New FTR Auction Model Would Help Mitigate Portfolio Risk

Markets & Reliability Committee also hears first read of issue charge addressing ‘end-of-life’ transmission planning


The frequency of long-term Financial Transmission Rights (FTR) auctions would increase to five times per year from three to strengthen protection from potential default under a proposal presented Oct. 31 to the Markets & Reliability Committee.

The recommendation is the first to come out of the Financial Risk Mitigation Senior Task Force, which has met 10 times since May in its mission to identify credit policy and market rule reforms and devise a plan for their implementation to be submitted to the PJM Board of Managers.

The PJM-stakeholder collaboration grew out of an independent report commissioned by the Board to investigate the default last year of trader GreenHat Energy LLC.

Review’s Recommendation

The proposal encapsulates one recommendation of the review, which noted that the infrequency of auctions delayed assessments of the forward value of the FTR market. More frequently held auctions would update portfolio valuation more often, providing better indicative pricing.

The package presented Thursday was favored by 75 percent of participants in the senior task force. Polling of that group also indicated 78 percent support for making a change to the auction process.

In association with increasing the frequency of long-term auctions, the plan would reduce the residual capability available each round to 20 percent from 33.33 percent, said Brian Chmielewski, manager – Market Simulation.

Mitigating Risk

Both changes aim to more frequently value outstanding FTRs to help ensure market participants are posting the proper amount of collateral.

In addition, the proposal addresses the structure of the Balance of Planning Period FTRs auctions, changing the available periods from any three individual future months or a remaining full quarter to any individual month remaining in the planning period.

This approach is being recommended to maximize pricing information, provide more granular modeling and allow more time to analyze results.

The new rules, if endorsed at the next meeting, would be targeted for a May implementation, Chmielewski said.

More Changes to Come

More proposals from the senior task force will be forthcoming, as it aims to wrap up its work early in the first quarter of 2020, he said. The other three tracks involve updates to:

  • Credit and risk management rules
  • Market participant eligibility
  • Stakeholder process

The group is being guided by PJM’s new Chief Risk Officer, Nigeria Poole Bloczynski.

In considering the market rules track, the group decided to limit its scope to risk mitigation and leave a holistic market review to be conducted next year by a new task force to be created under the Market Implementation Committee.

David Anders, director – Stakeholder Affairs, and Stu Bresler, senior vice president – Market Services. Bresler was named as the new chair of the MRC.

End-of-Life Issue Charge

Also on Thursday, the Markets & Reliability Committee considered a first read of an issue charge whose subject matter has been the fodder for ongoing stakeholder discussion: end-of-life planning for transmission assets.

Titled Transparency and End-of-Life Planning, the issue charge is being brought by American Municipal Power and Old Dominion Electric Cooperative.

“This work is intended to develop specific governing document language to establish PJM criteria that will apply to all transmission projects that address end-of-life drivers on PJM Tariff transmission assets, address planning horizon requirements and improve overall transparency, consistency and clarity in the PJM planning process,” according to the document.

Grid Is Aging

Its accompanying problem statement noted that much of the infrastructure in PJM is older than 50 years, and that the majority of supplemental projects proposed last year had end-of-life drivers.

Some members representing load and customer interests voiced support for the review, which would be conducted in special-session meetings of the committee. Others representing transmission owners said the Federal Energy Regulatory Commission has made it clear that the responsibility for such projects falls to the transmission owners.

Ken Seiler, vice president – Planning, noted that an Oct. 4 letter from Dean Oskvig, who chairs the PJM Board of Managers’ Reliability Committee, outlined PJM’s position on supplemental projects.

PJM Has Clear Focus

PJM will focus within its authority to enhance transparency in supplemental projects while respecting FERC’s Order 1000 competitive process, he said.

“We will not be put into a position to do condition assessment or make asset-management-type decisions,” Seiler said. “We certainly don’t have the capability or authority to do that. But we but do believe we have some solution space here in working this problem.”

The next meeting of the Markets & Reliability Committee is Dec. 5, under the new chairmanship of Stu Bresler, senior vice president – Market Services. He takes the place of Denise Foster, former vice president – State & Member Services, whose last day with PJM was Oct. 31.