26.5Unsecured Credit

A Customer may use Unsecured Credit to satisfy any part of its Operating Requirement or Bidding Requirement other than (i) any credit requirement for bidding on or holding TCCs, (ii) the Projected True-Up Exposure Component, (iii) the Former RMR Generator Component, or (iv) a withdrawing Customer’s required collateral.  Affiliate guarantees are considered a form of Unsecured Credit.

Upon written request of a Customer, the ISO shall determine the amount of Unsecured Credit to be granted to the Customer, if any, in accordance with the ISO’s creditworthiness requirements.  Upon a Customer’s written request, the ISO will provide a written explanation for any changes in the amount of the Customer’s Unsecured Credit.

26.5.1Eligibility 

A Customer may be eligible to receive Unsecured Credit if the Customer meets the following criteria:

(i) Creditworthiness

(a) is an Investment Grade Customer, 

(b) is an Unrated Customer that is deemed an Investment Grade Customer pursuant to an Equivalency Rating, or

(c)provides an Affiliate guarantee in compliance with Section 26.5.4 of this Attachment K;

AND

(ii) Payment History

(a) has actively participated in the ISO-Administered markets and paid when due all of its invoices during the immediately preceding six months, or

(b) has actively participated in the markets of another independent system operator or regional transmission organization and has paid when due all of its invoices during the immediately preceding six months.  Any Customer relying on its payment history in another market to fulfill the requirement of this Section 26.5.1(ii) must provide evidence satisfactory to the ISO of such payment history.

Notwithstanding the foregoing, a Customer otherwise eligible for Unsecured Credit that fails to respond to the ISO’s request to update the Customer’s list of Affiliates, within the time frame provided by Section 9.2 of the ISO Services Tariff, shall not be eligible for Unsecured Credit.

26.5.2Market Concentration Cap

A Customer’s Unsecured Credit shall not exceed fifty million dollars ($50M) (the “Market Concentration Cap”).  Moreover, the maximum amount of Unsecured Credit extended to a group of Customers that are Affiliates shall not exceed, in the aggregate, the Market Concentration Cap.

26.5.3Determination of Unsecured Credit

26.5.3.1Starting Point

The starting point for determining the amount of Unsecured Credit to be granted to an Investment Grade Customer, except as provided otherwise in Section 26.5.3.6 of this Attachment K, shall be a percentage of its Tangible Net Worth, as indicated on the matrix contained in Table K-1, subject to the Market Concentration Cap. 

26.5.3.2Adjustment to Starting Point 

The ISO shall conduct a Credit Assessment of the Customer and shall determine the amount of Unsecured Credit that it shall grant to the Customer by adjusting the Customer’s starting point in accordance with the following table:

Starting Point Adjustment

26.5.3.3Adjustment to Unsecured Credit

(a)  In the event of a change in a Customer’s (1) Tangible Net Worth, and/or (2) agency rating, the ISO shall recalculate the Customer’s starting point and Unsecured Credit amount in accordance with Sections 26.5.3.1 and 26.5.3.2 of this Attachment K.

(b)  The ISO may conduct a Credit Assessment of a Customer at any time and adjust the amount of Unsecured Credit granted to the Customer in accordance with the following table:

Unsecured Credit Adjustment

Current Credit Assessment Score Bucket

Score Bucket	1	2	3	4	5
1	0%	-20%	-50%	-80%	-100%
2	25%	0%	-38%	-75%	-100%
3	100%	60%	0%	-60%	-100%
4	400%	300%	150%	0%	-100%
5	N/A	N/A	N/A	N/A	N/A

26.5.3.4Restoration of Unsecured Credit 

A Customer that is subject to a 100% reduction of Unsecured Credit shall not be eligible for Unsecured Credit again until the Customer demonstrates two consecutive quarters of financial performance that would otherwise have qualified the Customer for Unsecured Credit in accordance with Sections 26.5.3.1 and 26.5.3.2 of this Attachment K.

26.5.3.5Credit Assessment

(a)In performing a Credit Assessment, the ISO shall evaluate specified indicators of credit risk pertaining to a Customer, which indicators will vary depending on whether the Customer is categorized by the ISO as a private entity or a public entity.  The ISO shall categorize a Customer as private or public, for Credit Assessment purposes, in accordance with the following criteria:

(b)The ISO shall determine the Credit Assessment score for a Customer based upon the market and financial indicators and weightings, as appropriate, set forth below.

Public Entity IndicatorsWeight

• Market Indicators

•         Absolute CDS Spread                                                                                    21.3%

•         Relative Stock Decline from 3 month high                                              4.3%

•         Stock Return Volatility (3 month std. deviation)                            12.7%

• Performance

•         Revenue/Market Cap                                                                                            12.7%

•         Retained Earnings/Assets                                                                        8.5%

• Debt Coverage

•         Total Debt/EBITDA                                                                                            12.7%

• Leverage

•         Debt/(Total Debt + Equity)                                                                                8.5%

• Liquidity

•         Cash/Assets                                                                                                                4.3%

• Qualitative Assessment                                                                                            15.0%

Private Entity IndicatorsWeight

• Performance

•         Return on Assets                                                                                            17.5%

•         Profit Margin                                                                                                      10.5%

• Debt Coverage

•         Total Debt/EBITDA                                                                                            17.5%

• Leverage

•         Total Debt/Total Assets                                                                              17.5%

• Liquidity

•         Cash/Assets                                                                                                                7.0%

• Qualitative Assessment                                                                                                30.0%

(c)If one or more of the indicators listed above does not exist for a Customer, then the ISO shall, in its sole discretion, reallocate the weight attributed to that indicator either (1) to the remaining indicators proportionately, or (2) entirely to the qualitative assessment indicator.

(d)The qualitative areas evaluated shall include, but shall not be limited to, the following (as applicable):  (1) Affiliate financial and market indicators, (2) ratemaking ability and legal right to fully recover end-user costs, (3) industry characteristics, (4) risk policies and procedures, (5) management quality, (6) ability to access funding in difficult market conditions, and (7) historical relationship and payment history with the ISO.  A Transmission Owner that can recover end-user costs pursuant to authority granted by the PSC will receive a qualitative assessment score of no worse than five.

26.5.3.6Public Power Entities

The following additional provisions shall apply to the determination of a Customer’s Unsecured Credit:

(a)A Public Power Entity shall qualify for one million dollars ($1M) in Unsecured Credit, without regard for its Tangible Net Worth or Credit Assessment.  Municipal electric systems that operate through a joint action agency or a similar municipal affiliation agreement may aggregate their Unsecured Credit amounts of one million dollars ($1M) per member such that the joint action agency will have an Unsecured Credit amount, subject to the Market Concentration Cap, equal to the total of the Unsecured Credit amounts of each individual member.  Each such agency will qualify for such aggregated Unsecured Credit treatment subject to the ISO’s review of the particular affiliation agreement and the ISO’s review of documentation submitted by the agency to demonstrate that it has been formed under the pertinent sections of the New York State Municipal Law.

(b)In lieu of a one million dollar ($1M) grant of Unsecured Credit, a Public Power Entity may request Unsecured Credit based on its Tangible Net Worth and Credit Assessment.  In such case, the ISO will consider the Public Power Entity a private entity for Credit Assessment purposes.

26.5.4Affiliate Guarantees

26.5.4.1Eligibility

An Affiliate guarantor shall be subject to the ISO’s financial assurance requirements as if the Affiliate guarantor were a Customer and shall be assigned a level of Unsecured Credit, if any. 

26.5.4.2Use for Satisfaction of Minimum Capitalization Requirements

A Customer may use an Affiliate guarantor’s financial statements to satisfy the capitalization requirement set forth in Section 26.1.1(d) of this Attachment K if (i) no other Customer relies on the Affiliate guarantor’s financial statements to satisfy the capitalization requirement, and (ii) the Customer provides an unlimited Affiliate guarantee that satisfies the requirements set forth in Section 26.5.4.3 of this Attachment K.  If a Customer provides an Affiliate guarantee solely to satisfy its capitalization requirement, the Affiliate guarantor, notwithstanding Section 26.5.4.1 of this Attachment K, shall not be subject to the ISO financial assurance requirements.

26.5.4.3Form of Affiliate Guarantee

An Affiliate guarantee must be in a form acceptable to the ISO and issued by an Investment Grade U.S. or Canadian Affiliate.  A Customer’s failure to provide a source of collateral in an amount sufficient to (i) secure its obligations to the ISO and/or (ii) as applicable, secure its capitalization requirement pursuant to Section 26.1.1(d) of this Attachment K, fifty (50) days prior to the termination of an Affiliate guarantee, which source of collateral shall be guaranteed to remain in effect for a period of not less than one (1) year, shall be a condition of default enabling the ISO to immediately demand payment under the Affiliate guarantee in the amount required to meet Customer’s ISO credit requirements, and/or, as applicable, the amount required to secure Customer’s capitalization requirement.

26.5.5Requests for Changes, Appeals 

Requests for changes to the amount of a Customer’s Unsecured Credit shall be made in writing to the ISO Credit Manager.  Appeals of any decision regarding a Customer’s Unsecured Credit shall be made in writing to the ISO’s Chief Financial Officer and shall include all necessary supporting documentation.  The Chief Financial Officer shall determine all appeals within ten (10) business days.