ISO.
The ISO may grant an extension for the provision of the required financial information under this Section 26.2.1.6 upon a showing of good cause.
26.2.2 Customers Requesting Unsecured Credit
In addition to the reporting requirements in Section 26.2.1., above, a Customer requesting Unsecured Credit, including a request for an Equivalency Rating, shall be required to comply with the reporting requirements of this Section 26.2.2.
26.2.2.1 Financial Statements
A Customer requesting Unsecured Credit shall provide to the ISO audited annual
financial statements from the most recent three (3) years and its recent quarterly financial
statement. Thereafter, the Customer shall provide audited annual financial statements to the ISO
within ten (10) days of such statements becoming available and within ninety (90) days of the
end of each fiscal year and shall provide quarterly financial statements to the ISO within sixty
(60) days of the end of each quarter. The ISO may grant an extension for the provision of quarterly and annual financial statements upon a showing of good cause.
26.2.2.2 Publicly-Traded Customer
A publicly-traded Customer shall provide financial statements on Form 10-K and 10-Q, respectively. A publicly-traded Customer shall also provide Form 8-K reports within five (5) business days of their issuance. Information available on EDGAR shall be deemed provided by a Customer that directs the ISO to obtain it there.
26.2.2.3 Privately-Held Customer
A Customer that is not publicly-traded shall provide financial statements that include a balance sheet including a statement of stockholders’ equity, an income statement, a statement of cash flow, notes to the financial statement, and an unqualified auditor’s opinion.
26.2.2.4 Government Entities
Notwithstanding Section 26.2.2.1 of this Attachment K, government entities that do not normally prepare quarterly financial statements shall not be required to provide them to qualify for Unsecured Credit.
26.14Material Adverse Change
The amount of Unsecured Credit granted to a Customer, if any, and the amount of the
Customer’s Operating Requirement shall be subject to change, at the discretion of the ISO, in the
event that there is a material adverse change affecting the risk of nonpayment by the Customer,
which includes, but is not limited to: (a) a material change in financial status pursuant to Section
26.2.1.4 of this Attachment K, (b) Customer’s failure to timely cure its default under the ISO
Tariffs or the tariffs of another independent system operator or regional transmission
organization, (c) the issuance of a notice of alleged violation or show cause order, imposition of
a sanction or other administrative order by the Federal Energy Regulatory Commission, the
Commodity Futures Trading Commission, Environmental Protection Agency, New York State
Public Service Commission, New York State Department of Environmental Conservation or any
other regulatory body, independent system operator, or regional transmission organization,
including the ISO, which could have a material adverse effect on the Customer’s financial
condition, (d) a downgrade of an Equivalency Rating, (e) a significant change in the Customer’s
“Expected Default Frequency (EDF)” as determined by Moody’s KMV CreditEdge, (f) a
significant variation in the Customer’s credit evaluation, (g) a significant increase in a
Customer’s credit default swap (CDS) spreads, or (h) a significant decline in a Customer’s
market capitalization. In the event the ISO invokes its rights pursuant to this Section 26.14, the
ISO will provide the affected Customer with a written explanation of the reasons the ISO
declared a material adverse change.
Table K-1 Tangible Net Worth Credit Matrix
CustomerStarting Point for Determining
RatingUnsecured Credit
Senior Long-term Unsecured
Debt Rating
S&P, Fitch,Moody’s
and
Dominion
A+A1
or higher or higher
Issuer Rating or
Equivalency Rating
S&P, Fitch,Moody’s Dominion, and
NYISO
AA-Aa3
or higher or higher
(% of Tangible Net Worth)
7.5%
or loweror loweror loweror lower
26.2Reporting Requirements
26.2.1 All Customers. All Customers shall be required to comply with the
reporting requirements in this Section 26.2.1
26.2.1.1 References
The ISO may require a Customer to provide references from one (1) bank and up to three
(3) utilities. A Customer that does not have utility references, may substitute trade payable vendor references.
26.2.1.2 Prior Bankruptcy or Default
A Customer shall inform the ISO of any prior bankruptcy declarations or material defaults by the Customer or its predecessors, subsidiaries, or Affiliates occurring within the previous five (5) years.
26.2.1.3 Investigations
A Customer shall inform the ISO of the existence of any ongoing investigations of which the Customer is aware by the Securities and Exchange Commission, the Department of Justice, the Federal Energy Regulatory Commission, or the New York Public Service Commission which could have a material impact on the Customer’s financial condition.
26.2.1.4 Material Change in Financial Status
A Customer shall inform the ISO of any material change in its financial status within five
(5) business days, including but not limited to: (a) a downgrade of a long- or short-term debt
rating by any ISO-approved rating agency; (b) placement on a negative credit watch by any ISO-
approved rating agency; (c) a bankruptcy filing, insolvency, or a default under any financing
agreement; (d) resignation or termination of a key officer; (e) initiation of a lawsuit that could
materially and adversely impact current or future financial performance; or (f) restatement of prior financial statements.
26.2.1.5 Change in Peak Load
A Load Serving Entity shall inform the ISO as soon as practicable if it expects its peak Load to increase by fifteen percent (15%) or more above its peak Load during the Prior
Equivalent Capability Period.
26.2.1.6 Financial Statements
Customer shall keep on file with the ISO its most recent annual financial statements
(including, but not limited to, balance sheet and income statement), which shall be submitted to
the ISO annually within ten (10) days of such statements becoming available and within ninety
(90) days of the end of the fiscal year of such Customer. If such financial statements are not
audited, Customer shall submit with the financial statements a certification from an officer of the Customer, in a form acceptable to the ISO, certifying the accuracy of the financial statements.
If a Customer does not routinely prepare financial statements, Customer shall submit equivalent financial information annually, as required in the paragraph above, with a certification from an officer of the Customer certifying the accuracy of the financial information submitted, in forms acceptable to the ISO.
The ISO may grant an extension for the provision of the required financial information under this Section 26.2.1.6 upon a showing of good cause.
26.2.2 Customers Requesting Unsecured Credit
In addition to the reporting requirements in Section 26.2.1., above, a Customer requesting
Unsecured Credit, including a request for an Equivalency Rating, shall be required to comply
with the reporting requirements of this Section 26.2.2.
26.2.2.1 Financial Statements
A Customer requesting Unsecured Credit shall provide to the ISO audited annual
financial statements from the most recent three (3) years and its recent quarterly financial
statement. Thereafter, the Customer shall provide audited annual financial statements to the ISO
within ten (10) days of such statements becoming available and within ninety (90) days of the
end of each fiscal year and shall provide quarterly financial statements to the ISO within sixty
(60) days of the end of each quarter. The ISO may grant an extension for the provision of quarterly and annual financial statements upon a showing of good cause.
26.2.2.2 Publicly-Traded Customer
A publicly-traded Customer shall provide financial statements on Form 10-K and 10-Q, respectively. A publicly-traded Customer shall also provide Form 8-K reports within five (5) business days of their issuance. Information available on EDGAR shall be deemed provided by a Customer that directs the ISO to obtain it there.
26.2.2.3 Privately-Held Customer
A Customer that is not publicly-traded shall provide financial statements that include a balance sheet including a statement of stockholders’ equity, an income statement, a statement of cash flow, notes to the financial statement, and an unqualified auditor’s opinion.
26.2.2.4 Government Entities
Notwithstanding Section 26.2.2.1 of this Attachment K, government entities that do not normally prepare quarterly financial statements shall not be required to provide them to qualify for Unsecured Credit.
26.14Material Adverse Change
The amount of Unsecured Credit granted to a Customer, if any, and the amount of the
Customer’s Operating Requirement shall be subject to change, at the discretion of the ISO, in the
event that there is a material adverse change affecting the risk of nonpayment by the Customer,
which includes, but is not limited to: (a) a material change in financial status pursuant to Section
26.2.1.4 of this Attachment K, (b) Customer’s failure to timely cure its default under the ISO
Tariffs or the tariffs of another independent system operator or regional transmission
organization, (c) the issuance of a notice of alleged violation or show cause order, imposition of
a sanction or other administrative order by the Federal Energy Regulatory Commission, the
Commodity Futures Trading Commission, Environmental Protection Agency, New York State
Public Service Commission, New York State Department of Environmental Conservation or any
other regulatory body, independent system operator, or regional transmission organization,
including the ISO, which could have a material adverse effect on the Customer’s financial
condition, (d) a downgrade of an Equivalency Rating, (ce) a significant change in the Customer’s
“Expected Default Frequency (EDF)” as determined by Moody’s KMV CreditEdge, (df) a
significant variation in the Customer’s Ccredit Assessmentevaluation, (eg) a significant increase
in a Customer’s credit default swap (CDS) spreads, or (fh) a significant decline in a Customer’s
market capitalization. In the event the ISO invokes its rights pursuant to this Section 26.14, the
ISO will provide the affected Customer with a written explanation of the reasons the ISO
declared a material adverse change.
Table K-1 Tangible Net Worth Credit Matrix
CustomerStarting Point for Determining
RatingUnsecured Credit
Senior Long-term Unsecured
Debt Rating
S&P, Fitch,Moody’s
and
Dominion
A+A1
or higher or higher
Issuer Rating or
Equivalency Rating
S&P, Fitch,Moody’s Dominion, and
NYISO
AA-Aa3
or higher or higher
(% of Tangible Net Worth)
7.5%
