PJM Updates Members at MIC Meeting

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At the Market Implementation Committee meeting Aug. 8, PJM updated stakeholders on its process for liquidating the positions associated with a financial transmission rights default in the wake of PJM’s declaring member GreenHat Energy, LLC in payment default on June 21, 2018.

In preparation for Friday’s Special Markets & Reliability Committee meeting on potential changes to the liquidation process, Suzanne Daugherty, senior vice president, CFO and treasurer, outlined the GreenHat default and steps going forward.

On July 26, PJM filed a waiver request with the Federal Energy Regulatory Commission asking that PJM be required to attempt to liquidate only FTR positions for one month forward in any of the FTR auctions to be completed in July 2018 through October 2018.

PJM’s waiver request reflects PJM’s decision that it was not prudent to liquidate the GreenHat FTRs in all the months in this FTR auction. Liquidating the significant volume of the portfolio at once could result in distorted FTR market outcomes that do not reflect expected Day-Ahead Market prices and would lock in significant losses to PJM members.

PJM requested the waiver be effective July 27, 2018.

This waiver is intended to allow PJM time to talk with the members, and file any changes to the current FTR liquidation process, if the members wish to do so, after PJM and stakeholder discussion. The first Special Markets & Reliability Committee meeting on the issue is Friday, Aug. 10.

The actual allocation of the default to members depends on the results of the upcoming FTR auctions in which the positions will be offered for liquidation. Daugherty pointed out that PJM cannot predict the final total default allocation assessment at this point based on future auction results.

The currently quantifiable portion of the default allocation assessment – representing actual net losses on the FTR portfolio for the months of June 2018 and July 2018 plus the costs to liquidate August 2018 positions – totals approximately $42 million.

PJM is continuing to post all pertinent information under FTR Portfolio Liquidation on the Financial Transmission Rights page on the pjm.com Markets and Operations page.

PJM has taken steps to enhance PJM’s credit policy to address this type of exposure, including a new FTR credit rule that took effect on April 1, 2018, and a minimum FTR credit requirement proposal that was endorsed by stakeholders on July 26 and filed with FERC requesting a Sept. 3, 2018, effective date.

Adam Keech, executive director – Market Operations, provided an update on recent spikes in regulation market clearing prices. Keech said that it has happened in about 0.3 percent of all 5-minute intervals in the last three months and it is difficult to predict whether or not it might happen again.

In 2017, stakeholders at the Markets & Reliability Committee passed a solution from the Regulation Market Issues Senior Task Force that would have eliminated the potential for the spikes. FERC rejected the change, and therefore stakeholders are left with these price spikes. If stakeholders would like to take the issue up again, Keech said PJM could bring forward a problem statement that would address a potential solution, which would include setting a minimum benefit level for a resource to clear.

Regarding the Capacity Market Capacity Performance Balancing Ratio, stakeholders endorsed PJM’s proposal (Proposal A), which reconfigures how the balancing ratio will be estimated in future default market seller offers.

The solution will take the average balancing ratios during the three delivery years immediately preceding the base residual auction using actual balancing ratios calculated during PJM’s performance assessment intervals of the delivery year.

In the event that any preceding delivery year has fewer than 360 RTO performance assessment intervals (30 hours), the estimated balancing ratios will be calculated during the intervals of the highest RTO peak loads that do not overlap a performance assessment interval.

The proposal now moves to the Markets & Reliability Committee on Aug. 23 for a vote. Proposals from the Industrial Customer Coalition, Exelon and Monitoring Analytics, PJM’s independent market monitor, did not receive the required 50 percent of the vote. Ms. Hendrzak noted that stakeholders had requested that the MRC vote on all alternatives.

Jeff Bastian, manager – Capacity Market Operations, reviewed the packages polling results from the Special Market Implementation Committee meetings on the Quadrennial Review. Stakeholders endorsed a proposal from Calpine (proposal C). All four of the proposals will move to the Aug. 23 MRC.

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