By Amanda Durish Cook

Taking a cue from PJM’s financial transmission rights market debacle, MISO will this month draft Tariff changes designed to further protect all of its markets from financial defaults — including a measure that could spell bans for defaulting parties.

MISO is proposing to increase collateral requirements in its FTR markets based on perceived risk and give itself discretion over banning a potential participant from joining or re-entering any of its markets in extreme cases.

The RTO is seeking to implement a 5-cent/MWh minimum collateral requirement for FTRs and a mark-to-auction mechanism that would estimate the market value changes of an FTR portfolio by calculating the difference between purchase prices and the most recent auction prices. (See MISO Proposes Protections for FTR Market.)

The plan also aims to prevent known “bad actors” from participating. The provision would extend to those with a material financial default or named in a case “involving malfeasance or manipulative behavior,” said Jordan Cole, of MISO’s credit and risk management team. The RTO would review public charging documents to decide whether to prevent an entity facing manipulation allegations in other markets from entering its market.

While MISO can already suspend trading privileges for those who default within its own market, it is also considering whether to increase collateral requirements and allow for a five-year ban for any company with default values at more than $1,000 in other markets. MISO would decide to take either action on a case-by-case basis.

“We think this $1,000 is a low enough bar that it isn’t prohibitively insurmountable,” Cole said during a conference call Wednesday. He and other staff stressed the RTO is open to stakeholder suggestions to refine the proposal.

The RTO is additionally proposing guidelines to allow market participants to re-enter the market without posting additional collateral if they cure a default within a week. Participants taking more than a week to remedy a default would also be permitted to re-enter but could face additional collateral requirements up to either twice the default value or their highest exposure over the last 12 months.

MISO is also proposing that parties submitting its Annual Certification Form must attest to past defaults, even if they occurred under a different company name or an affiliate. The RTO would also ask market participants to disclose any bankruptcies, mergers or acquisitions in the last five years.

“This will help MISO respond accordingly under a case-by-case basis,” Cole said.

MISO will also draft language to allow itself to act when any market participants exhibit “financial warning signs.” Cole said any course of action upon discovering red flags would be up to management’s discretion on a case-by-case basis.

Stakeholders on the call asked that MISO consider additional collateral requirements before it issues suspensions or bans.

When asked by stakeholders about the prospect for appealing suspensions or bans, MISO credit analyst Brian Brown said market participants are free to challenge RTO decisions at the FERC level. “We’re obviously not the last voice in this process. We’re an intermediate voice charged with protecting the market,” he said. “The reality is a financial default is a financial default.”

Brown added he doesn’t envision MISO ever utilizing market bans, but he noted it has not ruled out the possibility.

Executive Director of Strategy Shawn McFarlane said MISO had set out to re-examine its FTR market even before GreenHat Energy’s record default in PJM.

“Sometimes we are guilty of being reactionary. … This time we were looking at tightening this up even before GreenHat became public,” he said.

MISO staff have said the RTO will continue to examine its credit practices after the new rules take effect. The RTO plans to file the proposal with FERC by the end of the year.

“I don’t think the book will ever be closed on FTR improvements. At any given time, the market can change, and we will certainly re-evaluate and reopen this, if need be,” Brown told stakeholders at the Market Subcommittee meeting last month.