PJM to Examine FTR Auction After FERC Order


PJM and its members will face numerous complications as they navigate the uncharted territory presented by the recent order on Financial Transmission Rights (FTR) issued by the Federal Energy Regulatory Commission (FERC), PJM said Wednesday.

On Jan. 30, FERC denied PJM’s request for a temporary waiver of certain Financial Transmission Rights  auction rules in connection with the GreenHat default in June 2018. PJM has stated its intention to seek a stay and rehearing and/or clarification from FERC.

The waiver request was filed as part of a package of what PJM has said were appropriate and necessary steps implemented last year, in the public interest, to mitigate already considerable harm to members and consumers from the June 2018 default of GreenHat Energy LLC.

In a presentation to the Market Implementation Committee on Wednesday, PJM expressed its disappointment in FERC’s decision to deny the waiver request. FERC’s order would require PJM to rerun the FTR auction conducted in July 2018, which carries with it a set of complex consequences.

Chris O’Hara, vice president and deputy general counsel, noted that the waiver request was based on FERC precedents.  

“We had noticed that market dysfunction was occurring,” said O’Hara, “and we thought it appropriate to bring the dysfunction to FERC’s attention, because further liquidation certainly would have resulted in rates that were unjust and unreasonable.”

The order requires PJM to rerun the cleared August 2018 FTR auction that was conducted in July and to replace the results with the auction results that would have included consideration of the liquidation offers for the FTR positions from the GreenHat portfolio for August 2018 through May 2019, instead of just August 2018.

The order also directs PJM to recalculate the default allocation assessments made to date for GreenHat FTRs that went to settlement during the period of September 2018 through January 2019 if those FTRs get liquidated when the FTR auction conducted in July 2018 is rerun. PJM will need clarification before it can undertake to revise multiple months’ settled results due to intervening rule changes.

In a message to members last week, PJM said that the projected impact of this order would:

  • Materially and unnecessarily increase the total default allocation assessments to members by a preliminarily estimated range of $250 million to $300 million, resulting in a revised total default reference of at least $430 million
  • Likely place a number of members in breach of their collateral requirements of PJM’s credit policy and require them to fulfill a collateral call within two business days based on the unanticipated changes in the positions in members’ FTR portfolios that would result from changing the cleared results of the auction conducted in July 2018
  • Require PJM to resettle every FTR portfolio impacted by rerunning and revising prior cleared FTR auction results

O’Hara said PJM will file a request for rehearing and/or clarification to present the most effective arguments to FERC. PJM also plans to file a motion to stay the order, at least until the request for rehearing/clarification is ruled upon.  


O’Hara said PJM has a convincing case for clarification by FERC, pointing out that stakeholders have passed and PJM has filed several credit rule changes since the auction conducted in July.

Tim Horger, director – Energy Market Operations, said that PJM will be exploring new ground, since it has never rerun an auction. He said it will take some time to determine all the implications. There are potential violations of the Tariff and Operating Agreement as well as reviews of what specifically from August 2018 through May 2019 would be liquidated if the auction conducted in July 2018 is rerun.

Other concerns revolve around dealing with the sale of positions that members acquired in the FTR auction conducted in July 2018, based on the cleared auction result at that time. If the members sold those positions, the original positions may no longer exist after the rerun of the FTR auction conducted in July 2018, and selling something that doesn’t exist is a violation of FTR ownership requirements in PJM’s governing documents.


Suzanne Daugherty, senior vice president, CFO and treasurer, said that once PJM decided to file the waiver request in July 2018, it focused solely on liquidating the August 2018 positions. Now, PJM is in the position of needing to examine bid and offer data from the ensuing months to determine how the then-applicable FTR liquidation rules would apply to the August 2018 through May 2019 FTR positions that would need to be considered for liquidation if PJM ends up having to rerun the FTR auction conducted in July 2018.

She cautioned that preliminary potential liquidation cost increases in the default allocation assessment charges are reference points, but not projections, of what actual liquidation cost increases to the default allocation assessment may be.

PJM will provide an update to members on the potential default allocation assessment impacts as soon as it has completed a detailed review of what possible revised results might be for the FTR auction conducted in July 2018.