Section 451

Section 451.220 Financial Qualifications under Subpart C

a) An applicant shall be deemed to possess sufficient financial resources to be certified as an ARES able to serve only nonresidential retail customers with annual electrical consumption in excess of 15,000 kilowatt hours if it meets any of the following criteria:

1) The applicant maintains at least one of the following commercial paper ratings: A-2 or higher from Standard & Poor's or its successor, P-2 or higher from Moody's Investors Service or its successor, or F-2 or higher from Fitch Ratings or its successor; or at least one of the following long-term credit ratings: BBB- or higher from Standard & Poor's or its successor, Baa3 or higher from Moody's Investors Service or its successor, or BBB- or higher from Fitch Ratings or its successor. The applicant shall provide with its application a copy of the ratings agency reports that present the ratings of the applicant.

2) The applicant maintains a borrowing agreement with an affiliate.

A) The affiliate must have at least one of the following commercial paper ratings: A-2 or higher from Standard & Poor's or its successor, P-2 or higher from Moody's Investors Service or its successor, or F-2 or higher from Fitch Ratings or its successor; or at least one of the following long-term credit ratings: BBB- or higher from Standard & Poor's or its successor, Baa3 or higher from Moody's Investors Service or its successor, or BBB- or higher from Fitch Ratings or its successor.

B) The amount of credit available to the applicant under the borrowing agreement shall be no less than the greater of $750,000 or 7.5% of the amount of the applicant's revenue for its most recently completed fiscal year. That amount of revenue must appear in the applicant's certified financial statements, or those of the applicant's parent, that have received an accountant's report that certifies those financial statements to be free of material misstatement. If the applicant is using the certified financial statements of its parent, the amount of credit available under the borrowing agreement shall be determined using the applicable revenue amount from the segment information section of the certified financial statements of the applicant's parent.

i) If the applicant is listed separately in the segment information section, the applicant's revenue shall be used.

ii) If the segment information section is broken down by operation, or other means, the revenue for the entire segment of which the applicant is part shall be used, unless a certified breakdown of the segment by company is provided.

C) The borrowing agreement shall be valid for a period of not less than one year.

D) The applicant shall provide a copy of the following:

i) The ratings agency reports that present the ratings of the affiliate with which the applicant maintains the borrowing agreement;

ii) The borrowing agreement;

iii) The applicant's certified financial statements or those of the applicant's parent, as applicable; and

iv) The accountant's report for the applicant's certified financial statements or those of the applicant's parent, as applicable.

3) The obligations of the applicant to unaffiliated companies arising from the acquisition of electric energy that can be delivered to retail customers in the State of Illinois, for sale or lease or in exchange for other value received, are covered under guarantee, payment bond, or letter of credit.

A) The guarantee, payment bond, or letter of credit shall be in an amount that is no less than the greater of $750,000 or 7.5% of the amount of the applicant's revenue from the sale of electric energy for the most recently completed fiscal year. That amount of revenue must appear in the applicant's certified financial statements, or those of the applicant's parent, that have received an accountant's report that certifies those financial statements to be free of material misstatement. If the applicant is using the certified financial statements of its parent, the amount of credit available under the borrowing agreement shall be determined using the applicable revenue amount from the segment information section of the certified financial statements of the applicant's parent.

i) If the applicant is listed separately in the segment information section, the applicant's revenue shall be used.

B) The guarantee, payment bond, or letter of credit shall be valid for a period of not less than one year.

C) Guarantee. The guarantor shall be an affiliate of the applicant that maintains at least one of the following commercial paper ratings: A-2 or higher from Standard & Poor's or its successor, P-2 or higher from Moody's Investors Service or its successor, or F-2 or higher from Fitch Ratings or its successor; or at least one of the following long-term credit ratings: BBB- or higher from Standard & Poor's or its successor, Baa3 or higher from Moody's Investors Service or its successor, or BBB- or higher from Fitch Ratings or its successor. The guarantee shall obligate the guarantor to make contractually required payment, net of set-offs for any amounts owed to the applicant, to the supplier for services rendered or power supplied in the event the applicant defaults. The applicant shall provide a copy of the following:

i) The ratings agency reports that present the ratings of the affiliate that is the guarantor;

ii) The guarantee;

iii) The applicant's certified financial statements or those of the applicant's parent, as applicable, including the accountant's report. If the amount of the guarantee is without dollar limitation, neither the applicant's certified financial statements, nor those of the applicant's parent, are required.

D) Payment Bond. An applicant using a payment bond or payment bonds shall provide a copy of the following:

i) The payment bonds;

ii) The certified financial statements of the applicant or those of the applicant's parent, as applicable; and

iii) The accountant's report for the certified financial statements of the applicant or those of the applicant's parent, as applicable.

E) Letter of Credit. The letter of credit shall be irrevocable and issued by a financial institution with a long-term obligation rating of A- or higher from Standard & Poor's or its successor, A3 or higher from Moody's Investors Service or its successor, or A- or higher from Fitch Ratings or its successor. The applicant shall provide a copy of the following:

i) The letter of credit;

ii) The ratings agency report that presents the long-term obligation rating of the financial institution extending the credit;

iii) The certified financial statements of the applicant or those of the applicant's parent, as applicable; and

iv) The accountant's report for the certified financial statements of the applicant or those of the applicant's parent, as applicable.

F) This option is only available to an applicant that will engage in activities that could result in the applicant holding an ownership interest in or taking title to electric energy for the purpose of sale or resale to Illinois retail customers.

4) The applicant certifies that it will offer to reimburse its Illinois retail customers for the additional costs those customers incur to acquire electric energy as a result of the applicant's failure to comply with a contractual obligation to supply such energy. The applicant's prospective obligation to reimburse Illinois retail customers shall be covered by an unconditional guarantee, payment bond, or letter of credit. Any dollar limitation on the unconditional guarantee, payment bond, or letter of credit shall equal not less than the product of 1080 times an estimate of the maximum number of megawatts the applicant expects to schedule over the next twelve months times the average of the 45 highest daily market prices of electric energy traded during the previous year. Each January, the Commission shall choose a published price index for electricity for use in this subsection (a)(4). The daily market price of electric energy shall equal the published price index for electricity traded in Illinois, except in the event that no price index for electricity traded in the State of Illinois is published, then the daily market price of electricity shall be determined by the use of a published price index for electricity traded at the nearest location to the State of Illinois. The unconditional guarantee, payment bond, or letter of credit shall be valid for a period of not less than one year. In the alternative, an applicant may elect to calculate its prospective obligation by certifying to the Commission a good faith estimate of the total megawatt hour consumption for the calendar year in which the filing is made. Such estimate shall be a product of multiplying the estimated maximum number of megawatts by 8760 hours, by the estimated average load factor, by one-tenth the per megawatt hour Market Value of Energy Charge established by operation of the Market Value Index (MVI) tariff for the utility service territory in which the customers are served. In making a good faith estimate of the load factor to be used in the calculation, the applicant may rely either on the average load factor of its customers in the prior year or the average load factor for all non-residential customers within the utility service territory or a good faith estimate by the applicant of the prospective load factor of its customers for the applicable period. This option is only available for ARES seeking to serve non-residential customers in service territories that have purchase power option (PPO)-MVI tariffs in effect. The unconditional guarantee, payment bond, or letter of credit shall be valid for a period of not less than one year.

A) Unconditional Guarantee. The guarantor shall be an affiliate of the applicant that maintains at least one of the following commercial paper ratings: A-2 or higher from Standard & Poor's or its successor, P-2 or higher from Moody's Investors Service or its successor, or F-2 or higher from Fitch Ratings or its successor; or at least one of the following long-term credit ratings: BBB- or higher from Standard & Poor's or its successor, Baa3 or higher from Moody's Investors Service or its successor, or BBB- or higher from Fitch Ratings or its successor. The applicant shall provide a copy of the following:

i) The ratings agency reports that present the ratings of the affiliate that is the guarantor;

ii) The unconditional guarantee; and

iii) A good faith estimate of the peak amount of MW the applicant will schedule during the remainder of the current calendar year or, in the alternative, a good faith estimate of the megawatt hour consumption of its customers during the calendar year.

B) Payment Bond. The payment bond or payment bonds shall be issued by a qualifying surety authorized to transact business in the State of Illinois or by a surety whose Best's rating is A- or better and whose Best's financial size category is VII or larger, and whose contract of insurance is issued pursuant to Section 445 or 445a of the Illinois Insurance Code and countersigned by the Surplus Line Association of Illinois or its successor. The applicant shall provide a copy of the following:

i) The payment bonds or the contract of insurance with the countersignature of the Surplus Line Association of Illinois or its successor as applicable; and

ii) A good faith estimate of the peak amount of MW the applicant will schedule during the remainder of the current calendar year or, in the alternative, a good faith estimate of the megawatt hour consumption of its customers during the calendar year.

C) Letter of Credit. The letter of credit shall be irrevocable and issued by a financial institution with a long-term obligation rating of A- or higher from Standard & Poor's or its successor, A3 or higher from Moody's Investors Service or its successor, or A- or higher from Fitch Ratings or its successor. The applicant shall provide a copy of the following:

i) The letter of credit;

ii) The ratings agency report that presents the long-term obligation rating of the financial institution extending the credit; and

5) The applicant maintains a line of credit or revolving credit agreement.

A) The line of credit or revolving credit agreement must be from a financial institution with a long-term obligation rating of A- or higher from Standard & Poor's or its successor, A3 or higher from Moody's Investors Service or its successor, or A- or higher from Fitch Ratings or its successor.

B) The amount of the line of credit or revolving credit agreement shall be no less than the greater of $750,000 or 7.5% of the amount of the applicant's revenue for the most recently completed fiscal year. That amount of revenue must appear in the applicant's certified financial statements, or those of the applicant's parent, that have received an accountant's report that certifies those financial statements to be free of material misstatement. If the applicant is using the certified financial statements of its parent, the amount of credit available under the borrowing agreement shall be determined using the applicable revenue amount from the segment information section of the certified financial statements of the applicant's parent.

i) If the applicant is listed separately in the segment information section, the applicant's revenue shall be used.

C) The line of credit or revolving credit agreement shall be valid for a period of not less than one year.

D) The applicant shall provide a copy of the following:

i) The line of credit or revolving credit agreement;

ii) The ratings agency report that presents the long-term obligation rating of the financial institution extending the credit;

iii) The applicant's certified financial statements or those of the applicant's parent, as applicable; and

iv) The accountant's report for the applicant's certified financial statements or those of the applicant's parent, as applicable.

6) The applicant earns 12 points on the financial ratios set forth in subsection (a)(6)(A):

A) Financial Ratios

i) Pre-Tax Interest Coverage (rounded to the nearest 0.1)

4.4 or above: 5 points

3.9 to 4.3: 4 points

3.4 to 3.8: 3 points

2.9 to 3.3: 2 points

2.4 to 2.8: 1 point

2.3 or below: 0 points

ii) Funds from Operations Interest Coverage (rounded to the nearest 0.1)

4.9 or above: 5 points

4.4 to 4.8: 4 points

3.9 to 4.3: 3 points

3.4 to 3.8: 2 points

2.9 to 3.3: 1 point

2.8 or below: 0 points

iii) Funds from Operations to Total Debt (rounded to the nearest 1%)

38% or above: 5 points

33% to 37%: 4 points

28% to 32%: 3 points

23% to 27%: 2 points

18% to 22%: 1 point

17% or below: 0 points

iv) Total Debt to Total Capitalization (rounded to the nearest 1%)

50% or below: 5 points

51% to 53%: 4 points

54% to 56%: 3 points

57% to 59%: 2 points

60% to 62%: 1 point

63% or above: 0 points

B) The applicant shall provide the following:

i) The applicant's certified financial statements for its most recently completed fiscal year;

ii) The accountant's report for the applicant's certified financial statements; and

iii) A schedule showing the calculation of each financial ratio with a reference to the applicant's certified financial statements provided for each input of the calculation.

b) An applicant that does not either meet or qualify for certification under any of the criteria set forth in subsection (a) shall describe its financial resources and explain why those financial resources are sufficient for the goods and services it seeks to provide. If the applicant's financial resources are not sufficient for the services it seeks to provide or if the financial documents do not otherwise establish that the applicant possesses adequate financial resources to provide the service for which it seeks a certificate of service authority, the Commission shall deny granting that certificate of service authority. In its application, the applicant shall provide the following:

1) An explanation of how its supporting documentation demonstrates that its financial resources are sufficient for the goods and services it seeks to provide; and

2) The applicant's certified financial statements, or those of its parent if the segment information contained in the parent's financial statements is sufficiently detailed to establish the adequacy of the applicant's financial resources, and accountant's report. If the applicant does not have certified financial statements and an accountant's report, the applicant shall provide all of the following:

A) A balance sheet that reflects the applicant's current financial condition and includes a statement of assets, liabilities and owner's equity;

B) An income statement that reflects the applicant's current earnings. If the applicant has not yet started operations, it shall provide a projected income statement;

C) A listing of shareholders, owners, partners or proprietors with ownership interests in excess of 5% and the amount of their respective ownership interests;

D) A listing of any entities with which the applicant expects to enter into a contract within the next 12 months concerning the provision of electric power or energy, or the delivery or furnishing of electric power or energy, to retail customers;

E) Copies of all contracts with outside contractors and with all affiliated entities concerning the provision of electric power or energy, or the delivery or furnishing of electric power or energy, to retail customers;

F) A projected budget for the next three fiscal years following the current year; and

G) If available:

i) Unaudited financial statements (for the most recent period available) including any compilation or review opinions;

ii) The most recent federal and state income tax return;

iii) General ledgers for the most recent 12 month period available; and

iv) The applicant's Dun & Bradstreet Business Information Report.

c) An applicant that will provide electric power and energy with property, plant, and equipment that it owns, controls, or operates shall have in force, and provide proof that it has in force, general liability insurance that shall remain in effect for a period of not less than one year.

1) The applicant shall be deemed to have sufficient commercial general liability insurance if that coverage is in the amount of at least $100,000,000. The commercial general liability insurance must be maintained with insurance companies assigned Best's ratings of A- or better and Best's financial sizes of VII or larger.

2) The applicant shall provide a certificate of insurance as part of its application for certification. If the applicant or ARES renews or makes changes in its insurance coverage, the insurance coverage must be continuous and without interruption. The certificate of insurance and the insurance policies shall contain a provision that coverage afforded under the policies shall not be cancelled, allowed to expire, or subjected to a reduction in the limits in any manner unless at least 30 days prior written notice (10 days notice in the case of nonpayment of premium) has been given to the Commission.

3) Applicants having commercial general liability insurance coverage in an amount that is less than $100,000,000 shall explain why that insurance is sufficient for the coverage of losses caused by any act or omission of the applicants or of their employees, contractors, or other agents, in the conduct of the applicants' business. If the applicant's insurance coverage is deemed insufficient or if the documents it supplies do not otherwise establish that the applicant possesses adequate insurance coverage, the Commission shall deny granting a certificate of service authority. With its explanation, the applicant shall describe the factors it considered in establishing the amount of its commercial general liability insurance coverage. In addition, the applicant shall describe the age, capacity, and fuel of the electric power production plant and the amount of its annual revenues and assets and number of employees.

(Source: Expedited Correction at 26 Ill. Reg. 15115, effective May 1, 2002)