2020 in Review: Risk Management Remains a Focus at PJM


Advancing risk management practices is a core concept at PJM in support of reliable operations, markets and planning. While PJM continued to strengthen its financial risk mitigation infrastructure in 2020, the ongoing COVID-19 pandemic provided many opportunities to grow and share best risk practices for operations, too.

Comprehensive Market Action

In recent years, reducing financial risk to PJM and market participants has continued as a particular focus via the Financial Risk Management Senior Task Force (FRMSTF). In a set of key reforms, changes to Financial Transmission Rights (FTR) auction rules crafted by PJM and its stakeholders were approved in April by the Federal Energy Regulatory Commission (FERC).

Those approved changes included an increase in auction frequency, improvements in technological capabilities and enhanced protection from potential defaults.

The task force also continued to discuss reforms of FTR liquidation procedures, initial margin requirements for market participants and proposals around the potential for outsourcing the clearing of the FTR Market.

Moving beyond the limited charter of the FRMSTF, PJM and its stakeholders elevated and broadened the market risk conversation with the creation of the new standing Risk Management Committee, which will meet monthly.

Beginning with its inaugural meeting on Jan. 26, the Risk Management Committee will report to the Markets & Reliability Committee. In meetings, stakeholders will:

  • Consider and recommend changes to the PJM governing documents and manuals on credit and associated risk management principles
  • Provide credit and associated risk management expertise to the PJM stakeholder process
  • Consider matters relating to the financial and market-driven risk exposures faced by PJM members and the management of those risks

Operations Risk Mitigation

PJM and its members also responded to the risks and challenges brought by the COVID-19 pandemic. PJM worked with member companies and industry partners through the Electric Subsector Coordinating Council (ESCC), which serves as the principal liaison between the federal government and the electric power industry, to develop and implement new strategies to mitigate the impact of COVID-19 on system operations.

While shifting to a work-from-home posture for most employees, PJM also took a number of on-campus measures to protect the critical personnel remaining on campus, including a small group of operators who have been periodically sequestered on-site. These included social distancing measures, expanded cleaning, revised shift schedules and temperature kiosks.

PJM shared its evolving best practices in July at a FERC technical conference on COVID-19 and its impacts to the industry.

Cybersecurity risks rose alongside the pandemic throughout the year.

Cybersecurity: Info Sharing is Crucial

PJM shared its cybersecurity perspectives in August before the U.S. Senate Committee on Energy & Natural Resources. In testimony, PJM’s Thomas F. O’Brien, Senior Vice President and Chief Information Officer, discussed the importance of collaboration with stakeholders and industry partners. Timely information sharing is critical, he added, for learning, understanding and appreciation of adversaries. This collaboration continued through the suspected cyberattacks on government and private targets in December.

Amid these operational risks, PJM continues to maintain normal operations, planning and market functions while working with its partners to share the most up-to-date information on system threats and best practices.