The Committee of Chief Risk Officers released its first draft of risk management standards for participation in organized electricity markets, a document the CCRO hopes independent system operators will use to comply with the Federal Energy Regulatory Commission’s credit reform order.

As part of its credit reform order, FERC directed the grid operators to establish systems for verifying that market participants are following appropriate risk management practices.

The CCRO, a non-profit coalition of energy industry risk officers, in August launched a working group to define risk management standards for the ISOs to use in their verification processes.

The working group released the first draft of those standards on Monday. The draft lays out 23 risk management standards that all companies participating in ISO markets should meet. The standards cover topics like defining risk tolerances, documenting control processes, ensuring proper training of employees and establishing a clear organizational structure.

While the CCRO was in the process of developing its standards, however, the ISOs struck out on their own, jointly developing a list of eight common principles to use in their verification processes.

The ISOs’ decision to craft their own standards came after several market participants raised concerns about the cost of joining the CCRO’s group — $750 per quarter for “observer” status or $12,000 per quarter for full “active” participation. In a November 18 stakeholder meeting, New York Independent System Operator officials said in a presentation that the decision was prompted by “timing, cost and process concerns with the CCRO efforts.”

But CCRO CEO Bob Anderson said he believes his organization’s standards have the ISOs’ joint principles beat in terms of specificity, a characteristic he believes will be necessary to make the verification process feasible.

“If you have a real vague eight paragraphs, there’s no way to verify anything,” Anderson said. “Those eight areas are roughly covered in the very first section [of our draft]. In our view they’re just too high level and too broad to be verifiable.”

Anderson also said that representatives from FERC and the Commodity Futures Trading Commission — which has indicated that risk management verification will be necessary for the ISOs to secure an exemption from CFTC oversight under the Dodd-Frank Wall Street Reform and Consumer Protection Act — have been following the CCRO’s working group. Those officials have indicated that standards must be verifiable and that anything too vague “isn’t going to fly,” according to Anderson.

“I think the CCRO paper is trying to represent truly creditable, auditable standards,” Anderson said.

The FERC-jurisdictional ISOs have all indicated that they will include the eight principles in their compliance filings on verification, which are due December 14. However, Anderson said that several grid operators — including the PJM Interconnection, ISO New England and the Electric Reliability Council of Texas — have indicated they will “look toward the CCRO” for more guidance.

PJM, which on Tuesday became the first ISO to submit a compliance filing on this issue, has included language in its proposed tariff changes noting that if risk management standards are developed “by a third-party industry association, such as the Committee of Chief Risk Officers, [PJM] may, following stakeholder discussion and with no less than six months prior notice to stakeholders, apply such principles.”

Anderson said the draft will be a major topic of discussion at the CCRO’s general meeting, which is being held in Washington Thursday and Friday (December 1-2). The CCRO will also be collecting comments from members through its website.

This Organizing Principles document will cover the objectives, background, goals, and guidelines for the Risk Management Standards within ISO Markets working group. Click below to download a PDF version of this document.

Download PDF Version

All CCRO members are designated Active Participant status. Companies that are not CCRO members but are interested exclusively in participation in this ISO Risk Management Standards working group may choose to participate according to the benefits which best suit their needs. There are two classes of participant in this working group; ACTIVE or OBSERVER.

Join Now If you are a current CCRO member, email membersupport@ccro.org to participate.

The benefits & costs to each are summarized in the following table:

For those that are registered for the ISO Standards Working Group, here are current activities expected of participants.

1. REVIEW AND MAKE ONLINE COMMENTS re the DRAFT Paper, now available HERE.
2. Participate in the weekly conference calls, Thursdays at 3 PM CST.
3. Listen to the podcasts of the calls you miss; they should be posted the next day.
   Any podcast relating to the ISO Standards group can be found on the group page, in the “related podcasts” panel in the sidebar.
4. Take part in group surveys, and leave constructive comments; below are links to current surveys.

Risk Management Standards


Minimum Requirements

The Committee of Chief Risk Officers (CCRO) has recently been asked to consider developing an industry-accepted set of standards, or perhaps more accurately, an industry-defined set of appropriate risk management guidelines that a market participant must have in order for a RTO to ascertain that the participant is able to appropriately risk-manage its positions. The CCRO has decided that it will take-on this challenge, and wishes to invite you to participate in its specialized working group, now coming together to commence this exciting industry initiative.

In response to the industry’s request, the CCRO is forming a specialized working group to develop an industry set of appropriate risk management standards and practices which can be used as the industry accepted criteria when verifying that the market participant’s internal risk management programs are appropriate to protect the markets from significant loss.

The CCRO is well suited to take up this challenge especially since it has been actively engaged in the Commission proceedings that have culminated in Order 741, as well as being involved in a separate, ongoing outreach with the ISO/RTOs and other key stakeholders and regulators with the PMC Panel. In this PMC Panel initiative, the CCRO proposed to the FERC that CCRO bring together a panel of experts to draft and publish much needed standards and best practices related to credit across power markets. The Panel’s mission has been to establish policies and methods that represent best practices for the advancement of healthy, growing power markets and increased effectiveness of risk management for the companies that participate in those markets.

The development of a set of industry standards can only be achieved if they are developed by a strong cross section of the industry participants. The CCRO envisions the new working group building on CCRO published work, and on the contributions from each of the RTOs and their market participants.

The CCRO is a diverse, international coalition of energy companies developing best practices to strengthen and standardize risk management and disclosure practices in the physical and financial trading and marketing of electricity and natural gas for investors, regulators, financial institutions and other energy companies. Compliance with CCRO’s best practice recommendations by its members is voluntary.

Bob Anderson

The CCRO and PJM Get Things Started

The CCRO has been asked to help ISO/RTO organizations to comply with FERC order 741, specifically as related to certification of participants risk management capabilities. PJM is the first of the ISO/RTO organizations to file with the FERC a policy which addresses verification of risk management capabilities found within the participants of their markets. Focusing particularly on the FTR markets, PJM calls for the CCRO to provide a paper documenting best risk management practices for market participants. In its filing, PJM states:

“As a general matter, PJM desires to test certifications of risk management capability against generally accepted standards, rather than being in the position of second-guessing market participants. PJM, hopefully in concert with other RTOs, therefore will engage the Committee of Chief Risk Officers to consider developing an industry-accepted set of standards applicable to risk control in FTR markets. PJM would then review certifications against such standards.”

A Unique Challenge to White Paper Development

This charges the CCRO with the distinct challenge of not only pulling-together a document laying-out the appropriate practices to be found in market participants, but also to ensure that such practices can be verified in a practical way for a large group of companies every year. This “certification” and the probable training components needed for market participants will both bring some unique context to this effort.

Initial discussions with CCRO Board and with the PMC Panel coordinators has resulted in CCRO plans to form a new working group to tackle the challenges.
The new group’s efforts will certainly include:

• Identifying the specific risk management topics and measurements that should be considered “in-scope”
• Pulling much from past published CCRO papers covering credit risk, liquidity risk, governance & compliance, * ERM and associated risk metrics, and more
• Accommodating the nuances of the specific markets that are subject
• Assuring that the practices advocated are readily verifiable with respect to a company’s effective use

Phil Gootee

Steve Kelly

The new working group will “kick-off” with a discussion at the August 4 General CCRO meeting in Washington DC. CCRO Contributors Phil Gootee and Steve Kelly will be coordinators for the group. Members should be sure to log-in to the CCRO website to check for more information about the group and its plans between now and then.

CCRO members are encouraged to sign-in as participants in the working group as it kicks off on August 4th. If you have any questions, feel free to contact CCRO, Phil Gootee or Steve Kelly for more information.

Click to download the PJM Filing document in full: PJM Filing with FERC
Click here to go to the group page.