Representatives of the New England Power Generators Association (NEPGA) and Competitive Power Ventures (CPV) offered amendments to ISO-NE’s proposed changes to the financial assurance provisions for the Forward Capacity Market at a joint meeting of the NEPOOL Markets Committee and Budget and Finance Subcommittee on June 11.
ISO-NE has raised concerns that its financial assurance policy — intended to ensure that generators can pay penalties associated with failing to meet their capacity supply obligations (CSOs) — does not adequately protect against the risks of generators defaulting.
To address these concerns, the RTO has proposed to rely on a “corporate liquidity assessment” to evaluate whether generators will be required to provide additional financial assurance.
The proposed amendments presented at the meeting focused on ways to reduce pool-wide default risks, with the hope that reducing the overall risks would enable ISO-NE to ease the financial assurance requirements for generators.
NEPGA’s Bruce Anderson said allowing generators to sell monthly CSOs closer to each period would help mitigate the risk of equipment failures leading to unmet obligations. He noted that the last opportunity to sell CSOs is more than a month in advance of each monthly period.
“Allowing for bilateral trading closer in time to the relevant month will decrease the risk of default for a market participant that may not be able to perform,” Anderson said.
NEPGA has also proposed to increase the payback period for Pay-for-Performance penalties, saying this would similarly reduce the overall risk of defaults. He highlighted recently approved tariff changes at PJM “allowing for longer payoff periods of up to nine months.”
CPV’s Joel Gordon echoed the potential of increasing the opportunities for generators to sell their obligations. He said ISO-NE could consider a rule to enable it to terminate a CSO if a generator defaults on a penalty, or it could create a special status for defaulting generators.
“There are market design solutions that would significantly reduce the potential exposure that should be explored,” Gordon said, emphasizing the need to “address the underlying cause first.”
ISO-NE said it plans to respond to the proposals in July and is targeting an initial vote on the finance assurance changes in August.
