By Amanda Durish Cook
CARMEL, Ind. — MISO last week proposed a set of changes to buttress its financial transmission rights market and said it will convene a new task team to work out the details of the fledging proposal.
Two alterations involve stiffer collateral requirements, while the third will prohibit known “bad actors” from participating in the RTO’s FTR auctions. During a Market Subcommittee meeting Thursday, MISO and stakeholders created a task team to refine the three-prong proposal.
“MISO has had no losses in the FTR market. Having said that, that doesn’t mean that there aren’t opportunities to improve,” said Brian Brown, a credit analyst with the RTO.
Brown said the improvements are targeted for April 2020, before the next annual FTR auction. By Friday, MISO will create the task team that will draw up the two required Tariff filings this fall, Manager of Credit and Risk Management Matthew Mullin added.
According to Brown, MISO is considering introducing a 5-cent/MWh minimum collateral requirement, which would boost collateral by $35 million across the entire FTR market.
Credit requirements could also be adjusted based on a proposed mark-to-auction valuation that would estimate the market value changes of an FTR portfolio by calculating the difference between FTR purchase prices and the most recent auction prices. PJM recently introduced such a measure to spot reductions in portfolio value in order to increase credit requirements, saying declining market value can be an indicator of increasing risk in FTR markets.
MISO said it plans to require FTR traders to post collateral based on the highest figure derived from either the current FTR credit calculation, the new minimum amount or the mark-to-auction valuation.
Customized Energy Solutions’ Ted Kuhn asked if the changes might negatively impact participation rates in the FTR market.
“We expect the impact to be minimal, but it’s difficult to forecast that,” Brown said, adding that MISO market participants have always been willing to post collateral.
RTO staff also said they will discuss the changes with its Independent Market Monitor.
MISO is justifying the changes based on a 2003 FERC policy statement that said the commission expects that ISO/RTOs “should act on behalf of their membership to minimize likelihood of default.”
Preventing ‘Bad Actors’
In a separate Tariff filing, MISO will seek to bar what it deems “bad actors” — either those that have defaulted or settled market manipulation charges in FERC jurisdictional markets — from becoming market participants.
Mullin said MISO currently lacks the authority to keep those with ill intent out of its markets.
“In light of recent events, we believe MISO should have authority to prevent bad actors from participating. … Right now, we don’t have the explicit authority to do anything,” Mullin said. “We believe this is a logical next step.”
He was referring to GreenHat Energy’s record default in PJM’s FTR market. MISO recently completed a scheduled analysis of its FTR market and has repeatedly reassured members that similar failures are unlikely to occur. (See MISO Offers Reassurances on FTRs, Examines Changes.)
Mullin said MISO must still define what constitutes a “bad actor” and what steps it will take after identifying one. He said the new task team would work out those details.
“These improvements won’t eliminate the risk of a loss; however, it closes the gaps and the opportunity to exploit those gaps. More importantly, it will reduce the magnitude of a loss,” Brown said.
Brown stressed that MISO’s historical FTR performance shows that it has been “minimally exposed.” He added that its FTR market has never experienced a default.
