At a special meeting of the Markets & Reliability Committee on Aug. 10, PJM and stakeholders formally began discussions on options for potential liquidation of the FTR positions on which GreenHat Energy, LLC defaulted.
The meeting followed in the wake of PJM’s June 21 declaration that GreenHat, a financial transmission rights (FTR) market participant, was in default for not paying its $1.7 million weekly PJM invoice (issued June 5, 2018).
Financial transmission rights allow market participants to offset (hedge) the price risk of delivering energy in the Day-Ahead Energy Market. FTRs are a financial contract entitling the FTR holder to a stream of revenues (or charges) based on the hourly congestion price difference in the Day-Ahead Market from a specified source to a specified destination. They give market participants the ability to attain a better price certainty.
On July 26, PJM filed a waiver request with the Federal Energy Regulatory Commission asking that PJM only be required to attempt to liquidate the FTR positions in the defaulted portfolio for one month forward in each of the FTR auctions to be conducted from July 2018 through October 2018.
The waiver request came about because of the potential financial impact to members from liquidating FTR positions beyond the forward one-month period using the existing liquidation process. PJM requested the waiver for a four-month period to allow time for PJM’s members to determine whether to seek any revisions to the current FTR liquidation process.
Suzanne Daugherty, senior vice president, CFO and treasurer, outlined an initial list of 11 potential liquidation process options and took member feedback. The options ranged from status quo to rerunning all long-term FTR auctions without GreenHat bids.
Several stakeholders also presented ideas and said they would work with PJM on how best to incorporate those suggestions into additional options before the Aug. 23 Markets & Reliability Committee meeting.
During the discussion on the factors and considerations for most of the options, stakeholders expressed some concern about risk and exposure in those options for potential changes to the FTR liquidation process, although whether members want to continue discussing any specific changes has not yet been finalized.
They also covered topics such as potential legal obligations and collateral retention should PJM members withdraw from PJM before they have paid all their charges related to this default.
On Aug. 23, members will vote on whether to approve a problem statement and issue charge indicating their preference between continuing discussion of FTR liquidation process options and retaining the current process.
Some members were concerned with the time frame of the next FTR auction and the Aug. 23 Markets & Reliability Committee meeting. Daugherty said there was no way to move up the meeting before the FTR auction. Instead, the September 2018 Balance of Planning Period FTR Auction bidding window will be postponed to not close until the day after the August MRC meeting.
The bidding window for the September 2018 FTR Auction will open Aug. 22 at midnight (Eastern Prevailing Time) and close Aug. 24 at 5 p.m. (Eastern Prevailing Time). The results will be posted on Aug. 31. Members should direct any questions to the FTRGroup@pjm.com .
The date change will accommodate the results of the voting on the draft problem statement and issue charge, as well as any other member motions that will define the path forward for the discussion of FTR liquidation process options.
PJM’s $40 billion markets have experienced a very limited number of defaults in 20 years. The current liquidation process was put in place 10 years ago, when PJM experienced the only material default for which it could not recover all of the defaulting member’s costs and was designed to quantify for members what their exposure would be as quickly as possible.
Updates can be found on the FTR page under FTR Portfolio Liquidation at PJM.com