The Financial Risk Mitigation Senior Task Force is poised to vote on the first round of proposed changes to the administration of the Financial Transmission Rights Market as part of a PJM-stakeholder collaboration to strengthen credit policy and market rules.
Voting runs Sept. 10-17 on several proposals from PJM, stakeholders and the independent market monitor to revamp FTR market rules in the wake of a 2018 trader default.
The main distinction among the proposals is how often to hold the auctions, which currently are offered three times per year.
PJM is recommending five times per year, as is Perast Fund, an investment fund manager. Vitol, an energy and commodities company, has suggested six times. One stakeholder said at Thursday’s meeting that another proposal supporting monthly auctions might be forthcoming.
An independent report commissioned by the PJM Board of Managers to investigate the default of trader GreenHat Energy LLC last year noted that the infrequency of auctions posed a problem for risk analyses, due to lack of current information. Increasing the auction frequency would update portfolio valuation more often.
The independent market monitor’s proposal would eliminate the long-term FTR product.
One of Four Focus Areas
The task force is charged with identifying market rule reforms and devising a plan for their implementation to be submitted to the Board of Managers.
Its work is divided into four categories:
- Market rule updates
- Credit and risk management rule updates
- Membership qualification and process updates
- Stakeholder process changes
The results of the vote will inform the group’s first presentation to the Markets & Reliability Committee, scheduled for Oct. 31.
Subsequent senior task force votes on the remaining three categories are staggered and are expected to culminate in changes to be considered by the Members Committee at its December, January and February meetings.
Additional Discussion Papers Introduced
PJM has presented a number of discussion papers to guide the group’s work, and on Thursday, Chief Risk Officer Nigeria Poole Bloczynski introduced two more: Events of Default and Market Participation Termination and Establishing Financial Criteria Assessment and Credit Policy Enhancements for FTR Market Participation.
Bloczynski noted that some of the titles of the position papers have changed.
“Mostly, that has to do with scope,” she said. “We’re thinking about things more holistically than just the FTR market. Our goal is to provide you with a holistic proposal as relates to credit policy.”
Among the changes PJM recommends in the new papers is segmenting market participants into financial and non-financial, with the rationale that these groups carry different risk profiles.
In addition, PJM would establish a base capital minimum requirement from $500,000 to $5 million, to be determined by a participant’s risk profile.
“This serves as the beginning of a framework of putting goal posts around where the allocation of the default would actually lie,” Bloczynski explained. “It would be within the FTR participants.” The next two-day meeting of the Financial Risk Mitigation Senior Task Force is scheduled for Sept. 24, 1-4 p.m., and Sept. 25, 9 a.m.-4 p.m.
Previous PJM Discussion Papers
- Enduring Governance of PJM’s Financial Markets
- FTR Default Allocation and Central Counter-Party
- Position Limits and Liquidity Risk
- Variation Margin and Post-Auction Settlement
- Due Diligence & Assessment Criteria Process
- PJM Authorities and Discretion to Deny or Revoke Trading Rights
- Events of Default and Market Participation Termination
- Establishing Financial Criteria Assessment and Credit Policy Enhancements for FTR Market Participation