On March 20, 2025, FERC approved Southwest Power Pool, Inc.’s (“SPP”) tariff revisions to incorporate a mark-to-auction collateral requirement for SPP’s Transmission Congestion Rights (“TCR”) market. In doing so, FERC found the revisions will mitigate market risk caused by market participants’ declining TCR values. However, the Commission declined SPP’s request to terminate the related ongoing show cause proceeding because the proposed tariff does not fully address the Commission’s concerns.
On July 28, 2022, the Commission issued a show cause order indicating that SPP and several other regional transmission organizations and independent system operator tariffs appear unjust and unreasonable because they lack certain credit risk management practices (“2022 Show Cause Order”). FERC found the tariffs lacking in: (1) mark-to-auction mechanisms for the calculation of financial transmission right (“FTR”) collateral requirements, and (2) volumetric minimum collateral requirements for FTR market participants. (see August 8, 2022 edition of the WER).
SPP responded to the 2022 Show Cause Order, arguing that a mark-to-auction mechanism is ineffective when applied to SPP’s TCR auction design and that it has implemented credit policy reforms that provide effective protections. On September 21, 2023, the Commission issued an order on the 2022 show cause proceeding (“2023 Show Cause Order”), continuing to find that SPP’s tariff appears unjust and unreasonable and directing SPP to show cause as to why its Tariff is just and reasonable absent a mark-to-auction collateral requirement or comparable alternative. (see September 28, 2023 edition of the WER).
On November 20, 2023, SPP moved to hold the 2023 show cause proceeding in abeyance to allow SPP time to file tariff revisions to address the Commission’s concerns in the 2022 and 2023 Show Cause Orders. After the 2023 Show Cause Order, SPP reevaluated the use of a mark-to-auction mechanism, and on August 28, 2024, SPP filed tariff revisions to incorporate a mark-to-auction collateral requirement for its TCR market. The mark-to-auction mechanism in the TCR market updates the collateral requirements for TCR portfolios based on the most recent Auction Clearing Prices from annual and monthly TCR auctions. In its proposal, SPP argued that the tariff revisions directly respond to the 2023 Show Cause Order, and thus requested that the Commission terminate the 2023 Show Cause Order proceeding.
FERC accepted SPP’s tariff revisions, finding they appropriately assess collateral requirements for TCRs acquired during annual and subsequent monthly auctions. FERC concluded that the revisions improve SPP’s approach to managing credit risk by considering market expectations of future TCR values, thus preventing market participants from exposing the market to additional risks due to declining TCR values. However, FERC declined SPP’s request to terminate the ongoing 2023 show cause proceeding, reasoning that even though SPP’s proposal includes just and reasonable reforms to allow for the re-marking of monthly TCRs acquired in the annual TCR auction, the proposal does not fully address the increased risk of default from a declining TCR portfolio.
FERC’s order, issued in Docket No. ER24-2906, can be found here.
FERC’s 2022 Show Cause Order, issued in Docket No. EL22-62, can be found here.
FERC’s 2023 Show Cause Order, issued in Docket No. EL22-65, can be found here.
